<PAGE>
As filed with the Securities and Exchange Commission on September 11, 1995
Registration No. 33-61597
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
Amendment No. 1 to
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
C-TEC CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 4813 23-2093008
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification No.) Identification No.)
incorporation)
105 Carnegie Center
Princeton, NJ 08540
(609) 734-3700
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
_______________________
RAYMOND B. OSTROSKI, ESQ.
Executive Vice President and General Counsel
105 Carnegie Center
Princeton, NJ 08540
(609) 734-3803
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------------
Copies to:
FRANCIS J. MORISON, ESQ. JAMES H. CARROLL, ESQ.
Davis Polk & Wardwell Morgan, Lewis & Bockius
450 Lexington Avenue One Commerce Square
New York, New York 10017 417 Walnut Street
(212) 450-4000 Harrisburg, PA 17101
(717) 237-4036
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of this Registration Statement and upon
consummation of the merger of Buffalo Valley Telephone Company with and into a
subsidiary of the Registrant described in the enclosed Proxy
Statement/Prospectus.
If the 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. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended, other than securities offered only in
connection with dividend or interest reinvestment plans, check the following box
[X].
______________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Title of each class of Total amount to Additional Proposed maximum Proposed maximum Amount of
securities to be be registered (1) amount included offering price per aggregate offering additional
registered in this filing unit(1) price of additional registration fee(2)
units(1)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
C-TEC Series AA 453,500 shares 1,500 $61.00 $91,500 $32.00
Convertible Preferred
Stock, par value $61.00
per share.................
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(2) A registration fee of $9,508 was previously paid in connection with the
initial filing of the Registration Statement covering 452,000 shares.
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, as amended or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to such Section
8(a), may determine.
================================================================================
<PAGE>
C-TEC CORPORATION
Cross-Reference Sheet
<TABLE>
<CAPTION>
Item Number Location in Proxy
in Form S-4 Statement/Prospectus
----------- --------------------
<S> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of Prospectus..................................... Facing Page; Cross-Reference Sheet;
Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus............................................................ Available Information; Incorporation
of Documents by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings-to-Fixed Charges and
Other Information.............................................................. Cover Page of Proxy
Statement/Prospectus; Summary; Risk
Factors
4. Terms of the Transaction....................................................... Notice of Special Meeting of
Shareholders; Summary; The Merger;
Description of Capital Stock of
C-TEC; Comparison of Shareholder
Rights
5. Pro Forma Financial Information................................................ Summary; Unaudited Pro Forma
Consolidated Financial Statements
6. Material Contacts with the Company Being Acquired.............................. The Merger
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to Be Underwriters.................... *
8. Interests of Named Experts and Counsel......................................... Legal Opinions; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities................................................. *
10. Information with Respect to S-3 Registrants................................... *
11. Incorporation of Certain Information by Reference............................. Incorporation of Documents by Reference
12. Information with Respect to S-2 or S-3 Registrants............................ *
13. Incorporation of Certain Information by Reference............................. *
14. Information with Respect to Registrants Other Than S-3
or S-2 Registrants............................................................ *
15. Information with Respect to S-3 Companies..................................... *
16. Information with Respect to S-2 or S-3 Companies.............................. *
17. Information with Respect to Companies Other Than S-3
or S-2 Companies.............................................................. Summary; Business of BVT; Management's
Discussion and Analysis of Financial
Condition and Results of Operations of BVT;
Security Ownership of Certain Beneficial
Owners and Management of BVT
18. Information if Proxies, Consents or Authorizations are
to be Solicited............................................................... Notice of Special Meeting of
Shareholders; Cover Page of Proxy
Statement/Prospectus; Summary; The
Meeting; The Merger; Incorporation
of Documents by Reference
19. Information if Proxies, Consents or Authorizations are
not to be Solicited or in an Exchange Offer................................... *
</TABLE>
------------------------------------
* Omitted because the item is inapplicable or the answer thereto is negative.
<PAGE>
September __, 1995
Dear Shareholder:
We invite you to attend a Special Meeting (the "Meeting") of Shareholders
of Buffalo Valley Telephone Company ("BVT"), to be held at the Country
Cupboard Inn, Route 15 North, Lewisburg, Pennsylvania 17837 on Saturday,
October 28, 1995 at 2:00 p.m., local time.
At the Meeting, shareholders will be asked to consider and vote upon
approval of the Agreement and Plan of Merger dated as of May 10, 1995 (the
"Merger Agreement") among BVT, C-TEC Corporation ("C-TEC") and BVT Merger
Corporation, a wholly owned subsidiary of C-TEC ("Merger Sub"). Pursuant to
the Merger Agreement, BVT would be merged (the "Merger") with and into Merger
Sub, with Merger Sub being the surviving corporation. In connection with the
Merger and as more fully described in the accompanying Proxy
Statement/Prospectus, each share of BVT common stock, without par value (the
"BVT Common Shares"), outstanding as of the effective time of the Merger will
be converted into and become a right to receive either (i) cash in the amount
of $61.00 (the "Cash Merger Consideration"), or (ii) one share of C-TEC Series
AA Convertible Preferred Stock, par value $61.00 per share ("C-TEC Series AA
Preferred Shares") of C-TEC (the "Stock Merger Consideration"). Shareholders
of BVT will be entitled to elect to receive the Cash Merger Consideration or
the Stock Merger Consideration with respect to shares held by them, but such
elections will be subject to allocation procedures, described more fully in
the accompanying Proxy Statement/Prospectus, such that the number of BVT
Common Shares which will be converted into Stock Merger Consideration will
equal a specified percentage of all outstanding BVT Common Shares (the "Stock
Percentage"). The Stock Percentage, as determined by C-TEC, will be 50% or,
if larger, the minimum percentage necessary for the Merger to qualify as a
tax-free exchange for federal income tax purposes. C-TEC anticipates that the
Stock Percentage will be no more than 50.5%.
Your attention is directed to the attached Proxy Statement/Prospectus
which contains a more complete description of the terms of the Merger and
provides detailed financial, business and other information concerning BVT and
C-TEC.
In order to assist shareholders in understanding the proposed transaction
with C-TEC, BVT will hold an informal informational meeting prior to the
formal shareholder vote at the Meeting in October. This informational meeting
will be held on Saturday, September 30, 1995 at 10:00 a.m., local time at the
Brynwood Inn, intersection of Routes 15 and 45, Lewisburg, Pennsylvania 17837.
Members of the BVT board of directors, BVT's financial advisor and legal
counsel, and representatives of C-TEC will be available at this informal
meeting to discuss the proposed transaction with you and answer any questions
you may have.
After careful consideration of the terms of the Merger Agreement, the
board of directors of BVT has determined that the Merger is in the best
interests of BVT and its shareholders. ACCORDINGLY, YOUR BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
It is very important that your shares be represented at the Meeting,
whether or not you plan to attend in person. The affirmative vote of a
majority of the BVT Common Shares present and entitled to vote at the Meeting
is required to approve the Merger Agreement. We urge you to execute, date and
return the enclosed proxy card in the enclosed postage-paid envelope as soon
as possible to assure that your shares will be voted at the meeting. On
behalf of the Board of Directors, we thank you for your support and urge you
to vote "FOR" approval of the Merger Agreement.
Sincerely,
James G. Apple
Chairman of the Board
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
20 South Second Street
Lewisburg, PA 17837
(717) 523-1211
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 28, 1995
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Meeting")
of Buffalo Valley Telephone Company ("BVT") will be held at the Country
Cupboard Inn, Route 15 North, Lewisburg, Pennsylvania 17837 on Saturday,
October 28, 1995 at 2:00 p.m., local time. A Proxy Card and a Proxy
Statement/Prospectus for the Meeting are enclosed. The Meeting is for the
purpose of considering and acting upon:
1. A proposal to approve the Agreement and Plan of Merger dated as of
May 10, 1995 (the "Merger Agreement") among BVT, C-TEC Corporation ("C-TEC")
and BVT Merger Corporation, a wholly owned subsidiary of C-TEC ("Merger Sub").
Pursuant to the Merger Agreement, and as more fully described in the
accompanying Proxy Statement/Prospectus, each outstanding share of BVT common
stock, without par value (the "BVT Common Shares") will be converted into and
become a right to receive either (i) cash in the amount of $61.00 (the "Cash
Merger Consideration"), or (ii) one share of C-TEC Series AA Convertible
Preferred Stock, par value $61.00 per share ("C-TEC Series AA Preferred
Shares"), of C-TEC (the "Stock Merger Consideration"). Shareholders of BVT
will be entitled to elect to receive the Cash Merger Consideration or the
Stock Merger Consideration with respect to shares held by them, but such
elections will be subject to allocation procedures, described more fully in
the accompanying Proxy Statement/Prospectus, such that the number of BVT
Common Shares which will be converted into Stock Merger Consideration will
equal a specified percentage of all outstanding BVT Common Shares (the "Stock
Percentage"). The Stock Percentage, as determined by C-TEC, will be 50% or,
if larger, the minimum percentage necessary for the Merger to qualify as a
tax-free exchange for federal income tax purposes. C-TEC anticipates that the
Stock Percentage will be no more than 50.5%.
2. A proposal to postpone or adjourn the Meeting to another time and/or
place for the purpose of soliciting additional proxies in the event that there
are not sufficient votes at the time of the Meeting to approve the Merger
Agreement.
3. Such other matters as may properly come before the Meeting or any
adjournment thereof.
Any action may be taken on any one of the foregoing proposals at the
Meeting on the date specified above, or on any date or dates to which, by
original or later adjournment, the Meeting may be adjourned. Pursuant to the
Bylaws of BVT, the Board of Directors has fixed the close of business on
September 8, 1995, as the record date for determination of the shareholders
entitled to vote at the Meeting and any adjournments thereof.
You are requested to complete, sign and date the enclosed proxy card,
which is solicited by the Board of Directors, and to promptly mail it in the
enclosed envelope. The giving of such proxy does not affect your right to
vote in person in the event you attend the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
David E. Lynn
Secretary
Lewisburg, Pennsylvania
September __, 1995
IMPORTANT: PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY. THE PROMPT
RETURN OF PROXIES WILL SAVE BVT THE EXPENSE OF FURTHER REQUESTS FOR PROXIES TO
ENSURE A QUORUM. AN ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
PROXY STATEMENT/PROSPECTUS
BUFFALO VALLEY TELEPHONE COMPANY
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
OCTOBER 28, 1995
--------------------
C-TEC CORPORATION
PROSPECTUS
FOR
UP TO 453,500 SHARES OF
C-TEC SERIES AA CONVERTIBLE PREFERRED STOCK,
PAR VALUE $61.00 PER SHARE
This Proxy Statement/Prospectus is being furnished to holders of common
stock, without par value ("BVT Common Shares"), of Buffalo Valley Telephone
Company, a Pennsylvania corporation ("BVT"), in connection with the
solicitation of proxies by BVT's Board of Directors (the "BVT Board") for use
at a Special Meeting of Shareholders (the "Meeting") to be held at the Country
Cupboard Inn, Route 15 North, Lewisburg, Pennsylvania 17837 on Saturday,
October 28, 1995 at 2:00 p.m., local time. At the Meeting, shareholders of
BVT will be asked to consider and vote upon (i) a proposal to approve the
Agreement and Plan of Merger dated as of May 10, 1995 (the "Merger Agreement")
among BVT, C-TEC Corporation ("C-TEC") and BVT Merger Corporation, a wholly
owned subsidiary of C-TEC ("Merger Sub"), (ii) a proposal (the "Adjournment
Proposal") to postpone or adjourn the Meeting to another time and/or place for
the purpose of soliciting additional proxies in the event that there are not
sufficient votes at the time of the Meeting to approve the Merger Agreement,
and (iii) such other business as may properly come before the Meeting or any
adjournment thereof.
Pursuant to the Merger Agreement, BVT would be merged (the "Merger") with
and into Merger Sub, with Merger Sub being the surviving corporation. Each
BVT Common Share outstanding as of the effective time of the Merger would be
converted into and become a right to receive either (i) cash in the amount of
$61.00 (the "Cash Merger Consideration"), or (ii) one share of C-TEC Series AA
Convertible Preferred Stock, par value $61.00 per share ("C-TEC Series AA
Preferred Shares"), of C-TEC (the "Stock Merger Consideration"). Shareholders
of BVT will be entitled to elect to receive the Cash Merger Consideration or
the Stock Merger Consideration with respect to shares held by them, but such
elections will be subject to allocation procedures such that the number of BVT
Common Shares which will be converted into Stock Merger Consideration will
equal a specified percentage of all outstanding BVT Common Shares (the "Stock
Percentage"). The Stock Percentage, as determined by C-TEC, will be 50% or,
if larger, the minimum percentage necessary for the Merger to qualify as a
tax-free exchange for federal income tax purposes. C-TEC anticipates that the
Stock Percentage will be no more than 50.5%.
This Proxy Statement/Prospectus also constitutes a prospectus of C-TEC
filed as part of a registration statement filed with the Securities and
Exchange Commission (the "Commission") relating to up to 453,500 C-TEC Series
AA Preferred Shares issuable pursuant to the Merger Agreement. All
information contained in this Proxy Statement/Prospectus with respect to C-TEC
and its subsidiaries has been supplied by C-TEC, and all information with
respect to BVT has been supplied by BVT.
This Proxy Statement/Prospectus does not cover any resales of the C-TEC
Series AA Preferred Shares issuable in the Merger (or any shares of C-TEC
common stock, par value $1.00 per share ("C-TEC Common Stock") which may be
issued upon the conversion of C-TEC Series AA Preferred Shares) by any
shareholders deemed to be affiliates of BVT or C-TEC. No person is authorized
to make use of this Proxy Statement/Prospectus in connection with any such
resale.
THE C-TEC SERIES AA PREFERRED SHARES ISSUABLE IN THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Proxy Statement/Prospectus and the accompanying proxy card and
notice of meeting are first being mailed to shareholders of BVT on or about
September __, 1995.
The date of this Proxy Statement/Prospectus is September __, 1995
<PAGE>
No person is authorized to give any information or to make any representations
other than those contained in this Proxy Statement/Prospectus and, if given or
made, such other information or representations must not be relied upon as
having been authorized by C-TEC or BVT. This Proxy Statement/Prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, any
security other than the securities covered by this Proxy Statement/Prospectus,
or the solicitation of a proxy to or from any person in any jurisdiction where
it is unlawful to make such offer or solicitation of an offer or proxy
solicitation. Neither the delivery of this Proxy Statement/Prospectus nor any
distribution of securities made hereunder shall, under any circumstances,
create any implication that there has been no change in the information about
C-TEC or BVT contained in this Proxy Statement/Prospectus since the date
hereof.
AVAILABLE INFORMATION
C-TEC is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed with the Commission are
available for inspection and copying at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at Seven World Trade Center, New York, New York 10048.
Copies of such documents may also be obtained from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. C-TEC Common Stock (symbol:
CTEX) is authorized for quotation on the Nasdaq National Market and C-TEC
Class B common stock, par value $1.00 per share ("C-TEC Class B Stock")
(symbol: CTEX B) is authorized for quotation on the Nasdaq Small-Cap Market.
Such materials and other information concerning C-TEC, therefore, can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
C-TEC has filed with the Commission under the Securities Act of
1933, as amended (the "Securities Act"), a Registration Statement on Form S-4
(including all amendments and exhibits thereto, the "Registration Statement")
with respect to the C-TEC Series AA Preferred Shares issuable pursuant to the
Merger Agreement. This Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
The Registration Statement is available for inspection and copying as set
forth above. Statements contained in this Proxy Statement/Prospectus as to
the contents of any contract or other document are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
This Proxy Statement/Prospectus incorporates by reference documents
relating to C-TEC which are not presented herein or delivered herewith. These
documents (not including exhibits thereto, unless such exhibits are
specifically incorporated by reference herein) are available without charge to
any person, including any beneficial owner, to whom this Proxy
Statement/Prospectus is delivered, upon written or oral request directed to C-
TEC Corporation, 105 Carnegie Center, Princeton, NJ 08540, telephone number
(609) 734-3803, Attention: Valerie Haertel, Director, Investor Relations. In
order to ensure timely delivery of the documents, any request should be made
no later than October 23, 1995.
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<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
Certain documents previously filed by C-TEC (File No. 0-11053) with
the Commission pursuant to the Exchange Act are hereby incorporated by
reference in this Proxy Statement/Prospectus as follows:
(1) the Annual Report on Form 10-K for the year ended December 31,
1994, as amended by Form 10-K/A dated April 3, 1995 and Form
10-K/A dated July 31, 1995;
(2) the Quarterly Report on Form 10-Q for the three months ended
March 31, 1995;
(3) the Current Report on Form 8-K dated February 8, 1995, as
amended by Form 8-K/A dated July 31, 1995;
(4) the Current Report on Form 8-K dated April 10, 1995, as
amended by Form 8-K/A dated July 31, 1995;
(5) the Current Report on Form 8-K dated May 25, 1995;
(6) the Current Report on Form 8-K dated June 1, 1995;
(7) the definitive Proxy Statement dated August 4, 1995; and
(8) the Quarterly Report on Form 10-Q for the six months ended
June 30, 1995.
All documents filed by C-TEC pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date hereof and prior to the
consummation of the Merger shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing thereof. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein, or in
any other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy
Statement/Prospectus. All information appearing in this Proxy
Statement/Prospectus should be read in conjunction with, and is qualified in
its entirety by, the information and financial statements (including notes
thereto) appearing in the documents incorporated herein by reference, except
to the extent set forth in the immediately preceding statement.
-3-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
AVAILABLE INFORMATION..................................................... 2
INCORPORATION OF DOCUMENTS BY REFERENCE................................... 3
SUMMARY................................................................... 7
The Companies............................................................ 7
C-TEC.................................................................... 7
BVT...................................................................... 7
The Meeting............................................................... 8
General.................................................................. 8
Matters to be Considered at the Meeting.................................. 8
Record Date; Shares Outstanding; Quorum; Vote Required................... 8
The Merger................................................................ 8
Terms of the Merger...................................................... 8
Election and Allocation Procedures....................................... 9
Opinion of Financial Advisor............................................. 10
Recommendation of the Board of Directors................................. 10
Conditions to the Merger................................................. 10
Certain Covenants........................................................ 11
Effective Time........................................................... 11
Termination; Waiver; Amendment........................................... 11
Fees and Expenses........................................................ 12
Redemption of BVT Preferred Stock........................................ 12
Dissenters' Rights....................................................... 12
Certain Federal Income Tax Consequences.................................. 12
Accounting Treatment..................................................... 13
Financing the Merger..................................................... 13
Interest of Certain Persons in the Merger................................ 13
Description of Capital Stock of C-TEC.................................... 13
Comparison of Shareholder Rights......................................... 15
Adjournment of the Meeting............................................... 15
Selected Historical and Pro Forma Financial Data.......................... 15
Selected Historical Financial Data....................................... 16
Selected Unaudited Pro Forma Consolidated Financial Data................. 17
Comparative Per Share Data................................................ 18
Market Price Data......................................................... 19
Ratio of Earnings-To-Fixed Charge and Preferred Stock Dividends........... 19
RISK FACTORS............................................................... 20
Dividend Policy and Restrictions.......................................... 20
Highly Competitive Industry............................................... 20
Effect of Regulation...................................................... 20
Control by Principal Shareholder.......................................... 21
Relationship with RCN; Conflicts of Interest; Noncompetition Agreement.... 21
Joint Venture............................................................. 21
Megacable Acquisition..................................................... 21
THE MEETING................................................................ 22
General................................................................... 22
Matters to be Considered at the Meeting................................... 22
Record Date; Shares Outstanding; Quorum................................... 22
Votes Required............................................................ 22
Effect of Abstentions and Broker Nonvotes................................. 23
Voting, Revocation and Solicitation of Proxies............................ 23
THE MERGER................................................................. 24
Background of the Merger.................................................. 24
Merger Negotiations....................................................... 26
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Reasons for the Merger; Recommendation of the Board of Directors.......... 27
Opinion of Financial Advisor.............................................. 29
Terms of the Merger....................................................... 32
Election, Allocation and Exchange Procedures.............................. 36
Regulatory Considerations................................................. 39
Interest of Certain Persons in the Merger................................. 39
Accounting Treatment...................................................... 40
Certain Federal Income Tax Consequences................................... 40
Dissenters' Rights........................................................ 43
RESALE RESTRICTIONS........................................................ 44
DESCRIPTION OF CAPITAL STOCK OF C-TEC...................................... 45
C-TEC Common Stock and C-TEC Class B Stock................................ 45
C-TEC Series AA Preferred Shares.......................................... 47
C-TEC TC Preferred Shares................................................. 50
Pennsylvania Anti-Takeover Law Provisions................................. 52
COMPARISON OF SHAREHOLDER RIGHTS........................................... 53
Introduction.............................................................. 53
Dividends................................................................. 53
Voting Rights Generally................................................... 53
Classified Board of Directors............................................. 54
Number of Directors....................................................... 54
Removal of Directors...................................................... 54
Filling Vacancies on the Board of Directors............................... 54
Call of Special Shareholders' Meeting..................................... 54
Notice of Shareholders' Meetings.......................................... 55
Quorum Requirements and Adjournment of Meetings........................... 55
Action Without Meeting.................................................... 55
Dissenters' Rights........................................................ 55
Limitations on Directors' Liability....................................... 55
Indemnification........................................................... 55
State Anti-Takeover Law Provisions........................................ 56
Amendment of Articles of Incorporation.................................... 56
Amendment of Bylaws....................................................... 57
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............ 58
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF BVT................................ 64
Operations--Six Months Ended June 30, 1995 vs. Six Months Ended June 30,
1994..................................................................... 64
Operations--Three Months Ended June 30, 1995 vs. Three Months Ended June
30, 1994................................................................. 64
Operations--1994 vs. 1993................................................. 65
Operations--1993 vs. 1992................................................. 66
Income Taxes.............................................................. 66
Liquidity and Capital Resources........................................... 66
Regulatory Accounting Principles.......................................... 67
Pennsylvania Public Utility Commission.................................... 67
Environmental Matters..................................................... 67
BUSINESS OF BVT............................................................ 67
Description of Business................................................... 67
Properties................................................................ 68
Legal Proceedings......................................................... 68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BVT...... 69
ADJOURNMENT OF THE MEETING................................................. 70
EXPERTS.................................................................... 70
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
C-TEC..................................................................... 70
BVT...................................................................... 70
Twin County.............................................................. 70
Megacable................................................................ 70
LEGAL OPINIONS............................................................ 70
INDEX TO BVT FINANCIAL STATEMENTS......................................... F-1
</TABLE>
APPENDIX A - MERGER AGREEMENT
APPENDIX B - OPINION OF SNYDER & COMPANY
APPENDIX C - PROVISIONS REGARDING DISSENTERS' RIGHTS
APPENDIX D - OPINION OF SWIDLER & BERLIN
-6-
<PAGE>
SUMMARY
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information appearing elsewhere or
incorporated by reference in this Proxy Statement/Prospectus and the
Appendices hereto. Shareholders are urged to read this entire Proxy
Statement/Prospectus, including the Appendices hereto. Certain terms used
in this summary and elsewhere in this Proxy Statement/Prospectus are used
as defined in this summary or elsewhere in this Proxy Statement/Prospectus.
The Companies
C-TEC
C-TEC Corporation ("C-TEC"), incorporated in the Commonwealth of
Pennsylvania in 1979, is a holding company with wholly owned subsidiaries
engaged in various aspects of the telecommunications industry. These
subsidiaries are organized into four principal groups: Telephone, Cable
Television, Communications Services and Long Distance.
The Telephone Group consists of a Pennsylvania public utility providing
local telephone service to a 19 county, 5,067 square mile service territory
in Pennsylvania. As of December 31, 1994, the Telephone Group provided
service to approximately 219,000 main access lines. Of these, 171,000 were
residential and 48,000 were primarily business.
The Cable Group is a cable television operator with cable television
systems located in New York, New Jersey, Michigan and Delaware. The Cable
Group owns and operates cable television systems serving 236,000 customers
and manages cable television systems with an additional 37,000 customers,
ranking it in the top 30 of U.S. multiple system operators.
The Communications Services Group operates in the United States, with
concentration primarily in the Northeastern United States, providing the
following services: telephony engineering; system integration; operation
and management of telecommunications facilities for large corporate
clients, hospitals and universities; installation of premises distribution
systems in large campus environments; cable and data engineering; project
management of cable/telecommunications network construction; and sales,
installation and maintenance of private branch exchanges.
The Long Distance Group operates primarily in Pennsylvania, providing
facility based services, serving as a reseller of several types of services
and employing the network of several long distance providers on a wholesale
basis.
C-TEC's executive offices are located at 105 Carnegie Center, Princeton,
New Jersey 08540, and its telephone number is (609) 734-3700.
BVT
Buffalo Valley Telephone Company, a Pennsylvania corporation ("BVT"), is
a regulated local exchange carrier ("LEC") founded in 1904 which provides
local telephone service to Union and Northumberland Counties in central
Pennsylvania. As of June 30, 1995, BVT had approximately 17,300 telephone
access lines. BVT's executive offices are located at 20 South Second
Street, Lewisburg, Pennsylvania 17837, and its telephone number is (717)
523-1211.
-7-
<PAGE>
The Meeting
General
The special meeting of the shareholders of BVT will be held on
Saturday, October 28, 1995, at 2:00 p.m., local time, at the Country
Cupboard Inn, Route 15 North, Lewisburg, Pennsylvania 17837 (the
"Meeting").
Matters to be Considered at the Meeting
At the Meeting, holders of common stock, without par value, of
BVT ("BVT Common Shares"), will be asked to consider and vote upon (i) a
proposal to approve the Agreement and Plan of Merger dated as of May 10,
1995 (the "Merger Agreement") among BVT, C-TEC and BVT Merger Corporation,
a wholly owned subsidiary of C-TEC ("Merger Sub"), (ii) a proposal (the
"Adjournment Proposal") to postpone or adjourn the Meeting to another time
and/or place for the purpose of soliciting additional proxies in the event
that there are not sufficient votes at the time of the Meeting to approve
the Merger Agreement, and (iii) such other business as may properly come
before the Meeting or any adjournment thereof. See "THE MEETING--Matters
to be Considered at the Meeting."
Record Date; Shares Outstanding; Quorum; Vote Required
Only holders of record of BVT Common Shares at the close of
business on September 8, 1995 (the "Record Date"), will be entitled to
notice of, and to vote at, the Meeting. Each BVT Common Share outstanding
on the Record Date entitles its holder, as of that date, to one vote. As
of the Record Date, there were 899,154 BVT Common Shares outstanding and
entitled to be voted at the Meeting, held by approximately 315 shareholders
of record. The presence in person or by proxy of the holders of a majority
of the BVT Common Shares entitled to vote at the Meeting shall constitute a
quorum at the Meeting. See "THE MEETING--Record Date; Shares Outstanding;
Quorum." Pursuant to the applicable provisions of the Pennsylvania
Business Corporation Law ("PBCL") and BVT's bylaws (the "BVT Bylaws"), the
affirmative vote of a majority of the BVT Common Shares present and
entitled to vote at the Meeting is required to approve the Merger
Agreement. See "THE MEETING--Votes Required."
As of the Record Date, directors and executive officers of BVT
beneficially owned approximately 166,456 BVT Common Shares or approximately
18.5% of the BVT Common Shares entitled to be voted at the Meeting. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BVT."
Except for one director, all of the directors and executive officers of
BVT, owning 110,906 BVT Common Shares or approximately 12.3% of the
outstanding BVT Common Shares entitled to vote at the Meeting, have
indicated that they intend to vote such shares in favor of approval of the
Merger Agreement. See "THE MEETING--Votes Required."
The Merger
Terms of the Merger
Pursuant to the Merger Agreement, BVT would be merged (the
"Merger") with and into Merger Sub, with Merger Sub being the surviving
corporation. Each BVT Common Share outstanding as of the effective time of
the Merger would be converted into and become a right to receive either (i)
cash in the amount of $61.00 (the "Cash Merger Consideration"), or (ii) one
share of C-TEC Series AA Convertible Preferred Stock, par value $61.00 per
share ("C-TEC Series AA Preferred Shares"), of C-TEC (the "Stock Merger
Consideration"). Shareholders of BVT would be entitled to elect to receive
the Cash Merger Consideration or the Stock Merger Consideration with
respect to shares held by them, but such elections would be subject to
allocation procedures, such that the number of BVT Common Shares which
would be converted into Stock Merger Consideration would equal a specified
percentage of all outstanding BVT Common Shares (the "Stock Percentage").
The Merger Agreement requires the Stock Percentage, as determined by C-TEC,
to be 50% or, if larger, the minimum
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<PAGE>
percentage necessary for the Merger to qualify as a tax-free exchange for
federal income tax purposes. C-TEC anticipates that the Stock Percentage
will be no more than 50.5%. See "THE MERGER--Terms of the Merger--Merger
Consideration"; "THE MERGER--Terms of the Merger--Stock Percentage"; and
"THE MERGER--Election, Allocation and Exchange Procedures."
Election and Allocation Procedures
Shortly after the Effective Time of the Merger (as defined
below), BVT and C-TEC shall prepare and mail to each record holder of BVT
Common Shares (other than holders who perfect dissenters' rights) a form
(the "Election Form") to provide such holders with the opportunity to
specify the whole number of BVT Common Shares owned by each such holder as
to which such holder desires to receive the Cash Merger Consideration (a
"Cash Election"), and the whole number of BVT Common Shares owned by each
such holder as to which such holder desires to receive the Stock Merger
Consideration (a "Stock Election"). Holders will be permitted to make a
Cash Election with respect to a portion of their shares and to make a Stock
Election with respect to the remaining portion of their shares. The
Election Form shall specify the date by which all such elections must be
made (the "Election Deadline"), which date shall be determined by BVT and
C-TEC but shall be not earlier than 20 calendar days following the
Effective Time. These elections will be subject to various allocation and
pro ration provisions, and the extent to which such elections will be
accommodated will depend upon the number of BVT shareholders who make Cash
Elections, Stock Elections or no election (a "Non-Election"), as well as
the exact Stock Percentage specified by C-TEC. Accordingly, a BVT
shareholder electing to receive only Cash Merger Consideration or electing
to receive only Stock Merger Consideration may nonetheless receive a
combination of cash and stock consideration in the Merger. Holders
electing to receive only one form of merger consideration, however, are
assured of receiving at least approximately one half of their consideration
in the form that they requested.
After the Election Deadline, C-TEC or its agent (the "Exchange
Agent") will determine the number of BVT Common Shares for which there has
been made an effective Cash Election ("Cash Election Shares"), Stock
Election ("Stock Election Shares") or a Non-Election ("Non-Election
Shares"). C-TEC will then determine the Stock Percentage, which will be
50% or, if larger, the minimum percentage necessary for the Merger to
qualify as a tax-free exchange for federal income tax purposes. C-TEC
anticipates that the Stock Percentage will be no more than 50.5%. Once the
Stock Percentage has been determined, the shareholder elections will be
allocated and prorated to the extent necessary so that the required amount
of C-TEC Series AA Preferred Shares will be issued in the Merger, as
follows:
(a) If the number of Cash Election Shares plus the number of
shares for which dissenters' rights are being exercised ("Dissenters'
Shares") is more than the number of shares permitted to receive cash,
(i) Stock Election Shares and Non-Election Shares shall receive Stock
Merger Consideration and (ii) to the extent necessary, a pro rata
portion of each holder's Cash Election Shares shall receive Stock
Merger Consideration.
(b) If the number of Stock Election Shares is in excess of the
Stock Percentage, (i) Cash Election Shares and Non-Election Shares
shall receive Cash Merger Consideration, and (ii) to the extent
necessary, a pro rata portion of each holder's Stock Election Shares
shall receive Cash Merger Consideration.
(c) If the number of Cash Election Shares plus the number of
Dissenters' Shares is less than the number of shares permitted to
receive cash in the Merger, and the number of Stock Election Shares is
less than the Stock Percentage, (i) those holders making valid Cash or
Stock Elections will receive the consideration requested, and (ii) a
pro rata portion of each holder's Non-Election Shares shall receive
Cash Merger Consideration and Stock Merger Consideration to the extent
necessary so that the required amount of C-TEC Series AA Preferred
Shares will be issued in the Merger.
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<PAGE>
No fractional C-TEC Series AA Preferred Shares will be issued.
Holders of BVT Common Shares who would otherwise be entitled to receive a
fractional share instead will receive a cash payment determined by
multiplying the fractional interest to which such holder would otherwise be
entitled by $61.00.
Due to the foregoing procedures, elections by shareholders will be
subject to adjustment regardless of the percentage of cash and stock
elected by such shareholder, and the precise consideration to be issued
will not be known until after the Effective Date of the Merger. See "THE
MERGER--Election, Allocation and Exchange Procedures."
Shareholders are urged to consult the table set forth on page ____ of
this Proxy Statement/Prospectus which sets forth examples of how the
foregoing election and allocation procedures would operate in a number of
hypothetical shareholder election scenarios.
BVT SHAREHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES FOR BVT COMMON
SHARES TO C-TEC OR BVT UNTIL THEY HAVE RECEIVED ELECTION FORMS. BVT
SHAREHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY
CARD.
Opinion of Financial Advisor
Snyder & Company ("Snyder & Co.") rendered its opinion to the Board of
Directors of BVT (the "BVT Board") on September __, 1995 to the effect that
the consideration to be received by holders of BVT Common Shares in the
Merger is fair from a financial point of view. This opinion, which is
attached to this Proxy Statement/Prospectus as Appendix B, should be read
in its entirety with respect to the assumptions made and other matters
considered by Snyder & Co. in rendering such opinion. To date, BVT has
paid Snyder & Co. approximately _________ for acting as its financial
advisor in connection with the Merger; Snyder & Co. will receive an
aggregate fee (including amounts already paid) of approximately $580,000 if
the Merger is consummated. See "THE MERGER--Opinion of Financial Advisor."
Recommendation of the Board of Directors
The consideration to be received by holders of BVT Common Shares in
the Merger was negotiated by the BVT Board in light of various factors,
including BVT's and C-TEC's recent operating results, current financial
condition and perceived future prospects. THE BOARD OF DIRECTORS OF BVT
BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF BVT'S SHAREHOLDERS,
HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT BVT'S SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT. See "THE MERGER--Reasons for
the Merger; Recommendation of the Board of Directors."
Conditions to the Merger
Consummation of the Merger is subject to various conditions, including
approval of the Merger by the Pennsylvania Public Utility Commission (the
"PaPUC") and the expiration or termination of all waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). C-TEC and BVT each has filed a Notification and Report Form with
respect to the Merger, and the waiting period under the HSR Act was
terminated on August 11, 1995. C-TEC filed an application for approval of
the Merger with the PaPUC on July 27, 1995, and it is presently anticipated
that PaPUC approval will be obtained within 90 days thereafter. See "THE
MERGER--Regulatory Considerations." The Merger is also subject to
satisfaction of various other conditions specified in the Merger Agreement,
including the approval of the Merger Agreement by the requisite vote of the
shareholders of BVT and the approval by the requisite vote of C-TEC's
shareholders of an amendment to C-TEC's amended and restated articles of
incorporation (the "C-TEC Articles") authorizing a new class of preferred
stock; except that if such amendment is not approved by C-TEC's
shareholders, BVT will have the option to proceed with the Merger with the
merger consideration being solely Cash Merger Consideration. This
amendment to the C-TEC Articles will be considered at a C-TEC shareholders'
meeting
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<PAGE>
to be held on September 14, 1995. See "THE MERGER--Terms of the Merger--
Conditions to the Merger" and "THE MERGER--Terms of the Merger--Cash
Option."
Certain Covenants
Upon consummation of the Merger, the separate existence of BVT and its
board of directors will terminate, but the directors and officers of C-TEC
and Merger Sub will continue in office. See "THE MERGER--Terms of the
Merger--Effect of the Merger. C-TEC has agreed, for a period of two years
following the Effective Time, subject to certain exceptions, to continue
the employment and current salary of all persons employed by BVT as of the
Effective Time. C-TEC has also agreed during such two-year period to
continue the benefit plans of BVT as are in effect as of the Effective
Time, or to provide benefits to such employees that are no less favorable,
taken as a whole, than the benefits provided to comparable employees of C-
TEC. See "THE MERGER--Terms of the Merger--Continued Employment of BVT
Employees."
C-TEC has also agreed, from and after the Effective Time, subject to
certain exceptions, to indemnify the directors and officers of BVT to the
fullest extent permitted by applicable law and to provide directors and
officers liability insurance coverage for such directors and officers for a
period of six years following the Effective Time. See "THE MERGER--Terms
of the Merger--Indemnification of BVT Directors and Officers."
BVT has agreed that, except as described below, it will not initiate
discussions or negotiations relating to a transaction involving a merger,
consolidation, sale or similar transaction involving a significant portion
of the stock or assets of BVT (an "Acquisition Transaction"). BVT,
however, is permitted to disclose information to, and to engage in
discussions and negotiations with, a person who makes a bona fide offer to
engage in such an Acquisition Transaction on terms which are more favorable
to the BVT shareholders than the Merger, and who can reasonably be expected
to consummate such an Acquisition Transaction on the terms that have been
proposed, and which disclosure, discussions and negotiations, in the
judgment of BVT, shall be required by reason of the fiduciary obligations
of the BVT Board. See "THE MERGER--Terms of the Merger--No Solicitation;
Pursuit of Other Transactions."
Effective Time
Once the conditions to the Merger have been satisfied, the Merger will
become effective upon the filing and acceptance of articles of merger by
the Corporation Bureau of the Commonwealth of Pennsylvania, or the
effective time specified therein, whichever is later (the "Effective
Time"). See "THE MERGER--Terms of the Merger--Closing; Effective Time."
Termination; Waiver; Amendment
The Merger Agreement may be terminated at any time before the Closing
Date in a number of circumstances, including (i) by mutual consent of the
parties, (ii) by either party if the Effective Time shall not have occurred
on or before December 31, 1995 (except under certain circumstances), and
(iii) by either party upon a material breach of any representation,
warranty, covenant or agreement by the other party.
In addition, if requested by the BVT Board pursuant to the fiduciary
obligations of BVT's directors, BVT may terminate the Merger Agreement
(subject to its obligations to pay the termination fee described below) in
order to accept an offer for an Acquisition Transaction other than the
Merger which the BVT Board concludes is more favorable to the BVT
shareholders than the Merger. See "THE MERGER--Terms of the Merger--
Termination."
Prior to the Effective Time, any provision of the Merger Agreement may
be waived or amended under certain circumstances, as set forth in the
Merger Agreement. See "THE MERGER--Terms of the Merger--Waiver;
Amendment."
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<PAGE>
Fees and Expenses
Except as described below, whether or not the Merger is consummated,
all costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby will be paid by the party incurring
such costs, except that the filing fees under the HSR Act shall be shared
equally between C-TEC and BVT.
In the event that BVT terminates the Merger Agreement in order to
enter into an Acquisition Transaction, BVT must pay C-TEC a termination fee
in the amount of $550,000. See "THE MERGER--Terms of the Merger--Fees and
Expenses."
Redemption of BVT Preferred Stock
As required by the Merger Agreement, 8,000 outstanding shares of
cumulative preferred stock of BVT, par value $50.00 per share, were
redeemed effective as of September 1, 1995. No shares of BVT preferred
stock remain outstanding.
Dissenters' Rights
Pursuant to the PBCL, the holders of BVT Common Shares will have the
right to dissent from approval of the Merger, and to demand and receive the
"fair value" of their BVT Common Shares. In order to assert such
dissenters' rights, a BVT shareholder must (i) file a written notice of
intention to dissent with BVT prior to the shareholder vote at the Meeting,
(ii) refrain from voting in favor of the Merger, (iii) file a written
demand for payment and deposit the certificates representing his or her
shares in accordance with the terms of the notice to demand payment that
will be sent by BVT, and (iv) comply with certain other statutory
procedures set forth in the PBCL. Proxies which are returned but which do
not contain voting instructions will be voted in favor of the Merger
Agreement, which will result in a forfeiture of dissenters' rights with
respect to the Merger. A copy of the applicable sections of the PBCL are
attached to this Proxy Statement/Prospectus as Appendix C. Any deviation
from the procedures set forth in such statutory provisions may result in
the forfeiture of dissenters' rights with respect to the Merger.
Accordingly, shareholders wishing to assert dissenters' rights are urged to
read carefully "THE MERGER--Dissenters' Rights" and Appendix C to this
Proxy Statement/Prospectus.
Certain Federal Income Tax Consequences
It is intended that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that,
accordingly, for federal income tax purposes: (i) BVT and C-TEC will each
be a "party to a reorganization" within the meaning of Section 368(b) of
the Code, (ii) no gain or loss will be recognized by BVT by reason of the
Merger, (iii) the gain, if any, realized by a holder of BVT Common Shares
upon receipt of C-TEC Series AA Preferred Shares and/or cash in exchange
for BVT Common Shares pursuant to the Merger will not be recognized in
excess of the amount of cash received, and no loss will be recognized by
those holders of BVT Common Shares who exchange their BVT Common Shares
solely for C-TEC Series AA Preferred Shares, (iv) the basis of the C-TEC
Series AA Preferred Shares to be received by the BVT shareholders will
generally be, in each instance, the same as the basis of the BVT Common
Shares surrendered in exchange therefor (but reduced to the extent any cash
received exceeds the amount of gain recognized), and (v) the holding
period of the C-TEC Series AA Preferred Shares to be received by the
shareholders of BVT will include the period during which the BVT Common
Shares surrendered in exchange therefor was held, provided that the BVT
Common Shares surrendered were held as a capital asset as of the Effective
Time.
No gain or loss will be recognized by a holder of C-TEC Series AA
Preferred Shares upon the conversion of such shares into shares of C-TEC
Common Stock pursuant to the terms of the C-TEC Series AA Preferred Shares.
Such conversion will be treated as a recapitalization pursuant to Section
368(a)(1)(E) of the Code pursuant to which converting shareholders do not
recognize taxable gain or loss on the conversion. A
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<PAGE>
shareholder's basis in the shares of C-TEC Common Stock received in the
conversion will be equal to such shareholder's basis in the C-TEC Series AA
Preferred Shares converted.
C-TEC's obligation to consummate the Merger is conditioned upon
receipt by C-TEC of a ruling from the Internal Revenue Service or an
opinion of Swidler & Berlin, tax counsel to C-TEC, substantially to the
effect that the federal income tax consequences of the Merger are as
summarized above. Such an opinion of Swidler & Berlin is attached to this
Proxy Statement/Prospectus as Appendix D. See "THE MERGER--Certain Federal
Income Tax Consequences."
EACH BVT SHAREHOLDER IS ENCOURAGED TO CONSULT HIS OR HER OWN TAX
ADVISORS AS TO PARTICULAR FACTS AND CIRCUMSTANCES WHICH MAY BE UNIQUE TO
SUCH SHAREHOLDER AND NOT COMMON TO BVT SHAREHOLDERS AS A WHOLE AND ALSO AS
TO ANY ESTATE, GIFT, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES ARISING OUT
OF THE MERGER AND/OR ANY SALE THEREAFTER OF C-TEC SERIES AA PREFERRED
SHARES RECEIVED IN THE MERGER.
Accounting Treatment
The Merger will be accounted for as a purchase of BVT by C-TEC for
accounting and financial reporting purposes. See "THE MERGER--Accounting
Treatment."
Financing the Merger
In the Merger Agreement, C-TEC has represented that it has access to
funds, without the requirement of borrowing from any third party,
sufficient to fund the Cash Merger Consideration. C-TEC may, however,
choose to finance all or a portion of the Cash Merger Consideration. For a
presentation of the pro forma effects of the Merger, see "UNAUDITED PRO
FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
Interest of Certain Persons in the Merger
Certain directors and officers of BVT have interests in the Merger
that are in addition to their interests as shareholders of BVT generally.
These include C-TEC's agreement to indemnify and to provide insurance
covering BVT's directors and officers for a period of six years following
the Effective Time and C-TEC's agreement to continue the employment and
benefits of BVT's employees for two years following the Effective Time.
See "THE MERGER--Terms of the Merger--Continued Employment of BVT
Employees," "--Indemnification of BVT Directors and Officers" and "THE
MERGER--Interest of Certain Persons in the Merger."
Description of Capital Stock of C-TEC
As of September 1, 1995, C-TEC's authorized capital stock consisted of
35,000,000 shares of C-TEC Common Stock, 19,247,126 of which were issued
and outstanding, and 8,753,203 shares of C-TEC Class B Stock, 8,575,883 of
which were issued and outstanding. The Board of Directors of C-TEC (the
"C-TEC Board") has adopted a resolution unanimously approving and
recommending to C-TEC's shareholders, for approval at a shareholders'
meeting to be held on September 14, 1995, (a) amendments to the C-TEC
Articles (i) increasing the authorized number of shares of C-TEC Common
Stock to 85,000,000, (ii) increasing the authorized number of shares of C-
TEC Class B Stock to 15,000,000, and (iii) authorizing a new class of
25,000,000 shares of C-TEC Preferred Stock in such series and with such
rights and preferences as the C-TEC Board may determine from time to time,
and (b) proposals for the issuance of (i) 4,100,000 shares of C-TEC
Preferred Stock Series A with an aggregate stated value of $41,000,000 (the
"C-TEC TC Preferred Series A") and 1,100,000 shares of C-TEC Preferred
Stock Series B with an aggregate stated value of $11,000,000 (the "C-TEC TC
Preferred Series B"; collectively with the C-TEC TC Preferred Series A, the
"C-TEC TC Preferred
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<PAGE>
Shares"), in connection with the merger of Twin County Trans Video, Inc.
("Twin County") with and into C-TEC Cable Systems Inc., a wholly owned
subsidiary of C-TEC (the "Twin County Merger"), and (ii) C-TEC Series AA
Preferred Shares in connection with the Merger. See "DESCRIPTION OF CAPITAL
STOCK OF C-TEC."
A summary of the material terms of the C-TEC Series AA Preferred
Shares issuable in the Merger is set forth below.
<TABLE>
<S> <C>
Stated Value $61.00 per share.
Dividends Cumulative semi-annual cash dividends at an annual rate
of $3.20 per share, as and if declared by the C-TEC
Board out of funds legally available therefor.
Liquidation Preference $61.00 per share, plus dividends accrued and
unpaid to the liquidation date.
Conversion Convertible at any time at the option of the holder
into shares of C-TEC Common Stock at a conversion price
equal to 125% of the average closing price of C-TEC
Common Stock on the NASDAQ National Market over a ten
trading day period ending shortly before the Effective
Date; provided, however, that the conversion price may
not be less than $24 nor more than the higher of (i)
$36 or (ii) such average closing price of C-TEC Common
Stock. The conversion price is subject to anti-
dilution adjustments under certain circumstances.
Redemption by C-TEC Redeemable, in whole or in part, at the option of
C-TEC, commencing on the second anniversary of the
Effective Time, at a redemption price equal to $61.00
multiplied by the applicable percentage, such
percentage ranging from 105.25% as of the second
anniversary of the Effective Time to 100% as of the
seventh anniversary of the Effective Time, plus accrued
and unpaid dividends.
Redemption by Holder Redeemable at the option of the holder at any
time after the first anniversary of the Effective Time,
at a redemption price equal to $61.00, plus accrued and
unpaid dividends.
Voting Rights None, except as required by law and except that if C-
TEC shall fail to pay dividends on the C-TEC Series AA
Preferred Shares in an amount equal to three full semi-
annual dividends or shall fail to redeem C-TEC Series
AA Preferred Shares when required, then the holders of
the C-TEC Series AA Preferred Shares shall be entitled,
voting as a class together with any other series of C-
TEC preferred stock having a similar right, to elect
one additional director to the C-TEC Board.
</TABLE>
The foregoing description is intended as a summary only, and is
qualified by reference to the form of the statement of designation of the
C-TEC Series AA Preferred Shares which is set forth as Exhibit A to the
Merger Agreement, which is attached to this Proxy Statement/Prospectus as
Appendix A. See "DESCRIPTION OF CAPITAL STOCK OF C-TEC--C-TEC Series AA
Preferred Shares." The issuance of the C-TEC Series AA Preferred Shares
pursuant to the Merger is subject to approval by the C-TEC shareholders of
such issuance, as well as of an amendment to the C-TEC Articles authorizing
a new class of preferred stock.
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Comparison of Shareholder Rights
To the extent that they receive Stock Merger Consideration in the
Merger, holders of BVT Common Shares will become holders of C-TEC Series AA
Preferred Shares. Upon conversion of such C-TEC Series AA Preferred
Shares, former holders of BVT Common Shares would become holders of C-TEC
Common Stock. The rights of shareholders of C-TEC are governed by the PBCL
and by the C-TEC Articles and the bylaws of C-TEC (the "C-TEC Bylaws").
The rights of common and preferred shareholders of C-TEC differ from the
rights of holders of BVT Common Shares with respect to certain matters.
For a description of these differences, see "COMPARISON OF SHAREHOLDER
RIGHTS."
Adjournment of the Meeting
In the event that there is an insufficient number of votes cast in
person or by proxy at the Meeting to approve the Merger Agreement, the BVT
Board intends to adjourn the Meeting to a later date for the solicitation
of additional votes in favor thereof. The affirmative vote of a majority
of the shares present, in person or by proxy, at the Meeting, even if a
quorum is not present, is required in order to approve any such
adjournment. BVT's Board of Directors recommends that shareholders vote
"FOR" the proposal to adjourn the Meeting if necessary to permit further
solicitation of proxies to approve the Merger Agreement. See "ADJOURNMENT
OF THE MEETING."
Selected Historical and Pro Forma Financial Data
The following tables present selected historical financial data for C-
TEC and BVT and selected unaudited pro forma consolidated financial data
for C-TEC, BVT, Twin County and Megacable, S.A. de C.V. ("Megacable"). The
selected financial data set forth below for C-TEC and BVT for each of the
years in the five-year period ended December 31, 1994, are derived from the
financial statements of C-TEC and BVT, respectively. The selected financial
data for C-TEC and BVT for the six months ended June 30, 1995 and 1994, are
derived from the unaudited financial statements of C-TEC and BVT,
respectively which in the opinion of management reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
statement of the results of the interim periods. The results for such
interim periods are not necessarily indicative of the results for the full
fiscal year. The historical and unaudited pro forma financial information
are not necessarily indicative of future operations or the actual results
that would have occurred had the Merger, the Twin County Merger and the
acquisition of a 40% equity position in Megacable (the "Megacable
Acquisition") been consummated at the beginning of the periods presented
and should not be construed as representative of future operations. This
information should be read in conjunction with the unaudited pro forma
combined condensed financial statements and notes thereto and with the
historical financial statements and notes thereto of the separate companies
included, or incorporated by reference in this Proxy Statement/Prospectus.
See "Unaudited Pro Forma Condensed Consolidated Financial Statements" and
"Index to BVT Financial Statements." Information regarding C-TEC, Twin
County, BVT and Megacable has been provided by C-TEC, Twin County, BVT and
Megacable, respectively.
-15-
<PAGE>
Selected Historical Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
------------------ -------------------------------------------------------------
1995 1994 1994 1993(1) 1992(1) 1991(1) 1990(1)
-------- -------- -------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
C-TEC
Sales............................. $152,373 $129,950 $268,884 $251,428 $231,263 $215,248 $188,976
Income (loss) from continuing
operations.................. 14,984 3,664 2,827 (3,788) 4,568 (10,804) (6,434)
Income (loss) per average common
share from continuing
operations(2)............... .55 .22 .17 .(23) .27 (.66) (.39)
Dividends per share(2)............ -- -- -- -- -- -- --
Total assets...................... 822,743 570,865 792,525 579,564 586,366 596,000 580,429
Long-term debt, net of current
maturities.................. 286,312 386,187 273,376 409,293 421,780 432,482 364,970
Net book value per share (2)...... 13.28 3.69 12.73 3.66 4.05 4.18 4.73
----------------
</TABLE>
(1) Operating results have been restated to reflect a disposition accounted
for as discontinued operations and for certain reporting format changes
to conform with the 1994 reporting format.
(2) Based on average shares of C-TEC Common Stock and C-TEC Class B Stock.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BVT
Sales.............................. $ 5,465 $ 5,724 $11,435 $10,532 $10,668 $ 9,498 $ 9,851
Income from continuing operations.. 1,274 1,435 2,853 2,490 2,798 2,176 2,650
Income per average common share
from continuing operations... 1.42 1.60 3.15 2.75 3.08 2.40 2.93
Dividends per share................ .90 .84 1.68 1.60 1.48 1.40 1.32
Total assets....................... 28,847 28,118 29,240 29,033 27,726 26,200 24,821
Long-term obligations and
redeemable preferred stock... 1,804 1,885 1,885 1,966 3,047 3,128 3,209
Net book value per common share.... 22.29 21.79 21.79 20.76 19.16 17.57 16.57
</TABLE>
-16-
<PAGE>
-17-
<PAGE>
Selected Unaudited Pro Forma Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Year Ended
Months Ended December 31,
June 30, 1995(1) 1994(1)
---------------- ---------------
<S> <C> <C>
Sales...................... $166,634 $303,994
Income (loss) from
continuing operations..... 8,475 (19,011)
Income (loss) per average
common share from
continuing operations..... .31 (1.11)
Dividends per common share. -- --
<CAPTION>
June 30, 1995(1)
----------------
<S> <C>
Total assets............... $959,819
Long term debt, net of
current maturities........ 299,467
Redeemable Preferred Stock. 29,874
Net book value per common
share..................... 13.28
--------------
</TABLE>
(1) The unaudited pro forma combined balance sheet data assumes the Merger
and the acquisition of all outstanding common stock of Twin County took
place on June 30, 1995, and combines C-TEC's June 30, 1995 balance
sheet data with BVT's June 30, 1995 balance sheet data. The unaudited
pro forma statement of operations data for the year ended December 31,
1994 assumes that the Merger, the Twin County Merger and the Megacable
Acquisition took place as of January 1, 1994 and combines the statement
of operations data for C-TEC, BVT and Megacable for the year ended
December 31, 1994 with Twin County's statement of operations data for
the year ended October 31, 1994. Additionally, the interim unaudited
pro forma statement of operations combines C-TEC's and BVT's statement
of operations data for the six months ended June 30, 1995 with Twin
County's statement of operations data for the four months ended April
30, 1995. Beginning May 1, 1995, Twin County operations data has been
consolidated into C-TEC's financial statements. See Note (a) to the
Unaudited Pro Forma Condensed Consolidated Financial Statements. The
Megacable Acquisition was accounted for under the equity method of
accounting for the respective periods.
