<PAGE>
As filed with the Securities and Exchange Commission on August 4, 1995
Registration No. 33-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
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 jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Identification No.)
or organization) Classification No.)
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>
==========================================================================================================================
Proposed maximum Proposed maximum
Title of each class of Amount to be offering price aggregate Amount of
securities to be registered registered(1) per unit(1) offering price(1) registration fee
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
C-TEC Series AA Convertible Preferred
Stock, par value $61.00 per share 452,000 shares $61.00 $27,572,000 $9,508
==========================================================================================================================
</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.
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
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<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......... *
</TABLE>
<PAGE>
[BVT Letterhead]
August __, 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 Friday, September __, 1995
at 4:00 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 approximately 50%.
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 two informal informational meetings prior to the
Meeting. These informational meetings will be held on Saturday August 19, 1995
at 10:00 a.m., local time and Thursday August 24, 1995 at 7:30 p.m., local time,
at the Country Cupboard Inn, Route 15 North, 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 these informal
meetings 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 SEPTEMBER __, 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 Friday, September __, 1995
at 4:00 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 approximately 50%.
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
_________, 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
August __, 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
SEPTEMBER __, 1995
--------------------
C-TEC CORPORATION
PROSPECTUS
FOR
UP TO 452,000 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 Friday, September __, 1995 at
4:00 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 approximately 50%.
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 the 452,000 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 August __,
1995.
The date of this Proxy Statement/Prospectus is August __, 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 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
September __, 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; and
(7) the definitive Proxy Statement dated August 4, 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.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
AVAILABLE INFORMATION..................................................... 2
INCORPORATION OF DOCUMENTS BY REFERENCE................................... 3
SUMMARY................................................................... 7
The Companies........................................................ 7
C-TEC........................................................... 7
BVT............................................................. 7
The Meeting.......................................................... 7
General......................................................... 7
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.............................. 8
Opinion of Financial Advisor.................................... 9
Recommendation of the Board of Directors........................ 9
Conditions to the Merger........................................ 10
Certain Covenants............................................... 10
Effective Time.................................................. 10
Termination; Waiver; Amendment.................................. 10
Fees and Expenses............................................... 11
Redemption of BVT Preferred Stock............................... 11
Dissenters' Rights.............................................. 11
Certain Federal Income Tax Consequences......................... 11
Accounting Treatment............................................ 12
Financing the Merger............................................ 12
Interest of Certain Persons in the Merger....................... 12
Description of Capital Stock of C-TEC........................... 12
Comparison of Shareholder Rights................................ 13
Adjournment of the Meeting...................................... 14
Selected Historical and Pro Forma Financial Data..................... 14
Selected Historical Financial Data.............................. 14
Selected Unaudited Pro Forma Consolidated Financial Data........ 15
Comparative Per Share Data........................................... 16
Market Price Data.................................................... 17
Ratio of Earnings-To-Fixed Charge and Preferred Stock Dividends...... 18
RISK FACTORS.............................................................. 19
Dividend Policy and Restrictions..................................... 19
Highly Competitive Industry.......................................... 19
Effect of Regulation................................................. 19
Control by Principal Shareholder..................................... 20
Relationship with RCN; Conflicts of Interest; Noncompetition
Agreement........................................................... 20
Joint Venture........................................................ 20
Megacable Acquisition................................................ 20
THE MEETING............................................................... 21
General.............................................................. 21
Matters to be Considered at the Meeting.............................. 21
Record Date; Shares Outstanding; Quorum.............................. 21
Votes Required....................................................... 21
Effect of Abstentions and Broker Nonvotes............................ 22
Voting, Revocation and Solicitation of Proxies....................... 22
THE MERGER................................................................ 23
Background of the Merger............................................. 23
Merger Negotiations.................................................. 25
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Reasons for the Merger; Recommendation of the Board of Directors..... 26
Opinion of Financial Advisor......................................... 28
Terms of the Merger.................................................. 31
Election, Allocation and Exchange Procedures......................... 35
Regulatory Considerations............................................ 37
Interest of Certain Persons in the Merger............................ 38
Accounting Treatment................................................. 38
Certain Federal Income Tax Consequences.............................. 38
Dissenters' Rights................................................... 41
RESALE RESTRICTIONS....................................................... 43
DESCRIPTION OF CAPITAL STOCK OF C-TEC..................................... 43
C-TEC Common Stock and C-TEC Class B Stock........................... 43
C-TEC Series AA Preferred Shares..................................... 45
C-TEC TC Preferred Shares............................................ 49
Pennsylvania Anti-Takeover Law Provisions............................ 51
COMPARISON OF SHAREHOLDER RIGHTS.......................................... 51
Introduction......................................................... 51
Dividends............................................................ 51
Voting Rights Generally.............................................. 51
Classified Board of Directors........................................ 52
Number of Directors.................................................. 52
Removal of Directors................................................. 52
Filling Vacancies on the Board of Directors.......................... 52
Call of Special Shareholders' Meeting................................ 53
Notice of Shareholders' Meetings..................................... 53
Quorum Requirements and Adjournment of Meetings...................... 53
Action Without Meeting............................................... 53
Dissenters' Rights................................................... 53
Limitations on Directors' Liability.................................. 53
Indemnification...................................................... 54
State Anti-Takeover Law Provisions................................... 54
Amendment of Articles of Incorporation............................... 55
Amendment of Bylaws.................................................. 55
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........... 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF BVT.................................................... 62
Operations--First Quarter 1995 vs First Quarter 1994................. 62
Operations--1994 vs 1993............................................. 62
Operations--1993 vs 1992............................................. 63
Income Taxes......................................................... 63
Liquidity and Capital Resources...................................... 63
Regulatory Accounting Principles..................................... 64
Pennsylvania Public Utility Commission............................... 64
Environmental Matters................................................ 64
BUSINESS OF BVT........................................................... 64
Description of Business.............................................. 64
Properties........................................................... 65
Legal Proceedings.................................................... 65
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BVT..... 66
ADJOURNMENT OF THE MEETING................................................ 67
EXPERTS................................................................... 67
C-TEC................................................................ 67
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
BVT.................................................................. 67
Twin County.......................................................... 67
LEGAL OPINIONS............................................................ 67
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 March 31, 1995, BVT had approximately 17,450 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.
