<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14A OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[_] Definitive Proxy Statement RULE 14A-6(E)(2))
[X] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
C-TEC CORPORATION
------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
C-TEC CORPORATION
------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(i)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22 (a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11 (a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
[LOGO OF CTEC CORPORATION APPEARS HERE]
105 CARNEGIE CENTER, PRINCETON, NEW JERSEY 08540 . (609) 734-3700
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 7, 1996
The Annual Meeting of Shareholders of C-TEC Corporation ("C-TEC" or the
"Company") will be held at the Hyatt Regency Princeton, 102 Carnegie Center,
Princeton, New Jersey on November 7, 1996, at 11:00 A.M., local time. The
meeting will be held for the following purposes:
1. To elect four (4) Directors to Class III to serve for a term of three
(3) years;
2. To consider and act upon a proposal to approve the Company's Executive
Stock Purchase Plan;
3. To consider and act upon a proposal to approve the Company's 1996
Equity Incentive Plan;
4. To consider and act upon a proposal to approve the Company's 1996
Bonus Plan;
5. To ratify the selection of Coopers & Lybrand L.L.P. as independent
auditors of the Company for the fiscal year ending December 31, 1996; and
6. To act upon such other matters as may properly come before the meeting
or any adjournment or postponement thereof.
Only shareholders of record at the close of business on September 23, 1996,
will be entitled to vote at the meeting either in person or by proxy. Each of
these shareholders is cordially invited to be present and vote at the meeting
in person.
In order to insure that your shares are represented and are voted in
accordance with your wishes, IT WILL BE APPRECIATED IF YOU WILL DATE AND SIGN
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE. If you
attend the meeting, you may personally vote your shares regardless of whether
you have signed a proxy.
/s/ Raymond B. Ostroski
Raymond B. Ostroski, Executive
Vice President, General Counsel
and Corporate Secretary
Dated: October 11, 1996
<PAGE>
C-TEC CORPORATION
----------------------
PROXY STATEMENT
----------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD NOVEMBER 7, 1996
This Proxy Statement is being mailed to shareholders on or about October 11,
1996, in connection with the solicitation of proxies by the Board of Directors
of the Company for use at the Annual Meeting of Shareholders (the "Annual
Meeting") to be held on November 7, 1996, at 11:00 A.M., local time, at the
Hyatt Regency Princeton, 102 Carnegie Center, Princeton, New Jersey, and at
any adjournment or postponement thereof.
At the Annual Meeting, shareholders of C-TEC eligible to vote will consider
and vote upon proposals (i) to elect four (4) Class III Directors to serve for
a term of three (3) years; (ii) to approve the Company's Executive Stock
Purchase Plan; (iii) to approve the Company's 1996 Equity Incentive Plan; (iv)
to approve the Company's 1996 Bonus Plan; (v) to ratify the appointment of
Coopers & Lybrand L.L.P. as independent auditors of C-TEC for the fiscal year
ending December 31, 1996; and (vi) to transact such other business as may
properly come before the meeting.
Any proxy may be revoked at any time prior to its exercise by notifying the
Secretary in writing, by delivering a duly executed proxy bearing a later date
or by attending the meeting and voting in person.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement in connection with the
solicitation made hereby, and if given or made, such information or
representation should not be relied upon as having been authorized by C-TEC.
----------------
The date of this Proxy Statement is October 11, 1996
1
<PAGE>
THE ANNUAL MEETING
TIME, DATE AND PLACE
The Annual Meeting will be held at the Hyatt Regency Princeton, 102 Carnegie
Center, Princeton, New Jersey, on November 7, 1996, at 11:00 a.m., local time.
PURPOSE OF THE ANNUAL MEETING
Shareholders of C-TEC will consider and vote upon proposals (i) to elect
four (4) Class III Directors to serve for a term of three (3) years; (ii) to
approve the Company's Executive Stock Purchase Plan; (iii) to approve the
Company's 1996 Equity Incentive Plan; (iv) to approve the Company's 1996 Bonus
Plan; (v) to ratify the appointment of Coopers & Lybrand L.L.P. as independent
auditors of C-TEC for the fiscal year ending December 31, 1996; and (vi) to
transact such other business as may properly come before the meeting.
RECORD DATE, QUORUM, REQUIRED VOTE
The close of business on September 23, 1996, has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote
at the Annual Meeting and at any adjournment or postponement thereof. On
September 23, 1996, there were outstanding 19,582,512 shares of C-TEC Common
Stock, par value $1.00 per share ("C-TEC Common Stock"), and 7,890,655 shares
of C-TEC Class B Common Stock, par value $1.00 per share ("C-TEC Class B
Stock"). The presence at the Annual Meeting, in person or by proxy, of
shareholders entitled to cast a majority of the votes entitled to be cast at
the Annual Meeting shall constitute a quorum at the Annual Meeting.
Shareholders will be entitled to one vote per share for C-TEC Common Stock and
fifteen votes per share for C-TEC Class B Stock on all matters to be submitted
to a vote at the Annual Meeting. Shareholders have cumulative voting rights
with respect to the election of Directors.
In accordance with Pennsylvania law, a shareholder entitled to vote for the
election of directors can withhold authority to vote for all nominees for
directors or can withhold authority to vote for certain nominees for
directors.
Directors will be elected by a plurality of the votes cast at the Annual
Meeting. Abstentions and broker non-votes are not treated as votes cast, and
thus will not be the equivalent of votes against the election of a nominee.
The approval of Proposals 2, 3, 4 and 5 (regarding approval of the Company's
Executive Stock Purchase Plan, approval of the Company's 1996 Equity Incentive
Plan, approval of the Company's 1996 Bonus Plan and ratification of the
independent auditors) each requires the affirmative vote of a majority of the
votes cast by the holders of C-TEC Common Stock and C-TEC Class B Stock voting
together as a single class. Abstentions and broker non-votes, because they are
not treated as votes cast, will not be the equivalent of votes against
Proposals 2, 3, 4 and 5.
2
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three (3) classes and is
currently comprised of twelve (12) members. One class is elected each year for
a three-year term. Class III Directors whose term will expire at the Annual
Meeting include the following nominees, all of whom are presently Directors of
the Company: James Q. Crowe, Stuart E. Graham, Richard R. Jaros and Michael J.
Mahoney. These four (4) nominees, if elected at the 1996 Annual Meeting, will
serve for a term of three (3) years expiring at the Annual Meeting of
Shareholders to be held in 1999.
It is not anticipated that any of these nominees will become unavailable for
any reason, but, if that should occur before the Annual Meeting, the persons
named on the enclosed Proxy reserve the right to substitute another person of
their choice as nominee in his place or to vote for such lesser number of
Directors as may be prescribed by the Board of Directors.
The Board of Directors recommends that the shareholders vote FOR the
election of these four (4) nominees as Class III Directors to serve for a term
of three (3) years.
DIRECTOR INFORMATION
Information as of June 30, 1996, concerning the principal occupation and
beneficial ownership of C-TEC Common Stock and C-TEC Class B Stock for the
nominees for election as Class III Directors and for the other current
Directors is set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF DIRECTOR AGE SINCE
---------------- --- --------
<C> <C> <S> <C>
James Q. Crowe............ 47 Chairman of the Board, Chief Execu- 1993
tive Officer and Director, MFS Com-
munications Company, Inc.
("MFSCC"); and Director, Kiewit Di-
versified Group, Inc. ("KDG"), Pe-
ter Kiewit Sons', Inc. ("PKS") and
CalEnergy Company, Inc. ("CECI").
Mr. Crowe does not own any Company
securities.
Stuart E. Graham.......... 50 Chairman, President and Chief Execu- 1990
tive Officer, Skanska Engineering
and Construction, Inc.; and Presi-
dent and Chief Executive Officer of
Slattery Associates, Inc. Mr. Gra-
ham owns 4,650 shares of C-TEC
Class B Stock.
Frank M. Henry............ 63 President, Frank Martz Coach Compa- 1980
ny; President, Gold Line, Inc.; Di-
rector, First Fidelity Bancorpora-
tion and First Fidelity Bank, N.A.
Mr. Henry owns 41,040 shares of C-
TEC Common Stock and 23,097 shares
of C-TEC Class B Stock.
Richard R. Jaros.......... 44 President, Kiewit Diversified Group, 1993
Inc., Executive Vice President,
Chief Financial Officer and Direc-
tor, PKS; Director, MFSCC and CECI.
Mr. Jaros does not own any Company
securities.
Robert E. Julian.......... 57 Retired, Executive Vice President 1993
and Chief Financial Officer, PKS;
Director, PKS; and Director, MFSCC.
Mr. Julian does not own any Company
securities.
Daniel E. Knowles......... 66 Personnel Consultant; retired Vice 1995
President of Personnel and Adminis-
tration, Grumman Corporation. Mr.
Knowles owns 500 shares of C-TEC
Common Stock.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME OF DIRECTOR AGE SINCE
---------------- --- --------
<C> <C> <S> <C>
Michael J. Mahoney........ 46 President and Chief Operating Offi- 1995
cer of the Company (since February
1994); President, Chief Operating
Officer and Director of Mercom,
Inc. Mr. Mahoney owns 15,161 shares
of C-TEC Common Stock.
David C. McCourt.......... 39 Chairman and Chief Executive Officer 1993
of the Company (since October
1993); President, Chief Executive
Officer and Director, RCN Corpora-
tion ("RCN"); Chairman, Chief Exec-
utive Officer and Director of
Mercom Inc.; President and Direc-
tor, Metropolitan Fiber
Systems/McCourt, Inc.; and Direc-
tor, MFSCC, MFS Telecom, Inc. and
Cable Satellite Public Affairs Net-
work ("C-SPAN"). Mr. McCourt owns
6,000 shares of C-TEC Class B Stock
and 30,214 shares of C-TEC Common
Stock and disclaims beneficial own-
ership of 10 shares of C-TEC Common
Stock owned by his children and for
which his spouse is custodian.
David C. Mitchell......... 55 Retired Corporate Executive Vice 1993
President, President of the Tele-
phone Group and Director, Rochester
Telephone Corporation; and Regional
Director, Marine Midland Bank. Mr.
Mitchell owns 2,300 shares of C-TEC
Common Stock.
Eugene Roth............... 61 Partner, Rosenn, Jenkins and 1989
Greenwald (Attorneys); and Direc-
tor, Pennsylvania Regional Board of
First Fidelity Bank, N.A. Mr. Roth
has sole voting and investment
power with respect to 357 shares of
C-TEC Common Stock and 396 shares
of C-TEC Class B Stock and shares
voting and investment power with
respect to 5,600 shares of C-TEC
Class B Stock.
Walter Scott, Jr.......... 64 Chairman, President and Director, 1993
PKS; Director, MFSCC, CECI,
Berkshire Hathaway Inc., Burlington
Resources, Inc., ConAgra, Inc.,
FirsTier Financial, Inc., and Val-
mont Industries, Inc. Mr. Scott
does not own any Company securi-
ties.
