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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
September 16, 1996 (August 30, 1996)
C-TEC CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 0-11053 23-2093008
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
105 Carnegie Center, Princeton, NJ 08540
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(609) 734-3700
(Former name or former address, if changed since last report).
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Item 2. Acquisition or Disposition of Assets
In March 1996, the Company signed a definitive agreement (the "Stock
Purchase Agreement") for the sale to RCN Corporation ("RCN"), of Residential
Communications Network, Inc. ("UrbanNet") and certain other businesses ("Other
Businesses"). RCN is the controlling shareholder of C-TEC. UrbanNet is a start
up business unit that plans to provide integrated telecommunications services to
the telecommunications market place. 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 and 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 that 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 had 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 as consideration in the rescission of the UrbanNet transaction.
The purchase price for 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.
Any financial statements and pro forma financial information which may
be required will be filed within sixty days after the required filing date of
this Form 8-K.
Item 7. Exhibits
(c) Exhibits
10.1 Option Exercise Agreement between C-TEC Corporation
and RCN Corporation.
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10.2 Stock Purchase Agreement dated as of March 27, 1996 between RCN
Corporation and C-TEC Corporation is incorporated herein by
reference to the Company's report on Form 10-K for the year ended
December 31, 1995, (Commission File No. 0-11053).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
C-TEC Corporation
By: /s/ Bruce C. Godfrey
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Name: Bruce C. Godfrey
Title: Executive Vice President
and Chief Financial Officer
Date: September 16, 1996
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Ex-10.1
OPTION EXERCISE AGREEMENT
AGREEMENT dated as of August 30, 1996 between C-TEC Corporation, a
Pennsylvania Corporation ("C-TEC"), and RCN Corporation, a Delaware corporation
("RCN").
WITNESSETH:
WHEREAS, C-TEC and RCN are parties to a Stock Purchase Agreement dated
as of March 27, 1996 (the "SPA", capitalized terms used but not defined herein
shall have the meanings set forth in the SPA) pursuant to which RCN agreed to
purchase, and C-TEC agreed to sell, the UrbanbNet Business and the CIT
Businesses;
WHEREAS, on April 1, 1996, RCN acquired legal title to the UrbanNet
Business from C-TEC for $17,500,000 in cash in a transaction defined in the SPA
as the "First Closing";
WHEREAS, the closing of the acquisition of the CIT Businesses (defined
in the SPA as the "Second Closing") was subject to certain conditions and has
not been consummated;
WHEREAS, C-TEC has the option, at its election, to effect a rescission
of the First Closing by exercising the option granted to it under Section
10.01(a) of the SPA (the "Option") on the terms and subject to the conditions
set forth in the SPA if, among other things, the C-TEC Board of Directors
determines not to proceed with certain specified types of restructuring
transactions regarding C-TEC;
WHEREAS, the SPA provides that if C-TEC elects to rescind the First
Closing pursuant to the exercise of the Option, then C-TEC has the right and the
obligation to purchase RCN's interest in Freedom L.L.C., a New York 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 SPA;
WHEREAS, on August 8, 1996, the C-TEC Board of Directors determined
(the "August 8 Determination") not to proceed with its previously announced plan
to sell its domestic cable television operations to a third party and, in
connection therewith, to spin-off its local telephone operations to its
shareholders;
WHEREAS, C-TEC and RCN agree that the August 8 Determination should be
treated as a determination that results in C-TEC having the right to rescind the
First Closing pursuant to the exercise of the Option;
WHEREAS, C-TEC desires to exercise the Option in order to rescind the
First Closing and to purchase the Freedom Interest;
WHEREAS, in connection therewith C-TEC and RCN desire to enter into
this Agreement; and
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WHEREAS, the Special Committee has approved the exercise of the Option
and the terms and conditions of this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. The Second Closing will not be consummated, and all rights and
obligations of the parties under the SPA with respect thereto are hereby
terminated.
2. The parties acknowledge and agree that the August 8 Determination
will be treated as a determination that results in C-TEC being entitled to
exercise the Option. C-TEC hereby elects to exercise the Option in order to
rescind the First Closing and to purchase the Freedom Interest, on the terms and
subject to the conditions set forth in the SPA and this Agreement. The parties
agree that the rescission of the First Closing and the purchase of the Freedom
Interest (collectively, the "Third Closing") will take place on the same date
(the "Third Closing Date").
3. RCN represents and warrants that from the date of each applicable
Closing to the date hereof it has complied with its obligations under Section
10.01(e) of the SPA in respect of the UrbanNet Business and the Freedom
Interest; provided that RCN has loaned to Freedom $1,500,000, which loan is
evidenced by a note (the "Freedom Note").
RCN covenants that it will comply with Section 10.01(e) of the SPA in
respect of the UrbanNet Business and the Freedom Interest from the date hereof
to the Third Closing Date.
RCN represents and warrants that the Repurchase Price Certificate set
forth as Exhibit I hereto is true and correct as of the date hereof.
RCN represents and covenants that there is not and will not be any
liability of RCN or any of its ERISA Affiliates in connection with any plan
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, whether for taxes, funding, benefits or otherwise, which liability
could become a liability of C-TEC or any of its ERISA Affiliates, other than any
liability arising in connection with any plan administered, maintained or
contributed to by C-TEC or any of its subsidiaries or any of the UrbanNet
Companies. "ERISA Affiliate" of any person means any other person which,
together with such person, would be treated as a single employer under Section
414 of the Code.