The Meeting
General
The special meeting of the shareholders of BVT will be held on Friday,
September __, 1995, at 4:00 p.m., local time, at the Country Cupboard Inn, Route
15 North, Lewisburg, Pennsylvania 17837 (the "Meeting").
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<PAGE>
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
__________, 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 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 approximately 50%. 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 number of BVT Common
Shares as to which such holder desires to receive the Cash Merger Consideration
(a "Cash Election"), and the number of BVT Common Shares as to which such holder
desires to receive the Stock Merger Consideration (a
-8-
<PAGE>
"Stock 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 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 Stock Percentage
specified by C-TEC.
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 approximately 50%. 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) 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) 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.
(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.
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."
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 August __, 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
$55,000 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
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<PAGE>
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 filed a Notification and Report Form with respect to
the Merger on or prior to July 31, 1995, and the waiting period under the HSR
Act is expected to expire 30 days thereafter. 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 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
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<PAGE>
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."
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 of date of this Proxy Statement/Prospectus, there were issued and
outstanding 8,000 shares of cumulative preferred stock of BVT, par value $50.00
per share. As provided for under by the Merger Agreement, all such shares will
be redeemed, effective as of September 1, 1995.
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,
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<PAGE>
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 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 August 1, 1995, C-TEC's authorized capital stock consisted of
35,000,000 shares of C-TEC Common Stock, 19,069,527 of which were issued and
outstanding, and 8,753,203 shares of C-TEC Class B Stock, 8,375,640 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
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<PAGE>
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 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.
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 an initial
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 initial 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.
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.
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.
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<PAGE>
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 CV ("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 three months ended March 31, 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
or 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.
Selected Historical Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended March 31, 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........................... $ 73,163 $ 64,924 $268,884 $251,428 $231,263 $215,248 $188,976
Income (loss) from continuing
operations.................... $ 5,202 $ 3,004 $ 2,827 $ (3,788) $ 4,568 $(10,804) $ (6,434)
Income (loss) per average
common share from continuing
operations(2)................. $ .19 $ .18 $ .17 $ .(23) $ .27 $ (.66) $ (.39)
Dividends per share(2).......... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Total assets.................... $802,573 $570,012 $792,525 $579,564 $586,366 $596,000 $580,429
Long-term debt, net of
current maturities............ $279,124 $392,538 $273,376 $409,293 $421,780 $432,482 $364,970
Net book value per share (2).... $ 12.88 $ 3.63 $ 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.
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<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
-------------------- -----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BVT
Sales.................................. $ 2,788 $ 2,822 $11,435 $10,532 $10,668 $ 9,498 $ 9,851
Income from continuing operations...... $ 610 $ 654 $ 2,853 $ 2,490 $ 2,798 $ 2,176 $ 2,650
Income per average common share
from continuing operations........... $ .67 $ .72 $ 3.15 $ 2.75 $ 3.08 $ 2.40 $ 2.93
Dividends per share.................... $ .45 $ .42 $ 1.68 $ 1.60 $ 1.48 $ 1.40 $ 1.32
Total assets........................... $27,841 $28,521 $29,240 $29,033 $27,726 $26,200 $24,821
Long-term obligations and
redeemable preferred stock........... $ 1,885 $ 1,966 $ 1,885 $ 1,966 $ 3,047 $ 3,128 $ 3,209
Net book value per common share........ $ 22.00 $ 20.61 $ 21.79 $ 20.76 $ 19.16 $ 17.57 $ 16.57
</TABLE>
Selected Unaudited Pro Forma Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Year Ended
Months Ended December 31,
March 31, 1995(1) 1994(1)
----------------- ------------
<S> <C> <C>
Sales......................... $82,750 $303,994
Income (loss) from 1,995 (19,011)
continuing operations........
