<PAGE>
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)
October 15, 1997 (September 30, 1997)
COMMONWEALTH TELEPHONE ENTERPRISES, INC.
(formerly known as C-TEC CORPORATION)
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Pennsylvania 0-11053 23-2093008
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
</TABLE>
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).
C-TEC CORPORATION
<PAGE>
Item 2. Acquisition or Disposition of Assets
On September 30, 1997, the Company distributed 100 percent of the outstanding
shares of common stock of its wholly-owned subsidiaries, RCN Corporation ("RCN")
and Cable Michigan, Inc. ("Cable Michigan") to holders of record of the
Company's Common Stock ("Common Stock") and the Company's Class B Common Stock
("Class B Stock") as of the close of business on September 19, 1997 (the
"Distribution") in accordance with the terms of a Distribution Agreement dated
September 5, 1997 (the "Distribution Agreement") among the Company, RCN
Corporation and Cable Michigan. In connection with the Distribution, the
Company, RCN and Cable Michigan also entered into a Tax Sharing Agreement dated
September 5, 1997 (the "Tax Sharing Agreement"). The Distribution Agreement and
the Tax Sharing Agreement are attached hereto as Exhibits 10.1 and 10.2,
respectively, or are incorporated herein by reference. Shares of RCN and Cable
Michigan common stock trade on the NASDAQ Stock Market under the ticker symbols
RCNC and CABL, respectively.
Additionally, at the Company's annual shareholders' meeting on October 1, 1997,
the shareholders approved an amendment to C-TEC's Articles of Incorporation, as
amended, to effect a two for three reverse stock split (the "Reverse Stock
Split") of the Common Stock and the Class B Common Stock. The Reverse Stock
Split was effective as of the close of business on October 9, 1997. Pursuant to
the Reverse Stock Split, every three shares of Common Stock were converted into
two shares of Common Stock and every three shares of Class B Stock were
converted into two shares of Class B Stock.
As part of the Company's restructuring, the Company changed its name to
Commonwealth Telephone Enterprises, Inc.(from C-TEC Corporation) and its ticker
symbols on The NASDAQ Stock Market were changed to CTCO for Common Stock (from
CTEX) and to CTCOB for Class B Stock (from CTEXB).
Also as part of the restructuring, the Company's Board of Directors amended and
restated the Company's Bylaws.
As part of its restructuring, the Company currently intends to issue equity
or equity-linked securities in the amount of approximately $75 - 100 million
within one year of the Distribution. The issuance may be pursuant to an offering
or in connection with another transaction.
The Yee Family Trusts, as holders of the Company's Preferred Stock, Series A and
Preferred Stock, Series B, have recently commenced an action against the
Company, its Board of Directors, RCN Corporation and Cable Michigan, Inc. in the
Superior Court of New Jersey. The complaint alleges that the Company's
restructuring constitutes a fraudulent conveyance and alleges breaches of
contract and fiduciary duties in connection with the restructuring. The
plaintiffs are seeking to set aside the alleged fraudulent conveyance and
unspecified monetary damages. The Company believes this lawsuit is without merit
and intends to contest this action vigorously.
Under the now-completed restructuring, RCN Corporation consists of the Company's
high-growth, bundled residential voice, video and Internet access operations in
the Boston to Washington, D.C. corridor, its existing New York, New Jersey and
Pennsylvania cable television operations, a portion of its long-distance
operations and its international investments in Mexico. Cable Michigan, Inc.
consists of the Company's Michigan cable operations, including its 62% ownership
interest in Mercom, Inc. (OTC: MEEO). Commonwealth Telephone Enterprises, Inc.
consists of the Company's
<PAGE>
rural Pennsylvania telephone operations, its engineering and consulting
business, its competitive local phone operations and certain other operations.
Item 7. Financial Statements and Exhibits
(b) Financial Information
1. Condensed Consolidated Statements of Operations for the Six Months Ended
June 30, 1997 and for the Years Ended December 31, 1996, 1995 and 1994.
2. Condensed Consolidated Balance Sheet at June 30, 1997.
(c) Exhibits
3.1 Amendment to Articles of Incorporation of the Company to effect name
change.
3.2 Amendment to Articles of Incorporation of the Company to effect
Reverse Stock Split.
3.3 Amended and Restated Bylaws of the Company.
10.1 Distribution Agreement dated September 5, 1997 among C-TEC Corporation,
Cable Michigan, Inc. and RCN Corporation is incorporated herein by
reference to Exhibit 1 to Schedule 13D filed by Cable Michigan, Inc. in
respect of the Common Stock of Mercom, Inc. dated October 10, 1997
(Commission File No. 5-40465).
10.2 Tax Sharing Agreement dated September 5, 1997 by and among C-TEC
Corporation, Cable Michigan, Inc. and RCN Corporation.
<PAGE>
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
--------------------------
Name: Bruce C. Godfrey
Title: Executive Vice President
and Chief Financial Officer
Date: October 15, 1997
-----------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
COMMONWEALTH TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
For the six months ended June 30, 1997
CTCO OTHER TOTAL
------------------------------------------------
<S> <C> <C> <C>
SALES $73,166 $19,917 $93,083
COSTS & EXPENSES, EXCLUDING DEPRECIATION AND AMORTIZATION 33,349 22,569 55,918
DEPRECIATION AND AMORTIZATION 14,248 515 14,763
------------------------------------------------
OPERATING INCOME (LOSS) 25,569 (3,167) 22,402
INTEREST AND DIVIDEND INCOME 1,702 64 1,766
INTEREST EXPENSE (4,133) - (4,133)
OTHER INCOME (EXPENSE), NET (171) 1,217 1,046
------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 22,967 (1,886) 21,081
PROVISION (BENEFIT) FOR INCOME TAXES 9,450 (219) 9,231
------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EQUITY IN UNCONSOLIDATED ENTITIES 13,517 (1,667) 11,850
EQUITY IN INCOME OF UNCONSOLIDATED ENTITIES - 1,221 1,221
------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 13,517 (446) 13,071
(LOSS) ON DISPOSAL OF DISCONTINUED OPERATIONS - (9,675) (9,675)
(LOSS) FROM DISCONTINUED OPERATIONS - (22,694) (22,694)
------------------------------------------------
NET INCOME (LOSS) $13,517 ($32,815) ($19,298)
================================================
EARNINGS PER AVERAGE COMMON SHARE $(0.77)
WEIGHTED AVERAGE NUMBER OF SHARES 27,695,330
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
COMMONWEALTH TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
For the year ended December 31, 1996
CTCO OTHER TOTAL
------------------------------------------------
<S> <C> <C> <C>
SALES $138,975 $47,531 $186,506
COSTS & EXPENSES, EXCLUDING DEPRECIATION AND AMORTIZATION 65,489 45,551 111,040
DEPRECIATION AND AMORTIZATION 26,755 635 27,390
------------------------------------------------
OPERATING INCOME 46,731 1,345 48,076
INTEREST AND DIVIDEND INCOME 3,495 6 3,501
INTEREST EXPENSE (8,824) (753) (9,577)
OTHER INCOME (EXPENSE), NET (128) 2,414 2,286
------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 41,274 3,012 44,286
PROVISION FOR INCOME TAXES 16,136 3,824 19,960
------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EQUITY IN UNCONSOLIDATED ENTITIES 25,138 (812) 24,326
EQUITY IN INCOME OF UNCONSOLIDATED ENTITIES - 1,543 1,543
------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY
ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING PRINCIPLE CHANGE 25,138 731 25,869
(LOSS) ON DISPOSAL OF DISCONTINUED OPERATIONS,
NET OF INCOME TAXES - (160) (160)
(LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES - (13,396) (13,396)
------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS 25,138 (12,825) 12,313
EXTRAORDINARY ITEMS:
DISCONTINUATION OF THE APPLICATION OF REGULATORY ACCOUNTING (1,928) - (1,928)
------------------------------------------------
NET INCOME (LOSS) $23,210 ($12,825) $10,385
================================================
FULLY DILUTED EARNINGS PER AVERAGE COMMON SHARE $0.23
WEIGHTED AVERAGE NUMBER OF SHARES 27,695,245
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
COMMONWEALTH TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
For the year ended December 31, 1995
CTCO OTHER TOTAL
--------------------------------------------------
<S> <C> <C> <C>
SALES $128,843 $45,348 $174,191
COSTS & EXPENSES, EXCLUDING DEPRECIATION AND AMORTIZATION 58,615 41,652 100,267
DEPRECIATION AND AMORTIZATION 24,874 627 25,501
--------------------------------------------------
OPERATING INCOME 45,354 3,069 48,423
INTEREST AND DIVIDEND INCOME 3,198 16 3,214
INTEREST EXPENSE (9,616) (5) (9,621)
GAIN ON SALE OF INVESTMENTS - 3,038 3,038
OTHER INCOME (EXPENSE), NET (678) 918 240
--------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 38,258 7,036 45,294
PROVISION FOR INCOME TAXES 11,857 1,685 13,542
--------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE EQUITY IN
UNCONSOLIDATED ENTITIES 26,401 5,351 31,752
EQUITY IN (LOSS) OF UNCONSOLIDATED ENTITIES - (546) (546)
--------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 26,401 4,805 31,206
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS,
NET OF INCOME TAX - 278 278
(LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAX - (8,205) (8,205)
--------------------------------------------------
NET INCOME (LOSS) $26,401 ($3,122) $23,279
==================================================
FULLY DILUTED EARNINGS PER AVERAGE COMMON SHARE $0.83
WEIGHTED AVERAGE NUMBER OF SHARES 28,144,472
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
COMMONWEALTH TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
For the year ended December 31, 1994
CTCO OTHER TOTAL
---------------------------------------------
<S> <C> <C> <C>
SALES $121,981 $38,291 $160,272
COSTS & EXPENSES, EXCLUDING DEPRECIATION AND AMORTIZATION 54,576 37,402 91,978
DEPRECIATION AND AMORTIZATION 23,272 594 23,866
---------------------------------------------
OPERATING INCOME 44,133 295 44,428
INTEREST AND DIVIDEND INCOME 2,271 6 2,277
INTEREST EXPENSE (8,614) (9,540) (18,154)
OTHER INCOME (EXPENSE), NET (490) 672 182
---------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 37,300 (8,567) 28,733
PROVISION (BENEFIT) FOR INCOME TAXES 11,893 (1,046) 10,847
---------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EQUITY IN UNCONSOLIDATED EQUITIES 25,407 (7,521) 17,886
EQUITY IN (LOSS) OF UNCONSOLIDATED ENTITIES - (853) (853)
---------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY
ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING PRINCIPLE CHANGES 25,407 (8,374) 17,033
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS, NET OF TAX - 74,768 74,768
(LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX - (13,696) (13,696)
---------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT 25,407 52,698 78,105
OF ACCOUNTING PRINCIPLES CHANGES
EXTRAORDINARY ITEMS:
DEBT PREPAYMENT PENALTIES, NET OF INCOME TAX (2,861) (3,236) (6,097)
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGES IN ACCOUNTING
PRINCIPLES FOR POSTEMPLOYMENT BENEFITS (242) (50) (292)
---------------------------------------------
NET INCOME $22,304 $49,412 $71,716
=============================================
FULLY DILUTED EARNINGS PER AVERAGE COMMON SHARE $4.20
WEIGHTED AVERAGE NUMBER OF SHARES 17,078,842
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
COMMONWEALTH TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, 1997
<S>
ASSETS <C>
CURRENT ASSETS:
Cash and temporary cash investments $ 13,776
Other current assets 41,386
Deferred income taxes 4,464
--------------
Total current assets 59,626
--------------
PROPERTY, PLANT AND EQUIPMENT
Telephone plant 476,595
Other property, plant and equipment 7,025
--------------
Total property, plant and equipment 483,620
Accumulated depreciation 213,542
--------------
Net property, plant and equipment 270,078
--------------
INVESTMENTS 8,994
--------------
DEFERRED CHARGES AND OTHER ASSETS 995
--------------
NET ASSETS OF DISCONTINUED OPERATIONS 265,120
--------------
TOTAL ASSETS $604,813
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 9,009
Advance billings & customer deposits 2,640
Accrued taxes 3,811
Accrued interest 670
Other current liabilities 43,275
--------------
Total current liabilities 59,405
--------------
</TABLE>
<PAGE>
COMMONWEALTH TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, 1997
<S> <C>
LONG-TERM DEBT 96,853
------------------
DEFERRED INCOME TAXES AND INVESTMENT TAX CREDITS 40,410
------------------
OTHER DEFERRED CREDITS 7,844
------------------
REDEEMABLE PREFERRED STOCK 41,692
------------------
COMMON SHAREHOLDERS' EQUITY:
Common stock 31,538
Additional paid-in capital 358,899
Retained earnings 108,114
Treasury stock at cost, 4,053,218 shares at June 30, 1997 (139,942)
------------------
Total common shareholders' equity 358,609
------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $604,813
==================
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
Commonwealth Telephone Enterprises, Inc.