4. The Third Closing will occur as set forth in Section 10.01(c) of
the SPA with respect to the UrbanNet Business and the Freedom Interest provided
that the purchase and sale of the Freedom Interest will, for purposes of the
last paragraph of Section 10.01(c), be effected as follows: (i) C-TEC will
deliver to RCN an amount of cash equal to the Freedom Price by wire transfer in
immediately available funds to an account in the United States, which account
shall be designated by RCN no later than two business days prior to the Third
Closing Date, (ii) RCN will deliver or cause to be delivered to C-TEC good and
valid title to the following free and clear of any Lien other than Liens arising
under the limited liability company operating agreements with respect to Freedom
and, if LVE, L.L.C ("LVE") exists at such time, LVE: (A) RCN's 80.1% interest in
Freedom, (B) if LVE exists at such time, RCN's 19.9% interest in LVE and (C) the
Freedom Note and (iii) RCN will assign to
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C-TEC, and C-TEC will accept and assume, all related rights and obligations of
RCN. For purposes hereof, the term "Freedom Price" means an amount equal to the
sum of (1) the purchase price with respect to the Freedom Interest determined in
accordance with the SPA, (2) an amount, which shall not exceed $500,000, equal
to the fees and expenses incurred by RCN and its affiliates (other than the
UrbanNet Companies) in connection with the acquisition by RCN of the Freedom
Interest, and (3) the amount of the Freedom Note plus accrued interest thereon
to the Third Closing Date.
5. Simultaneously with the Third Closing, C-TEC will purchase from
RCN, and RCN will sell to C-TEC, all of the outstanding capital stock of (i) RCN
Corporate Services, Inc., a New Jersey corporation ("Corporate"), for $1,000 in
cash and (ii) RCN Financial Services, Inc., a New Jersey corporation
("Financial"), for $1,000 in cash. The closing purchase and sale of the capital
stock of Corporate and Financial is referred to herein as the "C/F Closing". At
the C/F Closing, (A) C-TEC shall deliver to RCN $2,000 by wire transfer in
immediately available funds to an account in the United States, which account
shall be designated by RCN no later than two business days prior to the date of
the Repurchase Closing, and (B) RCN shall deliver or cause to be delivered to C-
TEC good and valid title to all of the capital stock of the Corporate and
Financial free and clear of any Lien.
6. The parties acknowledge their obligations under the second
paragraph of Section 10.01(c) of the SPA to use their reasonable best efforts
both to satisfy all applicable regulatory requirements and to obtain all third-
party approvals necessary to consummate the Third Closing as promptly as
practicable. The Third Closing will be consummated promptly after all material
regulatory requirements and third party consents have been satisfied or
obtained, as applicable. If the Third Closing cannot be effected within 90 days
of the date hereof for any reason, the parties agree to negotiate in good faith
to enter into an alternative arrangement to effect the intent of this Agreement
as nearly as is possible under the relevant circumstances.
7. The parties agree that the exercise of the Option is to be treated
as a rescission of the First Closing and that any sale or transfer effected by
the First Closing shall be treated as null and void and as having no effect for
all income tax purposes. The parties further agree to report the transactions
contemplated hereby on a basis consistent in all respects with the preceding
sentence. Pursuant to the foregoing, RCN represents and covenants that C-TEC
will not have, solely as a result of the first Closing or the performance by C-
TEC of any of its obligations under the SPA, any liability for Taxes of any
member (other than any UrbanNet Company) of any affiliated group (as defined
under Section 1504 of the Code or any similar provision of state, local or
foreign law) of which RCN is a member.
8. Prior to the Third Closing, the SPA will remain in full force and
effect, except to the extent the provisions thereof are consistent with the
terms of this Agreement. Effective upon the Third Closing, the SPA will
terminate and neither party to the SPA will have any liability or further
obligation with respect thereto, except as provided in Sections 6.01 and 14.02
thereof; provided, however, that no such termination of the SPA shall relieve
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either party of liability for a willful breach of any provision of the SPA
occurring before such termination. Each party represents and warrants that as
of the date hereof, it has no knowledge of any willful breach of any provision
of the SPA by either party. Effective upon the Third Closing, the parties
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will cause the Services Agreement to be terminated. The parties acknowledge
that, as a result of treating any sale or transfer effected by the First Closing
as null and void, the Transferred Employees, solely by reason of the First
Closing, have not been and will not be vested in their accrued benefits under
the Pension Plan or in their account balances under the Individual Account Plan.
9. C-TEC may assign to any wholly owned subsidiary its rights and
obligations with respect to (i) the purchase of the Freedom Interest under the
SPA and this Agreement or (ii) the purchase of the capital stock of Corporate
and Financial under this Agreement, provided that no such assignment will
relieve C-TEC of its obligations with respect thereto.
10. The provisions of Article XIV of the SPA will apply to this
Agreement mutatis mutandis.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
RCN CORPORATION
By: /s/ Matthew J. Johnson
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Name: Matthew J. Johnson
Title: Vice President
C-TEC CORPORATION
By: /s/ Michael J. Mahoney
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Name: Michael J. Mahoney
Title: President