Income (loss) per average
common share from continuing
operations................... $ .07 $ (1.11)
Dividends per common share.... $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
March 31, 1995(1)
-----------------
<S> <C>
Total assets........................................ $964,790
Long term debt, net of current maturities........... $308,720
Redeemable Preferred Stock.......................... $ 79,424
Net book value per common share..................... $ 12.88
- --------------
</TABLE>
(1) The unaudited pro forma combined balance sheet data assumes the Merger,
the Twin County Merger and the Megacable Acquisition took place on
March 31, 1995, and combines C-TEC's March 31, 1995 balance sheet data
with BVT's March 31, 1995 balance sheet data and Twin County's April 30,
1995 balance sheet data. The unaudited pro forma statement of operations
data assumes that the Merger, the Twin County Merger and the Megacable
Acquisition took place as of the beginning of each of the periods
presented and combines the statement of operations data for C-TEC and BVT
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 three months ended March 31,
1995 with Twin County's statement of operations data for the three months
ended January 31, 1995. The Megacable Acquisition was accounted for under
the equity method of accounting for the respective periods.
-15-
<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. Such data assumes that the
Merger and the Twin County Merger 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 and Twin County included or incorporated by reference in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
Three
Months Ended Year Ended
March 31, 1995 December 31, 1994
----------------- ------------------
<S> <C> <C>
HISTORICAL
Per Share of C-TEC Common Stock:
Income from continuing operations......... $ .19 $ .17
Book value................................ $12.88 $12.73
Cash dividends declared................... $ -- $ --
Per BVT Common Share:
Income from continuing operations......... $ .67 $ 3.15
Book value................................ $22.00 $21.79
Cash dividends declared................... $ .45 $ 1.68
PRO FORMA COMBINED(1)
Per Share of C-TEC Common Stock:
Income (loss) from continuing operations.. $ .07 $(1.11)
Book value................................ $12.88 N/A
Cash dividends declared................... $ -- $ --
PRO FORMA EQUIVALENT
PER BVT COMMON SHARE (2)
C-TEC Series AA Preferred Share Held:
Income from continuing operations......... $ .07 $(1.11)
Book value................................ $12.88 N/A
Cash dividends declared................... $ .80(3) $ 3.20
C-TEC Series AA Preferred Share
Converted into C-TEC Common Stock: (4)
Income from continuing operations......... $ .14 $(2.22)
Book value................................ $25.76 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) Reflects one half of the $1.60 semi-annual dividend payable on C-TEC
Series AA Preferred Shares.
(4) 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 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 shares of C-TEC
Common Stock, based upon an assumed initial conversion price of $30.00,
which assumed conversion price is equal to 125% of the $24.00 closing
price as reported by Dow Jones Tradeline of a share of C-TEC Common
Stock on the Nasdaq National Market on August 2, 1995.
-16-
<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>
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 7/8
</TABLE>
- ------------------
(1) Through the close of business on August 2, 1995.
-17-
<PAGE>
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>
Three Months
Ended March 31, Year Ended December 31,
--------------- -------------------------------
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges and preferred stock
dividends (1)............... 1.70x 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 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.
-18-
<PAGE>
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 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
-19-
<PAGE>
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 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
-20-
<PAGE>
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's
operations 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 Friday September __, 1995, at 4:00 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
____________, 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
_________, 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.
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.
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<PAGE>
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.
-22-
<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 eight Regional Bell Operating Companies
("RBOCs"). As of March 31, 1995, BVT had approximately 17,450 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.
-24-
<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.
-25-
<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,
and 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.
-26-
<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, and to 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:
----------------------------
$45.00 $47.50 $61.00(1)
------ ------ ------
<S> <C> <C> <C>
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>
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
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<PAGE>
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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<PAGE>
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 approximately 50%. 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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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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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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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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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 approximately 50%.
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 as
to which such holder desires to receive the Cash Merger Consideration (a "Cash
Election"), and the whole number of BVT Common Shares as to which such holder
desires to receive the Stock Merger Consideration (a "Stock Election"). 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 Stock Percentage specified by
C-TEC.
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) 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) Non-Election Shares shall
receive cash, 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.
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.
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
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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
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 filed a
Notification and Report Form with respect to the Merger with the Antitrust
Division and the FTC on July 31, 1995. The waiting period applicable to the
Merger should expire 30 days thereafter, unless otherwise extended.
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.
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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."
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 15
years.
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); (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
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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
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
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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. 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.
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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 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
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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 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.
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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
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 August 1, 1995, C-TEC's authorized capital stock consisted of
35,000,000 shares of C-TEC Common Stock, 19,069,527 of which were issued and
outstanding, and 8,753,203 shares of C-TEC Class B Stock, 8,375,640 of which
were issued and outstanding. In addition, 8,375,640 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.
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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 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.
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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.