Notes to Condensed Consolidated Financial Statements
On September 30, 1997, the Company distributed 100 percent of the
outstanding shares of common stock of its wholly-owned subsidiaries, RCN
Corporation and Cable Michigan, Inc. to holders of record of the Company's
Common Stock and the Company's Class B Common Stock as of the close of business
on September 19, 1997 in accordance with the terms of a Distribution Agreement
dated September 5, 1997 among the Company, RCN Corporation and Cable Michigan.
Pursuant to Accounting Principles Board Opinion No. 30 "Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" ("APB 30"), the Consolidated Financial Statements of the Company
have been restated to reflect RCN Corporation and Cable Michigan as discontinued
operations. Accordingly, the revenues, costs and expenses, and assets and
liabilities of RCN Corporation and Cable Michigan have been excluded from the
respective captions in the Condensed Consolidated Statements of Operations and
the Condensed Consolidated Balance Sheet. The net operating results of these
entities have been reported, net of applicable income taxes, as "Income (loss)
from discontinued operations" and the net assets of these entities have been
reported as "Net assets of discontinued operations."
Such statements additionally reflect the results of operations of
Commonwealth Telephone Company (including its epix(TM) Internet access
business), a wholly-owned subsidiary of the Company, separately for
informational purposes.
<PAGE>
Exhibit 3.1
RESOLVED, that the Articles of Incorporation be amended by changing the
FIRST article thereof so that, as amended, said Article shall be and read as
follows:
1. The name of the corporation is: Commonwealth Telephone Enterprises, Inc.
<PAGE>
Exhibit 3.2
9.C. Combination and Reclassification of Shares. Effective as of the close
of business on the date of filing in the Department of State of the Commonwealth
of Pennsylvania of these Articles of Amendment to the Articles of Incorporation,
as amended (the "Effective Time"), each three issued and outstanding shares of
Common Stock shall thereupon be combined into and reclassified as two shares of
validly issued, fully paid and nonassessable Common Stock and (ii) each three
issued and outstanding shares of the Class B Stock shall thereupon be combined
into and reclassified as two shares of validly issued, fully paid and
nonassessable Class B Stock. The number of authorized shares, the number of
shares of treasury stock and the par value of the Common Stock and the Class B
Stock shall not be affected by the foregoing combination of shares. Each stock
certificate that prior to the Effective Time represented shares of Common Stock
shall, following the Effective Time, represent the number of shares of Common
Stock into which the shares of Common Stock represented by such certificate
shall be combined, and each certificate that prior to the Effective Time
represented shares of Class B Stock shall, following the Effective Time,
represent the number of shares of Class B Stock into which the shares of Class B
Stock represented by such certificate shall be combined. The Corporation shall
not issue fractional shares or scrip as the result of the combination of shares,
but shall arrange for the disposition of fractional shares on behalf of those
record holders of Common Stock and Class B Stock at the Effective Time who would
otherwise be entitled to fractional shares as a result of the combination of
shares.
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
C-TEC CORPORATION
* * * * *
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office shall be located in the
-----------------
Commonwealth of Pennsylvania in such location as determined by the Board of
Directors from time to time.
Section 2. Other Offices. The Corporation may also have offices at such
-------------
other places both within and without the Commonwealth of Pennsylvania as the
Board of Directors may from time to time determine or the business of the
Corporation may require.
Section 3. Books. The books of the Corporation may be kept within or
-----
without of the Commonwealth of Pennsylvania as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Time and Place of Meetings. All meetings of shareholders shall
--------------------------
be held at such place, either within or without the Commonwealth of
Pennsylvania, on such date and at such time as may be determined from time to
time by the Board of Directors (or the Chairman in the absence of a designation
by the Board of Directors).
Section 2. Annual Meetings. Annual meetings of shareholders shall be held
---------------
to elect directors and transact such other business as may properly be brought
before the meeting.
<PAGE>
Section 3. Special Meetings. Special meetings of shareholders may be called
----------------
by the Board of Directors, the Chairman or the Chief Executive Officer of the
Corporation and may not be called by any other person. Notwithstanding the
foregoing, whenever holders of one or more classes or series of Preferred Stock
shall have the right, voting separately as a class or series, to elect
directors, such holders may call, pursuant to the terms of the resolution or
resolutions adopted by the Board of Directors pursuant to Article 9.A. of the
articles of incorporation, special meetings of holders of such Preferred Stock.
Section 4. Notice of Meetings and Adjourned Meetings; Waivers of Notice;
-------------------------------------------------------------
Business at Meetings. (a) Whenever shareholders are required or permitted to
- --------------------
take any action at a meeting, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Unless
otherwise provided by the Pennsylvania Business Corporation Law of 1988 as the
same exists or may hereafter be amended ("Pennsylvania Law"), such notice shall
be given not less than 5 nor more than 60 days before the date of the meeting to
each shareholder of record entitled to vote at such meeting. Unless these bylaws
otherwise require, when a meeting is adjourned to another time or place (whether
or not a quorum is present), notice need not be given of the adjourned meeting
if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the Corporation may transact any
business which might have been transacted at the original meeting. If the
adjournment is for more than 30 days, or after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each shareholder of record entitled to vote at the meeting.
(b) A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(c) Business transacted at any special meeting of shareholders shall be
limited to the purposes stated in the notice.
Section 5. Quorum. The presence, in person or by proxy, of the holders of a
------
majority of the outstanding shares of stock of the Company entitled to vote at a
meeting shall constitute a quorum. If a quorum is not present, no business
shall be transacted except to adjourn to a future time.
2
<PAGE>
Section 6. Voting. (a) Unless otherwise provided in the articles of
------
incorporation and subject to Pennsylvania Law, each shareholder shall be
entitled to one vote for each outstanding share of capital stock of the
Corporation held by such shareholder. Unless otherwise provided in Pennsylvania
Law, the articles of incorporation or these bylaws, whenever any corporate
action is to be taken by vote of the shareholders of the Corporation, it shall
be authorized upon receiving the affirmative vote of a majority of the votes
cast by all shareholders entitled to vote thereon.
(b) Each shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent to a corporate action in writing without a meeting
may authorize another person or persons to act for him by proxy, but no such
proxy shall be voted or acted upon after one year from its date, unless the
proxy provides for a longer period.
Section 7. No Action by Consent. Any action required or permitted to be
--------------------
taken at any annual or special meeting of shareholders may be taken only upon
the vote of shareholders entitled to vote thereon at an annual or special
meeting duly noticed and called in accordance with Pennsylvania Law and may not
be taken by written consent of shareholders without a meeting.
Section 8. Organization. At each meeting of shareholders, the Chairman, if
------------
one shall have been elected, (or in his absence or if one shall not have been
elected, the Chief Executive Officer) shall act as chairman of the meeting. The
Secretary (or in his absence or inability to act, the person whom the chairman
of the meeting shall appoint secretary of the meeting) shall act as secretary of
the meeting and keep the minutes thereof.
Section 9. Order of Business. The order of business at all meetings of
-----------------
shareholders shall be as determined by the chairman of the meeting.
Section 10. Notice of Business. At any meeting of the shareholders, only
------------------
such business shall be conducted as shall have been brought before the meeting
(a) by or at the direction of the Board of Directors or (b) in the case of an
annual meeting of shareholders, by any shareholder of the Corporation who is a
shareholder of record at the time of giving of the notice provided for in this
Section 10, who shall be entitled to vote at such meeting and who complies with
the notice procedures set forth in this Section 10. For business to be properly
brought before an annual meeting of shareholders by a shareholder, the
shareholder must have given timely notice thereof in writing to the secretary of
the Corporation. To be timely, a shareholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
that
3
<PAGE>
in the event that less than 70 days' notice or prior public disclosure of the
date of the meeting is given or made to shareholders, notice by the shareholder
to be timely must be so received not later than the close of business on the
10th day following the day on which such notice of the date of the meeting or
such public disclosure was given or made. A shareholder's notice to the
secretary shall set forth as to each matter the shareholder proposes to bring
before the meeting (a) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(b) the name and address, as they appear on the Corporation's books, of the
shareholder proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the shareholder and (d) any material
interest of the shareholder in such business. Notwithstanding anything in the
bylaws to the contrary, no business shall be conducted at a shareholder meeting
except in accordance with the procedures set forth in this Section 10, and no
business shall be brought by a shareholder before a special meeting of
shareholders. The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting and in accordance with the provisions of the bylaws, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing, provisions of this Section 10, a shareholder shall also comply with
all applicable requirements of the Securities Exchange Act of 1934, and the
rules and regulations thereunder with respect to the matters set forth in this
Section 10.