-18-
<PAGE>
Comparative Per Share Data
The following table sets forth certain historical per share data of C-TEC
and BVT, and unaudited pro forma combined per share data of C-TEC and BVT,
based on the assumption that the Merger, the Twin County Merger and the
Megacable Acquisition were effective on January 1, 1994. Book value per
share data are computed based on the assumption that the Merger and the
completion of the acquisition of all outstanding shares of common stock of
Twin County occurred on June 30, 1995. Such data assumes that the Merger
and the Twin County transaction were accounted for under the purchase
method of accounting and that the Megacable Acquisition was accounted for
under the equity method of accounting. The pro forma data are not
necessarily indicative of results of operations or financial position that
would have been achieved had such transactions been consummated on such
date and should not be construed as representative of results of future
operations or financial position. This presentation is subject to the
assumptions set forth in the notes to the Unaudited Pro Forma Condensed
Consolidated Financial Statements appearing elsewhere in this Proxy
Statement/Prospectus. The information presented should be read in
conjunction with such pro forma financial statements, and notes thereto,
and the historical financial statements, and notes thereto, of C-TEC, BVT,
Twin County and Megacable included or incorporated by reference in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Six
Months Ended Year Ended
June 30, 1995 December 31, 1994
------------- ------------------
<S> <C> <C>
HISTORICAL
Per Share of C-TEC Common Stock:
Income from continuing operations.... $ .55 $ .17
Book value........................... 13.28 12.73
Cash dividends declared.............. -- --
Per BVT Common Share:
Income from continuing operations.... $ 1.42 $ 3.15
Book value........................... 22.29 21.79
Cash dividends declared.............. .90 1.68
PRO FORMA COMBINED(1)
Per Share of C-TEC Common Stock:
Income (loss) from continuing $ .31 $(1.11)
operations..........................
Book value........................... 13.28 N/A
Cash dividends declared.............. -- --
PRO FORMA EQUIVALENT
PER BVT COMMON SHARE (2)
C-TEC Series AA Preferred Share Held:
Income from continuing operations... $ .31 $(1.11)
Book value.......................... 13.28 N/A
Cash dividends declared............. 1.60 3.20
C-TEC Series AA Preferred Share
Converted into C-TEC Common Stock:
(3)
Income from continuing operations... $ .65 $(2.33)
Book value.......................... 27.89 N/A
Cash dividends declared............. -- --
-------------------------
</TABLE>
(1) The pro forma combined per share of C-TEC Common Stock amounts are
based upon the amounts in the unaudited pro forma financial
information. See "Unaudited Pro Forma Condensed Consolidated Financial
Statements."
(2) The equivalent pro forma combined per BVT Common Share amounts are the
same as the per share of C-TEC Common Stock pro forma combined amounts
because each BVT Common Share receiving Stock Merger Consideration will
be exchanged for one C-TEC Series AA Preferred Share.
(3) The equivalent pro forma combined per BVT Common Share amounts are
based upon the per share of C-TEC Common Stock amounts multiplied by an
exchange ratio of 2.1 shares of C-TEC Common Stock per C-TEC Series AA
Preferred Share. This exchange ratio assumes that each C-TEC Series AA
Preferred Share was converted into approximately 2.1 shares of C-TEC
Common Stock, based upon an assumed conversion price of $29.375, which
assumed conversion price is equal to 125% of the $23.50 closing price
as reported by Dow Jones Tradeline of a share of C-TEC Common Stock on
the Nasdaq National Market on September 5, 1995.
-19-
<PAGE>
Market Price Data
There is no established public trading market for BVT Common Shares,
and accordingly, there are no published market quotations for such stock.
Trading in BVT Common Shares is limited and sporadic. In addition, BVT is
not subject to the requirement of filing periodic reports with the
Securities and Exchange Commission. The absence of an established market
and publicly available current information regarding BVT may affect the
prices at which BVT Common Shares are traded.
There are no C-TEC Series AA Preferred Shares presently outstanding.
It is not anticipated that an active pubic trading market for the C-TEC
Series AA Preferred Shares will develop following the Merger.
Shares of C-TEC Common Stock are included for quotation on the Nasdaq
National Market. The C-TEC Series AA Preferred Shares issuable in the
Merger will be convertible into shares of C-TEC Common Stock at 125% of an
average closing market price of such stock determined shortly before the
Merger. See "DESCRIPTION OF CAPITAL STOCK OF C-TEC--C-TEC Series AA
Preferred Shares--Conversion Rights." The following table sets forth the
high and low bid quotations for shares of C-TEC Common Stock as reported by
Dow Jones Tradeline for the periods indicated below.
<TABLE>
<CAPTION>
High Bid Low Bid
-------- --------
<S> <C> <C> <C>
1993
First Quarter........... $17 3/4 $13 1/2
Second Quarter.......... 25 15 3/4
Third Quarter........... 28 23 1/2
Fourth Quarter.......... 33 1/2 23 3/4
1994
First Quarter........... 31 27 1/4
Second Quarter.......... 28 1/2 24 1/2
Third Quarter........... 29 1/2 21 1/4
Fourth Quarter.......... 28 1/4 18
1995
First Quarter........... 24 3/8 19 1/2
Second Quarter.......... 25 3/4 19 1/8
Third Quarter(1)........ 26 3/8 23
</TABLE>
------------------
(1) Through the close of business on September 5, 1995.
Ratio of Earnings-To-Fixed Charge and Preferred Stock Dividends
The table sets forth the ratio of C-TEC's pretax income from
continuing operations to fixed charges and preferred stock dividends.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
-------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990
-------------- ----- ----- ----- ---- ----
Ratio of earnings to fixed
charges and preferred stock
dividends (1)................. 1.99x 1.11x 1.08x 1.19x .63x .66x
</TABLE>
----------------------
(1) In computing this ratio, earnings represent net income from continuing
operations before income taxes plus fixed charges. Fixed charges
represent interest expense, capitalized interest, dividends on the C-
TEC Series AA Preferred Shares and one-third of rental expense
considered to be interest. In
-20-
<PAGE>
addition, preferred stock dividend requirements are increased to
an amount representing the pre-tax earnings which would be
required to cover such preferred stock dividends.
RISK FACTORS
A substantial portion of the consideration to be received by
holders of BVT Common Shares pursuant to the Merger consists of C-TEC
Series AA Preferred Shares which are convertible into shares of C-TEC
Common Stock. In addition to the other information contained in this Proxy
Statement/Prospectus, holders of BVT Common Shares should consider
carefully the following risk factors relating to C-TEC, the C-TEC Series AA
Preferred Shares and the C-TEC Common Stock before deciding how to vote
with respect to the Merger:
Dividend Policy and Restrictions
Since 1989, C-TEC has maintained a policy of not paying cash
dividends on its common stock. C-TEC does not intend to alter this policy
in the foreseeable future. In addition, as a holding company, C-TEC's
ability to pay dividends on the C-TEC Series AA Preferred Shares will be
dependent upon, among other factors, C-TEC's earnings, financial condition
and cash requirements at the time such payment is considered, and the
payment to C-TEC of dividends, by its subsidiaries. Certain of C-TEC's
subsidiaries are subject to rate regulation by the Federal Communications
Commission (the "FCC") or the Pennsylvania Public Utility Commission
("PaPUC"), and the amount of earnings and dividends of such subsidiaries
are affected by such regulation. See "Risk Factors--Effect of Regulation."
Certain of C-TEC's subsidiaries are also subject to covenants contained in
debt instruments which restrict the payment of dividends by such
subsidiaries.
Highly Competitive Industry
C-TEC engages in various aspects of the telecommunications
industry, and certain of the businesses in which it engages are in highly
competitive sectors of the industry. In addition, as a result of
technological, regulatory and other legal developments, C-TEC faces the
risk of new or increased competition in virtually all businesses in which
it engages. Although these developments are expected to provide new
opportunities for C-TEC, it is not possible to predict their future effect
on the telecommunications industry in general or on C-TEC in particular.
Effect of Regulation
Most of the businesses operated by C-TEC are subject to extensive
regulation. In recent years, C-TEC's Cable Group, like other operators of
cable television systems, has become subject to extensive regulation at the
federal, state and local levels. Many aspects of such regulation are
currently the subject of judicial proceedings and administrative or
legislative proceedings or proposals. On October 5, 1992, Congress passed
the Cable Television Consumer Protection and Competition Act of 1992 (the
"Cable Act") which significantly expanded the scope of regulation of
certain subscriber rates and a number of other matters in the cable
industry, such as mandatory carriage of local broadcast stations and
retransmission consent, and which will increase the administrative costs of
complying with such regulations. On April 1, 1993, the FCC adopted its
initial regulations on cable television rates, and on February 22, 1994,
the FCC adopted revised rate regulations that became effective on May 15,
1994.
C-TEC anticipates that certain provisions of the Cable Act that
do not relate to rate regulation -- such as the provisions relating to
retransmission consent and customer service and technical standards -- will
reduce the operating margins of C-TEC's Cable Group. Otherwise, C-TEC is
currently unable to predict the effect that implementation of the rate
regulations and other provisions of the Cable Act will have on its business
and results of operations in future periods. No assurance can be given at
this time that such matters will not have a material adverse effect on C-
TEC's business and results of operations in the future. Also, no assurance
can be given as to what other future actions Congress, the FCC or other
regulatory authorities may take or the effects thereof on the cable
industry in general or on C-TEC in particular.
The Cable Group's performance is dependent to a large extent on
its ability to obtain and renew its franchise agreements from local
government authorities on acceptable terms. To date, all of the Cable
Group's franchises have been renewed or extended, generally at or prior to
their stated expirations and on acceptable
-21-
<PAGE>
terms. No assurance can be given in this regard as to future franchise
renewals. No one franchise accounts for more than 10% of the Cable Group's
total revenue.
C-TEC's local exchange telephone subsidiary, Commonwealth
Telephone Company ("CTCo"), is subject to a rate-making process regulated
by the PaPUC. Consequently, the ability of C-TEC's Telephone Group to
generate increased income and cash flow is largely dependent on its ability
to increase its subscriber base, obtain higher message volumes and control
its expenses. During 1993, the PaPUC conducted an investigation of the
appropriateness of CTCo transactions with affiliates and analyzed the
earnings of CTCo. Following this investigation CTCo and the PaPUC entered
into an agreement imposing certain requirements and restrictions on CTCo.
Among other things, CTCo agreed to provide its residential customers the
enhancement of touch-tone service free of charge beginning February 1,
1994. The agreement also states that, barring unforeseen regulatory
changes, CTCo will not increase basic service rates prior to January 1,
1997. The PaPUC has also required CTCo to permit only income taxes actually
paid to be recognized as a cost of service. Accordingly, subsequent to
December 31, 1993, C-TEC will not record deferred income taxes on certain
temporary differences. These requirements and restrictions are not expected
to have a material adverse effect on C-TEC.
Control by Principal Shareholder
On most matters, including the election of directors, the holders
of C-TEC Common Stock and the holders of C-TEC Class B Stock vote as a
class with each share of C-TEC Common Stock entitled to one vote and each
share of C-TEC Class B Stock entitled to 15 votes. RCN Corporation ("RCN")
controls over 50% of the total votes of all outstanding shares of C-TEC
stock, beneficially owning, as of August 1, 1995, approximately 43.1% of
the C-TEC Common Stock and 60.8% of the C-TEC Class B Stock. Consequently,
RCN is able to elect a majority of the members of the board of directors of
C-TEC (the "C-TEC Board") and thereby control C-TEC's policies and
operations. In addition, RCN's share ownership gives it the ability to
control certain corporate actions requiring shareholder approval. The
control of C-TEC by RCN may tend to deter nonnegotiated tender offers or
other efforts to obtain control of C-TEC and thereby deprive shareholders
of opportunities to sell shares at prices higher than those prevailing in
the market.
Relationship with RCN; Conflicts of Interest; Noncompetition Agreement
RCN is a subsidiary of Kiewit Diversified Group, Inc. ("KDG"),
which is a wholly owned subsidiary of Peter Kiewit Sons', Inc. ("PKS").
KDG owns 90% of RCN, and David C. McCourt, Chairman and Chief Executive
Officer of C-TEC, owns the remaining 10% of RCN. KDG owns approximately
67% of and controls MFS Communications Company, Inc. ("MFS"). MFS
provides a variety of telecommunications services, primarily over its
digital fiber optic telecommunications networks. Certain of the officers
and directors of C-TEC are also officers or directors of PKS, KDG, RCN and
MFS. As a result of the common control of C-TEC and MFS, possible
conflicts of interest could arise, for example, if either C-TEC or MFS were
presented with the opportunity to engage in a business competing with the
other or if C-TEC and MFS were to enter into a business relationship
together. Potential conflicts of interest will be dealt with on a case-by-
case basis taking into consideration relevant factors including the
requirements of NASDAQ and prevailing corporate practices.
C-TEC and PKS have entered into a Noncompetition Agreement dated
as of May 26, 1993. The Noncompetition Agreement provides, among other
things, that until the earlier to occur of (i) the tenth anniversary of the
date of the Noncompetition Agreement and (ii) the date on which PKS ceases
to own at least 30% of the issued and outstanding shares of common stock of
MFS, PKS will not, and will cause its subsidiaries and affiliates (which
would include C-TEC), not to compete directly or indirectly with MFS for
the provision of certain telecommunications services to business or
government users. In addition, PKS will not, and will cause its
subsidiaries not to compete against MFS in the network systems integration
and facilities management businesses with certain limited exceptions.
Joint Venture
A subsidiary of C-TEC is engaged in preliminary negotiations with
MFS regarding a possible joint venture and facilities lease arrangement
pursuant to which certain of the facilities of MFS would be utilized to
provide telecommunications services to residential customers. C-TEC and
MFS have been involved in ongoing negotiations for many months. The
parties have not reached agreement on a number of the critical issues
concerning the prospective joint venture. This possible transaction would
involve the start up of a new business and there do not exist any
historical financial statements nor any factually supportable data to
prepare pro forma
-22-
<PAGE>
financial statements. The terms of any such agreement and scope of the
joint venture, which may be material to C-TEC, would be determined pursuant
to arm's-length negotiations.
Megacable Acquisition
In January 1995, C-TEC purchased a forty percent equity position
in Megacable, Mexico's second largest cable television operator, currently
serving over 174,000 subscribers in twelve cities. C-TEC is exposed to
foreign currency translation adjustments resulting from the translation
into U.S. dollars of the financial statements of Megacable, which utilize
the peso as the local and foreign currency. As a result of the Megacable
Acquisition, C-TEC may be exposed to risks normally associated with foreign
operations, including, but not limited to, the disruption of markets,
changes in export or import laws, currency fluctuations, restrictions on
currency exchanges, and the modification or introduction of other
governmental policies with potentially adverse effects.
THE MEETING
General
This Proxy Statement/Prospectus is being furnished to holders of BVT
Common Shares in connection with the solicitation of proxies by the BVT
Board to be used at the Meeting or any adjournment thereof.
A proxy card has been enclosed with this Proxy Statement/Prospectus
for use by holders of BVT Common Shares.
The Meeting will be held on Saturday, October 28, 1995, at 2:00 p.m.,
local time, at the Country Cupboard Inn, Route 15 North, Lewisburg,
Pennsylvania 17837.
Matters to be Considered at the Meeting
At the Meeting, shareholders of BVT will consider and vote upon a
proposal to approve and adopt the Merger Agreement. In addition,
shareholders of BVT may be asked to approve a proposal to postpone or
adjourn the Meeting to another time and/or place for the purpose of
soliciting additional proxies in the event that there are not sufficient
votes at the time of the Meeting to approve the Merger Agreement (the
"Adjournment Proposal"). Shareholders of BVT will also consider such other
matters as may properly come before the Meeting or any adjournment thereof.
Because of the pending Merger, BVT's annual shareholders' meeting has
been delayed. If the Merger Agreement is not approved at the Meeting, it
is anticipated that BVT's annual shareholders' meeting would be held in
November 1995.
Record Date; Shares Outstanding; Quorum
Only shareholders of record of BVT at the close of business on
September 8, 1995 (the "Record Date"), will be entitled to receive notice
of the Meeting, and only holders of record of BVT Common Shares as of the
Record Date will be entitled to vote at the Meeting. At the close of
business on September 8, 1995, there were issued and outstanding 899,154
BVT Common Shares. Each BVT Common Share entitles the holder to one vote.
The presence at the Meeting, in person or by proxy, of shareholders
entitled to cast a majority of the votes at the Meeting will constitute a
quorum at the Meeting.
Votes Required
Pursuant to the applicable provisions of the PBCL and BVT's bylaws
(the "BVT Bylaws"), the affirmative vote of a majority of the outstanding
BVT Common Shares present and entitled to vote at the Meeting is required
to approve the Merger Agreement.
As of the Record Date, directors and executive officers of BVT were
the beneficial owners of approximately 166,456 BVT Common Shares, or
approximately 18.5% of the outstanding BVT Common Shares entitled to be
voted at the Meeting. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF BVT." Except for one director, all of the directors and
executive officers of BVT, owning 110,906 BVT Common Shares or
approximately 12.3% of the outstanding BVT Common Shares entitled to vote
at the Meeting, have indicated that they intend to vote such shares in
favor of the Merger Agreement.
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<PAGE>
The affirmative vote of a majority of the shares present, in person or
by proxy, at the Meeting, even if a quorum is not present, will be required
to adjourn the Meeting.
Effect of Abstentions and Broker Nonvotes
Holders of BVT Common Shares entitled to vote at the Meeting may
withhold authority to vote on the Merger Agreement and the Adjournment
Proposal. Such abstentions will be considered as shares present and
entitled to vote at the Meeting, for the purposes of determining the quorum
and the required vote for approval of the Merger Agreement, but will not be
counted as votes cast in the affirmative. Therefore, abstentions by
holders of BVT Common Shares will have the effect of a vote against the
Merger Agreement and against the Adjournment Proposal.
Brokers that are member firms of the New York Stock Exchange ("NYSE")
and who hold shares in street name for customers have authority under the
rules of the NYSE to vote those shares with respect to certain matters if
they do not receive instructions from a beneficial owner. Brokers will not
have the authority to vote shares with respect to the approval of the
Merger Agreement. Assuming that sufficient shares are present at the
Meeting to constitute a quorum, a failure of brokers to vote shares because
they have not received instructions from beneficial owners (a "broker
nonvote") will have no effect on approval of the Merger Agreement or the
Adjournment Proposal because such shares will not be considered present at
the Meeting.
Voting, Revocation and Solicitation of Proxies
All BVT Common Shares represented by properly executed proxies
received in time for the Meeting will be voted at the Meeting in the manner
specified by the holders thereof, unless such proxies have been revoked
prior to the vote. Proxies which do not contain voting instructions will
be voted for approval of the Merger Agreement and the Adjournment Proposal.
It is not expected that any matter other than those referred to herein
will be brought before the Meeting. If, however, other matters are
properly presented, the persons named as proxyholders will vote in
accordance with their judgment with respect to such matters.
A shareholder who executes and returns a proxy on the enclosed form
has the power to revoke it at any time before it is voted. The giving of a
proxy does not affect the right of shareholders to attend the Meeting and
vote in person. A shareholder's presence at the Meeting, however, will not
in itself revoke the shareholder's proxy. A shareholder may revoke a proxy
at any time prior to its exercise by filing with the Secretary of BVT, at
or before the Meeting, a duly executed revocation or a proxy bearing a
later date. Neither attendance at the Meeting nor voting in person at the
Meeting will in itself constitute revocation of a proxy.
BVT will bear the cost of soliciting proxies from its shareholders.
Arrangements will be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of stock held of record by such persons, and BVT will
reimburse such custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses incurred in connection therewith. Proxies may also
be solicited by directors, officers and employees of BVT. Such directors,
officers and employees will not be specially compensated for such services,
but may reimbursed for reasonable out-of-pocket expenses incurred in
connection therewith.
SHAREHOLDERS OF BVT SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXY CARDS. AS DESCRIBED BELOW UNDER THE HEADING "THE MERGER--ELECTION,
ALLOCATION AND EXCHANGE PROCEDURES," EACH BVT SHAREHOLDER WILL BE PROVIDED
WITH MATERIALS FOR EXCHANGING BVT COMMON SHARES AS PROMPTLY AS PRACTICABLE
AFTER THE EFFECTIVE TIME OF THE MERGER.
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<PAGE>
THE MERGER
The information contained in this Proxy Statement/Prospectus regarding
the Merger is not intended to be a complete description of all facts
regarding the Merger and is qualified in all respects by reference to the
Merger Agreement attached to this Proxy Statement/Prospectus as Appendix A
and incorporated herein by reference. Shareholders of BVT are urged to
read carefully the Merger Agreement. For a summary description of the
Merger, see "SUMMARY--The Merger."
Background of the Merger
Introduction
BVT is a regulated local exchange carrier ("LEC") founded in 1904
which provides local telephone service to Union and Northumberland Counties
in central Pennsylvania. BVT is one of approximately 1,300 LECs (or
"telcos") in the United States unaffiliated with the seven Regional Bell
Operating Companies ("RBOCs"). As of June 30, 1995, BVT had approximately
17,300 access lines, making BVT the fourth largest of the 23 independent
telephone companies in Pennsylvania not affiliated with an RBOC or another
national or regional telephone holding company.
BVT Common Shares are not listed on the Nasdaq National Market, the
Nasdaq Small-Cap Market or any stock exchange, and BVT is not subject to
the reporting requirements of the Exchange Act. There is no market maker
holding an inventory position in BVT Common Shares, and the trading market
for BVT Common Shares is extremely thin.
Historically, BVT, like other LECs, has operated as a regulated
monopoly in its telephone franchise area. As such, it has been free of
competition in offering local and network access telephone service to its
franchise customers. BVT's primary regulators, the FCC and the PaPUC,
permit BVT to earn a reasonable rate of return on its rate base. Despite
its low basic service rates, BVT's lean management organization and
comparatively densely populated franchise area have historically permitted
BVT to achieve margins and profitability that compare favorably to its peer
group of independent LECs.
Industry Overview
In recent years, the telecommunications industry has been experiencing
rapid and fundamental changes. These changes have resulted from two long-
term telecommunications industry trends (i) rapid advancements in
telecommunications technology and (ii) increased competition.
Rapidly changing communications technology, including advances in
digital, fiber-optic, cellular, personal communication services ("PCS") and
network software technologies, are blurring the divisions which formerly
separated the telephone, cable television, wireless, video and computer
industries. These technological changes make possible the offering of a
wide range of new, interactive broadband telecommunication services. These
changes also create the opportunity for existing and new services to be
delivered by a variety of service providers.
Since the break-up of AT&T in 1984, the telecommunications industry
has been marked by the interrelated trends of deregulation and increased
competition. Although the shape of future telecommunications industry
regulation cannot be predicted, it is likely that the incremental progress
of deregulation will continue to open new markets to new service providers.
As an example, in recent years competitive access providers ("CAPs") and
system bypass offered by long distance (interexchange or "IXC") carriers,
cable operators and wireless companies have emerged to offer alternative
access for the origination and termination of long distance calls. These
alternative access providers represent a competitive inroad into the most
significant source of LEC revenue -- network access charges.
To date, competition and deregulation have opened access to the
telco's local switching center. In the future, telcos will likely be faced
with additional challenges to their historical revenue base, as well as a
variety of investment options in a changing technological, competitive and
regulatory environment.
BVT Strategic Options
In response to the challenges and opportunities presented by these
changing business and industry conditions, in February 1994, BVT engaged
Snyder & Co. to perform a valuation of BVT and to study BVT's
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<PAGE>
two main strategic options -- a sale of the company or remaining
independent. In May 1994, Snyder & Co. reported its conclusions to the BVT
Board.
With respect to the strategic option of remaining independent, Snyder
& Co. indicated that:
. Margins and profitability of BVT's traditional LEC services
will be under pressure due to increased competition from
interexchange carriers, competitive access providers and
wireless operators. In order to enhance shareholder value
in the future, access line growth and revenue growth would
have to more than offset any loss of income from lower
margins and loss of business from new competitors.
. Because of its rural location and widely dispersed revenue
base, however, Snyder & Co. indicated that historical
margins on BVT's traditional telco operations might continue
for a longer period of time than for LECs which were closer
to urban areas or which had a large number of sizeable
business accounts attractive to system bypass competitors.
. Shareholder value in the future could be eroded if
competitive, technological and regulatory developments cause
the equity markets and potential purchasers to revise
downward the pricing benchmarks and formulas presently used
to determine the value of local telco franchises.
. Remaining independent in the current uncertain
telecommunications environment would require BVT to more
aggressively manage and invest in its business in order to
exploit new revenue opportunities and minimize current
customer attrition.
. BVT has excess cash on hand, unused borrowing capacity and
cash flow in excess of current capital expenditure
requirements. BVT, therefore, has financial resources which
it could use to respond to telecommunications industry
trends by diversifying outside of its LEC franchise into
businesses such as cable television and cellular
communications or by adding new services within its
franchise area such as PCS or video on demand.
. BVT's management has limited experience outside of
traditional LEC operations. Entry into new businesses and
services would require the addition of new managers with
strong backgrounds in marketing, business and diversified
telecommunications.
. Investments in new businesses and services would involve a
higher degree of risk than BVT's traditional telephone
company operations.
With respect to the strategic option of selling the company, Snyder &
Co. indicated that:
. If BVT were sold, shareholders would forego any possible
appreciation in BVT shares above the sale price.
. A sale would limit the risks of the uncertain
telecommunications environment. These risks include (i) the
potential impact on margins and profitability from
competitive inroads into BVT's LEC franchise; (ii) the risks
associated with BVT attempting to invest and successfully
compete in new areas of business; and (iii) the possibility
that cable providers rather than telcos will establish the
broadband connection or "drop" to customers, thereby making
cable the preferred means to develop the "information
superhighway" and deliver the next generation of
telecommunications services.
. A sale would provide increased liquidity to shareholders and
offer an opportunity for BVT shareholders to diversify
outside of their current investment in telco operations.
. Based upon analysis of other telephone industry
acquisitions, Snyder & Co. believed that a number of
telephone companies would be willing to make bids to acquire
BVT. Snyder & Co. estimated that the most likely price
range for such bids would be between $45 and $55 per BVT
Common Share.
-26-
<PAGE>
In summary, Snyder & Co. concluded that both options were viable
strategies. A sale of BVT, however, involved lower risk and fewer
uncertainties than remaining independent.
After considering the conclusions contained in Snyder & Co.'s report,
the BVT Board decided to ascertain the purchase prices that potential
purchasers would be willing to pay to acquire BVT. In October 1994, the
BVT Board retained Snyder & Co. to act as BVT's financial adviser to assist
in exploring a possible sale of BVT.
Merger Negotiations
During November and December 1994, Snyder & Co. made contact with
fourteen telephone holding companies regarding a potential sale of BVT.
Each potential acquiror was provided financial and other business
information regarding BVT and its operations. Eight of the fourteen
potential acquirors made acquisition proposals.
In December 1994, the BVT Board met to consider the acquisition
proposals which had been made. Snyder & Co. and BVT's legal counsel were
present at this meeting. At this meeting, Snyder & Co. reviewed with the
BVT Board the specific details of the proposals which had been made, as
well as general information on each of the potential acquirors. BVT's
legal counsel discussed with the BVT Board their legal duties and
obligations in considering whether or not the company should be sold, as
well as the factors that the directors were entitled to consider in
reviewing one or more acquisition proposals.
The value (as estimated by Snyder & Co.) of the eight proposals ranged
from a low of approximately $30 per BVT Common Share to a high of $58 (all
in cash) per BVT Common Share. Four proposals were valued between $40 and
$50 per share and two proposals were valued between $50 and $55 per share.
The types of consideration offered in the proposals included cash, common
stock, preferred stock, debt securities and combinations of the foregoing.
After a discussion of each of the proposals, the BVT Board authorized
Snyder & Co. to negotiate further with each of the eight bidders. The BVT
Board did not determine at the December meeting whether or not the company
should be sold.
In late December 1994, Snyder & Co. again contacted each of the eight
bidders. Four of the bidders submitted revised proposals. In some cases
the amount of consideration to be paid was increased, while in other
instances the type of the consideration to be paid was modified.
In early January 1995, Snyder & Co. and BVT's legal counsel met with
representatives of C-TEC and one other bidder to more specifically
negotiate the terms of their proposals. The BVT Board was apprised of the
progress of these discussions at its January 18 meeting. Discussions with
these two bidders continued into February.
At a February 8 special meeting, the BVT Board met with
representatives of C-TEC and the other leading bidder. Snyder & Co. and
BVT's legal counsel were present at this meeting. Each of the bidders made
a presentation to the BVT Board regarding the terms of their proposal and
their plans for BVT should it be acquired. After discussion of the
proposals, the BVT Board voted to accept the proposal from the other
bidder. The consideration to be paid in this proposal was, at the election
of BVT shareholders, either approximately $59.50 in cash or shares of
common stock having a value (as estimated by Snyder & Co.) of approximately
$47.50, with at least 50% of the aggregate consideration being paid in the
form of stock. Shortly after the February 8 meeting, however, C-TEC
indicated that it was willing to improve its proposal. The other bidder
was informed and no letter of intent was signed.
The BVT Board next met on February 16. Snyder & Co. and BVT's legal
counsel were present at this meeting. At this meeting, the BVT Board
considered revised proposals from each of the two bidders. After
discussion of the revised proposals, the BVT Board voted to accept a
proposal from C-TEC. The consideration to be paid in the C-TEC proposal
was, at the election of BVT shareholders, either $61.00 in cash or shares
of convertible preferred stock having a value (as estimated by Snyder &
Co.) of approximately $54.25, with at least 50% of the aggregate
consideration paid in the form of stock. Although a letter of intent
regarding this proposal was executed by C-TEC and BVT, no press release was
made because shortly after the February 16 meeting, the other bidder
indicated that it intended to make another revised proposal. C-TEC was
informed of this development.
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<PAGE>
The BVT Board next met on February 22. Snyder & Co. and BVT's legal
counsel were present at this meeting. At this meeting, the BVT Board again
considered proposals from each of the two bidders, each of which proposals
had been revised since February 16. After discussion, the BVT Board voted
to accept a proposal from C-TEC. The terms of the C-TEC proposal were
similar to the transaction terms approved at the February 16 meeting,
except that changes in the preferred stock redemption and conversion
features raised the value (in Snyder & Co.'s estimate) of the proposed
preferred stock offered by C-TEC to approximately $61.00. Another letter
of intent was executed and C-TEC issued a press release regarding the
proposed transaction.
C-TEC thereafter commenced an extensive due diligence review of BVT.
At the same time, counsel for BVT and C-TEC commenced preparation and
negotiation of the definitive documentation for the proposed transaction.
Due diligence and negotiation continued throughout March and April. The
February 22 letter of intent with C-TEC was terminated by BVT on April 7.
Thereafter, BVT had discussions with other potential acquirors and C-TEC
determined that the proposed transaction with BVT was no longer probable.
C-TEC and BVT, however, re-commenced negotiations regarding the proposed
transaction on or about April 18, 1995.
On April 20, the BVT Board reviewed with Snyder & Co. and counsel the
final terms of the proposed transaction. At this meeting Snyder & Co.
orally presented its opinion that the consideration to be received by
shareholders in the Merger was fair, from a financial point of view, to the
shareholders of BVT. See "THE MERGER--Opinion of Financial Advisor." The
BVT Board approved the terms of proposed transaction and authorized BVT to
enter into a definitive merger agreement. On May 10, 1995, the C-TEC Board
approved the transaction. The Merger Agreement was thereafter executed and
a press release was issued on May 11 announcing that C-TEC and BVT had
entered into the Merger Agreement.
Reasons for the Merger; Recommendation of the Board of Directors
The BVT Board believes that the Merger will benefit BVT, its
shareholders and its employees for the reasons discussed below. The BVT
Board believes that the proposed transaction with C-TEC offers BVT's
shareholders very favorable value for their BVT shares, a substantial
improvement in the dividend income and liquidity of their investment, and
significant flexibility for BVT shareholders to select the tax and
investment strategy that suits their individual situation.
As structured, the Merger will enable some holders of BVT Common
Shares to immediately receive cash for their shares. Other shareholders
will be able to acquire preferred stock on a tax-free basis, and the
preferred stock will be convertible into the publicly-traded common stock
of a larger, more diversified company that the BVT Board believes is better
positioned to compete in a rapidly changing telecommunications industry.
The BVT Board has concluded, in view of the foregoing and the factors set
forth below, that the Merger is in the best interests of BVT and its
shareholders and hereby recommends approval of the Merger by BVT's
shareholders.
In reaching its determinations and recommendations above, the BVT
Board considered a number of factors, including, without limitation, the
following material factors:
. The BVT Board's belief that, based on its familiarity with
BVT's business, financial condition, earnings and prospects,
as well as the current conditions in the telecommunications
industry, the terms of the Merger Agreement are attractive
to BVT shareholders.
. The BVT Board's consideration of the investment attributes
of the C-TEC Series AA Preferred Shares. As positive
factors, the BVT Board noted that (i) the $3.20 annual
dividend on the C-TEC Series AA Preferred Shares represents
a substantial increase over the current annual dividend rate
for BVT Common Shares of $1.80, (ii) the ability of the
holder to "put" the C-TEC Series AA Preferred Shares to C-
TEC at $61.00 per share beginning one year after issuance
would provide significant liquidity and downside protection
to those BVT shareholders receiving Stock Merger
Consideration, and (iii) the conversion feature of the C-TEC
Series AA Preferred Shares would provide BVT shareholders an
opportunity to participate in potential common stock
appreciation of a telecommunications company which is larger
and more diversified than BVT. As negative factors, the BVT
Board noted that (i) C-TEC has the ability to "call" the C-
TEC Series AA Preferred Shares beginning two years after
issuance and (ii) C-TEC currently does not pay a dividend on
the C-TEC Common Stock that would be issued upon conversion
of the C-TEC Series AA Preferred Shares.
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<PAGE>
. The opinion of Snyder & Co. that the consideration to be
received by the shareholders of BVT in the Merger was fair
to such shareholders from a financial point of view. The
written opinion of Snyder & Co. is reproduced in full as
Appendix B hereto and BVT's shareholders are urged to read
the opinion carefully in its entirety. See "THE MERGER--
Opinion of Financial Advisor."
. The BVT Board's extensive review of possible merger partners
for BVT other than C-TEC, as well as the BVT Board's review
of the acquisition prices proposed by other possible
acquirors. Based upon Snyder & Co.'s efforts in soliciting
offers from possible purchasers of BVT as described above,
the BVT Board did not believe that it was likely that
attractive offers from additional potential acquirors would
materialize.
. The BVT Board concluded that the terms of the Merger were
financially superior to all other acquisition proposals that
were submitted to BVT.
. The BVT Board considered the fact that, except for the other
bidder described above, the prices offered by the potential
acquirors contacted by Snyder & Co. were significantly lower
than the $61.00 per share price offered by C-TEC. The BVT
Board also noted that the price offered by C-TEC exceeded
the top of the $45-55 likely bid range estimated by Snyder &
Co. in its May 1994 report.
. Although it is difficult to determine a reliable market
price for BVT Common Shares because they are so thinly
traded, the BVT Board noted that the $61.00 per share price
offered by C-TEC was a substantial premium over the $40 to
$50 range at which BVT shares had traded during 1994.
. The BVT Board's belief that the terms of the Merger
Agreement provide a significant increase in the liquidity of
the investment of BVT's shareholders. This increased
liquidity results from (i) approximately half of the merger
consideration being in the form of cash; (ii) the C-TEC
Series AA Preferred Shares being redeemable at the option of
the holder beginning one year after issuance; and (iii) the
C-TEC Common Stock that would be received upon conversion
being actively traded on the Nasdaq National Market.
. The fact that the Merger was structured to qualify as a tax
free exchange. The BVT Board noted that the holders of
approximately half of the outstanding BVT Common Shares
would be able to receive C-TEC Series AA Preferred Shares in
the Merger on a tax-advantaged basis, and that such holders
could subsequently convert such shares into C-TEC Common
Stock without incurring federal income tax liability.
. The BVT Board's review of its strategic option of remaining
independent. The BVT Board concluded that BVT would be at a
competitive disadvantage as a small independent LEC
attempting to enter new businesses to compete in a rapidly
changing telecommunications industry. The BVT Board
believes that an affiliation with C-TEC will give BVT access
to increased financial, technological and managerial
resources that will become increasingly important in a
changing competitive, regulatory and technological
environment.
. The BVT Board considered the fact that if BVT remained
independent for a period of time and was then sold at some
point in the future, future developments in the presently
uncertain telecommunications industry could result in a sale
price below the $61.00 per share price offered by C-TEC.
. The BVT Board considered C-TEC's willingness in the Merger
Agreement to guarantee the continued employment and benefits
of all BVT employees for two years following the Merger.
The BVT Board noted that because BVT would become a stronger
competitor, employment opportunities with BVT (or with other
C-TEC affiliated companies) for many of BVT's current
employees should continue to be available following the
expiration of such two-year period.
The BVT Board did not assign any specific or relative weights to the
factors under its consideration.
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<PAGE>
FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS OF BVT BELIEVES THAT
THE MERGER IS IN THE BEST INTERESTS OF BVT SHAREHOLDERS, HAS APPROVED THE
MERGER AGREEMENT AND RECOMMENDS THAT THE BVT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT.
Opinion of Financial Advisor
BVT retained Snyder & Co. to act as its financial advisor in
connection with a potential sale of BVT and to investigate the proposed
consideration offered by C-TEC and provide an opinion as to the fairness,
from a financial point of view, to the BVT shareholders of the
consideration to be paid in the Merger. Snyder & Co. was selected to act
as BVT's financial advisor based upon its qualifications, expertise and
reputation. Snyder & Co., as a customary part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, private placements and valuations
for estate, corporate and other purposes.
On April 20, 1995, Snyder & Co. delivered its oral opinion to the BVT
Board that, based upon and subject to the considerations set forth therein,
as of such date the consideration to be received by the shareholders of BVT
pursuant to the Merger Agreement was fair from a financial point of view.
This opinion (the "Snyder & Co. Opinion") was confirmed in writing and
updated as of the date of this Proxy Statement/Prospectus. The Snyder & Co.
Opinion was based upon economic, market and other conditions in effect as
of the date of the Snyder & Co. Opinion. No limitations were imposed by
the BVT Board upon Snyder & Co. with respect to the investigations made or
procedures followed by them in rendering the Snyder & Co. Opinion. The
Snyder & Co. Opinion, which sets forth assumptions made, material reviewed,
matters considered and limits on the review, is attached hereto as Appendix
B to this Proxy Statement/Prospectus and is incorporated herein by
reference.
The following is a summary of the Snyder & Co. Opinion which is
attached hereto as Appendix B; however, BVT shareholders are urged to read
the Snyder & Co. Opinion in its entirety. Snyder & Co. has consented to
the inclusion of its opinion in this Proxy Statement/Prospectus and has
reviewed the following summary of its opinion.
The consideration to be paid by C-TEC in the Merger was determined
following extensive negotiations between the management of C-TEC and BVT,
and was approved by the BVT Board. Snyder & Co. advised BVT with respect
to the potential form and amount of consideration that was proposed to be
paid in the Merger and also advised BVT with respect to the relative
merits, from a financial point of view, of the various proposals made by
the potential acquirors of BVT. Snyder & Co. played a significant role in
the negotiation of the terms of the Merger Agreement and the terms of the
C-TEC Series AA Preferred Shares.
In rendering the Snyder & Co. Opinion, Snyder & Co. (i) reviewed the
Merger Agreement, (ii) reviewed the terms of the C-TEC Series AA Preferred
Shares to be issued by C-TEC in the Merger, (iii) reviewed certain other
documents related to the Merger, including this Proxy Statement/Prospectus,
(iv) reviewed certain publicly available financial information concerning
C-TEC and BVT and certain other relevant financial and operating data of
BVT made available from internal records of BVT, (v) held discussions with
BVT management concerning BVT's current and future business prospects, (vi)
held discussions with C-TEC management concerning C-TEC's current and
future business prospects, (vii) reviewed the reported price and trading
activity available for BVT Common Shares and for the shares of C-TEC Common
Stock which would be issuable upon conversion of the C-TEC Series AA
Preferred Shares, (viii) compared certain financial and stock market
information for C-TEC and BVT, respectively, with similar information for
certain comparable companies whose securities are publicly traded, (ix)
compared the financial terms of the Merger Agreement with those of certain
recent business combinations in the telecommunications industry which were
deemed comparable in whole or in part, and (x) performed such other studies
and analyses and considered such other factors as Snyder & Co. deemed
appropriate.
Snyder & Co. relied upon, without independent verification, the
accuracy and completeness of all of the financial and other information
reviewed by and discussed with it for purposes of the Snyder & Co. Opinion.
With respect to information relating to the prospects of C-TEC and BVT and
the underlying assumptions, Snyder & Co. assumed that such information was
reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of C-TEC and BVT, respectively,
as to the likely future financial performance of C-TEC and BVT, and that
such information provided a reasonable basis upon which Snyder & Co. could
form its opinion. Snyder & Co. did not make independent evaluations or
appraisals of the assets or liabilities of BVT or C-TEC, nor was it
furnished with any such appraisals. For purposes of its opinion, Snyder
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<PAGE>
& Co. assumed that the Merger would constitute a tax-free reorganization
under Section 368 of the Internal Revenue Code.
The summary set forth below does not purport to be a complete
description of the analyses performed by Snyder & Co. in this regard. The
preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and,
therefore, such an opinion is not readily susceptible to summary
description. Accordingly, notwithstanding the separate factors discussed
below, Snyder & Co. believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors
considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying the Snyder &
Co. Opinion. No one of the analyses performed by Snyder & Co. was assigned
a greater significance than any other. In performing its analyses, Snyder
& Co. made numerous assumptions with respect to industry performance,
business and economic conditions and other matters, many of which are
beyond BVT's or C-TEC's control. The analyses performed by Snyder & Co.
are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such
analyses. Additionally, analyses relating to the values of businesses do
not purport to be appraisals or to reflect the prices at which businesses
actually may be sold. The following paragraphs summarize all material
analyses performed by Snyder & Co.
Selected Comparable Company Analysis. In connection with the
------------------------------------
preparation of its May 1994 report to the BVT Board, using public
information, Snyder & Co. compared selected historical financial, operating
and stock market performance data of BVT to the corresponding data of
seventeen publicly traded telephone companies - the seven RBOCs and ten
large non-RBOC telephone holding companies (including C-TEC). Snyder & Co.
analyzed the following valuation multiples for each of the comparable
companies: price to earnings (P/E) ratio; dividend yield; price to book
value; aggregate value (market value of common stock plus net debt and
preferred stock) to EBITDA (earnings before interest, taxes, depreciation
and amortization); aggregate value to revenues; aggregate value to
telephone access lines. In this analysis, Snyder & Co. gave greater weight
to the aggregate value to EBITDA multiple since this approach, unlike the
P/E ratio, adjusts to reflect the impact of cellular and cable operations,
as well as the amount of leverage (if any), on financial performance.
Because of the inherent differences between the operations of BVT and
the selected comparable companies, Snyder & Co. believed that an
appropriate use of comparable company analysis in this instance would
involve qualitative judgments concerning differences between the financial
and operating characteristics which would affect the public trading values
of the selected companies and BVT. For example, Snyder & Co. noted that
eight of the comparable companies derived less than 80% of revenues from
telco operations, and that cable television and cellular operations tended
to be valued differently from telco operations.
Based upon its review of the comparable companies, after elimination
of those companies for which data was not relevant, in its May 1994 report
Snyder & Co. derived the following ranges for the most material valuation
multiples:
Comparable Company Valuation Multiples
--------------------------------------
<TABLE>
<CAPTION>
Low High Average Median
--- ---- ------- ------
<S> <C> <C> <C> <C>
P/E Ratio.................... 13.7 18.4 16.4 16.1/16.9
Price/Book Value............. 1.5 3.3 2.5 2.6/2.8
Aggregate Value/EBITDA
1993 EBITDA............... 5.4 8.1 6.7 6.6
Estimated 1994 EBITDA..... 4.6 7.4 5.8 5.6
Aggregate Value/Access Line.. $1,510 $2,395 $1,831 $ 1,810
</TABLE>
In comparing BVT with the comparable publicly-traded companies, Snyder
& Co. concluded that a reasonable value range for a BVT Common Share
(before applying a discount for the illiquidity of BVT Common Shares) was
$45.00 to $47.50. After applying a discount for illiquidity, Snyder & Co.
determined that the value range for a BVT Common Share was between $40.50
and $42.75. The table below sets forth the valuation multiples implied by a
BVT stock price of $45.00 and $47.50, as well as the multiples implied by
the $61.00 valuation implied by the terms of the Merger:
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<PAGE>
<TABLE>
<CAPTION>
Valuation Multiples at a
BVT
Stock Price of:
-------------------------
<S> <C> <C> <C>
$45.00 $47.50 $61.00(1)
------ ------ --------
P/E Ratio.................... 16.4 17.3 19.4
Price/Book Value............. 2.2 2.3 2.8
Aggregate Value/EBITDA
1993 EBITDA............... 6.3 6.6 --
Estimated 1994 EBITDA..... 6.2 6.6 8.1
Aggregate Value/Access Line.. $2,283 $2,417 $ 3,028
</TABLE>
--------------------
(1) Valuation multiples at the $61.00 per share price are based upon
actual BVT operating results for the year ended December 31, 1994 and
the actual BVT balance sheet at December 31, 1994. Other data in the
table is based upon operating results and the balance sheet for the
year ended December 31, 1993.
Selected Comparable Transaction Analysis. In connection with the
----------------------------------------
preparation of its May 1994 report to the BVT Board, using public
information, Snyder & Co. analyzed the prices paid in 28 known acquisitions
of telephone companies since the beginning of 1992. No company or
transaction was identical to BVT, C-TEC or the Merger. Accordingly, an
analysis of the results of this review is not mathematical. Indeed, it
involves complex judgments concerning differences among the operations of
the companies involved and other factors affecting the public trading
prices of the companies which are being compared. The amount of
information available with respect to these transactions varied widely. In
addition, the acquisition pricing of many of these transactions was deemed
by Snyder & Co. not to be relevant to the BVT transaction because of the
size, geographical location or business operations of the acquired
telephone company. Two telco acquisitions were deemed to be most relevant
for Snyder & Co.'s analysis because the acquired companies were of a
comparable size to BVT and there was sufficient information on the
acquisition pricing, transaction structure and the acquired company's
financial statements to analyze the comparative valuation multiples implied
by these transactions. These transactions were the 1992 acquisition of
Central Telephone of Ohio by Century Telephone and the 1992 acquisition of
Statesboro Telephone in Georgia by Rochester Telephone.
Based upon its analysis of these two transactions, Snyder & Co.
derived the following ranges for the most material valuation multiples:
<TABLE>
<CAPTION>
Control Premium Valuations
--------------------------
Central Statesboro
------- ----------
<S> <C> <C>
Price/book value............. 4.1 4.1
Aggregate value/1991 EBITDA.. 8.2 10.8
Aggregate value/access line.. $2,075 $2,688
<CAPTION>
Minority Interest Valuation Ranges
----------------------------------
Central Statesboro
------- ----------
<S> <C> <C>
Price/book value
High...................... 3.5 3.4
Low....................... 3.1 3.0
Aggregate value/1991 EBITDA
High...................... 7.1 9.0
Low....................... 6.4 8.3
Aggregate value/access line
High...................... $1,797 $2,240
Low....................... $1,612 $1,991
</TABLE>
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<PAGE>
The values in the first table above reflect a control premium paid for
acquiring controlling ownership of the acquired company. Because publicly
traded stocks reflect minority rather than control ownership, the
second table reflects high and low valuation multiples implied by these
transactions discounted for a control premium of 20% and 35%. From the
foregoing multiples, Snyder & Co. concluded that the comparable transaction
analysis implied a range of values per BVT Common Share (after discount for
illiquidity) of $36.50 to $51.50. Snyder & Co. noted that the $61.00
valuation implied by the Merger compared favorably with this value range.
Snyder & Co. also noted that the $3,208 per access line valuation of BVT
implied by the Merger exceeded the per access line valuations of both the
Central and Statesboro transactions.
Analysis of Other Acquisition Proposals. In its May 1994 report,
---------------------------------------
Snyder & Co. advised BVT that it believed that a number of
telecommunications companies would be interested in acquiring BVT and the
likely price range would be between $45 and $55 per BVT Common Share based
upon its analysis of other recent telco acquisitions and a comparative
analysis of the publicly-traded securities of selected telecommunication
companies. Further, it advised BVT that the best method to determine BVT's
fair market value was to solicit in an organized manner a significant
number of potential purchasers which Snyder & Co. believed would be
interested in making an offer to acquire BVT. As described above, Snyder &
Co. contacted a substantial number of telecommunications companies
regarding a potential acquisition of BVT. Snyder & Co. concluded that C-
TEC's proposal as reflected in the Merger Agreement was financially
superior to all other acquisition proposals that were submitted to BVT.
Snyder & Co. also noted that the prices offered by potential acquirors
other than C-TEC and the other final bidder were significantly lower than
$61.00 per share.
BVT Stock Trading Analysis. Snyder & Co. analyzed the stock trading
--------------------------
history of BVT Common Shares from the beginning of 1992 through the
beginning of 1995. Snyder & Co. indicated that, because trading in BVT
Common Shares is extremely thin, it is difficult to develop a meaningful
valuation range based on such trading history. Snyder & Co., however,
indicated that such trading history indicated a broad range per BVT Common
Share of between $40 and $50 per share. Snyder & Co. also indicated that
the more recent trading prices may have reflected speculation regarding a
potential sale of BVT.
From the foregoing analyses, Snyder & Co. determined that the
consideration to be received in the Merger was fair to the shareholders of
BVT from a financial point of view. Snyder & Co. also determined that its
conclusion as to the fairness of the merger consideration was supported by
each of the valuation methods utilized.
Pursuant to the terms of an engagement letter dated October 6, 1994,
BVT has agreed to pay Snyder & Co. a retainer of $5,000 per month for
acting as financial advisor in connection with the Merger (including
rendering its opinions). In addition, BVT has agreed to pay Snyder & Co. an
aggregate fee (including retainer amounts already paid) of approximately
$580,000 to be paid at and contingent upon the consummation of the Merger.
Whether or not the Merger is consummated, BVT also has agreed to indemnify
Snyder & Co. and certain related persons against certain liabilities
relating to or arising out of its engagement.
SNYDER & CO.'S OPINION IS DIRECTED ONLY TO THE CONSIDERATION TO BE
PAID IN THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY BVT
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE MEETING.
Terms of the Merger
Effect of the Merger
Pursuant to the Merger Agreement, BVT will be merged with and into
Merger Sub, with Merger Sub as the surviving entity (sometimes referred to
as the "Surviving Corporation") and a wholly owned subsidiary of C-TEC, and
the separate corporate existence of Merger Sub with all its rights,
privileges, immunities, powers and franchises shall continue unaffected by
the Merger. The shares of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time will remain outstanding and
unchanged after the Merger, and will thereafter constitute all of the
issued and outstanding capital stock of the Surviving Corporation. The
articles of incorporation and bylaws of Merger Sub in effect immediately
prior to the Merger will remain in effect as the articles of incorporation
and bylaws of the Surviving Corporation, except that Article I of the
articles of incorporation will be amended to read as follows: "The name of
the corporation is Buffalo Valley Telephone Company." The directors and
officers of Merger Sub immediately prior to the Merger will remain in
office as the directors and officers of the Surviving Corporation.
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Merger Consideration
In connection with the Merger, each BVT Common Share outstanding as of
the Effective Time, other than BVT Common Shares held by persons who have
perfected dissenters' rights and BVT Common Shares held directly or
indirectly by C-TEC which are not held in a fiduciary capacity or in
satisfaction of a debt previously contracted, will be converted into and
become a right to receive either (i) cash in the amount of $61.00 (the
"Cash Merger Consideration"); or (ii) one fully paid and nonassessable C-
TEC Series AA Preferred Share, par value $61.00 per share (the "Stock
Merger Consideration"; the Cash Merger Consideration and the Stock Merger
Consideration, as applicable, the "Per Share Merger Consideration"). For a
description of the terms of the C-TEC Series AA Preferred Shares, see
"DESCRIPTION OF CAPITAL STOCK OF C-TEC--C-TEC Series AA Preferred Shares."
Stock Percentage
Shareholders of BVT will be entitled to elect their preference to
receive the Cash Merger Consideration or the Stock Merger Consideration
with respect to shares held by them, but such elections will be subject to
allocation procedures such that the number of BVT Common Shares which will
be converted into Stock Merger Consideration will equal a specified
percentage of all outstanding BVT Common Shares (the "Stock Percentage").
Following the completion of the shareholder election procedures described
below, C-TEC will determine the Stock Percentage. The Merger Agreement
requires the Stock Percentage, as determined by C-TEC, to be 50% or, if
larger, the minimum percentage necessary for the Merger to qualify as a
tax-free exchange for federal income tax purposes. C-TEC anticipates that
the Stock Percentage will be no more than 50.5%. See "THE MERGER--Election,
Allocation and Exchange Procedures."
Closing; Effective Time
The Merger Agreement provides that the Closing of the Merger will
occur on a mutually agreeable date no later than the second business day
after satisfaction or waiver of certain conditions set forth in the Merger
Agreement (the "Closing Date"). See "THE MERGER--Terms of the Merger--
Conditions to the Merger." On the Closing Date, or as soon thereafter as
practicable, the parties will execute and file in the office of the
Corporation Bureau of the Commonwealth of Pennsylvania appropriate articles
of merger (the "Articles of Merger") in accordance with the provisions of
the PBCL. The Merger will become effective (the "Effective Time") upon the
filing of the Articles of Merger, or the effective date specified therein,
whichever is later.
Representations and Warranties
BVT, C-TEC and Merger Sub have made certain customary representations
and warranties as set forth in the Merger Agreement. The representations
and warranties relate to, among other things, proper organization, powers
and qualifications of each corporation; subsidiaries; authorized capital
stock; authorization of the Merger Agreement; absence of conflict with
other agreements; the consents and approvals that will be required for the
consummation of the Merger; compliance with law; adequacy of financial
statements; brokerage and other fees; absence of false or misleading
statements in the information supplied in connection with the Merger; and
absence of false or misleading statements in financial and other documents.
BVT has made additional representations involving the absence of certain
adverse changes or events, litigation or liabilities other than those
previously disclosed; contracts; labor relations; employee benefit plans;
title to assets; compliance with applicable laws; insurance; dividends and
stock purchases; franchises, licenses or permits; patents and trademarks;
conduct of its business in the ordinary course; tax free reorganization
matters; and receipt of a fairness opinion with respect to the Merger. C-
TEC and Merger Sub have made additional representations as to the valid
issuance of the C-TEC Series AA Preferred Shares; filing of all tax and
other returns and reports; the delivery of, and absence of false
information in, reports filed with the Commission; and access to funds
necessary to pay the Cash Merger Consideration.