Michael B. Yanney(1)...... 62 Chairman and Chief Executive Officer 1996
of the America First Companies; Di-
rector, Burlington Northern Santa
Fe Corporation, Lozier Corporation,
Forest Oil Corporation, Freedom
Communications, Inc., MFSCC, Mid-
America Apartment Communities, Inc.
and PKS Information Services, Inc.
Mr. Yanney does not own any Company
securities and disclaims beneficial
ownership with respect to 833
shares of C-TEC Common Stock owned
by his spouse.
</TABLE>
- --------
(1) Mr. Yanney was appointed to the Board to replace Thomas C. Stortz who
resigned on August 8, 1996.
The Board of Directors is divided into three (3) classes. David C. McCourt,
David C. Mitchell, Daniel E. Knowles and Walter Scott, Jr. are members of
Class I with terms expiring in 1997. Robert E. Julian, Frank M. Henry, Eugene
Roth and Michael B. Yanney are members of Class II with terms expiring in
1998. James Q. Crowe, Stuart E. Graham, Richard R. Jaros and Michael J.
Mahoney are members of Class III whose term will expire at the Annual Meeting.
4
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
No named executive officer (as such term is defined herein), nominee or
Director beneficially owned, as of June 30, 1996, more than one percent of
either the outstanding C-TEC Common Stock or C-TEC Class B Stock. The named
executive officers who beneficially owned securities of the Company as of such
date are David C. McCourt (30,214 shares of C-TEC Common Stock of which he
shares voting and investment power with his spouse; Mr. McCourt disclaims
beneficial ownership of 10 shares of C-TEC Common Stock for which his spouse
is custodian for his minor children. In addition Mr. McCourt owns 6,000 shares
of C-TEC Class B Stock, Michael J. Mahoney (15,161 shares of C-TEC Common
Stock), Raymond B. Ostroski (6,822 shares of C-TEC Common Stock and 1,000
shares of C-TEC Class B Stock), Mark Haverkate (19,775 shares of C-TEC Common
Stock and 796 shares of C-TEC Class B Stock) and Bruce C. Godfrey (13,267
shares of C-TEC Common Stock). Nominees, Directors and executive officers as a
group (the "Group") beneficially owned 130,229 shares of C-TEC Common Stock
and 41,539 shares of C-TEC Class B Stock, representing less than one percent
of each class of stock. Assuming the conversion of C-TEC Class B Stock held by
the Group into C-TEC Common Stock, the Group would have owned 171,768 shares
of C-TEC Common Stock representing two percent of such class. The above
information includes C-TEC's matching restricted stock awards.
The information set forth above and in "Director Information" does not give
effect to the ownership of Company securities by RCN. Certain executive
officers and directors of the Company are directly or indirectly affiliated
with RCN. For information with respect to the beneficial ownership of
securities by RCN, see "Security Ownership of Certain Beneficial Owners."
C-TEC Corporation has adopted the Executive Stock Purchase Plan (as used in
this paragraph, the "Plan") to provide a means by which key employees may
elect to defer receipt of up to 20% of their total annual cash compensation
under the terms of the Plan. Under the Plan, deferred compensation is credited
to participants' accounts as C-TEC Common Stock share units and the Company
issues a restricted stock award matching the share units credited on a share-
for-share basis. The units and the C-TEC Common Stock obtained through the
Plan are currently cash only rights unless and until the Plan is approved by
shareholders and as of the date hereof, all restricted stock awards are
represented by share units. As of June 30, 1996, Messrs. McCourt, Mahoney,
Godfrey, Ostroski and Haverkate owned 13,073, 3,743, 4,034, 2,437 and 2,840
units, respectively.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to the
beneficial ownership of shares of C-TEC Common Stock and C-TEC Class B Stock
by any person or group known to the Company to be a beneficial owner of more
than five percent of either class of shares. The "Total" columns are unlikely
to represent the sum of the related columns because most forms of ownership
require that the same shares be disclosed in two of the columns.
Because the shares of C-TEC Class B Stock are convertible at the option of
the holder into shares of C-TEC Common Stock on a one-for-one basis at any
time and from time to time, the "Assuming Conversion" columns in the C-TEC
Common Stock table reflect the total shares of C-TEC Common Stock which would
be beneficially owned upon conversion by each group, as well as the related
percentage beneficially owned by such group assuming no other conversions. The
"Percent of Class" columns represent ownership, not voting interest. Shares of
C-TEC Common Stock have one vote per share and shares of C-TEC Class B Stock
have 15 votes per share. In addition, shares of both classes can be voted
cumulatively with respect to the election of directors.
5
<PAGE>
C-TEC COMMON STOCK
<TABLE>
<CAPTION>
ASSUMING
WITHOUT CONVERSION CONVERSION
-------------------------------------------------------- ------------------
PERCENT PERCENT
SOLE SOLE SHARED SHARED OF OF
VOTING INVESTMENT VOTING INVESTMENT CLASS CLASS
POWER POWER POWER POWER TOTAL APPROX. TOTAL APPROX.
--------- ---------- ------ ---------- --------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RCN Corporation (1)..... 8,226,262 8,226,262 0 0 8,226,262 42.6% 13,320,485 69%
Mario J. Gabelli Group
(2).................... 1,813,150 1,921,800 0 0 1,921,800 9.9% 2,718,813 14.1%
C-TEC CLASS B STOCK
RCN Corporation (1)..... 5,094,223 5,094,223 0 0 5,094,223 60.82%
Mario J. Gabelli Group
(2).................... 797,013 797,013 0 0 797,013 9.80%
</TABLE>
- --------
1. PKS is the sole stockholder of KDG, which holds 90% of the stock of RCN.
David C. McCourt owns the remaining 10% of the stock of RCN. The address
for RCN, KDG and PKS is 1000 Kiewit Plaza, Omaha, Nebraska 68131.
2. Based on information obtained from Schedule 13Ds and amendments thereto for
the C-TEC Common Stock and the C-TEC Class B Stock filed through June 30,
1996 with the Securities and Exchange Commission (the "SEC") by Mario J.
Gabelli, together with GAMCO Investors, Inc., Gabelli Funds, Inc., Gabelli
Performance Partnership, Gabelli International Limited, Gabelli
International II Limited and Gabelli & Co., all of whose address is One
Corporate Center, Rye, New York 10580-1434.
COMPENSATION INFORMATION
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ending December 31,
1993, 1994 and 1995, the cash compensation, as well as certain other
compensation, paid or accrued to the named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------ -----------------------------
AWARDS (4) PAYOUTS
(1) --------------------- -------
OTHER RESTRICTED SECURITIES (2) ALL
ANNUAL STOCK UNDERLYING LTIP OTHER
COMP AWARDS OPTIONS PAYOUTS COMPENSATION
NAME AND POSITION YEAR SALARY($) BONUS($) ($) ($) (#) ($) ($)
------------------- ---- --------- -------- ------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David C. McCourt........ 1995 397,885 700,000 -- 220,000 250,000 -- 5,786
Chairman of the Board 1994 375,000 500,000 -- -- 250,000 -- 387
and C.E.O. 1993 64,904 -- -- -- -- -- 28
Michael J. Mahoney...... 1995 222,462 100,000 -- 65,000 -- -- 5,786
President and Chief 1994 190,719 125,000 -- -- 100,000 -- 5,585
Operating Officer 1993 141,231 83,504 -- -- -- 293,902 5,135
Bruce C. Godfrey........ 1995 183,731 150,000 -- 67,000 -- -- 4,984
E.V.P. and Chief 1994 128,154 53,500 -- -- 70,000 -- 165
Financial Officer 1993 -- -- -- -- -- -- --
Raymond B. Ostroski..... 1995 147,885 60,000 -- 42,000 35,000 -- 5,203
E.V.P. General Counsel 1994 122,335 43,750 -- -- 35,000 -- 4,427
and Corporate Secretary 1993 91,615 53,503 -- -- -- 137,296 3,199
Mark Haverkate.......... 1995 137,952 100,000 -- 35,168 35,000 -- 4,894
E.V.P.--Cable 1994 113,676 24,795 -- -- 25,000 -- 4,507
Television Group 1993 (3) (3) (3) (3) (3) (3) (3)
</TABLE>
6
<PAGE>
- --------
(1) The only type of other Annual Compensation for each of the named executive
officers was in the form of perquisites and was less than the level
required for reporting.
(2) Includes the following amounts for the last fiscal year: (i) David C.
McCourt; $704--Company paid life insurance; $5,082--401(k) Company match;
(ii) Michael J. Mahoney; $704--Company paid life insurance; $4,280--401(k)
Company match; (iii) Bruce C. Godfrey; $704--Company paid life insurance;
$5,082--401(k) Company match; (iv) Raymond B. Ostroski; $704--Company paid
life insurance; $4,499--401(k) Company match; and (v) Mark Haverkate;
$697--Company paid life insurance; $4,197--401(k) Company match. Does not
include $16,747 paid to certain senior officers listed for relocation
expenses incurred in moving said senior officers and their families to the
Company's new executive offices in Princeton, New Jersey.
(3) The information is not required since the named executive was not an
executive officer during 1993.
(4) Represents the market value on the date of grant of restricted stock
awards. Additional information with respect to restricted stock awards is
as follows as of December 31, 1995:
<TABLE>
<CAPTION>
AGGREGATE
SHARES VALUE
-------- ---------
<S> <C> <C>
David C. McCourt.......................................... 5,992.88 185,779
Michael J. Mahoney........................................ 1,815.34 56,276
Bruce C. Godfrey.......................................... 1,850.56 57,367
Raymond B. Ostroski....................................... 1,169.30 36,248
Mark Haverkate............................................ 988.38 30,640
</TABLE>
Vesting of restricted shares is accelerated upon a change in control of the
Company. Dividends, if any, are paid on restricted shares. All restricted
shares awarded as of December 31, 1995 vest in December 1998.
AGGREGATE OPTION GRANTS IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following tables show information with respect to the executive officers
identified below concerning the grants of options under the Company's 1994
Stock Option Plan.
C-TEC OPTION GRANTS IN FISCAL YEAR 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
PERCENTAGE OF TOTAL APPRECIATION
NUMBER OF SECURITIES OPTIONS GRANTED FOR OPTION TERM
UNDERLYING TO EMP. IN EXERCISE OR EXPIRATION ---------------------
NAME OPTIONS GRANTED(1) FISCAL YR. 1995 BASE PRICE DATE 5% 10%
---- -------------------- ------------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David C. McCourt........ 250,000 39.78% $21.13 01/20/05 $3,321,350 $8,416,952
Michael J. Mahoney...... -- 0.00% -- -- -- --
Bruce C. Godfrey........ -- 0.00% -- -- -- --
Raymond B. Ostroski..... 35,000 5.57% 22.75 05/15/05 500,757 1,269,017
Mark Haverkate.......... 35,000 5.57% 23.56 09/14/05 518,642 1,314,339
</TABLE>
- --------
(1) Said options become exercisable (subject to acceleration upon a change in
control) in cumulative annual increments of 20% from the original date of
grant.