Section 11. Nomination of Directors. Only persons who are nominated in
-----------------------
accordance with the procedures set forth in these bylaws shall be eligible to
serve as directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of shareholders (a) by or
at the direction of the Board of Directors or (b) by any shareholder of the
Corporation who is a shareholder of record at the time of giving of notice
provided for in this Section 11, who shall be entitled to vote for the election
of directors at the meeting and who complies with the notice procedures set
forth in this Section 11. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the secretary of the Corporation. To be timely, a shareholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 70 days' notice
or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting or such public disclosure was given or made.
Such shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or reelection as a director
4
<PAGE>
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); and (b) as to the
shareholder giving the notice (i) the name and address, as they appear on the
Corporation's books, of such shareholder, (ii) the class and number of shares of
the Corporation which are beneficially owned by such shareholder, (iii) a
description of all arrangements or understandings between such shareholder and
each proposed nominee and any other person or persons (including their names and
addresses) pursuant to which the nomination(s) are to be made by such
shareholder and (iv) any other information relating to such shareholder that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Section 14A under the
Securities Exchange Act of 1934. At the request of the Board of Directors, any
person nominated by the Board of Directors for election as a director shall
furnish to the secretary of the Corporation that information required to be set
forth in a shareholder's notice of nomination which pertains to the nominee. No
person shall be eligible to serve as a director of the Corporation unless
nominated in accordance with the procedures set forth in this bylaw. The
chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by the bylaws, and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded. Notwithstanding
the foregoing provisions of this Section 11, a shareholder shall also comply
with all applicable requirements of the Securities Exchange Act of 1934, and the
rules and regulations thereunder with respect to the matters set forth in this
Section.
ARTICLE III
DIRECTORS
Section 1. General Powers. Except as otherwise provided in Pennsylvania Law
--------------
or the articles of incorporation, the business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors.
Section 2. Number, Classes, Term of Office, etc. The Board of Directors
-------------------------------------
shall consist of not less than three nor more than twenty-four directors, with
the exact number of directors to be determined from time to time solely by
resolution adopted by the affirmative vote of a majority of the entire Board of
Directors. Directors shall be divided into three classes as nearly equal in
number as possible, one class shall be elected at each annual meeting of the
shareholders for a term of three years to succeed the directors whose term then
expires; provided that
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nothing herein shall be construed to prevent the election of a director to
succeed himself. If directors are elected to different classes at the same
meeting, the election of directors for each class shall be held separately. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors. Shareholders
shall be entitled to vote cumulatively in all elections of directors. Except as
otherwise provided in the articles of incorporation, each director shall serve
for a term ending on the date of the third annual meeting of shareholders next
following the annual meeting at which such director was elected. Notwithstanding
the foregoing, each director shall hold office until such director's successor
shall have been duly elected and qualified or until such director's earlier
death, resignation or removal. Directors need not be shareholders.
Section 3. Quorum and Manner of Acting. Unless the articles of
---------------------------
incorporation or these bylaws require a greater number, 50% of the total number
of directors serving as directors shall constitute a quorum for the transaction
of business, and the affirmative vote of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors. When a meeting is adjourned to another time or place (whether or not
a quorum is present), notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Board of Directors may transact any
business which might have been transacted at the original meeting. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present at such meeting may adjourn the meeting, from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 4. Time and Place of Meetings. The Board of Directors shall hold
--------------------------
its meetings at such place, either within or without the Commonwealth of
Pennsylvania, and at such time as may be determined from time to time by the
Board of Directors (or the Chairman in the absence of a determination by the
Board of Directors).
Section 5. Annual Meeting. The Board of Directors shall meet for the
--------------
purpose of electing officers and transacting other business, as soon as
practicable after each annual meeting of shareholders, on the same day and at
the same place where such annual meeting shall be held. Notice of such meeting
need not be given. In the event such annual meeting is not so held, the annual
meeting of the Board of Directors may be held at such place either within or
without the Commonwealth of Pennsylvania, on such date and at such time as shall
be specified in a notice thereof given as hereinafter provided in Section 7 of
this Article III or in a waiver of notice thereof signed by any director who
chooses to waive the requirement of notice.
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Section 6. Regular Meetings. After the place and time of regular meetings
----------------
of the Board of Directors shall have been determined and notice thereof shall
have been once given to each member of the Board of Directors, regular meetings
may be held without further notice being given.
Section 7. Special Meetings. Special meetings of the Board of Directors may
----------------
be called by the Chairman, the Chief Executive Officer or the President and
shall be called by the Chairman, the Chief Executive Officer, the President or
the Secretary on the written request of three directors. Notice of special
meetings of the Board of Directors shall be given to each director at least
three days before the date of the meeting in such manner as is determined by the
Board of Directors.
Section 8. Committees. The Board of Directors shall elect from the
----------
directors an executive committee, a compensation/pension committee and an audit
committee and may, by resolution passed by a majority of the whole Board,
designate one or more other committees, each committee to consist of one or more
of the directors of the Corporation. Each committee shall keep regular minutes
of its meetings and report the same to the Board of Directors when required.
The specific powers and duties of the executive committee, the
compensation/person committee and the audit committee are set forth below:
(a) The executive committee shall consist of not less than 3 and not more
than 6 members as shall be determined by the Board of Directors in
addition to the Chairman, who by virtue of his office shall be a
member of the executive committee and chairman thereof. To the fullest
extent permitted by Pennsylvania law, the executive committee shall
have all the powers of the Board of Directors in the management of the
business and affairs of the Corporation at all times when the Board of
Directors is not in session.
(b) The compensation committee shall consist of such number of members as
shall be determined by the Board of Directors, shall make
recommendations to the Board of Directors regarding compensation and
benefits and shall have such other duties as determined by the Board
of Directors.
(c) The audit committee shall consist of such number of members as shall
be determined by the Board of Directors, shall make recommendations to
the Board of Directors regarding the auditing of the Corporation's
books and records, the audit process and the Corporation's independent
public accountants and shall have such other duties as determined by
the Board of Directors. None of the
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members of the audit committee shall be directly involved in the
supervision or management of the financial affairs of the Corporation
or any of its subsidiaries.
Section 9. Action by Consent. Unless otherwise restricted by the articles
-----------------
of incorporation or these bylaws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting, if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
Section 10. Telephonic Meetings. Unless otherwise restricted by the
-------------------
articles of incorporation or these bylaws, members of the Board of Directors, or
any committee thereof, may participate in a meeting of the Board of Directors,
or such committee, as the case may be, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 11. Resignation. Any director may resign at any time by giving
-----------
written notice to the Board of Directors or to the Secretary of the Corporation.
The resignation of any director shall take effect upon receipt of notice thereof
or at such later time as shall be specified in such notice; and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 12. Vacancies. Unless otherwise provided in the articles of
---------
incorporation, vacancies on the Board of Directors resulting from death,
resignation, removal or otherwise and newly created directorships resulting from
any increase in the number of directors may be filled solely by a majority of
the directors then in office (even if less than a quorum) or by the sole
remaining director. Each director so elected shall hold office for a term that
shall coincide with the term of the Class to which such director shall have been
elected. If there are no directors in office, then an election of directors may
be held in accordance with Pennsylvania Law. Unless otherwise provided in the
articles of incorporation, when one or more directors shall resign from the
Board, effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in the filling of other vacancies.
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Section 13. Removal. No director may be removed from office by the
-------
shareholders except for cause with the affirmative vote of the holders of not
less than a majority of the total voting power of all outstanding securities of
the corporation then entitled to vote generally in the election of directors,
voting together as a single class.
Section 14. Compensation. Unless otherwise restricted by the articles of
------------
incorporation or these bylaws, the Board of Directors shall have authority to
fix the compensation of directors, including fees and reimbursement of expenses.
Section 15. Preferred Directors. Notwithstanding anything else contained
-------------------
herein, whenever the holders of one or more classes or series of Preferred Stock
shall have the right, voting separately as a class or series, to elect
directors, the election, term of office, filling of vacancies, removal and other
features of such directorships shall be governed by the terms of the resolutions
adopted by the Board of Directors pursuant to the articles of incorporation
applicable thereto, and such directors so elected shall not be subject to the
provisions of Sections 2, 12 and 13 of this Article III unless otherwise
provided therein.
ARTICLE IV
OFFICERS
Section 1. Principal Officers. The principal officers of the Corporation
------------------
shall be a Chairman, a Chief Executive Officer, a President, one or more Vice
Presidents, a Treasurer and a Secretary who shall have the duty, among other
things, to record the proceedings of the meetings of shareholders and directors
in a book kept for that purpose. The Corporation may also have such other
principal officers, including one or more Controllers, as the Board may in its
discretion appoint. One person may hold the offices and perform the duties of
any two or more of said offices, except that no one person shall hold the
offices and perform the duties of President and Secretary.
Section 2. Election and Term of Office. The principal officers of the
---------------------------
Corporation shall be elected annually by the Board of Directors at the annual
meeting thereof. Each such officer shall hold office until his successor is
elected and qualified, or until his earlier death, resignation or removal. Any
vacancy in any office shall be filled in such manner as the Board of Directors
shall determine.
Section 3. Subordinate Officers. In addition to the principal officers
--------------------
enumerated in Section 1 of this Article IV, the Corporation may have one or more
Assistant Treasurers, Assistant Secretaries and Assistant Controllers and such
other subordinate officers, agents and employees as the Board of Directors may
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<PAGE>
deem necessary, each of whom shall hold office for such period as the Board of
Directors may from time to time determine. The Board of Directors may delegate
to any principal officer the power to appoint and to remove any such subordinate
officers, agents or employees.
Section 4. Removal. Any officer may be removed, with or without cause, at
-------
any time, by resolution adopted by the Board of Directors.
Section 5. Resignations. Any officer may resign at any time by giving
------------
written notice to the Board of Directors (or to a principal officer if the Board
of Directors has delegated to such principal officer the power to appoint and to
remove such officer). The resignation of any officer shall take effect upon
receipt of notice thereof or at such later time as shall be specified in such
notice; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 6. Chairman. The Chairman shall preside at all meetings of the
--------
Board of Directors and of shareholders, shall be responsible for the observation
by the Corporation of these bylaws and shall have such other duties as shall be
set forth in the resolution of the Board by which the appointment of the
Chairman is made.
Section 7. Chief Executive Officer. The Chief Executive Officer shall have
-----------------------
general supervision over the business and operations of the Corporation and may
perform any act and execute any instrument for the conduct of such business and
operations. In the Chairman's absence, the Chief Executive Officer shall
preside at all meetings of the Board and of the shareholders.
