<PAGE>
As filed with the Securities and Exchange Commission on December 22, 1995
Registration No. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------
CONESTOGA ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Pennsylvania 6719 23-2565087
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification No.)
</TABLE>
202 East First Street
Birdsboro, PA 19508
(610) 582-8711
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
--------------
JOHN R. BENTZ
Executive Vice President
202 East First Street
Birdsboro, PA 19508
(610) 582-8711
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
JAMES H. MURRAY, ESQ. JAMES H. CARROLL, ESQ.
Miller and Murray Morgan, Lewis & Bockius LLP
542 Court Street One Commerce Square
P.O. Box 942 417 Walnut Street
Reading, PA 19603-0942 Harrisburg, PA 17101
(610) 376-6651 (717) 237-4036
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effectiveness of this Registration Statement and upon
consummation of the merger of Buffalo Valley Telephone Company with and into a
subsidiary of the Registrant described in the enclosed Proxy
Statement/Prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box [X].
____________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================================
AGGREGATE BOOK VALUE
TITLE OF EACH CLASS OF AMOUNT TO BE OF THE SECURITIES TO BE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED RECEIVED BY THE REGISTRANT REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SERIES A CONVERTIBLE PREFERRED STOCK PAR VALUE
$65.00 PER SHARE................................ 899,154 SHARES(1)
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCK PAR VALUE $5.00 PER SHARE.......... 2,349,787 SHARES (2)
- ----------------------------------------------------------------------------------------------------------------------------
$20,385,851(3) $7,030
============================================================================================================================
(footnotes on next page)
</TABLE>
<PAGE>
================================================================================
(footnotes from previous page)
(1) UNDER THE TERMS OF THE MERGER AGREEMENT DESCRIBED HEREIN, ALL OF THE
899,154 OUTSTANDING SHARES OF COMMON STOCK OF BUFFALO VALLEY TELEPHONE
COMPANY MAY BE ACQUIRED BY THE REGISTRANT IN EXCHANGE FOR SHARES OF THE
REGISTRANT'S PREFERRED STOCK. THE AMOUNT OF PREFERRED STOCK REGISTERED
ASSUMES THAT EACH OF THE 899,154 BUFFALO VALLEY TELEPHONE COMPANY SHARES IS
ACQUIRED IN EXCHANGE FOR ONE SHARE OF THE REGISTRANT'S PREFERRED STOCK.
(2) UNDER THE TERMS OF THE MERGER AGREEMENT DESCRIBED HEREIN, ALL OF THE
899,154 SHARES OF COMMON STOCK OF BUFFALO VALLEY TELEPHONE COMPANY MAY BE
ACQUIRED BY THE REGISTRANT IN EXCHANGE FOR SHARES OF THE REGISTRANT'S
COMMON STOCK. THE AMOUNT OF COMMON STOCK REGISTERED HAS BEEN CALCULATED ON
THE BASIS OF THE HIGHEST EXCHANGE RATIO (2.61333 SHARES OF THE REGISTRANT'S
COMMON STOCK FOR EACH SHARE OF BUFFALO VALLEY TELEPHONE COMPANY COMMON
STOCK) AND THE MAXIMUM NUMBER (899,154) OF BUFFALO VALLEY TELEPHONE COMPANY
COMMON SHARES THAT MAY BE EXCHANGED FOR THE REGISTRANT'S COMMON STOCK.
(3) BECAUSE THERE IS NO MARKET FOR THE SECURITIES TO BE ACQUIRED BY THE
REGISTRANT, THE REGISTRATION FEE HAS BEEN BASED, IN ACCORDANCE WITH RULE
457(F)(2), ON THE AGGREGATE BOOK VALUE AS OF SEPTEMBER 30, 1995 (THE LATEST
PRACTICABLE DATE PRIOR TO THIS FILING) OF THE 899,154 SHARES OF BUFFALO
VALLEY TELEPHONE COMPANY COMMON STOCK THAT WILL BE ACQUIRED BY THE
REGISTRANT.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION
8(A), MAY DETERMINE.
================================================================================
<PAGE>
CONESTOGA ENTERPRISES, INC.