Conduct of Business Pending the Merger
BVT has agreed that (except as expressly contemplated or permitted by
the Merger Agreement or to the extent that C-TEC otherwise consents in
writing), between the date of the Merger Agreement and the Effective Time
(a) it will conduct its business in the ordinary course, consistent with
past practice; (b) it will conduct its business so as to cause the
representations and warranties made in the Merger Agreement to be true at
the Closing Date; (c) it will use its reasonable best efforts to maintain
services of its employees and goodwill with suppliers, customers and other
third parties with whom it does business; (d) it will not change its
capital structure and will not issue or sell any capital stock, options or
other rights to acquire any capital stock, or any
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<PAGE>
securities convertible into capital stock; (e) it will not declare, set
aside or pay any dividends or repurchase capital stock, except for the
payment of regular quarterly dividends on its outstanding and preferred
stock and, in accordance with the Merger Agreement, the redemption of its
outstanding cumulative preferred stock; (f) it will not amend its charter
document or bylaws; (g) it will not enter into or amend any employment
contracts or employee benefit plan, materially increase contributions to
employee benefit plans, or, except in the ordinary course consistent with
past practice, increase compensation; (h) it will not incur or guarantee
any debt, except in the ordinary course consistent with past practice; (i)
it will not sell or dispose of any assets except for sales or inventory in
the ordinary course of business consistent with past practice; (j) it will
not change in any material respect its accounting or tax practices,
policies or principles; (k) it will not cancel or waive any debts or claims
having a value of $50,000 in the aggregate; (l) it will pay all taxes as
they become due, file all federal, state, local and foreign tax returns
within the time and in the manner prescribed by law, and collect or
withhold all taxes required to be collected or withheld from employees,
independent consultants or other third parties; (m) it will not file any
amended tax return or enter into a settlement or any audit or other tax
dispute with the IRS or any other taxing authority; (n) it will not
materially change its existing pricing structure, fees and charges
structure, marketing and promotional plans and policies; and (o) it will
not enter into, or modify, any existing lease or contract, except in the
ordinary course consistent with past practice.
Certain Covenants
Pursuant to the Merger Agreement, each of BVT and C-TEC has agreed, from the
date of the Merger Agreement to the Effective Time, (a) to promptly inform
the other party in writing if any information set forth in the schedules
called for in the Merger Agreement is not accurate or complete in all
material respects; (b) that BVT will give C-TEC reasonable access to its
personnel, properties, books, contracts, documents and records; (c) to
obtain all consents, approvals and authorizations required by the Merger
Agreement; (d) to use reasonable best efforts to satisfy all conditions of
the Merger Agreement; and (e) to refrain from making, issuing or releasing
any public announcements concerning the Merger without making a good faith
effort to inform the other party.
Pursuant to the terms of the Merger Agreement, BVT has agreed (a) to call and
hold a meeting of its shareholders for the purpose of voting on the Merger
Agreement; (b) on or prior to July 1, 1995, to call for redemption, in
accordance with BVT's articles of incorporation (the "BVT Articles"), all
outstanding shares of BVT's cumulative preferred stock, to fix the
redemption date of such stock at September 1, 1995, and on or before such
date, to the extent funds are legally available therefor, to pay or
otherwise make effective provision for the payment of the redemption price
on all of such outstanding shares; (c) prior to the Closing Date, to
deliver to C-TEC letters regarding affiliates for purposes of Rule 145
under the Securities Act; and (d) to provide C-TEC with all proxy materials
which BVT intends to use in connection with the Merger.
Pursuant to the terms of the Merger Agreement, C-TEC has also agreed (a) to
file the Registration Statement with the SEC to register the C-TEC Series
AA Preferred Shares to be issued in the Merger, and use its reasonable best
efforts to cause the Registration Statement to become effective; (b) to
file all applicable state securities applications and use its reasonable
best efforts to qualify the C-TEC Series AA Preferred Shares to be issued
in such states; (c) to file an application with the Nasdaq National Market
to list the shares of C-TEC Common Stock issuable upon conversion of C-TEC
Series AA Preferred Shares issued in the Merger, and to use its reasonable
best efforts to obtain approval of such application upon official notice of
issuance; and (d) to include in its proxy statement for its 1995 annual
shareholders meeting a proposal to amend the C-TEC Articles to authorize
sufficient shares of C-TEC preferred stock to permit the issuance of the C-
TEC Series AA Preferred Shares in the Merger.
Continued Employment of BVT Employees
In the Merger Agreement, C-TEC has agreed to continue for a period of two
years following the Effective Time the employment and current salary of all
persons employed by BVT as of the Effective Time. Such persons may only be
terminated during such period for reasonable cause or if an employee
reaches normal retirement age. During this two-year period, C-TEC has also
agreed to cause to remain in effect all current BVT employee benefit plans
or to provide benefits to such employees that are no less favorable, taken
as a whole, than the benefits provided to comparable employees of C-TEC.
To the extent eligibility for participation or entitlement to benefits
under any benefit plan is determined by reference to periods of service, C-
TEC has agreed that the calculation of such periods of service will include
periods of service with BVT. The Merger Agreement permits C-TEC, in lieu
of providing continued salary and benefits, to offer BVT employees
severance compensation. No BVT employee, however, may be required to
accept any such offer.
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<PAGE>
Indemnification of BVT Directors and Officers
In the Merger Agreement, C-TEC has agreed to indemnify and advance expenses
to the directors and officers of BVT to the fullest extent permitted by
applicable law for a period of six years following the Effective Time in
connection with actions or omissions occurring on or prior to the Effective
Time. C-TEC's obligations regarding such indemnification will be limited
to a maximum expenditure of $5,000,000 (including any amounts actually paid
under insurance policies maintained by C-TEC in accordance with the Merger
Agreement). C-TEC has also agreed to use all reasonable efforts to provide
director and officer liability insurance coverage for BVT's officers and
directors for a period of six years following the Effective Time, subject
to a maximum aggregate expenditure for such insurance of $80,000.
No Solicitation; Pursuit of Other Transactions
In the Merger Agreement, BVT has agreed that, except as described below, it
will not, nor will it authorize any of its officers, directors, employees,
affiliates, investment bankers or other representatives or agents to,
directly or indirectly, solicit, encourage (including by way of furnishing
non-public information), initiate discussions or negotiations relating to
or take any other action to facilitate, any inquiries or the making of any
proposal for an "Acquisition Transaction," which is defined in the Merger
Agreement to mean the occurrence of any of the following events: (i) BVT
is acquired by merger or otherwise by any person or group, other than C-
TEC, Merger Sub or any of their respective affiliates (a "Third Party");
(ii) a Third Party acquires more than 30% in value of the assets of BVT;
(iii) a Third Party acquires more than 30% of the outstanding BVT Common
Shares; (iv) BVT adopts and implements a plan of liquidation relating to,
or extraordinary dividend equal to, more than 30% in value of the assets of
BVT; or (v) BVT enters into a preliminary or definitive agreement with a
Third Party relating to any of the transactions referred to in clauses (i)
through (iv) above. BVT has agreed promptly to notify C-TEC orally and in
writing of any inquiries or proposals regarding an Acquisition Transaction.
BVT, however, is permitted to disclose information to, and to engage in
discussions and negotiations concerning an Acquisition Transaction with, a
person who makes a bona fide offer to engage in an Acquisition Transaction
for consideration and on terms which are more favorable to the BVT
shareholders than the terms of the Merger, and who can reasonably be
expected to consummate the Acquisition Transaction on the terms that have
been proposed, and which disclosure, discussions and negotiations shall be
required by reason of the fiduciary obligations of the directors of BVT.
In addition, BVT is permitted, subject to its obligations to pay C-TEC a
termination fee, to terminate the Merger Agreement and accept an offer for
an Acquisition Transaction which the BVT Board concludes is more favorable
to the BVT shareholders than the Merger.
Conditions to the Merger
The obligations of BVT, C-TEC and Merger Sub to consummate the Merger are
subject to, among other things, the satisfaction of the following
conditions: (a) the performance by BVT, C-TEC and Merger Sub of their
respective obligations under the Merger Agreement and the accuracy of their
respective representations and warranties contained therein; (b) approval
of the Merger Agreement and the transactions contemplated thereby by the
shareholders of BVT; (c) approval of the amendment to C-TEC's Articles by
the shareholders of C-TEC as required by the Merger Agreement; (d) the
redemption of the BVT cumulative preferred stock as required by the Merger
Agreement; (e) the absence of any injunctions which would prevent the
consummation of the transactions contemplated by the Merger Agreement; (f)
the absence of any action, suit or proceeding against BVT or C-TEC brought
by the Antitrust Division of the Department of Justice (the "Antitrust
Division") or the Federal Trade Commission (the "FTC") challenging the
Merger under federal antitrust laws; (g) the filing of all documents
required to be filed under the Hart-Scott-Rodino Antitrust Improvement Act
of 1976 (the "HSR Act") and the termination of any required statutory
waiting period required thereunder; (h) the filing of all documents
required to be filed under the Pennsylvania Public Utility Code (the
"PPUC") and the receipt of the approval of the Merger by the PaPUC; (i) the
listing on the NASDAQ National Market of the shares of C-TEC Common Stock
issuable upon conversion of the C-TEC Series AA Preferred Shares issued
pursuant to the Merger; and (j) the effectiveness of the Registration
Statement and the absence of stop orders suspending the effectiveness.
The obligations of C-TEC and Merger Sub to consummate the Merger are further
subject to: (a) the receipt by C-TEC of letters from BVT's affiliates for
purposes of Rule 145 under the Securities Act; (b) the exercise of
dissenters' rights by no more than 5% of the outstanding BVT Common Shares;
(c) the receipt by
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<PAGE>
C-TEC of a ruling from the Internal Revenue Service ("IRS") or an opinion
from Swidler & Berlin, special tax counsel to C-TEC, as to certain tax
matters; (d) the receipt by C-TEC of an opinion dated the Closing Date from
Morgan, Lewis & Bockius, special counsel to BVT, in form and substance
reasonably satisfactory to C-TEC and its counsel; (e) the receipt by C-TEC
of the written resignations of those BVT directors and officers designated
by C-TEC; and (f) the receipt by C-TEC of a Phase I environmental review of
BVT's properties; provided, however, that this condition shall be
-------- -------
automatically waived by C-TEC if the results of such review are not
received by August 15, 1995.
The obligation of BVT to consummate the Merger is further subject to the
receipt by BVT of the written opinion of Snyder & Co. that the
consideration to be received in the Merger by BVT's shareholders is fair
from a financial point of view and to such opinion not being withdrawn
following the mailing of this Proxy Statement/Prospectus.
Waiver; Amendment
Prior to the Effective Time, any provision of the Merger Agreement may be:
(a) waived by the party benefitted by the provision, by board of directors
or authorized officer action, if in the judgment of such board or such
officer such waiver would not have a material adverse effect on the
benefits intended to its shareholders; or (b) amended or modified at any
time by an agreement in writing duly authorized and executed by each of the
parties, except that after approval of the Merger Agreement by the
shareholders of BVT or C-TEC, no amendment which by law requires approval
by the shareholders of BVT or C-TEC may be made without such shareholder
approval.
Termination
The Merger Agreement provides that, notwithstanding approval by the
shareholders of BVT, the Merger Agreement may be terminated and the
transactions contemplated in the Merger Agreement abandoned at any time
prior to the Closing Date: (a) by mutual consent of C-TEC and BVT, or (b)
by either BVT or C-TEC in the event (i) of a material breach by the other
party of any representation, warranty, covenant or agreement contained in
the Merger Agreement, or (ii) if the Effective Time shall not have occurred
on or by December 31, 1995, unless the failure to do so is due to the
breach of the Merger Agreement by the party seeking to terminate or the
parties agree to extend the Effective Time beyond such date.
In addition, BVT may terminate the Merger Agreement, subject to its
obligations to pay the termination fee described below, in order to accept
an offer for an Acquisition Transaction which the BVT Board concludes is
more favorable to the BVT shareholders than the Merger.
Fees and Expenses
Except as set forth below, whether or not the Merger is consummated, all
costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
costs, except that all filings fees under the HSR Act shall be shared
equally by C-TEC and BVT. If the Merger is consummated, costs incurred by
BVT will ultimately be reflected in C-TEC's consolidated financial
position.
In the event that BVT terminates the Merger Agreement in order to enter into
an Acquisition Transaction, BVT shall pay to C-TEC, within one business day
following the termination date, a termination fee in the amount of
$550,000.
Cash Option
The Merger is conditioned upon the shareholders of C-TEC approving an
amendment to C-TEC's Articles authorizing a new class of C-TEC Preferred
Stock and approving the issuance of the C-TEC Series AA Preferred Shares in
the Merger. These matters will be considered at a meeting of C-TEC's
shareholders to be held on September 14, 1995. If such approvals are not
obtained, BVT would have the option to terminate the Merger Agreement or to
proceed with the Merger with the Merger Consideration being solely $61.00
in cash for each BVT Common Share.
Election, Allocation and Exchange Procedures
Shareholder Elections; Allocation Rules
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<PAGE>
Holders of BVT Common Shares will be entitled to elect their preference to
receive the Cash Merger Consideration or the Stock Merger Consideration
with respect to shares held by them, but such elections will be subject to
allocation procedures, described more fully below and in the Merger
Agreement, such that the percentage of outstanding BVT Common Shares which
will be converted into Stock Merger Consideration will equal the Stock
Percentage. The Stock Percentage, as determined by C-TEC, will be
determined by C-TEC, will be 50% or, if larger, the minimum percentage
necessary for the Merger to qualify as a tax-free exchange for federal
income tax purposes. C-TEC anticipates that the Stock Percentage will be
no more than 50.5%.
Within five business days after the Effective Time, BVT and C-TEC shall
prepare and mail to each record holder of BVT Common Shares (other than
holders who perfect dissenters' rights) a form (the "Election Form") to
provide such holders with the opportunity to specify the whole number of
BVT Common Shares owned by each such holder as to which such holder desires
to receive the Cash Merger Consideration (a "Cash Election"), and the whole
number of BVT Common Shares owned by each such holder as to which such
holder desires to receive the Stock Merger Consideration (a "Stock
Election"). Holders will be permitted to make a Cash Election with respect
to a portion of their shares and to make a Stock Election with respect to
the remaining portion of their shares. The failure by the holder of a BVT
Common Share to indicate a preference or to make an effective Cash Election
or Stock Election will, for purposes of the Merger Agreement, be deemed a
"Non-Election."
The Election Form shall specify the date by which all such elections must be
made (the "Election Deadline"), which date shall be determined by BVT and
C-TEC but shall be not earlier than the 20 calendar days following the
Effective Time. Because these elections will be subject to various
allocation and pro ration provisions, the extent to which such elections
will be accommodated will depend upon the number of holders of BVT Common
Shares who make Cash Elections, Stock Elections or Non-Elections, as well
as the exact Stock Percentage specified by C-TEC. Accordingly, a BVT
shareholder electing to receive only Cash Merger Consideration or electing
to receive only Stock Merger Consideration may nonetheless receive a
combination of cash and stock consideration in the Merger. Holders
electing to receive only one type of merger consideration, however, are
assured of receiving at least approximately one half of their consideration
in the form that they requested.
After the Election Deadline, C-TEC or its agent will determine the number of
BVT Common Shares for which there has been made an effective Cash Election
("Cash Election Shares"), Stock Election ("Stock Election Shares") or a
Non-Election ("Non-Election Shares"). C-TEC will then determine the Stock
Percentage.
Once the Stock Percentage has been determined, the shareholder elections will
be allocated and prorated to the extent necessary so that the required
amount of C-TEC Series AA Preferred Shares will be issued in the Merger, as
follows:
(a) If the number of Cash Election Shares plus the number of
shares for which dissenters' rights are being exercised ("Dissenters'
Shares") is more than the number of shares determined to receive Cash
Merger Consideration, (i) Stock Election shares and Non-Election
Shares shall receive Stock Merger Consideration and (ii) to the extent
necessary, a pro rata portion of each holder's Cash Election Shares
shall receive Stock Merger Consideration.
(b) If the number of Stock Election Shares is in excess of the
number of shares determined to receive Stock Merger Consideration
(based upon the Stock Percentage), (i) Cash Election Shares and Non-
Election Shares shall receive Cash Merger Consideration, and (ii) to
the extent necessary, a pro rata portion of each holder's Stock
Election Shares shall receive Cash Merger Consideration.
(c) If the number of Cash Election Shares plus Dissenters'
Shares is less than the number of shares determined to receive Cash
Merger Consideration, and the number of Stock Election Shares is less
than the number of shares determined to receive Stock Merger
Consideration (based upon the Stock Percentage), (i) those holders
making valid Cash or Stock Elections will receive the consideration
requested, and (ii) a pro rata portion of each holder's Non-Election
Shares shall receive Cash Merger Consideration and Stock Merger
Consideration to the extent necessary so that the required amount of
C-TEC Series AA Preferred Shares will be issued in the Merger.
No fractional C-TEC Series AA Preferred Shares will be issued.
Holders of BVT Common Shares who would otherwise be entitled to receive a
fractional share instead will receive a cash payment determined by
multiplying the fractional interest to which such holder would otherwise be
entitled by $61.00.
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Due to the foregoing procedures, elections by shareholders may be
subject to adjustment regardless of the percentage of cash and stock
elected by such shareholder, and the precise consideration to be issued
will not be known until after the Effective Time. No holder of BVT Common
Shares can be assured of receiving solely the type of consideration
specified in such shareholder's election.
The following table sets forth examples of how the foregoing election
and allocation procedures would operate in a number of hypothetical
shareholder election scenarios. For simplicity, the following table
assumes that the Stock Percentage is exactly 50% and that these are no
Dissenters' Shares.
<TABLE>
<CAPTION>
Percentage of BVT Shares Making a
-----------------------------------------------
Cash Election Stock Election Non-Election Result
--------------- ---------------- -------------- -------------------------------
<S> <C> <C> <C>
100% 0% 0% All holders receive half cash
and half stock.
75% 15% 10% Cash Election holders receive
two-thirds cash and one-third
stock; Stock Election and
Non-Election holders receive
all stock.
60% 30% 10% Cash Election holders receive
five-sixths cash and one-sixth
stock; Stock Election and
Non-Election holders receive
all stock.
45% 45% 10% Cash Election holders receive
all cash; Stock Election
holders receive stock; Non-
Election holders receive half
cash and half stock.
30% 60% 10% Cash Election and Non-
Election holders receive all
cash; Stock Election holders
receive five-sixths stock and
one-sixth cash.
15% 75% 10% Cash Election and Non-
Election holders receive all
cash; Stock Election holders
receive two-thirds stock and
one-third cash.
0% 100% 0% All holders receive half cash
and half stock.
</TABLE>
Election and Exchange Procedures
Holders of BVT Common Shares will be required to make their election
by mailing a duly completed Election Form to Bank of Boston, or such other
bank or entity as may be mutually acceptable to C-TEC and BVT as the
exchange agent ("Exchange Agent"). To be effective, an Election Form must
be properly completed, signed and submitted to the Exchange Agent
accompanied by certificates representing the BVT Common Shares as to which
the election is being made (or by an appropriate guaranty of delivery by a
commercial bank or trust company in the United States or a member of a
registered national security exchange or the National Association of
Security Dealers, Inc.), or by evidence that such certificates have been
lost, stolen or destroyed accompanied by such security or indemnity as
shall be reasonably requested by C-TEC. An Election Form and accompanying
share certificates must be received by the Exchange Agent by the close of
business on the Election Deadline. An election may be changed or revoked
but only by written notice received by the Exchange Agent prior to the
Election Deadline including, in the case of a change, a properly completed
revised Election Form. Any share
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certificate which was submitted in connection with an election shall be
returned to the holder thereof in the event such election is revoked as
aforesaid and such holder requests in writing the return of such
certificates.
C-TEC will have the discretion, which it may delegate in whole or in
part to the Exchange Agent, to determine whether the Election Forms have
been properly completed, signed and submitted or changed or revoked and to
disregard immaterial defects in Election Forms. The decision of C-TEC (or
the Exchange Agent) in such matters shall be conclusive and binding.
Neither C-TEC nor the Exchange Agent will be under any obligation to notify
any person of any defect in an Election Form submitted to the Exchange
Agent. The Exchange Agent shall also make all computations contemplated by
the allocation procedures described above.
A holder of BVT Common Shares who does not submit an effective
Election Form to the Exchange Agent prior to the Election Deadline shall be
deemed to have made a Non-Election. If C-TEC or the Exchange Agent shall
determine that any purported Cash Election or Stock Election was not
effectively made, such purported Cash Election or Stock Election shall be
deemed to be of no force and effect and the shareholder making such
purported Cash Election or Stock Election shall, for purposes of the Merger
Agreement, be deemed to have made a Non-Election.
BVT SHAREHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES FOR BVT COMMON
SHARES TO C-TEC, BVT OR THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED
ELECTION FORMS. BVT SHAREHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH
THE ENCLOSED PROXY CARD.
Regulatory Considerations
Antitrust
Under the HSR Act and the rules that have been promulgated thereunder
(the "Rules") by the FTC, certain merger transactions may not be
consummated unless certain information has been furnished to the Antitrust
Division and the FTC and certain applicable waiting periods have expired.
The Merger is subject to the requirements of the HSR Act and the Rules.
Pursuant to the requirements of the HSR Act, C-TEC and BVT each has
filed a Notification and Report Form with respect to the Merger with the
Antitrust Division and the FTC. The waiting period applicable to the
Merger was terminated on August 11, 1995.
At any time before or after the consummation of the Merger, the
Antitrust Division or the FTC could take such action under the antitrust
laws as either deems necessary or desirable in the public interest,
including seeking to enjoin the Merger or seeking divestiture of BVT by C-
TEC following consummation of the Merger. Private parties (including
individual states) may also bring legal actions under the antitrust laws.
Neither C-TEC nor BVT believes that the consummation of the Merger will
result in a violation of any applicable antitrust laws. However, there can
be no assurance that a challenge to the Merger on antitrust grounds will
not be made, or if such a challenge is made, what the result will be.
Pennsylvania Public Utility Commission
Pursuant to the requirements of the PPUC, C-TEC filed an application
with the PaPUC for approval of the Merger on July 27, 1995. It is
anticipated that the PaPUC will approve this application within 90 days
from the date of filing. However, in the event that there is a protest
filed, the approval process may take an additional 90 days.
Interest of Certain Persons in the Merger
Certain directors and officers of BVT have interests in the Merger
that are in addition to their interests as shareholders of BVT generally.
These include C-TEC's agreement to indemnify and provide insurance to the
directors and officers of BVT following the Merger and C-TEC's agreement to
continue the employment of BVT's employees for two years following the
Merger. See "THE MERGER--Terms of the Merger--Indemnification of BVT
Directors and Officers" and "THE MERGER--Terms of the Merger--Continued
Employment of BVT Employees."
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Accounting Treatment
The Merger will be treated as a purchase of BVT by C-TEC for
accounting and financial reporting purposes. Under the purchase method of
accounting, the assets and liabilities of BVT will be recorded on the
consolidated books of C-TEC at their fair values at the Effective Time.
The excess of the value of the consideration paid by C-TEC over the fair
value of BVT's identifiable net assets acquired will be treated as goodwill
and will be amortized over a period of approximately 15 years, subject to
regulatory approval.
Certain Federal Income Tax Consequences
The following is a summary of the anticipated material federal income
tax consequences of the Merger. Each shareholder's individual
circumstances may affect the tax consequences of the Merger to that
shareholder. In addition, no information is provided herein with respect
to the tax consequences of the Merger under applicable foreign, state or
local laws. Consequently, each BVT shareholder is advised to consult his
own tax advisor as to the specific tax consequences of the Merger.
It is intended that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that,
accordingly, for federal income tax purposes: (i) BVT and C-TEC will each
be a "party to a reorganization" within the meaning of Section 368(b) of
the Code; (ii) no gain or loss will be recognized by BVT or C-TEC by reason
of the Merger; (iii) the gain, if any, realized by a holder of BVT Common
Shares upon receipt of C-TEC Series AA Preferred Shares and/or cash in
exchange for BVT Common Shares pursuant to the Merger will not be
recognized in excess of the amount of cash received, and no loss will be
recognized by those holders of BVT Common Shares who exchange their BVT
Common Shares solely for C-TEC Series AA Preferred Shares; (iv) the basis
of the C-TEC Series AA Preferred Shares to be received by the BVT
shareholders will generally be, in each instance, the same as the basis of
the BVT Common Shares surrendered in exchange therefor (but reduced to the
extent any cash received exceeds the amount of gain recognized); and (v)
the holding period of the C-TEC Series AA Preferred Shares to be received
by the shareholders of BVT will include the period during which the BVT
Common Shares surrendered in exchange therefor was held, provided that the
BVT Common Shares surrendered were held as a capital asset on the date of
the exchange pursuant to the Merger.
The obligations of the parties to consummate the Merger is conditioned
upon receipt of an opinion of Swidler & Berlin, tax counsel to C-TEC,
substantially to the effect that the federal income tax consequences of the
Merger are as summarized above. Such an opinion of Swidler & Berlin is
attached to this Proxy Statement/Prospectus as Appendix D.
Assuming that the Merger satisfies all of the requirements of a
reorganization within the meaning of Section 368(a) of the Code, the Merger
will have the following tax consequences to a BVT shareholder who held BVT
Common Shares as a capital asset and will hold any C-TEC Series AA
Preferred Shares received in exchange therefor as a capital asset. Federal
income tax consequences to a BVT shareholder will depend on whether the
shareholder exchanges BVT Common Shares for C-TEC Series AA Preferred
Shares, cash or a combination of C-TEC Series AA Preferred Shares and cash.
If a BVT shareholder exchanges BVT Common Shares for cash, the federal
income tax consequences to that shareholder will also depend on whether
certain related shareholders receive C-TEC Series AA Preferred Shares or
cash.
Only C-TEC Series AA Preferred Shares Received
No gain or loss will be recognized by a BVT shareholder who receives
only C-TEC Series AA Preferred Shares in exchange for BVT Common Shares.
The tax basis of C-TEC Series AA Preferred Shares received by a shareholder
who exchanges all of his BVT Common Shares for C-TEC Series AA Preferred
Shares will be equal to the tax basis of the BVT Common Shares exchanged
therefor, and the holding periods of the C-TEC Series AA Preferred Shares
received by the shareholder will include the holding periods for the BVT
Common Shares.
A BVT shareholder who properly elects to receive C-TEC Series AA
Preferred Shares for all of his BVT Common Shares may nevertheless receive
cash in exchange for some of his BVT Common Shares. See "THE MERGER--
Election, Allocation and Exchange Procedures." In such event, the
following discussion under "--Cash and C-TEC Series AA Preferred Shares
Received" would be applicable.
Cash and C-TEC Series AA Preferred Shares Received
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A BVT shareholder who receives both C-TEC Series AA Preferred Shares
and cash may recognize a gain, but not in excess of the cash received.
Whether a gain will be recognized for federal income tax purposes will
depend on whether the fair market value of the consideration (including C-
TEC Series AA Preferred Shares) received by the BVT shareholder exceeds the
shareholder's tax basis in the BVT Common Shares exchanged for that
consideration. Any such gain will be treated as a capital gain unless the
receipt of the cash is treated as having the effect of a dividend. If the
receipt of cash is treated as having the effect of a dividend, only the
portion of the recognized gain that is not in excess of a ratable share of
the accumulated earnings and profits is taxable as a dividend.
The cash received by a BVT shareholder will not be treated as a
dividend if the requirements of Section 302 of the Code are satisfied,
determined in conjunction with the application of Section 318 of the Code
summarized herein (relating to constructive ownership of stock). In order
to determine whether those requirements are satisfied, a shareholder would
be treated as receiving C-TEC Series AA Preferred Shares in the Merger
(instead of the cash actually received) and then receiving cash from C-TEC
in a hypothetical redemption of those shares. That hypothetical redemption
will satisfy the requirements under Section 302 if it (i) is "not
essentially equivalent to a dividend" within the meaning of Section
302(b)(1) of the Code or (ii) has the effect of a "substantially
disproportionate" redemption of C-TEC Series AA Preferred Shares within the
meaning of Section 302(b)(2) of the Code. Whether the cash received by a
BVT shareholder in hypothetical redemption of C-TEC Series AA Preferred
Shares is essentially equivalent to a dividend depends on the individual
facts and circumstances of each shareholder. However, to qualify for
treatment as a gain rather than a dividend, the hypothetical redemption
must result in a meaningful reduction of a BVT shareholder's proportionate
interest in C-TEC. The hypothetical redemption of C-TEC Series AA
Preferred Shares will be substantially disproportionate if the
shareholder's ownership of C-TEC Series AA Preferred Shares after the
hypothetical redemption is less than 80% of the C-TEC Series AA Preferred
Shares treated as owned by the shareholder before the hypothetical
redemption.
A BVT shareholder's tax basis in C-TEC Series AA Preferred Shares
received pursuant to the Merger will be such shareholder's basis in the BVT
Common Shares exchanged, decreased by any cash received and increased by
any gain recognized (including any gain treated as a dividend). The
holding period for C-TEC Series AA Preferred Shares received by the
shareholder of BVT will include the holding period for the BVT Common
Shares exchanged. If cash is received by a shareholder of BVT in lieu of a
fraction of a C-TEC Series AA Preferred Share, the shareholder will
recognize any gain or loss, or will be treated as having received a
dividend, as if the fractional share had been received and then redeemed
for cash under the rules described in the preceding paragraph.
Only Cash Received
Any BVT shareholder who exchanges all of his BVT Common Shares for
cash will be taxed on any gain or loss from such sale. In addition, any
shareholder who makes an election to receive cash for all his shares may
nevertheless receive some C-TEC Series AA Preferred Shares under the
proration provisions of the Merger Agreement. See "THE MERGER--Election;
Allocation and Exchange Procedures." In such event, the discussion above
under "--Cash and C-TEC Series AA Preferred Shares Received" would be
applicable.
Conversion of C-TEC Series AA Preferred Shares into C-TEC Common Stock
No gain or loss will be recognized by a holder of C-TEC Series AA
Preferred Shares upon the conversion of such shares into shares of C-TEC
Common Stock pursuant to the terms of the C-TEC Series AA Preferred Shares.
Such conversion is treated as a recapitalization pursuant to Section
368(a)(1)(E) of the Code pursuant to which converting shareholders do not
recognize taxable gain or loss on the conversion. A shareholder's basis in
the shares of C-TEC Common Stock received in the conversion will be equal
to such shareholder's basis in the C-TEC Series AA Preferred Shares
converted. A holder of C-TEC Series AA Preferred Shares will be subject to
Federal income tax on the amount of any dividends accrued on the C-TEC
Series AA Preferred Shares paid to the holder at the time of the conversion
(pursuant to the terms of the C-TEC Series AA Preferred Shares, such
dividends shall be paid to the converting shareholder in cash to the extent
funds are available for such purpose under Pennsylvania law). In such
event, the discussion under "Dividends on C-TEC AA Preferred Shares" would
be applicable.
Dividends on C-TEC Series AA Preferred Stock
Distributions of cash or other property received by holders of C-TEC
Series AA Preferred Shares will be taxable dividends taxed at ordinary
income tax rates to the extent of the earnings and profits of C-TEC.
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Corporate holders, however, may be entitled to a dividends received
deduction under Section 243 of the Code (a 70 percent deduction is provided
for corporate recipients which own less than 20 percent of C-TEC).
Redemption Premium
Under the terms of the C-TEC Series AA Preferred Shares, certain
redemptions at the option of C-TEC require a payment by C-TEC higher than
the issue price (such difference is referred to as a redemption premium).
In certain cases, Federal tax laws treat a redemption premium on preferred
stock as a taxable distribution to the holder of such shares recognized on
an economic accrual basis annually during the redemption period beginning
with the date of issuance. If this rule were applied to the redemption of
the C-TEC Series AA Preferred Shares, holders could be required to
recognize taxable income in the years during the redemption period but
preceding any actual redemption. In general, under proposed Treasury
regulations pursuant to Section 305 of the Code, a redemption premium will
not trigger annual income inclusions to holders so long as the redemption
premium is solely in the nature of a penalty for premature redemption.
Further, the redemption premium set forth in the terms of the C-TEC Series
AA Preferred Shares falls within a safe harbor provided in such proposed
regulations. Accordingly, the presence of a redemption premium should not
result in any adverse tax consequences to holders of C-TEC Series AA
Preferred Shares.
Redemption or Sale of C-TEC Series AA Preferred Shares
C-TEC Series AA Preferred Shares received in the Merger should not be
treated as "Section 306 stock", and thus sales of C-TEC Series AA Preferred
Shares will result in the recognition of capital gain or loss to the seller
(provided the C-TEC Series AA Preferred Shares were held as a capital asset
at the time of the sale). Gain or loss will be computed by determining the
difference between the sales price realized by the holder and such holder's
basis in the shares sold.
In general, amounts received by a holder of C-TEC Series AA Preferred
Shares upon redemption should be treated similar to a sale of such C-TEC
Series AA Preferred Shares. While Section 302 of the Code does provide
that certain stock redemptions are treated as taxable dividends rather than
as sales of stock, the IRS has ruled that the redemption of non-voting
preferred stock in a corporation is treated as a sale of such shares if the
holder does not hold any voting shares (such as common stock) in such
corporation. Further, even if the shareholder holds a small amount of
voting shares, the redemption of preferred stock is treated as a sale of
such shares. At least one court has held that holding up to six percent
(6%) of the outstanding voting common stock was not a substantial enough
holding to disqualify a redemption of preferred stock of such holder from
qualifying as a sale. Accordingly, any holder of C-TEC Series AA Preferred
Shares that does not separately own C-TEC Common Stock (or only owns a
small amount of C-TEC Common Stock) will be taxed in connection with any
redemption as if such shares were sold. Any holder of C-TEC Series AA
Preferred Shares that also own substantial amounts of C-TEC Common Stock
will be treated as selling such shares (rather than receiving a taxable
dividend) only if such redemption is treated under Section 302(b)(1) of the
Code as being "not essentially equivalent to a dividend." Such
determination is based upon a variety of facts and circumstances including
the extent to which the C-TEC Series AA Preferred Share redemption results
in a significant reduction in such holder's overall stock holdings in C-
TEC. Such individuals are advised to consult with their individual tax
advisors regarding the tax treatment of any such redemption.
Adjustment of Conversion Price
Pursuant to the terms of the C-TEC Series AA Preferred Shares, the
conversion price used to determine the number of shares of C-TEC Common
Stock received for each share of C-TEC Series AA Preferred Shares will be
adjusted in the event of a C-TEC stock dividend, stock split or similar
event and the resulting adjustment will be made in order to take account of
the readjustment of outstanding shares of C-TEC Common Stock. Under
Section 302(b)(4) of the Code, any such adjustment will not give rise to a
taxable gain or distribution.
Constructive Ownership
Section 318 of the Code provides that stock owned by a taxpayer
includes stock constructively owned. A shareholder is treated as owning
(i) the stock owned by his or her spouse, children, grandchildren and
parents, (ii) stock applicable to an option to acquire stock, (iii) stock
owned by an estate and certain trusts in which the shareholder is a
beneficiary, (iv) stock owned by a partnership (including a limited
liability company treated as a partnership for tax purposes) or Subchapter
S corporation of which the shareholder is a partner or a shareholder, and
(v) stock owned by a corporation (including a limited liability company
treated as a corporation for tax purposes) which is not a Subchapter S
corporation of which the shareholder owns at least 50% of the
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value of the stock. The constructive ownership rules are important in
determining whether the tests in Section 302 of the Code (dealing with
capital gain or dividend treatment of gain recognized as a result of the
Merger) are met. An individual who actually owns no C-TEC Series AA
Preferred Shares but pursuant to Section 318 of the Code, constructively
owns C-TEC Series AA Preferred Shares may avoid family attribution rules by
filing a timely agreement with the Internal Revenue Service under Section
302(c)(2) of the Code and the regulations thereunder. Because of the
complexity of these rules, each holder of BVT Common Shares who believes
they might apply to him is urgent to conduct his own tax advisor.
EACH BVT SHAREHOLDER IS ENCOURAGED TO CONSULT HIS OR HER OWN TAX
ADVISORS AS TO PARTICULAR FACTS AND CIRCUMSTANCES WHICH MAY BE UNIQUE TO
SUCH SHAREHOLDER AND NOT COMMON TO SHAREHOLDERS AS A WHOLE AND ALSO AS TO
ANY ESTATE, GIFT, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES ARISING OUT OF
THE MERGER AND/OR ANY SALE THEREAFTER OF C-TEC SERIES AA PREFERRED SHARES
RECEIVED IN THE MERGER.
Dissenters' Rights
General
Pursuant to the PBCL, any holder of BVT Common Shares has the right to
dissent from the Merger and to obtain payment of the "fair value" (as
defined therein) of such holder's BVT Common Shares, in the event that the
Merger is consummated.
Any shareholder of BVT who contemplates exercising a holder's right to
dissent is urged to read carefully the provisions of Subchapter D of
Chapter 15 of the PBCL attached to this Proxy Statement/Prospectus as
Appendix C. The following is a summary of the steps to be taken if the
right to dissent is to be exercised, and should be read in connection with
the full text Subchapter D of Chapter 15 of the PBCL. Each step must be
taken in the indicated order and in strict compliance with the applicable
provisions of the statute in order to perfect dissenters' rights. The
failure of any holder of BVT Common Shares to comply with the aforesaid
steps will result in the holder receiving the consideration contemplated by
the Merger Agreement in the event that the Merger is consummated. See "THE
MERGER--Terms of the Merger--Merger Consideration."
Any written notice or demand which is required in connection with the
exercise of dissenters' rights, whether before or after the Effective Time,
must be sent to Buffalo Valley Telephone Company, at 20 South Second
Street, Lewisburg, Pennsylvania 17837, Attention: Secretary.
Pursuant to the Merger Agreement, C-TEC is not obligated to consummate
the Merger if holders of more than 5% of the outstanding BVT Common Shares
exercise dissenters' rights.
Fair Value
The term "fair value" means the value of a BVT Common Share
immediately before consummation of the Merger taking into account all
relevant factors, but excluding any appreciation or depreciation in
anticipation of the Merger.
Notice of Intention to Dissent
A BVT shareholder who wishes to dissent must file with BVT, prior to
the vote of shareholders on the Merger at the Meeting, a written notice of
intention to demand payment of the fair value of such holder's BVT Common
Shares if the Merger is effected, must effect no change in the beneficial
ownership of his BVT Common Shares from the date of such notice through the
Effective Time, and must refrain from voting his BVT Common Shares for
approval of the Merger Agreement. Neither a proxy nor a vote against
approval of the Merger will constitute the necessary written notice of
intention to dissent.
Notice to Demand Payment
If the Merger Agreement is approved by the required vote of holders of
BVT Common Shares, BVT will mail a notice to all dissenters who gave due
notice of intention to demand payment and who refrained from voting for
approval of the Merger Agreement. The notice will state where and when a
written demand for payment must be sent and certificates for BVT Common
Shares must be deposited in order to obtain payment, and will include a
form for demanding payment and a copy of Subchapter D of Chapter 15 of the
PBCL. The
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time set for receipt of the demand for payment and deposit of stock
certificates will be not less than 30 days from the date of mailing of the
notice.
Failure to Comply with Notice to Demand Payment, etc.
A holder of BVT Common Shares who fails to timely demand payment or
fails to timely deposit his BVT share certificates, as required by BVT's
notice, will forfeit his dissenters' rights and, if prior to the Election
Deadline, his BVT Common Shares will be considered to be Non-Election
Shares, or, if subsequent to the Election Deadline, such holder will
receive cash in the amount of $61.00 per BVT Common Share.
Payment of Fair Value of Shares
Promptly after the Effective Time, or upon timely receipt of demand
for payment if the Merger already has been consummated, BVT will either
remit to dissenters who have made demand and have deposited their stock
certificates the amount that BVT estimates to be the fair value of the BVT
Common Shares or give written notice that no such remittance is being made.
The remittance or notice will be accompanied by (i) a closing balance sheet
and statement of income of BVT for a fiscal year ending not more than 16
months before the date of remittance or notice together with the latest
available interim financial statements; (ii) a statement of BVT's estimate
of the fair value of the BVT Common Shares; and (iii) a notice of the right
of the dissenter to demand supplemental payment under the PBCL accompanied
by a copy of Subchapter D of Chapter 15 of the PBCL.
Estimate by Dissenter of Fair Value of Shares
If a dissenter believes that the amount stated or remitted by BVT is
less than the fair value of the BVT Common Shares, a dissenter may send to
BVT his own estimate of the fair value of the BVT Common Shares, which
shall be deemed to be a demand for payment of the amount of the deficiency.
If BVT remits payment of its estimated value of a dissenter's BVT Common
Shares and the dissenter does not file his own estimate within 30 days
after the mailing by BVT of its remittance, the dissenter will be entitled
to no more than the amount remitted to him by BVT.
Valuation Proceedings
If any demands for payment remain unsettled, within 60 days after the
latest to occur of (i) the Effective Date; (ii) timely receipt by BVT of
any demands for payment; or (iii) timely receipt by BVT of any estimates by
dissenters of fair value, BVT may file in the Court of Common Pleas of
Luzerne County (the "Court") an application requesting that the fair value
of the BVT Common Shares be determined by the Court. In such case, all
dissenters, wherever residing, whose demands have not been settled, shall
be made parties to the proceeding as in an action against their shares, and
a copy of the application shall be served on each such dissenter.
If BVT were to fail to file such an application, then any dissenter,
on behalf of all dissenters who have made a demand and who have not settled
their claim against BVT, may file an application in the name of BVT at any
time within the 30-day period after the expiration of the 60-day period and
request that the fair value be determined by the Court. The fair value
determined by the Court may, but need not, equal the dissenters' estimates
of fair value. If no dissenter files such an application, then each
dissenter entitled to do so shall be paid BVT's estimate of the fair value
of the BVT Common Shares and no more, and may bring an action to recover
any amount not previously remitted, plus interest at a rate the Court finds
fair and equitable.
BVT intends to negotiate in good faith with any dissenting
shareholders. If after negotiation a claim cannot be settled, then BVT
intends to file an application requesting that the fair value of the BVT
Common Shares be determined by the Court.
Costs and Expenses
The costs and expenses of any valuation proceedings in the Court,
including the reasonable compensation and expenses of any appraiser
appointed by the Court to recommend a decision on the issue of fair value,
will be determined by the Court and assessed against BVT except that any
part of the costs and expenses may be apportioned and assessed by the Court
against all or any of the dissenters who are parties and whose action in
demanding supplemental payment the Court finds to be dilatory, obdurate,
arbitrary, vexatious or in bad faith.
RESALE RESTRICTIONS
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The C-TEC Series AA Preferred Shares issuable in connection with the
Merger have been registered under the Securities Act, but such registration
does not cover resales by shareholders of BVT who may be deemed to control,
be controlled by or be under common control with BVT or C-TEC at the time
of or after the Merger and who therefore may be deemed "affiliates" of BVT
or C-TEC as that term is used in Rule 145 under the Securities Act. Such
affiliates may not sell their C-TEC Series AA Preferred Shares acquired in
connection with the Merger (or shares of C-TEC Common Stock acquired upon
conversion of C-TEC Series AA Preferred Shares) except pursuant to: (i) an
effective registration statement under the Securities Act covering such
shares; (ii) the conditions contemplated by paragraph (d) of Rule 145; or
(iii) another applicable exemption from the registration requirements of
the Securities Act. Rule 145, as currently in effect, imposes restrictions
on the manner in which such affiliates may make resales and also on the
quantities of resales which such affiliates, and others with whom they act
in concert, may make within any three-month period.
The Merger Agreement requires as a condition to the Merger that each
such affiliate of BVT enter into an agreement not to sell C-TEC Series AA
Preferred Shares acquired in the Merger (or shares of C-TEC Common Stock
acquired upon conversion of C-TEC Series AA Preferred Shares) except in
accordance with the requirements of the Securities Act and the regulations
thereunder.
Persons who may be deemed to be affiliates of BVT include directors,
officers and certain large holders of BVT Common Shares. Management of BVT
will notify those persons whom it believes may be such affiliates. BVT
shareholders who are not deemed to be affiliates of BVT or C-TEC may sell
their C-TEC Series AA Preferred Shares (or shares of C-TEC Common Stock
acquired upon conversion of C-TEC Series AA Preferred Shares) without being
subject to the above restrictions.
DESCRIPTION OF CAPITAL STOCK OF C-TEC
As of September 1, 1995, C-TEC's authorized capital stock consisted of
35,000,000 shares of C-TEC Common Stock, 19,247,126 of which were issued
and outstanding, and 8,753,203 shares of C-TEC Class B Stock, 8,575,883 of
which were issued and outstanding. In addition, 8,575,883 shares of C-TEC
Common Stock were reserved for issuance upon possible conversion of the
outstanding shares of C-TEC Class B Stock and 1,350,000 shares of C-TEC
Common Stock were reserved for issuance in connection with stock options.
As of August 1, 1995, C-TEC had no authorized or outstanding preferred
stock.
The C-TEC Board has adopted a resolution unanimously approving and
recommending to C-TEC's shareholders, for approval at a shareholders'
meeting to be held on September 14, 1995, amendments to C-TEC's Articles
(i) increasing the authorized number of shares of C-TEC Common Stock to
85,000,000, (ii) increasing the authorized number of shares of C-TEC Class
B Stock to 15,000,000, and (iii) authorizing a new class of 25,000,000
shares of C-TEC Preferred Stock in such series and with such rights and
preferences as the C-TEC Board may determine from time to time; and (b)
proposals for the issuance of (i) C-TEC TC Preferred Shares having an
aggregate stated value of $52.1 million in connection with the Twin County
Merger, and (ii) C-TEC Series AA Preferred Shares in connection with the
Merger.
C-TEC Common Stock and C-TEC Class B Stock
The following description of the C-TEC Common Stock and C-TEC Class B
Stock is not intended to be complete and is qualified in its entirety by
reference to C-TEC's Articles, a copy of which is on file with the
Commission.
Voting Rights
Generally, with respect to all matters upon which shareholders are
entitled to vote (including the election of directors) or to which
shareholders are entitled to give consent, the holders of the outstanding
shares of the C-TEC Common Stock and the holders of any outstanding shares
of the C-TEC Class B Stock shall vote together without regard to class, and
every holder of the outstanding shares of the C-TEC Common Stock shall be
entitled to cast one vote for each share of the C-TEC Common Stock held,
and every holder of any outstanding shares of the C-TEC Class B Stock shall
be entitled to cast fifteen votes for each share of the C-TEC Class B Stock
held. However, with respect to any proposed amendment to the C-TEC
Articles that would (i) increase or decrease the par value of any class;
(ii) alter or change the preferences, qualifications, limitations,
restrictions or special or relative rights of the shares of any class so as
to affect the holders of such
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class adversely; (iii) increase the authorized number of shares of any
class; (iv) authorize a new class of shares senior or superior in any
respect to the shares of any class; or (v) increase the number of
authorized shares of any class senior or superior in any respect to the
shares of any class then authorized, the approval of a majority of the
votes entitled to be cast by the holders of the class affected by the
proposed amendment, voting separately as a class, shall be obtained in
addition to the approval of a majority of the votes entitled to be cast by
the holders of the C-TEC Common Stock and the C-TEC Class B Stock voting
together without regard to class as described above.
Ranking
The C-TEC Common Stock and C-TEC Class B Stock will rank, with respect
to the payment of dividends or distribution of assets upon liquidation,
junior to the C-TEC Series AA Preferred Shares, the C-TEC TC Preferred
Shares and any other class or series of C-TEC stock expressly stated to be
senior to the C-TEC Common Stock and C-TEC Class B Stock. Except as
otherwise required by the PBCL or as otherwise provided in the C-TEC
Articles, each share of the C-TEC Common Stock and each share of the C-TEC
Class B Stock has identical powers, preferences and rights, including
rights in liquidation.
Dividends and Distributions
At any time shares of the C-TEC Class B Stock are outstanding, as and
when cash dividends may be declared by the C-TEC Board, the cash dividends
payable on shares of the C-TEC Common Stock shall be in all cases at least
105% of the cash dividend payable on shares of the C-TEC Class B Stock.
In the case of dividends in the form of stock or other property of C-
TEC, each share of the C-TEC Common Stock and each share of the C-TEC Class
B Stock is equal in respect of rights to dividends except that in the case
of dividends or other distributions payable in stock or stock split-ups or
divisions, shares of the C-TEC Class B Stock shall be distributed only with
respect to the C-TEC Class B Stock and shares of the C-TEC Common Stock may
be distributed with respect to both the C-TEC Common Stock and the C-TEC
Class B Stock.
Liquidation Rights
In the event of dissolution, liquidation or winding up of C-TEC
whether voluntary or involuntary, holders of C-TEC Common Stock and C-TEC
Class B Stock shall be entitled to payment out of the assets of the Company
ratably in accordance with the number of shares held by them, respectively.
Conversion of Class B Stock
Shares of C-TEC Class B Stock shall be convertible at the option of
the respective holders thereof, at any time, into fully paid and
nonassessable shares of C-TEC Common Stock on the basis of one share of C-
TEC Common Stock for each share of C-TEC Class B Stock. Any holder of
shares of the C-TEC Class B Stock may elect to convert any or all of such
shares at one time or at various times, in such holder's discretion.
No payment or adjustment with respect to dividends on shares of the C-
TEC Common Stock or on the C-TEC Class B Stock shall be made in connection
with any conversion of shares of C-TEC Class B Stock into shares of C-TEC
Common Stock except for those shares of the C-TEC Class B Stock converted
subsequent to the record date for the payment of a stock or cash dividend
or other distribution on the shares of the C-TEC Class B Stock but prior to
such payment. In such an instance, the stock or cash dividend or other
distribution will be paid on the C-TEC Class B Stock to the registered
holder of such shares as of the close of business on the record date as if
no conversion had been made.
In the event of any capital reorganization or any reclassification of
the C-TEC Common Stock (except for reorganizations or reclassifications
involving a subdivision or combination of outstanding shares of the C-TEC
Common Stock), the shares of the C-TEC Class B Stock shall thereafter have
the right to be converted into the number of shares of stock or other
securities or property of C-TEC to which outstanding shares of the C-TEC
Common Stock would have been entitled upon the effective date of the
reorganization or reclassification.
If the shares of the C-TEC Common Stock or the C-TEC Class B Stock at
any time outstanding shall, by reclassification or otherwise, be subdivided
into a greater number of shares or combined into a lesser number of shares,
the shares of C-TEC Class B Stock or C-TEC Common Stock, respectively, then
outstanding shall, at the same time, be subdivided or combined, as the case
may be, on the same basis.
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<PAGE>
Duration of Class Rights and Powers
At any time when less than 25,000 shares of C-TEC Class B Stock are
outstanding any shares of the C-TEC Class B Stock which are then
outstanding shall without any action by the C-TEC Board or the holder or
holders thereof, automatically convert into and become for all purposes
shares of C-TEC Common Stock, and the provisions of the C-TEC Articles
which provide for different voting or cash dividend rights for the C-TEC
Common Stock and the C-TEC Class B Stock shall not be of any effect. All
shares of either or both the C-TEC Common Stock or the C-TEC Class B Stock
which are then outstanding shall have equal and general voting power in all
matters upon which shareholders of C-TEC are entitled to vote or give
consent, even if at such time there shall have been fixed by the Board of
Directors a record date for voting of any meeting of shareholders.
General
The transfer agent and registrar for C-TEC's shares of C-TEC Common
Stock and C-TEC Class B Stock is The First National Bank of Boston.
C-TEC Series AA Preferred Shares
The following description of the material terms of the C-TEC Series AA
Preferred Shares is not intended to be complete, and is qualified in its
entirety by reference to the resolution of the C-TEC Board establishing and
designating the C-TEC Series AA Preferred Shares, which is set forth as
Exhibit A to the Merger Agreement, which agreement is attached to this
Proxy Statement/Prospectus as Appendix A. The issuance of the C-TEC Series
AA Preferred Shares in connection with the Merger is subject to approval by
the shareholders of such issuance, as well as of an amendment to C-TEC's
Articles authorizing a new class of C-TEC Preferred Stock. These matters
will be considered at a meeting of C-TEC's shareholders to be held on
September 14, 1995.
Rank
The C-TEC Series AA Preferred Shares will rank, with respect to the
payment of dividends or distribution of assets upon liquidation, senior to
C-TEC's Common Stock, Class B Stock or any other class or series of C-TEC
stock expressly stated to rank junior to the C-TEC Series AA Preferred
Shares ("Junior Stock"). The C-TEC Series AA Preferred Shares will rank
pari passu with the C-TEC Preferred Shares and any other class or series of
C-TEC Stock expressly stated to be on a parity with the C-TEC Series AA
Preferred Shares ("Parity Stock"). As discussed below under "--Voting
Rights", C-TEC may not issue any stock ranking senior to the C-TEC Series
AA Preferred Shares ("Senior Stock") without the consent of the holders,
voting together as a single class, of the C-TEC Series AA Preferred Shares
and the Parity Stock.
Dividends
Holders of the C-TEC Series AA Preferred Shares will be entitled to
receive, as and if declared by the C-TEC Board out of C-TEC funds legally
available therefor, cash dividends at an annual rate of $3.20 per share.
Dividends will be paid in equal semi-annual installments of $1.60 and shall
be cumulative. No interest shall be payable in respect of any dividend
payments which may be in arrears. So long as C-TEC has funds legally
available for such purpose, the C-TEC Board shall have a mandatory duty to
declare and pay dividends on the C-TEC Series AA Preferred Shares (as well
as to make required redemptions of C-TEC Series AA Preferred Shares), and
holders shall have the right to specifically enforce declaration and
payment of dividends (as well as required redemptions) to the extent
permitted by Section 1521(b) of the PBCL.
Unless full cumulative dividends on outstanding C-TEC Series AA
Preferred Shares have been paid, no dividend or other distribution (except
in Junior Stock) shall be declared or paid on any Junior Stock and no
amount shall be set aside or applied to the redemption, purchase or other
acquisition of Junior Stock other than by exchange therefor of Junior Stock
or, with respect to redemptions, purchases or other acquisitions of Junior
Stock other than C-TEC Common Stock or Class B Stock, out of the proceeds
of a substantially concurrent sale of shares of Junior Stock.
The ability of C-TEC, as a holding company, to pay dividends on the C-
TEC Series AA Preferred Shares will be dependent upon, among other factors,
C-TEC's earnings, financial condition and cash requirements at the time
such payment is considered, and the payment to C-TEC of dividends by its
subsidiaries. Certain of C-TEC's subsidiaries are subject to rate
regulation by the FCC or the PaPUC, and the amount of earnings and
dividends of such subsidiaries are affected by the manner in which they are
regulated by such authorities. In
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<PAGE>
addition, certain of C-TEC's subsidiaries are subject to covenants
contained in debt instruments which restrict the payment of dividends by
such subsidiaries.
Liquidation Rights
In the event of any liquidation, dissolution or winding up of C-TEC,
the holders of C-TEC Series AA Preferred Shares shall be entitled to
receive from the assets of C-TEC payment in cash of $61.00 per share, plus
a further amount equal to unpaid cumulative dividends on C-TEC Series AA
Preferred Shares accrued to the date of payment, before any amount shall be
paid or set aside for, or any distribution of assets shall be made to, the
holders of Junior Stock. If upon any such liquidation, dissolution or
winding up, the amounts payable with respect to the holders of C-TEC Series
AA Preferred Shares and any other outstanding Parity Stock cannot be paid
in full, then the holders of C-TEC Series AA Preferred Shares and such
Parity Stock will share ratably in any such distribution in proportion to
the full respective preferential amounts (including unpaid cumulative
dividends, if any) to which they are entitled. None of the following
transactions will be considered a liquidation, dissolution or winding up of
C-TEC for these purposes: (i) a merger or consolidation of C-TEC with any
other corporation; (ii) a reorganization or division of C-TEC; (iii) the
purchase or redemption of all or part of any outstanding C-TEC stock; (iv)
a sale or transfer of all or any part of C-TEC's assets; or (v) a share
exchange to which C-TEC is a party.