Section 8. Powers and Duties of Other Officers. The other officers of the
-----------------------------------
Corporation shall have such powers and perform such duties incident to each of
their respective offices and such other duties as may from time to time be
conferred upon or assigned to them by the Board of Directors.
ARTICLE V
EXCULPATION; INDEMNIFICATION
(1)(a) No director or former director of the Corporation shall be
personally liable to the Corporation or its shareholders for monetary damages
for or resulting from any act, omission or failure to act by reason of the fact
that he is or was a director of the Corporation. The foregoing limitation of
liability shall not be deemed exclusive of any provision limiting such liability
by any applicable statute
10
<PAGE>
now or hereafter enacted or any power which the Board of Directors now or
hereafter may have to limit such liability.
(b) The limitation of liability set forth in Subparagraph (a) hereof shall
not apply to (i) any breach of duty or failure to perform a duty which shall
constitute self-dealing, willful misconduct or recklessness or (ii) any
responsibility or liability pursuant to any criminal statute or the payment of
taxes pursuant to local, state or federal law.
(2)(a) Each person (and the heirs, executors or administrators of such
person) who was or is a party or is threatened to be made a party to, or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of another
domestic or foreign corporation for profit or not-for-profit, partnership,
limited liability company, joint venture, trust or other enterprise, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by Pennsylvania law. The right to indemnification conferred in this Article V
shall also include the right to be paid by the Corporation the expenses incurred
in connection with any such proceeding in advance of its final disposition to
the fullest extent authorized by Pennsylvania law. The right to indemnification
conferred in this Article V shall be a contract right.
(b) The Corporation may, by action of its Board of Directors, provide
indemnification to such of the employees and agents of the Corporation, and to
such persons serving at the request of the Corporation as an employee or agent
of another corporation, partnership, limited liability company, joint venture,
trust or other enterprise, to such extent and to such effect as the Board of
Directors shall determine to be appropriate and authorized by Pennsylvania law.
(3) The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
limited liability company, joint venture, trust or other enterprise against any
expense, liability or loss incurred by such person in any such capacity or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under Pennsylvania law.
(4) The rights and authority conferred in this Article V shall not be
exclusive of any other right which any person may otherwise have or hereafter
acquire.
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(5) Neither the amendment nor repeal of this Article V, nor the adoption of
any provision of the articles of incorporation or these bylaws, nor, to the
fullest extent permitted by Pennsylvania law, any modification of law, shall
eliminate or reduce the effect of this Article V in respect of any acts or
omissions occurring prior to such amendment, repeal, adoption or modification.
ARTICLE VI
PROVISION OF LAW NOT TO APPLY
Section 1. Sections 910 and 911. In accordance with the terms thereof,
--------------------
the provisions of Section 910 and 911 of the Pennsylvania Business Corporation
Law (Act of May 5, 1933, P.L. 364), as they from time to time may be amended,
shall not apply to the Corporation and may not be invoked by any of its
shareholders.
Section 2. Sub-Chapters G and H. In accordance with the provisions of
--------------------
Pennsylvania's 1990 "Anti-Takeover" Law enacted April 27, 1990 (Act No. 36 of
1990), Sub-Chapter G (Control-Share Acquisitions) and Sub-Chapter H
(Disgorgement by Certain Controlling Shareholders Following Attempts to Acquire
Control) of Chapter 25 of Title 15 of the Pennsylvania Consolidated Statutes
shall not be applicable to the Corporation and may not be invoked by the
Corporation nor any of its shareholders.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Fixing the Record Date. (a) In order that the Corporation may
----------------------
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than 60 nor less than 5 days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day preceding the day on
which notice is given, or, if notice is waived, at the close of business on the
day preceding the day on which the meeting is held. A determination of
shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting; provided that the
Board of Directors may fix a new record date for the adjourned meeting.
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(b) In order that the Corporation may determine the shareholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the shareholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining shareholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 2. Dividends. Subject to limitations contained in Pennsylvania Law
---------
and the articles of incorporation, the Board of Directors may declare and pay
dividends upon the shares of capital stock of the Corporation, which dividends
may be paid in cash, in property or in shares of the capital stock of the
Corporation.
Section 3. Fiscal Year. The fiscal year of the Corporation shall commence
-----------
on January 1 and end on December 31 of each year.
Section 4. Corporate Seal. The corporate seal shall have inscribed thereon
--------------
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Pennsylvania". The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or otherwise reproduced.
Section 5. Voting of Stock Owned by the Corporation. The Board of Directors
----------------------------------------
may authorize any person, on behalf of the Corporation, to attend, vote at and
grant proxies to be used at any meeting of shareholders of any corporation
(except this Corporation) in which the Corporation may hold stock.
Section 6. Amendments. These bylaws may be changed at any regular or
----------
special meeting of the Board of Directors by the vote of a majority of all the
directors in office or at any annual or special meeting of shareholders by the
vote of the holders of a majority of the outstanding stock entitled to vote.
Notice of any such meeting of shareholders shall set forth the proposed change
or a summary thereof.
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CONFORMED COPY
TAX SHARING AGREEMENT
BY AND AMONG
C-TEC CORPORATION
RCN CORPORATION
AND
CABLE MICHIGAN INC.
DATED AS OF
September 5, 1997
THIS TAX SHARING AGREEMENT, dated as of September 5, 1997, is by and
among C-TEC Corporation, a Pennsylvania corporation
("C-TEC"), RCN Corporation, a Delaware corporation ("RCN"), and Cable
Michigan, Inc., a Pennsylvania corporation ("Cable Michigan"). Capitalized
terms used herein shall have the respective meanings assigned to them in the
Distribution Agreement unless otherwise defined herein.
WHEREAS, C-TEC, RCN and Cable Michigan have executed the Distribution
Agreement pursuant to which C-TEC's existing businesses will be separated into
three independent public companies; and
WHEREAS, it is appropriate and desirable to set forth the principles
and responsibilities of the parties to this Agreement regarding future
Adjustments with respect to Taxes, Tax Contests and other related Tax matters.
<PAGE>
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
ARTICLE 1
DEFINITIONS
For the purpose of this Agreement the following terms shall have the
following meanings:
SECTION 1.01. Definitions.
"Adjustment" means the deemed increase or decrease in a Tax, determined
on an issue-by-issue or transaction-by-transaction basis, as appropriate, and
using the assumptions set forth in the next sentence, resulting from an
adjustment made or proposed by a Taxing Authority with respect to any amount
reflected or required to be reflected on any Return relating to such Tax. For
purposes of determining such deemed increase or decrease in a Tax, the following
assumptions will be used (a) in the case of any income Tax, the highest marginal
Tax rate or, in the case of any other Tax, the highest applicable Tax rate, in
each case in effect with respect to that Tax for the Taxable period or any
portion of the Taxable period to which the adjustment relates; an (b) such
determination shall be made without regard to whether any actual increase or
decrease in such Tax will in fact be realized with respect to the Return to
which such adjustment relates.
"Agreement" means this Tax Sharing Agreement, including any schedules,
exhibits and appendices attached hereto.
"Cable Michigan Tax Benefit" means, with respect to any Taxable period
or portion of a Taxable period, and as computed separately with respect to each
Tax, the net decrease in each such Tax equal to the sum of all Adjustments made
pursuant to a Final Determination with respect to each such Tax for each such
Taxable period or portion of a Taxable period that are clearly attributable to
the Cable Michigan Group.
"Cable Michigan Tax Detriment" means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to
2
<PAGE>
each Tax, the net increase in each such Tax equal to the sum of all Adjustments
made pursuant to a Final Determination with respect to each such Tax for each
such Taxable period or portion of a Taxable period that are clearly attributable
to the Cable Michigan Group.
"Consolidation" means, as appropriate, any Taxable period or any
portion of a Taxable period during which one or more members of the RCN Group
and/or the Cable Michigan Group are members of a C-TEC Consolidated Return
"Consolidated Return" means, as appropriate, for any Taxable period or
any portion of a Taxable period ending or deemed to end on or prior to the
Distribution Date, any consolidated or combined Return that includes one or more
members of the C-TEC Group and/or one or more members of the RCN Group and/or
one or more members of the Cable Michigan Group.
"Controlling Party" means C-TEC or any other member of the C-TEC Group,
RCN or any other member of the RCN Group or Cable Michigan or any other member
of the Cable Michigan Group, as the case may be, that filed or, if no such
Return has been filed, was required to file, a Return that is the subject of any
Tax Contest, or any successor and/or assign of any of the foregoing; provided,
however, that in the case of any Consolidated Return, the Person that actually
filed such Consolidated Return (or any successor and/or assign of such Person)
will be the Controlling Party, unless such Tax Contest arises from the business
activities of only (a) RCN or any other member of the RCN Group, in which case
RCN will be the Controlling Party, or (b) Cable Michigan or any other member of
the Cable Michigan Group, in which case Cable Michigan will be the Controlling
Party.
"Correlative Adjustment" means, in the case of an Adjustment comprising
a Non-Line of Business Adjustment, the net present value of any future increases
or decreases in a Tax that would be realized, using the assumptions set forth in
the next sentence, by either C-TEC or any other member of the C-TEC Group, RCN
or any other member of the RCN Group or Cable Michigan or any other member of
the Cable Michigan Group, as the case may be, in one or more Taxable periods (or
any portion of a Taxable period) but only if such increases or decrease (a) are
a direct result of the Non-Line of Business Adjustment and (b) will take effect
or begin to take effect in the Taxable period or portion of a Taxable period of
or immediately following the Taxable period or portion of a Taxable period in
which the Non-Line of Business Adjustment to
3
<PAGE>
such Tax is made. For purposes of determining the net present value of any such
future increases or decreases in a tax, the following assumptions will be used:
(i) a discount rate equal to the sum of the Federal Short-Term Rate as of the
date of the Final Determination relating to such Non-Line of Business Adjustment
plus 3.5%; (ii) in the case of any income Tax, the highest marginal Tax rate or,
in the case of any other Tax, the highest applicable Tax rate, in each case in
effect with respect to that Tax for the Taxable period, or portion of the
Taxable period, in which the Non-Line of Business Adjustment was made; (iii) the
depreciation, amortization or credit rate or lives, if applicable, in effect for
the Taxable period, or portion of the Taxable period, in which the Non-Line of
Business Adjustment was made; and (iv) such determination shall be made without
regard to whether any actual increases or decreases in such Tax will in fact be
realized with respect to the future Returns to which such Correlative Adjustment
relates.