7
<PAGE>
C-TEC AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995 AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
SHARES UNDERLYING UNEXERCISED OPTIONS/
ACQUIRED VALUE OPTIONS/SAR'S AT FY-END
ON REALIZED AT FY-END EXERCISABLE/UNEXERCISABLE
NAME EXERCISE ($) EXERCISABLE/UNEXERCISABLE ($)
---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
David C. McCourt........ 0 0 50,000/450,000 425,000/4,168,750
Michael J. Mahoney...... 0 0 20,000/80,000 110,000/440,000
Bruce C. Godfrey........ 0 0 14,000/56,000 77,000/308,000
Raymond B. Ostroski..... 0 0 7,000/63,000 38,500/442,750
Mark Haverkate.......... 0 0 5,000/55,000 27,500/370,313
</TABLE>
PENSION BENEFITS
The following table shows the estimated annual benefits payable upon
retirement for the named executive officers in the compensation and years of
service classifications indicated under the Company's pension plan.
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE ----------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
$100,000 17,955 23,940 29,925 35,910 41,895
125,000 23,018 30,690 38,363 46,035 53,708
150,000 28,080 37,440 46,800 56,160 65,520
175,000 28,080 37,440 46,800 56,160 65,520
200,000 28,080 37,440 46,800 56,160 65,520
225,000 28,080 37,440 46,800 56,160 65,520
250,000 28,080 37,440 46,800 56,160 65,520
275,000 28,080 37,440 46,800 56,160 65,520
300,000 28,080 37,440 46,800 56,160 65,520
</TABLE>
Pensions are computed on a straight life annuity basis and are not reduced
for social security or other offset amounts. Participants receive a pension
based upon average compensation multiplied by 1.1% for each of the number of
years of service. Average compensation is computed on the basis of the average
of the employee's highest five consecutive annual base salaries in the ten
years immediately preceding retirement. The compensation covered by this plan
is generally based upon the compensation disclosed as salary in the "Summary
Compensation Table." The credited years of service for Messrs. McCourt,
Mahoney, Godfrey, Ostroski and Haverkate are 2, 5, 2, 10 and 15, respectively.
8
<PAGE>
COMPENSATION COMMITTEE REPORT
The compensation programs for the Company's executive officers are
administered by the Compensation Committee (as used under the caption
Compensation Committee Report, the "Committee") of the Company's Board of
Directors. The Committee makes recommendations and/or determinations with
respect to executive compensation matters. All members of the Committee are
outside Directors who are not currently eligible to participate in any of the
compensation programs that the Committee oversees.
The Committee submits the following report on compensation for the Company's
executive officers for 1995.
Compensation Philosophy
The philosophy of the Company's compensation programs is to offer
performance-based compensation to its executives, while rewarding those
executives whose efforts enable the Company to achieve its business objectives
and enhance shareholder value. The Company's compensation plan policies and
philosophies are to:
1. Establish and implement the concept of Total Direct Compensation
("TDC") with a base salary slightly below that of the Company's peer group,
a short term bonus equivalent to that of the Company's peer group and a
long-term bonus above that of the Company's peer group.
2. Establish levels or bands which are market-based for the executive
group and develop a TDC for each band. Position placement in the bands is
based on performance, level of responsibility, scope and impact on decision
making.
3. Provide that as an executive's level of responsibility increases, a
greater portion of his potential total compensation opportunity is based on
performance incentives rather than on base salary benefits.
4. Align the interests of executives with the interests of shareholders
through ownership of Company stock.
Base salary structure guidelines were approved by the Board and became
effective February 1, 1994. The 1994 executive short-term incentive plan was
adopted in April 1994. The plan established specific objectives and component
weightings for each executive level band. The long-term incentive component of
the TDC is the 1994 Stock Option Plan which was approved by the Company's
shareholders in April 1994. Since 1994, the Compensation Committee has used
the TDC guidelines in their determination of base salary, short-term incentive
grants, and stock option grants as they deemed appropriate and consistent with
the compensation philosophy of the Company. If approved by shareholders, the
Company's 1996 Equity Incentive Plan will replace the 1994 Stock Option Plan.
In 1995, the Committee determined that the interests of the Company's
executives and shareholders should be further aligned by requiring key
executives to acquire and maintain a significant equity stake in the Company;
in particular, an equity stake for which they have paid. Accordingly,
guidelines were adopted requiring all key executives to own Company stock
equal to 100% to 300% (depending upon their title) of their annual base salary
within five years from the date the guidelines were adopted. To assist
executives in accumulating this equity position on a pre-tax basis, the
Company implemented, subject to shareholder approval, the Executive Stock
Purchase Plan pursuant to which an executive's purchase of Company stock is
matched by the Company.
Executive Officer Compensation
In conjunction with the market-based executive level position bands referred
to above, the Company increased executive salaries effective February 14,
1995. These increases were based upon the consideration of comparable
employment data, an assessment of the Company's and the officers'
9
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performance during the prior year and other contributions of the officers to
the Company's overall performance and future positioning.
The amount of cash bonuses paid to executive officers for 1995 pursuant to
the executive short-term incentive plan was determined through a combination
of factors including the attainment of certain pre-established corporate,
business unit and individual objectives (financial and non-financial), the
compensation practices of the Company's peer group, results of corporate and
business unit financial performances and a discretionary component.
At June 30, 1996, 935,000 stock options were held by eight executive
officers, including Messrs. McCourt and Mahoney, and an additional 197,000
stock options were held by twenty-one mid-level management employees of the
Company. Stock options were granted with an exercise price equal to or greater
than the fair market value of the Company's Common Stock at the time of grant
and generally become exercisable over a five year period commencing one year
from the date of grant. The Committee believes that such stock options provide
an incentive for the creation of shareholder value in the long term since the
full benefit of the compensation package cannot be realized unless the price
of the Company's stock appreciates over a specified number of years. The
number of stock options granted to each executive officer was based on the
individual's salary band, title and the Committee's evaluation of each
executive's individual performance and contribution to the Company's
performance and future positioning.
Chief Executive Officer Compensation
Mr. McCourt was paid a base salary and bonus of $397,885 and $700,000,
respectively, for services rendered in 1995. The Committee determined that in
accordance with the compensation philosophy described above, his salary should
be increased to $500,000 for 1996 to bring it in line to be slightly below
that of similar positions for companies in the Company's peer group. Mr.
McCourt's short-term incentive award reflects the accomplishment of certain
strategic corporate objectives, the attainment of certain pre-determined
corporate financial and non-financial goals and the 700% increase in the
Company's income from continuing operations over the corresponding results for
the prior year.
During 1995, the Committee awarded Mr. McCourt options to acquire 250,000
shares of C-TEC Common Stock at an exercise price of $21.13 per share (fair
market value on the date of grant). The number of shares granted reflects the
Committee's assessment of the competitive compensation practices of the
Company's peer group and Mr. McCourt's contribution toward the achievement of
the Company's strategic objectives. The Committee also considered the options
previously awarded to Mr. McCourt in the prior year.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over $1 million
paid to the corporation's Chief Executive Officer and four other most highly
compensated executive officers. Qualifying performance-based compensation will
not be subject to the deduction limit if certain requirements are met. The
Company generally intends to comply with the rules under Section 162(m).
However, the Committee reserves the right to pay non-deductible compensation
when the Committee believes it is in the best interests of shareholders.
COMPENSATION COMMITTEE
Eugene Roth, Chairman
Robert E. Julian
Stuart E. Graham
Daniel E. Knowles
Dated: August 7, 1996
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Eugene Roth, Esq., Stuart E.
Graham, Robert E. Julian and Daniel E. Knowles.
Eugene Roth, Esq. is a partner at Rosenn, Jenkins and Greenwald, which
serves as counsel to the Company from time to time.
OTHER RELATED INFORMATION
Peter Kiewit Sons' Inc., the Company's controlling shareholder, and/or its
affiliates have a substantial stock ownership in CECI, RCN and the Company.
Many of the companies share mutual director representation on their respective
boards.
Although members of the current Compensation Committee do not serve on any
Kiewit-related compensation committees, Robert E. Julian is a Director at PKS.
James Q. Crowe and Richard R. Jaros, members of the Company's Executive
Committee, are on the compensation committee of CECI.
11
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the performance of the C-TEC Common
Stock and C-TEC Class B Stock to the NASDAQ market index and to a peer group
index. The peer group index is comprised of the NASDAQ Telecommunications
index. The Company formerly used a peer group index comprised of Associated
Communications, Lincoln Telecommunications and TCA Cable Television, Inc. The
Company changed its peer group index because of the refocus of its strategic
business direction to traditional wire-based businesses utilizing full service
networks and emerging products. The Company believes that the synergies of its
businesses are more critical to success than their separate activities. As a
result, the Company believes that a broad based telecommunications peer group
index is more reflective of the industry as a whole and therefore is a better
basis of comparison than a peer group index comprised of a limited number of
companies chosen primarily due to their similarity to individual business
units of the Company. The former index is presented in the graph below for
reference. Associated Communications, which was merged in late 1994, has been
omitted from the index for all years. The graph assumes that the value of the
investment in C-TEC Common Stock, C-TEC Class B Stock and each index was $100
at December 31, 1990 and that all dividends were reinvested.
Comparison of Five Year Cumulative Total Return*
Among C-TEC Common Stock, C-TEC Class B Stock
the NASDAQ Stock Market-US Index and a Peer Group
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date C-TEC CORPORATION C-TEC CORP. CLASS B NASDAQ TELECOM FORMER PEER GROUP NASDAQ STOCK MARKT-US
- ---- ----------------- ------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C>
12/90 $ 100 $ 100 $ 100 $ 100 $ 100
12/91 $ 110 $ 101 $ 138 $ 107 $ 161
12/92 $ 97 $ 84 $ 169 $ 127 $ 187
12/93 $ 207 $ 206 $ 261 $ 177 $ 214
12/94 $ 134 $ 114 $ 216 $ 152 $ 210
12/95 $ 214 $ 179 $ 260 $ 196 $ 297
</TABLE>
12
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TRANSACTIONS WITH MANAGEMENT AND CERTAIN CONCERNS
David C. McCourt, Chairman, Chief Executive Officer and Director of the
Company, is a Director of C-SPAN. In 1995, the Company paid $131,784 to C-SPAN
for programming services.
Frank M. Henry, together with his spouse, owns a 50% partnership interest in
Frank M. Henry Associates, which leased office space to the Company under a
lease which expired May 31, 1996. A total of $313,743 was paid by the Company
to Frank M. Henry Associates for rent, utility, parking and maintenance
services for the year ending December 31, 1995.
David C. Mitchell, a Director of the Company, serves as a consultant to the
Company and was paid $148,125 by the Company in 1995.
In December 1995, the Company acquired from RCN all the issued and
outstanding shares of C-TEC Common Stock of RCN Holdings, Inc. ("Holdings").