Conversion Rights
The C-TEC Series AA Preferred Shares will be convertible at the option
of the holder at any time into a number of whole shares of C-TEC Common
Stock equal to the liquidation preference of $61.00 divided by the
conversion price in effect at the time of such conversion (with fractional
shares paid in cash as described below). The right to convert C-TEC Series
AA Preferred Shares which have been called for redemption by C-TEC will
terminate at the close of business on the business day next preceding the
redemption date unless C-TEC shall default in paying the redemption price.
See "--Redemption at the Option of C-TEC" below.
The conversion price shall be 125% of the average "market price" of a
share of C-TEC Common Stock for the ten consecutive business days
commencing 3 business days before the Closing Date. The "market price" for
each day shall be the average of the last reported bid and asked prices in
the over-the-counter market as furnished by the Nasdaq National Market
System. The conversion price, however, may not be less than $24.00 nor
more than the higher of (i) $36.00 or (ii) such average "market price."
The conversion price will be subject to adjustment (under formulas set
forth in the statement of designation relating to the C-TEC Series AA
Preferred Shares) in certain events, including: (i) dividends and other
distributions on C-TEC Common Stock payable in shares of any class or
series of C-TEC capital stock; (ii) certain subdivisions, combinations and
reclassifications of C-TEC Common Stock; (iii) the issuance to all holders
of C-TEC Common Stock of rights, options or warrants entitling them to
subscribe for or purchase C-TEC Common Stock at less than the current
market price (as defined); and (iv) distributions to all holders of C-TEC
Common Stock of evidences of indebtedness of C-TEC or assets (excluding
cash dividends) or rights or warrants (other than the rights or warrants
described in clause (iii) above) to purchase or subscribe for any C-TEC
securities
In the event of any (i) capital reorganization of C-TEC; (ii) merger,
consolidation or share exchange of C-TEC with or into another corporation;
(iii) division of C-TEC; or (iv) sale, lease, exchange or other disposition
of all or substantially all of the property and assets of C-TEC as a result
of which other than solely cash shall be exchanged for shares of C-TEC
Common Stock, all holders of C-TEC Series AA Preferred Shares will
thereafter have the right to convert C-TEC Series AA Preferred Shares into
the kind and amount of securities, stock or other assets which the holders
would have been entitled to receive upon such reorganization, merger,
consolidation, share exchange, division, sale, lease, exchange or other
disposition if the holders had held the number of shares of C-TEC Common
Stock issuable upon conversion of their C-TEC Series AA Preferred Shares
immediately prior to such reorganization, merger, consolidation, share
exchange, division, sale, lease, exchange or other disposition.
No adjustment of the conversion price will be required to be made
until cumulative adjustments amount to 1% or more of the conversion price
as last adjusted, except that any adjustments which are not required to be
made shall be carried forward and taken into account in calculating each
subsequent adjustment.
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<PAGE>
Upon conversion of any shares of C-TEC Series AA Stock, C-TEC shall
deliver to the holder of the shares, together with the certificates for the
C-TEC Common Stock issued upon conversion, payment for all accrued and
unpaid cumulative dividends on such shares through the date of conversion.
Fractional shares of C-TEC Common Stock will not to be issued upon
conversion. In lieu thereof, C-TEC will either pay a cash adjustment based
upon market price of C-TEC Common Stock on the business day preceding the
date of conversion or deliver a scrip certificate of C-TEC in respect of
such fractional share.
C-TEC will reserve a number of shares of C-TEC Common Stock sufficient
for the satisfaction of any scrip certificates and the conversion of all
outstanding C-TEC Series AA Preferred Shares. For so long as C-TEC Common
Stock is listed or included for quotation or trading on any securities
exchange or market or trading system, C-TEC will list or include on any
such exchange, market or system all shares of C-TEC Common Stock issuable
upon conversion of the outstanding C-TEC Series AA Preferred Shares.
Redemption at the Option of C-TEC
The C-TEC Series AA Preferred Shares are not subject to any mandatory
redemption or sinking fund provision. Commencing on the second anniversary
of the Closing Date, the C-TEC Series AA Preferred Shares will be
redeemable for cash, at the option of C-TEC, on at least 30 but not more
than 60 days notice, in whole or in part from time to time. The redemption
price shall equal the applicable percentage of $61.00 per share specified
below, plus an amount equal to the accrued and unpaid cumulative dividends
to the redemption date:
<TABLE>
<CAPTION>
Beginning of the
Anniversary of the
Effective
Date Percentage
------------- ----------
<S> <C>
Second............... 105.25%
Third................ 104.00%
Fourth............... 103.00%
Fifth................ 102.00%
Sixth................ 101.00%
Seventh and
thereafter......... 100.00%
</TABLE>
Any C-TEC Series AA Preferred Shares which have been called for redemption
may be converted into shares of C-TEC Common Stock at any time prior to the
close of business on the business day prior to the redemption date.
Unless full cumulative dividends due on outstanding C-TEC Series AA Preferred
Shares have been paid and all prior redemptions at the option of the
holders have been made, C-TEC may not redeem any C-TEC Series AA Preferred
Shares or shares of Parity Stock unless all outstanding shares of C-TEC
Series AA Stock are redeemed, and C-TEC may not purchase or otherwise
acquire any C-TEC Series AA Preferred Shares or shares of Parity Stock
except in accordance with a purchase or exchange offer made simultaneously
to all holders of C-TEC Series AA Preferred Shares and shares of Parity
Stock which, in the reasonable opinion of the C-TEC Board, will result in
fair and equitable treatment among all such shares. If less than all of
the outstanding C-TEC Series AA Preferred Shares shall be called for
redemption, the particular shares to be redeemed shall be selected by lot
or by such other equitable manner as may be prescribed by the C-TEC Board.
Redemption at the Option of the Holders
Commencing on the first anniversary of the Closing Date and at any time or
from time to time thereafter, each holder of C-TEC Series AA Preferred
Shares shall have the right, at such holder's option, to require C-TEC to
redeem all or a portion of such holder's C-TEC Series AA Preferred Shares
at a redemption price of $61.00, plus an amount equal to the accrued and
unpaid cumulative dividends thereon to the redemption date. Requests for
redemption by holders of C-TEC Series AA Preferred Shares will be
irrevocable and (unless C-TEC shall default in making the requested
redemption) shall terminate all conversion rights of the holder with
respect to the C-TEC Series AA Preferred Shares to be redeemed.
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<PAGE>
Holders may not exercise their optional redemption right for less than 100
shares of C-TEC Series AA Preferred Shares (or, if less than 100, all
shares of C-TEC Series AA Preferred Shares owned by such holder). As of
each March 31, June 30, September 30 and December 31, C-TEC shall redeem
all C-TEC Series AA Preferred Shares for which a notice of optional
redemption has been received by C-TEC prior to the close of business on the
immediately preceding February 15, May 15, August 15 or November 15,
respectively. C-TEC shall also redeem all C-TEC Series AA Preferred Shares
for which a notice of optional redemption has been received by C-TEC during
the 30 day period following the date of mailing by C-TEC to the holders of
a notice of a reclassification, capital reorganization, merger,
consolidation, share exchange, division, sale, lease, exchange or other
disposition of assets, liquidation, dissolution or winding-up relating to
C-TEC.
Voting Rights
Except as indicated below or as required by law, holders of C-TEC Series AA
Preferred Shares will have no voting rights. In the event that (i)
dividends upon the C-TEC Series AA Preferred Shares shall be in arrears in
an amount equal to three full semi-annual dividends thereon or (ii) any
redemption of C-TEC Series AA Preferred Shares at the option of the holder
has not been made as required, the number of directors constituting the
full C-TEC Board shall be increased by one, and the holders of the C-TEC
Series AA Preferred Shares, voting noncumulatively separately as a single
class together with the holders of any other shares of C-TEC preferred
stock (including, without limitation, C-TEC TC Preferred Shares) having
similar voting rights then exercisable, shall be entitled to elect one
additional member of the C-TEC Board until all accumulated and unpaid
dividends have been paid and all required redemptions have been made.
Without the affirmative vote of the holders of at least a majority of the C-
TEC Series AA Preferred Shares, C-TEC may not amend, alter, change or
repeal any of the express terms of the C-TEC Series AA Preferred Shares.
In addition, without the affirmative vote of the holders of at least a
majority of the C-TEC Series AA Preferred Shares then outstanding or, if
holders of other series of C-TEC preferred stock (including, without
limitation, C-TEC TC Preferred Shares) have the right to vote as a class on
such matter under C-TEC's Articles, the holders of at least a majority of
C-TEC Series AA Preferred Shares and other series of C-TEC preferred stock
voting as a single class, C-TEC shall not (i) authorize or permit any
shares of Senior Stock to be outstanding; (ii) increase the authorized
number of shares of Senior Stock; or (iii) merge, consolidate, divide or
participate in a share exchange with any other corporation if the
corporation surviving or resulting from such transaction would have
outstanding shares of Senior Stock in excess of the number of shares of
Senior Stock of C-TEC permitted to be outstanding immediately prior to such
merger, consolidation, division or share exchange.
When holders of C-TEC Series AA Preferred Shares have the right to vote as
described above, each holder of a C-TEC Series AA Preferred Share shall be
entitled to one vote or fraction thereof, for each $10.00 or fraction
thereof, of the $61.00 liquidation preference represented by such C-TEC
Series AA Preferred Share.
No Trading Market
The C-TEC Series AA Preferred Shares will not be listed on Nasdaq or any
securities exchange. It is not anticipated that an active public trading
market for the C-TEC Series AA Preferred Shares will develop following the
Merger.
Miscellaneous
The transfer agent, conversion agent and registrar for the C-TEC Series AA
Preferred Shares shall be the Bank of Boston. When issued, the C-TEC
Series AA Preferred Shares will be fully paid and nonassessable. Holders
of C-TEC Series AA Preferred Shares will have no preemptive rights with
respect to any shares of capital stock of C-TEC or any other securities of
C-TEC convertible into or carrying rights or options to purchase any such
shares.
C-TEC TC Preferred Shares
The following summary of the material provisions of the C-TEC TC Preferred
Shares is not intended to be complete, and is qualified in its entirety by
reference to the Certificates of Designation for the C-TEC TC Preferred
Shares, the forms of which have been filed as exhibits to C-TEC's Current
Report on Form 8-K dated
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June 1, 1995. The issuance of C-TEC TC Preferred Shares is subject to approval
by the shareholders of C-TEC of such issuance and of an amendment to the C-TEC
Articles authorizing a new class of C-TEC Preferred Stock. Except as
specifically noted, the terms of the C-TEC TC Preferred Series A and the C-TEC
TC Preferred Series B are the same.
When issued, the C-TEC TC Preferred Shares will be fully paid and
nonassessable. The holders of the C-TEC TC Preferred Shares will have no
preemptive rights with respect to any shares of capital stock of C-TEC or
any other securities of C-TEC convertible into or carrying rights or
options to purchase any such shares.
Rank
The C-TEC TC Preferred Shares will rank senior to the C-TEC Common Stock,the
C-TEC Class B Stock and any other common stock of C-TEC ("C-TEC Common
Equity") and on a parity with C-TEC Series AA Preferred Shares and each
other and all other series of preferred stock of C-TEC, with respect to
dividends and upon liquidation, dissolution or winding up.
Dividends
Holders of shares of C-TEC TC Preferred Shares will be entitled to receive,
when and as declared by the C-TEC Board, but in no event more frequently
than quarterly, dividends at a rate of five percent (5%) per annum. The
dividends will be cumulative from the first day of the calendar month in
which the shares are issued; provided, however, that if any shares are
issued prior to January 1, 1996, dividends will begin to accrue thereon on
January 1, 1996. Accruals of dividends will not bear interest. No
dividends on C-TEC Common Equity may be paid or set apart for payment
unless all dividends payable on the C-TEC Preferred Shares have been fully
paid or declared and set apart for payment.
Liquidation Rights
In the event of any liquidation, dissolution or winding up of C-TEC, the
holders of shares of the C-TEC TC Preferred Shares will be entitled to
receive, out of the net assets of C-TEC, ten dollars ($10) per shares (as
used in this description of C-TEC TC Preferred Shares, the "Stated Value")
plus an amount equal to the dividends accrued and unpaid on such shares,
whether or not earned or declared, before any distribution of the assets of
C-TEC will be made to the holders of C-TEC Common Equity. After payment to
the holders of C-TEC TC Preferred Shares of the full amounts to which they
are entitled, such holders will have no further right to the assets of C-
TEC.
Voting Rights
Holders of the C-TEC TC Preferred Shares will not have voting rights except
as set forth below or as otherwise from time to time required by law. If
C-TEC shall fail to pay dividends on the C-TEC TC Preferred Shares for at
least twelve (12) consecutive calendar months sufficient to provide a
cumulative dividend rate of five percent (5%) per annum, the holders of
such shares of such series, voting separately as a class, shall be entitled
to elect one (1) Director to the Board, thus increasing the size thereof by
one (1) Director. Such Director will remain on the Board until the holders
have received dividends sufficient to provide a cumulative rate of five
percent (5%) per annum, but no longer. In the event that dividends on both
series of C-TEC TC Preferred Shares are so in arrears, the right to elect a
Director as herein described will be exercised jointly by the holders of
both series acting as a single class to elect one Director.
So long as any shares of the C-TEC TC Preferred Shares are outstanding, C-TEC
will not, without the consent of at least 50% of the holders of each series
of the C-TEC TC Preferred Shares, create or authorize any kind of stock (or
security convertible into stock) ranking prior to the C-TEC TC Preferred
Shares with respect to the payment of dividends or upon dissolution,
liquidation or winding up of C-TEC. C-TEC will not amend, alter, change or
repeal any of the express terms of either series of the C-TEC TC Preferred
Shares so as to affect the holders thereof adversely without the consent of
50% of the holders of the affected series.
Conversion
Conversion at the Election of the Holders. Shares of C-TEC TC Preferred
Series A will be convertible into such number of shares of C-TEC Common
Stock (the "TC Converted Common Stock") as is equal to the aggregate Stated
Value of the shares of C-TEC TC Preferred Series A which are being
converted divided by
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$35.00 (the "Conversion Price") rounded to the nearest 1/100 of a share. Shares
of C-TEC TC Preferred Series B will be similarly convertible, using a Conversion
Price equal to $38.50. If all shares of C-TEC TC Preferred Series A are so
converted, 1,171,428 shares of C-TEC Common Stock will be issued, representing
6.14% of the outstanding C-TEC Common Stock as of the date hereof, and if all
shares of C-TEC TC Preferred Series B are so converted, 285,714 shares of C-TEC
Common Stock will be issued, representing 1.50% of the outstanding C-TEC Common
Stock as of the date hereof. Holders of shares of C-TEC TC Preferred Shares may
elect to convert their shares at any time during the period commencing on May
15, 1998 (the "Exchange Period"). With respect to either series, an election to
convert shares will be effective only if the total number of shares to be
converted (by the holder alone or together with other holders) equals at least
five percent (5%) of the total number of shares of such series outstanding at
the time the election is made. C-TEC will pay any accrued and unpaid dividends
on C-TEC TC Preferred Shares as of the date of conversion to the holders of the
TC Converted Common Stock when and if any subsequent dividend is declared and
paid.
Conversion at the Election of C-TEC. At any time during the Exchange Period,
C-TEC may elect to acquire all, but not less than all, of either series of
C-TEC TC Preferred Shares for shares of C-TEC Common Stock or cash as
herein described. If on the date C-TEC gives notice of its election (the
"Notice Date"), the trading price on the day preceding the Notice Date (the
"Market Value") of the shares of C-TEC Common Stock into which such shares
of C-TEC TC Preferred Shares could be converted as described above is
greater than or equal to the aggregate Conversion Price for such shares,
then C-TEC will transfer and deliver C-TEC Common Stock based on the
Conversion Price of the shares of such C-TEC TC Preferred. If such Market
Value is less than such Conversion Price, then C-TEC will, at the holders'
option (acting as a whole), either deliver cash equal to the aggregate
Conversion Price of such shares or transfer and deliver C-TEC Common Stock
based upon such Conversion Price of such shares.
Redemption
All remaining C-TEC TC Preferred Shares shall be redeemed by C-TEC for an
amount equal to the aggregate Stated Value thereof, plus any accrued and
unpaid dividends, on May 15, 2003 whether or not the holders so elect.
Restricted Transactions
For so long as any C-TEC Preferred Shares are outstanding, C-TEC is
prohibited from entering into any Transaction (as defined below) if upon
entering into such transaction, the ratio of its Obligations (as defined
below) to its EBITDA (as defined below) for the last fiscal quarter,
thereafter annualized by multiplying by four (4), exceeds 8:1. For
purposes of the foregoing: "EBITDA" means for any period, the consolidated
net income (or net loss) of C-TEC, as determined in accordance with
generally accepted accounting principles, plus (1) the sum of, without
duplication, the following for C-TEC; (a) depreciation expense, (b)
amortization expense, (c) the excess, if any, of gross interest expense for
such period over gross interest income for such period, in each cash
determined in accordance with generally accepted accounting principles, (d)
total income tax expense and (e) extraordinary or unusual non-cash losses,
less (2) extraordinary non-cash gains. "Obligations" means with respect to
C-TEC, the consolidated outstanding (1) principal amount of indebtedness
for borrowed money, (2) principal amount of indebtedness for the deferred
purchase price of property or services (other than property or services
purchased in the ordinary course of business) and (3) the total stated
value of outstanding preferred stock having a liquidation payment priority
senior to or pari passu with the C-TEC TC Preferred Shares, excluding,
however, the C-TEC TC Preferred Shares. "Transaction" means, with respect
to C-TEC (1) the incurrence of any Obligation, (2) any merger or
consolidation to which C-TEC is a party, or (3) the sale of all or
substantially all of the assets of C-TEC.
Registration Rights
Subject to certain terms and conditions, the Certificate of Designation
grants the holders of the relevant series of C-TEC TC Preferred Shares a
one-time right during the Exchange Period to require C-TEC to register for
sale under the Securities Act, the C-TEC Common Stock into which such
series of C-TEC TC Preferred Shares may be converted. In addition, during
the Exchange Period the holders of C-TEC TC Preferred Shares will be
entitled, subject to certain terms and conditions, to include such shares
of C-TEC Common Stock in certain registrations of securities by C-TEC (on
its own behalf or on behalf of the shareholders of C-TEC).
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Pennsylvania Anti-Takeover Law Provisions
C-TEC is subject to certain statutory "anti-takeover" provisions of the PBCL.
The PBCL permits an amendment of the corporation's articles of
incorporation or other corporate action, to provide mandatory special
treatment for specified groups of nonconsenting shareholders of the same
class if approved by a majority of the votes cast by all shareholders
entitled to vote on the amendment, as well as by a majority of the votes
cast by any class or series classified into groups. Such amendment could
provide, for example, that shares of common stock held only by designated
shareholders of record, and no other shares of common stock, shall be
cashed out at a price determined by the corporation, subject to applicable
dissenters' rights.
The PBCL also provides that directors may, in discharging their duties,
consider the interests of a number of different constituencies, including
shareholders, employees, suppliers, customers, creditors and the
communities in which the corporation is located. Directors are not
required to consider the interests of shareholders to a greater degree than
other constituencies' interests. The PBCL expressly provides that
directors do not violate their fiduciary duties solely by relying on poison
pills or the anti-takeover provisions of the PBCL.
COMPARISON OF SHAREHOLDER RIGHTS
Introduction
Upon consummation of the Merger, to the extent that they receive Stock Merger
Consideration in the transaction, holders of BVT Common Shares, whose
rights presently are governed by the PBCL and BVT's Articles and Bylaws,
will become holders of C-TEC Series AA Preferred Shares. Upon conversion
of C-TEC Series AA Preferred Shares, former BVT shareholders will become
holders of C-TEC Common Stock. Accordingly, their rights will be governed
by the PBCL and C-TEC's Articles and Bylaws. Certain differences arise
from differences between the BVT Articles and the BVT Bylaws, on the one
hand, and the C-TEC Articles and C-TEC Bylaws, on the other hand, as well
as from differences in treatment under the PBCL in certain instances of
publicly traded or "registered" corporations, such as C-TEC, as compared to
privately held "non-registered" corporations, such as BVT. The following
discussion is not intended to be a complete statement of all differences
affecting the rights of shareholders, but summarizes material differences
and is qualified in its entirety by reference to applicable Pennsylvania
corporate laws and the Articles and Bylaws of BVT and C-TEC. See
"INCORPORATION OF DOCUMENTS BY REFERENCE" and "AVAILABLE INFORMATION."
Dividends
Holders of BVT Common Shares receive such dividends as may be declared by the
BVT Board from time to time. BVT's present dividend policy is to pay
quarterly dividends of $.45 ($1.80 annually) per BVT Common Share. Holders
of C-TEC Series AA Preferred Shares will be entitled to cumulative semi-
annual cash dividends of $1.60 ($3.20 annually) per share. C-TEC Series AA
Preferred Shares will have preference over C-TEC Common Stock and C-TEC
Class B Stock as to dividends, but will rank equally with all other C-TEC
preferred stock. See "DESCRIPTION OF CAPITAL STOCK OF C-TEC--C-TEC Series
AA Preferred Shares."
Holders of C-TEC Common Stock are entitled to receive such dividends as may
be declared by the C-TEC Board from time to time. Since 1989, C-TEC has
maintained a policy of not paying cash dividends and C-TEC does not intend
to alter this policy in the foreseeable future. Under the C-TEC Articles,
when cash dividends are declared by the C-TEC Board, the cash dividends
payable on the shares of C-TEC Common Stock must be at least 105% of the
cash dividend payable on the shares of C-TEC Class B Stock. See
"DESCRIPTION OF CAPITAL STOCK OF C-TEC--C-TEC Common Stock and C-TEC Class
B Stock."
Voting Rights Generally
With respect to most matters on which shareholders are entitled to vote,
holders of BVT Common Shares are entitled to one vote per share. Holders
of BVT Common Shares are entitled to cumulate their votes for the election
of directors. Except for the election of directors, in general, any action
to be taken by vote of the BVT shareholders shall be authorized upon of the
affirmative vote of a majority of the BVT Common Shares represented and
entitled to vote at a shareholders meeting.
Except as required by law or as described below, holders of C-TEC Series AA
Preferred Shares will have no voting rights. If C-TEC fails to pay
dividends in an amount equal to three full semi-annual dividends or fails
to redeem C-TEC Series AA Preferred Shares when required, holders of C-TEC
Series AA Preferred
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<PAGE>
Shares, voting as a class together with any other C-TEC preferred shareholders
having a similar right, will be entitled to elect one director to the C-TEC
Board. Holders of C-TEC Series AA Preferred Shares will also have voting rights
in limited circumstances where C-TEC desires to take specified corporate actions
that may be adverse to the rights and preferences of the C-TEC Series AA
Preferred Shares and/or other series of C-TEC preferred stock. Where any such
voting rights apply, each C-TEC Series AA Preferred Share shall have one vote
(or fraction thereof) for each $10 (or fraction thereof) of liquidation
preference of such shares. See "DESCRIPTION OF CAPITAL STOCK OF C-TEC--C-TEC
Series AA Preferred Shares."
With respect to all matters on which shareholders are entitled to vote
(including the election of directors), holders of C-TEC Common Stock and
Class B Stock generally vote together as one class. Holders of C-TEC
Common Stock are entitled to one vote per share, while holders of C-TEC
Class B Stock are entitled to 15 votes per share. Holders of C-TEC Common
Stock and Class B Stock are entitled to cumulate their votes for the
election of directors. See "DESCRIPTION OF CAPITAL STOCK OF C-TEC--C-TEC
Common Stock and C-TEC Class B Stock." Except for the election of
directors, in general, any action to be taken by vote of the C-TEC
shareholders shall be authorized upon the affirmative vote of a majority of
the votes cast at a shareholders meeting.
Due to its ownership of C-TEC Common Stock and Class B Stock, RCN Corporation
("RCN") controls over 50% of the total votes of all outstanding C-TEC
Common Stock and Class B Stock. RCN, therefore, is able to elect a
majority of the members of C-TEC's Board and thereby control C-TEC's
operations and policies. RCN is owned 10% by David C. McCourt, C-TEC's
chief executive officer, and 90% by Kiewit Diversified Group, Inc. ("KDG"),
a wholly owned subsidiary of Peter Kiewit Sons', Inc. ("PKS"). See "RISK
FACTORS--Control by Principal Shareholder."
Classified Board of Directors
The PBCL permits a corporation's Board of Directors to be divided into
various classes serving staggered terms of office. The C-TEC Bylaws
provide that the C-TEC Board be divided into three classes of directors as
nearly equal in number as possible. At each annual meeting of
shareholders, one class of directors is elected to serve for a three-year
term. Classification of directors has the effect of making it more
difficult for shareholders to change the composition of the Board of
Directors. At least two annual meetings of shareholders, instead of one,
will generally be required to effect a change in the majority of the Board
of Directors. Such classification provisions could have the effect of
discouraging a third party from initiating a proxy contest, making a tender
offer or otherwise attempting to obtain control of C-TEC.
BVT's Board is not classified. Any shareholders seeking to elect its
designees to a majority of the seats on the BVT Board, therefore, could do
so at any annual meeting.
Number of Directors
The BVT Bylaws establish the number of directors at nine. The C-TEC Bylaws
establish the minimum number of directors at six and the maximum number of
directors at 24, and provide that the number of directors constituting the
entire Board shall be determined by resolution of the Board of Directors.
Currently, the C-TEC Board of Directors consists of 11 directors.
Removal of Directors
BVT directors may be removed from office without cause by shareholder vote.
C-TEC directors may only be removed for cause by shareholder vote. This
removal restriction strengthens the anti-takeover effect of the classified
board provision in the C-TEC Bylaws.
Filling Vacancies on the Board of Directors
The BVT Bylaws and the C-TEC Bylaws provide that vacancies occurring on the
Board of Directors (including, in the case of C-TEC, vacancies resulting
from an increase in the number of directors) may be filled by the
affirmative vote of a majority of the remaining directors even if the
number of remaining directors constitutes less than a quorum. Any director
so chosen shall have a term of office continuing only until the next
election of directors.
Call of Special Shareholders' Meeting
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Special meetings of the shareholders of BVT may be called by (i) the board of
directors, or (ii) by the president at the request of the holders of not
less than 20% of all the outstanding shares of BVT entitled to vote at such
meeting. Special meetings of C-TEC's shareholders may be called at any
time by the president, or on the written request of two or more directors
or the holders of at least 10% of the shares of stock of C-TEC
outstanding and entitled to vote, provided such request specifies the
purpose of the meeting. No business other than that stated in the notice
of meeting may be acted upon at a BVT special shareholders' meeting.
Notice of Shareholders' Meetings
Notice of a BVT shareholders' meeting must be delivered at least two weeks in
advance of the scheduled meeting, unless in the judgment of the BVT Board a
special meeting requires a shorter notice period, in which case the BVT
Bylaws require that the notice be delivered at least five days in advance
of the scheduled meeting. Notice of a C-TEC shareholders' meeting must be
given at least five days before the date of the meeting, unless a greater
period of notice is required by law in a particular case.
Quorum Requirements and Adjournment of Meetings
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares entitled to vote at a meeting constitutes a quorum for a
BVT or C-TEC shareholders' meeting. A majority of the outstanding shares
represented at the meeting, even if less than a quorum, may adjourn a BVT
or C-TEC shareholders' meeting from time to time. Notice of adjournment is
not required unless, in the case of BVT, the adjourned meeting occurs more
than six months following the date of the original meeting for which notice
was given.
Shareholders present at a duly convened BVT shareholders' meeting may
continue to transact business until adjournment of the meeting,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum. In the case of a BVT shareholders' meeting called for the election
of directors, such meeting may be adjourned for any period not exceeding 15
days; those BVT shareholders who attend the meeting which had previously
been adjourned shall, even if they are less than a quorum, constitute a
quorum for the purpose of electing directors, but for no other purpose.
If a quorum is not present at a C-TEC shareholders' meeting, no business may
be transacted except to adjourn the meeting to a future time.
Action Without Meeting
BVT and C-TEC shareholders may take action only at a shareholders' meeting or
by unanimous written consent.
Dissenters' Rights
Under the PBCL, shareholders are generally entitled to dissent from, and
demand payment of the fair value of their shares in connection with a plan
of merger, consolidation, share exchange, asset transfer or division. In
accordance with the PBCL, holders of BVT Common Shares are entitled to
dissenters' rights in connection with the Merger. See "THE MERGER--
Dissenters' Rights."
Because C-TEC Common Stock is held of record by more than 2,000 holders,
dissenters' rights under the PBCL would not be available in connection with
a transaction where the plan provides that the consideration to be received
by holders of C-TEC Common Stock consists solely of shares of the
acquiring, surviving or new corporation (and money in lieu of fractional
shares).
Limitations on Directors' Liability
As permitted by the PBCL, both the BVT and C-TEC Bylaws provide that
directors shall not be personally liable to the corporation or its
shareholders for monetary damages for any action taken, or any failure to
take any action, unless the director has breached or failed to perform the
duties of his or her office under applicable Pennsylvania law and the
breach or failure to perform constitutes self-dealing, willful misconduct
or recklessness. These provisions, however, do not apply to the
responsibility or liability of a director pursuant to any criminal statute
or the liability of a director for the payment of taxes pursuant to local,
state or federal law.
Indemnification
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Sections 1741 and 1742 of the PBCL generally provide that a corporation may
indemnify directors and officers against liabilities they may incur in such
capacity provided that the particular person acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. In the case of
actions against a director or officer by or in the right of the corporation, the
power to indemnify extends only to expenses (not judgments and amounts paid in
settlement) and such power generally does not exist if the person otherwise
entitled to indemnification shall have been adjudged to be liable to the
corporation unless it is judicially determined that, despite the adjudication of
liability but in view of all the circumstances of the case, the person is fairly
and reasonably entitled to indemnification for specified expenses. Section 1743
of the PBCL also requires a corporation to indemnify directors and officers
against expenses they may incur in defending actions against them in such
capacities if they are successful on the merits or otherwise in the defense of
such actions.
Section 1746 of the PBCL also grants a corporation broad authority, beyond
the power granted under Sections 1741 and 1742, to indemnify its directors,
officers and other agents for liabilities and expenses incurred in such
capacity, except in circumstances where the act or failure to act giving
rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness. Pursuant to the authority
of Section 1746 of the PBCL, both the C-TEC and BVT Bylaws provide for
indemnification of directors, officers and other agents of the corporation
to the extent otherwise permitted by Section 1741 of the PBCL and also in
certain circumstances not otherwise permitted by Sections 1741 and 1742 of
the PBCL.
The C-TEC Bylaws provide that in connection with any action, suit or
proceeding in which a person may be involved by reason of being or having
been a director or officer of C-TEC, or serving at the request of C-TEC as
a director, officer, employee or agent of another entity, such person shall
be indemnified by C-TEC, to the extent such indemnification is not
available from another source, to the fullest extent permitted by
Pennsylvania law.
Similarly, the BVT Bylaws provide, except as expressly prohibited by law, an
unconditional right to indemnification for expenses and any liability paid
or incurred by any representatives of BVT in connection with any actual or
threatened claim, action, suit or proceeding (including derivative suits)
in which he or she may be involved by reason of being or having been a
director or officer of BVT or serving at the request of BVT as a director,
officer, employee or agent of another entity. The BVT Bylaws specifically
authorize indemnification against both judgments and amounts paid in
settlement of derivative suits, unlike Section 1742 of the PBCL which
authorizes indemnification only of expenses incurred in defending a
derivative action. Unlike the provisions of PBCL Sections 1741 and 1742,
the BVT Bylaws do not require BVT to determine the availability of
indemnification by the procedures or the standard of conduct specified in
Sections 1741 and 1742 of the PBCL.
As authorized by Section 1745 of the PBCL, the C-TEC and BVT Bylaws both
require the corporation to pay the expenses of a director or officer
incurred in defending an action or proceeding in advance of the final
disposition thereof upon receipt of an undertaking from such person to
repay the amounts advanced unless it is ultimately determined that such
person is entitled to indemnification from the corporation.
Both the C-TEC and BVT Bylaws permit the corporation, by action of its board
of directors, to provide indemnification to employees and agents with the
same scope and effect as the indemnification provisions for directors and
officers described above.
State Anti-Takeover Law Provisions
The PBCL contains certain "anti-takeover" provisions that are applicable to
registered corporations. The C-TEC Bylaws, however, render most of these
provisions inapplicable to C-TEC. Such provisions do not apply to BVT.
C-TEC is, however, subject to a Pennsylvania law provision (PBCL Section
2538) which requires certain fundamental transactions with an interested
shareholder to be approved by a majority of the corporation's directors who
are unaffiliated with such shareholder.
Amendment of Articles of Incorporation
Persons holding at least 10% of the BVT Common Shares may propose amendments
to the BVT Articles. Because C-TEC is a registered corporation, under the
PBCL, C-TEC shareholders are not entitled to propose amendments to the C-
TEC Articles and all amendments must first be approved by the C-TEC Board.
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Except for the general requirement that charter amendments affecting any
particular class or series of stock be approved by the affected class or
series, proposed amendments to (i) the BVT Articles, require
shareholder approval by the affirmative vote of a majority of the shares
represented and entitled to vote at a shareholders' meeting, or (ii) the C-
TEC Articles, require a majority of the votes cast at a shareholders'
meeting. For a description of the amendments to the C-TEC Articles
requiring a separate class vote, see "DESCRIPTION OF CAPITAL STOCK OF C-
TEC--C-TEC Common Stock and C-TEC Class B Stock--Voting Rights."
Amendment of Bylaws
Amendments to the BVT Bylaws may be made by an affirmative vote of at least
two-thirds of the members of BVT's Board or by a two-thirds vote of the
stock represented at any annual meeting or special meeting of BVT's
shareholders called for the purpose of amending the BVT Bylaws. At each
annual meeting of BVT's shareholders, all amendments to the BVT Bylaws
effected by BVT's Board since the previous annual meeting must be reported
and will be deemed to have the approval of the shareholders unless rejected
by a majority vote. Additionally, the BVT Bylaws require that (i) any
amendment by BVT's Board which is disapproved by the shareholders may not
be revived within two years of such disapproval except upon a two-thirds
vote of the stock represented at the annual meeting of shareholders or a
special meeting of shareholders called for the purpose of instituting such
amendment, and (ii) any provision of the BVT Bylaws previously rescinded,
amended or added to the BVT Bylaws by vote of the BVT shareholders may not
be revived, amended or rescinded by the BVT Board within two years of such
recision, amendment or addition.
The C-TEC Bylaws may be amended at any regular or special meeting of the C-
TEC Board by the vote of a majority of all the directors in office or at
any annual or special meeting of the C-TEC shareholders by the vote of the
holders of a majority of the outstanding shares entitled to vote.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Consolidated Balance Sheet as of
June 30, 1995 gives effect to the Merger and the acquisition of all
outstanding common stock of Twin County as though they had occurred on June
30, 1995. The following unaudited Pro Forma Condensed Consolidated
Statements of Operations for the six months ended June 30, 1995 and the
year ended December 31, 1994 give effect to the Merger and the Twin County
Merger as though they had occurred on January 1, 1994. Additionally, the
Condensed Consolidated Statement of Operations for the year ended December
31, 1994 gives effect to the January 24, 1995 acquisition of a 40% interest
in Megacable as though it had occurred on January 1, 1994. These pro forma
financial statements should be read in conjunction with (i) the historical
financial statements and notes thereto of BVT contained in this Proxy
Statement/Prospectus, (ii) the historical financial statements and notes
thereto of Twin County contained in C-TEC's definitive Proxy Statement
filed with the Commission on August 4, 1995, which proxy statement is
incorporated by reference herein, (iii) the historical consolidated
financial statements and notes thereto of Megacable contained in C-TEC's
Current Report on Form 8-K dated April 10, 1995 (as amended by Form 8-K/A
dated July 31, 1995), which report is incorporated by reference herein, and
(iv) the historical consolidated financial statements and notes thereto of
C-TEC contained in C-TEC's Annual Report on Form 10-K for the year ended
December 31, 1994, as amended by Form 10-K/A filed with the Commission on
April 3, 1995, and by Form 10-K/A filed with the Commission on July 31,
1995, and in C-TEC's Quarterly Report on Form 10-Q for the six months ended
June 30, 1995, which reports are incorporated herein by reference. The Pro
Forma Condensed Consolidated Statements of Operations and Balance Sheet are
not necessarily indicative of the actual results of operations or financial
position which would have been reported if these transactions had occurred
on the respective dates referred to above nor do they purport to indicate
the results of future operations or the future financial position of C-TEC.
In the opinion of management, all adjustments necessary to present fairly
such pro forma financial statements have been made. The results for interim
periods are not necessarily indicative of the results for the full fiscal
year. Information regarding C-TEC, Twin County, BVT and Megacable has been
provided by C-TEC, Twin County, BVT and Megacable, respectively.
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C-TEC CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June, 30 1995
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twin County Buffalo Valley Buffalo Valley
C-TEC Trans Video, Telephone Telephone
Corporation Inc. Company Company
June 30, 1995 Acquisition June 30, Acquisition Pro
(Actual) Adjustments 1995 (Actual) Adjustments Forma
-------------- ---------------- --------------- ------------------ ---------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and temporary cash investments... $ 65,982 $(12,441)(a) $ 375 $ 53,916
Short term investments................ 108,340 -- 3,981 $(1,885)(h) 110,436
Other current assets.................. 60,689 -- 4,557 65,246
Deferred income taxes................. 8,533 -- -- -- 8,533
-------- -------- ------- -------- --------
Total current assets.................. 243,544 (12,441) 8,913 (1,885) 238,131
-------- -------- -------- --------
Property, Plant and Equipment
Telephone plant......................... 412,825 -- 27,998 -- 440,823
Cable plant............................. 252,500 -- -- -- 252,500
Mobile services......................... 2,632 -- -- -- 2,632
Other property, plant and equipment..... 14,190 -- 2,361 -- 16,551
-------- -------- --------
Total property, plant and equipment..... 682,147 -- 30,359 -- 712,506
Accumulated depreciation.............. 303,069 (19,968)(b) 11,702 -- 294,803
-------- -------- --------
Net property, plant and equipment....... 379,078 19,968 18,657 -- 417,703
Investments.............................. 95,776 --(a) 180 -- 95,956
Intangible Assets, Net................... 75,818 67,784(c) -- 34,803(i) 178,405
Deferred Charges and Other Assets........ 28,527 -- 1,097 29,624
-------- -------- --------
Total Assets............................. $822,743 $ 75,311 $28,847 $ 32,918 958,819
======== ======== --------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Current maturities of long-term debt
and preferred stock.................... $ 9,010 -- $ 81 $1,747(h)(i) $ 10,838
Advance billings and customer
deposits............................... 14,388 -- 2 -- 14,390
Accrued taxes........................... 4,040 -- 1,007 -- 5,047
Accrued interest........................ 5,766 -- -- -- 5,766
Accrued contract settlements............ 5,975 -- -- -- 5,975
Other current liabilities............... 50,913 -- 1,817 -- 52,730
-------- -------- ------- --------
Total current liabilities............... 90,092 -- 2,907 1,747 94,746
Long-Term Debt........................... 286,312 $(12,441)(a) 1,404 24,192 (h)(i) 299,467
Deferred Income Taxes and Investment
Tax Credits........................... 52,300 35,752(d) 3,681 -- 91,733
Other Deferred Credits................... 29,464 -- 410 -- 29,874
Redeemable Preferred Stock............... -- 52,000(a) 400 27,024 (h)(i) 79,424
Common Shareholders' Equity
Common stock............................ 27,823 -- 600 (600) 27,823
Additional paid-in capital.............. 226,984 -- 467 (467) 226,984
Retained earnings....................... 114,957 -- 19,017 (19,017) 114,957
Treasury stock at cost, 377,842 shares
at June 30, 1995....................... (5,288) -- (39) 39 (5,288)
Cumulative translation adjustments...... 99 -- -- -- 99
-------- -------- --------
Total Shareholders' Equity............... 364,575 -- 20,045 (20,045) 364,575
-------- -------- ------- -------- --------
Total Liabilities and Shareholders'
Equity.................................. $822,743 $ 75,311 $28,847 $ 32,918 $959,819
======== ======== ======= ======== ========
</TABLE>
See Accompanying Notes to Pro Forma Condensed Consolidated Financial Statements
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C-TEC CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1995
(Dollars in Thousands, except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Twin County
Trans Video, Buffalo Valley
Inc. Telephone
C-TEC Four Months Company Buffalo Valley
Corporation Ended Twin County Six Months Telephone
Six Months Ended April 30, Trans Video, Inc. Ended Company
June 30, 1995 1995 Acquisition June 30, 1995 Acquisition
(Actual) (Actual) (f) Adjustments (Actual) Adjustments Pro Forma
---------------- ------------- ----------------- -------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales...................... $ 152,373 $8,796 -- $5,465 -- $ 166,634
Cost and Expenses.......... 127,417 9,029 6,638 (e) 3,480 1,160 (i) 147,724
----------- ------ ------- ------ ------- -----------
Operating Income........... 24,956 (233) (6,638) 1,985 (1,160) 18,910
Interest & Dividend Income. 8,503 4 -- 121 -- 8,628
Interest Expense........... (12,842) (355) 255 (o) (68) (1,046) (k) (14,056)
Other Income, Net.......... 3,434 0 -- (1) -- 3,433
----------- ------ ------- ------ ------- -----------
Income (loss) from
Continuing Operations
Before Income Taxes....... 24,051 (584) (6,383) 2,037 (2,206) 16,915
Provision (Benefit) for
Income Taxes.............. 6,866 (253) (2,234) (e) 763 (915) (l) 4,227
----------- ------ ------- ------ ------- -----------
Income from Continuing
Operations Before
Preferred Dividends,
Minority Interest
and Equity in
Unconsolidated
Entities............ 17,185 (331) (4,149) 1,274 (1,291) 12,688
Preferred Dividends and
Minority Interest in
(Income) of
Consolidated
Entities............ (72) -- (1,300) (n) -- (712) (m) (2,084)
Equity in (Loss) of
Unconsolidated Entities... (2,129) -- -- -- -- (2,129)
----------- ------ ------- ------ ------- -----------
Income (Loss) From
Continuing Operations
Available for Common
Stock............... $ 14,984 $ (331) $(5,449) $1,274 $(2,003) $ 8,475
=========== ====== ======= ====== ======= ===========
Earnings (Loss) Per
Average Common Share:
Income (Loss) From
Continuing Operations..... $.55 $.31
Average Common Shares
Outstanding............... 27,445,167 27,445,167
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
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C-TEC CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1994
(Dollars in Thousands, except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Twin County
C-TEC Trans Video, Twin County
Corporation Inc. Trans Megacable
Year Ended Year Ending Video, Inc. S.A. De CV
December 31, 1994 October 31, 1994 Acquisition Acquisition
(Actual) (Actual) (f) Adjustments Adjustments
-------------------- ---------------- ------------ -----------
<S> <C> <C> <C> <C>
Sales............................................ $ 268,884 $23,675 -- --
Costs & Expenses................................. 235,265 21,346 16,173(e) --
----------- ------- -------- -----------
Operating Income................................. 33,619 2,329 (16,173) --
Interest and Dividend Income..................... 6,926 27 -- --
Interest Expense................................. (34,562) (898) (698)(o) --
Other Income, Net................................ 1,017 -- -- --
----------- ------- -------- -----------
Income from Continuing Operations Before Income
Taxes...................................... 7,000 1,458 (15,475) --
Provision (benefit) for Income Taxes............. 3,820 650 (5,416)(e) (4,748)(g)
----------- ------- -------- -----------
Income from Continuing Operations Before Pre-
ferred dividends, Minority Interest
and Equity in Unconsolidated
Entities................................... 3,180 808 (10,059) 4,748
Preferred Dividends and
Minority Interest in (Income) of
Consolidated Entities...................... (95) -- (2,600)(n) --
Equity in (Loss) of Unconsolidated Entities...... (258) -- -- (13,567)(g)
----------- ------- -------- -----------
Income (Loss) from Continuing Operations
Available for Common Stock Before
Extraordinary Item and Cumulative
Effect of Accounting Principle
Change..................................... $ 2,827 $ 808 $(12,659) $(8,819)
=========== ======= ======== ===========
Earnings (Loss) Per Average Common Share:
Income from Continuing Operations Before
Extraordinary Item and Cumulative
Effect of Accounting Principal
Change..................................... $.17
===========
Average Common Shares Outstanding................ 17,078,842
</TABLE>
<TABLE>
<CAPTION>
Buffalo Valley Buffalo Valley
Telephone Company Telephone Company
December 31, 1994 Acquisition
(Actual) Adjustments Pro Forma
-------- ----------- ---------
<S> <C> <C> <C>
Sales............................................... $11,435 0 $ 303,994
Costs & Expenses.................................... 6,759 2,351(i) 281,894
------- ------- -----------
Operating Income.................................... 4,676 (2,351) 22,100
Interest and Dividend Income........................ 203 7,156
Interest Expense.................................... (165) (2,092)(k) (37,019)
Other Income, Net................................... (33) 984
------- -----------
Income from Continuing Operations Before Income
Taxes......................................... 4,681 (4,443) 6,779
Provision (benefit) for Income Taxes................ 1,828 (1,862)(i) 5,728
------- ------- -----------
Income from Continuing Operations Before Pre-
ferred dividends, Minority Interest
and Equity in Unconsolidated
Entities...................................... 2,853 (2,581) (1,051)
Preferred Dividends and Minority Interest in (In-
come) of Consolidated Entities................ (16) (1,424)(m) (4,135)
Equity in (Loss) of Unconsolidated Entities......... 0 (13,825)
------- -----------
Income (Loss) from Continuing Operations
Available for Common Stock Before
Extraordinary Item and Cumulative
Effect of Accounting Principle
Change........................................ $ 2,837 $(4,005) $ (19,011)
======= ======= ===========
Earnings (Loss) Per Average Common Share:
Income from Continuing Operations Before
Extraordinary Item and Cumulative
Effect of Accounting Principal
Change........................................ $(1.11)
===========
Average Common Shares Outstanding................... 17,078,842
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
-62-
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) On May 15, 1995, C-TEC acquired 40% of the outstanding common stock
of Twin County in exchange for cash of approximately $26.4 million,
including a $5 million deposit made in March 1995, and a $4 million 5%
promissory note of C-TEC Cable Systems, Inc., a wholly owned subsidiary of
C-TEC. In addition, C-TEC paid $11 million in consideration of a
noncompete agreement. The remaining shares are subject to an escrow
agreement, pending completion of the Twin County Merger, and are required
to be voted under the direction of C-TEC. C-TEC has also assumed
management of Twin County. As a result, C-TEC has control of Twin County
and accordingly has fully consolidated Twin County into C-TEC's financial
statements since May 1, 1995. C-TEC has allocated the purchase price paid
to date to property, plant and equipment and identifiable intangible assets
in proportion to their fair values. The pro forma adjustments reflect the
additional consideration for the acquisition of all remaining shares and
the expected repayment of outstanding debt of Twin County of approximately
$12 million. The additional consideration is assumed to be preferred stock
of either C-TEC or a C-TEC subsidiary, with an aggregate stated value of
$52 million in either case. The purchase price will reflect the fair value
of the preferred stock to be issued in the acquisition and will be
allocated to property, plant and equipment and identifiable intangible
assets up to their fair values, with the excess allocated to cost in excess
of the fair value of assets acquired. Such fair value may differ from the
stated value used in the preparation of these pro forma statements. If C-
TEC determines that such preferred stock may not be issued on or before
December 31, 1995 for any reason, then the cash portion of the purchase
price will be increased by approximately $57 million.
(b) Adjustments to record the estimated fair value of property, plant and
equipment acquired in the acquisition of Twin County. The purchase price
has been allocated based on preliminary appraisals of the fair market
values of the tangible and identifiable intangible assets acquired and
liabilities assumed. The final allocation may differ from assumptions used
in the preparation of the pro forma statements.
(c) Adjustments to record the estimated fair value of identifiable
intangible assets and goodwill acquired in the acquisition of Twin County.
Identifiable intangible assets primarily include subscriber base and
franchise operating rights and a non-compete agreement. The purchase price
has been allocated based on preliminary appraisals of the tangible and
identifiable intangible assets acquired and liabilities assumed. The final
allocation may differ from assumptions used in the preparation of the pro
forma statements.
(d) Adjustment to record deferred taxes on the differences between the
assumed tax basis and fair value of tangible and identifiable intangible
assets acquired in the acquisition of Twin County.
(e) Adjustment to reflect additional depreciation and amortization and
related tax benefits resulting from recording the fair value of tangible
and identifiable intangible assets and goodwill acquired in the acquisition
of Twin County.
(f) Twin County has a fiscal year ending October 31. Twin County's
statement of operations for the year ended October 31, 1994 is included in
the pro forma condensed statement of operations for the year ended December
31, 1994. C-TEC has fully consolidated Twin County into C-TEC's financial
statements since May 1, 1995 (see Note (a) above). Twin County's results
of operations for the period January 1, 1995 through April 30, 1995, which
are included in the pro forma condensed consolidated statement of
operations for the six months ended June 30, 1995, have been derived as
follows:
<TABLE>
<CAPTION>
Less: Two Months
Six Months Ended Four Months
Ended December 31, Ended
April 30, 1995 1994 April 30, 1995
--------------- ---------------- ---------------
<S> <C> <C> <C>
Sales................................................. $13,720 $4,924 $8,796
Costs & Expenses...................................... 13,081 4,052 9,029
------- ------ ------
Operating Income...................................... 639 872 (233)
Interest Income....................................... 7 3 4
Interest Expense...................................... (542) (187) (355)
Income (loss) Before Income Taxes..................... 104 688 (584)
Provision (benefit) for Income Taxes.................. 38 291 (253)
------- ------ ------
Income (loss) Before Extraordinary Charge and
Cumulative Effect of Accounting Principle
Changes............................................. $ 66 $ 397 $ (331)
======= ====== ======
</TABLE>
-63-
<PAGE>
(g) Adjustments to reflect C-TEC's proportionate share of losses and
amortization of excess investment over underlying equity in the net assets
of Megacable, a 40% interest in which was acquired by C-TEC in January
1995. The excess of the purchase price over C-TEC's underlying equity in
the net assets of Megacable is assumed to be amortized on a straight line
basis over fifteen years, which period is subject to adjustment as
additional information becomes available during 1995. C-TEC's proportionate
share of Megacable's losses included in the 1994 pro forma statement of
operations includes approximately $11 million of foreign currency
transaction losses. The adjustments also reflect associated tax benefits.
(h) Adjustments to record the redemption of outstanding BVT cumulative
preferred stock and outstanding debt of BVT at closing.
(i) Adjustments to record consideration for the Merger and the related
acquisition adjustment (excess cost over net assets acquired) for the
difference between the purchase price and book value of assets and
liabilities acquired as mandated by regulators. Also, adjustments to record
the issuance of C-TEC Series AA Preferred Stock and debt in equal
proportions of approximately $27 million each to fund the Merger (half of
the consideration in cash and the other half in C-TEC Series AA Preferred
Shares). This debt assumes a principal repayment of fifteen consecutive
equal annual installments.
(j) Adjustment to reflect amortization of acquisition adjustment over
fifteen years, subject to regulatory approval.
(k) Adjustment to reflect interest on debt at approximately 7.63% to
be used to help fund the Merger and the reduction in interest expense due
to the assumed repayment of outstanding debt of BVT.
(l) Adjustment to reflect tax benefits associated with the
amortization of acquisition adjustment and interest expense.
(m) Adjustment to reflect dividends on C-TEC Series AA Preferred
Shares to be used to help fund the Merger, at $3.20 per share per annum.
(n) Adjustment to reflect dividends on C-TEC TC Preferred to be used
to help fund the ultimate acquisition of all outstanding shares of Twin
County, at 5% per annum.
(o) Adjustment to reflect reduction in interest expense due to the
assumed repayment of outstanding debt of Twin County, and additional
interest at 5% per annum on the $4 million promissory note used to help
fund the Twin County Merger.
-64-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF BVT
Operations--Six Months Ended June 30, 1995 vs. Six Months Ended June 30,
1994
For the six months ended June 30, 1995, operating sales decreased by
$258,971 to $5,465,192 from $5,724,163 for the same period in 1994. Details
of the 1995 sales decrease are as follows:
<TABLE>
<CAPTION>
Increase
(Decrease) Percent
---------- --------
<S> <C> <C>
Local........... $ 47,153 4.9
Network Access.. (295,871) (9.0)
Long Distance... (35,257) (3.7)
Miscellaneous... 20,235 3.4
Uncollectible... (4,769) (9.5)
--------- ----
$(258,971) (4.5)
=========
</TABLE>
Network access revenues reflect a reduction over the same period last year as
a result of the receipt of certain one-time settlements received in 1994.
Operating expenses, excluding depreciation, increased $72,162 or 3.2% and
primarily relate to increases in certain salary and wages, employee
benefits, insurances and operating taxes.
Interest expense decreased by $30,169 or 30.7% in the six months ended June
30, 1995 due to the repayment of a $1,000,000 promissory note in April of
1994.
BVT's effective tax rate was approximately 37.4% and 39.6% for the six months
ended June 30, 1995 and 1994, respectively. This primarily relates to a
decrease in the state income tax rate from 11.99% to 9.99% in 1995.
During the second quarter of 1995, BVT's largest customer elected to by-pass
BVT's toll network through a competitive carrier. This service was
previously provided to this customer through deregulated long distance
operations at a reduced margin. Accordingly, this decision is not expected
to significantly impact BVT's operating results.
Access lines in service increased by 54 for the six months ending June 30,
1995 as compared to an increase of 28 for the same period in 1994.
Operations--Three Months Ended June 30, 1995 vs. Three Months Ended June
30, 1994
For the second quarter of 1995, operating sales decreased by $224,429 to
$2,677,683 from $2,902,112 for the same period in 1994. Details of the
1995 sales decrease are as follows:
<TABLE>
<CAPTION>
Increase
(Decrease) Percent
---------- --------
<S> <C> <C>
Local........... $ 31,251 6.5
Network Access.. (273,567) (16.4)
Long Distance... (623) (0.1)
Miscellaneous... 16,717 5.5
Uncollectible... (1,793) (7.1)
--------- -----
$(224,429) (7.7)
=========
</TABLE>
Network access revenues reflect a reduction over the same period last year as
a result of certain one-time settlements received in 1994.
-65-
<PAGE>
Operating expenses, excluding depreciation, increased $69,041 or 6.5% and
primarily relate to increases in certain salary and wages, employee
benefits, insurance and operating taxes.
Interest expense decreased by $10,372 or 24.0% in the second quarter of 1995
due to the repayment of a $1,000,000 promissory note in April of 1994.
BVT's effective tax rate was approximately 34.7% and 39.3% for the second
quarter of 1995 and 1994, respectively. This primarily relates to a
decrease in the state income tax rate from 11.99% to 9.99% in 1995.
During the second quarter of 1995 BVT's largest customer elected to by-pass
BVT's toll network through a competitive carrier. This service was
previously provided to this customer through deregulated long distance
operations at a reduced margin. Accordingly, this decision is not expected
to significantly impact BVT's operating results.