Cross-Reference Sheet
<TABLE>
<CAPTION>
Item Number Location in Proxy
in Form S-4 Statement/Prospectus
- ----------- --------------------
<S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................... Facing Page; Cross-Reference Sheet;
Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................. Available Information; Incorporation
of Documents by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings-to-Fixed Charges and
Other Information...................................... Cover Page of Proxy
Statement/Prospectus; Summary; Risk
Factors
4. Terms of the Transaction............................... Notices of Special Meeting of
Shareholders; Summary; The Merger;
Description of Capital Stock of CEI;
Comparison of Shareholder Rights
5. Pro Forma Financial Information........................ Summary; Unaudited Pro Forma
Consolidated Financial Statements
6. Material Contacts with the Company Being Acquired...... The Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to Be Underwriters.......... *
8. Interests of Named Experts and Counsel................. Legal Opinions; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities......................... *
10. Information with Respect to S-3 Registrants............ *
11. Incorporation of Certain Information by Reference...... Incorporation of Documents by
Reference
12. Information with Respect to S-2 or S-3 Registrants..... *
13. Incorporation of Certain Information by Reference...... *
14. Information with Respect to Registrants Other Than S-3
or S-2 Registrants..................................... *
15. Information with Respect to S-3 Companies.............. *
16. Information with Respect to S-2 or S-3 Companies.......
*
</TABLE>
<PAGE>
<TABLE>
<S> <C>
17. Information with Respect to Companies Other Than S-3
or S-2 Companies....................................... Summary; Business of BVT;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations of BVT;
Security Ownership of Certain
Beneficial Owners and Management
of BVT
18. Information if Proxies, Consents or Authorizations are
to be Solicited........................................ Notices of Special Meeting of
Shareholders; Cover Page of Proxy
Statement/Prospectus; Summary; The
BVT Meeting; The CEI Meeting; The
Merger; Incorporation of Documents
by Reference
19. Information if Proxies, Consents or Authorizations are
not to be Solicited or in an Exchange Offer............ *
</TABLE>
____________
*Omitted because the item is inapplicable or the answer thereto is negative.
<PAGE>
____________________, 1996
Dear Shareholder:
We invite you to attend a Special Meeting (the " BVT Meeting") of
Shareholders of Buffalo Valley Telephone Company ("BVT"), to be held at the
Country Cupboard Inn, Route 15 North, Lewisburg, Pennsylvania 17837 on Saturday,
____________, 1996 at ______, a.m., local time.
At the BVT Meeting, shareholders will be asked to consider and vote upon
approval of the Agreement and Plan of Merger dated as of October 18, 1995 (the
"Merger Agreement") among BVT, Conestoga Enterprises, Inc. ("CEI") and CB Merger
Corporation, a wholly owned subsidiary of CEI ("Merger Sub"). Pursuant to the
Merger Agreement, BVT would be merged (the "Merger") with and into Merger Sub,
with Merger Sub being the surviving corporation. In connection with the Merger
and as more fully described in the accompanying Joint Proxy
Statement/Prospectus, each share of BVT common stock, without par value (the
"BVT Common Shares"), outstanding as of the effective time of the Merger will be
converted into and become a right to receive either (i) cash in the amount of
$65 (the "Cash Merger Consideration"), (ii) one share of Series A Convertible
Preferred Stock, par value $65 per share ("CEI Series A Preferred Shares") of
CEI (the "Preferred Stock Merger Consideration") or (iii) 2.4 shares (subject to
certain adjustments) of CEI Common Stock, par value $5.00 per share (the "Common
Stock Merger Consideration"). Shareholders of BVT will be entitled to elect to
receive the Cash Merger Consideration, the Preferred Stock Merger Consideration
or the Common Stock Merger Consideration with respect to shares held by them,
but such elections will be subject to allocation procedures, described more
fully in the accompanying Joint Proxy Statement/Prospectus, such that the number
of BVT Common Shares which will be converted into Cash Merger Consideration will
not exceed a specified percentage of all outstanding BVT Common Shares (the
"Cash Percentage"). The Cash Percentage, as determined by CEI, will be 50% or,
if lower, the maximum percentage that would permit the Merger to qualify as a
tax-free exchange for federal income tax purposes.
Your attention is directed to the attached Joint Proxy Statement/Prospectus
which contains a more complete description of the terms of the Merger and
provides detailed financial, business and other information concerning BVT and
CEI.
After careful consideration of the terms of the Merger Agreement, the board
of directors of BVT has determined that the Merger is in the best interests of
BVT and its shareholders. ACCORDINGLY, YOUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
It is very important that your shares be represented at the BVT Meeting,
whether or not you plan to attend in person. The affirmative vote of a majority
of the BVT Common Shares present and entitled to vote at the BVT Meeting is
required to approve the Merger Agreement. WE URGE YOU TO EXECUTE, DATE AND
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS
POSSIBLE TO ASSURE THAT YOUR SHARES WILL BE VOTED AT THE MEETING. On behalf of
the Board of Directors, we thank you for your support and urge you to vote "FOR"
approval of the Merger Agreement.