Holdings was a wholly-owned subsidiary of RCN that owned 128,198 shares of C-
TEC Common Stock and 3,582,406 shares of C-TEC Class B Stock. RCN is the
Company's controlling shareholder. The consideration for the acquisition was
newly issued shares of C-TEC Common Stock and C-TEC Class B Stock,
respectively, equal to the number of shares of C-TEC Common Stock and C-TEC
Class B Stock held by Holdings. At the same time as the Company consummated
this transaction, RCN agreed, subject to certain terms and conditions, to
reduce its voting interest in the Company to below fifty percent if such
reduction is necessary to facilitate a tax-free restructuring of the Company.
In May 1995, the Company sold its interest in Northeast Networks, Inc., a
competitive access provider providing services to Westchester County, New
York, to MFSCC for $6.2 million.
In January 1996, the Company purchased from Kiewit Construction Group, Inc.,
an affiliate of its largest shareholder, a $13,088,000 note payable by Mazon
Corporativo, S.A. de C.V. at face value.
In March 1996, the Company signed a definitive agreement (the "Stock
Purchase Agreement") for the sale to RCN of Residential Communications
Network, Inc. ("UrbanNet") and certain other businesses ("Other Businesses").
UrbanNet is a start-up business unit that plans to provide integrated
telecommunications services to the telecommunications marketplace. In April
1996, RCN acquired UrbanNet from the Company for $17,500,000 in cash in
accordance with the Stock Purchase Agreement. The closing of the sale of the
Other Businesses was subject to certain conditions that did not occur.
The Stock Purchase Agreement provided the Company the option to rescind the
sale of UrbanNet to RCN under certain circumstances (the "UrbanNet Option"),
and provided that if the Company elected to exercise the UrbanNet Option it
would purchase RCN's 80.1% interest in Freedom New York, L.L.C., a Delaware
limited liability company ("Freedom"), and all related rights and liabilities
(collectively, the "Freedom Interest") on the terms and subject to the
conditions set forth in the Stock Purchase Agreement. The Stock Purchase
Agreement provided that the consideration the Company would pay for UrbanNet
and the Freedom Interest, if it exercised the UrbanNet Option, would be equal
to RCN's investment in those assets plus a 7% annualized return on that
investment. Freedom is the successor to the business of Liberty Cable Company,
Inc. RCN acquired the Freedom Interest in March 1996 for $27,000,000.
On August 30, 1996, the Company and RCN entered into an Option Exercise
Agreement pursuant to which the Company exercised the UrbanNet Option.
Concurrently, with the execution of that Agreement, (i) the Company and RCN
effected the rescission of the prior sale of UrbanNet to RCN and (ii) the
Company purchased the Freedom Interest from RCN. The Company paid RCN
$28,447,389
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<PAGE>
as consideration in the rescission of the UrbanNet transaction. The purchase
price of the Freedom Interest was $29,847,364. In connection with those
transactions, the Company acquired from RCN a note issued by Freedom in
connection with a loan from RCN to Freedom. The purchase price for the note
was $1,518,603, an amount equal to the accreted value of the note. The
rescission, the purchase of the Freedom Interest and the purchase of the note
were funded through C-TEC's working capital.
The terms of the Stock Purchase Agreement and the Option Exercise Agreement,
and the Company's decision to exercise the UrbanNet Option, were approved by a
special committee of the Board of Directors of the Company composed of members
not affiliated with RCN.
The Company believes that all transactions described herein were on terms at
least as favorable to the Company as would have been available from an
unrelated third party in an arms-length transaction.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
The Board of Directors of the Company held seven meetings in 1995. The Board
of Directors has standing Executive, Audit, Compensation and Pension
Committees.
The Executive Committee held one meeting in 1995. The Committee evaluated
and recommended strategic options for the Company's various business units
with a view toward maximizing shareholder value. The current Executive
Committee consists of David C. McCourt, Chairman, James Q. Crowe, Richard R.
Jaros and Walter Scott, Jr.
The Audit Committee of the Company held two meetings in 1995. The Committee
(i) discussed matters concerning the audit of the annual financial statements;
(ii) considered the Company's internal audit program; (iii) recommended the
selection of the independent auditors to audit the accounts of the Company;
and (vi) discussed other matters of concern to the Audit Committee, the
auditors or management. The current Audit Committee consists of Robert E.
Julian, Chairman, David C. Mitchell and Frank M. Henry.
The Compensation Committee of the Company held two meetings in 1995. The
Committee made recommendations to the Board of Directors concerning the
salaries and incentive compensation awards for the top levels of management of
the Company and its subsidiaries and established compensation policy. The
Compensation Committee also administered the Company's Short-Term Incentive
Plan and the 1994 Stock Option Plan as well as the Executive Stock Purchase
Plan. The current Compensation Committee consists of Eugene Roth, Chairman,
Robert E. Julian, Stuart E. Graham and Daniel E. Knowles.
The Pension Committee of the Company held two meetings in 1995. The
Committee reviewed and evaluated the investment performance of the various
pension investment funds and monitored the performance of the administrators,
investment managers and trustees of such funds, as well as reviewed the
actuarial assumptions used in setting the Company's funding policies for such
funds. The current Pension Committee consists of Richard R. Jaros, Chairman,
David C. McCourt and Michael J. Mahoney.
Non-employee Directors of the Company receive a retainer of $900 per month
and are paid $1,000 for each board meeting attended. The Committee Chairman
and other committee members are paid $500 and $300, respectively, for each
committee meeting attended. In fiscal 1995, Stuart E. Graham, Frank M. Henry,
Daniel E. Knowles, David C. Mitchell and Eugene Roth were paid $17,400,
$18,400, $18,100, $19,200 and $18,400, respectively, for the foregoing
services. Compensation for director services rendered by Directors not
employed as executive officers of the Company but employed as executive
officers at PKS and MFSCC totaled $66,600 (1) and $14,800 (2), respectively.
- --------
1. Messrs. Jaros, Julian, Scott, and Stortz.
2. Mr. Crowe.
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<PAGE>
PROPOSAL 2
APPROVAL OF C-TEC CORPORATION
EXECUTIVE STOCK PURCHASE PLAN
The Board has adopted and recommends that the shareholders approve the C-TEC
Corporation Executive Stock Purchase Plan (as used in connection with Proposal
2, the "Plan"). The purpose of the Plan is to strengthen the mutuality of
interests between certain of the Company's executives and its shareholders.
The Plan offers eligible executives of the Company and its affiliated
companies the opportunity to defer the receipt of a portion of their
compensation on a pre-tax basis and to have the deferred amounts reflect the
value of the C-TEC Common Stock. Under the Plan, deferred compensation is
credited to the participants' accounts as C-TEC Common Stock share units and
the Company issues a restricted stock award matching the share units credited
on a share-for-share basis. The share units credited in respect of deferrals
will be notionally invested in C-TEC Common Stock and will be payable by the
Company solely in cash unless and until the Plan is approved by shareholders.
The restricted shares awarded by the Company are similarly payable only in
cash until or unless the Plan is approved by shareholders, although the
Company has the option of delivering up to 24,999 actual shares of restricted
stock prior to shareholder approval. If approved, matching grants of
restricted stock will be held in an escrow account and will be distributed to
the executive if he or she remains employed for three years following the
grant.
THE PLAN
ELIGIBILITY. An executive officer of the Company is eligible to participate
in the Plan if such employee (1) has completed one full calendar quarter of
employment with the Company and (2) has been designated by the Company's Board
of Directors (the "Board") as eligible to participate in the Plan. As of June
30,1996, eight executive officers were eligible to participate in the plan.
ADMINISTRATION. The Plan shall be administered by the Company or by any
person or entity to which the Board delegates administrative responsibilities
under the Plan. The Administrator shall be responsible for and shall have sole
discretion with respect to: (i) the maintenance of any records necessary in
connection with the operation of the Plan; (ii) calculating amounts to be
credited to Plan participants' ("Participants") Contribution Accounts, as
defined below, and Matching Accounts, as defined below, and the amount of
payments due to Participants and beneficiaries from such Accounts; (iii)
interpreting the provisions of the Plan; and (iv) otherwise administering the
Plan in accordance with its terms.
DEFERRED CONTRIBUTIONS. The principal purpose of the Plan is to permit
Participants to save by allowing them to defer a portion of their base and
bonus compensation (a "Contribution") under the Plan. Participants in the Plan
can make Contributions before Federal, state and local income taxes are
withheld from such compensation.
AMOUNT OF DEFERRED CONTRIBUTIONS; FRONTLOADING
Under the Plan, a Participant may make Contributions of between 1% and 20%
of his or her annual base compensation, and between 1% and 100% of his or her
annual bonus compensation, provided, however, that in no event shall the
Participant's total Contribution exceed 20% of the sum of his or her Annual
Compensation (as defined below).
"Annual Compensation" for any calendar year is defined in the Plan to mean
the sum of (1) a Participant's annual base salary for such year plus (2) the
short term bonus received by Participant in respect of Company performance
during such year. The Administrator shall have the sole discretion to
determine a Participant's Annual Compensation as of any relevant time in
accordance with the provisions of the Plan.
15
<PAGE>
A Participant may elect to defer between 1% and 100% of his or her
compensation earned during any payroll period, provided that such deferrals do
not exceed, individually or in the aggregate, 20% of his or her Annual
Compensation. To the extent that a Participant elects to defer a portion of
his or her compensation during any payroll period in excess of 20% of the
compensation earned by Participant as of the end of such payroll period (but
less than 20% of Annual Compensation), the amount in excess of 20% earned as
of the end of such payroll period may, in the sole discretion of the
Administrator, be treated as a frontloaded amount (a "Frontloaded Amount").
During the course of the year, as a Participant earns additional compensation,
a Frontloaded Amount will typically cease to represent an excess over 20% of
the compensation earned by Participant during the year to date, and at such
time the Frontloaded Amount will cease to be treated as a Frontloaded Amount.
Frontloaded Amounts, if distributed, may, in the sole discretion of the
Administrator, be distributed in cash, not shares of C-TEC Common Stock, and
may not reflect increases or decreases in the value of shares of C-TEC Common
Stock from the date of deferral of such Frontloaded Amount. Similar rules will
apply to Matching Contributions made in respect of Frontloaded Amounts.
CREDITING PARTICIPANTS' ACCOUNTS
When a Participant makes a Contribution under the Plan, the Company credits
the Participant's account (a "Contribution Account") with the number of share
units ("Share Units") derived by dividing the amount of the Participant's
Contribution by the average price of a share of C-TEC Common Stock at
approximately the time such Contribution is made. Thus, if a Participant
contributes $100, and if at approximately the time such Contribution is made
the average price of a share of C-TEC Common Stock is $25, the Company will
credit the Participant's Contribution Account with 4 Share Units. Additional
information about the crediting of Share Units to Participants' Contribution
Accounts in respect of Contributions can be found in the Plan.