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.
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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 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 initial 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 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."
The initial 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 securi-
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ties, 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.
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 100.00%
thereafter
</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.
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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.
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
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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, the forms of which have been filed
as exhibits to C-TEC's Current Report on Form 8-K dated 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.
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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
$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. The foregoing restriction
is referred to herein as the "C-TEC Transaction Restriction." 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 expect 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 Common Stock into which such series of C-TEC TC
Preferred Shares may
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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).
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.
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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
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.
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<PAGE>
Call of Special Shareholders' Meeting
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.
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<PAGE>
Indemnification
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.
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<PAGE>
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.
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.
-55-
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Consolidated Balance Sheet as
of March 31, 1995 gives effect to the Merger and the Twin County Merger as
though they had occurred on March 31, 1995. The following unaudited Pro Forma
Condensed Consolidated Statements of Operations for the three months ended
March 31, 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, and (iii) the historical consolidated financial statements and notes
thereto 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 three months ended March
31, 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.
-56-
<PAGE>
C-TEC CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1995
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twin County Buffalo Valley Buffalo Valley
C-TEC Twin County Trans Video, Telephone Telephone
Corporation Trans Video, Inc. Inc. Company Company
March 31, 1995 April 30, 1995 Acquisition March 31, Acquisition Pro
(Actual) (Actual) (f) Adjustments 1995 (Actual) Adjustments Forma
-------- ------------ ----------- ------------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Current Assets
Cash and temporary
cash investments ........... $ 89,661 $ 113 $(42,867)(a) $ 391 - $ 47,298
Short term investments....... 124,700 - - 4,107 $ (1,966)(h) 126,841
Other current assets......... 58,426 3,755 - 3,256 - 65,437
Deferred income taxes........ 7,664 335 - - - 7,999
-------- ------- -------- ------- -------- --------
Total current assets......... 280,451 4,203 (42,867) 7,754 (1,966) 247,575
-------- ------- -------- ------- -------- --------
Property, Plant and Equipment
Telephone plant.............. 406,252 - - 27,834 - 434,086
Cable plant.................. 199,201 44,684 - - - 243,885
Mobile services.............. 2,578 - - - - 2,578
Other property, plant
and equipment............... 13,455 - - 2,204 - 15,659
-------- ------- -------- ------- -------- --------
Total property, plant
and equipment............... 621,486 44,684 - 30,038 - 696,208
Accumulated depreciation..... 275,748 25,554 (20,572)(b) 11,312 - 292,042
-------- ------- ------- --------
Net property, plant
and equipment............... 345,738 19,130 20,572 18,726 - 404,166
Investments....................... 100,033 - (5,000)(a) 180 - 95,213
Intangible Assets, Net............ 50,391 43 104,251 (c) - 35,063 (i) 189,748
Deferred Charges and Other Assets. 25,960 3,675 (2,729) 1,182 - 28,088
Total Assets...................... $802,573 $27,051 $ 74,227 $27,842 $ 33,097 $964,790
======== ======= ======== ======= ======== ========
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........... 8,857 $ 5,069 - 2 - 13,928
Accrued taxes................ 22,956 - - 671 - 23,627
Accrued interest............. 2,182 - - - - 2,182
Accrued contract settlements. 5,150 - - - - 5,150
Other current liabilities.... 48,243 2,723 - 1,474 - 52,440
-------- ------- -------- ------- -------- --------
Total current liabilities.... 96,398 7,792 - 2,228 1,747 108,165
Long-Term Debt.................... 279,124 12,441 $ (8,441)(a) 1,485 24,111 (h)(i) 308,720
Deferred Income Taxes and
Investment Tax Credits........... 45,772 1,410 35,752 (d) 3,621 - 86,555
Other Deferred Credits............ 27,705 324 - 323 - 28,352
Redeemable Preferred Stock........ - - 52,000 (a) 400 27,024 (h)(i) 79,424
Common Shareholders' Equity
Common stock................. 27,823 300 (300) 600 (600) 27,823
Additional paid-in capital... 227,031 - - 467 (467) 227,031
Retained earnings............ 105,062 4,784 (4,784) 18,757 (18,757) 105,062
Treasury stock at cost,
377,842 shares at
March 31, 1995........... (5,288) - - (39) 39 (5,288)
Cumulative translation
adjustments................. (1,054) - - - - (1,054)
-------- ------- -------- ------- -------- --------