"C-TEC Tax Detriment" means, with respect to any Taxable period or
portion of a Taxable period, and as computed separately with respect to each
Tax, the net increase in each such Tax equal to the sum of all Adjustments made
pursuant to a Final Determination with respect to each such Tax for each such
Taxable period or portion of a Taxable period that are clearly attributable to
the C-TEC Group, including, but not limited to, any Adjustments attributable to
or resulting from any of the following: the sale of (x) stock of Iowa City
Cellular Telephone Company, Inc. or Commonwealth Cellular Telephone Services,
Inc.; and (y) the sale of the assets of Mobile Plus, Inc. (formerly Cellular
Plus, Inc.), C-TEC Cellular Centre County, Inc., Mobile Plus of Iowa, Inc.
(formerly Cellular Plus of Iowa, Inc.), or Mobile Plus Service of Pennsylvania,
Inc. (formerly Paging Plus, Inc.).
"C-TEC Tax Benefit" means, with respect to any Taxable period or
portion of a Taxable period, and as computed separately with respect to each
Tax, the net decrease in each such Tax equal to the sum of all Adjustments made
pursuant to a Final Determination with respect to each such Tax for each such
Taxable period or portion of a Taxable period that are clearly attributable to
the C-TEC Group, including, but not limited to, any Adjustments attributable to
or resulting from any of the following: the sale of (x) stock of Iowa City
Cellular Telephone Company, Inc. or Commonwealth Cellular Telephone Services,
Inc.; and (y) the sale of the assets of Mobile Plus, Inc. (formerly Cellular
Plus, Inc.), C-TEC Cellular Centre County, Inc., Mobile Plus of Iowa, Inc.
(formerly Cellular Plus of Iowa, Inc.), or Mobile Plus Service of Pennsylvania,
Inc. (formerly Paging Plus, Inc.)
4
<PAGE>
"Disputed Adjustment" has the meaning set forth in Section 3.04(b)
hereof.
"Federal Short-Term Rate" means the applicable federal short-term rate
as determined under Section 1274(d) of the Code.
"Final Determination" means (a) a decision, judgment, decree or other
order by any court of competent jurisdiction, which has become final and is
either no longer subject to appeal or for which a determination not to appeal
has been made (b) a closing agreement made under Section 7121 of the Code or any
comparable foreign, state, local, municipal or other Taxing statute (c) a final
disposition by any Taxing Authority of a claim for refund; or (d) any other
written agreement relating to an Adjustment between any Taxing Authority and any
Controlling Party the execution of which is formal and prohibits such Taxing
Authority or the Controlling Party from seeking any further legal or
administrative remedies with respect to such Adjustment.
"Independent Third Party" means a nationally recognized law firm or any
of the following accounting firms or their successors: Arthur Andersen & Co.;
Ernst & Young; KPMG Peat Marwick; Deloitte & Touche; Coopers & Lybrand; and
Price Waterhouse & Co.
"Indemnified Party" has the meaning set forth in Section 4.01, 4.01
hereof.
"Indemnifying Party" has the meaning set forth in Section 4.01, 4.01
hereof.
"Interested Party" means C-TEC or any other member of the C-TEC Group,
RCN or any other member of the RCN Group or Cable Michigan or any other member
of the Cable Michigan Group (including any successor and/or assign of any of
each of the foregoing), as the case may be, to the extent (a) such Person is not
the Controlling Party with respect to a Tax Contest; an (b) such Person (i) may
be liable for, or required to make, any indemnity payment, reimbursement or
other payment pursuant to the provisions of this Agreement with respect to such
Tax Contest; or (ii) may be entitled to receive any indemnity payment,
reimbursement or other payment pursuant to the provisions of this Agreement with
respect to such Tax Contest.
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"Interested Party Notice" has the meaning set forth in Section 3.04(b)
hereof.
"Non-line of Business Adjustment" means, with respect to any Taxable
period or portion of a Taxable period, and as computed separately with respect
to each Tax, the net increase or decrease in each such Tax, as the case may be,
equal to the sum of all Adjustments made pursuant to a Final Determination with
respect to each such Tax for each such Taxable period or portion of a Taxable
period other than (a) any Tax Detriments or (b) any Tax Benefits.
Notwithstanding any other provisions of this Agreement (except Section 2.03(f))
or the Distribution Agreement to the contrary, Non-Line of Business Adjustments
shall include, but not be limited to, Restructuring Adjustments.
"RCN ESOP" means the employee stock ownership plan to be established by
RCN after the Distribution.
"RCN Tax Detriment" means, with respect to any Taxable period or
portion of a Taxable period, and as computed separately with respect to each
Tax, the net increase in each such Tax equal to the sum of all Adjustments made
pursuant to a Final Determination with respect to each such Tax for each such
Taxable period or portion of a Taxable period that are clearly attributable to
the RCN Group.
"RCN Tax Benefit" means, with respect to any Taxable period or portion
of a Taxable period, and as computed separately with respect to each Tax, the
net decrease in each such Tax equal to the sum of all Adjustments made pursuant
to a Final Determination with respect to each such Tax for each such Taxable
period or portion of a Taxable period that are clearly attributable to the RCN
Group.
"Restructuring Adjustment" means, with respect to any Taxable period or
portion of a Taxable period, and as computed separately with respect to each
Tax, the net increase or decrease in each such Tax, as the case may be, equal to
the sum of all Adjustments made pursuant to a Final Determination with respect
to each such Tax for each Taxable period or portion of a Taxable period that are
attributable to, or as a result of, any transactions undertaken to effectuate
the separation of C-TEC's existing businesses into three independent businesses
as contemplated under the Distribution Agreement including, but not limited to,
any transactions undertaken pursuant to or relating to the Distribution, the
formation
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of the RCN ESOP, and any offering of equity or equity-linked instruments by
C-TEC within one year of the Distribution Date.
"Return" means any return, report, form or similar statement or
document (including, without limitation, any related or supporting information
or schedule attached thereto and any information return, claim for refund,
amended return and declaration of estimated tax) that has been or is required to
be filed with any Taxing Authority or that has been or is required to be
furnished to any Taxing Authority in connection with the determination,
assessment or collection of any Taxes or the administration of any laws,
regulations or administrative requirements relating to any Taxes.
"Separate Return" means any Return other than a Consolidated Return.
the "Shared Cable Michigan Percentage" shall be 20%.
the "Shared C-TEC Percentage" shall be 50%.
the "Shared RCN Percentage" shall be 30%.
"Significant Obligation" means, in the case of an Interested Party, and
with respect to any Adjustment, an obligation to make or right to receive any
indemnity payment, reimbursement or other payment with respect to any such
Adjustment (including the effect of any Correlative Adjustment relating thereto)
pursuant to the terms of this Agreement that is greater than $10,000.
"Taxes" (and, with correlative meanings, "Taxes" and "Taxable") means,
without limitation, and as determined on a jurisdiction-by-jurisdiction basis,
each foreign or U.S. federal, state, local or municipal income, alternative or
add-on minimum, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property or any other tax, custom, tariff, impost, levy,
duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, addition to tax or additional
amount related thereto, imposed by any Taxing Authority.
"Tax Detriments" means any C-TEC Tax Detriment, any Cable Michigan Tax
Detriment or any RCN Tax Detriment, as the case may be.
"Tax Benefits" means any C-TEC Tax Benefit, any Cable Michigan Tax
Benefit or any RCN Tax Benefit, as the case may be.
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"Tax Contest" means, without limitation, any audit, examination, claim,
suit, action or other proceeding relating to Taxes in which an Adjustment may be
proposed, collected or assessed and in respect of which an indemnity payment,
reimbursement or other payment may be sought under this Agreement.
"Taxing Authority" means any governmental authority or any subdivision,
agency, commission or authority thereof, or any quasi-governmental or private
body having jurisdiction over the assessment, determination, collection or other
imposition of Taxes.
"Ultimate Determination" has the meaning set forth in Section
3.05(b)(i) hereof.
ARTICLE 2
ADJUSTMENTS
SECTION 2.01. In General. In determining any liability and/or
obligation to make, or right to receive, any indemnity payment, reimbursement or
other payment to or from any party to this Agreement pursuant to this Agreement,
any Taxable period or portion of a Taxable period that includes the Distribution
Date shall be deemed to include and end on such Distribution Date and no party
to this Agreement shall have any liability and/or obligation to make, or right
to receive, any such indemnity payment, reimbursement or other payment with
respect to any Taxable period or portion of a Taxable period that begins or is
deemed to begin after the Distribution Date.
SECTION 2.02. Tax Detriments and Benefit. (a) RCN shall be liable for,
and shall indemnify and hold harmless, subject to Section 3.04 and Section 3.05
hereof, any member of the C-TEC Group or Cable Michigan Group against any and
all RCN Tax Detriments for any Taxable period or portion of a Taxable period
ending or deemed to end on or before the Distribution Date with respect to any
Return of any member of the RCN Group, the C-TEC Group or the Cable Michigan
Group. RCN shall be entitled to receive, and shall be paid, subject to Section
3.04 and Section 3.05 hereof, (i) by C-TEC, the amount of any RCN Tax Benefits
for any Taxable period or portion of a Taxable period ending or deemed to end on
or before the Distribution Date with respect to any Return of any member of the
C-TEC Group; and/or (ii) by Cable Michigan, the amount of any RCN Tax Benefits
for any Taxable period or portion of a Taxable period ending or deemed to end on
or before the Distribution Date with respect to any Return of any member of the
Cable Michigan Group.
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(b) C-TEC shall be liable for, and shall indemnify and hold harmless,
as appropriate, and subject to Section 3.04 and Section 3.05 hereof, any member
of the RCN Group or Cable Michigan Group against any and all C-TEC Tax
Detriments for any Taxable period or portion of a Taxable period ending or
deemed to end on or before the Distribution Date with respect to any Return of
any member of the RCN Group, the C-TEC Group or the Cable Michigan Group. C-TEC
shall be entitled to receive, and shall be paid, subject to Section 3.04 and
Section 3.05 hereof, (i) by RCN, the amount of any C-TEC Tax Benefits for any
Taxable period or portion of a Taxable period ending or deemed to end on or
before the Distribution Date with respect to any Return of any member of the RCN
Group; and/or (ii) by Cable Michigan, the amount of any C-TEC Tax Benefits for
any Taxable period or any portion of a Taxable period ending or deemed to end on
or before the Distribution Date with respect to any Return of any member of the
Cable Michigan Group.
(c) Cable Michigan shall be liable for, and shall indemnify and hold
harmless, as appropriate, and subject to Section 3.04 and Section 3.05 hereof,
any member of the C-TEC Group or the RCN Group against any and all Cable
Michigan Tax Detriments for any Taxable period or portion of a Taxable period
ending or deemed to end on or before the Distribution Date with respect to any
Return of any member of the RCN Group, the C-TEC Group or the Cable Michigan
Group. Cable Michigan shall be entitled to receive, and shall be paid, subject
to Section 3.04 and Section 3.05 hereof, (i) by C-TEC, the amount of any Cable
Michigan Tax Benefits for any Taxable period or portion of a Taxable period
ending or deemed to end on the Distribution Date with respect to any Return of
any member of the C-TEC Group; and/or (ii) by RCN, the amount of any Cable
Michigan Tax Benefits for any Taxable period or portion of a Taxable period
ending or deemed to end on the Distribution Date with respect to any Return of
any member of the RCN Group.