If the Company pays a cash dividend with respect to shares of C-TEC Common
Stock, the Company will reflect the dividend by crediting a Participant's
Contribution Account with the number of Share Units derived by (1) multiplying
the amount of the per share cash dividend by the number of Share Units held in
the Participant's Contribution Account and (2) dividing that number by the
average price of a share of C-TEC Common Stock at approximately the time the
cash dividend is paid. Thus, if a $10 per share dividend is paid, and a
Participant's Contribution Account holds 10 Share Units, $100 will be credited
to the Participant's Contribution Account in the form of Share Units. If at
approximately the time the dividend is paid the average price of a share of C-
TEC Common Stock is $25, the Company will credit the Participant's
Contribution Account with 4 Share Units.
Similarly, if the Company pays a dividend with respect to shares of C-TEC
Common Stock in the form of additional shares, the Company will credit a
Participant's Contribution Account with the number of Share Units derived by
multiplying the per share dividend by the number of Share Units held in the
Participant's Contribution Account at the time such dividend is paid. Thus, if
a dividend of one additional share of C-TEC Common Stock is paid with respect
to each outstanding share of C-TEC Common Stock, and a Participant's
Contribution Account holds 10 Share Units at the time such dividend is paid,
the Company will credit the Participant's Contribution Account with 10 Share
Units. Additional information about the crediting of Share Units to
Participants' Contribution Accounts in respect of dividends can be found in
the Plan.
The Share Units credited to a Participant's Contribution Account do not give
such Participant any rights as a shareholder with respect to, or any rights as
a holder or record owner of, any shares of C-TEC Common Stock.
16
<PAGE>
DISTRIBUTIONS
Amounts representing Share Units that have been credited to a Participant's
Contribution Account will be distributed, in the case of cash, in a lump sum,
and in the case of shares of C-TEC Common Stock, either in a lump sum or in
substantially equal installments over ten years, as elected by the Participant
in the Election Form, as soon as administratively practicable following the
earlier of (1) the Participant's termination of employment with the Company
and (2) three calendar years following the date on which the Share Units were
initially credited to the Participant's Contribution Account or the date
designated by Participant in his or her Election Form (not earlier than three
calendar years following the date on which the Share Units were initially
credited to the Participant's Contribution Account). It is anticipated that,
at the time of distribution, a Participant will receive one share of C-TEC
Common Stock for each Share Unit being distributed; however, unless and until
such time as the Plan is approved by the shareholders of the Company, a Share
Unit will represent only the right to be paid in cash the fair market value of
a share of C-TEC Common Stock at the time of payment. Additional information
about the distribution of Participants' Contribution Accounts can be found in
the Plan.
UNFORESEEABLE EMERGENCIES
For purposes of the Plan, an unforeseeable emergency is defined as an
unanticipated emergency that (1) is caused by an event beyond the
Participant's control and (2) would result in severe financial hardship to the
Participant if a withdrawal under the Plan were not permitted. If, in its sole
discretion, the Administrator determines that a Participant faces an
unforeseeable emergency, the Participant will be eligible to receive a lump
sum payment in the amount necessary to meet the emergency. Such amount will be
paid in cash or, if the Plan has been approved by the shareholders of the
Company, in shares of C-TEC Common Stock, and the Participant's Contribution
Account shall be debited accordingly.
MATCHING CONTRIBUTIONS
Matching Shares and Matching Share Units
Prior to shareholder approval of the Plan, at the time a Share Unit is
credited to a Participant's Contribution Account, the Company will either (1)
issue a share of C-TEC Common Stock in the Participant's name (a "Matching
Share"), which Matching Share will be subject to forfeiture as described below
and in the Plan or (2) credit a matching Share Unit (a "Matching Share Unit")
to the Participant's matching account (a "Matching Account"). As soon as
administratively practicable following shareholder approval of the Plan, it is
contemplated that the Matching Accounts will be extinguished and the Company
will issue, in the Participant's name, a number of Matching Shares equal to
the number of Matching Share Units credited to such Participant's Matching
Account. The Matching Share Units and the Matching Shares issued in respect of
Matching Share Units will be subject to forfeiture as described below and in
the Plan. Unless and until the Plan has been approved by the shareholders of
the Company, the maximum number of Matching Shares which can be issued to
Participants under the Plan is 24,999.
Forfeiture of Matching Shares and Matching Share Units
Each Matching Share and Matching Share Unit is subject to forfeiture as
provided in the Plan. The issuance of Matching Shares will be subject to the
Participant's execution of an escrow agreement, in form and substance
satisfactory to the Company, which provides that the stock certificate or
certificates representing the Matching Shares will be held in escrow by an
escrow agent. If the Participant terminates employment with the Company prior
to the elapse of three calendar years following the crediting of Share Units
in respect of which Matching Shares are issued or, if
17
<PAGE>
applicable, Matching Share Units are credited to the Participant's Matching
Account (except where the termination is due to death or Disability (as
defined in the Plan) or for any reason following a Change in Control (as
defined in the Plan)), such Matching Shares will be released from escrow and
returned to the Company and such Matching Share Units, if any such remain,
will terminate without any obligation on the part of the Company.
If the Participant does remain employed by the Company for three calendar
years following the crediting of Share Units in respect of which Matching
Shares are issued or, if applicable, Matching Share Units are credited to the
Participant's Matching Account (or if the Participant, prior to the elapse of
three calendar years following such event, terminates his or her employment
with the Company due to death or Disability, or for any reason following a
Change in Control), such Matching Shares will be released from escrow and
distributed to the Participant (or his or her beneficiary), and such Matching
Share Units, if any such remain, will be distributed in cash in an amount
equal to the fair market value of a share of C-TEC Common Stock at the time of
payment.
A Participant will be deemed to be the holder of, and may exercise all the
rights of a record owner of, the Matching Shares issued to such Participant
while such Matching Shares are held in escrow (other than the right to
transfer, convey, alienate or encumber the Matching Shares), including the
right to vote such Matching Shares and to receive all cash dividends with
respect to such Matching Shares.
Amendment and Termination of the Plan
The Plan will remain in effect until terminated by the Board. The Board has
the power to amend or terminate the Plan at any time, and to freeze or suspend
contributions to the Plan (including both Contributions and Matching
Contributions) at any time. The amendment or termination of the Plan will not
impair the rights of any Participant with respect to any amount credited to
the Participant's accounts at the time of amendment or termination unless the
Participant gives his or her consent to such amendment or termination.
Number of Shares Which May Be Distributed Under the Plan
Prior to shareholder approval of the Plan, the number of shares that may be
distributed under the Plan as Matching Shares cannot exceed 24,999. If and
when the Plan is approved by the shareholders of the Company, the maximum
number of shares which may be distributed under the Plan, as Matching Shares
or in payment of Share Units or Matching Share Units, will be 400,000.
UNITED STATES FEDERAL TAX CONSEQUENCES OF THE PLAN
Amounts Representing Share Units
A Participant will not be taxed on the amount of his or her Contributions
under the Plan at the time such Contributions are made, and neither will such
Participant recognize taxable income at the time the Company credits Matching
Share Units to such Participant's Matching Account. When, if ever, amounts
representing Matching Share Units are distributed to the Participant, the
Participant will recognize, in the year in which such distribution occurs,
income in the amount of such distribution taxable at ordinary income rates. If
Matching Shares are distributed upon extinguishment of the Matching Share
Units, the tax rules applicable to such Matching Shares, which are described
below, will apply at the time of such distribution.
Matching Shares
Unless a Participant makes an election under Section 83(b) of the Internal
Revenue Code in the manner described below ("an 83(b) Election"), the transfer
of Matching Shares to the Participant will
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<PAGE>
not result in income taxable to the Participant in the year in which such
transfer is made. The value of the Matching Shares will be taxable to the
Participant at ordinary income rates in the year in which such Matching Shares
cease to be subject to risk of forfeiture as described in the section entitled
Forfeiture of Matching Shares and Matching Share Units and in the Plan.
Alternatively, a Participant may elect, by means of an 83(b) Election, to
treat as income taxable at ordinary income rates in the year of transfer the
fair market value of the Matching Shares based on the average per share
trading price of the C-TEC Common Stock on the date of such transfer, provided
that the Participant makes such 83(b) Election within thirty days of the date
of grant. If such 83(b) Election is made, a Participant will not be permitted
to deduct at a later date the amount included in taxable income pursuant to
the 83(b) Election if such Participant should subsequently forfeit the
Matching Shares to the Company.
The amount of ordinary income recognized by a Participant in respect of
Matching Shares is deductible by the Company in the year in which such income
is recognized by the Participant, provided that such amount constitutes
reasonable compensation to the Participant. If an 83(b) Election is not made
by the Participant, dividends paid on the Matching Shares will be taxable to
the Participant at ordinary rates as additional compensation in the year in
which such dividends are received for as long as the Matching Shares remain
subject to risk of forfeiture, and the Company will be allowed a corresponding
deduction during such time.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
Because participation in the Plan is intended to be limited to a select
group of management and highly compensated employees, the Plan is exempt from
most of the requirements of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). To the extent the Plan is subject to any provision
of ERISA, Participants may be entitled to certain rights and protections.
Under ERISA, there are steps an individual can take to enforce his or her
rights. A Participant with questions about this statement or about his or her
rights under ERISA should contact the nearest Area Office of the U.S. Labor
Management Services Administration, Department of Labor.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE C-TEC CORPORATION EXECUTIVE STOCK PURCHASE PLAN.
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PROPOSAL 3
APPROVAL OF THE C-TEC CORPORATION 1996 EQUITY INCENTIVE PLAN
Effective October 7, 1996, the Board adopted the C-TEC Corporation 1996
Equity Incentive Plan (as used in connection with Proposal 3, the "1996
Plan"). If approved by shareholders, the 1996 Plan would effectively replace
the Company's 1994 Stock Option Plan (the "1994 Plan"). Like the 1994 Plan,
the 1996 Plan is designed to provide equity-based compensation opportunities
to key employees that will provide compensation only when shareholders of the
Company have received corresponding benefit through appreciation in the value
of the C-TEC Common Stock. However, the 1996 Plan is broader and more flexible
than the 1994 Plan, in that it would provide for grants of other types of
equity-based compensation in addition to traditional forms of stock options.
In particular, the 1996 Plan permits the grant of Outperformance Options.
Unlike traditional stock options, Outperformance Options would confer value to
executives only if the C-TEC Common Stock outperforms the broader Standard &
Poor's 500 Index, or another nationally recognized broad-based index of stock
prices established and maintained by an independent third party which is
selected by the Committee at the time of grant (for convenience of reference,
the applicable index is referred to herein as the "S&P"). If the C-TEC Common
Stock has not outperformed the S&P at the time of exercise, the value of an
Outperformance Option would be zero. In exchange for giving up the right to
appreciation which is below that of the S&P, an executive who is granted an
Outperformance Option will be rewarded for extraordinary performance by having
the value delivered upon exercise increased according to the degree that the
C-TEC Common Stock outperformed the S&P.