Total Shareholders' Equity........ 353,574 5,084 (5,084) 19,785 (19,785) 353,574
Total Liabilities and
Shareholders' Equity............. $802,573 $27,051 $ 74,227 $27,842 $ 33,097 $964,790
======== ======= ======== ======= ======== ========
</TABLE>
See Accompanying Notes to Pro Forma Condensed Consolidated Financial Statements
-57-
<PAGE>
C-TEC CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1995
(Dollars in Thousands, except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
C-TEC Twin County Buffalo Valley
Corporation Trans Video, Inc. Twin County Telephone Company Buffalo Valley
Three Months Ended Three Months Ended Trans Video, Inc. Three Months Ended Telephone Company
March 31, 1995 January 31, 1995 Acquisition March 31, 1995 Acquisition
(Actual) (Actual) (f) Adjustments (Actual) Adjustments Pro Forma
------------------ ------------------ ----------------- ------------------ ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales....................... $ 73,163 $ 6,799 $ 2,788 $ 82,750
Cost and Expenses........... 61,136 6,040 $ 4,017(e) 1,740 $ 588(i) 73,521
----------- --------- -------- -------- -------- ---------
Operating Income............ 12,027 759 (4,017) 1,048 (588) 9,229
Interest & Dividend Income.. 4,839 4 56 4,899
Interest Expense............ (6,347) (272) 222(o) (35) (523)(k) (6,955)
Other Income, Net........... 257 - (49) 208
----------- --------- --------
Income from Continuing
Operations Before
Income Taxes............... 10,776 491 (3,795) 1,020 (1,111) 7,381
Provision (Benefit) for
Income Taxes............... 2,937 185 (1,328)(e) 410 (465)(l) 1,739
----------- --------- -------- -------- -------- ---------
Income from Continuing
Operations Before
Preferred Dividends,
Minority Interest and
Equity in Unconsolidated
Entities.................. 7,839 306 (2,467) 610 (646) 5,642
Preferred Dividends and
Minority Interest in
(Income) of Consolidated
Entities.................. (35) - (650)(n) (4) (356)(m) (1,045)
Equity in (Loss) of
Unconsolidated Entities.... (2,602) - - - - (2,602)
----------- --------- -------- -------- -------- ---------
Income (Loss) From
Continuing Operations
Available for Common Stock. $ 5,202 $ 306 $ (3,117) $ 606 $ (1,002) $ 1,995
=========== ========= ======== ======== ======== =========
Earnings (Loss) Per
Average Common Share:
Income (Loss) From
Continuing Operations...... $ .19 $ .07
=========== =========
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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<PAGE>
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>
C-TEC Twin County
Corporation Trans Video, Inc. Twin County Megacable
Year Ended Year Ending Trans 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 Preferred 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
<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 Preferred dividends, Minority
Interest and Equity in
Unconsolidated Entities.................... 2,853 (2,581) (1,051)
Preferred Dividends and Minority
Interest in (Income) 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.
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<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) Adjustments to reflect the consideration for the ultimate acquisition of
all of the outstanding shares of Twin County and the expected repayment of
outstanding debt of Twin County of approximately $11 million. The adjustments
assume that the consideration for the entire acquisition and a related
noncompetition agreement will be cash of approximately $37 million (which
includes an aggregate $5 million deposit made in 1994 and the first quarter of
1995 and which is included in investments in the March 31, 1995 historical
balance sheet), a promissory note of $4 million, and preferred stock of either
C-TEC or a C-TEC subsidiary, with an aggregated 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; such fair value may differ from the
stated value used in the preparation of the 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 approximately by $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 most recent
interim historical balance sheet as of April 30, 1995 is included in the pro
forma condensed consolidated balance sheet. Twin County's statement of
operations for the year ended October 31, 1994 is included in the pro forma
condensed consolidated statement of operations for the year ended December 31,
1994. Twin County's statement of operations for the three months ended January
31, 1995 which is included in the pro forma condensed consolidated statement of
operations for the three months ended March 31, 1995, was derived from its most
recent interim historical Statement of Operations for the six months ended April
30, 1995, as follows:
<TABLE>
<CAPTION>
Six Months Three Months
Ended Ended
April 30, 1995 Adjustments January 31, 1995
-------------- ----------- ----------------
<S> <C> <C> <C>
Sales................................................... 13,720 (6,921) 6,799
Costs & Expenses........................................ 13,081 (7,041) 6,040
---------- ---------- ----------
Operating Income........................................ 639 120 759
Interest Income......................................... 7 (3) 4
Interest Expense........................................ (542) 270 (272)
Gain on Sale of Certain Pennsylvania Cable Properties... -- -- --
Other Income, Net....................................... -- -- --
Income Before Income Taxes.............................. 104 387 491
Provision for Income Taxes.............................. 38 147 185
Income Before Minority Interest and Equity in
Unconsolidated Entities................................ 66 240 306
Equity in Income of Unconsolidated Entities............. -- -- --
Minority Interest in Income of Consolidated Entities.... -- -- --
Income Before Extraordinary Charge and Cumulative
Effect of Accounting Principle Changes................. 66 240 306
========== ========== ==========
</TABLE>
(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
-60-
<PAGE>
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.