SECTION 2.03. Non-line of Business Adjustments. (a) RCN shall be liable
for, and shall indemnify and hold harmless, as appropriate, any member of the
C-TEC Group or Cable Michigan Group against RCN's share, as determined in
Section 2.03(d) below, of any Non-Line of Business Adjustment the amount of
which increases a Tax for any Taxable period or portion of a Taxable period
ending or deemed to end on or before the Distribution Date; with respect to any
Return of any member of the RCN Group, the C-TEC Group or the Cable Michigan
Group. RCN shall be entitled to receive, and shall be paid (i) by C-TEC, RCN's
share, as determined in Section 2.03(d) below, of any Non-Line of Business
Adjustment the amount of which decreases a Tax for any Taxable period or portion
of a Taxable period ending or deemed to end on or before the
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Distribution Date with respect to any Return of any member of the C-TEC Group;
and/or (ii) by Cable Michigan, RCN's share, as determined in Section 2.03(d)
below, of any Non-Line of Business Adjustment the amount of which decreases a
Tax for any Taxable period or portion of a Taxable period ending or deemed to
end on or before the Distribution Date with respect to any Return of any member
of the Cable Michigan Group.
(b) C-TEC shall be liable for, and shall indemnify and hold harmless,
as appropriate, any member of the RCN Group or the Cable Michigan Group against
C-TEC's share, as determined in Section 2.03(d) below, of any Non-Line of
Business Adjustment the amount of which increases a Tax for any Taxable period
or portion of a Taxable period ending or deemed to end on or before the
Distribution Date with respect to any Return of any member of the RCN Group, the
C-TEC Group or the Cable Michigan Group. C-TEC shall be entitled to receive, and
shall be paid (i) by RCN, C-TEC's share, as determined in Section 2.03(d) below,
of any Non-Line of Business Adjustment the amount of which decreases a Tax for
any Taxable period or portion of a Taxable period ending or deemed to end on or
before the Distribution Date with respect to any Return of any member of the RCN
Group; and/or (ii) by Cable Michigan, C-TEC's share, as determined in Section
2.03(d) below, of any Non-Line of Business Adjustment the amount of which
decreases a Tax for any Taxable period or portion of a Taxable period ending or
deemed to end on or before the Distribution Date with respect to any Return of
any member of the Cable Michigan Group.
(c) Cable Michigan shall be liable for, and shall indemnify and hold
harmless, as appropriate, any member of the RCN Group or the C-Tec Group against
Cable Michigan's share, as determined in Section 2.03(d) below, of any Non-Line
of Business Adjustment the amount of which increases a Tax for any Taxable
period or portion of a Taxable period ending or deemed to end on or before the
Distribution Date with respect to any Return of any member of the RCN Group, the
C-TEC Group or the Cable Michigan Group. Cable Michigan shall be entitled to
receive, and shall be paid (i) by RCN, Cable Michigan's share, as determined in
Section 2.03(d) below, of any Non-Line of Business Adjustment the amount of
which decreases a Tax for any Taxable period or portion of a Taxable period
ending or deemed to end on or before the Distribution Date with respect to any
Return of any member of the RCN Group; and/or (ii) by C-TEC, Cable Michigan's
share, as determined in Section 2.03(d) below, of any Non-Line of Business
Adjustment the amount of which decreases a Tax for any Taxable period or portion
of a Taxable period ending or deemed to end on or before the date of the Cable
Michigan Distribution Date with respect to any Return of any member of the C-TEC
Group.
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(d) C-TEC, RCN and Cable Michigan shall share the amount of any
Non-Line of Business Adjustment to the extent each such party is liable for
and/or has an obligation to make, or has the right to receive, as the case may
be, any indemnity payment, reimbursement or other payment with respect to such
Non-Line of Business Adjustment under this Agreement, in proportion to the
Shared C-TEC Percentage, the Shared RCN Percentage and the Shared Cable Michigan
Percentage, respectively; provided, however, that in the event that there is any
Correlative Adjustment with respect to any such Non-Line of Business Adjustment,
then C-TEC, RCN and Cable Michigan shall share such Non-Line of Business
Adjustment in the following manner in order to ensure that the party or parties
that will bear the burden or inure to the benefit of the Correlative Adjustment
in the future will share the Non-Line of Business Adjustment in proportion to
each of their respective Shared Percentages after giving effect to such
Correlative Adjustment:
(i) first, the amount of any such Non-Line of Business Adjustment
shall be increased or decreased, as appropriate, by the amount of the
Correlative Adjustment, the net amount resulting from such increase or
decrease being hereinafter referred to as the "Net Non-Line of Business
Adjustment" for purposes of this Section 2.03(d);
(ii) second, the Net Non-Line of Business Adjustment shall be
allocated among C-TEC, RCN and Cable Michigan in proportion to the
Shared C-TEC Percentage, the Shared RCN Percentage and the Shared Cable
Michigan Percentage, respectively, to the extent each such party is
liable for and/or has an obligation to make, or has the right to
receive, as the case may be, any indemnity payment, reimbursement or
other payment with respect to such Non-Line of Business Adjustment
under this Agreement; and
(iii) finally, with respect to a party to which a Correlative
Adjustment is attributable, that party's share of the Net Non-Line of
Business Adjustment as allocated pursuant to paragraph 2.03(d)(ii) of
this Section 2.03(d) will be increased or decreased, as appropriate, by
the amount, if any, of the Correlative Adjustment that is attributable
to such party in order to arrive at such party's share of the Non-Line
of Business Adjustment.
(e) Following the determination of a party's share of a Non-Line of
Business Adjustment pursuant to Section 2.03(d) above, and subject to Section
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3.04 and 3.05 hereof, the Controlling Party that controls the Tax Contest to
which such Non-Line of Business Adjustment relates shall (i) be entitled to
reimbursement from C-TEC, RCN and/or Cable Michigan, as the case may be, for
each of their respective shares, if any, of any Non-Line of Business Adjustment
the amount of which increases a Tax; and (ii) reimburse C-TEC, RCN or Cable
Michigan, as the case may be, for each of their respective shares, if any, of
any Non-Line of Business Adjustment the amount of which decreases a Tax.
(f) Notwithstanding any other provision of this Agreement or the
Distribution Agreement to the contrary, if after the Distribution Date C-TEC,
RCN or Cable Michigan takes any action or fails to take any action that results
in the Distribution not qualifying as a tax-free distribution under Section 355
of the Code, then C-TEC, RCN or Cable Michigan, as the case may be, will be
liable for any increased tax liability of C-TEC, RCN and Cable Michigan arising
therefrom.
ARTICLE 3
TAX CONTESTS
SECTION 3.01. Notification of Tax Contests. The Controlling Party shall
promptly notify all Interested Parties of (a) the commencement of any Tax
Contest pursuant to which such Interested Parties may be required to make or
entitled to receive an indemnity payment, reimbursement or other payment under
this Agreement; an (b) as required and specified in Section 3.04 hereof, any
Final Determination made with respect to any Tax Contest pursuant to which such
Interested Parties may be required to make or entitled to receive any indemnity
payment, reimbursement or other payment under this Agreement. The failure of a
Controlling Party to promptly notify any Interested Party as specified in the
preceding sentence shall not relieve any such Interested Party of any liability
and/or obligation which it may have to the Controlling Party under this
Agreement except to the extent that the Interested Party was prejudiced by such
failure, and in no event shall such failure relieve the Interested Party from
any other liability or obligation which it may have to such Controlling Party.
SECTION 3.02. Tax Contest Settlement Rights. The Controlling Party
shall have the sole right to contest, litigate, compromise and settle any
Adjustment that is made or proposed in a Tax Contest without obtaining the prior
consent of any Interested Party; provided, however, that, unless the parties
provide notice of the waiver of such right, the Controlling Party shall, in
connection with any proposed or assessed Adjustment in a Tax Contest for which
an Interested Party may be required to make or entitled to receive an indemnity
payment, reimbursement or other payment under this Agreement (a) keep all such
Interested Parties informed
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in a timely manner of all actions taken or proposed to be taken by the
Controlling Party; an (b) provide all such Interested Parties with copies of any
correspondence or filings submitted to any Taxing Authority or judicial
authority, in each case in connection with any contest, litigation, compromise
or settlement relating to any such Adjustment in a Tax Contest. The failure of a
Controlling Party to take any action as specified in the preceding sentence with
respect to an Interested Party shall not relieve any such Interested Party of
any liability and/or obligation which it may have to the Controlling Party under
this Agreement except to the extent that the Interested Party was prejudiced by
such failure, and in no event shall such failure relieve the Interested Party
from any other liability or obligation which it may have to such Controlling
Party. The Controlling Party may, in its sole discretion, take into account any
suggestions made by an Interested Party with respect to any such contest,
litigation, compromise or settlement of any Adjustment in a Tax Contest. All
costs of any Tax Contest are to be borne by the Controlling Party and all
Interested Parties in proportion to their respective liability to make indemnity
payments, reimbursements or other payments under this Agreement with respect to
an Adjustment made in such Tax Contest; provided, however, that (x) any costs
related to an Interested Party's attendance at any meeting with a Taxing
Authority or hearing or proceeding before any judicial authority pursuant to
Section 3.03 hereof, and (y) the costs of any legal or other representatives
retained by an Interested Party in connection with any Tax Contest that is
subject to the provisions of this Agreement, shall be borne by such Interested
Party.
SECTION 3.03. Tax Contest Participation. Unless waived by the parties
in writing, the Controlling Party shall provide an Interested Party with notice
reasonably in advance of, and such Interested Party shall have the right to
attend, any formally scheduled meetings with Taxing Authorities or hearings or
proceedings before any judicial authorities in connection with any contest,
litigation, compromise or settlement of any proposed or assessed Adjustment that
is the subject of any Tax Contest pursuant to which such Interested Party may be
required to make or entitled to receive an indemnity payment, reimbursement or
other payment under this Agreement, but only if the Interested Party bears, or
in the good faith judgment of the Controlling Party, may bear, a Significant
Obligation with respect to such Adjustment; provided, however, that the
Controlling Party may, in its sole discretion, permit an Interested Party that
does not bear, or potentially bear, such a Significant Obligation with respect
to such an Adjustment, to attend any such meetings, hearings or proceedings that
relate to such Adjustment. In addition, unless waived by the parties in writing,
the Controlling Party shall provide each Interested Party with draft copies of
any correspondence or filings to be submitted to any Taxing Authority or
judicial
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authority with respect to such Adjustments for such Interested Party's review
and comment. The Controlling Party shall provide such draft copies reasonably in
advance of the date that they are to be submitted to the Taxing Authority or
judicial authority and the Interested Party shall provide its comments, if any,
with respect thereto within a reasonable time before such submission. The
failure of a Controlling Party to provide any notice, correspondence or filing
as specified in this Section 3.03 to an Interested Party shall not relieve any
such Interested Party of any liability and/or obligation which it may have to
the Controlling Party under this Agreement except to the extent that the
Interested Party was prejudiced by such failure, and in no event shall such
failure relieve the Interested Party from any other liability or obligation
which it may have to such Controlling Party.