As expected, access lines in service decreased by 116 or 0.6% as a result of
college students disconnecting service at the end of the spring semester.
Access lines as of June 30, 1995 and 1994 were 17,334 and 16,851,
respectively.
Operations--1994 vs. 1993
In 1994, operating sales increased by $903,000 to $11,435,000 compared to
$10,532,000 in 1993. Details of the 1994 sales increase are as follows:
<TABLE>
<CAPTION>
Increase
(Decrease) Percent
---------- --------
<S> <C> <C>
Local........... $ 71,000 3.8
Network Access.. 656,000 11.4
Long Distance... 80,000 4.6
Miscellaneous... 66,000 5.2
Uncollectible... (30,000) (23.1)
--------
$903,000 8.6
========
</TABLE>
Access lines in service increased by 457 or 2.7% as a result of population
growth and economic stability throughout BVT's rural operating territory.
The above revenue improvement primarily reflects increased usage or access
of BVT's local exchange network for long distance calling.
Network access revenues primarily relate to services provided to
interexchange carriers in connection with the completion of long distance
telephone calls. Substantially all of BVT's interstate network access
revenues are received through pooling arrangements administered by the
National Exchange Carrier Association ("NECA") based on cost separations
studies and average schedule settlement agreements. The NECA receives
access charges billed by BVT and other participating local exchange
carriers to interstate long distance carriers for their use of the local
exchange network to complete long distance calls. These charges to the long
distance carriers are based on tariffed access rates filed with the FCC by
the NECA on behalf of BVT and other participating local exchange telephone
companies. Long distance and intrastate network access revenues are based
on access rates, cost separations studies or special settlement
arrangements with intrastate long distance carriers.
Miscellaneous sales include revenues related to billing and collection
services for interexchange long distance carriers and directories.
Operating expenses increased by $492,000 or 8.7% and primarily relate to
increases in salaries and wages, employee benefits, insurance and operating
taxes. In addition, 1994 include approximately $100,000 in connection with
costs directly related to the sale of BVT. Increases in depreciation
expense relate to a higher level of plant in service.
-66-
<PAGE>
Interest expense decreased by $61,000 or 27% in the year 1994 due to the
repayment of a $1,000,000 promissory note in April of 1994.
-67-
<PAGE>
Operations--1993 vs. 1992
BVT's operating sales decreased by $136,000 to $10,532,000 compared to
$10,668,000 in 1992. Details of the 1993 sales decrease are as follows:
<TABLE>
<CAPTION>
Increase
(Decrease) Percent
---------- --------
<S> <C> <C>
Local........... $ 110,000 6.2
Network Access.. (150,000) (2.5)
Long Distance... (23,000) (1.3)
Miscellaneous... (1,000) (0.0)
Uncollectible... 72,000 12.4
---------
$(136,000) (1.3)
=========
</TABLE>
The major portion of the decrease was due to a decline in Interstate
Access Service Revenues. This decline is attributed to a decision in late
1992 by a major university, BVT's largest customer, that elected to by-pass
BVT's regulated toll network. BVT successfully countered competitive bids
from outside carriers and as a result continued to provide toll services to
that university through deregulated long-distance operations, however, at
lower negotiated rates. Beginning September 1, 1995, however, this
customer will begin to use another carrier for toll services. BVT
management does not expect the loss of this customer's toll business to
have a material adverse effect on BVT's financial condition or results of
operations.
Operating sales were additionally affected by a rise in uncollectibles,
resulting from adjustments to correct prior years' underestimated forecasts
attributed, in part, to restrictions on collection processes mandated by
regulations.
BVT continued to prosper from population increases in its market region,
officially identified in census reports as among the fastest growing areas
in Pennsylvania. Ongoing population gains helped push Local Service
Revenues to a 1993 increase of 6.2% over 1992, which accounted for 17.8% of
all operating sales. In addition, access lines increased 2.6% to 16,823 in
1993.
Operating expenses for 1993 were held to an overall increase of only
2.6%, primarily as a result of an increase in the net periodic pension
credit of $175,000. This net period pension credit related to Statement of
Financial Accounting Standards No. 87 "Employers Accounting For Pensions"
("SFAS 87"). SFAS 87 was adopted by BVT in 1992. Excluding the benefit
associated with pension income, 1993 expenses increased approximately
$65,000 or 1.1% over 1992.
Income Taxes
The provision for Income Taxes increased by approximately $153,000 in
1994 compared to an increase of approximately $15,000 in 1993. BVT's
effective tax rate was approximately 39.1%, 39.0% and 36.8% in 1994, 1993
and 1992, respectively.
Liquidity and Capital Resources
BVT historically has relied on cash provided by operations to provide all
of its cash needs. The telephone operations have historically provided a
stable source of cash flow which has helped BVT to continue its program of
capital improvements and to pay dividends. Net cash provided by operating
activities was $4,404,000 and $2,447,000 in 1994 and 1993, respectively.
1993 reflects an investment of $2,000,000 in temporary cash investments.
Net cash provided by operating activities was $1,655,371 and $2,072,799 for
the six months ended June 30, 1995 and 1994, respectively.
BVT has moved forward aggressively with its plan to modernize its plant
in order to offer new optional residential and business calling features.
BVT plant facility additions in 1994 and 1993 totaled $2,699,000 and
$1,301,000, respectively. BVT plant facility additions for the six months
ended June 30, 1995 and 1994 totaled $1,026,922 and $1,681,552,
respectively. Although capital expenditures were lower during the first six
months of 1995, total capital expenditures for 1995 are expected to
approximate the 1994 year end level.
-68-
<PAGE>
In 1994, BVT reduced debt by $1,000,000 using existing cash reserves.
There were no credit facilities available to BVT as of June 30, 1995.
Regulatory Accounting Principles
BVT follows the accounting for regulated enterprises prescribed by
Statement of Financial Accounting Standards No. 71--"Accounting for the
Effects of Certain Types of Regulation" ("SFAS 71"). SFAS 71 recognizes the
economic effect of rate regulation by recording costs and a return on
investment as such amounts are recovered through rates authorized by
regulatory authorities.
BVT annually reviews the continued applicability of SFAS 71 based upon
the current regulatory and competitive environment and currently expects to
follow the accounting prescribed by SFAS 71 in the foreseeable future. If
BVT were required to discontinue the application of accounting principles
for regulated entities (SFAS 71), the impact on the financial statements
would be to write off the regulatory assets and liabilities.
Pennsylvania Public Utility Commission
On August 25, 1993, the PaPUC reversed itself by vacating and terminating
its May 1992 Order to show cause filed against BVT. The Order raised issues
regarding whether BVT was in an excess earnings position.
Whenever the PaPUC desires to institute a proceeding against a person
under statutory or other authority, the PaPUC may commence the action where
appropriate by an order to show cause setting forth the grounds for the
action. Such an order generally contains a statement of the particular
matter about which the PaPUC is inquiring, which is deemed to be tentative
and for the purpose of framing issues for consideration and decision by the
PaPUC in the proceeding. The PaPUC concluded in this case, upon
investigation, that BVT was not in an excess earnings position.
Environmental Matters
BVT has been designated as a potentially responsible party for
participation in an Environmental Protection Agency clean up of a hazardous
waste site. BVT allegedly sold to a salvage yard scrap lead cable which has
been identified as a contaminant. BVT's liability, if any, for sharing in
the clean up of costs is unknown to date. BVT, however, believes that its
ultimate liability should not have a material adverse effect on its
financial position.
BUSINESS OF BVT
Description of Business
Buffalo Valley is an independent local exchange carrier with its
principal executive office located at 20 South Second Street, Lewisburg,
Pennsylvania, 17837, telephone number (717) 523-1211. It operates two
telephone exchanges, one in Lewisburg, Pennsylvania and one in Mifflinburg,
Pennsylvania. As of June 30, 1995, BVT had approximately 17,300 main
access lines. BVT's rates for basic services are the lowest in the
Commonwealth of Pennsylvania.
BVT has made substantial investments in upgrading its facilities. It has
a 100% digital network and is able to offer customer services not readily
found within its operating territory. This network will enable BVT to
provide new revenue sources which are not dependent upon or subject to
regulatory approval.
Based on the fact that BVT's operating territory is primarily rural,
competition focuses on telecommunications equipment sales and services.
This revenue source does not represent a significant portion of BVT's
business.
Intralata toll bypass and alternative local access telephone service
providers are potential competitive threats. Intralata toll and access
revenue comprises a significant portion of BVT's business.
The following table indicates the development of BVT by summarizing, as
of December 31 of each of the last five years and as of June 30, 1995 and
1994, the number of access lines.
-69-
<PAGE>
<TABLE>
<CAPTION>
As of
June 30, As of December 31,
-------------- --------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Access lines..... 17,334 16,851 17,280 16,823 16,403 15,965 15,501
</TABLE>
Properties
BVT owns and maintains in good operating condition switching centers, cables
and wires connecting BVT and its customers with the switching centers and other
telephone instruments and equipment.
Legal Proceedings
On August 1, 1994 a representative of the United States Environmental
Protection Agency notified BVT that it has been designated as a potentially
responsible party for participation in the clean up of a hazardous waste site.
BVT allegedly sold to a salvage yard scrap lead cable which has been identified
as a contaminant. A representative of the current owners of the scrap yard has
indicated that there were approximately twelve (12) other additional potential
responsible parties. Management of BVT is currently monitoring the progress of
the clean-up of the site to assess its potential liability and based on
information known to date believes that its ultimate liability should not have a
material adverse effect on its financial position. In the normal course of
business, there are various other legal proceedings outstanding. In the opinion
of management of BVT, these proceedings will not have a material adverse effect
on its financial position.
-70-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BVT
The following table sets forth as of September 8, 1995 certain information
regarding the beneficial ownership of BVT Common Shares by (i) each director and
executive officer of BVT, (ii) all directors and executive officers of BVT as a
group, and (iii) each other person known by BVT to own beneficially more than 5%
of the outstanding BVT Common Shares.
<TABLE>
<CAPTION>
Beneficial Ownership of
BVT Common Shares(1)
Number Percent of
of Shares Total
---------- ------------
<S> <C> <C>
Directors:
James G. Apple(2).................................... 4,240 *
R. Lowell Coolidge................................... 16,270 1.8%
F. Ellis Harley...................................... 125 *
Elizabeth B. McClure(3).............................. 33,465 3.7%
W. Gale Reish(4)..................................... 1,315 *
Robert C. Rooke(5)................................... 45,585 5.1%
Jean M. Ruhl(6)...................................... 55,550 6.2%
D. Roger Shuck(7).................................... 361 *
Fitz R. Walling(8)................................... 2,350 *
Executive Officer:
David E. Lynn........................................ 7,195 *
All Directors and Executive Officers as a Group (10
persons)............................................ 166,456 18.5%
Other 5% Shareholders
Nancy L. Diver(9).................................... 74,370 8.2%
Mary Ruhl Maher and Roland P. Maher(10).............. 44,250 4.9%
</TABLE>
---------------------
*Less than 1%.
(1) Except as indicated in the footnotes to this table, the persons named
in this table have sole voting and investment power with respect to
all BVT Common Shares indicated above.
(2) Consists of 1,240 shares jointly owned with Mr. Apple's wife and 3,000
shares held in a trust as to which Mr. Apple shares voting and
investment power.
(3) Consists of 18,000 shares owned jointly with Mrs. McClure's husband
and 15,465 shares owned by Mrs. McClure's husband.
(4) Includes 200 shares owned by Mr. Reish's wife as to which Mr. Reish
disclaims beneficial ownership.
(5) Includes 39,510 shares held in a trust as to which Mr. Rooke shares
voting and investment power. Mr. Rooke's address is 175 South Street,
Morristown, New Jersey 07960.
(6) Includes 45,000 shares held in a trust as to which Ms. Ruhl has sole
voting and investment power. Ms. Ruhl's address is 601 Buffalo Road,
Lewisburg, Pennsylvania 17837.
(7) Includes 337 shares owned jointly with Mr. Shuck's wife, and 24 shares
owned by Mr. Shuck's son as to which Mr. Shuck disclaims beneficial
ownership.
(8) Includes 1,175 shares owned by Mr. Walling's wife.
(9) Mrs. Diver's address is 1004 Overbrook Road, Wilmington, Delaware
19807.
(10) Consists of 22,250 shares owned by Mrs. Maher, 17,000 shares owned by
Mr. Maher, and 5,000 shares owned jointly by Mrs. Maher and her
daughter as to which Mrs. Maher shares voting and investment power.
The Mahers' address is 270 Meeting House Lane, Lewisburg, Pennsylvania
17837.
In addition, prior to the redemption which was effective as of
September 1, 1995, David E. Lynn owned 535 shares (6.7%), Jean M. Ruhl
owned three shares, and Fitz R. Walling owned four shares, respectively, of
BVT's cumulative preferred stock.
-71-
<PAGE>
ADJOURNMENT OF THE MEETING
If there is an insufficient number of votes cast in person or by proxy
at the Meeting to approve the Merger Agreement, the BVT Board intends to
adjourn the Meeting to a later date for the solicitation of additional
votes in favor of the Merger Agreement. The affirmative vote of a majority
of the shares present, in person or by proxy, at the Meeting, even if a
quorum is not present, is required in order to approve any such
adjournment. The place and date to which the Meeting would be adjourned
would be announced at the Meeting. Under BVT's Bylaws, so long as the
adjournment is for less than six months, it shall not be necessary to give
any notice of the time and place of the adjourned meeting other than the
announcement at the Meeting.
The BVT Board recommends that shareholders vote "FOR" the proposal to
adjourn the Meeting if necessary to permit further solicitation of proxies
to approve the Merger Agreement.
EXPERTS
C-TEC
The consolidated balance sheets of C-TEC as of December 31, 1994 and
1993 and the related consolidated statements of operations, common
shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1994, incorporated by reference in this Proxy
Statement/Prospectus, have been incorporated herein in reliance on the
report of Coopers & Lybrand L.L.P., independent public accountants to C-
TEC, given upon the authority of said firm as experts in auditing and
accounting.
BVT
The balance sheets of BVT as of December 31, 1994 and 1993 and the
related statements of income, retained earnings and cash flows for each of
the years in the three-year period ended December 31, 1994, included in
this Proxy Statement/Prospectus, have been incorporated herein in reliance
on the report of William R. Maslo, independent public accountant to BVT,
given upon the authority of said accountant as an expert in auditing and
accounting. Mr. Maslo is expected to be present at the Meeting with the
opportunity to make a statement if he desires to do so and is expected to
be available to respond to appropriate questions.
Twin County
The balance sheets of Twin County as of October 31, 1994 and 1993 and
the related statements of income, retained earnings and cash flows for each
of the years in the three-year period ended October 31, 1994, incorporated
by reference in this Proxy Statement/Prospectus, have been incorporated
herein in reliance on the report of Adams & Associates, P.C., independent
public accountants to Twin County, given upon the authority of said firm as
experts in auditing and accounting.
Megacable
The consolidated balance sheets of Megacable as of December 31, 1994
and 1993 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the year ended December 31, 1994
and the six-month period ended December 31, 1993 and the accompanying
combined statements of operations, changes in shareholders' equity and cash
flows of Cable Control Sinaloa, S.A. de C.V. and Cable Control de Sonora,
S.A. de C.V. (Predecessor) for the six month period ended June 30, 1993,
have been incorporated herein in reliance on the report of Lebrija Alvarez
y Cia., S.C., independent accountants to Megacable, given upon the
authority of said firm as experts in auditing and accounting.
-72-
<PAGE>
LEGAL OPINIONS
The legality of the C-TEC Series AA Preferred Shares to be issued
in connection with the Merger is being passed upon by Raymond B. Ostroski,
Esquire, Executive Vice President and General Counsel of C-TEC. The tax
consequences of the Merger are being passed upon by Swidler & Berlin,
special tax counsel to C-TEC. Certain legal matters relating to BVT will
be passed upon at the Effective Time by Morgan, Lewis & Bockius,
Harrisburg, Pennsylvania, special counsel to BVT.
-73-
<PAGE>
INDEX TO BVT FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report........................................ F-2
Balance Sheets, December 31, 1994 and 1993.......................... F-3
Statements of Income for the Years Ended December 31, 1994 and 1993. F-5
Statements of Retained Earnings for the Years Ended December 31,
1994 and 1993...................................................... F-6
Statements of Cash Flows for the Years Ended December 31, 1994 and
1993............................................................... F-7
Notes to Financial Statements, Years Ended December 31, 1994 and
1993............................................................... F-8
Independent Auditor's Report........................................ F-12
Balance Sheets, December 31, 1993 and 1992.......................... F-13
Statements of Income for the Years Ended December 31, 1993 and 1992. F-15
Statements of Retained Earnings for the Years Ended December 31,
1993 and 1992...................................................... F-16
Statements of Cash Flows for the Years Ended December 31, 1993 and
1992............................................................... F-17
Notes to Financial Statements for the Years Ended December 31, 1993
and 1992........................................................... F-18
Balance Sheet, June 30, 1995 (unaudited)............................ F-22
Statements of Income for the Three Months and Six Months
Ended June 30, 1995 and 1994 (unaudited)........................... F-24
Statements of Cash Flows for the Six Months Ended June 30, 1995 and
1994 (unaudited)................................................... F-25
Statements of Retained Earnings for the Six Months Ended June 30,
1995 and 1994 (unaudited).......................................... F-26
Condensed Note to Financial Statements for the Six Months Ended
June 30, 1995 and 1994 (unaudited)................................. F-27
Quarterly Information (unaudited)................................... F-28
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Buffalo Valley Telephone Company
20 South Second Street
Lewisburg, Pennsylvania 17837
Gentlemen:
I have audited the accompanying balance sheets of the Buffalo Valley
Telephone Company as of December 31, 1994 and 1993 and the related
statements of income, retained earnings and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. I believe that my audits
provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Buffalo
Valley Telephone Company as of December 31, 1994 and 1993, and the results
of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
My audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The statements of operating
expenses, telephone plant in service, and accumulated depreciation are
presented for purposes of additional analysis and are not a required part
of the basic financial statements. Such information has been subjected to
the auditing procedures applied in the audit of the basic financial
statements and, in my opinion, is fairly stated in all material respects
in relation to the basic financial statements taken as a whole.
William R. Maslo
Reading, Pennsylvania
February 24, 1995
F-2
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
BALANCE SHEETS
DECEMBER 31, 1994 AND DECEMBER 31, 1993
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Equivalents.................... $ 2,501,313.80 $ 3,377,926.87
Temporary Cash Investments.............. 1,989,931.00 2,000,000.00
Accounts Receivable..................... 2,662,815.53 2,605,913.89
Material and Supplies--At Average Costs. 240,882.51 285,520.03
Prepaid Expenses........................ 2,326,407.92 1,960,785.00
-------------- --------------
Total Current Assets................. 9,721,350.76 10,230,145.79
-------------- --------------
NONCURRENT ASSETS
Investments in Nonaffiliated
Companies--at Cost..................... 46,847.93 54,849.58
(Market Value-12/31/94--$107,910.16)
(Market Value-12/31/93--$244,132.17)
Nonregulated Investments--Deregulated
Equipment.............................. 2,085,010.60 2,086,616.02
Unamortized Debt Issuance Expense....... 1,371.45 2,026.13
Other Noncurrent Assets................. 816,647.79 998,879.05
Deferred Extraordinary Retirements 125,459.28 158,238.12
Deferred Charges........................ 119,117.04 151,567.26
-------------- --------------
Total Noncurrent Assets.............. 3,194,454.09 3,452,176.16
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT
Telephone Plant in Service.............. 26,278,393.06 24,955,797.82
Telephone Plant Under Construction 850,778.58 296,201.56
Non-Operating Plant..................... 28,051.89 28,051.89
-------------- --------------
27,157,223.53 25,280,051.27
Less: Accumulated Depreciation.......... 10,832,670.91 9,928,942.01
-------------- --------------
Net Telephone Property............... 16,324,552.62 15,351,109.26
-------------- --------------
TOTAL ASSETS............................... $29,240,357.47 $29,033,431.21
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
BALANCE SHEETS
DECEMBER 31, 1994 AND DECEMBER 31, 1993
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
----------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Maturities of Long-Term Debt..... $ 81,000.00 $ 1,081,000.00
Accounts Payable......................... 1,071,362.73 1,220,135.73
Customer Deposits........................ 2,140.00 2,270.00
Accrued Taxes--Income.................... 1,977,086.99 1,635,385.44
Accrued Taxes--Other..................... 464,858.85 454,718.61
Accrued Interest, Pension and Other...... 228,944.12 236,417.94
-------------- --------------
Total Current Liabilities............. 3,825,392.69 4,629,927.72
-------------- --------------
LONG-TERM DEBT
Notes Payable............................ 1,485,000.00 1,566,000.00
-------------- --------------
Total Long-Term Debt.................. 1,485,000.00 1,566,000.00
-------------- --------------
OTHER LIABILITIES AND DEFERRED CREDITS
Unamortized Investment Tax Credit--Net... 393,670.76 455,303.34
Deferred Income Taxes.................... 3,249,637.49 3,679,518.97
Other Deferred Credits................... 298,230.87 40,183.51
-------------- --------------
Total Other Liabilities and
Deferred Credits..................... 3,941,539.12 4,175,005.82
-------------- --------------
STOCKHOLDERS' EQUITY
Common Stock--900,000 Shares--No Par..... 600,000.00 600,000.00
Preferred Stock--8,000 Shares--$50.00
Par..................................... 400,000.00 400,000.00
-------------- --------------
Total Stock Issued.................... 1,000,000.00 1,000,000.00
Additional Paid-In Capital............... 467,279.96 467,279.96
Less: Treasury Stock--846 Common Shares.. 38,628.36 38,628.36
Retained Earnings........................ 18,559,774.06 17,233,846.07
-------------- --------------
Total Stockholders' Equity............ 19,988,425.66 18,662,497.67
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.. $29,240,357.47 $29,033,431.21
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF INCOME
FOR THE TWELVE MONTH PERIODS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
--------------- ---------------
<S> <C> <C>
OPERATING REVENUES
Local Service....................... $ 1,942,071.82 $ 1,871,107.84
Interstate Access Service........... 3,745,432.69 3,265,079.10
Intrastate Access Service........... 2,665,357.90 2,489,753.18
Long Distance Service............... 1,837,614.04 1,757,527.48
Miscellaneous....................... 1,344,073.73 1,278,495.19
Less: Uncollectibles................ 99,509.29 130,028.52
-------------- --------------
Total Operating Revenue.......... 11,435,040.89 10,531,934.27
-------------- --------------
OPERATING EXPENSES
Plant Specific...................... 1,267,403.11 1,168,598.54
Plant Non-Specific..................
Network and Other................. 1,322,031.57 1,213,571.38
Depreciation and Amortization..... 1,781,245.76 1,727,777.42
Customer Operations................. 1,026,726.25 989,155.17
Corporate Operations................ 893,621.35 699,911.06
-------------- --------------
Total Operating Expenses......... 6,291,028.04 5,799,013.57
-------------- --------------
NET OPERATING REVENUE....................... 5,144,012.85 4,732,920.70
-------------- --------------
OPERATING TAXES
Investment Credit--Net.............. (61,632.58) (62,541.07)
Income Taxes--Current............... 1,909,010.88 1,678,702.16
Income Taxes--Deferred.............. (19,118.88) 58,230.46
Other Operating Taxes............... 467,671.65 436,293.13
-------------- --------------
Total Operating Taxes............ 2,295,931.07 2,110,684.68
-------------- --------------
NET OPERATING INCOME........................ 2,848,081.78 2,622,236.02
-------------- --------------
OTHER INCOME AND EXPENSES
Dividend Income..................... 8,656.30 9,664.37
Interest Income..................... 194,518.46 128,120.88
Other Income and Expense--Net....... (50,022.36) (10,796.71)
Deregulated Activities--Net......... 16,715.38 (32,076.11)
-------------- --------------
Total Other Income and Expenses.. 169,867.78 94,912.43
-------------- --------------
INCOME AVAILABLE FOR FIXED CHARGES.......... 3,017,949.56 2,717,148.45
-------------- --------------
FIXED CHARGES
Interest and Amortization........... 165,442.85 226,679.03
-------------- --------------
NET INCOME.................................. $ 2,852,506.71 $ 2,490,469.42
============== ==============
EARNINGS PER SHARE--COMMON STOCK............ $ 3.15 $ 2.75
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF RETAINED EARNINGS
FOR THE TWELVE MONTH PERIODS ENDED
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
BALANCE AT JANUARY 1........ $17,233,846.07 $16,198,023.05
-------------- --------------
ADDITIONS:
Net Income........... 2,852,506.71 2,490,469.42
-------------- --------------
Total Additions... 2,852,506.71 2,490,469.42
-------------- --------------
DEDUCTIONS:
Common Dividends.... 1,510,578.72 1,438,646.40
Preferred Dividends.. 16,000.00 16,000.00
-------------- --------------
Total Deductions.. 1,526,578.72 1,454,646.40
-------------- --------------
BALANCE AT DECEMBER 31...... $18,559,774.06 $17,233,846.07
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................ $ 2,852,506.71 $ 2,490,469.42
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities
Depreciation........................... 1,896,828.12 1,788,130.77
Amortization........................... 33,433.52 33,940.08
Deferred Income Taxes and Investment
Tax Credit............................ (65,614.73) 23,377.95
Net gain on Sale of Stock in Non
Affiliated Companies.................. (119,969.74) 0.00
Net Changes in:
Temporary Cash Investments (Increase)
Decrease............................. 10,069.00 (2,000,000.00)
Accounts Receivable (Increase)
Decrease.............................. (56,901.64) (4,864.09)
Material and Supplies (Increase)
Decrease.............................. 44,637.52 101,681.97
Prepaid Expenses (Increase) Decrease... (365,622.92) 43,513.90
Prepaid Pension Asset (Increase)
Decrease.............................. 10,407.00 (123,622.62)
Deferred Charges (Increase) Decrease... 32,450.22 (10,777.42)
Accounts Payable Increase (Decrease)... (148,773.00) 94,702.77
Customer Deposits Increase (Decrease).. (130.00) (100.00)
Accrued Expenses Increase (Decrease)... 344,367.97 71,869.38
Other Deferred Credits and Reserves
Increase (Decrease)................... (63,286.36) (61,676.23)
-------------- --------------
Cash Provided by Operating
Activities........................... 4,404,401.67 2,446,645.88
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Addition of Plant (Including Work
Under Construction)..................... (2,699,345.22) (1,301,428.84)
Addition of Deregulated Telephones and
Other................................... (35,581.39) (232,546.83)
Salvage from Plant Retired............... 30,318.00 36,077.66
Cost of Removal of Plant Retired......... (52,883.06) (52,482.83)
Purchase of Interest in NonAffiliated
Companies............................... (8,259.30) (9,644.37)
Increase in Cash Surrender Value......... (43,915.74) (42,224.45)
Sale of Stock in NonAffiliated Companies. 136,230.69 0.00
-------------- --------------
Cash Used by Investing Activities..... (2,673,436.02) (1,602,249.66)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments of Long-Term Debt..... (1,081,000.00) (81,000.00)
Dividends Paid........................... (1,526,578.72) (1,454,646.40)
-------------- --------------
Cash Used by Financing Activities..... (2,607,578.72) (1,535,646.40)
-------------- --------------
NET INCREASE (DECREASE) IN CASH................. (876,613.07) (691,250.18)
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR.... 3,377,926.87 4,069,177.05
-------------- --------------
CASH AND CASH EQUIVALENTS--END OF YEAR.......... $ 2,501,313.80 $ 3,377,926.87
============== ==============
</TABLE>
SUPPLEMENTAL DISCLOSURES
The Company paid interest totalling $171,950 and $226,378 during 1994 and
1993, respectively.
The Company paid federal and state income taxes of $2,005,999 and
$1,506,886 during 1994 and 1993, respectively.
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1--ACCOUNTING POLICIES
The Company's accounting policies are in conformity with generally
accepted accounting principles as prescribed by the Pennsylvania Public
Utility Commission. Revenues and expenses are recorded on the accrual basis
in order to match them with the period to which they apply. Effective
January 1, 1988, the Company adopted certain accounting changes which
substantially restructured the system of accounts.
Telephone Plant--Telephone plant is recorded by the Company at original
cost. Normal additions and replacements and renewals of property,
considered to be units of property, are charged to telephone plant
accounts. Retirements are eliminated from the telephone plant accounts at
original costs, and these costs plus removal expense, less salvage, are
charged to accumulated depreciation. Ordinary repairs and replacements of
items considered to be less than units of property are charged to
maintenance. No gain or loss is recognized in connection with ordinary
retirements of depreciable property.
Depreciation--For financial reporting purposes, depreciation is computed
using straight-line method over the estimated useful lives of the plant in
service. For income tax purposes all additions commencing in 1974 are
depreciated using accelerated methods. For assets acquired after January 1,
1981, depreciation is calculated using the Accelerated Cost Recovery System
(ACRS) and modified ACRS for assets purchased after January 1, 1987.
Cash Equivalents--All highly liquid investments, with original maturity
of three months or less, having insignificant risk of changes in value are
classified as cash equivalents.
Temporary Cash Investments--Temporary cash investments at December 31,
1994 consisted of various U.S. Treasury Notes with maturities through
September 30, 1996. At December 31, 1993, this account consisted of stock
in a short term bond fund. The investment is recorded at cost. Premium and
discount on the U.S. Treasury Notes is amortized using the straight-line
method.
Income Taxes--The company adopted Statement of Accounting Standards
(SFAS) No. 109, ''Accounting for Income Taxes'' effective for fiscal 1993.
Under the provisions of this pronouncement, an entity recognizes deferred
tax assets and liabilities for the future tax consequences of events that
have been previously recognized in the Company's financial statements or
tax returns. Regulated companies, such as telephone companies, are required
to record regulatory assets or liabilities when adjusting their deferred
income tax liabilities.
There was no significant income statement impact related to the adoption
of FAS 109.
The difference between the statutory income tax rate and the Company's
effective tax rate is due primarily to Pennsylvania Corporate Net Income
Tax and deferred timing differences such as depreciation, provision for
pensions, amortization of investment tax credit, amortization of
extraordinary retirements, and allowance for uncollectible accounts.
Investment Tax Credit--The investment tax credits recorded have been
deferred and are being amortized to income at the rate of 5% per annum.
Unamortized Debt Expense--Unamortized debt expense is being amortized by
charges to income over the life of the related issue.
Extraordinary Retirement--The early retirement of plant due to
obsolescence is being amortized by charges to income over a period of ten
years.
Capital Stock Expense--Expenses relating to the issuance of common stock
are deferred indefinitely, and are charged to Additional Paid-In Capital.
F-8
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1994
Treasury Stock--Treasury stock is reported at cost.
NOTE 2--PREFERRED STOCK
The stock is preferred as to liquidation and dividends which are
cumulative at 4% per annum. Shares are callable on any dividend payment
date at par value plus accrued dividends. There are no dividends in
arrears.
NOTE 3--COMMON STOCK AND RETAINED EARNINGS
Covenants contained in the note agreement covering long-term debt include
a provision that the Company will not declare or pay any dividends on any
shares of its capital stock of any class (other than dividends in shares of
its common stock); or to make any payment to purchase, redeem or otherwise
acquire any such shares, if the aggregate amount of all dividends,
distributions, and payments made on all shares of its capital stock of all
classes after December 31, 1977, would exceed an amount equal to the
retained earnings accumulated after December 31, 1977. The unrestricted
retained earnings at December 31, 1994 is $16,393,126.62.
NOTE 4--LONG-TERM DEBT
The Company issued $2,700,000.00 in long-term notes as of May 31, 1978.
The terms of the note agreement required an annual payment on account of
principal in the amount of $81,000.00 commencing on June 1, 1981, and
continuing to and including June 1, 1997, and a final payment of the
balance of $1,323,000.00 shall be made on June 1, 1998. The note bears
interest at a rate of 8.5% payable semi-annually on the unpaid balance
commencing December 1, 1978.
See Note 3 for covenants contained in the note agreement which restrict
retained earnings.
Following are maturities of long-term debt for each of the next five
years.
<TABLE>
<CAPTION>
<S> <C>
1995...................................................... 81,000.00
1996...................................................... 81,000.00
1997...................................................... 81,000.00
1998...................................................... 1,323,000.00
1999...................................................... 0.00
</TABLE>
NOTE 5--CONCENTRATION OF CREDIT RISK
The Company's revenue is derived primarily from the providing of public
utility telephone service in Union and Northumberland Counties of
Pennsylvania.
NOTE 6--EMPLOYEE BENEFIT PLANS
The Company has a noncontributing defined benefit pension plan covering
substantially all employees. The plan provides benefits based upon years of
service and compensation levels. Contributions are intended to provide not
only benefits attributed to service to date but also for those expected to
be earned in the future.
F-9
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1994
A summary of the components of net periodic income for the plan for 1994 is
as follows:
<TABLE>
<CAPTION>
<S> <C>
Service cost--benefits earned during the period.. $ 118,075
Interest cost on projected benefit obligation... 196,474
Expected return on plan assets................... (49,693)
Net amortization and deferral.................... (318,797)
---------
Net periodic pension income...................... $ (53,941)
=========
</TABLE>
The discount rate and rate of increase in future compensation levels
(where applicable) used in determining the actuarial present value of the
projected benefit obligation were 7.5 percent and 5.5 percent,
respectively. The expected long--term rate on plan assets was 8.50 percent.
The following table sets forth the funded status and amounts recognized
in the balance sheet at December 31, 1994 for the Company's defined benefit
plan:
<TABLE>
<CAPTION>
Actuarial present value of benefit obligations:
<S> <C>
Vested benefit obligation............................ $ 1,571,467
===========
Accumulated benefit obligation....................... $ 1,994,013
===========
Projected benefit obligation............................ $(2,797,945)
Plan assets at fair value............................... 3,667,392
-----------
Plan assets in excess of projected benefit obligation... 869,447
Unrecognized net gain................................... 428,114
Unrecognized net assets at January 1, 1991, net of
amortization........................................... (804,456)
-----------
Net pension asset recognized in the balance sheet....... $ 493,105
===========
</TABLE>
Plan assets at December 31, 1994 and 1993 were invested in listed common
stocks, U.S. Government securities, short-term money market instruments,
and corporate bonds and mortgages.
The Company also has a 401(k) plan whereby participants may contribute up
to fifteen percent of their salaries. The Company currently contributes up
to twenty-five percent of the employees' contribution up to the first eight
percent of their salaries. The Company contributed $31,024 during 1994 and
$26,675 during 1993.
The Company has a nonqualified supplemental retirement plan for certain
management employees. The pension liability, as determined by an actuary,
under this plan at December 31, 1994 was $64,168.
The Financial Accounting Standards Board requires implementation of
Statement Of Financial Accounting Standard 106, "Employers' Accounting for
Postretirement Benefits other Than Pensions" (SFAS 106) effective in 1993.
SFAS 106 requires benefit costs to be recognized on an accrual basis as
benefits are earned by employees. The Company does not have a material
liability for postretirement benefits other than those previously stated.
NOTE 7--CONTINGENCIES
The Company has been notified of potential liability for participation in
an Environmental Protection Agency clean up of a hazardous waste site. The
Company allegedly sold scrap lead cable to a salvage yard which has been
identified as a contaminant. The Company's liability, if any, for sharing
in the clean up costs is unknown at this date, however the Company believes
that its ultimate liability should not have a material adverse effect on
its financial position.
F-10
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1994
NOTE 8--RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the 1993 financial statements
to conform to the 1994 financial statement presentation. Such
reclassification had no effect on net income as previously reported.
NOTE 9--SUBSEQUENT EVENT
On April 20, 1995, the Board of Directors of Buffalo Valley Telephone
Company agreed in principal for C-TEC Corporation (a diversified
telecommunications and high technology company) to acquire the stock of the
Company for cash and preferred stock.
F-11
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Buffalo Valley Telephone Company
20 South Second Street
Lewisburg, Pennsylvania 17837
Gentlemen:
I have audited the accompanying balance sheets of the Buffalo Valley
Telephone Company as of December 31, 1993 and 1992 and the related
statements of income, retained earnings and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. I believe that my audits provide
a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Buffalo Valley
Telephone Company as of December 31, 1993 and 1992, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
My audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The statements of operating
expenses, telephone plant in service, and accumulated depreciation are
presented for purposes of additional analysis and are not a required part
of the basic financial statements. Such information has been subjected to
the auditing procedures applied in the audit of the basic financial
statements and, in my opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
William R. Maslo
Reading, Pennsylvania
February 17, 1994
F-12
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
BALANCE SHEETS
DECEMBER 31, 1993 AND DECEMBER 31, 1992
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Equivalents...................$ 3,377,926.87 $ 4,069,177.05
Temporary Cash Investments............. 2,000,000.00 0.00
Accounts Receivable.................... 2,605,913.89 2,601,049.80
Material and Supplies--At Average
Costs................................. 285,520.03 387,202.00
Prepaid Expenses....................... 1,960,785.00 2,004,298.90
-------------- --------------
Total Current Assets................ 10,230,145.79 9,061,727.75
-------------- --------------
NONCURRENT ASSETS
Investments in Nonaffiliated
Companies--at Cost.................... 54,849.58 45,205.21
(Market Value-12/31/93--$244,132.17)
(Market Value-12/31/92--$198,714.57)
Nonregulated Investments--Deregulated
Equipment............................. 2,086,616.02 2,031,931.25
Unamortized Debt Issuance Expense...... 2,026.13 3,187.37
Other Noncurrent Assets................ 998,879.05 514,723.60
Deferred Extraordinary Retirements..... 158,238.12 191,016.96
Deferred Charges....................... 151,567.26 140,789.84
-------------- --------------
Total Noncurrent Assets............. 3,452,176.16 2,926,854.23
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT
Telephone Plant in Service............. 24,955,797.82 24,079,760.29
Telephone Plant Under Construction..... 296,201.56 123,848.63
Non-Operating Plant.................... 28,051.89 28,051.89
-------------- --------------
25,280,051.27 24,231,660.81
Less: Accumulated Depreciation......... 9,928,942.01 8,493,751.301
-------------- --------------
Net Telephone Property.............. 15,351,109.26 15,737,909.51
-------------- --------------
TOTAL ASSETS...................................$29,033,431.21 $27,726,491.49
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
BALANCE SHEETS
DECEMBER 31, 1993 AND DECEMBER 31, 1992
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
----------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Maturities of Long-Term
Debt............................. $ 81,000.00 $ 81,000.00
Accounts Payable.................. 1,220,135.73 1,125,432.96
Customer Deposits................. 2,270.00 2,370.00
Accrued Taxes--Income............. 1,635,385.44 1,566,382.46
Accrued Taxes--Other.............. 454,718.61 472,311.42
Accrued Interest, Pension and
Other............................ 236,417.94 215,958.73
-------------- --------------
Total Current Liabilities...... 3,629,927.72 3,463,455.57
-------------- --------------
LONG-TERM DEBT
Funded Debt....................... 1,566,000.00 1,647,000.00
Other............................. 1,000,000.00 1,000,000.00
-------------- --------------
Total Long-Term Debt........... 2,566,000.00 2,647,000.00
-------------- --------------
OTHER LIABILITIES AND DEFERRED CREDITS
Unamortized Investment Tax
Credit--Net...................... 455,303.34 517,844.41
Deferred Income Taxes............. 3,679,518.97 3,313,711.95
Other Deferred Credits............ 40,183.51 157,804.91
-------------- --------------
Total Other Liabilities and
Deferred Credits.............. 4,175,005.82 3,989,361.27
-------------- --------------
STOCKHOLDERS' EQUITY
Common Stock--900,000 Shares--No
Par.............................. 600,000.00 600,000.00
Preferred Stock--8,000
Shares--$50.00 Par............... 400,000.00 400,000.00
-------------- --------------
Total Stock Issued............. 1,000,000.00 1,000,000.00
Additional Paid-In Capital........ 467,279.96 467,279.96
Less: Treasury Stock--846 Common
Shares........................... 38,628.36 38,628.36
Retained Earnings................. 17,233,846.07 16,198,023.05
-------------- --------------
Total Stockholders' Equity..... 18,662,497.67 17,626,674.65
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $29,033,431.21 $27,726,491.49
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF INCOME
FOR THE TWELVE MONTH PERIODS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
--------------- ---------------
<S> <C> <C>
OPERATING REVENUES
Local Service........................ $ 1,871,107.84 $ 1,762,216.79
Interstate Access Service............ 3,265,079.10 3,478,847.21
Intrastate Access Service............ 2,489,753.18 2,425,584.45
Long Distance Service................ 1,757,527.48 1,780,642.57
Miscellaneous........................ 1,278,495.19 1,278,674.68
Less: Uncollectibles................. 130,028.52 58,401.47
-------------- --------------
Total Operating Revenue........... 10,531,934.27 10,667,564.23
-------------- --------------
OPERATING EXPENSES
Plant Specific....................... 1,168,598.54 1,180,028.58
Plant Non-Specific
Network and Other.................. 1,213,571.38 1,264,344.75
Depreciation and Amortization...... 1,727,777.42 1,654,731.74
Customer Operations.................. 989,155.17 968,627.91
Corporate Operations................. 699,911.06 768,422.47
Other Operating Income and Expenses.. 0.00 (185,144.00)
-------------- --------------
Total Operating Expenses.......... 5,799,013.57 5,651,011.45
-------------- --------------
NET OPERATING REVENUE........................ 4,732,920.70 5,016,552.78
-------------- --------------
OPERATING TAXES
Investment Credit--Net............... (62,541.07) (63,732.22)
Income Taxes--Current................ 1,678,702.16 1,576,758.63
Income Taxes--Deferred............... 58,230.46 147,078.55
Other Operating Taxes................ 436,293.13 507,449.15
-------------- --------------
Total Operating Taxes............. 2,110,684.68 2,167,554.11
-------------- --------------
NET OPERATING INCOME......................... 2,622,236.02 2,848,998.67
-------------- --------------
OTHER INCOME AND EXPENSES
Dividend Income...................... 9,664.37 12,003.39
Interest Income...................... 128,120.88 106,949.31
Other Income and Expense--Net........ (10,796.71) 82,692.37
Deregulated Activities--Net.......... (32,076.11) (18,390.00)
-------------- --------------
Total Other Income and Expenses... 94,912.43 183,255.07
-------------- --------------
INCOME AVAILABLE FOR FIXED CHARGES........... 2,717,148.45 3,032,253.74
-------------- --------------
FIXED CHARGES
Interest and Amortization............ 226,679.03 233,689.84
-------------- --------------
NET INCOME................................... $ 2,490,469.42 $ 2,798,563.90
============== ==============
EARNINGS PER SHARE--COMMON STOCK............. $ 2.75 $ 3.09
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF RETAINED EARNINGS
FOR THE TWELVE MONTH PERIODS ENDED
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
-------------- --------------
<S> <C> <C>
BALANCE AT JANUARY 1,.......... $16,198,023.05 $14,747,146.13
-------------- --------------
ADDITIONS:
Net Income........... 2,490,469.42 2,798,563.90
-------------- --------------
Total Additions... 2,490,469.42 2,798,563.90
-------------- --------------
DEDUCTIONS:
Common Dividends..... 1,438,646.40 1,331,686.98
Preferred Dividends... 16,000.00 16,000.00
-------------- --------------
Total Deductions.. 1,454,646.40 1,347,686.98
-------------- --------------
BALANCE AT DECEMBER 31,........ $17,233,846.07 $16,198,023.05
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................... $ 2,490,469.42 $ 2,798,563.90
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Depreciation............................. 1,788,130.77 1,688,547.05
Amortization of Extraordinary
Retirements............................. 33,940.08 33,939.74
Deferred Income Taxes and
Investment Tax Credit................... 23,377.95 94,231.70
Accounts Receivable (Increase)
Decrease................................ (4,864.09) (211,355.40)
Material and Supplies (Increase)
Decrease................................ 101,681.97 (160,540.81)
Prepaid Expenses (Increase) Decrease..... 43,513.90 (170,761.41)
Prepaid Pension Asset (Increase)
Decrease................................ (123,622.62) (277,321.00)
Deferred Charges (Increase) Decrease..... (10,777.42) 68,735.26
Accounts Payable Increase (Decrease)..... 94,702.77 (87,019.63)
Customer Deposits Increase
(Decrease).............................. (100.00) (280.00)
Accrued Expenses Increase (Decrease)..... 71,869.38 367,781.96
Deferred Credits and Reserves
Increase (Decrease)..................... (61,676.23) 1,091.56
-------------- --------------
Cash Provided by Operating
Activities.............................. 4,446,645.88 4,145,612.92
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Addition of Plant (Including Work
Under Construction)........................ (1,301,428.84) (1,378,739.83)
Addition of Deregulated Telephones and
Other...................................... (232,546.83) (138,596.30)
Salvage from Plant Retired.................. 36,077.66 37,192.57
Cost of Removal of Plant Retired............ (52,482.83) (45,739.29)
Purchase of Interest in NonAffiliated
Companies.................................. (2,009,644.37) (9,032.99)
Increase in Cash Surrender Value............ (42,224.45) (38,341.40)
Purchase of Treasury Stock.................. 0.00 (63,193.44)
Sale of Treasury Stock...................... 0.00 24,565.08
-------------- --------------
Cash Used in Investing Activities........ (3,602,249.66) (1,611,885.60)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments of Long-Term Debt........ (81,000.00) (81,000.00)
Dividends Paid.............................. (1,454,646.40) (1,347,686.98)
-------------- --------------
Cash Used by Financing Activities........ (1,535,646.40) (1,428,686.98)
-------------- --------------
NET INCREASE (DECREASE) IN CASH..................... (691,250.18) 1,105,040.34
CASH AND CASH EQUIVALENTS--BEGINNING OF
YEAR............................................. 4,069,177.05 2,964,136.71
-------------- --------------
CASH AND CASH EQUIVALENTS--END OF YEAR.............. $ 3,377,926.87 $ 4,069.177.05
============== ==============
</TABLE>
--------------
SUPPLEMENTAL DISCLOSURES
(1) The Company considers short-term debt securities purchased in money market
funds to be cash equivalents.
(2) The Company paid interest totaling $226,378.41 and $231,599.69 during 1993
and 1992, respectively.
(3) The Company paid Federal and State Income Taxes of $1,506,886.00 and
$1,454,075.17 for 1993 and 1992, respectively.
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE 1--ACCOUNTING POLICIES
The Company's accounting policies are in conformity with generally
accepted accounting principles as prescribed by the Pennsylvania Public
Utility Commission. Revenues and expenses are recorded on the accrual basis
in order to match them with the period to which they apply. Effective
January 1, 1988, the Company adopted certain accounting changes which
substantially restructured the system of accounts.
Telephone Plant--Telephone plant is recorded by the Company at
original cost. Normal additions and replacements and renewals of property,
considered to be units of property, are charged to telephone plant
accounts. Retirements are eliminated from the telephone plant accounts at
original costs, and these costs plus removal expense, less salvage, are
charged to accumulated depreciation. Ordinary repairs and replacements of
items considered to be less than units of property are charged to
maintenance. No gain or loss is recognized in connection with ordinary
retirements of depreciable property.
Depreciation--For financial reporting purposes, depreciation is
computed using straight-line method over the estimated useful lives of the
plant in service. For income tax purposes all additions commencing in 1974
are depreciated using accelerated methods. For assets acquired after
January 1, 1981, depreciation is calculated using the Accelerated Cost
Recovery System (ACRS) and modified ACRS for assets purchased after January
1, 1987.
Temporary Cash Investments--The Company has an investment in a short
term bond fund at 12/31/93. The investment is carried at cost. Market value
is $1,980,392.16 at 12/31/93.
Income Taxes--Effective for the current fiscal year, the Company
adopted Statement of Financial Accounting Standard No. 109, ''Accounting
for Income Taxes'' (FAS 109). Under the provisions of FAS 109, an entity
recognizes deferred tax assets and liabilities for future tax consequences
of events that have been previously recognized in the Company's financial
statements or tax returns. Specific provisions of FAS 109 require regulated
companies, such as telephone companies, to record regulatory assets or
liabilities when adjusting their deferred income tax liabilities.
As a result of implementing this provision, the Company recorded a
regulatory asset of $279,888. This asset resulted from recording deferred
taxes relating to the cumulative amount of federal income taxes previously
flowed through to the ratepayers.
There was no significant income statement impact related to the
adoption of FAS 109.
The difference between the statutory income tax rate and the
Company's effective tax rate is due primarily to Pennsylvania Corporate Net
Income Tax and deferred tax timing differences such as depreciation,
provision for pensions, and amortization of investment tax credits.
Investment Tax Credit--The investment tax credits recorded have been
deferred and are being amortized to income at the rate of 5% per annum.
Unamortized Debt Expense--Unamortized debt expense is being amortized
by charges to income over the life of the related issue.
Extraordinary Retirement--The early retirement of plant due to
obsolescence is being amortized by charges to income over a period of ten
years.
Capital Stock Expense--Expenses relating to the issuance of common
stock are deferred indefinitely, and are charged to Additional Paid-In
Capital.
Treasury Stock--Treasury stock is reported at cost.
F-18
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1994
NOTE 2--PREFERRED STOCK
The stock is preferred as to liquidation and dividends which are
cumulative at 4% per annum. Shares are callable on any dividend payment
date at par value plus accrued dividends. There are no dividends in
arrears.
NOTE 3--COMMON STOCK AND RETAINED EARNINGS
Covenants contained in the note agreement covering long-term debt
include a provision that the Company will not declare or pay any dividends
on any shares of its capital stock of any class (other than dividends in
shares of its common stock); or to make any payment to purchase, redeem or
otherwise acquire any such shares, if the aggregate amount of all
dividends, distributions, and payments made on all shares of its capital
stock of all classes after December 31, 1977, would exceed an amount equal
to the retained earnings accumulated after December 31, 1977. The
unrestricted retained earnings at December 31, 1993 is $15,067,198.63.
NOTE 4--LONG-TERM DEBT
The Company issued $2,700,000.00 in long-term notes as of May 31,
1978. The terms of the note agreement required an annual payment on account
of principal in the amount of $81,000.00 commencing on June 1, 1981, and
continuing to and including June 1, 1997, and a final payment of the
balance of $1,323,000.00 shall be made on June 1, 1998. The note bears
interest at a rate of 8.5% payable semi-annually on the unpaid balance
commencing December 1, 1978.
See Note 3 for covenants contained in the note agreement which
restrict retained earnings.
In addition to the above, there is a $1,000,000.00 promissory note
dated April 30, 1982, payable to the Penn Mutual Life Insurance Company
(formerly Penn Diversified Insurance and Annuity Company), due April 30,
1994. The rate of interest shall equal 117.5% of Moody's Investor Service,
Inc. three-year index of yields on U.S. Treasury Issues. Effective May 1,
1991 the rate is 8.25% payable semi-annually on June 1, and December 1,
each year.
Following are maturities of long-term debt for each of the next five
years.
<TABLE>
<CAPTION>
<S> <C>
1994.................................... $1,081,000.00
1995.................................... 81,000.00
1996.................................... 81,000.00
1997.................................... 81,000.00
1998.................................... 1,323,000.00
</TABLE>
F-19
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1994
NOTE 5--CONCENTRATION OF CREDIT RISK
The Company's revenue is derived primarily from the providing of
public utility telephone service in Union and Northumberland Counties of
Pennsylvania.
NOTE 6--EMPLOYEE BENEFIT PLANS
The Company has a noncontributing defined benefit pension plan
covering substantially all employees. The plan provides benefits based upon
years of service and compensation levels. The Company's funding policy is
to contribute annually an amount that can be deducted for federal income
tax purposes. Contributions are intended to provide not only benefits
attributed to service to date but also for those expected to be earned in
the future.
In 1992, the Company adopted FASB No. 87, ''Employers' Accounting for
Pensions'', the effect of the adoption was to record pension income of
$277,321 in 1992, of which $92,177 related to 1991 and prior. Pension
expense for 1991 has not been restated. Pension Income for 1993 was
$162,043.
A summary of the components of net periodic income for the plan for
1993 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Service cost--benefits earned during the period.. $ 83,528
Interest cost on projected benefit obligation.... 160,023
Expected return on plan assets................... (329,052)
Net amortization and deferral.................... (76,542)
---------
Net periodic pension income...................... $(162,043)
=========
</TABLE>
The discount rate and rate of increase in future compensation levels
(where applicable) used in determining the actuarial present value of the
projected benefit obligation were 7.5 percent and 5.5 percent,
respectively. The expected long-term rate on plan assets was 9 percent.
The following table sets forth the funded status and amounts
recognized in the balance sheet at December 31, 1993 for the Company's
defined benefit plan:
<TABLE>
<CAPTION>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................ $ 1,850,996
===========
Accumulated benefit obligation....................... $ 2,011,881
===========
Projected benefit obligation............................ $(2,374,861)
Plan assets at fair value............................... 3,913,356
-----------
Plan assets in excess of projected benefit obligation... 1,538,495
Unrecognized net gain................................. (221,543)
Unrecognized net assets at January 1, 1991, net of
amortization......................................... (877,588)
-----------
Net pension asset recognized in the balance sheet....... $ 439,364
===========
</TABLE>
Plan assets at December 31, 1993 and 1992 were invested in listed
common stocks, U.S. Government securities, short-term money market
instruments, and corporate bonds and mortgages.
F-20
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1994
The Company also has a 401(k) plan whereby participants may
contribute up to fifteen percent of their salaries. The Company currently
contributes up to twenty-five percent of the employees' contribution up to
the first eight percent of their salaries. The Company contributed $26,675
during 1993 and $21,252 during 1992.
The Financial Accounting Standards Board requires implementation
of Statement Of Financial Accounting Standard 106, ''Employers' Accounting
for Postretirement Benefits other Than Pensions'' (FAS 106) effective in
1993. FAS 106 requires benefit costs to be recognized on an accrual basis
as benefits are earned by employees. The Company does not have a material
liability for postretirement benefits other than pension.