-61-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF BVT
Operations-First Quarter 1995 vs First Quarter 1994
For the first quarter of 1995, operating sales decreased by $34,542 to
$2,787,509 from $2,822,051 for the same period in 1994. Details of the 1995
sales decrease are as follows:
<TABLE>
<CAPTION>
Increase
(Decrease) Percent
---------- --------
<S> <C> <C>
Local........... $ 15,902 3.4
Network Access.. $(22,304) (1.4)
Long Distance... $(34,634) (7.1)
Miscellaneous... $ 3,518 1.2
Uncollectible... $ (2,976) (11.8)
--------
$(34,542) (1.2)
========
</TABLE>
Network access and long distance revenues reflect lower minutes of use and
messages as compared to the same period last year. This is attributable to the
severe winter weather conditions in early 1994 which confined customers'
mobility and therefore stimulated phone usage.
Operating expenses increased a nominal $10,381 or 0.6% and primarily relate
to increases in certain salary and wages, employee benefits, insurance and
operating taxes, partially offset by lower maintenance cost. These maintenance
costs are directly related to the adverse weather conditions in 1994.
Interest expense decreased by $19,797 or 35.9% in the first quarter 1995
due to the repayment of a $1,000,000 promissory note in April of 1994.
BVT's effective tax rate was approximately 39.0% the first quarter of 1995
and 1994.
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.
-62-
<PAGE>
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.
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.
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 relies 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
-63-
<PAGE>
1994 and 1993, respectively. 1993 reflects an investment of $2,000,000 in
temporary cash investments. Net cash provided by operating activities was
$1,067,407 and $1,362,253 in the first quarters of 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 in the first quarters of 1995 and
1994 totaled $790,248 and $1,442,404, respectively. Although capital
expenditures were lower during the first quarter of 1995, total capital
expenditures for 1995 are expected to approximate the 1994 year end level.
In 1994, BVT reduced debt by $1,000,000 using existing cash reserves. There
were no credit facilities available to BVT as of March 31, 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 March 31,
1995, BVT had approximately 17,450 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.
-64-
<PAGE>
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 March 31, 1995 and 1994,
the number of access lines.
<TABLE>
<CAPTION>
As of
March 31, As of December 31,
--------- --------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Access lines 17,450 16,907 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.
-65-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BVT
The following table sets forth as of July 1, 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 211 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 Maher's address
is 270 Meeting House Lane, Lewisburg, Pennsylvania 17837.
In addition, as of July 1, 1995, David E. Lynn owned 535 shares (6.7%) of
BVT's cumulative preferred stock, Jean M. Ruhl owned three shares of cumulative
preferred stock and Fitz R. Walling owned four shares of cumulative preferred
stock.
-66-
<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.
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.
-67-
<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, March 31, 1995 (unaudited).............................................. F-22
Statements of Income for the Three Months Ended March 31, 1995 and 1994 (unaudited).... F-24
Statements of Cash Flows for the Three Months Ended March 31, 1995 and 1994
(unaudited)............................................................................ F-25
Statements of Retained Earnings for the Three Months Ended March 31, 1995 and 1994
(unaudited).......................................................................... F-26
Condensed Note to Financial Statements for the Three Months Ended
(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>
<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>
<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>
<S> <C>
Actuarial present value of benefit obligations:
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 (804,456)
amortization................................................ -----------
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 54,849.58 45,205.21
Companies--at Cost..............................
(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, 1993
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>
<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, 1993
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>
<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>
<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 (877,588)
amortization............................................. -----------
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, 1993
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
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Equivalents................................... $ 390,552 $ 2,501,314
Temporary Cash Investments............................. 4,106,997 1,989,931
Accounts Receivable.................................... 2,592,724 2,662,815
Material and Supplies--At Average Cost................. 226,237 240,883
Prepaid Expenses....................................... 438,307 2,326,408
----------- -----------
Total Current Assets................................ 7,754,817 9,721,351
----------- -----------
NONCURRENT ASSETS
Investments in Nonaffiliated
Companies--At Cost................................... 179,889 46,848
Nonregulated Investments--Deregulated Equipment........ 2,203,510 2,085,011
Unamortized Debt Issuance Expense...................... 1,271 1,371
Other Noncurrent Assets................................ 824,881 816,648
Deferred Extraordinary Retirements..................... 117,265 125,459
Deferred Charges....................................... 238,521 119,117
----------- -----------
Total Noncurrent Assets............................. 3,565,337 3,194,454
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Telephone Plant in Service............................. 26,545,625 26,278,393
Telephone Plant Under Construction..................... 1,259,813 850,778
Non-Operating Plant.................................... 28,052 28,052
----------- -----------
27,833,490 27,157,223
----------- -----------
Less: Accumulated Depreciation 11,312,533 10,832,671
----------- -----------
Net Telephone Property.............................. 16,520,957 16,324,552
----------- -----------
TOTAL ASSETS.............................................. $27,841,111 $29,240,357
=========== ===========
</TABLE>
The accompanying note is an integral part of this statement.