SECTION 3.04. Tax Contest Waiver. (a) The Controlling Party shall
promptly provide notice to all Interested Parties in a Tax Contest (i) that a
Final Determination has been made with respect to such Tax Contest; and (ii)
enumerating the amount of the Interested Party's share of each Adjustment
reflected in such Final Determination of the Tax Contest for which such
Interested Party may be required to make or entitled to receive an indemnity
payment, reimbursement or other payment under this Agreement.
(b) Within thirty (30) days after an Interested Party receives the
notice described in Section 3.04(a) hereof from the Controlling Party, such
Interested Party shall give notice to the Controlling Party (i) that the
Interested Party agrees with each Adjustment (and its share thereof) enumerated
in the notice described in Section 3.04(a) hereof except with respect to those
Adjustments (and/or its shares thereof) that, in the good faith judgment of the
Interested Party, it disagrees with and has specifically enumerated its
disagreement with, including the amount of such disagreement, in the statement
(each such disagreed Adjustment (and/or share thereof) hereinafter referred to
as a "Disputed Adjustment"); and (ii) that the Interested Party thereby waives
its right to a determination by an Independent Third Party pursuant to the
provisions of Section 3.05 hereof with respect to all Adjustments to which it
agrees with its share (this statement hereinafter referred to as the "Interested
Party Notice"). The failure of an Interested Party to provide the Interested
Party Notice to the Controlling Party within the thirty (30) day period
specified in the preceding sentence shall be deemed to indicate that such
Interested Party agrees with its share of all Adjustments enumerated in the
notice described in Section 3.04(a) hereof and that such Interested Party waives
it right to a determination by an Independent Third Party with respect to all
such Adjustments (and its shares thereof) pursuant to Section 3.05 hereof.
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(c) During the thirty (30) day period immediately following the
Controlling Party's receipt of the Interested Party Notice described in Section
3.04(b) above, the Controlling Party and the Interested Party shall in good
faith confer with each other to resolve any disagreement over each Disputed
Adjustment that was specifically enumerated in such Interested Party Notice. At
the end of the thirty (30) day period specified in the preceding sentence,
unless notice is provided of the mutual consent of the parties to the extension
of such time period, the Interested Party shall be deemed to agree with all
Disputed Adjustments that were specifically enumerated in the Interested Party
Notice and waive its right to a determination by an Independent Third Party
pursuant to Section 3.05 hereof with respect to all such Disputed Adjustments
unless, and to the extent, that at any time during such thirty (30) day (or
extended) period, the Interested Party has given the Controlling Party notice
that it is seeking a determination by an Independent Third Party pursuant to
Section 3.05 hereof regarding the propriety of any such Disputed Adjustment.
(d) Notwithstanding anything in this Agreement to the contrary, an
Interested Party that does not have a Significant Obligation with respect to an
Adjustment has no right to a determination by an Independent Third Party under
section 3.05 hereof with respect to any such Adjustment.
SECTION 3.05. Tax Contest Dispute Resolution. (a) In the event that an
Interested Party has given the Controlling Party notice as required in Section
3.04(c) hereof that it is seeking a determination by an Independent Third Party
pursuant to this Section 3.05 with respect to any Disputed Adjustment that was
enumerated in an Interested Party Notice, then the parties shall, within ten
(10) days after the Controlling Party has received such notice, jointly select
an Independent Third Party to make such determination. In the event that the
parties cannot jointly agree on an Independent Third Party to make such
determination within such ten (10) day period, then the Controlling Party and
the Interested Party shall each immediately select an Independent Third Party
and the Independent Third Parties so selected by the parties shall jointly
select, within ten (10) days of their selection, another Independent Third Party
to make such determination.
(b) In making its determination as to the propriety of any Disputed
Adjustment, the Independent Third Party selected pursuant to Section 3.05(a)
above shall assume that the Interested Party is not required or entitled under
applicable law to be a member of any Consolidated Return. In addition, the
Independent Third Party shall make its determination according to the following
procedure:
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(i) The Independent Third Party shall analyze each Disputed
Adjustment for which a determination is sought pursuant to this Section
3.05 to determine what is a fair and appropriate outcome (hereinafter
referred to as the "Ultimate Determination") with respect to any such
Disputed Amount, taking into account the following exclusive criteria:
(A) the facts relating to such Adjustment; (B) the applicable law, if
any, with respect to such Adjustment; (C) the position of the
applicable Taxing Authority with respect to compromise, settlement or
litigation of such Adjustment; (D) the strength of the factual and
legal arguments made by the Controlling Party in reaching the outcome
with respect to such Adjustment as reflected in the Final Determination
of the Tax Contest; (E) the strength of the factual and legal arguments
being made by the Interested Party for the alternative outcome being
asserted by such Interested Party (including the availability of facts,
information and documentation to support such alternative outcome); (F)
the strength of the legal and factual support for other potential, non-
frivolous Adjustments with respect to matters that were actually raised
and contested by the applicable Taxing Authority in the Tax Contest for
which the Interested Party could have been liable under this Agreement
but which were eliminated or reduced as a result of the Controlling
Party agreeing to the Disputed Adjustment as reflected in the Final
Determination of the Tax Contest; (G) the effect of the actual outcome
reached with respect to the Disputed Adjustment on other Taxable
periods and on other positions taken or proposed to be taken in Returns
filed or proposed to be filed by the Interested Party; (H) the
realistic possibility of avoiding examination of potential, non-
frivolous issues for which the Interested Party could be liable under
this Agreement and that were contemporaneously identified in writings
by the party or parties during the course of the Tax Contest but which
had not been raised and contested by the applicable Taxing Authority in
the Tax Contest; and (I) the benefits to the Interested Party in
reaching a Final Determination, and the strategy and rationale with
respect to the Interested Party's Disputed Adjustment that the
Controlling Party had for agreeing to such Disputed Adjustment in
reaching the Final Determination, in each case that were
contemporaneously identified in writings by the party or parties during
the course of the Tax Contest.
(ii) The Interested Party shall only be entitled to modification
of its share of a Disputed Adjustment under this Section 3.05 if, as
the case may be, either (A) the amount that would be paid by the
Interested Party under the Ultimate Determination with respect to such
Disputed Adjustment is less than 80% of the amount that would be paid
by the
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Interested Party with respect to such Disputed Adjustment under the
actual outcome reached with respect to such Disputed Adjustment; or (B)
the amount that would be received by the Interested Party under the
Ultimate Determination with respect to such Disputed Adjustment is more
than 120% of the amount that the Interested Party would receive with
respect to such Disputed Adjustment under the actual outcome reached
with respected to such Disputed Adjustment. If an Interested Party is
entitled to modification of its share of any Disputed Adjustment under
the preceding sentence, the amount the Interested Party is entitled to
receive, or is required to pay, as the case may be, with respect to
such Disputed Adjustment shall be equal to the amount of the Ultimate
Determination of such Disputed Adjustment. The Independent Third Party
will provide notice to the Controlling Party and the Interested Party
stating whether the Interested Party is entitled to modification of its
share of the Disputed Adjustment pursuant to this paragraph 3.05(b)(ii)
and, if the Interested Party is entitled to such modification, the
amount as determined in the preceding sentence that the Interested
Party is entitled to receive from, or required to pay to, the
Controlling Party with respect to such Disputed Adjustment.
(c) Any determination made or notice given by an Independent Third
Party pursuant to this Section 3.05 shall be (i) in writing; (ii) made within
thirty (30) days following the selection of the Independent Third Party as set
forth in Section 3.05(a) of this Agreement unless such period is otherwise
extended by the mutual consent of the parties; and (iii) final and binding upon
the parties. The costs of any Independent Third Party retained pursuant to this
Section 3.05 shall be shared equally by the parties. The Controlling Party and
the Interested Party shall provide the Independent Third Party jointly selected
pursuant to Section 3.05(a) hereof with such information or documentation as may
be appropriate or necessary in order for such Independent Third Party to make
the determination requested of it. Upon issuance of an Independent Third Party's
notice under Section 3.05(b)(ii) hereof, the Controlling Party or the Interested
Party, as the case may be, shall pay as specified in Article 4 of this
Agreement, the amount, if any, of the Disputed Adjustment to the appropriate
party.
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ARTICLE 4
PROCEDURE AND PAYMENT
SECTION 4.01. Procedure. (a) If an Interested Party has any liability
and/or obligation to make, or the right to receive, any indemnity payment,
reimbursement or other payment with respect to an Adjustment under this
Agreement for which it does not have a right to a determination by an
Independent Third Party under Section 3.05 hereof, then the amount of such
Adjustment shall be immediately due and payable upon receipt by the Interested
Party of a notice of Final Determination of a Tax Contest as required and
specified in Section 3.04(a) hereof.
(b) If after (i) notice of a Final Determination of a Tax Contest as
required and specified in Section 3.04(a) hereof has been given by a Controlling
Party to an Interested Party; and (ii) the Interested Party receiving such
notice has either:
(i) failed to provide the Interested Party Notice specified in
Section 3.04(b) hereof within the thirty (30) day period set forth in
Section 3.04(b);
(ii) provided the Interested Party Notice specified in Section
3.04(b) hereof within the thirty (30) day period specified in Section
3.04(b) agreeing to all Adjustments (and the Interested Party's share
of all such Adjustments) and waiving the right to an Independent Third
Party determination pursuant to Section 3.05 hereof with respect to all
such Adjustments (and the Interested Party's share of such
Adjustments);
(iii) provided the Interested Party Notice specified in Section
3.04(b) hereof within the thirty (30) day period specified in Section
3.04(b) agreeing with some, but not all, Adjustments (and the
Interested Party's share of such agreed Adjustments) and waiving the
right to an Independent Third Party Determination pursuant to Section
3.05 hereof with respect to all such agreed Adjustments (and the
Interested Party's share of such Adjustments); or
(iv) provided the Interested Party Notice specified in Section
3.04(b) hereof within the thirty (30) day period specified in Section
3.04(b) specifically enumerating the Disputed Adjustments to which it
does not agree and for which the notice specified in either Section
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3.05(b)(ii) hereof relating to any such Disputed Adjustment has been
given by an Independent Third Party,
then the amount of any Adjustment agreed to or deemed to be agreed to by the
Interested Party, or for which an Independent Third Party notice has been given
pursuant to either Section 3.05(b)(ii) hereof, as set forth in each of clauses
(A), (B, (C) or (D) above, shall be immediately due and payable.