If the 1996 Plan is approved by shareholders, the Company may offer to
certain employees currently holding stock options under the 1994 Plan the
opportunity to surrender their existing options for new Outperformance Options
under the 1996 Plan.
Effectiveness of the 1996 Plan is contingent upon approval of the 1996 Plan
by the shareholders of the Company in a manner which complies with (i) Section
422(b)(1) of the Internal Revenue Code of 1986, as amended (the "Code"),
(ii) Section 162(m) of the Code and (iii) the requirements of the National
Association of Securities Dealers Automated Quotation System.
The following summary of the 1996 Plan is qualified in its entirety by
reference to the text of the 1996 Plan, a copy of which has been filed with
the Securities and Exchange Commission.
SUMMARY OF THE 1996 PLAN
Purpose and Eligibility
The primary purpose of the 1996 Plan is to attract, retain and incentivise
skilled individuals whose services are essential to the success of the Company
by providing a means through which these individuals may share in the growth
and prosperity of the Company and its subsidiaries through stock ownership,
thus more closely aligning the interests of these individuals with those of
shareholders. The 1996 Plan contemplates the issuance of incentive stock
options within the meaning of Section 422 of the Code ("Incentive Stock
Options"), as well as stock options that are not designated as Incentive Stock
Options ("Nonqualified Stock Options") (Incentive Stock Options and
Nonqualified Stock Options are hereinafter collectively referred to as
"Options"), outperformance stock options ("Outperformance Options"), stock
appreciation rights ("SARs"), performance share units ("Performance Share
Units"), restricted stock ("Restricted Stock"), phantom stock units ("Phantom
Stock Units"), and other stock-based awards (collectively, "Awards").
All employees and outside consultants to the Company and any of its
subsidiaries and all Directors of the Company who are not also employees of
the Company ("Non-Employee Directors") (collectively "Eligible Persons") are
eligible to receive Awards under the 1996 Plan. Eligible Persons who receive
Awards pursuant to the 1996 Plan are hereinafter referred to as Participants
for purposes of the discussion of Proposal 3. The approximate number of
Eligible Persons is 1,500.
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Administration
The 1996 Plan may be administered by the full Board, the Compensation
Committee of the Board (the "Committee") or such other committee as the Board
may appoint to administer the 1996 Plan. Each member of the Committee must at
all times be both a "non-employee director" within the meaning of Rule 16b-3
of the Exchange Act and an "outside director" within the meaning of Section
162(m) of the Code. The Committee, in its sole discretion, has the authority,
among other things, to determine which Eligible Persons will receive Awards,
the terms of Awards, including any purchase or exercise price for Awards, the
time or times at which Awards will be granted, become exercisable and be
forfeited, and the number of shares covered by an Award. The Committee has
exclusive authority to interpret the 1996 Plan and to make all other
determinations deemed advisable for the administration of the 1996 Plan.
Outperformance Options
The 1996 Plan provides that the Committee is authorized to grant
Outperformance Options to any Eligible Person. An Outperformance Option
generally provides value only to the degree that the C-TEC Common Stock
outperforms the S&P. Each Outperformance Option will have an initial exercise
price per share (the "Initial Exercise Price") equal to the fair market value
of one share of C-TEC Common Stock (calculated pursuant to the terms of the
1996 Plan) on the trading day immediately preceding the date of grant. The
number of shares of C-TEC Common Stock subject to each Outperformance Option,
as well as other terms and conditions affecting the Outperformance Options,
will be determined by the Committee at the time of the grant. Immediately
prior to the time of any exercise, the Initial Exercise Price will adjust
automatically, upward or downward, by a percentage equal to the annualized
percentage increase or decrease in the S&P over the period beginning on the
date of grant and ending on the trading day immediately preceding the date of
exercise (the "Adjusted Exercise Price"), provided, however, that the Adjusted
Exercise Price will never be less than the Initial Exercise Price unless the
closing price of the C-TEC Common Stock on the trading day immediately
preceding the date of exercise is equal to or greater than the lnitial
Exercise Price.
The term of an Outperformance Option will be ten years or less, as
determined by the Committee. Outperformance Options will be granted with
vesting conditions set by the Committee at the time of grant; provided,
however, that such Options will have no value unless (i) the fair market value
of the C-TEC Common Stock has remained the same or increased from the time of
grant until the time of exercise, and (ii) the annualized percentage increase
in the C-TEC Common Stock is greater than the annualized percentage increase
in the S&P as of the date immediately preceding the date of exercise (each
calculated pursuant to the terms of the 1996 Plan).
Depending on the extent to which the C-TEC Common Stock outperforms the S&P,
the actual spread value of the Outperformance Option will be increased to an
adjusted value (the "Adjusted Value") by multiplying by a pre-established
factor which varies according to the extent to which the C-TEC Common Stock
has outperformed the S&P (the "Factor"). The Factor will in no event be
greater than eight (8). At the time an Outperformance Option is granted, the
Committee will determine the percentage by which the C-TEC Common Stock must
outperform the S&P to apply the Factor and the amount of the Factor as it
relates to the degree of outperformance of the C-TEC Common Stock over the
S&P. As an alternative to or in addition to any vesting conditions imposed on
an Outperformance Option, the Committee may provide for automatic reductions
to the Factor for one or more years immediately after grant to compensate for
unusual stock movements in the years shortly after grant. Subject to the
constraints noted herein, all terms and conditions of Outperformance Options
will be set by the Committee in its sole discretion at the time of grant.
Upon the exercise of all or any portion of an Outperformance Option, the
Committee shall either (i) cause the Company to deliver to such Participant a
number of shares of C-TEC Common Stock having an aggregate value equal to the
Adjusted Value with respect to the shares of C-TEC Common
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Stock for which the Option was exercised, (ii) cause the Company to deliver to
the Participant, upon receipt of cash with respect to the number of shares
being exercised equal to the Adjusted Exercise Price multiplied by the Factor,
a number of shares of C-TEC Common Stock equal to the product of the number of
shares being exercised and the Factor, or (iii) provide any other economically
equivalent benefit to the Participant.
Stock Options
The Committee may from time to time grant Incentive Stock Options and
Nonqualified Options to any Eligible Persons; provided, however, that no
Incentive Stock Option may be granted to any person who is not an employee of
the Company or a subsidiary. The terms of options granted under the 1996 Plan
will be set out in Option agreements between the Company and Participants
which will contain such provisions as the Committee deems appropriate,
including whether an Option is an Incentive Stock Option.
In no event will the exercise price of an Incentive Stock Option be less
than 100% of the fair market value of the shares subject to the Option on the
date of grant. To the extent that the aggregate fair market value, determined
as of the time the Incentive Stock Option is granted, of the Common Stock for
which Incentive Stock Options are exercisable for the first time by any
Participant during any calendar year exceeds $100,000, such portion of the
Options in excess will be treated as Nonqualified Stock Options. No Incentive
Stock Option will be granted to an employee, who, at the time of grant, owns
stock representing more than 10% of the total combined voting power of all
classes of stock of the Company or a subsidiary unless the exercise price of
the Incentive Stock Option is at least 110% of the fair market value, at the
time of grant, of the C-TEC Common Stock subject to the Option, and the Option
by its terms is not exercisable more than five years from the date of grant.
Upon exercise of an Option, the exercise price must be paid in full or
provision for such payment must be made. Payment upon the exercise of an
Option may be made in cash or, in the discretion of the Committee, (i) in
shares of C-TEC Common Stock having a value equal to the exercise price or
other property having a fair market value on the date of exercise equal to the
exercise price or (ii) through a brokered exercise.
Stock Appreciation Rights
The Committee from time to time may grant SARs to any Participant. An SAR
gives a Participant the right to receive in shares of C-TEC Common Stock, cash
or a combination thereof with a value equal to the excess of the fair market
value of one share of C-TEC Common Stock on the date of exercise over the
exercise price for the SAR, with respect to every share of C-TEC Common Stock
for which the SAR is granted. An SAR will be evidenced by an agreement between
the Company and the Participant containing such terms and conditions,
consistent with the 1996 Plan, as the Committee deems appropriate.
Upon exercise, an SAR may be satisfied by the Company in cash or shares of
C-TEC Common Stock, as determined by the Committee. The agreement may limit
the maximum amount of appreciation taken into account under an SAR.
An SAR may be granted in conjunction with any other Award granted under the
1996 Plan. At the discretion of the Committee, an SAR may be exercisable only
to the extent that a related Award is exercisable and only upon surrender of a
related Award.
Performance Shares
A Performance Share Unit Award is an Award that provides for the future
issuance of shares of C-TEC Common Stock to the Participant upon the
attainment of certain performance goals, within a specified period of time
(the "Award Period"), established by the Committee at the time the Award is
granted. At the beginning of the Award Period, the Committee will set forth
performance goals based
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upon financial objectives for the Company for such Award Period and a schedule
describing the relationship between the achievement of such performance goals
and the Awards granted to Participants. During the Award Period the Committee
may adjust the performance goals as it deems appropriate to compensate for, or
reflect certain situations which are set forth in the Plan.
At the end of an Award Period, or at other times as specified by the
Committee or pursuant to a Participant's termination of employment or service
with the Company and its subsidiaries, the Committee will calculate the number
of shares of C-TEC Common Stock earned with respect to the Award by
multiplying the number of Performance Share units granted to the Participant
by a performance factor representing the degree of attainment of the
performance goals. Payment will be made in shares of C-TEC Common Stock or, in
the discretion of the Committee, in cash or any combination of cash and C-TEC
Common Stock, based on the fair market value of the applicable number of
shares of C-TEC Common Stock on the payment date.
Restricted Stock
The Committee from time to time may grant C-TEC Common Stock subject to
forfeiture upon termination of employment and other restrictions set forth in
the 1996 Plan ("Restricted Stock") to any Participant. Each Participant who is
awarded Restricted Stock will be required to enter into an agreement with the
Company, in a form specified by the Committee, agreeing to the terms and
conditions of the grant and such other matters consistent with the 1996 Plan
as the Committee determines appropriate. Generally, the restrictions on
Restricted Stock will lapse over a period of time (the "Restricted Period") as
specified by the Committee and set forth in the Award agreement.
The Participant will have the entire beneficial ownership and all rights and
privileges of a stockholder with respect to the Restricted Stock awarded to
him or her during the Restricted Period, including the right to vote such
Restricted Stock. However, any dividends paid during the Restricted Period
may, at the discretion of the Committee, be held by the Company until the end
of the Restricted Period.
The Committee may provide any other terms and conditions with regard to the
Restricted Stock that it deems appropriate.
Phantom Stock Units
The 1996 Plan also provides for the grant of Phantom Stock Units subject to
forfeiture, upon termination of employment prior to the end of a period of
time (the "Phantom Period") designated by the Committee and set forth in the
applicable Award Agreement, and such other terms and conditions as set forth
in such Award Agreement. Recipients of Phantom Stock Units will either receive
dividend equivalents (to the degree that dividends are paid on corresponding
shares of C-TEC Common Stock) or have such dividend equivalents credited to an
account in the name of the Participant subject to the same forfeiture
provisions applicable to the Phantom Stock Units.