F-21
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Equivalents................. $ 375,037 $ 2,501,314
Temporary Cash Investments........... 3,980,569 1,989,931
Accounts Receivable.................. 2,633,128 2,662,815
Material and Supplies--At Average
Cost................................ 235,038 240,883
Prepaid Expenses..................... 1,688,071 2,326,408
----------- -----------
Total Current Assets.............. 8,911,843 9,721,351
----------- -----------
NONCURRENT ASSETS
Investments in Nonaffiliated
Companies--At Cost.................. 180,949 46,848
Nonregulated
Investments--Deregulated Equipment.. 2,361,006 2,085,011
Unamortized Debt Issuance Expense.... 1,171 1,371
Other Noncurrent Assets.............. 833,115 816,648
Deferred Extraordinary Retirements... 109,070 125,459
Deferred Charges..................... 154,266 119,117
----------- -----------
Total Noncurrent Assets........... 3,639,577 3,194,454
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Telephone Plant in Service........... 27,349,051 26,278,393
Telephone Plant Under Construction... 621,053 850,778
Non-Operating Plant.................. 28,052 28,052
----------- -----------
27,998,156 27,157,223
----------- -----------
Less: Accumulated Depreciation 11,702,501 10,832,671
----------- -----------
Net Telephone Property............ 16,295,655 16,324,552
----------- -----------
TOTAL ASSETS................................. $28,847,075 $29,240,357
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Maturities of Long Term Debt... $ 81,000 $ 81,000
Accounts Payable....................... 1,474,796 1,071,363
Customer Deposits...................... 2,090 2,140
Accrued Taxes--Income.................. 770,504 1,977,087
Accrued Taxes--Other................... 236,407 464,859
Accrued Interest, Pension and Other.... 341,788 228,944
----------- -----------
Total Current Liabilities........... 2,906,585 3,825,393
----------- -----------
LONG-TERM DEBT
Notes Payable.......................... 1,404,000 1,485,000
----------- -----------
Total Long-Term Debt................ 1,404,000 1,485,000
----------- -----------
OTHER LIABILITIES AND DEFERRED CREDITS
Unamortized Investment Tax Credit-Net.. 363,318 393,671
Deferred Income Taxes.................. 3,318,040 3,249,637
Other Deferred Credits................. 409,677 298,230
----------- -----------
Total Other Liabilities and
Deferred Credits................... 4,091,035 3,941,538
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock--900,000 Shares--No Par... 600,000 600,000
Preferred Stock--8,000
Shares--$50.00 Par.................... 400,000 400,000
----------- -----------
Total Stock Issued.................. 1,000,000 1,000,000
Additional Paid-In Capital............. 467,280 467,280
Less: Treasury Stock--846 Common
Shares................................ 38,628 38,628
Retained Earnings...................... 19,016,803 18,559,774
----------- -----------
Total Stockholders' Equity.......... 20,445,455 19,988,426
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..... $28,847,075 $29,240,357
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1995 1994 1995 1994
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Local Service......................... $ 515,724 $ 484,473 $1,003,407 $ 956,254
Interstate Access Service............. 784,008 990,698 1,713,284 1,898,373
Intrastate Access Service............. 611,541 678,418 1,264,200 1,374,982
Long Distance Service................. 468,065 468,688 919,042 954,299
Miscellaneous......................... 321,646 304,929 610,790 590,555
Less: Uncollectibles.................. 23,301 25,094 45,531 50,300
---------- ---------- ---------- ----------
Total Operating Revenue.............. 2,677,683 2,902,112 5,465,192 5,724,163
---------- ---------- ---------- ----------
OPERATING EXPENSES
Plant Specific........................ 323,655 296,111 637,323 649,937
Plant Non-Specific
Network and Other.................... 307,858 333,084 626,469 686,185
Depreciation and Amortization........ 477,785 452,749 938,059 905,763
Customer Operations................... 262,114 243,099 544,945 479,257
Corporate Operations.................. 240,404 192,696 492,026 413,222
---------- ---------- ---------- ----------
Total Operating Expenses............. 1,611,816 1,517,739 3,238,822 3,134,364
---------- ---------- ---------- ----------
NET OPERATING REVENUE.................. 1,065,867 1,384,373 2,226,370 2,589,799
---------- ---------- ---------- ----------
OPERATING TAXES
Investment Credit - Net............... (15,177) (15,408) (30,053) (30,816)
Income Taxes - Current................ 292,119 530,447 724,005 990,274
Income Taxes - Deferred............... 75,529 (9,192) 69,024 (18,460)
Other Operating Taxes................. 128,070 116,587 240,799 223,416
---------- ---------- ---------- ----------
Total Operating Taxes................ 480,541 622,434 1,003,475 1,164,414
---------- ---------- ---------- ----------
NET OPERATING INCOME................... 585,326 761,939 1,222,895 1,425,385
---------- ---------- ---------- ----------
OTHER INCOME AND EXPENSES
Dividend Income....................... 1,065 2,547 2,111 5,048
Interest Income....................... 63,506 44,050 118,888 93,114
Other Income and Expense - Net........ (24,946) (14,821) (40,119) (37,505)
Deregulated Activities - Net.......... 72,345 30,281 38,634 47,015
---------- ---------- ---------- ----------
Total Operating Income and Expenses.. 111,970 62,057 119,514 107,670
---------- ---------- ---------- ----------
INCOME AVAILABLE FOR FIXED
CHARGES............................... 697,296 823,996 1,342,409 1,633,055
---------- ---------- ---------- ----------
FIXED CHARGES
Interest and Amortization............. 32,806 43,178 68,142 98,311
---------- ---------- ---------- ----------
NET INCOME............................. $ 664,490 $ 780,818 $1,274,267 $1,434,744
========== ========== ========== ==========
EARNINGS PER SHARE - COMMON STOCK...... $0.74 $0.87 $1.42 $1.60
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
For the Six Months Ending
June 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income.................................. $ 1,274,267 $ 1,434,744
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Depreciation.............................. 991,386 981,462
Amortization.............................. 16,390 16,389
Deferred Income Taxes and Investment Tax
Credit................................... 38,050 (59,605)
Other..................................... (419,784) (58,864)
Net Changes in:
Accounts Receivable Decrease.............. 29,688 48,936
Material and Supplies Decrease............ 5,844 (74,206)
Prepaid Expenses Decrease................. 638,337 291,913
Accounts Payable Increase................. 403,434 202,969
Accrued Expenses Decrease................. (1,322,241) (710,939)
----------- -----------
Cash Provided by Operating Activities.... 1,655,371 2,072,799
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Addition of Plant (Including Work Under
Construction).............................. 1,026,922 1,681,552
Other....................................... (134,150) 16,826
----------- -----------
Cash Used by Investing Activities........ 892,772 1,698,378
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of Long-Term Debt................ 81,000 1,081,000
Dividends Paid.............................. 817,238 763,289
----------- -----------
Cash Used by Financing Activities........ 898,238 1,844,289
----------- -----------
NET INCREASE (DECREASE) IN CASH..................... (135,639) (1,469,868)
----------- -----------
CASH AND CASH EQUIVALENTS--BEGINNING OF PERIOD...... $ 4,491,245 $ 5,377,927
----------- -----------
CASH AND CASH EQUIVALENTS--END OF PERIOD............ $ 4,355,606 $ 3,908,059
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF RETAINED EARNINGS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Balance at January 1........ $18,559,774 $17,233,846
----------- -----------
ADDITIONS:
Net Income........... 1,274,267 1,434,744
----------- -----------
TOTAL ADDITIONS.... 1,274,267 1,434,744
----------- -----------
DEDUCTIONS:
Common Dividends..... 809,238 755,289
Preferred Dividends.. 8,000 8,000
----------- -----------
TOTAL DEDUCTIONS... 817,238 763,289
----------- -----------
Balance at June 30.......... $19,016,803 $17,905,301
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTE TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 1995
(a) The Interim Financial Statements included herein have been
prepared by BVT, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However, in
the opinion of the management of BVT, the Interim Financial Statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial information. The Interim
Financial Statements should be read in conjunction with BVT's 1994, 1993
and 1992 financial statements and notes thereto included herein.
F-27
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1995
SALES........................ $2,788,000 $2,677,000 N/A N/A
OPERATING INCOME............. $1,048,000 $ 937,000 N/A N/A
NET INCOME................... $ 610,000 $ 664,000 N/A N/A
NET INCOME PER COMMON SHARE.. $ .67 $ .74 N/A N/A
1994
SALES........................ $2,822,000 $2,902,000 $2,796,000 $2,915,000
OPERATING INCOME............. $1,098,000 $1,268,000 $1,112,000 $1,198,000
NET INCOME................... $ 654,000 $ 781,000 $ 692,000 $ 726,000
NET INCOME PER COMMON SHARE.. $ .72 $ .86 $ .77 $ .80
1993
SALES........................ $2,591,000 $2,680,000 $2,709,000 $2,552,000
OPERATING INCOME............. $1,012,000 $1,016,000 $1,140,000 $1,129,000
NET INCOME................... $ 570,000 $ 610,000 $ 653,000 $ 657,000
NET INCOME PER COMMON SHARE.. $ .63 $ .67 $ .72 $ .73
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE>
APPENDIX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
Among
BUFFALO VALLEY TELEPHONE COMPANY,
C-TEC CORPORATION
and
BVT MERGER CORPORATION
Dated as of May 10, 1995
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
ARTICLE I
PLAN OF MERGER............. A-1
1.1 The Merger..................................... A-1
1.2 Effects of the Merger.......................... A-1
1.3 Conversion of Target Common Shares............. A-2
1.4 Timing......................................... A-3
1.5 Dissenters' Rights............................. A-3
1.6 Surrender and Exchange of Target Certificates.. A-3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET. A-5
2. Representations and Warranties of Target....... A-5
2.1 Organization, Powers and Qualifications........ A-5
2.2 Subsidiaries................................... A-6
2.3 Capital Stock.................................. A-6
2.4 Authority...................................... A-7
2.5 Conflict with Other Agreements; Consents and
Approvals...................................... A-7
2.6 Compliance with Law............................ A-8
2.7 Financial Statements........................... A-8
2.8 Absence of Undisclosed Liabilities............. A-9
2.9 Absence of Adverse Changes..................... A-9
2.10 Tax and Other Returns and Reports.............. A-9
2.11 Dividends and Stock Purchases.................. A-10
2.12 Assets......................................... A-10
2.13 Contracts...................................... A-10
2.14 Litigation..................................... A-12
2.15 Insurance...................................... A-12
2.16 Labor Matters.................................. A-13
2.17 Employee Benefit Plans......................... A-13
2.18 Franchises, Licenses, Permits, Etc............. A-14
2.19 Patents and Trademarks......................... A-14
2.20 Ordinary Course................................ A-14
2.21 Brokerage and Other Fees....................... A-16
2.22 Opinion of Financial Advisor................... A-16
2.23 Information Supplied........................... A-16
2.24 Disclosure..................................... A-17
2.25 Tax Free Reorganization Matters................ A-17
ARTICLE III............... A-18
3. Representations and Warranties of Buyer........ A-18
3.1 Organization, Powers and Qualifications........ A-18
3.2 Subsidiaries................................... A-18
3.3 Authority...................................... A-19
3.4 Capital Stock.................................. A-19
3.5 Valid Issuance of Buyer Stock.................. A-20
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
3.6 Conflict with Other Agreements; Consents and
Approvals...................................... A-20
3.7 Financial Statements........................... A-21
3.8 Brokerage...................................... A-21
3.9 Reports........................................ A-22
3.10 Information Supplied........................... A-22
3.11 Disclosure..................................... A-22
3.12 Tax Matters.................................... A-23
3.13 Available Funds................................ A-23
<CAPTION>
ARTICLE IV
<S> <C>
COVENANTS................................. A-23
4.1 Conduct of Business Prior to Closing........... A-23
4.2 Updating of Schedules.......................... A-25
4.3 Access......................................... A-25
4.4 Proxy Material, Registration Statement, Other
Filings and Applications....................... A-26
4.5 Shareholder Meeting............................ A-27
4.6 Third Party Consents........................... A-27
4.7 Satisfaction of Conditions..................... A-27
4.8 Public Announcements........................... A-28
4.9 Employees and Employee Benefit Plans........... A-28
4.10 Director and Officer Indemnification........... A-29
4.11 Other Proposals................................ A-30
4.12 Target Preferred Stock......................... A-31
4.13 Buyer Shareholder Approval..................... A-32
4.14 Affiliates..................................... A-32
<CAPTION>
ARTICLE V
<S> <C>
CONDITIONS TO OBLIGATIONS OF BUYER AND SUB..... A-32
5. Conditions To Obligations of Buyer and Sub To
Consummate the Merger.......................... A-32
5.1 Representations, Warranties, and Covenants of
Target......................................... A-32
5.2 Target Shareholder Approval.................... A-33
5.3 Buyer Shareholder Approval..................... A-33
5.4 Redemption of Target Preferred Stock........... A-33
5.5 No Injunctions................................. A-33
5.6 No Antitrust Litigation........................ A-33
5.7 Filings........................................ A-33
5.8 NASDAQ Listing................................. A-34
5.9 Securities Laws................................ A-34
5.10 Affiliate Letters.............................. A-34
5.11 Dissenters Rights.............................. A-34
5.12 Tax Opinion or Tax Ruling...................... A-34
5.13 Legal Opinion.................................. A-35
5.14 Resignations................................... A-35
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
5.15 Environmental Matters.......................... A-35
ARTICLE VI
CONDITIONS TO OBLIGATION OF TARGET... A-35
6. Conditions To Obligation of Target To
Consummate the Merger.......................... A-35
6.1 Representations, Warranties, and Covenants of
Buyer and Sub.................................. A-35
6.2 Target Shareholder Approval.................... A-36
6.3 Buyer Shareholder Approval..................... A-36
6.4 Redemption of Target Preferred Stock........... A-36
6.5 No Injunctions................................. A-36
6.6 No Antitrust Litigation........................ A-36
6.7 Filings........................................ A-36
6.8 NASDAQ Listing................................. A-37
6.9 Securities Laws................................ A-37
6.10 Fairness Opinion............................... A-37
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT.... A-37
7.1 Termination.................................... A-37
7.2 Effect of Termination.......................... A-39
7.3 Waiver of Terms................................ A-39
7.4 Amendment of Agreement......................... A-39
7.5 Fees and Expenses.............................. A-39
7.6 Failure of Buyer Shareholder Approval.......... A-40
ARTICLE VIII
GENERAL PROVISIONS............ A-40
8.1 Cooperation.................................... A-40
8.2 Counterparts................................... A-41
8.3 Contents of Agreement, Etc..................... A-41
8.4 No Survival of Representations and Warranties.. A-41
8.5 Section Headings, Gender and "Person."......... A-41
8.6 Notices........................................ A-41
8.7 Governing Law.................................. A-42
</TABLE>
LIST OF EXHIBITS
A. Buyer Preferred Stock Terms
B. Affiliate Agreement
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of May 10, 1995, among BUFFALO
VALLEY TELEPHONE COMPANY, a Pennsylvania corporation ("Target"), C-TEC
CORPORATION, a Pennsylvania corporation ("Buyer"), and BVT MERGER CORPORATION,
a Pennsylvania corporation and a wholly owned subsidiary of Buyer ("Sub").
Background
The Boards of Directors of Buyer, Sub and Target deem it advisable and in
the best interests of the shareholders of their respective corporations that
Target be acquired by Buyer through the merger of Target with and into Sub
(the "Merger") pursuant to the Pennsylvania Business Corporation Law (the
"Corporation Law") in accordance with the provisions of this Agreement
(together with the Schedules attached hereto, the "Agreement").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto do hereby agree that they will carry out and
consummate the following Agreement.
ARTICLE I
PLAN OF MERGER
1.1 The Merger. At the Effective Time (as hereinafter defined),
----------
Target shall be merged with and into Sub pursuant to this Agreement and the
separate existence of Target shall cease. For federal income tax purposes, it
is intended that the Merger shall constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
1.2 Effects of the Merger. Sub shall be the surviving corporation
---------------------
in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"), and the separate corporate existence of Sub with all its
rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger. The shares of common stock of Sub issued and
outstanding immediately prior to the Effective Time shall remain outstanding
and unchanged after the Merger, and shall thereafter constitute all of the
issued and outstanding shares of the capital stock of the Surviving
Corporation. The articles of incorporation and bylaws of Sub in effect
immediately prior to the Merger shall remain in effect as the
A-1
<PAGE>
articles of incorporation and bylaws of the Surviving Corporation, except that
Article 1 of the articles of incorporation of Sub shall be amended to read as
follows: "The name of the corporation is Buffalo Valley Telephone Company."
The directors and officers of Sub immediately prior to the Merger shall remain
in office as the directors and officers of the Surviving Corporation.
1.3 Conversion of Target Common Shares.
----------------------------------
(a) At the Effective Time (defined below), by virtue of the Merger
and without any action on the part of any holder thereof, subject to the
provisions of Section 1.5 hereof with respect to dissenters' rights, if any,
each share of common stock, no par value, of Target (the "Target Common
Stock") issued and outstanding at the Effective Time (other than (i) shares
the holders of which (each a "Dissenting Shareholder") are exercising
dissenters rights pursuant to the Corporation Law (the "Dissenters' Shares"),
and (ii) shares held directly or indirectly by Buyer which are not held in a
fiduciary capacity or in satisfaction of a debt previously contracted) shall
become and be converted into the right to receive the cash and/or shares of
stock of Buyer constituting the Per Share Merger Consideration (as defined in
paragraph (b) below). As of the Effective Time, each share of Target Common
Stock held directly or indirectly by Buyer, other than shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted, and
each share held as treasury stock of Target, shall be cancelled and retired
and cease to exist, and no exchange or payment shall be made with respect
thereto.
(b) As used herein, the term "Per Share Merger Consideration" shall
mean, at the election of the holder of the share of Target Common Stock in
accordance with Schedule 1.3 hereto and subject to proration in accordance
with Schedule 1.3 hereto, either:
(i) $61.00 in cash (the "Cash Merger Consideration"); or
(ii) one fully paid and nonassessable share of the Buyer's
Series AA Convertible Preferred Stock, par value $61.00 per share
("Buyer Stock") (the "Stock Merger Consideration").
As more fully described on Schedule 1.3 hereto, in the aggregate no less than
50% of the outstanding shares of Target Common Stock will be converted into
Stock Merger Consideration.
A-2
<PAGE>
1.4 Timing.
------
(a) Shareholder Approval. Target shall submit this Agreement to its
shareholders for approval as provided in Section 4.5 hereof. In connection
with such meeting, Target and Buyer shall each take, as promptly as practical,
such reasonable steps as shall be necessary for the preparation and filing by
Buyer of a registration statement under the Securities Act of 1933 (the "1933
Act") on Form S-4 (the "Registration Statement") with the Securities and
Exchange Commission ("SEC") and shall use its reasonable best efforts to cause
the Registration Statement to become effective as soon as practicable.
(b) Closing and Effective Time. The parties shall hold a closing
(the "Closing") on a mutually agreeable date (the "Closing Date") no later
than the second business day after the satisfaction or waiver of the
conditions set forth in Article V and Article VI of this Agreement, at 10:00
A.M., local time, at the offices of Buyer, or at such other place or time as
the parties agree upon. On the Closing Date or as soon thereafter as
practicable, the parties shall execute and file in the offices of the
Corporation Bureau of the Commonwealth of Pennsylvania appropriate Articles of
Merger in accordance with the provisions of the Corporation Law. The
"Effective Time" shall be the date of filing the Articles of Merger, or the
effective date specified therein, whichever is later.
1.5 Dissenters' Rights. Any Dissenting Shareholder who shall be
------------------
entitled to be paid the "fair value" of his or her Dissenters' Shares, as
provided in the Corporation Law, shall not be entitled to the Per Share Merger
Consideration unless and until the holder thereof shall have failed to perfect
or shall have effectively withdrawn or lost such holder's right to dissent
from the Merger under the Corporation Law, and shall be entitled to receive
only the payment to the extent provided for by the Corporation Law. If any
such holder shall fail to perfect or shall have effectively withdrawn or lost
the right to dissent, the Dissenters' Shares held by such Dissenting
Shareholder shall thereupon be treated as though such shares had been
converted into the right to receive the Per Share Merger Consideration
pursuant to Section 1.3.
1.6 Surrender and Exchange of Target Certificates.
---------------------------------------------
(a) Election and Transmittal Materials. Within five business days
after the Effective Time, Buyer shall cause to be sent to each person who
immediately prior to the Effective Time was a holder of record of Target
Common Stock (i) a form for purposes of making elections for the kind of
A-3
<PAGE>
Per Share Merger Consideration desired by such holder and containing
instructions with respect thereto, and (ii) transmittal materials and
instructions for surrendering certificates for Target Common Stock ("Old
Certificates") in exchange for that amount of cash and/or that number of
shares of Buyer Stock to which such person is entitled under Section 1.3
hereof, after proration in accordance with Schedule 1.3 hereto.
(b) Dividends. If any dividend on Buyer Stock is declared after the
Effective Time, the declaration shall include dividends on all shares of Buyer
Stock into which shares of Target Common Stock have been converted under this
Agreement, but no former holder of Target Common Stock shall be entitled to
receive payment of any such dividend until surrender of the shareholder's Old
Certificates shall have been effected in accordance with the instructions
furnished by Buyer. Upon surrender for exchange of a shareholder's Old
Certificates, such shareholder shall be entitled to receive from Buyer an
amount equal to all such dividends, without interest thereon and less the
amount of taxes, if any, which may have been imposed or paid thereon,
declared, and for which the payment date has occurred, on the shares of Buyer
Stock into which the shares represented by such Old Certificates have been
converted.
(c) Closing of Stock Transfer Books. After the Effective Time,
there shall be no transfer on the stock transfer books of Target or Buyer of
shares of Target Common Stock. If Old Certificates are presented for transfer
after the Effective Time, they shall be cancelled and cash or certificates
representing shares of Buyer Stock shall be issued in exchange therefor as
provided herein.
(d) Unclaimed Merger Consideration. To the extent permitted by law,
in the event that any Old Certificates have not been surrendered for exchange
in accordance with this Section on or before the second anniversary of the
Effective Time, Buyer may at any time thereafter, with or without notice to
the holders of record of such Old Certificates, sell for the accounts of any
or all of such holders any or all of the shares of Buyer Stock which such
holders are entitled to receive under Section 1.3 hereof (the "Unclaimed
Shares"). Any such sale may be made by public or private sale or sale at any
broker's board or on any securities exchange in such manner and at such times
as Buyer shall determine. If in the opinion of counsel for Buyer it is
necessary or desirable, any Unclaimed Shares may be registered for sale under
the 1933 Act and applicable state laws. Buyer shall not be obligated to make
any sale of Unclaimed Shares if it shall determine not do so, even if notice
of sale of the Unclaimed Shares has been given. The
A-4
<PAGE>
net proceeds of any such sale of Unclaimed Shares shall be held for holders of
the unsurrendered Old Certificates whose Unclaimed Shares have been sold, to
be paid to them upon surrender of the Old Certificates. From and after any
such sale, the sole right of the holders of the unsurrendered Old Certificates
whose Unclaimed Shares have been sold shall be the right to collect the net
sale proceeds held by Buyer for their respective accounts, and such holders
shall not be entitled to receive any interest on such net sale proceeds held
by Buyer.
(e) Escheat. If outstanding certificates for shares of Target
Common Stock are not surrendered prior to the date on which such certificates
would otherwise escheat to or become the property of any governmental unit or
agency, the unclaimed items shall, to the extent permitted by abandoned
property and any other applicable law, become the property of Buyer (and to
the extent not in its possession shall be paid over to it), free and clear of
all claims or interest of any person previously entitled to such claims.
Notwithstanding the foregoing, neither Buyer nor its agents or any other
person shall be liable to any former holder of Target Common Stock for any
property delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(f) Lost or Stolen Certificates. In the event any Old Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Old Certificate to be lost, stolen or
destroyed and, if required by Buyer, the posting by such person of a bond in
such amount as Buyer may direct as indemnity against any claim that may be
made against it with respect to such Certificate, Buyer will issue in exchange
for such lost, stolen or destroyed Old Certificate, that amount of cash and/or
that number of shares of Buyer Stock into which such Old Certificates has been
converted pursuant to this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
2. Representations and Warranties of Target. Target represents
----------------------------------------
and warrants to Buyer and Sub as follows, except as set forth in a disclosure
schedule (the "Target Schedule") delivered by Target contemporaneously with
the execution of this Agreement:
2.1 Organization, Powers and Qualifications. Target is a
---------------------------------------
corporation duly organized, validly existing and
A-5
<PAGE>
in good standing under the laws of the Commonwealth of Pennsylvania. Target
has all requisite corporate power and authority to carry on its business as it
has been and is now being conducted and to own, lease and operate the
properties and assets used in connection therewith. Target is duly qualified
as a foreign corporation authorized to do business and is in good standing in
every jurisdiction in which such qualification is required, other than such
jurisdictions where the failure so to qualify would not have a material
adverse effect on the business, condition (financial or otherwise), assets,
liabilities or operations of Target and its Subsidiaries (defined below) taken
as a whole (a "Target Material Adverse Effect"). As used in this Agreement,
"Target Material Adverse Effect" shall include, without limitation, any item
which individually would have an adverse economic effect on Target of more
than $100,000, except that for purposes of Section 2.9 hereof, such term shall
mean any item individually, or items, in the aggregate, having an adverse
economic effect on Target of more than $250,000. The Target Schedule sets
forth a complete and correct copy of the Articles of Incorporation and Bylaws
(together with all amendments thereto and restatements thereof) of Target.
2.2 Subsidiaries. As used in this Agreement, the term "Subsidiary"
------------
means, with respect to Target, any entity in which a person owns or controls
50% or more of the legal or beneficial interest in such entity. Target does
not have any Subsidiaries.
2.3 Capital Stock. Target has authorized capital stock consisting
-------------
of 5,000,000 shares of Common Stock, without par value, of which 899,154 are
issued and outstanding and 846 shares are held as treasury shares, and 10,000
shares of Cumulative Preferred Stock, par value $50.00 per share, of which
8,000 shares are issued and outstanding. All of the issued and outstanding
shares have been duly authorized and are validly issued and outstanding, fully
paid and nonassessable. No shares of capital stock issued by Target are or
were at the time of their issuance subject to preemptive rights. There are no
existing subscriptions, options, warrants, calls, commitments, agreements,
conversion rights or other rights of any character (contingent or otherwise)
providing for the issuance, sale, purchase, redemption, transfer, voting or
registration, at any time, or upon the happening of any stated event, of any
shares of the capital stock of Target whether or not presently issued or
outstanding. The outstanding shares of Target's Cumulative Preferred Stock
may be redeemed by Target, at par, effective as of any March 1 or September 1
upon 60 days prior notice. Target is not in default of any dividend,
redemption or other obligation, and there is no unpaid dividend arrearage,
with respect to its Cumulative Preferred Stock.
A-6
<PAGE>
2.4 Authority. The execution and delivery of this Agreement and
---------
the consummation of the transactions contemplated hereby have been authorized
by all necessary corporate action on the part of the Board of Directors of
Target and, subject to approval by the shareholders of Target of this
Agreement in accordance with the Corporation Law, no other corporate
proceedings on the part of Target are necessary to authorize this Agreement or
the carrying out of the transactions contemplated hereby. This Agreement is
binding and enforceable upon Target in accordance with its terms, subject to
any bankruptcy, insolvency, moratorium or other laws affecting the enforcement
of creditors' rights.
2.5 Conflict with Other Agreements; Consents and Approvals. With
------------------------------------------------------
respect to the following:
(a) the Articles of Incorporation or By-laws of, or any securities
issued by, Target or any Subsidiary,
(b) any law, statute, rule or regulation applicable to Target or any
Subsidiary,
(c) any Contract (as defined in Section 2.13) to which Target or any
Subsidiary is a party or may be bound or any Authorization (as defined in
Section 2.18) held by Target or any Subsidiary, and
(d) any judgment, order, injunction, decree or ruling of any court,
arbitrator or governmental or regulatory official, body or authority
applicable to Target or any Subsidiary,
the execution, delivery and performance by Target of this Agreement and the
transactions contemplated hereby will not (i) result in any violation,
conflict or default, or give to others any interest or rights, including
rights of termination, cancellation or acceleration which would have a Target
Material Adverse Effect, (ii) result in the creation of any lien upon any
assets of Target or any Subsidiary or (iii) require any authorization,
consent, approval or exemption by any person, the failure to obtain which
would have a Target Material Adverse Effect, which has not been obtained, or
any notice to or filing which has not been given or done, other than the
consent of The Penn Mutual Life Insurance Company under that Note Agreement
dated May 31, 1978, the premerger notification ("Premerger Notification")
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, filings pursuant to the Pennsylvania Public Utility Code, filings
pursuant to the 1933 Act and applicable state securities laws, the shareholder
approval referred to in Section 2.4 hereof, and the filing of appropriate
merger documentation under the Corporation Law.
A-7
<PAGE>
2.6 Compliance with Law. Target and the Subsidiaries and their use
-------------------
and occupancy of their assets and properties wherever located, are and have
been in compliance with all applicable laws, statutes, rules, regulations,
judgments, orders, injunctions, decrees and rulings of any court, arbitrator
or of any governmental or regulatory official, body or authority applicable to
them (including, without limitation, the Americans with Disabilities Act and
all laws, rules and regulations relating to the protection of the environment,
health and safety, and the generation, storage, handling or disposal of
hazardous wastes and hazardous materials), the non-compliance with which, or
the violation of which, would have a Target Material Adverse Effect, and
neither Target nor any Subsidiary has received any claim or notice of any such
non-compliance or violation. Target and the Subsidiaries have duly and timely
filed all reports and filings that are required to be filed or provided under
such laws, statutes, rules, regulations, or which are otherwise required and
have paid all assessments required thereunder, except where the failure to
file or pay assessments would not have a Target Material Adverse Effect.
2.7 Financial Statements.
--------------------
(a) Target has provided Buyer with the audited balance sheets of
Target as of December 31, 1994 and 1993 and the related statements of income,
retained earnings and cash flows for the two years ended December 31, 1994.
Following the date hereof, Target will deliver to Buyer, within 45 days
following the end of each calendar quarter, an unaudited quarterly balance
sheet and income statement for Target. Such financial statements have been,
or will be, prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved (except as may
be indicated in the notes thereto and except for the omission of footnote
information in the case of unaudited statements), and fairly present or will
fairly present (subject, in the case of unaudited statements to normal
recurring audit adjustments which in the aggregate are not material) the
financial position of Target at the dates indicated and the results of
operations and cash flows of Target for the periods indicated (such financial
statements are hereinafter referred to as the "Target Financial Statements").
The balance sheet of Target at December 31, 1994 described above is referred
to herein as the "Target Balance Sheet."
(b) Target's books and records are complete and in reasonable
detail, and accurately and fairly reflect the transactions and dispositions of
Target's assets. Target has consistently maintained a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
A-8
<PAGE>
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles or any other criteria applicable to such statements and
to maintain accountability for such assets, (iii) access to assets is
permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
2.8 Absence of Undisclosed Liabilities. Target has no liabilities
----------------------------------
or obligations (direct or indirect, contingent or absolute, matured or
unmatured) of any nature, except for liabilities and obligations (i) in the
amounts and categories reflected, reserved against or given effect to in the
Target Financial Statements, (ii) described in, or disclosed pursuant to, this
Agreement, (iii) incurred in the ordinary course of business since December
31, 1994, (iv) which would not constitute a Target Material Adverse Effect, or
(v) as of the Effective Time, those arising from actions that shall not have
violated Section 4.1 hereof.
2.9 Absence of Adverse Changes. Since December 31, 1994, there has
--------------------------
been no change in the business, assets, liabilities, financial condition,
results of operations or prospects of Target and its Subsidiaries, taken as a
whole, which would constitute a Target Material Adverse Effect.
2.10 Tax and Other Returns and Reports. All federal, state, local
---------------------------------
and foreign tax returns, reports and statements required to be filed by Target
or any Subsidiary have been filed within the time and in the manner prescribed
by law. Such returns correctly reflected the facts regarding the income,
businesses, assets, operations and activities of Target and any Subsidiary.
Such returns correctly reflected all taxes, due or payable by Target or any
Subsidiary through the date of this Agreement. Taxes shown to be due and
payable thereon have been paid or adequately reserved, and there are no
pending assessments, asserted deficiencies or claims for additional taxes
which have not been paid. There are no material deficiencies which
representatives of the Internal Revenue Service ("IRS") or any other taxing
authority have advised Target are expected to be included in an audit report,
and no material special charges, penalties, interest or fines are being
asserted against Target or any of its Subsidiaries with respect to payment or
failure to pay any taxes. The Target Schedule sets forth the year through
which Target has been audited by the IRS. In the opinion of Target's
management, the reserve or accrual for taxes shown on the Target Balance Sheet
is sufficient for payment of all
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unpaid federal, state, local and foreign taxes of Target and its Subsidiaries
through such date.
2.11 Dividends and Stock Purchases. Except for Target's (x)
-----------------------------
payment of scheduled dividends on its outstanding common and preferred stock
and (y) agreement to redeem its outstanding preferred stock pursuant to
Section 4.12 hereof, since December 31, 1994 Target has not declared, set
aside or paid any dividend, or made or agreed to make any other distribution
or payment in respect of shares of Target's capital stock nor has it redeemed,
purchased or otherwise acquired or agreed to redeem, purchase or otherwise
acquire any shares of Target's capital stock.
2.12 Assets. Target and its Subsidiaries have good and marketable
------
title to all material assets owned by them constituting real property and good
title to all material assets owned by them constituting personal property,
including without limitation those assets reflected in the Target Financial
Statements in the amounts and categories reflected therein, free and clear of
all mortgages, liens, pledges, charges or encumbrances or other third party
interests of any nature whatsoever, except (a) the lien of current taxes not
yet due and payable, (b) assets disposed of by Target or any Subsidiary since
December 31, 1994 solely in the ordinary course of business consistent with
past practice, (c) such secured indebtedness, financing or capital lease
obligations, or purchase money security interests as are disclosed in the
Target Financial Statements covering the properties referred to therein, and
(d) such other imperfections of title, easements, mortgages, liens, pledges,
charges and encumbrances, if any, as do not materially detract from the value,
or interfere with the present or proposed use, of the assets subject thereto.
All tangible assets material to the operation of the telephone business are in
good working order and repair and comply in all material respects with
applicable rules, regulations and standards regarding their intended use. No
material portion of the cable or fiber optics used in Target's telephone
business shall require any substantial rearrangement on utility poles or
substantial rehabilitation. Target's tangible assets meet, in all material
respects, all current industry technical performance standards, including
industry fiber optic standards, for a system of its particular design. Target
has an inventory of spare parts and other materials relating to its telephone
business of the type, nature and amount consistent with Target's past
practices and good telephone company industry practices.
2.13 Contracts.
---------
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(a) Except for those contracts, agreements or understandings that
may be terminated without liability or penalty on not more than thirty days
notice and those under which the executory obligation of Target or any
Subsidiary involves an individual amount of less than $25,000, the Target
Schedule sets forth each contract, agreement or understanding to which Target
or any Subsidiary is a party or may be bound and which is:
(i) with any present or former shareholder, director, officer,
employee or consultant or for the employment of any person or consultant;
(ii) a note, debenture, bond, equipment trust agreement, letter
of credit agreement, loan agreement or other contract or commitment for
the borrowing or lending of money or agreement or arrangement for a line
of credit or a guarantee, pledge or undertaking of the indebtedness of
any other person, or a security arrangement relating to any of the
foregoing;
(iii) a material license, distributor, dealer, franchise,
manufacturer's representative, sale agency or advertising arrangement;
(iv) an arrangement limiting or restraining Target from
engaging or competing in any manner or in any business;
(v) for the future purchase of, or payment for, supplies or
products, or for the performance of services by a third party, in excess
of $50,000 in any individual case;
(vi) for the sale or supply of products or the provision of
services in excess of $50,000 in any individual case;
(vii) any lease of real or personal property; or
(viii) a material arrangement not made in the ordinary course
of business.
(b) All contracts, leases, mortgages, commitments, agreements or
understandings referred to in the Target Schedule ("Contracts") are in force
in accordance with their terms. Neither Target nor any Subsidiary (nor any
other party) has violated any provision of, or committed or failed to perform
any act which with notice, lapse of time or both
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would constitute a default under the provisions of, any Contract, the
termination or violation of which would have a Target Material Adverse Effect.
The Target Schedule identifies all Contracts which require the consent or
approval of third parties to the execution and delivery of this Agreement or
to the consummation and performance of the transactions contemplated hereby,
except where the failure to obtain such consent or approval would not have a
Target Material Adverse Effect.
2.14 Litigation. No claim, action, suit, arbitration,
----------
investigation or other proceeding is pending, or known by Target to be
threatened against Target or any Subsidiary or any of their properties before
any court, governmental or regulatory official, body or authority arbitrator
or mediator in which an unfavorable judgment, decision, ruling, or finding
would have a Target Material Adverse Effect. There are no judgments, consent
decrees, injunctions, or any other judicial or administrative mandates of any
nature outstanding against Target or any Subsidiary which would have a Target
Material Adverse Effect. There are no claims, actions, suits or other
proceedings pending, or known by Target to be threatened, against any director
or officer of Target relating to their service as such. To the knowledge of
Target, no events have occurred which could reasonably be expected to form the
basis for a claim or other proceeding against Target's directors or officers
for breach of fiduciary duty.
2.15 Insurance. Each of Target and its Subsidiaries maintains
---------
insurance coverage on its structures, facilities, machinery, equipment and
other assets and properties and with respect to its employees and operations
which covers liabilities and risks customarily insured against by similar
businesses on customary terms. The Target Schedule contains a complete and
accurate description of the insurance coverage applicable to Target and its
Subsidiaries, including amounts and lines of coverage, term, expiration date,
premium and loss experience history by line of coverage. Except for the
directors and officers insurance policy, all such policies are occurrence,
rather than claims made policies. There are no provisions in such policies
for retroactive or retrospective premium adjustments. The insurance binders
and policies listed on the Target Schedule are valid and in full force and
effect and will continue in full force and effect until the Effective Time.
Neither Target nor any Subsidiary has been refused any insurance by an
insurance carrier to which it has applied for insurance during the past three
years. Target and each Subsidiary has complied in all material respects with
the provisions of said policies.
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2.16 Labor Matters. Neither Target nor any Subsidiary is a party
-------------
to or bound by any collective bargaining agreements with respect to any
employees of Target or any Subsidiary. Since December 31, 1994 there has not
been, nor to the knowledge of Target was there or is there threatened, any
strike, slowdown, picketing or work stoppage by any union or other group of
employees against Target or any Subsidiary or any of their premises, or any
other labor trouble or other occurrence, event or condition of a similar
character which may have a Target Material Adverse Effect. The Target
Schedule sets forth the names and present annual salary of all persons
employed by Target.
2.17 Employee Benefit Plans.
----------------------
(a) With respect to each employee benefit plan (including, without
limitation, any "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (all
the foregoing being herein called "Benefit Plans"), maintained or contributed
to by Target or any of its Subsidiaries, Target has made available to Buyer a
true and correct copy of (i) the most recent annual report (Form 5500) filed
with the IRS, (ii) such Benefit Plan, (iii) each trust agreement and group
annuity contract, if any, relating to such Benefit Plan and (iv) the most
recent actuarial report or valuation relating to any Benefit Plan subject to
Title IV of ERISA.
(b) With respect to the Benefit Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Target, there exists
no condition or set of circumstances in connection with which Target or any of
its Subsidiaries is subject to any liability that could be reasonably expected
to have a Target Material Adverse Effect, under ERISA, the Code or any other
applicable law. All Benefit Plans conform to, and have been administered and
operated in compliance, in all material respects, with the requirements of the
applicable plan documents, ERISA, the Code and any other applicable law.
(c) With respect to the Benefit Plans, individually and in the
aggregate, there are no material funded benefit obligations for which
contributions have not been made or properly accrued and there are no material
unfunded benefit obligations which have not been accounted for by reserves, or
otherwise properly footnoted in accordance with generally accepted accounting
principles, on the consolidated financial statements of Target and its
Subsidiaries.
(d) Each Benefit Plan that is intended to be qualified under
Section 401(a) of the Code has received a
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favorable determination letter from the Internal Revenue Service. No such
Benefit Plan has been completely or partially terminated since December 31,
1990.
(e) No Benefit Plan, nor any fiduciary thereof, has engaged in a
transaction which is reasonably likely to subject any Benefit Plan, or any
fiduciary thereof, to any material taxes or penalties for a "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
or any material penalty under Section 502 of ERISA.
2.18 Franchises, Licenses, Permits, Etc. Target and its
----------------------------------
Subsidiaries own or possess in the operation of their respective businesses
all franchises, licenses, permits, consents, approvals, rights, waivers and
other governmental authorizations ("Authorizations") which are material to the
conduct of the business of Target and its Subsidiaries, taken as a whole.
Neither Target nor any Subsidiary is in material default, or has received any
notice of any claim of material default, with respect to any such
Authorization or any notice of any other material claim or proceeding or
threatened proceeding relating to any such Authorization or claimed lack of
any necessary material Authorization. Except for filings under the
Pennsylvania Public Utility Code and the approval of the Pennsylvania Public
Utility Commission, neither the execution or delivery of this Agreement nor
the consummation of the transactions contemplated hereby will require any
notice or consent under or have any material adverse effect upon any such
Authorization.
2.19 Patents and Trademarks. Except as set forth on the Target
----------------------
Schedule, Target does not own, license or use in its business any material
patents, trademarks, copyrights or other intellectual property assets. Target
and its Subsidiaries own (free and clear of all liens) all such patents,
trademarks, tradenames, copyrights and applications with respect thereto and
other intellectual property, has entered into a subsisting license agreement
with respect thereto, or otherwise has adequate authority to use such
intellectual property in the conduct of Target's business. Neither Target nor
any Subsidiary has received any notice or other information with respect to
any alleged infringement or unlawful use of any such asset nor has Target or
any Subsidiary granted or agreed to grant any license to use any such asset.
2.20 Ordinary Course. Since December 31, 1994, Target and its
---------------
Subsidiaries have conducted their business solely in the ordinary course
consistent with past practice. Without limitation of the foregoing, since
December 31, 1994, Target (except as otherwise expressly disclosed to Buyer
pursuant to this Agreement):
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(a) has not made any change in its authorized, issued or outstanding
capital stock and has not granted any options or other rights to acquire,
whether directly or contingently, any of its capital stock, nor has it
permitted any third party to acquire, or gained any rights to acquire, any
shares of capital stock of any Subsidiary;
(b) except for the payment of regular scheduled dividends on its
outstanding common and preferred stock and as contemplated by Section 4.12
hereof, has not declared, set aside, or paid any dividend or made any other
distribution in respect of, nor repurchased any of, its capital stock;
(c) has not suffered any physical damage or destruction to its
assets which would have a Target Material Adverse Effect;
(d) has not been the subject of any actual or threatened organizing
campaign, strike, slowdown, picketing or work stoppage by any union or other
group of employees, or any other labor trouble or other occurrence, event or
condition of a similar character which may have a Target Material Adverse
Effect;
(e) has not entered into or amended any employment contracts or any
employee benefit plan or arrangement, increased the rate of compensation (or
other bonus or benefit) payable or to become payable by it to any officer or
any other executive employee, made any general increase in compensation or
rate of compensation (or other bonus or benefit) payable or to become payable
to hourly employees or salaried employees except in the ordinary course of
business consistent with past practice;
(f) has not incurred or guaranteed any debt except in the ordinary
course of business consistent with past practice;
(g) has not encumbered, sold or disposed of any assets (tangible or
intangible) except for sales of inventory in the ordinary course of business
consistent with past practice;
(h) has not changed in any material respect its accounting and tax
practices, policies or principles;
(i) has not cancelled or waived any debts or claims having a value
of $50,000 in the aggregate;
(j) has paid all taxes as they become due, filed all federal, state,
local and foreign tax returns,
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reports and statements required to be filed within the time and in the manner
prescribed by law, and collected or withheld all taxes required to be
collected or withheld from employees, independent consultants or other third
parties;
(k) has not filed any amended tax return or entered into a
settlement of any audit or other tax dispute with the IRS or any other taxing
authority;
(l) has not received any communication (oral or written) from any
customer, supplier or governmental or regulatory agency which constitutes (or
which could reasonably be expected to result in) a Target Material Adverse
Effect;
(m) has not changed in any material respect its existing pricing
structure, fees and charges structure, marketing and promotional plans and
policies; and
(n) has not entered into any (or modified any existing) lease,
contract, commitment or agreement or engaged in any transaction (including
without limitation any borrowing, capital expenditure, capital financing,
leasing arrangement or purchase commitment) except in the ordinary course of
business consistent with past practice.
2.21 Brokerage and Other Fees. In connection with the transactions
------------------------
contemplated by this Agreement, no broker, finder or similar agent has been
employed by or on behalf of Target, and no person with which Target has had
dealings or communications of any kind is entitled to any brokerage or
finder's fee or other commission in connection with the transactions other
than its financial adviser, Snyder & Co. (whose fee will be paid at closing)
pursuant to that agreement dated October 6, 1994, a true and correct copy of
which has been provided to Buyer. No additional fees are payable to Snyder &
Co. in connection with their delivery of the oral and written fairness
opinions referred to in this Agreement.
2.22 Opinion of Financial Advisor. Target has received the oral
----------------------------
opinion of Snyder & Co., as of the date hereof, that the consideration to be
received in the Merger by Target's shareholders is fair to Target's
shareholders from a financial point of view.
2.23 Information Supplied. None of the information supplied or to
--------------------
be supplied by Target or any of its Subsidiaries for inclusion or
incorporation by reference in the prospectus and proxy statement forming a
part of the Registration Statement (the "Prospectus and Proxy Statement")) to
be filed with the SEC by Buyer in connection
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with the issuance of Buyer Stock pursuant to the Merger or any other documents
to be filed with the SEC in connection with the transactions contemplated
hereby will, at the respective times such documents are filed, and, in the
case of the Registration Statement, when it becomes effective and at all times
necessary to comply with the 1933 Act, and, with respect to the Prospectus and
Proxy Statement, when mailed and, as amended or supplemented, at all times
through the Closing Date, contain any untrue statement of material fact or
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances in which they are made, not misleading.
All documents filed by Target and its Subsidiaries with the SEC and any other
regulatory agency in connection with the Merger will comply in all material
respects with the provisions of all applicable rules and regulations.
2.24 Disclosure. No representation or warranty hereunder or
----------
information contained in the financial statements referred to in Section 2.7,
the Target Schedule or any certificate, statement, or other document delivered
by Target hereunder contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained
therein or herein, in light of the circumstances in which they were made, not
misleading.
2.25 Tax Free Reorganization Matters.
-------------------------------
(a) To the best of the knowledge of the management of Target,
there is no current plan or intention by the shareholders of Target to sell,
exchange or otherwise dispose of a number of shares of Buyer Stock received in
the Merger that would reduce the former Target shareholders' ownership of
Buyer Stock to a number of shares having a value, as of the date of the
Merger, of less than 50% of the value of all of the formerly outstanding
common and preferred stock of Target as of the same date. For purposes of this
representation, shares of Target Common Stock exchanged for cash or other
property and shares of Target preferred stock redeemed prior to the Merger
will be treated as outstanding Target stock on the date of the Merger.
(b) As a result of the Merger, Target will transfer and Sub
will acquire at least 90% of the fair market value of the net assets and at
least 70% of the fair market value of the gross assets held by Target
immediately prior to the Merger. For purposes of this representation, the
amount of Target assets used to pay Target reorganization expenses, and the
amount of Target assets used by the Target for all redemptions and
distributions including the redemption of Target preferred stock (except for
regular, normal dividends) made by the Target immediately preceding the
Merger, will be
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included as assets of Target held immediately prior to the Merger.
(c) The liabilities of Target assumed by Sub and the
liabilities to which the transferred assets of Target are subject were
incurred by Target in the ordinary course of its business.
(d) Target and the shareholders of Target will pay their
respective expenses, if any, incurred in connection with the Merger.
(e) Target is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(f) Target is not an investment company as defined in Section
38(a)(2)(F)(iii) and (iv) of the Code.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
AND SUB
3. Representations and Warranties of Buyer and Sub. Buyer and Sub
-----------------------------------------------
represent and warrant to Target as follows, except as set forth in a
disclosure schedule (the "Buyer Schedule") delivered by Buyer
contemporaneously with the execution of this Agreement:
3.1 Organization, Powers and Qualifications. Buyer is a
---------------------------------------
corporation duly organized, validly existing and in good standing under the
laws of the Commonwealth of Pennsylvania. Buyer has all requisite corporate
power and authority to carry on its business as it has been and is now being
conducted and to own, lease and operate the properties and assets used in
connection therewith. Buyer is duly qualified as a foreign corporation
authorized to do business and is in good standing in every jurisdiction in
which such qualification is required, other than such jurisdictions where the
failure so to qualify would not have a material adverse effect on the
business, condition (financial or otherwise), assets, liabilities or
operations of Buyer and its Subsidiaries taken as a whole (a "Buyer Material
Adverse Effect").
3.2 Subsidiaries. Sub and each other Subsidiary of Buyer listed on
------------
exhibit 21 to Buyer's annual report on Form 10-K for the year ended December
31, 1994 is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization. Each such
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Subsidiary has all requisite power and authority to carry on its business as
it has been and is now being conducted and to own, lease and operate the
assets and properties used in connection therewith. Each such Subsidiary is
duly qualified to do business and is in good standing in each jurisdiction in
which such qualification is required, other than such jurisdictions where the
failure so to qualify would not have a Buyer Material Adverse Effect. All
issued and outstanding shares of capital stock of Sub have been duly
authorized, are fully paid and nonassessable, and are owned of record and
beneficially by Buyer free and clear of all pledges, liens, claims, security
interests and other charges or defects in title of any nature whatsoever.
3.3 Authority. Except for the approval of Buyer's shareholders of
---------
the amendment to Buyer's articles of incorporation as described in Section
4.13 hereof, the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been authorized by all necessary
corporate action on the part of the Boards of Directors and shareholders (if
necessary) of Buyer and Sub and, no other corporate proceedings on the part of
Buyer or Sub are necessary to authorize this Agreement or to carry out the
transactions contemplated hereby. This Agreement is binding and enforceable
upon Buyer and Sub in accordance with its terms, subject to any bankruptcy,
insolvency, moratorium or other laws affecting the enforcement of creditors'
rights.
3.4 Capital Stock.
-------------
(a) As of May 1, 1995, the authorized capital of Buyer consists of
35,000,000 shares of Common Stock, par value $1.00 per share ("Buyer Common
Shares"), of which 19,032,527 shares were issued and outstanding and 175,599
shares were held as treasury shares as of the date of this Agreement;
8,753,203 shares of Class B Stock, par value $1.00 per share ("Buyer Class B
Shares"), of which 8,412,640 shares were issued and outstanding and 202,243
shares are held as treasury shares as of the date of this Agreement.
(b) Assuming shareholder approval of the amendment to Buyer's
articles of incorporation described in Section 4.13 hereof, as of the Closing
Date the authorized capital of Buyer will also include 25,000,000 shares of
Series Preferred Stock ("Buyer Preferred Stock"). As of the Closing Date the
authorized capital of Buyer will include a number of shares of Series AA
Convertible Preferred Stock ("Series AA Stock" or "Buyer Stock") sufficient
for Buyer to issue the Stock Merger Consideration in the Merger. As of the
Effective Time, the rights, privileges and preferences of the Buyer Stock will
be as stated in the resolution of the
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Buyer's board of directors attached to this Agreement as Exhibit A, which
resolution will have been validly and effectively filed (as part of a
Statement with Respect to Shares) in the Corporation Bureau of the
Commonwealth of Pennsylvania at or prior to the Effective Time.
(c) Prior to the Closing Date, Buyer will provide Target a complete
and correct copy of any resolution of the Buyer's board of directors
establishing and designating the terms of any other series of Series Preferred
Stock. No series of Series Preferred Stock will rank senior to the Buyer
Stock with respect to any dividend or liquidation rights.
(d) All of the issued and outstanding shares of the Buyer's
capital stock have been duly authorized and are validly issued and
outstanding, fully paid and nonassessable, and were issued in compliance with
all applicable federal and state securities laws. No shares of capital stock
issued by Buyer are or were at the time of their issuance subject to
preemptive rights.
3.5 Valid Issuance of Buyer Stock, Etc. The Buyer Stock which will
----------------------------------
be issued in connection with the Merger, when issued and delivered in
accordance with the terms hereof, will be duly and validly issued, fully paid
and nonassessable and will be issued in compliance with all applicable federal
and state securities laws. The Buyer Common Shares issuable upon conversion
of the Buyer Stock issued in connection with the Merger have been duly and
validly reserved for issuance and, upon issuance in accordance with the terms
of the Buyer Stock, shall be duly and validly issued, fully paid and
nonassessable, and issued in compliance with all applicable securities laws,
as presently in effect, of the United States and each of the states whose
securities laws govern the issuance of any of the Buyer Stock hereunder.
3.6 Conflict with Other Agreements; Consents and Approvals. With
------------------------------------------------------
respect to the following:
(a) the Articles of Incorporation or By-laws of, or any securities
issued by, Buyer or any subsidiary thereof,
(b) any law, statute, rule or regulation applicable to Buyer or any
subsidiary thereof,
(c) any contract to which Buyer or any subsidiary thereof is a party
or may be bound or any Authorization held by Buyer or any subsidiary
thereof, and
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(d) any judgment, order, injunction, decree or ruling of any court,
arbitrator or governmental or regulatory official, body or authority
applicable to Buyer or any subsidiary thereof,
the execution, delivery and performance by Buyer of this Agreement and the
transactions contemplated hereby will not (i) result in any violation,
conflict or default, or give to others any interest or rights, including
rights of termination, cancellation or acceleration which would have a
material adverse effect upon the business, condition (financial or otherwise),
assets, liabilities or operations of Buyer and its subsidiaries taken as a
whole (a "Buyer Material Adverse Effect"), or (ii) require any authorization,
consent, approval or exemption by any person, the failure to obtain which
would have a Buyer Material Adverse Effect, which has not been obtained, or
any notice to or filing which has not been given or done, other than the
Premerger Notification, filings pursuant to the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act") and applicable state
securities laws, the shareholder approval referred to in Section 4.13 hereof,
filings pursuant to the Pennsylvania Public Utility Code, and the filing of
appropriate merger documentation under the Corporation Law.
3.7 Financial Statements. The financial statements of Buyer
--------------------
included in the Buyer SEC Documents (defined below) comply as to form in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited statements, as
permitted by Form 10-Q of the SEC), and fairly present (subject, in the case
of unaudited statements to normal, recurring audit adjustments which in the
aggregate are not material) the consolidated financial position of Buyer and
its Subsidiaries at the dates indicated and the consolidated results of
operations and cash flows of Buyer and Subsidiaries for the periods indicated
(such financial statements are hereinafter referred to as the "Buyer Financial
Statements"). The consolidated balance sheet of Buyer and Subsidiaries at
December 31, 1994 described above is referred to herein as the "Buyer Balance
Sheet." Except as disclosed in the Buyer SEC Documents, Buyer is not a party
to any material probable business combination for which financial statements
are required to be disclosed pursuant to Section 3-05 of Regulation S-X under
the 1933 Act.
3.8 Brokerage. In connection with the transactions contemplated by
---------
this Agreement, no broker,
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finder or similar agent has been employed by or on behalf of Buyer, and no
person with which Buyer has had dealings or communications of any kind is
entitled to any brokerage or finder's fee or other commission in connection
with the transactions.
3.9 Reports. Buyer has previously furnished Target with true and
-------
complete copies of (i) each final prospectus and definitive proxy statement
filed by Buyer with the SEC since December 31, 1992, and (ii) each report
filed by Buyer with the SEC with respect to the year ended December 31, 1992
or any months or periods ending thereafter (the "Buyer SEC Documents"). None
of such documents or other communications contained as of the date of such
document any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Each of such documents which is subject to the 1933 Act or
the 1934 Act, or the regulations promulgated thereunder, complied in all
material respects when filed in form with such Acts and the applicable
regulations thereunder.