(c) Any Person entitled to any indemnification, reimbursement or other
payment under this Agreement with respect to the amount of any Adjustment that
has become immediately due and payable under Section 4.01(b) (the "Indemnified
Party") shall notify the Person against whom such indemnification, reimbursement
or other payment is sought (the "Indemnifying Party") of its right to and the
amount of such indemnification, reimbursement or other payment; provided,
however, that the failure to notify the Indemnifying Party shall not relieve the
Indemnifying Party from any liability and/or obligation which it may have to an
Indemnified Party on account of the provisions contained in this Agreement
except to the extent that the Indemnifying Party was prejudiced by such failure,
and in no event shall such failure relieve the Indemnifying Party from any other
liability or obligation which it may have to such Indemnified Party. The
Indemnifying Party shall make such indemnity payment, reimbursement or other
payment to the Indemnified Party within thirty (30) days of the receipt of the
notice specified in the preceding sentence; provided, however, that, in the case
of any Final Determination of a Tax Contest involving a state, local or
municipal Tax in which the Indemnifying Party is also the Controlling Party with
respect to such Tax Contest and, as Controlling Party, is entitled to receive an
overall net refund from the applicable state, local or municipal Taxing
Authority with respect to such state, local or municipal Tax, then the
Indemnifying Party shall make such indemnity payment, reimbursement or other
payment to the Indemnified Party within thirty (30) days from the date the
Indemnifying Party actually receives payment of or obtains the benefit of the
net refund due from the applicable state, local or municipal Taxing Authority.
SECTION 4.02. Payment. Any indemnity payment, reimbursement or other
payment required to be made pursuant to this Agreement by an Indemnifying Party
to an Indemnified Party shall be made, at the option of the Indemnifying Party,
b (a) certified check payable to the order of the Indemnified Party; or (b) wire
transfer of immediately available funds to such bank and/or other account of the
Indemnified Party as from time to time the Indemnified Party shall have directed
the Indemnifying Party, in writing. Any indemnity payment, reimbursement or
other payment required to be made by an Interested Party
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pursuant to this Agreement shall bear interest at the Federal Short-Term Rate
plus 2 %, per annum, from the date such Interested Party receives the notice of
Final Determination made with respect to a Tax Contest as provided in Section
3.04(a) hereof. Any indemnity payment, reimbursement or other payment required
to be made by a Controlling Party to an Interested Party pursuant to this
Agreement shall bear interest at the Federal Short-Term Rate plus 2%, per annum,
from a date thirty (30) days after the date of a Final Determination made with
respect to a Tax Contest; provided, however, that, in the case of any Final
Determination of a Tax Contest involving a state, local or municipal Tax in
which the Controlling Party is entitled to receive an overall net refund from
the applicable state, local or municipal Taxing Authority with respect to such
state, local or municipal Tax, such indemnity payment, reimbursement or other
payment to be made by the Controlling Party shall bear interest at the Federal
Short-Term Rate plus 2%, per annum, from the date the Controlling Party actually
receives payment of or obtains the benefit of the net refund due from the
applicable state, local or municipal Taxing Authority.
ARTICLE 5
OTHER TAX MATTERS
SECTION 5.01. Tax Policies and Procedures During Consolidation. It is
understood and agreed that during Consolidation:
(a) Members of the RCN Group and members of the Cable Michigan Group,
respectively, shall each adopt and follow the Tax policies and procedures that
have been established by C-TEC, unless C-TEC shall otherwise consent as provided
herein.
(b) C-TEC shall establish all Return positions and make all Tax
elections relating to a Consolidated Return. Members of the RCN Group and
members of the Cable Michigan Group shall take such Consolidated Return
positions and make such Tax elections relating to a Consolidated Return as may
be taken or made by C-TEC, or as reasonably requested by C-TEC to be taken or
made by any member of the RCN Group and/or any member of the Cable Michigan
Group, as the case may be, unless C-TEC shall otherwise consent, as provided
herein.
(c) With respect to the Consolidated Return for the taxable period
including the Distribution Date, the parties to this Agreement shall indemnify
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each other in a manner consistent with Article 2 for the amount of any
difference between (i) the Tax liability of such party (including all of the
members of its respective Group) as calculated on a separate basis for purposes
of determining the final tax accrual provision for the period ending on the
Distribution Date and (ii) the Tax liability of such party (including all of the
members of its respective Group) as calculated on a separate basis for purposes
of determining the total Tax liability as reported on the Consolidated Return
filed with respect to the taxable period including the Distribution Date. Any
payments to be made pursuant to this Section 5.01(c) shall be made within
forty-five (45) days of the filing of such Consolidated Return.
SECTION 5.02. Cooperation. Except as otherwise provided in this
Agreement, each member of the C-TEC Group, the RCN Group and/or the Cable
Michigan Group, as the case may be, shall, at their own expense, cooperate with
each other in the filing of, or any Tax Contest relating to, any Return and any
other matters relating to Taxes and, in connection therewith, shall (i) maintain
appropriate books and records for any and all Taxable periods or any portion of
a Taxable period that may be required by C-TEC's record retention policies; (ii)
provide to each other such information as may be necessary or useful in the
filing of, or any Tax Contest relating to, any such Return; (iii) execute and
deliver such consents, elections, powers of attorney and other documents as may
be required or appropriate for the proper filing of any such Return or in
conjunction with any Tax Contest relating to any such Return; and (iv) make
available for responding to inquiries of any other party or any Taxing
Authority, appropriate employees and officers of and advisors retained by any
member of the C-TEC Group, the RCN Group, or the Cable Michigan Group, as the
case may be.
SECTION 5.03. Filing of Returns. The Person that would be the
Controlling Party with respect to any Tax Contest relating to a Return for which
any indemnity payment, reimbursement or other payment may be sought under this
Agreement shall (a) prepare and file, or cause to be prepared and filed, any
such Return within the time prescribed for filing such Return (including all
extensions of time for filing); and (b) shall timely pay, or cause to be timely
paid, the amount of any Tax shown to be due and owing on any such Return. Such
Person shall bear all costs associated with preparing and filing, or causing to
be prepared and filed, any such Return. Except as provided in Section 5.01(b)
hereof (relating to Consolidated Returns), such Person shall establish all
Return positions and make all Tax elections relating to such Returns.
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ARTICLE 6
MISCELLANEOUS
SECTION 6.01. Governing Law. To the extent not preempted by any
applicable foreign or U.S. federal, state, or local Tax law, this Agreement
shall be governed by and construed and interpreted in accordance with the laws
of the State of New York, irrespective of the choice of laws principles of the
State of New York, as to all matters, including matters of validity,
construction, effect, performance and remedies.
SECTION 6.02. Affiliates. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Affiliate of such party;
provided, however, that for purposes of the foregoing, no Person shall be
considered an Affiliate of a party if such Person is a member of another party's
Group.
SECTION 6.03. Incorporation of Distribution Agreement Provisions.
Article 9 of the Distribution Agreement (Miscellaneous) is hereby incorporated
herein by reference, and unless otherwise expressly specified herein, shall
apply as if fully set forth herein.
SECTION 6.04. Notices. On behalf of C-TEC, RCN, and Cable Michigan, the
individuals set forth below (or any other individuals delegated in writing by
each of the foregoing) shall serve as the single point of contact to receive or
give any notice or other communication required or permitted to be given to any
member of each of their respective Groups under this Agreement. Unless the
individual designated to receive any notice or other communication is the same
individual designated to give such notice or other communication, all notices or
other communications under this Agreement shall be in writing and shall deemed
to be duly given when (a) delivered in person; or (b) sent by facsimile; or (c)
deposited in the United States mail, postage prepaid and sent certified mail,
return receipt requested; or (d) deposited in private express mail, postage
prepaid, addressed as follows:
If to any member of the C-TEC Group, to:
C-TEC Corporation
105 Carnegie Center
Princeton, NJ 08540
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Attn: James J. Saile, Vice President of Taxation
Facsimile: 609-734-3875
If to any member of the RCN Group, to:
RCN Corporation
105 Carnegie Center
Princeton, NJ 08540
Attn: James J. Saile, Vice President of Taxation
Facsimile: 609-734-3875
If to any member of the Cable Michigan Group, to:
Cable Michigan, Inc.
105 Carnegie Center
Princeton, NJ 08540
Attn: James J. Saile, Vice President of Taxation
Facsimile: 609-734-3875
Copies of any and all notices shall be (a) delivered in person; or (b) sent by
facsimile; or (c) deposited in the United States mail, postage prepaid and sent
certified mail, return receipt requested; or (d) deposited in private express
mail, postage prepaid, addressed as follows:
Matthew A. Rosen
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Facsimile: (212) 735-2000
Any party may, by written notice to the other parties, change the address to
which such notices (or copies of notices) are to be given.
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SECTION 6.05. Conflicting or Inconsistent Provisions. In the event that
any provision or term of this Agreement conflicts or is inconsistent with any
provision or term of any other agreement between or among C-TEC or any other
member of the C-TEC Group, RCN or any other member of the RCN Group and/or Cable
Michigan or any other member of the Cable Michigan Group, as the case may be,
which is in effect on or prior to the date hereof, the provision or term of this
Agreement shall control and apply and the provision or term of any other
agreement shall, to the extent of such conflict or inconsistency, be inoperative
and inapplicable.
SECTION 6.06. Duration. Notwithstanding anything in this Agreement or
the Distribution Agreement to the contrary, the provisions of this Agreement
shall survive for the full period of all applicable statutes of limitations
(giving effect to any waiver, mitigation or extension thereof).
SECTION 6.07. Amendment. Without limiting the provisions contained in
Article 9 of the Distribution Agreement which are incorporated herein by
reference pursuant to Section 6.03 hereof, the parties hereto agree that any
waiver, amendment, supplement or modification of this Agreement that solely
relates to and affects only two of the three parties hereto shall not require
the consent of the third party hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Tax Sharing
Agreement to be executed by their duly authorized representatives as of the date
hereof.
C-TEC Corporation
By: David McCourt
----------------------------
Name: David McCourt
Title: Chairman and Chief Executive
Officer
RCN Corporation
By: David McCourt
---------------------------
Name: David McCourt
Title: Chairman and Chief Executive
Officer
Cable Michigan, Inc.
By: David McCourt
---------------------------
Name: David McCourt
Title: Chairman and Chief Executive
Officer
25