Upon the expiration of the Phantom Period, the Company will deliver to the
Participant one share of C-TEC Common Stock for each Phantom Stock Unit or, at
the discretion of the Committee, cash or part cash and part C-TEC Common Stock
of equivalent value to the shares of C-TEC Common Stock otherwise to be
delivered. In addition, any dividend equivalents credited to a Participant's
account with respect to the Phantom Stock Units paid out shall be paid out in
cash.
The Committee may provide any other terms and conditions with regard to
Phantom Stock Units that it deems appropriate.
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Other Awards
The Committee may grant any other cash, stock or stock-related awards to a
Participant that the Committee deems appropriate, including but not limited
to, the bargain purchase of C-TEC Common Stock, performance related options
and stock bonuses.
Non-Employee Director Awards
The Committee may establish a formula under which Non-Employee Directors
will receive automatic Awards under the 1996 Plan in lieu of or in addition to
their normal director compensation. The type of Awards, amount and timing
under the formula will be determined by the Committee in its sole discretion.
Shares Subject to Plan
The Board has authorized the issuance of 2,000,000 shares of C-TEC Common
Stock, pursuant to Awards granted under the 1996 Plan. Upon termination of the
1994 Plan, all shares of C-TEC Common Stock reserved under the 1994 Plan which
are not then subject to outstanding awards, including those shares underlying
stock options exchanged for outperformance stock options, will be available
for Awards under the 1996 Plan. However, in no event shall the total amount of
authorized shares under the 1996 plan exceed 3,350,000 shares. The 1996 Plan
also contains the limitation that no individual may be granted Awards
representing more than 1,000,000 shares of C-TEC Common Stock in any one year.
Withholding
With respect to any payments made to Participants under the 1996 Plan, the
Company or a subsidiary, as appropriate, will have the right to deduct from
all Awards cash and/or shares of Common Stock in an amount equal to any taxes
required by law to be withheld because of such payments. In the case of Awards
paid in shares of C-TEC Common Stock, the Committee may require the recipient
to pay to the Company prior to the delivery of such Common Stock, the amount
of any such taxes that the Company is required to withhold. The Committee, in
its sole discretion, may permit a Participant to satisfy tax withholding
obligations by delivering to the Company already owned shares to satisfy the
withholding amount.
Termination of Employment or Service
Upon a Participant's termination of employment or service with the Company
or a subsidiary (i) by the Company or a subsidiary, as the case may be,
without Cause (as defined below), or (ii) because of such Participant's
retirement, unless otherwise determined by the Committee, all Options, SARs
and Outperformance Options held by such Participant shall expire upon the
earlier of their normal expiration or three months after such termination and
shall remain exercisable for such period only to the extent that such Awards
were exercisable at the time of termination. Restricted Stock and Phantom
Stock Units will be forfeited with respect to the portion of such Awards for
which restrictions have not lapsed at the time of termination of employment or
service. The Committee may award a pro rata portion of any Performance Share
Award representing the degree of attainment of the performance goals related
thereto over the period until such termination.
Upon a Participant's termination of employment or service with the Company
or a subsidiary on account of death or Disability (as defined in the 1996
Plan), all Options, SARs and Outperformance Options held by such Participant
shall expire on the earlier of their normal expiration or one year after such
termination and shall remain exercisable for such period only to the extent
that such Awards were exercisable at the time of termination. Restricted Stock
and Phantom Stock Units will be forfeited with respect to the portion of such
Awards for which restrictions have not lapsed at the time
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of such termination of employment or service. The Committee may award a pro
rata portion of any Performance Share Award representing the degree of
attainment of the performance goals related thereto over the period until such
termination.
Upon a Participant's voluntary termination of employment or service by the
Company or a subsidiary or a termination by the Company or a subsidiary, as
the case may be, for Cause, all outstanding Awards will, unless the Committee
determines otherwise, immediately expire.
The Committee, in its sole discretion, may at any time prior to or in
connection with any termination of employment or service with the Company or
its subsidiaries provide for a longer post-termination exercise period (not to
exceed three years) or modify such forfeiture provisions except to the extent
that the ability to so modify an Award may cause an Award intended to qualify
as "performance based" under Section 162(m) of the Code not to qualify.
As defined in the 1996 Plan "Cause" means the Company or a subsidiary (as
the case may be) having cause to terminate a Participant's employment or
service in accordance with the provisions of any existing employment,
consulting or any other agreement (including a grant agreement) between the
Participant and the Company or a subsidiary (as the case may be) or, in the
absence of such an employment, consulting or other agreement, upon (i) the
determination by the Company or a subsidiary (as the case may be) that the
Participant has ceased to perform his or her duties to the Company or a
subsidiary (as the case may be) (other than as a result of his or her
incapacity due to physical or mental illness or injury), which failure amounts
to intentional and extended neglect of his or her duties, (ii) the Committee's
determination that the Participant has engaged in conduct materially injurious
to the Company, or (iii) the Participant having plead no contest to a charge
of a felony or having been convicted of a felony.
Adjustment for Recapitalization, Merger, Etc.
Awards granted under the 1996 Plan and any agreements evidencing such Awards
will be subject to equitable adjustment or substitution, as determined by the
Committee in its sole discretion, as to the number of shares, the Factor (with
respect to OSOs), the price or kind of a share of C-TEC Common Stock or other
consideration subject to such Awards (i) in the event of changes in the
outstanding C-TEC Common Stock or in the capital structure of the Company by
reason of stock dividends, stock splits, reverse stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges, extraordinary dividends, or other relevant changes in
capitalization occurring after the Date of Grant of any such Award or (ii) in
the event of any change in applicable laws or any change in circumstances
which results in or would result in any substantial diminishment, dilution or
enlargement of the rights granted to, or available for, Participants in the
1996 Plan or (iii) in the event of any other event which otherwise warrants
equitable adjustment of Awards or the 1996 Plan because such event interferes
with the intended operation of the 1996 Plan. In addition, in the event of any
such corporate or other event, the aggregate number of shares of C-TEC Common
Stock available under the 1996 Plan and the maximum number of shares of C-TEC
Common Stock with respect to which any one person may be granted in connection
with Awards during any year will be appropriately adjusted by the Committee,
whose determination shall be conclusive.
In addition to the adjustments mentioned above, the Committee may, in its
discretion and upon at least 10 days advance notice to the affected persons,
cancel any outstanding Award and pay to the holders thereof, in cash, the
value of such Awards based upon the price per share of C-TEC Common Stock
received or to be received by other shareholders of the Company in the event
of any of the following: (i) the Company is merged or consolidated with
another corporation or entity and, in connection therewith, consideration is
received by shareholders of the Company in a form other than stock or other
equity interests of the surviving entity; (ii) all or substantially all of the
assets of the Company are acquired by another person; (iii) the reorganization
or liquidation of the Company; (iv)
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the Company engages in a restructuring either by means of extraordinary
dividends or otherwise; or (v) the Company shall enter into a written
agreement to undergo an event described in clauses (i), (ii), (iii) or (iv)
above.
Transferability of Awards
A Participant's rights and interest under the 1996 Plan, including amounts
payable, may not be sold, assigned, donated, transferred or otherwise disposed
of, mortgaged, pledged or encumbered except, in the event of a Participant's
death, to a designated beneficiary to the extent permitted by the 1996 Plan,
or in the absence of such designation, by will or the laws of descent and
distribution; provided, however, the Committee may, in its sole discretion,
allow for transfer of Awards other than Incentive Stock Options to other
persons or entities upon such terms or conditions as it may establish.
Termination or Amendment
The expiration date of the Plan after which no Awards may be granted is
October 6, 2006. The Board may at any time terminate the 1996 Plan. With the
express written consent of an individual Participant, the Board or the
Committee may cancel or reduce or otherwise alter outstanding Awards if, in
its judgment, the tax, accounting, or other effects of the 1996 Plan or
potential payouts thereunder would not be in the best interest of the Company.
The Board or the Committee may, at any time, or from time to time, amend or
suspend and, if suspended, reinstate, the 1996 Plan in whole or in part.
Change in Control
The 1996 Plan provides that upon the occurrence of a Change in Control (as
defined below) (i) all outstanding Options, Outperformance Options and
freestanding SARs will become immediately exercisable in full, (ii) all
restrictions with respect to outstanding shares of Restricted Stock will
lapse, (iii) all outstanding Phantom Stock Units will be immediately converted
into shares of C-TEC Common Stock, or cash equivalents at the discretion of
the Committee, and paid out to Participants, and (iv) the Committee will make
a determination on the degree of achievement of performance goals with respect
to outstanding Performance Share Units and will make such payments with
respect thereto as it deems appropriate.
A "Change in Control" will occur upon (i) the acquisition by an entity,
other than Peter Kiewit Sons' Inc. or its affiliates ("Kiewit"), of more than
50% (subject to adjustment upon a reduction in Kiewit's holdings but not below
40%) of the outstanding voting securities of the Company, (ii) a 50% change in
the Board membership without approval of the incumbents, or (iii) a merger or
other corporate reorganization, unless the shareholders prior to such
transaction own at least 50% of the outstanding shares after the transaction
in substantially the same proportions.
Federal Income Tax Consequences
The following is a brief discussion of the Federal income tax consequences
of transactions under the 1996 Plan based on the Code as in effect as of the
date hereof. The 1996 Plan is not qualified under Section 401(a) of the Code.
This discussion is not intended to be exhaustive and does not describe the
state or local tax consequences.
Incentive Stock Options. No taxable income is realized by the optionee upon
the grant or exercise of an Incentive Stock Option. If C-TEC Common Stock is
issued to an optionee pursuant to the exercise of an Incentive Stock Option,
and if no disqualifying disposition of such shares is made by such optionee
within two years after the date of grant or within one year after the transfer
of such shares to such optionee, then (1) upon sale of such shares, any amount
realized in excess of the exercise
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price will be taxed to such optionee as a long-term capital gain and any loss
sustained will be a long-term capital loss, and (2) no deduction will be
allowed to the optionee's employer for Federal income tax purposes.
If the C-TEC Common Stock acquired upon the exercise of an Incentive Stock
Option is disposed of prior to the expiration of either holding period
described above, generally (1) the optionee will realize ordinary income in
the year of disposition in an amount equal to the excess (if any) of the fair
market value of such shares at exercise (or, if less, the amount realized on
the disposition of such shares) over the exercise price paid for such shares,
and (2) the optionee's employer will generally be entitled to deduct such
amount for Federal income tax purposes if the amount represents an ordinary
and necessary business expense. Any further gain (or loss) realized by the
optionee will be taxed as short-term or long-term capital gain (or loss), as
the case may be, and will not result in any deduction by the employer.
Subject to certain exceptions for disability or death, if an Incentive Stock
Option is exercised more than three months following the termination of
employment, the exercise of the Option will generally be taxed as the exercise
of a Nonqualified Stock Option.