F-22
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Maturities of Long Term Debt............... $ 81,000 $ 81,000
Accounts Payable................................... 1,097,122 1,071,363
Customer Deposits.................................. 2,140 2,140
Accrued Taxes--Income.............................. 531,370 1,977,087
Accrued Taxes--Other............................... 139,554 464,859
Accrued Interest, Pension and Other................ 374,876 228,944
----------- -----------
Total Current Liabilities........................ 2,226,062 3,825,393
----------- -----------
LONG-TERM DEBT
Notes Payable...................................... 1,485,000 1,485,000
----------- -----------
Total Long-Term Debt............................. 1,485,000 1,485,000
----------- -----------
OTHER LIABILITIES AND DEFERRED CREDITS
Unamortized Investment Tax Credit-Net.............. 378,494 393,671
Deferred Income Taxes.............................. 3,242,932 3,249,637
Other Deferred Credits............................. 323,039 298,230
----------- -----------
Total Other Liabilities and Deferred Credits..... 3,944,465 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.................................. 18,756,932 18,559,774
----------- -----------
Total Stockholders' Equity....................... 20,185,584 19,988,426
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $27,841,111 $29,240,357
=========== ===========
</TABLE>
The accompanying note is an integral part of this statement.
F-23
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
For the Three Months Ending
March 31,
---------------------------
1995 1994
------------- ------------
<S> <C> <C>
OPERATING REVENUES
Local Service........................... $ 487,683 $ 471,781
Interstate Access Service............... 929,276 907,675
Intrastate Access Service............... 652,659 696,564
Long Distance Service................... 450,977 485,611
Miscellaneous........................... 289,144 285,626
Less: Uncollectibles................... 22,230 25,206
---------- ----------
Total Operating Revenue............... 2,787,509 2,822,051
---------- ----------
OPERATING EXPENSES
Plant Specific.......................... 313,668 353,826
Plant Non-Specific
Network and Other..................... 318,611 353,101
Depreciation and Amortization......... 460,274 453,014
Customer Operations..................... 282,831 236,158
Corporate Operations.................... 251,622 220,526
---------- ----------
Total Operating Expenses.............. 1,627,006 1,616,625
---------- ----------
NET OPERATING REVENUE...................... 1,160,503 1,205,426
---------- ----------
OPERATING TAXES
Investment Credit--Net.................. (15,176) (15,408)
Income Taxes--Current................... 431,886 459,827
Income Taxes--Deferred.................. (6,505) (9,268)
Other Operating Taxes................... 112,729 106,829
---------- ----------
Total Operating Taxes................. 522,934 541,980
---------- ----------
NET OPERATING INCOME.................... 637,569 663,446
---------- ----------
OTHER INCOME AND EXPENSES
Dividend Income......................... 1,046 2,499
Interest Income......................... 55,382 49,064
Other Income and Expense--Net........... (15,173) (22,684)
Deregulated Activities--Net............. (33,711) 16,734
---------- ----------
Total Operating Income and Expenses... 7,544 45,613
---------- ----------
INCOME AVAILABLE FOR FIXED CHARGES...... 645,113 709,059
---------- ----------
FIXED CHARGES
Interest and Amortization............... 35,336 55,133
---------- ----------
NET INCOME................................. $ 609,777 $ 653,926
========== ==========
EARNINGS PER SHARE--COMMON STOCK........... $ 0.67 $ 0.72
========== ==========
</TABLE>
The accompanying note is an integral part of this statement.
F-24
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
For the Three Months ending
March 31,
---------------------------
1995 1994
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income..................................... $ 609,777 $ 653,926
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Depreciation................................. 485,468 491,594
Amortization................................. 8,195 8,195
Deferred Income Taxes and Investment Tax (21,882) (29,713)
Credit......................................
Other........................................ (387,659) (110,221)
Net Changes in:
Accounts Receivable Decrease................. 70,092 14,348
Material and Supplies Decrease............... 14,645 5,438
Prepaid Expenses Decrease.................... 1,888,101 1,126,230
Accounts Payable Increase.................... 25,760 404,154
Accrued Expenses Decrease.................... (1,625,090) (1,201,698)
----------- -----------
Cash Provided by Operating Activities....... 1,067,407 1,362,253
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Addition of Plant (Including Work Under 790,248 1,442,404
Construction).................................
Other.......................................... (141,764) 10,624
----------- -----------
Cash Used by Investing Activities........... 648,484 1,453,028
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends Paid................................. 412,619 385,645
----------- -----------
Cash Used by Financing Activities........... 412,619 385,645
----------- -----------
NET INCREASE (DECREASE) IN CASH................... 6,304 (476,420)
----------- -----------
CASH AND CASH EQUIVALENTS--BEGINNING OF QUARTER... $ 4,491,245 $ 5,377,927
----------- -----------
CASH AND CASH EQUIVALENTS--END OF QUARTER......... $ 4,497,549 $ 4,901,507
=========== ===========
</TABLE>
The accompanying note is an integral part of this statement.