3.10 Information Supplied. None of the information supplied or to
--------------------
be supplied by Buyer or any of its Subsidiaries for inclusion or incorporation
by reference in the Registration Statement (including the Prospectus and Proxy
Statement) to be filed with the SEC by Buyer in connection with the issuance
of Buyer Stock pursuant to the Merger or any other documents to be filed with
the SEC in connection with the transactions contemplated hereby, will, at the
respective times such documents are filed, and, in the case of the
Registration Statement, when it becomes effective and at all times necessary
to comply with the 1933 Act, and, with respect to the Prospectus and Proxy
Statement, when mailed and at all times through the Closing Date contain any
untrue statement of material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances in
which they are made, not misleading. All documents filed by Buyer and its
Subsidiaries with the SEC and any other regulatory agency in connection with
the Merger will comply in all material respects with the provisions of all
applicable rules and regulations.
3.11 Disclosure. No representation or warranty hereunder or
----------
information contained in the financial statements referred to in Section 3.7,
the Buyer Schedule or any written certificate, statement, or other document
delivered by Buyer hereunder contains any untrue statement of material fact or
omits to state a material fact necessary in order to make the statements
contained therein or herein, in
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light of the circumstances in which they were made, not misleading.
3.12 Tax Matters. Buyer has no present plan or intention (i) to
-----------
reacquire any of the shares of Buyer Stock it will issue to the shareholders
of Target pursuant to the Merger, (ii) to liquidate Sub, to merge with and
into another corporation or to sell or otherwise dispose of the stock of Sub.
Sub has no present plan or intention to sell or dispose of any of the assets
of Target or its subsidiaries after the Effective Time, except for sales,
transfers or other distributions made in the ordinary course of business and
for transfers described in Section 368(a)(2)(C) of the Code. Following the
Effective Time, Sub will continue the historic business of Target and its
subsidiaries as presently conducted. Buyer presently controls Sub within the
meaning of Section 368(c) of the Code, and following the Effective Time Sub
will not issue additional shares of its stock that would result in Buyer
losing control of Sub within the meaning of Section 368(c) of the Code.
3.13 Available Funds. Buyer has access to funds, without the
---------------
requirement of borrowing from any third party, sufficient to fund the cash
merger consideration contemplated by this Agreement and the associated fees
and expenses of Buyer. Buyer knows of no reason why such funds will not be
available at the Effective Time. Notwithstanding the foregoing, Buyer may, at
its option, finance all or a portion of the Cash Merger Consideration.
ARTICLE IV
COVENANTS
4.1 Conduct of Business Prior to Closing. From the date of this
------------------------------------
Agreement to the Effective Time, Target (except as expressly contemplated or
permitted by this Agreement, or to the extent that Buyer shall otherwise
consent in writing) agrees as to itself and its Subsidiaries that it:
(a) will, and will cause each Subsidiary to, conduct and operate its
business only in the ordinary course consistent with past practice;
(b) will not, and will cause each Subsidiary not to, conduct its
business in such a manner so as to cause the representations and warranties
made by it and its Subsidiaries herein not to be true on the Closing Date as
though such representations and warranties were made on and as of such date;
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(c) will, and will cause each Subsidiary to, use its reasonable best
efforts to keep available the services of the present employees and agents of
it and the Subsidiaries, and to maintain the relations and goodwill with the
suppliers, customers and any others having business relations with it or its
Subsidiaries;
(d) will make no change in its authorized, issued or outstanding
capital stock and will not grant any options or other rights to acquire,
whether directly or contingently, any of its capital stock, nor will it permit
any third party to acquire, or gain any rights to acquire, any shares of
capital stock of any Subsidiary;
(e) except for the payment of regular scheduled dividends on its
outstanding common and preferred stock and as contemplated by Section 4.12
hereof, will not declare, set aside, or pay any dividend or make any other
distribution in respect of, nor repurchase any of, its capital stock;
(f) will not, and will not permit any Subsidiary to, modify or amend
its charter documents or By-laws;
(g) will not, and will not permit any Subsidiary to, enter into or
amend any employment contracts or any employee benefit plan or arrangement;
increase the rate of compensation (or other bonus or benefit) payable or to
become payable by it to any officer or any other executive employee; make any
general increase in compensation or rate of compensation (or other bonus or
benefit) payable or to become payable to hourly employees or salaried
employees except in the ordinary course of business consistent with past
practice; or make any material increase in the contributions to any employee
benefit program or arrangement;
(h) will not, and will not permit any Subsidiary to, incur or
guarantee any debt except in the ordinary course of business consistent with
past practice;
(i) will not, and will not permit any Subsidiary to, sell or dispose
of any assets (tangible or intangible) except for sales of inventory in the
ordinary course of business consistent with past practice;
(j) will not, and will not permit any Subsidiary to, change in any
material respect its accounting and tax practices, policies or principles;
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(k) will not, and will not permit any Subsidiary to, cancel or
waive any debts or claims having a value of $50,000 in the aggregate;
(l) will, and will cause each Subsidiary to, pay all taxes as they
become due, file all federal, state, local and foreign tax returns, reports
and statements required to be filed by Target or any Subsidiary within the
time and in the manner prescribed by law, and collect or withhold all taxes
required to be collected or withheld from employees, independent consultants
or other third parties;
(m) will not, and will not permit any Subsidiary to, file any
amended tax return or enter into a settlement of any audit or other tax
dispute with the IRS or any other taxing authority;
(n) will not, and will not permit any Subsidiary to, change in any
material respect its existing pricing structure, fees and charges structure,
marketing and promotional plans and policies; and
(o) will not, and will not permit any Subsidiary to, enter into any
(or modify any existing) lease, contract, commitment or agreement or engage in
any transaction (including without limitation any borrowing, capital
expenditure, capital financing, leasing arrangement or purchase commitment)
except in the ordinary course of business consistent with past practice.
4.2 Updating of Schedules. From the date of this Agreement to the
---------------------
Closing Date, each of Target and Buyer agrees that it will promptly inform the
other in writing if any information set forth in its Schedule is not accurate
and complete in all material respects as of such later date and will promptly
disclose to the other in writing any information which arises after the date
hereof and which would have been required to be included in its Schedule to
make such Schedule accurate and complete in all material respects as of such
later date; provided, however, that none of such disclosures shall be deemed
to modify, amend or supplement its representations and warranties or its
Schedule for purposes of any provision hereof unless the other shall have
consented thereto in writing.
4.3 Access. From the date of this Agreement to the Closing Date,
------
Target agrees that it will give to Buyer and its financial advisers, counsel,
accountants and other representatives full access, during normal business
hours upon reasonable advance notice, to all personnel, properties, books,
contracts, documents and records with respect to its affairs as Buyer may
reasonably request, including without
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<PAGE>
limitation all work papers, schedules and calculations relating to financial
statements, and any other information that may be necessary for Buyer to
conduct an audit of the books and records of Target. Any information relating
to Target shall be delivered subject to the provisions of the Confidentiality
Agreement referred to in Section 8.3 of this Agreement.
4.4 Proxy Material, Registration Statement, Other Filings and
---------------------------------------------------------
Applications. In connection with the transactions contemplated by this
------------
Agreement:
(a) Buyer shall file with the SEC the Registration Statement to
register under the 1933 Act the Buyer Stock to be offered to the holders of
Target Common Shares in connection with this Agreement and shall use its
reasonable best efforts to cause the Registration Statement to become
effective and to provide Target with the necessary copies of the Prospectus
and Proxy Statement for mailing to the shareholders of Target at the earliest
practicable date after the effective date of the Registration Statement.
Buyer shall file all such amendments to the Registration Statement as shall be
necessary to keep it current and effective until the Merger shall have been
consummated.
(b) In connection with the preparation of the Registration
Statement, Target shall provide Buyer with all proxy material which Target
intends to use in connection with obtaining the necessary Target shareholder
approval for the Merger and the transactions contemplated hereby and all other
material which in the opinion of counsel for Buyer is required by applicable
law to be sent to the shareholders of Buyer in connection with such approval.
Target agrees to cause the Prospectus and Proxy Statement to be mailed to its
shareholders at the earliest practicable date after the effective date of the
Registration Statement. Target agrees to make reasonable best efforts to
cause a copy of the written fairness opinion of its financial advisor to be
included in the Prospectus and Proxy Statement.
(c) Buyer shall file all applicable state securities or "blue sky"
applications and use its reasonable best efforts to qualify the Buyer Stock
issuable pursuant to this Agreement under such applicable state securities or
"blue sky" laws prior to the Closing Date; provided, however, that Buyer shall
not be required to consent to general service of process or qualify as a
foreign corporation or take any action that would subject Buyer to any taxing
authority to which it is not now subject.
(d) Buyer shall file an additional listing application with the
NASDAQ National Market System covering
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the Buyer Common Shares issuable upon conversion of the Buyer Stock issued to
the holders of Target Common Shares in connection with this Agreement and
shall use its reasonable best efforts to obtain approval of such application
upon official notice of issuance.
(e) Target and Buyer shall promptly prepare and file Premerger
Notifications and shall use their reasonable best efforts to obtain
termination of the waiting period thereunder as promptly as practicable.
(f) Buyer shall promptly prepare and file with the Pennsylvania
Public Utility Commission and all other governmental agencies (if any) all
documents necessary for such agency (or agencies) to approve the consummation
of the transactions contemplated by this Agreement. Buyer shall use its
reasonable best efforts to obtain all required regulatory approvals as
promptly as practical.
In connection with the preparation and filing of the Registration
Statement, any state securities or "blue sky" application, listing
application, Premerger Notification, or other regulatory application, or any
amendment thereto pursuant to this Section 4.4, the parties hereto shall
provide to each other such information and documents (or access thereto), and
shall render such assistance, as the other party may reasonably request or as
may be necessary to carry out the provisions of this Section 4.4.
4.5 Shareholder Meeting. Target shall call and hold a meeting of
-------------------
its shareholders to be held as soon as is practicable for the purpose of
voting on this Agreement. A majority of the Board of Directors of Target will
recommend to its shareholders approval of this Agreement and the Merger and
shall take all such actions consistent with the fiduciary obligations of such
Board to obtain such approvals as promptly as practicable, including without
limitation the solicitation of proxies.
4.6 Third Party Consents. Prior to the Effective Time, each of
--------------------
Buyer and Target shall obtain all consents, approvals or authorizations of
third parties which are required to be obtained by each of them in order to
effect the transactions contemplated by this Agreement and such other
consents, approvals or authorizations the absence of which would have a Target
Material Adverse Effect or a Buyer Material Adverse Effect, as appropriate.
4.7 Satisfaction of Conditions. Each party hereto will use all
--------------------------
reasonable best efforts to satisfy all the
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<PAGE>
conditions to be satisfied by it to effect the transactions contemplated
hereby.
4.8 Public Announcements. Neither Target nor Buyer will make,
--------------------
issue or release any oral or written public announcement or statement
concerning, or acknowledgment of the existence of, or reveal the terms,
conditions and status of, the transactions contemplated by this Agreement, or
any other communication to its shareholders or the investing public, directly
or indirectly (including without limitation press releases and statements to
securities analysts), without first making a good faith attempt to inform the
other of the contents of such announcement, acknowledgment or statement.
4.9 Employees and Employee Benefit Plans.
------------------------------------
(a) For a period of two years following the Effective Time, Buyer
shall continue the employment (in a position not unreasonably dissimilar to
the position occupied immediately prior to the Effective Time) and current
salary of all persons employed by Target as of the Effective Time. Such
persons may be terminated by Buyer during such two-year period only (i) for
reasonable cause and (ii) if the employee reaches normal retirement age. For
purposes of this Section 4.9(a), "cause" shall include, but not be limited to,
the failure of an employee, following reasonable notice and reasonable
opportunity to comply, to perform duties with due care, refusal to follow
lawful instructions of superiors, commission of tortious or criminal acts,
failure to comply with attendance policies and failure to comply with other
general employment policies that may be announced by Buyer from time to time.
(b) For a period of two years following the Effective Time, Buyer
will either (i) cause to remain in effect all Benefit Plans of Target and its
Subsidiaries, as in effect on the date of this Agreement or (ii) to provide
benefits to employees of Target and its Subsidiaries under Benefit Plans of
Buyer that provide benefits that are no less favorable, taken as a whole, to
the benefits provided to comparable employees of Buyer.
(c) To the extent that eligibility for participation or entitlement
to benefits under any Benefit Plan of Buyer is determined by reference to
periods of service, then for purposes of determining the eligibility of
employees of Target and its Subsidiaries to participate in Benefit Plans of
Buyer after the Effective Time or their entitlement to benefits thereunder
(including entitlement to early retirement subsidies under any pension plan
and any severance or vacation plans or arrangements of Buyer), the
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<PAGE>
calculation of such periods of service shall include periods of service with
Target and its Subsidiaries.
(d) In lieu of providing the continued salary and benefits that
otherwise would have been provided under this Section 4.9, Buyer, in its
discretion, may offer to any person employed by Target as of the Effective
Time severance compensation. Buyer agrees that all employees of Target shall
have the rights to continued employment provided under this Section 4.9
notwithstanding any offer of severance compensation, and that no employee
shall be required to accept any such offer.
(e) The provisions of this Section 4.9 are intended to benefit, and
may be enforced by, the employees or officers covered by such provisions.
This Section 4.9 shall be binding upon all successors and assigns of Target,
Buyer, Sub and the Surviving Corporation.
4.10 Director and Officer Indemnification.
------------------------------------
(a) From and after the Effective Time, Buyer shall, and shall cause
the Surviving Corporation to, indemnify, defend and hold harmless the present
and former directors and officers of Target (the "Indemnified Parties")
against losses, claims, damages, liabilities, expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the Indemnified Parties arising out of actions or omissions
occurring on or prior to the Effective Time (including, without limitation,
the transactions contemplated by this Agreement) to the fullest extent
permitted by applicable law unless such indemnification is expressly
prohibited by applicable law or if the conduct of the Indemnified Party is
finally determined by a court to have constituted willful misconduct or
recklessness within the meaning of Section 1746(b) of the Corporation Law or
any superseding provision. In addition, Buyer shall, and shall cause the
Surviving Corporation to, advance expenses as incurred to the fullest extent
permitted by applicable law if the Indemnified Party to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such Indemnified Party is not entitled to indemnification.
The obligations of Buyer and the Surviving Corporation under this Section
4.10(a) shall continue for six years following the Effective Time, provided
that all rights to indemnification and advancement of expenses in respect of
any claim made, asserted or commenced within such period shall continue until
the final disposition of such claim. Buyer's obligations under this Section
4.10(a) shall be limited to a maximum expenditure of $5,000,000 (including any
amounts actually
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<PAGE>
paid under insurance policies maintained by Buyer under Section 4.10(b)
below).
(b) For a period of six years following the Effective Time, Buyer
shall use all reasonable efforts to, at the option of Buyer, (i) include the
Indemnified Parties under Buyer's current director and officer liability
insurance policy, (ii) maintain in effect the director and officer liability
policy currently maintained by Target, or (iii) provide coverage to the
Indemnified Parties under one or more other insurance policies providing terms
and conditions which are substantially no less advantageous to the Indemnified
Parties than the coverage that would be provided under clause (i) or (ii)
above, such that coverage thereunder will be provided to Indemnified Parties
for claims arising on or after the Effective Time with respect to matters
existing or occurring on or prior to the Effective Time. In no event shall
Buyer be obligated to expend, in order to maintain or provide the insurance
pursuant to this Section 4.10(b), an aggregate amount in excess of $80,000,
but in such case shall purchase as much coverage as possible for such amount.
(c) All rights and obligations under this Section 4.10 shall be in
addition to any rights an Indemnified Party may have under the articles of
incorporation or bylaws of Target as in effect on the date hereof, or pursuant
to any other agreement, arrangement or document in effect prior to the
Effective Time. The provisions of this Section 4.10 are intended to benefit,
and may be enforced by, all Indemnified Parties, and their respective heirs
and representatives. This Section 4.10 shall be binding upon all successors
and assigns of Target, Buyer, Sub and the Surviving Corporation.
4.11 Other Proposals. Target hereby agrees that it shall not, nor
---------------
shall it permit any of its Subsidiaries to, nor shall it authorize or permit
any of its or its Subsidiaries' officers, directors, employees, affiliates,
investment bankers or other representatives or agents (collectively, the
"Representatives") to, directly or indirectly, solicit, encourage (including
by way of furnishing non-public information), initiate discussions or
negotiations relating to or take any other action to facilitate, any inquiries
or the making of any proposal for an Acquisition Transaction. As used herein,
the term "Acquisition Transaction" shall mean the occurrence of any of the
following events: (i) Target is acquired by merger or otherwise by any
"person" or "group," as such terms are defined in Section 13(d) of the 1934
Act, other than Buyer, Sub or any of their respective affiliates (a "Third
Party"); (ii) a Third Party acquires more than 30% (as reflected in accordance
with generally accepted accounting principles on
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<PAGE>
Target's most recent quarterly financial statements) in value of the total
assets of Target and its Subsidiaries, taken as a whole; (iii) a Third Party
acquires more than 30% of the outstanding Target Common Shares; (iv) Target
adopts and implements a plan of liquidation relating to, or extraordinary
dividend equal to, more than 30% in value of the total assets of Target (as
reflected in accordance with generally accepted accounting principles on
Target's most recent quarterly financial statements); or (v) Target enters
into a preliminary or definitive agreement with a Third Party relating to any
of the transactions referred to in clauses (i) through (iv) above. Target
agrees that it shall promptly notify Buyer orally and in writing of any such
inquiries or proposals. Any such notification shall include the identity of
the person making such proposal or request, the terms thereof, and any other
information with respect thereto as Buyer may reasonably request. Nothing
contained in this Agreement shall be construed to prohibit Target from (a)
disclosing, under protection of an appropriate confidentiality agreement, non-
public information concerning Target to, and engaging in discussions and
negotiations concerning an Acquisition Transaction with, a person who has made
a bona fide offer to engage in an Acquisition Transaction for a consideration
and on terms which are more favorable to the Target shareholders than the
terms of the Merger, and who can reasonably be expected to consummate the
Acquisition Transaction on the terms that have been proposed, and which
disclosure, discussions and negotiations, in the judgment of Target, shall be
required by reason of the fiduciary obligations of the Board of Directors of
Target and (b) subject to Target's obligations under Section 7.5 hereof and
only after terminating this Agreement in accordance with Section 7.1(d)
hereof, accepting such offer for an Acquisition Transaction from such person
which the Board of Directors of Target concludes is more favorable to the
Target shareholders than the Merger contemplated hereby.
4.12 Target Preferred Stock. Target hereby agrees, on or prior to
----------------------
July 1, 1995, to call for redemption, in accordance with Target's articles of
incorporation, all outstanding shares of Target's Cumulative Preferred Stock,
par value $50.00 per share, of which 8,000 shares are issued and outstanding
on the date of this Agreement. The redemption date shall be fixed at
September 1, 1995. On or before such redemption date, Target will, to the
extent funds are legally available therefor, pay or otherwise make effective
provision for the payment of the redemption price on all of such outstanding
shares. Target shall take all reasonable best efforts to have legally
available all required funds for such redemption.
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4.13 Buyer Shareholder Approval. Buyer shall include in the proxy
--------------------------
statement for its 1995 annual shareholders meeting, a proposal to amend
Buyer's articles of incorporation authorizing sufficient shares of Buyer
Preferred Stock to permit the issuance of the Buyer Stock in the Merger. The
Board of Directors of Buyer will recommend to its shareholders approval of
such proposal and will take all such actions consistent with the fiduciary
obligations of such Board to obtain such approvals as promptly as practicable,
including without limitation the solicitation of proxies. In the event that
the requisite shareholder approval is not obtained at Buyer's 1995 annual
shareholders meeting (or any adjournment thereof), Target shall have the right
to terminate this Agreement in accordance with Section 7.1(e) hereof.
4.14 Affiliates. Prior to the Closing Date, Target shall deliver
----------
to Buyer a letter identifying all persons who (in Target's reasonable
judgment) are, at the time this Agreement is submitted for approval to the
shareholders of Target, "affiliates" of Target for purposes of Rule 145 under
the 1933 Act. Target shall use its reasonable best efforts to cause each such
person to deliver to Buyer, on or prior to the Closing Date, a written
agreement, in the form attached hereto as Exhibit B acknowledging and agreeing
to abide by the limitations imposed by law in respect of the sale or other
disposition of Buyer Stock received by such person pursuant to the Merger.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF BUYER AND SUB
5. Conditions To Obligations of Buyer and Sub To Consummate the
------------------------------------------------------------
Merger. The obligations of Buyer and Sub to consummate the Merger provided
------
for in this Agreement shall be subject to satisfaction, on or before the
Closing Date, of the following conditions:
5.1 Representations, Warranties, and Covenants of Target. The
----------------------------------------------------
representations and warranties of Target herein contained and the information
contained in the Target Schedule and other documents delivered by Target in
connection with this Agreement shall be true and correct at the Closing Date
in all material respects with the same effect as though made at such time,
except to the extent waived hereunder or affected by the transactions
contemplated herein; Target shall have performed in all material respects all
obligations and complied in all material respects with all agreements,
undertakings, covenants and conditions required by this Agreement to be
performed or complied with
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<PAGE>
by it at or prior to the Closing Date; and Target shall have delivered to
Buyer a certificate in form and substance satisfactory to Buyer dated the
Closing Date and signed by the Chairman of the Board and the Vice President of
Target to such effect.
5.2 Target Shareholder Approval. The requisite approval of this
---------------------------
Agreement and the transactions contemplated hereby shall have been given by
the shareholders of Target.
5.3 Buyer Shareholder Approval. The requisite approval of the
--------------------------
amendment to Buyer's articles of incorporation referred to in Section 4.13
shall have been given by the shareholders of Buyer.
5.4 Redemption of Target Preferred Stock. The preferred stock of
------------------------------------
Target referred to in Section 4.12 shall have been redeemed.
5.5 No Injunctions. No preliminary or permanent injunction or
--------------
other order, decree or ruling by any federal, state or provincial court in the
United States or by any United States governmental, regulatory or
administrative agency which prevents the consummation of the transactions
contemplated by this Agreement (including the Merger) shall have been issued
and remain in effect; provided, however, that each of the parties hereto shall
-------- -------
have used its reasonable best efforts to prevent any such injunction or other
order, and to appeal as promptly as possible any such injunction or order that
may be entered.
5.6 No Antitrust Litigation. No action, suit or proceeding against
-----------------------
Buyer or Target brought by the Antitrust Division of the Department of Justice
or the Federal Trade Commission challenging the Merger under the federal
antitrust laws shall be pending or shall have been threatened by either such
agency.
5.7 Filings. Buyer and Target shall have made all filings required
-------
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
required statutory waiting period under such Act shall have terminated.
Target shall have made all required filings under the Pennsylvania Public
Utility Code and the required approval from the Pennsylvania Utility
Commission shall have been obtained. For purposes of the required approval
from the Pennsylvania Utility Commission, Buyer's shall not be obligated to
consummate the Merger if such approval is subject to any further action of any
kind (including, without limitation, reconsideration, rehearing, review or
appeal) and consummating the Merger prior to the completion (or the expiration
of the
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<PAGE>
possibility) of such further action would have a Buyer Material Adverse
Effect.
5.8 NASDAQ Listing. The NASDAQ National Market System shall have
--------------
approved the listing, upon official notice of issuance, of all Buyer Common
Shares issuable upon conversion of the Buyer Stock issued to the holders of
Target Common Shares in connection with this Agreement.
5.9 Securities Laws. The Registration Statement shall have been
---------------
declared effective by the SEC, no stop order shall have been issued or
proceedings instituted or threatened suspending the effectiveness of the
Registration Statement, and all approvals, consents, permits, licenses or
qualifications from authorities administering the securities laws of any state
having jurisdiction, required in the reasonable judgment of Buyer for the
consummation of this Agreement and the Merger shall have been obtained and
shall be effective and in full force and effect.
5.10 Affiliate Letters. Buyer shall have received the letters from
-----------------
Target's affiliates referenced in Section 4.14 hereof.
5.11 Dissenters Rights. The holders of no more than five percent
-----------------
of the outstanding shares of Target Common Stock shall have effectively
exercised dissenters rights pursuant to the Corporation Law.
5.12 Tax Opinion or Tax Ruling.
-------------------------
(a) Buyer shall have received a ruling from the Internal Revenue
Service (the "IRS") or an opinion of Swidler & Berlin, special tax counsel to
Buyer, to the effect that:
(i) the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code and Target and Buyer will each be a "party
to a reorganization" within the meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by Target by reason of the
Merger;
(iii) the gain, if any, realized by a holder of shares of Target
Common Stock upon receipt of shares of Buyer Stock and/or cash in
exchange for shares of Target Common Stock pursuant to the Merger will be
recognized but not in excess of the amount of cash received, and no loss
will be recognized by those holders of Target Common Stock who exchange
their shares of Target Common Stock solely for shares of Buyer Stock; and
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(iv) the basis of the Buyer Stock to be received by the Target
shareholders will be, in each instance, the same as the basis of the
Target Common Stock surrendered in exchange therefor and the holding
period of the Buyer Stock to be received by Target shareholders will
include the period during which Target Common Stock surrendered in
exchange therefor was held, provided the Target Common Stock was held as
a capital asset by such Target shareholder at the Effective Time.
(b) In case a ruling from the IRS is sought, Target and Buyer shall
cooperate and each shall furnish to the other and to the IRS such information
and representations as shall, in the opinion of counsel for Buyer and Target,
be necessary or advisable to obtain such ruling.
5.13 Legal Opinion. Buyer shall have received an opinion dated the
-------------
Closing Date from Morgan, Lewis & Bockius, special counsel to Target, in the
form and substance reasonably satisfactory to Buyer and its counsel.
5.14 Resignations. Without in any way limiting the obligations of
------------
Buyer under Section 4.9 hereof, Buyer shall have received the written
resignations, in a form reasonably acceptable to Buyer (which shall include a
representation with respect to the matters referred to in the last two
sentences of Section 2.14 hereof), of those Target directors and officers
designated by Buyer.
5.15 Environmental Matters. The results of a phase I environmental
---------------------
review of Target's properties shall have been received by Buyer. This
condition shall be automatically waived by Buyer (i) unless Buyer provides
Target evidence that such review has been ordered by Target within 20 days of
the date of this Agreement, or (ii) if the results of such review are not
received by August 15, 1995.
ARTICLE VI
CONDITIONS TO OBLIGATION OF TARGET
6. Conditions To Obligation of Target To Consummate the Merger.
-----------------------------------------------------------
The obligation of Target to consummate the Merger provided for in this
Agreement shall be subject to satisfaction, on or before the Closing Date, of
the following conditions:
6.1 Representations, Warranties, and Covenants of Buyer and Sub.
-----------------------------------------------------------
The representations and warranties of Buyer and Sub herein contained and the
information contained in the Buyer Schedule and other documents delivered by
Buyer and Sub
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<PAGE>
in connection with this Agreement shall be true and correct at the Closing
Date in all material respects with the same effect as though made at such time
except to the extent waived hereunder or affected by the transactions
contemplated herein; Buyer and Sub shall have performed in all material
respects all obligations and complied in all material respects with all
agreements, undertakings, covenants and conditions required by this Agreement
to be performed or complied with by them at or prior to the Closing Date; and
Buyer shall have delivered to Target a certificate in form and substance
satisfactory to Target dated the Closing Date and signed by the President and
by the Chief Financial Officer of Buyer to such effect.
6.2 Target Shareholder Approval. The requisite approval of this
---------------------------
Agreement and the transactions contemplated hereby shall have been given by
the shareholders of Target.
6.3 Buyer Shareholder Approval. The requisite approval of the
--------------------------
amendment to Buyer's articles of incorporation referred to in Section 4.13
shall have been given by the shareholders of Buyer.
6.4 Redemption of Target Preferred Stock. The preferred stock of
------------------------------------
Target referred to in Section 4.12 shall have been redeemed.
6.5 No Injunctions. No preliminary or permanent injunction or
--------------
other order, decree or ruling by any federal, state or provincial court in the
United States or by any United States governmental, regulatory or
administrative agency which prevents the consummation of the transactions
contemplated by this Agreement (including the Merger) shall have been issued
and remain in effect; provided, however, that each of the parties hereto shall
-------- -------
have used its reasonable best efforts to prevent any such injunction or other
order, and to appeal as promptly as possible any such injunction or order that
may be entered.
6.6 No Antitrust Litigation. No action, suit or proceeding against
-----------------------
Buyer or Target brought by the Antitrust Division of the Department of Justice
or the Federal Trade Commission challenging the Merger under the federal
antitrust laws shall be pending or shall have been threatened by either such
agency.
6.7 Filings. Buyer and Target shall have made all filings required
-------
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
required statutory waiting period under such Act shall have terminated. Buyer
shall have made all required filings under the Pennsylvania Public
A-36
<PAGE>
Utility Code and the required approval from the Pennsylvania Utility
Commission shall have been obtained.
6.8 NASDAQ Listing. The NASDAQ National Market System shall have
--------------
approved the listing, upon official notice of issuance, of all Buyer Common
Shares issuable upon conversion of the Buyer Stock issued to the holders of
Target Common Shares in connection with this Agreement.
6.9 Securities Laws. The Registration Statement shall have been
---------------
declared effective by the SEC, no stop order shall have been issued or
proceedings instituted or threatened suspending the effectiveness of the
Registration Statement, and all approvals, consents, permits, licenses or
qualifications from authorities administering the securities laws of any state
having jurisdiction, required in the reasonable judgment of Target for the
consummation of this Agreement and the Merger shall have been obtained and
shall be effective.
6.10 Fairness Opinion. Target shall have received the written
----------------
opinion of its financial advisor, Snyder & Co., dated as of a date no later
than the date of the mailing of the Prospectus and Proxy Statement to the
Target shareholders and not subsequently withdrawn, that the consideration to
be received in the Merger by Target's shareholders is fair to Target's
shareholders from a financial point of view.
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
7.1 Termination. This Agreement may be terminated by written
-----------
notice of termination at any time before the Closing Date (whether before or
after action by shareholders of Target) only as follows:
(a) by mutual consent of Buyer and Target;
(b) by Buyer
(i) upon written notice to Target given at any time if
the representations and warranties of Target contained in Article II
hereof were not true and correct in all material respects when made or as
of the Effective Time (except to the extent qualified by materiality in
which event such representations and warranties shall be true and
correct) or if Target fails to perform all obligations and comply in all
material respects with all agreements, undertakings, covenants and
conditions required by this Agreement to be
A-37
<PAGE>
performed or complied with by it at or prior to the Effective Time
(except to the extent such performance or compliance is qualified by
materiality in which event such performance or compliance shall have
failed to occur);
(ii) upon written notice to Target given at any time
after December 31, 1995 if the Effective Time shall not have occurred on
or before December 31, 1995 unless the absence of such occurrence shall
be due to the failure of Buyer or any of its Subsidiaries to perform in
all material respects each of its obligations under this Agreement
required to be performed by it at or prior to the Effective Time (except
to the extent such performance or compliance is qualified by materiality
in which event such performance or compliance shall have failed to
occur);
(c) by Target
(i) upon written notice given to Buyer at any time if the
representations and warranties of Buyer and Sub contained in Article III
hereof were not true and correct in all material respects when made or as
of the Effective Time (except to the extent qualified by materiality in
which event such representations and warranties shall be true and
correct) or if Buyer or Sub fails to perform in all material respects all
obligations and comply in all material respects with all agreements,
undertakings, covenants and conditions required by this Agreement to be
performed or complied with by it at or prior to the Effective Time
(except to the extent such performance of compliance is qualified by
materiality in which event such performance or compliance shall have
failed to occur);
(ii) upon written notice to Buyer given at any time after
December 31, 1995 if the Effective Time shall not have occurred on or
before December 31, 1995, unless the absence of such occurrence shall be
due to the failure of Target or any of its Subsidiaries to perform in all
material respects each of its obligations under this Agreement required
to be performed by it at or prior to the Effective Time (except to the
extent such performance or compliance is qualified by materiality in
which event such performance or compliance shall have failed to occur);
(d) upon written notice to Buyer by Target if Target is
terminating this Agreement in order to enter into an Acquisition Transaction
with a person not a party hereto, provided that Target was entitled to pursue
the proposal of
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<PAGE>
such Acquisition Transaction pursuant to the provisions of Section 4.11
hereof;
(e) upon written notice to Buyer by Target if the requisite
Buyer shareholder approval referred to in Section 4.13 hereof is not obtained
at Buyer's 1995 annual shareholders meeting (or any adjournment thereof); and
(f) as provided in Section 7.6.
7.2 Effect of Termination. In the event of the termination of this
---------------------
Agreement and the abandonment of the Merger, the provisions of this Agreement
other than the provisions of Section 7.5 shall thereafter become void and have
no effect, and no party thereto shall have any liability to any other party
hereto or its shareholders or directors or officers in respect thereof, except
that nothing herein shall relieve any party from liability for any willful
breach thereof or from its obligations under the Confidentiality Agreement
referred to in Section 8.4.
7.3 Waiver of Terms. Any of the terms or conditions of this
---------------
Agreement may be waived at any time prior to the Effective Time by the party
which is, or whose shareholders are, entitled to the benefit thereof, by
action taken by the Board of Directors of such party, or by its chairman,
president or any vice president authorized to act for such party; provided,
however, that such waiver shall be in writing and shall be taken only if, in
the judgment of the Board of Directors or officer taking such action, such
waiver will not have a materially adverse effect on the benefits intended
hereunder to the shareholders of such corporation, and the other parties
hereto may rely on the delivery of such a waiver as conclusive evidence of
such judgment and the validity of the waiver.
7.4 Amendment of Agreement. Anything herein or elsewhere to the
----------------------
contrary notwithstanding, to the extent permitted by law, this Agreement may
be amended, supplemented or interpreted at any time prior to the Closing Date
by written instrument duly authorized and executed by each of the parties
hereto; provided, however, that after approval by the shareholders of Target
or Buyer, no amendment shall be made which by law requires further approval by
the shareholders without such further approval.
7.5 Fees and Expenses.
-----------------
(a) In order to induce Buyer and Sub to enter into this Agreement
and to structure the Merger in the manner set forth herein and as a means of
compensating Buyer for the substantial direct and indirect monetary and other
costs
A-39
<PAGE>
incurred and to be incurred in connection with the Merger and for the loss of
its ability to pursue other advantageous transactions and the potential
adverse consequences if the Merger is not completed, Target agrees that if
this Agreement is terminated by Target pursuant to Section 7.1(d), then Target
shall pay to Buyer within one business day following the date of the
termination pursuant to Section 7.1(d) a break-up fee in the amount of
$550,000, such fee being in the nature of liquidated damages as exclusive
compensation to Buyer and Sub for any and all claims and losses which Buyer
and Sub have or may have incurred in connection with this Agreement and the
transactions contemplated hereby.
(b) Whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that all
filing fees for Premerger Notifications shall be shared equally by the
parties.
7.6 Failure of Buyer Shareholder Approval. In the event that the
-------------------------------------
requisite Buyer shareholder approval referred to in Section 4.13 hereof is not
obtained at Buyer's 1995 annual shareholders meeting (or any adjournment
thereof), Buyer shall promptly notify Target in writing of such failure. In
such event Target shall have the option, exercisable by written notice to
Buyer within 45 days of Buyer's notice and in addition to its right to
terminate this Agreement pursuant to Section 7.1(e) hereof, to proceed with
the Merger on the terms contemplated by this Agreement, except that the "Per
Share Merger Consideration" defined in Section 1.3(b) shall be deemed to be
$61.00 in cash. In the event that Target exercises such option, this
Agreement shall continue in full force and effect, except that the provisions
of this Agreement shall be deemed to have been amended, mutatis mutandi, to
------- -------
the extent necessary to reflect the fact that the Per Share Merger
Consideration is cash rather than a combination of cash and stock. In the
event that Target does not exercise its option under this Section 7.6 within
the time provided above, this Agreement shall terminate.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Cooperation. Subject to the terms and conditions herein
-----------
provided, each party shall cooperate with the other party in carrying out the
provisions of this Agreement and shall execute and deliver, or cause to be
executed and delivered, such governmental notifications and additional
documents and instruments and do, or cause to be
A-40
<PAGE>
done, all additional things necessary, proper or advisable under applicable
law to consummate and make effective the transactions contemplated hereby.
8.2 Counterparts. This Agreement may be executed in two or more
------------
counterparts each of which shall be deemed an original, but all of which
counterparts together shall be deemed to be one and the same instrument. It
shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any other counterpart.
8.3 Contents of Agreement, Etc. With the exception of the matters
--------------------------
addressed in the Letter Agreement dated November 1, 1994 between Target and
Buyer (the "Confidentiality Agreement"), this Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof. Any
previous agreements or understandings between the parties regarding the
subject matter hereof, except for arrangements between the parties concerning
confidential information, are merged into and superseded by this Agreement.
Except as provided in Section 4.9 and 4.10 hereof, nothing herein express or
implied is intended or shall be construed to confer upon or to give any
person, other than Buyer and Target and their respective shareholders, any
rights or remedies under or by reason of this Agreement.
8.4 No Survival of Representations and Warranties. None of the
---------------------------------------------
representations and warranties in this Agreement shall survive the Effective
Time.
8.5 Section Headings, Gender and "Person." The section headings
--------------------------------------
herein have been inserted for convenience of reference only and shall in no
way modify or restrict any of the terms or provisions hereof. The use of the
masculine or any other pronoun herein when referring to any person has been
for convenience only and shall be deemed to refer to the particular person
intended regardless of the actual gender of such person. Any reference to a
"person" herein shall include an individual, firm, corporation, partnership,
trust, government or political subdivision or agency or instrumentality
thereof, association, unincorporated organization or any other entity.
8.6 Notices. All notices, consents, waivers or other
-------
communications which are required or permitted hereunder shall be sufficient
if given in writing and delivered personally, by overnight mail service, by
facsimile transmission (which is confirmed) or by registered or certified
mail, return receipt requested, postage prepaid, as
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<PAGE>
follows (or to such other addressee or address as shall be set forth in a
notice given in the same manner):
If to Buyer or Sub:
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Attention: President
(609) 734-3830 (Fax)
With a required copy to:
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Attention: General Counsel
(609) 734-3830 (Fax)
If to Target:
Buffalo Valley Telephone Company
20 South Second Street
Lewisburg, Pennsylvania 17837
Attention: Chairman of the Board
(717) 524-0459 (Fax)
With a required copy to:
Morgan, Lewis & Bockius
One Commerce Square
417 Walnut Street
Harrisburg, Pennsylvania 17101
Attention: James H. Carroll, Esquire
(717) 237-4004 (Fax)
All such notices shall be deemed to have been given three business
days after mailing if sent by registered or certified mail, one business day
after mailing if sent by overnight courier service or on the date transmitted
if sent by facsimile transmission.
8.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAW PROVISIONS.
A-42
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and
Plan of Merger as of the date first above written.
C-TEC CORPORATION
By:/s/ Michael J. Mahoney
-------------------------
Michael J. Mahoney
President
BVT MERGER CORPORATION
By:/s/ Michael J. Mahoney
-------------------------
Michael J. Mahoney
President
BUFFALO VALLEY TELEPHONE
COMPANY
By:/s/ James G. Apple
-------------------------
James G. Apple
Chairman of the Board
A-43
<PAGE>
SCHEDULE 1.3
Election and Allocation Procedures
----------------------------------
A. Election and Allocation.
-----------------------
1. Subject to and in accordance with the allocation and election
procedures set forth in this Schedule 1.3, each record holder of Target Common
Shares (other than holders of Dissenters' Shares) (the "Holders") shall, prior
to the Election Deadline (as hereinafter defined) specify (a) the number of
whole Target Common Shares held by such Holder as to which such Holder shall
desire to receive the Cash Merger Consideration, and (b) the number of whole
Target Common Shares held by such Holder as to which such Holder shall desire
to receive the Stock Merger Consideration.
2. An election as described in clause (a) of Paragraph 1 is herein
referred to as a "Cash Election," and Target Common Shares as to which a Cash
Election has been made are herein referred to as "Cash Election Shares." An
election as described in clause (b) of Paragraph 1 is herein referred to as a
"Stock Election," and shares as to which a Stock Election has been made are
herein referred to as "Stock Election Shares." A failure to indicate a
preference in accordance herewith is herein referred to as a "Non-Election,"
and shares as to which there is a Non-Election are herein referred to as "Non-
Election Shares."
3. Any record holder of Target Common Shares who is holding shares for a
beneficial owner, or as a nominee for one or more beneficial owners, may
submit a form for purposes of making elections and containing instructions
with respect thereto (the "Election Form") on behalf of any such beneficial
owners. Any beneficial owner of Target Common Shares on whose behalf a record
owner of Target Common Shares has submitted an Election Form in accordance
with this paragraph A.3 will be considered a separate Holder of Target Common
Shares for purposes of this Schedule 1.3.
4. As used herein, the term "Stock Percentage" means the percentage of the
Aggregate Shares (defined below) for which Stock Merger Consideration will be
issued, and the term "Cash Percentage" means the percentage of the Aggregate
Shares (defined below) for which Cash Merger Consideration will be issued and
shall equal 100 minus the Stock Percentage. The Stock Percentage shall be
selected by Buyer, in its sole discretion, and Buyer shall give Target written
notice of such election within five business days following the Election
Deadline (defined below). The Stock Percentage
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<PAGE>
shall be 50% or, if larger, the minimum percentage necessary for the Merger to
qualify as a tax-free exchange for federal income tax purposes.
5. Payment of the Cash Merger Consideration and issuance of the Stock
Merger Consideration shall be allocated to Holders such that the number of
Target Common Shares (outstanding and including Dissenters' Shares) as to
which cash is paid shall equal the Cash Percentage times the aggregate number
of Target Common Shares outstanding (including Dissenters' Shares) (the
"Aggregate Shares"), and the number of Target Common Shares as to which Buyer
Stock are issued shall equal the Stock Percentage times the Aggregate Shares,
as follows:
(a) If the number of Cash Election Shares plus the number of
Dissenters' Shares is more than the Cash Percentage, (i) Non-Election
Shares shall be deemed to be Stock Election Shares, and (ii) (A) the Cash
Election Shares of each Holder shall be reduced pro rata by multiplying
the number of Cash Election Shares of such Holder by a fraction, the
numerator of which is the number of Target Common Shares equal to (x) the
Cash Percentage times (y) the Aggregate Shares minus the aggregate number
of Dissenters' Shares and the denominator of which is the aggregate
number of Cash Election Shares, and (B) the shares of such Holder
representing the difference between such Holder's initial Cash Election
and such Holder's reduced Cash Election pursuant to clause (A) shall be
converted into and be deemed to be Stock Election Shares.
(b) If the number of Stock Election Shares is in excess of the Stock
Percentage, then (i) Non-Election Shares shall be deemed to be Cash
Election Shares, and (ii) (A) Stock Election Shares of each Holder shall
be reduced pro rata by multiplying the number of Stock Election Shares of
such Holder by a fraction, the numerator of which equal to the Stock
Percentage times the number of the Aggregate Shares and the denominator
of which is the aggregate number of Stock Election Shares of all Holders,
and (B) the shares of such Holder representing the difference between
such Holder's initial Stock Election and such Holder's reduced Stock
Election pursuant to clause (A) shall be converted into to and be deemed
to be Cash Election Shares.
(c) If the number of Cash Election Shares plus Dissenter's Shares is
less than or equal to the Cash Percentage times the Aggregate Shares and
the number of Stock Election Shares is less than or equal to the Stock
Percentage times the Aggregate Shares, then (i) there
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<PAGE>
shall be no adjustment to the elections made by electing Holders, and
(ii) Non-Election Shares of each Holder shall be treated as Stock
Election Shares and/or as Cash Election Shares in proportion to the
respective amounts by which the Cash Election Shares plus Dissenter's
Shares and the Stock Election Shares are less than the Cash Percentage
and the Stock Percentage, respectively.
6. After taking into account the foregoing adjustment provisions, each
Cash Election Share (including those deemed to be Cash Election Shares) shall
receive in the Merger the Cash Merger Consideration pursuant to Section 1.3,
and each Stock Election Share (including those deemed to be Stock Election
Shares) shall receive in the Merger the Stock Merger Consideration (and cash
in lieu of fractional shares) pursuant to Section 1.3.
B. Procedures.
----------
1. Target and Buyer shall prepare the Election Form for purposes of making
elections and containing instructions with respect thereto. The Election Form
shall be distributed to each Holder at such time as Target and Buyer shall
determine and shall specify the date by which all such elections must be made
(the "Election Deadline"), which date shall be determined by Target and Buyer
but shall be not earlier than the 20 calendar days following the Effective
Time.
2. Elections shall be made by Holders by mailing to such bank or entity as
may be mutually acceptable to Buyer and Target as the exchange agent
("Exchange Agent"), a duly completed Election Form. To be effective, an
Election Form must be properly completed, signed and submitted to the Exchange
Agent accompanied by certificates representing the Target Common Shares as to
which the election is being made (or by an appropriate guaranty of delivery by
a commercial bank or trust company in the United States or a member of a
registered national security exchange or the National Association of Security
Dealers, Inc.), or by evidence that such certificates have been lost, stolen
or destroyed accompanied by such security or indemnity as shall be reasonably
requested by Buyer. An Election Form and accompanying share certificates must
be received by the Exchange Agent by the close of business on the Election
Deadline. An election may be changed or revoked but only by written notice
received by the Exchange Agent prior to the Election Deadline including, in
the case of a change, a properly completed revised Election Form. Any share
certificates which were submitted in connection with an election shall be
returned to the holder thereof in the event such election is revoked as
aforesaid and such holder requests in writing the return of such certificates.
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<PAGE>
3. Buyer will have the discretion, which it may delegate in whole or in
part to the Exchange Agent, to determine whether the Election Forms have been
properly completed, signed and submitted or changed or revoked and to
disregard immaterial defects in Election Forms. The decision of Buyer (or the
Exchange Agent) in such matters shall be conclusive and binding. Neither
Buyer nor the Exchange Agent will be under any obligation to notify any person
of any defect in an Election form submitted to the Exchange Agent. Either
Buyer (or the Exchange Agent) shall also make all computations contemplated by
Part A of this Schedule 1.3.
4. For the purposes hereof, a Holder who does not submit an effective
Election Form to the Exchange Agent prior to the Election Deadline shall be
deemed to have made a Non-Election. If Buyer or the Exchange Agent shall
determine that any purported Cash Election or Stock Election was not
effectively made, such purported Cash Election or Stock Election shall be
deemed to be of no force and effect and the Holder making such purported Cash
Election or Stock Election shall, for purposes hereof, be deemed to have made
a Non-Election.
5. In the event that this Agreement is terminated pursuant to the
provisions hereof and any shares have been transmitted to the Exchange Agent
pursuant to the provisions hereof, Buyer and Target shall cause the Exchange
Agent to promptly return such shares to the person submitting the same.
A-47
<PAGE>
Exhibit A
RESOLUTION OF THE BOARD OF DIRECTORS OF
C-TEC CORPORATION
ESTABLISHING AND DESIGNATING
SERIES AA CONVERTIBLE PREFERRED STOCK
AS A SERIES OF THE SERIES PREFERRED STOCK
RESOLVED, that pursuant to the authority expressly vested in the board of
directors of C-TEC Corporation (herein called the "Corporation") by Article 9
of the articles of incorporation of the Corporation, the board of directors
hereby fixes and determines the voting rights, designations, preferences,
limitations and special rights of _______ shares of Series Preferred Stock,
par value $61.00 per share (such class being herein called the "Series
Preferred Stock"), by establishing and designating a series of such Series
Preferred Stock as follows:
Section 1. Designation. There shall be a series of Series Preferred Stock
-----------
which shall consist of _______ shares and shall be designated as Series AA
Convertible Preferred Stock (such series being herein called the "Series AA
Stock"). The Series AA Stock is being issued in connection with the
transactions contemplated by that certain Agreement and Plan of Merger dated
as of May 10, 1995 among C-TEC Corporation, BVT Merger Corporation and Buffalo
Valley Telephone Company which transactions closed on _______________, 1995.
Section 2. Definitions.
-----------
(a) The term "Common Stock" as used in this resolution shall be deemed
to mean stock of the Corporation of any class, whether now or hereafter
authorized, which has the right to participate in the distribution of either
earnings or assets of the Corporation without limit as to the amount or
percentage; except that Common Stock issuable upon conversion of Series AA
Stock as provided in this resolution shall mean only Common Stock authorized
at the time of original issue of Series AA Stock and stock of any other class
into which the then authorized Common Stock shall thereafter have been changed
by reclassification or otherwise. Without limitation of the foregoing, the
term "Common Stock" shall be deemed to include, for all purposes hereunder,
the Corporation's Class B Common Stock, par value $1.00 per share.
(b) The term "Dividend Parity Stock" as used in this resolution with
respect to Series AA Stock shall be
A-48
<PAGE>
deemed to mean all other stock of the Corporation ranking equally therewith as
to the payment of dividends, including without limitation, the Corporation's
Series A and Series B Convertible Preferred Stock. The term "Liquidation
Parity Stock" as used in this resolution with respect to Series AA Stock shall
be deemed to mean all other stock of the Corporation ranking equally therewith
as to distribution of assets upon liquidation, including without limitation,
the Corporation's Series A and Series B Convertible Preferred Stock.
(c) The term "Junior Stock" as used in this resolution with respect to
Series AA Stock shall be deemed to mean the Common Stock and all other stock
of the Corporation ranking junior to the Series AA Stock as to the payment of
dividends and the distribution of assets upon liquidation. The term "Dividend
Junior Stock" as used in this resolution with respect to Series AA Stock shall
be deemed to mean the Common Stock and all other stock of the Corporation
ranking junior to the Series AA Stock as to the payment of dividends. The
term "Liquidation Junior Stock" as used in this resolution with respect to
Series AA Stock shall be deemed to mean the Common Stock and all other stock
of the Corporation ranking junior to the Series AA Stock as to distribution of
assets upon liquidation.
(d) The term "Senior Stock" as used in this resolution with respect to
Series AA Stock shall be deemed to mean all other stock of the Corporation
ranking senior thereto as to the payment of dividends or distribution of
assets upon liquidation.
Section 3. Dividends.
---------
(a) The holders of record of Series AA Stock shall be entitled to
receive, as and if declared by the board of directors, cumulative cash
dividends thereon of $3.20 per annum, and no more, but only out of funds
legally available for the payment of such distributions under 15 Pa.C.S. (S)
1551 (relating to distributions to shareholders) or under any corresponding
superseding provision of law. Dividends on the Series AA Stock shall be
payable semi-annually on _____________ and _____________/1/ in each year.
Dividends shall accrue from ____________/2/. Accumulations of dividends shall
not bear interest. Unless full cumulative dividends on
----------------------
/1/ Insert the month and day of the date sixth months following the closing
date of the Merger and the closing date, respectively.
/2/ Insert the closing date of the Merger.
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<PAGE>
outstanding shares of Series AA Stock have been paid, no dividend or other
distribution (except in Junior Stock) shall be declared or paid on Common
Stock or on other Dividend Junior Stock and no amount shall be set aside or
applied to the redemption, purchase or other acquisition of Common Stock or
other Dividend Junior Stock other than by exchange therefor of Junior Stock
or, with respect to redemptions, purchases or other acquisitions of Dividend
Junior Stock other than Common Stock, out of the proceeds of a substantially
concurrent sale of shares of Junior Stock.
(b) In the event that full cumulative dividends upon the Series AA
Stock and stated dividends on all Dividend Parity Stock are not paid in full,
all shares of Series AA Stock and all shares of Dividend Parity Stock shall
participate ratably in the payment of dividends, including accumulations, if
any, in accordance with the sums which would be payable thereon if all
dividends thereon were declared and paid in full.
Section 4. Liquidation Rights.
------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of Series AA Stock shall be entitled to receive from
the assets of the Corporation payment in cash of $61.00 per share, plus a
further amount equal to unpaid cumulative dividends on Series AA Stock accrued
to the date when such payments shall be made available to the holders thereof,
and no more, before any amount shall be paid or set aside for, or any
distribution of assets shall be made to the holders of Common Stock or other
Liquidation Junior Stock. If, upon such liquidation, dissolution or winding
up, the amounts available for distribution to the holders of Series AA Stock
and all Liquidation Parity Stock, shall be insufficient to permit the payment
in full to such holders of the preferential amounts to which they are
entitled, then such amounts shall be paid ratably among the shares of Series
AA Stock and Liquidation Parity Stock in accordance with the respective
preferential amounts (including unpaid cumulative dividends, if any) payable
with respect thereto if paid in full.
(b) None of the following shall be considered a liquidation,
dissolution or winding up of the Corporation within the meaning of this
section:
(1) a consolidation of the Corporation with any other
corporation;
(2) a merger of the Corporation into any other corporation
or a merger of any other corporation into the Corporation;
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<PAGE>
(3) a reorganization of the Corporation;
(4) the purchase or redemption of all or part of the
outstanding shares of any class or classes of the Corporation;
(5) a sale or transfer of all or any part of the assets of
the Corporation;
(6) a share exchange to which the Corporation is a party; or
(7) a division of the Corporation.
Section 5. Redemption at the Option of the Corporation. Commencing
-------------------------------------------
on the second anniversary of the Closing Date, the Series AA Stock may be
called for redemption and redeemed at the option of the Corporation by
resolution of the board of directors, in whole at any time or in part at any
time or from time to time upon the notice hereinafter provided for in section
7, by the payment in cash of a redemption price equal to the applicable
percentage of $61.00 per share specified below, plus an amount equal to the
accrued and unpaid cumulative dividends thereon to the date fixed by the board
of directors as the redemption date:
<TABLE>
<CAPTION>
If redeemed during the period/3/ Applicable
(dates inclusive) percentage
----------------------------- ----------
<S> <C>
____________, 1997 through ___________, 1998 105.25%
____________, 1998 through ___________, 1999 104.00%
____________, 1999 through ___________, 2000 103.00%
____________, 2000 through ___________, 2001 102.00%
____________, 2001 through ___________, 2002 101.00%
From and after _________________, 2002 100.00%
</TABLE>
Section 6. Redemption at the Option of the Holders. Commencing on
---------------------------------------
the first anniversary of the Closing Date and at any time or from time to time
thereafter in accordance with this section 6, each holder of Series AA Stock
shall have the right, at such holder's option, to require the Corporation to
redeem all or a portion of such holder's shares of Series AA Stock at a
redemption price of
------------------
/3/ Insert the month and day of the closing date of the Merger and the date
immediately preceding such closing date, respectively.
A-51
<PAGE>
$61.00, plus an amount equal to the accrued and unpaid cumulative dividends
thereon to the redemption date. To exercise the redemption right provided for
in this section 6, a holder must provide to the Corporation (i) an irrevocable
written notice of the holder's exercise of such right, which notice shall set
forth the name of the holder of the Series AA Stock, the number of shares to
be redeemed and a statement that the election to exercise the redemption right
is being made thereby; and (ii) the shares of Series AA Stock with respect to
which such redemption right is being exercised, duly endorsed for transfer to
the Corporation. Such written notice shall be irrevocable and (unless the
Corporation shall default in making the requested redemption) shall terminate
all conversion rights of the holder under section 11 with respect to the
shares of Series AA Stock to be redeemed pursuant to this section 6. Holders
may not exercise the redemption right pursuant to this section 6 for less than
100 shares of Series AA Stock (or, if less than 100, all shares of Series AA
Stock owned by such holder). Subject to the last sentence of this section 6,
the Corporation as of each March 31, June 30, September 30 and December 31
shall redeem all shares (if any) of Series AA Stock for which a notice of
redemption under this section 6 has been received by the Corporation prior to
the close of business on the immediately preceding February 15, May 15, August
15 or November 15, respectively. The Corporation shall also redeem all shares
(if any) of Series AA Stock for which a notice of redemption under this
section 6 has been received by the Corporation during the 30 day period
following the date of mailing by the Corporation pursuant to paragraphs
11(g)(3) and 11(g)(4) of notice of a reclassification, capital reorganization,
merger, consolidation, share exchange, division, sale, lease, exchange or
other disposition of assets, liquidation, dissolution or winding-up; any
shares submitted for redemption during such 30 day period shall be redeemed no
later than 60 days following the mailing date of such notice.