For purposes of determining whether an optionee is subject to any
alternative minimum tax liability, an optionee who exercises an Incentive
Stock Option generally would be required to increase his or her alternative
minimum taxable income, and compute the tax basis in the stock so acquired, in
the same manner as if the optionee had exercised a Nonqualified Stock Option.
Each optionee is potentially subject to the alternative minimum tax. Generally
a taxpayer is required to pay the higher of his or her alternative minimum tax
liability or his or her "regular" income tax liability. As a result, a
taxpayer has to determine his or her potential liability under the alternative
minimum tax.
Nonqualified Stock Options. With respect to Nonqualified Stock Options
(including Outperformance Options), (1) no income is realized by the optionee
at the time the Option is granted; (2) generally, at exercise, ordinary income
is realized by the optionee in an amount equal to the difference between the
exercise price paid for the shares (if any) and the fair market value of the
shares received (or cash in the case of an Outperformance Option), if
unrestricted, on the date of exercise, and the optionee's employer is
generally entitled to a tax deduction in the same amount subject to applicable
tax withholding requirements, and (3) at sale, appreciation (or depreciation)
after the date as of which amounts are includable in income is treated as
either short-term or long-term capital gain (or loss) depending on how long
the shares have been held.
Outperformance Stock Options. Generally, the Federal income tax consequences
of Outperformance Options will be identical to that of Nonqualified Stock
Options.
Special Rules Applicable to Corporate Insiders. As a result of the rules
under Section 16(b) of the Securities Exchange Act of 1934, "insiders" (as
defined in the Exchange Act), depending upon the particular exemption from the
provisions of Section 16(b) utilized, may not receive the same tax treatment
as set forth above with respect to the grant and/or exercise of Awards.
Generally, insiders will not be subject to taxation until the expiration of
any period during which they are subject to the liability provisions of
Section 16(b) with respect to any particular Award.
SECTION 162(M)
Section 162(m) of the Code denies a deduction by an employer for certain
compensation in excess of $1 million per year paid by a publicly-traded
corporation to each of the chief executive officer and the four most highly
compensated executive officers other than the chief executive officer. Certain
compensation, including "performance-based" compensation, is excluded from
this deduction limit. All awards under the 1996 Plan can be structured so as
to qualify as performance-based compensation. The Committee may, in its sole
discretion, determine to grant Awards that qualify as performance-based
compensation.
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NEW PLAN BENEFITS
Inasmuch as Awards to all participants under the 1996 Plan will be granted
at the sole discretion of the Committee, such benefits under the 1996 Plan are
not determinable. Compensation paid and other benefits granted in respect of
the 1995 fiscal year to the named executive officers are set forth in the
Summary Compensation Table on page 6.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE C-TEC CORPORATION 1996 EQUITY INCENTIVE PLAN.
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PROPOSAL 4
APPROVAL OF THE C-TEC CORPORATION 1996 BONUS PLAN
The Company has adopted, subject to shareholder approval, the C-TEC
Corporation 1996 Bonus Plan (the "Bonus Plan"). The Bonus Plan will be
administered by the Compensation Committee and is intended to serve as a
qualified performance-based compensation program under Section 162(m) of the
Code. Section 162(m) of the Code denies a deduction by an employer for certain
compensation in excess of $1 million per year paid by a publicly traded
corporation to the chief executive officer and the four most highly
compensated executive officers other than the chief executive officer (the
"Covered Employees"). Certain compensation, including compensation based on
performance goals, is excluded from this deduction limit. Among the
requirements for compensation to qualify for this exception is that the
material terms pursuant to which the compensation is to be paid, including the
performance goals, be disclosed to and approved by the shareholders in a
separate vote prior to the payment. Accordingly, the Bonus Plan is being
submitted to the shareholders for approval at the 1996 Annual Meeting.
The following description of the Bonus Plan is qualified in its entirety by
the terms of the Bonus Plan, a copy of which has been filed with the
Securities and Exchange Commission.
The chief executive officer, chief operating officer and chief financial
officer of the Company, the chief executive officers of the Company's
operating and staff groups, and other executive officers of the Company or its
subsidiaries as selected by the Compensation Committee will be eligible to
participate in the Bonus Plan. Except as otherwise provided in the Bonus Plan,
the Bonus Plan provides for the payment of annual incentive bonus awards to
participants if, and only to the extent that performance goals established by
the Compensation Committee are met. Although the Bonus Plan is designed to
mitigate the negative impact of Section 162(m) of the Code on shareholders,
nothing contained in the Bonus Plan shall prevent the Company or any affiliate
from adopting or continuing in effect other compensation arrangements and such
arrangements may be either generally applicable or applicable only in specific
cases.
The goals established by the Compensation Committee can be expressed in
terms of one or more pre-set financial, customer satisfaction and employee
development performance targets as they relate to an individual, the Company
as a whole or to the business unit for which a particular executive officer is
responsible. Financial targets will be based on factors that measure enhanced
shareholder value such as annual revenues, EBITDA, EBIT, monthly recurring
revenues and new sales. Customer satisfaction will be based on quantifiable
quality measurements relative to the Company's competitors as well as customer
surveys measuring overall levels of customer satisfaction. Employee
development will be derived from surveys that measure management performance
such as leadership and communications, teamwork, fostering a dynamic and
stimulating work environment, encouraging employee creativity and initiative,
attracting, training and developing employees and responding to problems
including identification of poor performers. The goals can include standards
for minimum attainment, target attainment and maximum attainment. The goals
established by the Compensation Committee can be (but need not be) different
each year and different goals may be applicable to different participants. The
goals with respect to a particular plan year will be established not later
than the latest date permissible under Section 162(m). Any such goals shall
(i) be determined in accordance with the Company's audited financial
statements and generally accepted accounting principals and reported upon by
the Company's independent accountants, or (ii) be based upon a standard under
which a third party with knowledge of the relevant facts could determine
whether the goal is met.
A participant's target incentive bonus for each plan year will generally be
expressed either as a dollar amount or as a percentage of such participant's
base salary for such year. The actual amount of
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bonus payable under the Bonus Plan will generally be expressed either as a
dollar amount or as a percentage of such participant's base salary for such
year. The actual amount of bonus payable under the Bonus Plan will generally
be expressed as a percentage of the participant's target bonus, which
percentage will vary depending upon the extent to which the performance goals
have been attained. However, the bonus earned by any participant in respect of
any plan year (prior to giving effect to any deferral election discussed
below) shall not exceed the lesser of (i) 300% of the participant's annual
base salary as in effect on the first day of such plan year and (ii)
$1,500,000. Except as otherwise set forth in the Bonus Plan, before any awards
under the Bonus Plan for a particular year can be paid to Covered Employees,
the Compensation Committee must certify the extent to which performance goals
and any other material terms were satisfied.
Participants will be paid their annual incentive bonus in cash. The Company
may give each participant the right, in accordance with rules and regulations
to be established by the Compensation Committee, to elect to defer the receipt
of any or all of such participant's bonus under the Bonus Plan in respect of
any plan year.
If approved by shareholders, the Bonus Plan shall first be effective with
respect to the 1997 plan year.
No award may be granted under the Bonus Plan with respect to any fiscal year
after plan year 2000. Awards made with respect to plan year 2000 or prior
years, however, may extend beyond 2000 and the provisions of the Bonus Plan
will continue to apply thereto.
The Board can from time to time amend, suspend or discontinue the Bonus
Plan; provided, however, that no amendment which requires shareholder approval
in order for the Bonus Plan to continue to comply with Code Section 162(m)
will be effective unless it receives the requisite shareholder approval. In
addition, the Compensation Committee can make such amendments as it deems
necessary to comply with other applicable laws, rules and regulations.
Inasmuch as performance goal criteria and bonus awards have not yet been set
and may vary from year to year and from participant to participant, benefits
under the Bonus Plan are not yet determinable.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF
THE C-TEC CORPORATION 1996 BONUS PLAN.
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PROPOSAL 5
RATIFICATION OF INDEPENDENT AUDITORS
The Company is asking the shareholders to ratify the selection of Coopers &
Lybrand L.L.P. as the Company's independent auditors for the fiscal year
ending December 31, 1996.
If the shareholders do not ratify this appointment, other independent
auditors will be considered by the Board of Directors. Notwithstanding the
shareholders' ratification of the selection of the independent auditors, the
Board reserves the right to select other independent auditors at its
discretion.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at
the Annual Meeting, will have the opportunity to make a statement if they
desire to do so and will be able to respond to appropriate questions.
Ratification of Coopers & Lybrand L.L.P. as the Company's independent auditors
for the year ending December 31, 1996, requires the affirmative vote of a
majority of the holders of C-TEC Common Stock and C-TEC Class B Stock voting
together as a single class.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSAL TO RATIFY THE SELECTION OF COOPERS & LYBRAND L.L.P. TO SERVE AS
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31,
1996.
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OTHER MATTERS
The Board of Directors does not know of any other matters that may come
before the meeting. However, if any other matters properly come before the
meeting, it is the intention of the persons named in the accompanying form of
proxy to vote the proxy in accordance with their judgment on such matters.
GENERAL INFORMATION
FINANCIAL INFORMATION
A copy of the Company's Form 10-K containing the Consolidated Financial
Statements of the Company, including the report thereon dated February 26,
1996, of Coopers & Lybrand L.L.P., independent accountants, accompanies this
Proxy Statement.
Upon the written request of any person who on September 16, 1996, was a
record owner of C-TEC Common Stock or C-TEC Class B Stock, or who represents in
good faith that he was on such date a beneficial owner of such Stock entitled
to vote at the Annual Meeting, the Company will furnish without charge a copy
of the Company's 1995 annual report on Form 10-K, including the financial
statements, schedules, and exhibits, filed with the Securities and Exchange
Commission. Written requests for the Report should be directed to: Investor
Relations Department, C-TEC Corporation, 105 Carnegie Center, Princeton, New
Jersey 08540, Attn: Valerie Haertel, Director of Investor Relations.
SOLICITATION OF PROXIES
The Company will bear the cost of solicitation of proxies. In addition to the
use of the mail, proxies may be solicited by officers, directors and regular
employees of the Company, personally or by telephone, telecopy or telegraph,
and the Company may reimburse persons holding stock in their names or those of
their nominees for their expenses in forwarding soliciting materials to their
principals.
It is important that proxies be returned promptly. Therefore, shareholders
are urged to promptly fill in, date, sign and return the enclosed proxy in the
enclosed envelope, to which no postage need be affixed if mailed in the United
States.
SHAREHOLDERS' PROPOSALS
Any shareholder who desires to submit a proposal to be considered for
inclusion in the proxy statement and proxy of the Company relating to the 1997
Annual Meeting of Shareholders must submit such proposal in writing to the
Company by February 15, 1997. Such proposals should be hand delivered or
mailed, return receipt requested, to the Secretary of the Company.
By order of the Board of Directors.
LOGO
Raymond B. Ostroski,
Executive Vice President,
General Counsel and
Corporate Secretary
Dated: October 11, 1996
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