F-25
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF RETAINED EARNINGS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Balance at January 1..................... $18,559,774 $17,233,846
----------- -----------
ADDITIONS:
Net Income............................ 609,777 653,926
----------- -----------
TOTAL ADDITIONS................... 609,777 653,926
----------- -----------
DEDUCTIONS:
Common Dividends...................... 408,619 381,645
Preferred Dividends................... 4,000 4,000
----------- -----------
TOTAL DEDUCTIONS................... 412,619 385,645
----------- -----------
Balance at March 31...................... $18,756,932 $17,502,127
=========== ===========
</TABLE>
The accompanying note is an integral part of this statement.
F-26
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTE TO INTERIM FINANCIAL STATEMENTS
MARCH 31, 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>
1994
OPERATING 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
OPERATING 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 note is an integral part of this statement.
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
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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.
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1.4 Timing.
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(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
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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
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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
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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.
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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.
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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)
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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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<PAGE>
(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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<PAGE>
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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<PAGE>
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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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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<PAGE>
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
A-32
<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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<PAGE>
(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
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<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
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<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
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<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
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<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.
A-46
<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.
A-49
<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;
A-50
<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
A-52
<PAGE>
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
A-53
<PAGE>
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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<PAGE>
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,
A-55
<PAGE>
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.
A-56
<PAGE>
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;
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/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
August __, 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.
<PAGE>
(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:
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(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.
(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.
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(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.
"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
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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.
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(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.
(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).
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(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.
(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
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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
C-7
<PAGE>
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 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
- -----------------------
/1/42 Pa.C.S.A. (S) 5301 et. seq.
C-8
<PAGE>
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.
C-9
<PAGE>
APPENDIX D
August __, 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 Section 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:
D-1
<PAGE>
C-TEC Corporation
August __, 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 under 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 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
<PAGE>
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.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
(a) Exhibits:
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.
24.6* Powers of Attorney (included on the
signature page).
99.1* Form of BVT Proxy.
- ------------------
</TABLE>
*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:
None.
II-2
<PAGE>
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 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Princeton, New Jersey
on August 4, 1995.
C-TEC CORPORATION
By: /s/ David C. McCourt
--------------------------
David C. McCourt
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated. Each person whose signature appears
below in so signing also makes, constitutes and appoints Raymond B. Ostroski
such person's true and lawful attorney-in-fact, with full power of substitution,
for such person in any and all capacities, to execute and cause to be filed with
the Securities and Exchange Commission any or all amendments and post-effective
amendments to this Registration Statement, with exhibits thereto and other
documents in connection therewith, and hereby ratifies and confirms all that
said attorney-in-fact or his substitute or substitutes may do or cause to be
done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ David C. McCourt Chairman and Chief Executive August 4, 1995
- --------------------------- Officer and a Director
David C. McCourt
/s/ Michael J. Mahoney President and Chief Operating August 4, 1995
- --------------------------- Officer and a Director
Michael J. Mahoney
/s/ Bruce C. Godfrey Executive Vice President and Chief August 4, 1995
- --------------------------- Financial Officer
Bruce C. Godfrey
/s/ James Q. Crowe Director August 4, 1995
- ---------------------------
James Q. Crowe
/s/ Stuart E. Graham Director August 4, 1995
- ---------------------------
Stuart E. Graham
/s/ Frank M. Henry Director August 4, 1995
- ---------------------------
Frank M. Henry
/s/ Richard R. Jaros Director August 4, 1995
- ---------------------------
Richard R. Jaros
/s/ Robert E. Julian Director August 4, 1995
- ---------------------------
Robert E. Julian
/s/ Daniel E. Knowles Director August 4, 1995
- ---------------------------
Daniel E. Knowles
S - 1
<PAGE>
/s/ David C. Mitchell Director August 4, 1995
- ---------------------------
David C. Mitchell
/s/ Eugene Roth Director August 4, 1995
- ---------------------------
Eugene Roth
/s/ Walter Scott, Jr. Director August 4, 1995
- ---------------------------
Walter Scott, Jr.
/s/ Thomas C. Stortz Director August 4, 1995
- ---------------------------
Thomas C. Stortz
S - 2
<PAGE>
EXHIBIT 5.1
<PAGE>
C-TEC CORPORATION
105 CARNEGIE CENTER
PRINCETON, NJ 08540
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
<PAGE>
(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 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
August 4, 1995
<PAGE>
EXHIBIT 23.4
<PAGE>
CONSENT OF INDEPENDENT AUDITOR
I hereby consent to the use in this Registration Statement on Form S-4 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
August 4, 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 (File No. 0-11053) 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
<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 99.1
<PAGE>
REVOCABLE PROXY
BUFFALO VALLEY TELEPHONE COMPANY
SPECIAL MEETING OF SHAREHOLDERS
SEPTEMBER , 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 Friday September , 1995 at 4:00 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 August , 1995.
Dated: , 1995
--------------------------- ---------------------------
PRINT NAME OF SHAREHOLDER PRINT NAME OF SHAREHOLDER
--------------------------- ---------------------------
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
Please sign exactly as your name appears on the enclosed card. When signing as
attorney, executor, administrator, 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.