Section 7. Manner of Redemption of Series AA Stock
---------------------------------------
(a) If less than all of the outstanding shares of Series AA Stock
shall be called for redemption under section 5, the particular shares to be
redeemed shall be selected by lot or by such other equitable manner as may be
prescribed by resolution of the board of directors.
(b) Notice of redemption under section 5 of any shares of Series AA
Stock shall be given by the Corporation by first-class mail, not less than 30
nor more than 60 days prior to the date fixed by the board of directors of the
Corporation for redemption (the "redemption date"), to the holders of record
of the shares to be redeemed at their respective addresses then appearing on
the records
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of the Corporation. The notice of the redemption shall state:
(1) the redemption date;
(2) the redemption price;
(3) that the redemption is an optional redemption pursuant
to section 5 of this resolution;
(4) if less than all outstanding shares of Series AA Stock
of the holder are to be redeemed, the identification of the shares
of Series AA Stock to be redeemed;
(5) the conversion price on the date of the notice,
(6) that on the redemption date the redemption price will
become due and payable upon each share of Series AA Stock to be
redeemed and the right to convert each such share shall cease as of
the close of business on the business day prior to the redemption
date, unless default shall be made in the payment of the redemption
price; and
(7) the place or places where such shares of Series AA Stock
to be redeemed are to be surrendered for payment of the redemption
price.
(c) On or before the redemption date for a redemption made under
section 5 or section 6 of this resolution, the Corporation may deposit in
trust, for the account of the holders of the shares to be redeemed, so as to
be and continue to be available therefor, the moneys necessary for such
redemption with a bank or trust company, to be designated in the notice of
such redemption, doing business in Boston, New York City, Philadelphia,
Lewisburg or Harrisburg, and having capital, surplus and undivided profits
aggregating at least $100,000,000. Upon the making of such deposit, and upon
the mailing as hereinabove provided in this section 7 or in section 6 of the
notice of such redemption or upon the earlier delivery to the bank or trust
company of irrevocable authorization and direction to mail such notice, all
shares with respect to the redemption of which such deposit shall have been
made and such mailing effected or authorization therefor given shall, whether
or not the certificates for such shares shall have been surrendered for
cancellation, be deemed to be no longer outstanding for any purpose and all
rights with respect to such shares shall thereupon cease and terminate, except
only the right of the
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holders of the certificates for such shares (i) to receive, out of the moneys
so deposited in trust, from and after the time of such deposit, the amount
payable upon the redemption thereof, without interest and (ii) to exercise any
privilege of conversion not theretofore expiring. At the expiration of two
years after the redemption date any such moneys then remaining on deposit with
such bank or trust company shall be paid over to the Corporation, free of
trust, and thereafter the holders of the certificates for such shares shall
have no claims against such bank or trust company, but only claims as
unsecured creditors against the Corporation for amounts equal to their pro
rata portions of the moneys so paid over, without interest; except that any
moneys so deposited which shall not be required for the payment of the
redemption price of such shares because of the exercise of any right of
conversion subsequent to the date of such deposit, shall, upon request of the
Corporation, be paid over to the Corporation forthwith. Interest, if any,
accrued on moneys deposited with any bank or trust company pursuant to the
foregoing provisions of this section shall belong to and upon its request be
paid over to the Corporation. The Corporation and its agents shall not be
liable to any holder of Series AA Stock failing to surrender certificates for
cancellation for any property delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(d) Shares of Series AA Stock redeemed by the Corporation shall be
restored to the status of authorized and unissued shares of Series Preferred
Stock, undesignated as to series, and, except as otherwise provided by the
express terms of the series redeemed or of any other outstanding series, may
be reissued by the Corporation as shares of one or more series of Series
Preferred Stock other than Series AA Stock.
(e) Where less than all of the Series AA Stock represented by a
holder's certificate have been redeemed in accordance with section 5 or
section 6 hereof, the Corporation shall promptly provide such holder a new
certificate representing that number of shares of Series AA Stock that remain
outstanding following such redemption.
Section 8. Limitation on Redemption or Purchase. Unless full
------------------------------------
cumulative dividends due on outstanding shares of Series AA Stock have been
paid or declared and set apart for payment and all prior redemptions pursuant
to section 6 of Series AA Stock made or provided for, the Corporation shall
not redeem any Series AA Stock, Dividend Parity Stock or Liquidation Parity
Stock unless all outstanding shares of Series AA Stock are redeemed, and the
Corporation shall not purchase or otherwise acquire for value any Series AA
Stock, Dividend Parity Stock or Liquidation Parity Stock except in
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accordance with a purchase or exchange offer made simultaneously by the
Corporation to all holders of record of Series AA Stock and Dividend Parity
Stock and Liquidation Parity Stock which, considering the annual dividend
rates and the other relative rights and preferences of such shares, in the
reasonable opinion of the board of directors (whose determination shall be
conclusive), will result in fair and equitable treatment among all such
shares.
Section 9. Voting Rights.
-------------
(a) Except as expressly provided to the contrary in this resolution
or as otherwise required by law, the holders of Series AA Stock shall have no
right to vote at, or to participate in, any meeting of shareholders of the
Corporation, or to receive any notice of such meeting.
(b)(1) In the event that (i) dividends upon the Series AA Stock
shall be in arrears in an amount equal to three full semi-annual
dividends thereon or (ii) any redemption of Series AA Stock has not
been made or provided pursuant to section 6 of this resolution, the
number of directors constituting the full board shall be increased
by one, and the holders of the Series AA Stock, voting
noncumulatively separately as a single class together with the
holders of any other shares of Series Preferred Stock (including,
without limitation, the holders of the Corporation's Series A and
Series B Convertible Preferred Stock) having the right to elect
directors as a class under such circumstances, shall be entitled to
elect one additional member of the board of directors of the
Corporation at the next annual meeting of shareholders of the
Corporation or at a special meeting called as hereinafter provided
in this section. Such voting rights of the holders of Series AA
Stock shall continue until all accumulated and unpaid dividends
thereon and all redemptions thereof shall have been paid in full,
whereupon such special voting rights of the holders of Series AA
Stock shall cease (and the term of the one additional director shall
thereupon expire and the number of directors constituting the full
board shall be decreased by one) subject to being again revived from
time to time upon the recurrence of the conditions described in this
section as giving rise thereto.
(2) At any time when such right of holders of Series AA
Stock to elect one additional director shall have so vested, the
Corporation may,
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and upon the written request of the holders of record of not less
than 10% of the Series AA Stock then outstanding (or 10% of all
Series Preferred Stock having the right to vote for such director in
case holders of shares of other series of Series Preferred Stock
shall also have the right to elect directors as a class in such
circumstances) shall, call a special meeting of holders of such
Series AA Stock (and other series of Series Preferred Stock, if
applicable) for the election of directors. In the case of such a
written request, such special meeting shall be held within 60 days
after the delivery of such request, and, in either case, at the
place and upon the notice provided by law and in the bylaws of the
Corporation; except that the Corporation shall not be required to
call such a special meeting if such request is received less than
120 days before the date fixed for the next ensuing annual meeting
of shareholders of the Corporation.
(3) Whenever the number of directors of the Corporation
shall have been increased by one as provided in this section, the
number as so increased may thereafter be further increased or
decreased in such manner as may be permitted by the bylaws of the
Corporation and without the vote of the holders of Series AA Stock.
No such action shall impair the right of the holders of Series AA
Stock to elect and to be represented by one director as provided in
this section.
(4) The one director elected as provided in this section
shall serve until the next annual meeting of shareholders of the
Corporation and until his or her respective successor shall be
elected and qualified or the earlier expiration of his or her term
as provided in this section. No such director may be removed
without the vote or consent of holders of a majority of the shares
of Series AA Stock (or holders of a majority of shares of Series
Preferred Stock having the right to vote in the election of such
director in case holders of shares of other series of Series
Preferred Stock shall also have the right to elect such director as
a class). If, prior to the expiration of the term of any such
director, a vacancy in the office of such director shall occur, such
vacancy shall be filled by vote of shareholders at a meeting called
and held in accordance with paragraph (2) above of this subsection.
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Section 10. Restrictions on Certain Corporate Action.
----------------------------------------
(a) Without the affirmative vote of the holders of at least a
majority of the Series AA Stock at the time outstanding or, if holders of
other series of Series Preferred Stock (including, without limitation, the
Corporation's Series A and Series B Convertible Preferred Stock) have the
right to vote as a class on such matter under the articles of incorporation of
the Corporation, the holders of at least a majority of Series AA Stock and
other series of Series Preferred Stock voting as a single class, the
Corporation shall not:
(1) permit to be outstanding any shares of any class or
series of Senior Stock, or increase the outstanding number of shares
of any class or series of Senior Stock beyond the number of shares
permitted in accordance with this section 10; or
(2) merge, consolidate, divide or participate in a share
exchange with any other corporation if any corporation surviving or
resulting from such merger, consolidation, division or share
exchange would have after such merger, consolidation, division or
share exchange any outstanding shares of any class or series of
Senior Stock in excess of the number of shares of Senior Stock of
the Corporation permitted to be outstanding immediately preceding
such merger, consolidation, division or share exchange.
(b) Without the affirmative vote of the holders of at least a
majority of the Series AA Stock at the time outstanding, the Corporation shall
not amend, alter, change or repeal any of the express terms of the Series AA
Stock.
(c) At all meetings at which the holders of the Series AA Stock have
the right to vote under the express provisions of section 9 or this section 10
(regardless of whether or not holders of any other series of Series Preferred
Stock have voting rights on such matter), each holder of Series AA Stock shall
be entitled to one vote or fraction thereof, for each $10.00 or fraction
thereof, of the involuntary liquidating value represented by the shares of
Series AA Stock.
Section 11. Conversion Rights.
-----------------
(a) The holder of any outstanding share or shares of Series AA Stock
shall have the right at any time or
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from time to time to convert, subject to the provisions of this section, any
such share or shares, at the initial conversion price per share of Common
Stock of $_______/4/, into that number of fully paid and nonassessable shares
of Common Stock of the Corporation determined by dividing $61.00 by the
conversion price in effect at the time of such conversion; except that (i)
such conversion price shall be subject to adjustment upon the happening of
certain contingencies as provided in subsection (b), (ii) whenever the
Corporation shall call for redemption any Series AA Stock, the conversion
rights of the holder thereof shall terminate as to the shares called for
redemption at the close of business on the business day next preceding the
redemption date unless default shall be made in the payment of the redemption
price or in the conversion thereof and (iii) in the event of the liquidation
of the Corporation, whether voluntary or involuntary, or a consolidation or
merger of the Corporation with or into any other corporation or a share
exchange or division, as a result of which consolidation, merger, share
exchange or division only cash shall be payable or distributable to the
holders of the Common Stock, the conversion rights of the holders of Series AA
Stock shall terminate on such date as shall be fixed by the board of
directors, not less than 30 days after the mailing to such holders of the
notice required by subsection (g).
(b) The conversion price shall be subject to adjustment as follows:
(1) If the Corporation shall:
(i) pay or make a dividend or distribution on its
Common Stock in shares of its capital stock;
(ii) subdivide its outstanding shares of Common Stock
into a greater number of shares;
(iii) combine its outstanding shares of Common Stock
into a smaller number of shares;
--------------------
/4/ The initial conversion price shall be 125% of the average "market price" of
a share of Common Stock for the ten consecutive business days commencing 3
business days before the closing date under the Merger Agreement. The
"market price" for each day shall be the average of the last reported bid
and asked prices in the over-the-counter market as furnished by the NASDAQ
National Market System. The initial conversion price, however, may not be
less than $24.00 nor more than the higher of (i) $36.00 or (ii) such
average "market price."
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(iv) issue to holders of Common Stock by
reclassification of its shares of Common Stock or any
recapitalization or reorganization any shares of capital stock
of the Corporation; or
(v) take any other action having the same effect as
any of the actions described in subparagraphs (i) through (iv);
then, in each such case, the conversion price in effect immediately
prior thereto shall be adjusted so that the holder of any share of
Series AA Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of the Corporation which
such holder would have owned or been entitled to receive after the
happening of any of such events had such share of Series AA Stock
been converted immediately prior to the happening thereof. An
adjustment made pursuant to this paragraph (1) shall become
effective retroactively as of the time immediately after the record
date in those cases specified in subparagraph (i) and shall become
effective as of the time immediately after the effective date in
those cases specified in subparagraphs (ii) through (v).
(2) If the Corporation shall issue rights or warrants to all
holders of its Common Stock entitling them (for a period expiring
within 90 days after the record date mentioned in the last sentence
of this paragraph) to subscribe for or purchase shares of Common
Stock at a price per share less than the current market price
(determined as provided in paragraph (5) of this subsection) per
share of Common Stock on the business day immediately preceding the
record date mentioned in the last sentence of this paragraph or, if
earlier, the date such issuance is given effect for trading
purposes, the conversion price in effect immediately prior thereto
shall be adjusted so that the same shall equal the price determined
by multiplying the conversion price in effect immediately prior
thereto by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding on the date of issuance of such
rights or warrants (without giving effect to their exercise) plus
the number of shares which the aggregate exercise price of the total
number of shares offered for subscription or purchase would purchase
at such current market price, and of which the denominator shall be
the number of shares of Common Stock outstanding on the date of
issuance of
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such rights or warrants (without giving effect to their exercise)
plus the number of additional shares of Common Stock offered for
subscription or purchase. Such adjustment shall be made whenever
such rights or warrants are issued and shall become effective
retroactively as of the time immediately after the record date for
the determination of shareholders entitled to receive such rights or
warrants.
(3) If the Corporation shall distribute to all holders of
its Common Stock evidences of its indebtedness or assets (excluding
cash dividends) or rights or warrants to subscribe for or purchase
Common Stock (excluding those referred to in paragraph (2)) or other
securities issued by the Corporation or property of the Corporation,
then and in each such case the conversion price shall be adjusted so
that the same shall equal the price determined by multiplying the
conversion price in effect immediately prior thereto by a fraction,
of which the numerator shall be the current market price per share
of the Common Stock on the business day immediately preceding the
record date mentioned in the last sentence of this paragraph or, if
earlier, the date such distribution is given effect for trading
purposes less the then fair market value (as determined in good
faith by resolution of the board of directors of the Corporation,
whose determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so distributed or of such rights
or warrants applicable to one share of Common Stock, and of which
the denominator shall be the current market price per share of
Common Stock on the business day immediately preceding the record
date mentioned in the last sentence of this paragraph or, if
earlier, the date such distribution is given effect for trading
purposes. Such adjustment shall be made whenever any such
distribution is made and shall become effective retroactively as of
the time immediately after the record date for the determination of
shareholders entitled to receive such distribution.
(4) If any such rights or warrants referred to in paragraphs
(2) and (3) above shall expire without having been exercised, the
conversion price as theretofore adjusted because of the issue of
such rights or warrants shall forthwith be readjusted to the
conversion price which would have been in effect had an adjustment
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been made on the basis that the only rights or warrants so issued or
sold were those rights or warrants actually exercised and that with
respect to any such rights or warrants to subscribe for or purchase
securities issued by the Corporation, other than Common Stock, or
property of the Corporation the fair market value thereof shall be
the fair market value of the rights or warrants actually exercised.
(5) For the purpose of any computation under this
subsection, the current market price per share of Common Stock at
any date shall be deemed to be the average of the daily closing
prices for the ten consecutive business days commencing five
business days before the day in question. The closing price for
each day shall be, in the event that the Common Stock is listed on
any national securities exchange, the last reported sale price
regular way or, in case no such reported sale takes place on such
day, the average of the last reported bid and asked prices regular
way, in either case as reported on the applicable consolidated or
composite tape for issues traded on the principal national
securities exchange on which the Common Stock is admitted to
trading, or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, the average of the last
reported bid and asked prices in the over-the-counter market as
furnished by any national quotation system or, if not available, any
New York Stock Exchange member firm selected from time to time by
the Corporation for the purpose. The term "business day" shall
include any day on which securities are traded on such exchange or
in such market.
(6) No adjustment in the conversion price shall be required
unless such adjustment would require an increase or decrease of at
least one percent; except that any adjustments which by reason of
this sentence are not required to be made shall be carried forward,
and taken into account in calculating each subsequent adjustment,
until made. All calculations under this subsection shall be made to
the nearest cent or to the nearest 1/100 of a share as the case may
be.
(7) In determining the number of shares of Common Stock
outstanding at any particular time, for the purpose of computations
pursuant to the formula in this subsection there shall be included
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all Common Stock issuable in respect of any then outstanding scrip
certificates representing fractional interests with respect to
Common Stock.
(c) Notwithstanding anything to the contrary set forth in
subsection (b), no adjustment of the conversion price shall be made as a
result of or in connection with the issuance of Common Stock of the
Corporation pursuant to any dividend reinvestment plan now existing or
hereafter established by the Corporation for the benefit of holders of Common
Stock.
(d) In the event of any:
(1) capital reorganization of the Corporation;
(2) merger, consolidation or share exchange of the
Corporation with or into another corporation;
(3) division of the Corporation; or
(4) sale, lease, exchange or other disposition of all or
substantially all of the property and assets of the Corporation as a
result of which sale, lease, exchange or other disposition of
property, other than solely cash, shall be payable or distributable
in exchange for shares of Common Stock, then, as a condition of such
reorganization, merger, consolidation, share exchange, division,
sale, lease, exchange or other disposition, the Corporation or such
successor or purchasing corporation, as the case may be, shall make
provision that the holder of each share of Series AA Stock shall
have the right thereafter to convert such share into the kind and
amount of stock, securities or assets receivable upon such
reorganization, merger, consolidation, share exchange, division,
sale, lease, exchange or other disposition by a holder of the number
of shares of Common Stock into which such share of Series AA Stock
might have been converted immediately prior to such reorganization,
merger, consolidation, share exchange, division, sale, lease,
exchange or other disposition, subject to adjustments which shall be
as nearly equivalent as may be practicable to the adjustments
provided for in subsection (b). The provisions of this subsection
shall similarly apply to successive reorganizations, mergers,
consolidations, share exchanges, divisions, sales, leases, exchanges
or other dispositions.
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(e) Subject to the provisions of subsection (b) of section 3
above, upon conversion of any shares of Series AA Stock, the Corporation shall
deliver to the holder of the shares, together with the certificates for the
Common Stock issued upon conversion, payment (but only out of funds legally
available for the payment of such distributions under 15 Pa.C.S. (S) 1551) for
all accrued and unpaid cumulative dividends on such shares through the date of
conversion as determined in accordance with subsection (h) below.
(f) Whenever the conversion prices shall be adjusted as provided
in subsection (b), the Corporation, as soon as practicable and in no event
later than ten business days thereafter, shall file with each transfer agent
and conversion agent for Series AA Stock a statement, signed by the president,
any vice president or the treasurer of the Corporation, stating the adjusted
conversion prices determined as therein provided and setting forth in
reasonable detail the facts requiring such adjustment, and shall promptly mail
a copy of such statement to each holder of Series AA Stock at the address of
such holder then appearing on the record books of the Corporation. Each
transfer and conversion agent shall be fully protected in relying on such
statement and shall be under no duty to examine into the truth or accuracy
thereof. If any question shall at any time arise with respect to the adjusted
conversion prices, it shall be resolved by a firm of independent public
accountants selected by the Corporation, who may be the Corporation's
auditors, and such determination shall be binding upon the Corporation and the
holders of such shares.
(g) If the Corporation shall propose:
(1) to pay any dividend in stock upon its Common Stock or to
make any other distribution, other than a cash dividend payable out
of retained earnings, to the holders of its Common Stock;
(2) to offer to the holders of its Common Stock rights to
subscribe to any additional shares of any class or any other rights
or options;
(3) to effect any reclassification of its Common Stock
(other than a reclassification involving merely the subdivision or
combination of outstanding Common Stock), or to effect any capital
reorganization, or to engage in any merger, consolidation, share
exchange, division or sale, lease, exchange or other disposition of
all or substantially all of its property and assets in a
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transaction in which approval of any holders of the Common Stock or
Series AA Stock is required; or
(4) to liquidate, dissolve or wind-up;
then, in each such case, the Corporation shall file with each transfer agent
for Series AA Stock and shall mail to the holders of record of Series AA Stock
at their respective addresses then appearing on the record books of the
Corporation notice of such proposed action, such notice to be filed and mailed
at least ten days, if the proposed action is that referred to in paragraph (1)
or (2), and at least 30 days, if the proposed action is that referred to in
paragraph (3) or (4), prior to the record date for the purpose of determining
holders of the Common Stock entitled to the benefits of the action referred to
in paragraph (1) or (2) or to vote with respect to the action referred to in
paragraph (3) or (4) or, if no record date is taken for any such purpose, the
date of the taking of such proposed action. Such notice shall specify the
record date for such stock dividend, distribution of such rights or options,
or the date on which such reclassification, reorganization, merger,
consolidation, share exchange, division, sale, lease, exchange or other
disposition, liquidation, dissolution or winding up shall take place, as the
case may be, and the date of participation therein by the holders of Common
Stock if any such date is to be fixed. If such notice relates to any proposed
action referred to in paragraph (3) or (4), it shall set forth facts with
respect thereto as shall be reasonably necessary to inform each transfer agent
and the holders of such shares as to the effect of such action upon their
conversion rights. Failure to file any certificate or notice, or to mail any
notice, or any defect in any certificate or notice, pursuant to this
subsection, shall not affect the legality or validity of any adjustment,
dividend, distribution or right referred to in this subsection.
(h) In order to convert shares of Series AA Stock into Common Stock
the holder thereof shall surrender at the office of any transfer or conversion
agent for the Series AA Stock the certificate or certificates therefor, duly
endorsed to the Corporation or in blank, and give written notice to the
Corporation at such office that the holder elects to convert such shares and
shall state in writing therein the name or names (with addresses) in which
such holder wishes the certificate or certificates for Common Stock to be
issued. Shares of Series AA Stock shall be deemed to have been converted
immediately prior to the close of business on the date of the receipt by the
transfer or conversion agent of such certificate or certificates for shares
for conversion as provided in this subsection, and the person or persons
entitled to receive the Common Stock
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APPENDIX B
September __, 1995
The Board of Directors
Buffalo Valley Telephone Company
20 South Second Street
Lewisburg, PA 17837
Ladies and Gentlemen:
You have requested our opinion as to the fairness to the common
shareholders of Buffalo Valley Telephone Company, a Pennsylvania
corporation ("BVT"), from a financial point of view, of the consideration
to be paid by C-TEC Corporation, a Pennsylvania corporation ("C-TEC") for
each share of Common Stock of BVT (the "Shares") pursuant to the Agreement
and Plan of Merger dated as of May 10, 1995 by and between C-TEC, BVT
Merger Corporation and BVT (the "Merger Agreement"). Pursuant to the
Merger Agreement, each of the Shares will be exchanged for either: (A)
$61.00 in cash ("Cash Consideration"); or (B) one share of $61.00 C-TEC
Series AA Convertible Preferred Stock (the "C-TEC Series AA Preferred
Shares") of C-TEC (the "Stock Consideration").
Snyder & Co., as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions, private placements and valuations for
estate, corporate and other purposes. We have acted as financial advisor
to the Board of Directors of BVT in connection with the transactions
described above and will receive a fee for our services, a significant
portion of which is contingent upon the consummation of the transaction
contemplated by the Merger Agreement.
In connection with this opinion, we have, among other things, (i)
reviewed the Merger Agreement, (ii) reviewed the terms of the C-TEC Series
AA Preferred Shares to be issued by C-TEC in the Merger, (iii) reviewed
certain other documents related to the Merger, including the Proxy
Statement/Prospectus, (iv) reviewed certain publicly available financial
information concerning C-TEC and BVT and certain other relevant financial
and operating data of BVT made available from internal records of BVT, (v)
held discussions with BVT management concerning BVT's current and future
business prospects, (vi) held discussions with C-TEC management concerning
C-TEC's current and future business prospects, (vii) reviewed the reported
price and trading activity available for the Shares and for the shares of
C-TEC common stock (which would be issuable upon conversion of the C-TEC C-
TEC Series AA Preferred Shares), (viii) compared certain financial and
stock market information for C-TEC and BVT, respectively, with similar
information for certain comparable companies whose securities are publicly
traded, (ix) compared the financial terms of the Merger Agreement with
those of certain recent business combinations in the telecommunications
industry which we deemed comparable in whole or in part, and (x) performed
such other studies and analyses and considered such other factors as we
deemed appropriate.
We have not independently verified the information described above and
for purposes of this opinion have assumed the accuracy, completeness and
fairness thereof. With respect to information relating to the prospects of
C-TEC and BVT, we have assumed that such information reflects the best
currently available estimates and judgments of the managements of C-TEC and
BVT, respectively, as to the likely future financial performance of C-TEC
and BVT. In addition, we have not made an independent evaluation or
appraisal of the assets or liabilities of C-TEC or BVT, nor have we been
furnished with any such evaluation or appraisal. Our opinion is based on
market, economic and other conditions as they exist and can be evaluated as
of the date of this letter. We have assumed for purposes of our opinion
that the Merger constitutes a tax-free reorganization under Section 368 of
the Internal Revenue Code.
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Based upon and subject to the foregoing, it is our opinion that, as of
the date of this letter, the Cash Consideration and Stock Consideration to
be paid in the Merger is fair, from a financial point of view, to the
shareholders of BVT.
Very truly yours,
SNYDER & COMPANY
By: W. Lloyd Snyder, III
Principal
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APPENDIX C
PROVISIONS OF
PENNSYLVANIA BUSINESS CORPORATION LAW RELATING TO
DISSENTERS' RIGHTS OF SHAREHOLDERS
----------------------------------
15 Pa. C.S.A. Sections 1571 through 1580, inclusive.
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(S) 1571. Application and effect of subchapter
(a) General rule.--Except as otherwise provided in subsection (b),
any shareholder of a business corporation shall have the right to dissent
from, and to obtain payment of the fair value of his shares in the event
of, any corporate action, or to otherwise obtain fair value for his shares,
where this part expressly provides that a shareholder shall have the rights
and remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special
treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedures).
(b) Exceptions.--
(1) Except as otherwise provided in paragraph (2), the
holders of the shares of any class or series of shares that, at the
record date fixed to determine the shareholders entitled to notice of
and to vote at the meeting at which a plan specified in any of
section 1930, 1931(d), 1932(c) or 1952(d) is to be voted on, are
either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any
such shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights
shall be available without regard to the exception provided in that
paragraph in the case of:
(i) Shares converted by a plan if the shares are not
converted solely into shares of the acquiring, surviving,
new or other corporation or solely into such shares and
money in lieu of fractional shares.
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(ii) Shares of any preferred or special class unless
the articles, the plan or the terms of the transaction
entitle all shareholders of the class to vote thereon and
require for the adoption of the plan or the effectuation of
the transaction the affirmative vote of a majority of the
votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under
section 1906(c) (relating to dissenters rights upon special
treatment).
(3) The shareholders of a corporation that acquires by
purchase, lease, exchange or other disposition all or substantially
all of the shares, property or assets of another corporation by the
issuance of shares, obligations or otherwise, with or without
assuming the liabilities of the other corporation and with or without
the intervention of another corporation or other person, shall not be
entitled to the rights and remedies of dissenting shareholders
provided in this subchapter regardless of the fact, if it be the
case, that the acquisition was accomplished by the issuance of voting
shares of the corporation to be outstanding immediately after the
acquisition sufficient to elect a majority or more of the directors
of the corporation.
(c) Grant of optional dissenters rights.--The bylaws or a
resolution of the board of directors may direct that all or a part of the
shareholders shall have dissenters rights in connection with any corporate
action or other transaction that would otherwise not entitle such
shareholders to dissenters rights.
(d) Notice of dissenters rights.--Unless otherwise provided by
statute, if a proposed corporate action that would give rise to dissenters
rights under this subpart is submitted to a vote at a meeting of
shareholders, there shall be included in or enclosed with the notice of
meeting:
(1) a statement of the proposed action and a statement that
the shareholders have a right to dissent and obtain payment of
the fair value of their shares by complying with the terms of
this subchapter; and
(2) a copy of this subchapter.
(e) Other statutes.--The procedures of this subchapter shall also
be applicable to any transaction described in any statute other than this
part that makes reference to this subchapter for the purpose of granting
dissenters rights.
(f) Certain provisions of articles ineffective.--This subchapter
may not be relaxed by any provision of the articles.
(g) Cross references.--See sections 1105 (relating to restriction
on equitable relief), 1904 (relating to de facto transaction doctrine
abolished) and 2512 (relating to dissenters rights procedure).
(S) 1572. Definitions
The following words and phrases when used in this subchapter shall
have the meanings given to them in this section unless the context clearly
indicates otherwise:
"Corporation." The issuer of the shares held or owned by the
dissenter before the corporate action or the successor by merger,
consolidation, division, conversion or otherwise of that issuer. A plan of
division may designate which of the resulting corporations is the successor
corporation for the purposes of this subchapter. The successor corporation
in a division shall have sole responsibility for payments to dissenters and
other liabilities under this subchapter except as otherwise provided in the
plan of division.
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"Dissenter." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed
every act required up to the time involved for the assertion of those
rights.
"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects, taking
into account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all
the circumstances, taking into account all relevant factors, including the
average rate currently paid by the corporation on its principal bank loans.
(S) 1573. Record and beneficial holders and owners
(a) Record holders of shares.--A record holder of shares of a
business corporation may assert dissenters rights as to fewer than all of
the shares registered in his name only if he dissents with respect to all
the shares of the same class or series beneficially owned by any one person
and discloses the name and address of the person or persons on whose behalf
he dissents. In that event, his rights shall be determined as if the shares
as to which he has dissented and his other shares were registered in the
names of different shareholders.
(b) Beneficial owners of shares.--A beneficial owner of shares of
a business corporation who is not the record holder may assert dissenters
rights with respect to shares held on his behalf and shall be treated as a
dissenting shareholder under the terms of this subchapter if he submits to
the corporation not later than the time of the assertion of dissenters
rights a written consent of the record holder. A beneficial owner may not
dissent with respect to some but less than all shares of the same class or
series owned by the owner, whether or not the shares so owned by him are
registered in his name.
(S) 1574. Notice of intention to dissent
If the proposed corporate action is submitted to a vote at a meeting
of shareholders of a business corporation, any person who wishes to dissent
and obtain payment of the fair value of his shares must file with the
corporation, prior to the vote, a written notice of intention to demand
that he be paid the fair value for his shares if the proposed action is
effectuated, must effect no change in the beneficial ownership of his
shares from the date of such filing continuously through the effective date
of the proposed action and must refrain from voting his shares in approval
of such action. A dissenter who fails in any respect shall not acquire any
right to payment of the fair value of his shares under this subchapter.
Neither a proxy nor a vote against the proposed corporate action shall
constitute the written notice required by this section.
(S) 1575. Notice to demand payment
(a) General rule.--If the proposed corporate action is approved by
the required vote at a meeting of shareholders of a business corporation,
the corporation shall mail a further notice to all dissenters who gave due
notice of intention to demand payment of the fair value of their shares and
who refrained from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders, the
corporation shall send to all shareholders who are entitled to dissent and
demand payment of the fair value of their shares a notice of the adoption
of the plan or other corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to
obtain payment.
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(2) Inform holders of uncertificated shares to what extent
transfer of shares will be restricted from the time that demand for
payment is received.
(3) Supply a form for demanding payment that includes a
request for certification of the date on which the shareholder, or the
person on whose behalf the shareholder dissents, acquired beneficial
ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment.--The time set for receipt
of the demand and deposit of certificated shares shall be not less than 30
days from the mailing of the notice.
(S) 1576. Failure to comply with notice to demand payment, etc.
(a) Effect of failure of shareholder to act.--A shareholder who fails
to timely demand payment, or fails (in the case of certificated shares) to
timely deposit certificates, as required by a notice pursuant to section
1575 (relating to notice to demand payment) shall not have any right under
this subchapter to receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.--If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation
of the proposed corporate action or the release of restrictions under the
terms of section 1577(a) (relating to failure to effectuate corporate
action).
(c) Rights retained by shareholder.--The dissenter shall retain all
other rights of a shareholder until those rights are modified by
effectuation of the proposed corporate action.
(S) 1577. Release of restrictions or payment for shares
(a) Failure to effectuate corporate action.--Within 60 days after the
date set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall
return any certificates that have been deposited and release uncertificated
shares from any transfer restrictions imposed by reason of the demand for
payment.
(b) Renewal of notice of demand payment.--When uncertificated shares
have been released from transfer restrictions and deposited certificates
have been returned, the corporation may at any later time send a new notice
conforming to the requirements of section 1575 (relating to notice to
demand payment), with like effect.
(c) Payment of fair value of shares.--Promptly after effectuation of
the proposed corporate action, or upon timely receipt of demand for payment
if the corporate action has already been effectuated, the corporation shall
either remit to dissenters who have made demand and (if their shares are
certificated) have deposited their certificates the amount that the
corporation estimates to be the fair value of the shares, or give written
notice that no remittance under this section will be made. The remittance
or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the
issuer of the shares held or owned by the dissenter for a fiscal year
ending not more than 16 months before the date of remittance or
notice together with the latest available interim financial
statements.
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(2) A statement of the corporation's estimate of the fair value
of the shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of
this subchapter.
(d) Failure to make payment.--If the corporation does not remit
the amount of its estimate of the fair value of the shares as provided by
subsection (c), it shall return any certificates that have been deposited
and release uncertificated shares from any transfer restrictions imposed by
reason of the demand for payment. The corporation may make a notation on
any such certificate or on the records of the corporation relating to any
such uncertificated shares that such demand has been made. If shares with
respect to which notation has been made shall be transferred, each new
certificate issued therefor or the records relating to any transferred
uncertificated shares shall bear a similar notation, together with the name
of the original dissenting holder or owner of such shares. A transferee of
such shares shall not acquire by such transfer any rights in the
corporation other than those that the original dissenter had after making
demand for payment of their fair value.
(S) 1578. Estimate by dissenter of fair value of shares
(a) General rule.--If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's shares as
permitted by section 1577(c) (relating to payment of fair value of shares)
and the dissenter believes that the amount stated or remitted is less than
the fair value of his shares, he may send to the corporation his own
estimate of the fair value of the shares, which shall be deemed a demand
for payment of the amount or the deficiency.
(b) Effect or failure to file estimate.--Where the dissenter
does not file his own estimate under subsection (a) within 30 days after
the mailing by the corporation of its remittance or notice, the dissenter
shall be entitled to no more than the amount stated in the notice or
remitted to him by the corporation.
(S) 1579. Valuation proceedings generally
(a) General rule.--Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578
(relating to estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may
file in court an application for relief requesting that the fair value of
the shares be determined by the court.
(b) Mandatory joinder of dissenters.--All dissenters, wherever
residing, whose demands have not been settled shall be made parties to the
proceeding as in an action against their shares. A copy of the application
shall be served on each such dissenter. If a dissenter is a nonresident,
the copy may be served on
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him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch.
53 (relating to bases of jurisdiction and interstate and international
procedure)./1/
(c) Jurisdiction of the court.--The jurisdiction of the court
shall be plenary and exclusive. The court may appoint an appraiser to
receive evidence and recommend a decision on the issue of fair value. The
appraiser shall have such power and authority as may be specified in the
order of appointment or in any amendment thereof.
(d) Measure of recovery.--Each dissenter who is made a party shall
be entitled to recover the amount by which the fair value of his shares is
found to exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application.--If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim
against the corporation may do so in the name of the corporation at any
time within 30 days after the expiration of the 60-day period. If a
dissenter does not file an application within the 30-day period, each
dissenter entitled to file an application shall be paid the corporation's
estimate of the fair value of the shares and no more, and may bring an
action to recover any amount not previously remitted.
(S) 1580. Costs and expenses of valuation proceedings
(a) General rule.--The costs and expenses of any proceeding under
section 1579 (relating to valuation proceedings generally), including the
reasonable compensation and expenses of the appraiser appointed by the
court, shall be determined by the court and assessed against the business
corporation except that any part of the costs and expenses may be
apportioned and assessed as the court deems appropriate against all or some
of the dissenters who are parties and whose action in demanding
supplemental payment under section 1578 (relating to estimate by dissenter
of fair value of shares) the court finds to be dilatory, obdurate,
arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good
faith appears.--Fees and expenses of counsel and of experts for the
respective parties may be assessed as the court deems appropriate against
the corporation and in favor of any or all dissenters if the corporation
failed to comply substantially with the requirements of this subchapter and
may be assessed against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the fees
and expenses are assessed acted in bad faith or in a dilatory, obdurate,
arbitrary or vexatious manner in respect to the rights provided in this
subchapter.
(c) Award of fees for benefits to other dissenters.--If the court
finds that the services of counsel for any dissenter were of substantial
benefit to other dissenters similarly situated and should not be assessed
against the corporation, it may award to those counsel reasonable fees to
be paid out of the amounts awarded to the dissenters who were benefited.
------------------------
/1/42 Pa.C.S.A. (S) 5301 et. seq.
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APPENDIX D
September __, 1995
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Re: Agreement and Plan of Merger among Buffalo Valley Telephone
Company,
C-TEC Corporation, and BVT Merger Corporation
-----------------------------------------------------------
Gentlemen:
We have acted as counsel to C-TEC Corporation, a Pennsylvania
corporation ("C-TEC"), in connection with the proposed merger (the
"Merger") of Buffalo Valley Telephone Company, a Pennsylvania corporation
("BVT"), with and into BVT Merger Corporation, a Pennsylvania corporation
("Merger Sub"), pursuant to the terms of the Agreement and Plan of Merger
among BVT, C-TEC, and Merger Sub dated as of May 10, 1995 (the "Merger
Agreement"), and as further described in the Registration Statement on Form
S-4 to be filed by C-TEC with the Securities and Exchange Commission (the
"Registration Statement").
This opinion is being rendered pursuant to your request and in
accordance with the requirements of Form S-4 and Section 5.12(a) of the
Merger Agreement. All capitalized terms, unless otherwise specified, have
the meaning assigned to them in the Registration Statement.
In rendering the opinion set forth below, we have relied upon certain
written representations and covenants of C-TEC and of BVT ("Representation
Certificates"), as well as those representations set forth in Sections 2.25
and 3.12 of the Merger Agreement. In connection with this opinion, we have
examined and are familiar with originals or copies, certified or otherwise
identified to our satisfaction, of (i) the Merger Agreement, (ii) the
Representation Certificates, (iii) the Registration Statement, and (iv)
such other documents as we have deemed necessary or appropriate in order to
enable us to render the opinion below. 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 of all documents submitted to us as
certified, conformed or photostatic copies, and the authenticity of the
originals of such copies.
In rendering our opinion, we have considered the applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant.
Based upon and subject to the foregoing, and based upon our reliance
on the accuracy of the representations set forth in the Merger Agreement
and Representation Certificates and subject to the assumptions and
qualifications set forth herein, we are of the opinion that:
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C-TEC Corporation
September __, 1995
Page 2
1. The Merger will, under current law, constitute a tax-free
reorganization under Section 368(a) of the Code.
2. C-TEC, Merger Sub, and BVT will each be a party to the
reorganization within the meaning of Section 368(b) of the Code.
As a tax-free reorganization, the Merger will have the following
Federal income tax consequences for BVT shareholders, BVT, and C-TEC:
3. No gain or loss will be recognized by BVT (or by Merger Sub by
reason of being the successor to BVT) by reason of the Merger.
4. No gain or loss will be recognized by C-TEC by reason of its
issuance of C-TEC Series AA Preferred Shares pursuant to Section 1032 of
the Code.
5. The gain, if any, realized by a holder of BVT Common Shares upon
receipt of shares of C-TEC Series AA Preferred Shares and/or cash in
exchange for BVT Common Shares pursuant to the Merger will be recognized
but not in excess of the amount of cash received, and no loss will be
recognized by those holders of BVT Common Shares who exchange their BVT
Common Shares solely for shares of C-TEC Series AA Preferred Shares.
6. The basis of the C-TEC Series AA Preferred Shares to be received
by a holder of BVT Common Shares will be, in each instance, the same as the
basis of the BVT Common Shares surrendered in exchange therefor and the
holding period of the C-TEC Series AA Preferred Shares to be received by a
holder of BVT Common Shares will include the period during which the BVT
Common Shares surrendered in exchange therefor were held, provided the BVT
Common Shares were held as a capital asset by such BVT shareholder at the
Effective Time.
The opinions expressed in this opinion letter are limited to the
matters set forth herein and no other opinions should be inferred beyond
those expressly stated. Accordingly, except as expressly set forth above,
we express no opinion as to the tax consequences to any party, whether
Federal, state, local or foreign, of the Merger or of any transactions
related to the Merger or contemplated by the Merger Agreement or the
Registration Statement. This opinion letter is given as of the date
hereof. We assume no obligation to update or supplement this opinion to
reflect facts or circumstances which may hereafter come to our attention or
any changes in laws which may hereafter occur.
This opinion is being furnished only to you in connection with the
Merger and solely for your benefit in connection therewith and may not be
used or relied upon for any other purpose and may not be circulated, quoted
or otherwise referred to for any purpose without our express written
consent.
Notwithstanding the foregoing, we hereby consent to the use of this
opinion as Appendix D to the proxy statement/prospectus forming a part of
the Registration Statement. We also consent to all references to our firm
in the Registration Statement.
Very truly yours,
Swidler & Berlin, Chartered
D-2
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Sections 1741 and 1742 of the Pennsylvania Business Corporation Law of
1988, as amended (the "PBCL"), provide that a business corporation may
indemnify directors and officers against liabilities that they may incur as
such provided that the particular person acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal proceeding,
had no reasonable cause to believe his or her conduct was unlawful. In the
case of actions against a director or officer by or in the right of the
corporation, the power to indemnify extends only to expenses (not judgments
and amounts paid in settlement) and such power generally does not exist if
the person otherwise entitled to indemnification shall have been adjudged
to be liable to the corporation unless it is judicially determined that,
despite the adjudication of liability but in view of all the circumstances
of the case, the person is fairly and reasonably entitled to
indemnification for specified expenses. Under Section 1743 of the PBCL,
the corporation is required to indemnify directors and officers against
expenses they may incur in defending actions against them in such
capacities if they are successful on the merits or otherwise in the defense
of such actions. Under Section 1745 of the PBCL, a corporation may pay the
expenses of a director or officer incurred in defending an action or
proceeding in advance of the final disposition thereof upon receipt of an
undertaking from such person to repay the amounts advanced unless it is
ultimately determined that such person is entitled to indemnification from
the corporation.
Section 1746 of the PBCL grants a corporation broad authority to
indemnify its directors, officers and other agents for liabilities and
expenses incurred in such capacity, except in circumstances where the act
or failure to act giving rise to the claim for indemnification is
determined by a court to have constituted willful misconduct or
recklessness. Pursuant to the authority of Section 1746 of the PBCL, the
C-TEC Bylaws provide that in connection with any action, suit or proceeding
in which a person may be involved by reason of being or having been a
director, officer, employee or agent of C-TEC, the directors and officers
of C-TEC shall be indemnified to the fullest extent permitted by
Pennsylvania Law.
As authorized by Section 1745 of the PBCL, C-TEC is required to pay the
expenses of a director or officer incurred in defending an action or
proceeding in advance of the final disposition thereof upon receipt of an
undertaking from such person to repay the amounts advanced unless it is
ultimately determined that such person is entitled to indemnification from
C-TEC.
As authorized by Section 1747 of the PBCL and Article IV of C-TEC's
Bylaws, C-TEC maintains, on behalf of its directors and officers, insurance
protection against certain liabilities arising out of the discharge of
their duties, as well as insurance covering C-TEC for indemnification
payments made to its directors and officers for certain liabilities. The
premiums for such insurance are paid by C-TEC.
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Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<C> <S>
2.1 Merger Agreement, dated as of May 10, 1995, by and among C-TEC, BVT
and BVT Merger Corporation is Appendix A to the Proxy
Statement/Prospectus included in Part I and is incorporated herein by
reference.
3.1 Articles of Incorporation of C-TEC. (1)
3.2 By-laws of C-TEC. (2)
4.1 Resolution of the C-TEC Board of Directors establishing the C-TEC
Series AA Preferred Shares is contained as Exhibit A to the Merger
Agreement which is Appendix A to the Proxy Statement/Prospectus
included in Part I and is incorporated herein by reference.
5.1* Opinion of Raymond B. Ostroski, Esquire, regarding legality of the
C-TEC Series AA Preferred Shares being registered.
8.1* Opinion of Swidler & Berlin regarding tax matters is Appendix D to
the Proxy Statement/Prospectus included in Part I and is incorporated
herein by reference.
23.1* Consent of Raymond B. Ostroski, Esquire, (included in opinion filed
as Exhibit 5.1 hereto).
23.2* Consent of Swidler & Berlin (included in its opinion attached as
Appendix D to the Proxy Statement/Prospectus included in Part I and
is incorporated herein by reference).
23.3** Consent of Coopers & Lybrand L.L.P. regarding C-TEC.
23.4** Consent of William P. Maslo regarding BVT.
23.5** Consent of Adams & Associates, P.C. regarding Twin County.
23.6* Consent of Snyder & Company.
23.7** Consent of Lebrija Alvarez y Cia., S.C. regarding Megacable.
24.6* Powers of Attorney (included on the signature page).
99.1** Form of BVT Proxy.
----------------------------------------------------------------------
</TABLE>
* Previously filed.
**Filed herewith.
(1) Incorporated herein by reference to Exhibit 3(a) to C-TEC's Annual
Report on Form 10-K for the year ended December 31, 1986.
(2) Incorporated herein by reference to Exhibit 3(b) to C-TEC's Annual
Report on Form 10-K for the year ended December 31, 1993.
(b)Financial Statement Schedules:
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None.
Item 22. Undertakings
(1) The undersigned registrant hereby undertakes:
(a) 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;
(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.
(b) 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.
(c) 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.
(2) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt 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.
(3) The undersigned registrant hereby undertakes 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.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement 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.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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 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
II-3
<PAGE>
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(6) The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was
declared effective.
(b) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this Amendment No. 1 to its
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Princeton, New Jersey on September 8, 1995.
C-TEC CORPORATION
By: /s/ David C. McCourt
-------------------------
David C. McCourt
Chairman and Chief Executive Officer
Signature Title Date
--------- ----- ----
/s/ David C. McCourt Chairman and Chief Executive September 8, 1995
------------------------------ Officer and a Director
David C. McCourt
/s/ Michael J. Mahoney President and Chief Operating September 8, 1995
------------------------------ Officer and a Director
Michael J. Mahoney
/s/ Bruce C. Godfrey Executive Vice President and September 8, 1995
------------------------------ Chief Financial Officer
Bruce C. Godfrey
* Director September 8, 1995
------------------------------
James Q. Crowe
* Director September 8, 1995
------------------------------
Stuart E. Graham
* Director September 8, 1995
------------------------------
Frank M. Henry
* Director September 8, 1995
------------------------------
Richard R. Jaros
* Director September 8, 1995
------------------------------
Robert E. Julian
* Director September 8, 1995
------------------------------
Daniel E. Knowles
S - 1
<PAGE>
* Director September 8, 1995
------------------------------
David C. Mitchell
* Director September 8, 1995
------------------------------
Eugene Roth
* Director September 8, 1995
------------------------------
Walter Scott, Jr.
* Director September 8, 1995
------------------------------
Thomas C. Stortz
* By: /s/ Raymond B. Ostroski Dated: September 8, 1995
-------------------------
Raymond B. Ostroski
Attorney-in-Fact
S - 2
<PAGE>
EXHIBIT 5.1
<PAGE>
August 4, 1995
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Re: C-TEC Corporation (the "Company) and Buffalo Valley
Telephone Company ("BVT") Registration Statement on Form S-4
------------------------------------------------------------
Gentlemen:
As Executive Vice President and General Counsel, I am counsel for the
Company, a Pennsylvania corporation, in connection with the preparation of
a registration statement on Form S-4 (the "Registration Statement") filed
with the Securities and Exchange Commission under the Securities Act of
1933 as amended (the "Act"), relating to the proposed Agreement and Plan of
Merger dated May 10, 1995 ("Merger Agreement") by and among the Company,
BVT and BVT Merger Corporation, a wholly owned subsidiary of the Company
whereby the Company will offer up to 452,000 shares of Company Series AA
Convertible Preferred Stock, par value $61.00 per share to the BVT
shareholders under the Merger Agreement. In connection thereto, I have
reviewed (a) the Registration Statement; (b) the Company's Articles of
Incorporation and By-laws; and (c) a copy of the Merger Agreement. My
opinion, as set forth below is limited to the Pennsylvania Business
Corporation Law of 1988, as amended.
In my opinion, the issuance of the shares of Company Series AA
Convertible Preferred Stock in connection with the Merger Agreement will be
legal and enforceable. This opinion is conditioned upon approval of the
following proposals by the shareholders of the Company, as set forth in the
Company's Proxy Statement dated August 4, 1995:
(a) amendment of the Company's Articles of Incorporation (i) to
increase the authorized number of shares of C-TEC Common Stock
from 35,000,000 to 85,000,000, (ii) to increase the authorized
number of shares of C-TEC Class B Stock from 8,753,203 to
15,000,000 and (iii) authorize a class of 25,000,000 shares of
Company Preferred Stock, and
(b) approval of the issuance of Preferred Stock of the Company in
the merger of BVT into a subsidiary of the Company.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement. The opinion expressed herein is for the sole
benefit of, and may be relied upon, only by the Company.
Very truly yours,
Raymond B. Ostroski
<PAGE>
EXHIBIT 23.3
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of C-TEC Corporation on Form S-4 (registration no. 33-61597) of our report
dated March 10, 1995, on our audits of the consolidated financial
statements and financial statement schedules of C-TEC Corporation and
subsidiaries as of December 31, 1994 and 1993 and for the years ended
December 31, 1994, 1993 and 1992. We also consent to the reference to our
Firm under the caption "Experts."
COOPERS & LYBRAND L.L.P
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 7, 1995
<PAGE>
EXHIBIT 23.4
<PAGE>
CONSENT OF INDEPENDENT AUDITOR
I hereby consent to the use in this Registration Statement on Form S-4
(registration no. 33-61597) of C-TEC Corporation of my independent
auditor's reports (i) dated February 24, 1995 on my audit of the financial
statements of Buffalo Valley Telephone Company as of December 31, 1994 and
1993 and the years ended December 31, 1994 and 1993, and (ii) dated
February 17, 1994 on my audit of the financial statements of Buffalo Valley
Telephone Company as of December 31, 1993 and 1992 and the years ended
December 31, 1993 and 1992. I also consent to the reference to me under
the caption "Experts."
William R. Maslo
Reading, Pennsylvania
September 7, 1995
<PAGE>
EXHIBIT 23.5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
of C-TEC Corporation on Form S-4 (registration no. 33-61597) of our report
dated February 25, 1995, on our audits of the financial statements of Twin
County Trans Video, Inc. as of October 31, 1994 and 1993, and for the years
ended October 31, 1994 and 1993, which report is included in C-TEC
Corporation's definitive Proxy Statement dated August 4, 1995. We also
consent to the reference to our firm under the caption "Experts".
Adams & Associates, P.C.
Edward W. Adams, CPA
Managing Director
September 7, 1995
<PAGE>
EXHIBIT 23.6
<PAGE>
CONSENT OF SNYDER & COMPANY
We hereby consent to the inclusion of our opinion as Appendix B to the
Proxy Statement/Prospectus filed as part of this Registration Statement on
Form S-4 of C-TEC Corporation. In giving such consent, we do not hereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933 or the rules and regulations
of the Securities and Exchange Commission thereunder.
SNYDER & COMPANY
W. Lloyd Snyder
Principal
August 4, 1995
<PAGE>
EXHIBIT 23.7
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTS
We consent to the incorporation by reference in this registration statement
of C-TEC Corporation on Form S-4 (registration no. 33-61597) of our report
dated February 22, 1995, on our audits of the consolidated financial
statements (i) of Megacable, S.A. de C.V. and subsidiaries as of December
31, 1994 and 1993 and for the year ended December 31, 1994, and the six
month period ended December 31, 1993; and (ii) of Cable Control Sinaloa,
S.A. de C.V. and Cable Control de Sonora, S.A. de C.V. (Predecessor) for
the six month period ended June 30, 1993. We also consent to the reference
to our Firm under the caption "Experts."
LEBRIJA ALVAREZ y CIA., S.C.
Roberto Escobedo Anzures, CPA
Partner
September 7, 1995
<PAGE>
EXHIBIT 99.1
<PAGE>
REVOCABLE PROXY
BUFFALO VALLEY TELEPHONE COMPANY
SPECIAL MEETING OF SHAREHOLDERS
OCTOBER 28, 1995
The undersigned hereby appoints David E. Lynn, F. Ellis Harley and Fitz R.
Walling, with full powers of substitution, to act as attorneys and proxies for
the undersigned, to vote all shares of the common stock of Buffalo Valley
Telephone Company which the undersigned is entitled to vote at the Special
Meeting of Shareholders, to be held at the Country Cupboard Inn, Route 15
North, Lewisburg, Pennsylvania on Saturday, October 28, 1995 at 2:00 p.m.,
local time, and at any and all adjournments thereof, as follows:
FOR AGAINST ABSTAIN
1. The approval of the Agreement and Plan of
Merger (the "Merger Agreement") among Buffalo
Valley Telephone Company, C-TEC Corporation
and BVT Merger Corporation.
[_] [_] [_]
2. Adjournment of the Meeting to a later date, if
necessary to solicit additional proxies in the
event insufficient shares are cast in person
or by proxy at the Meeting to approve the
Merger Agreement.
[_] [_] [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSITIONS.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSITIONS STATED. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, INCLUDING MATTERS RELATING TO THE
CONDUCT OF THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned may also revoke this proxy prior to its exercise by filing a
subsequent proxy or a duly executed revocation with the Secretary.
This undersigned acknowledges receipt from Buffalo Valley Telephone Company
prior to the execution of this proxy of notice of the Meeting and a Proxy
Statement/Prospectus dated September , 1995.
Dated: , 1995
---------------------------
PRINT NAME OF SHAREHOLDER
---------------------------
SIGNATURE OF SHAREHOLDER
---------------------------
PRINT NAME OF SHAREHOLDER
---------------------------
SIGNATURE OF SHAREHOLDER
Please sign exactly as your name ap-
pears on the enclosed card. When
signing as attorney, executor, admin-
istrator, trustee or guardian, please
give your full title. If shares are
held jointly, each holder should
sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