Sincerely,
James G. Apple
Chairman of the Board
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
20 SOUTH SECOND STREET
LEWISBURG, PA 17837
(717) 523-1211
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ____________ __, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "BVT
Meeting") of Buffalo Valley Telephone Company ("BVT") will be held at the
Country Cupboard Inn, Route 15 North, Lewisburg, Pennsylvania 17837 on Saturday,
_____________, 1996 at _____ a.m., local time. A Proxy Card and a Joint Proxy
Statement/Prospectus for the BVT Meeting are enclosed. The BVT Meeting is for
the purpose of considering and acting upon:
1. A proposal to approve the Agreement and Plan of Merger dated as of
October 18, 1995 (the "Merger Agreement") among BVT, Conestoga Enterprises, Inc.
("CEI") and CB Merger Corporation, a wholly owned subsidiary of CEI ("Merger
Sub"). Pursuant to the Merger Agreement, and as more fully described in the
accompanying Joint Proxy Statement/Prospectus, each outstanding share of BVT
common stock, without par value (the "BVT Common Shares") will be converted into
and become a right to receive either (i) cash in the amount of $65 (the "Cash
Merger Consideration"), (ii) one share of Series A Convertible Preferred Stock,
par value $65 per share ("CEI Series A Preferred Shares") of CEI (the "Preferred
Stock Merger Consideration") or (iii) 2.4 shares (subject to certain
adjustments) of CEI Common Stock, par value $5.00 per share (the "Common Stock
Merger Consideration"). Shareholders of BVT will be entitled to elect to receive
the Cash Merger Consideration, the Preferred Stock Merger Consideration or the
Common Stock Merger Consideration with respect to shares held by them, but such
elections will be subject to allocation procedures, described more fully in the
accompanying Joint Proxy Statement/Prospectus, such that the number of BVT
Common Shares which will be converted into Cash Merger Consideration will not
exceed a specified percentage of all outstanding BVT Common Shares (the "Cash
Percentage"). The Cash Percentage, as determined by CEI, will be 50% or, if
lower, the maximum percentage that would permit the Merger to qualify as a tax-
free exchange for federal income tax purposes.
2. Such other matters as may properly come before the BVT Meeting or any
adjournment thereof.
Any action may be taken on any one of the foregoing proposals at the BVT
Meeting on the date specified above, or on any date or dates to which, by
original or later adjournment, the BVT Meeting may be adjourned. Pursuant to the
Bylaws of BVT, the Board of Directors has fixed the close of business on
_______________, 1996, as the record date for determination of the shareholders
entitled to vote at the BVT Meeting and any adjournments thereof.
You are requested to complete, sign and date the enclosed proxy card, which
is solicited by the Board of Directors, and to promptly mail it in the enclosed
envelope. The giving of such proxy does not affect your right to vote in person
in the event you attend the BVT Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
David E. Lynn
Secretary
Lewisburg, Pennsylvania
_____________________, 1996
IMPORTANT: PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY. THE PROMPT RETURN
OF PROXIES WILL SAVE BVT THE EXPENSE OF FURTHER REQUESTS FOR PROXIES TO ENSURE A
QUORUM. AN ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
_________________, 1996
Dear Shareholder:
We invite you to attend a special meeting (the "CEI Meeting") of
Shareholders of Conestoga Enterprises, Inc. ("CEI"), to be held at the office of
CEI, 202 East First Street, Birdsboro, Pennsylvania 19508, on Saturday,
____________, 1996, at 10:00 A.M., local time.
At the CEI Meeting, Shareholders will be asked to consider and vote upon
(1) an amendment to CEI's Articles of Incorporation to authorize a class of
preferred stock and (2) the issuance of common and preferred stock of CEI in the
merger of Buffalo Valley Telephone Company ("BVT") into a subsidiary of CEI
under an Agreement and Plan of Merger among BVT, CEI and CB Merger Company dated
as of October 18, 1995.
Your attention is directed to the attached Joint Proxy Statement/Prospectus
which contains a more complete description of the terms of the preferred stock
and the merger and provides detailed financial, business and other information
concerning BVT and CEI.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL OF THE AMENDMENT TO CEI'S ARTICLES OF INCORPORATION TO AUTHORIZE A
CLASS OF PREFERRED STOCK AND FOR APPROVAL OF THE ISSUANCE OF COMMON AND
PREFERRED STOCK OF CEI IN THE MERGER OF BVT INTO A SUBSIDIARY OF CEI.
It is very important that your shares be represented at the CEI Meeting,
whether or not you plan to attend in person. The affirmative vote of a majority
of the votes cast at the CEI Meeting is required to approve the amendment of the
Articles and the issuance of the stock. We urge you to vote, date and sign the
enclosed proxy card and return it in the enclosed postage paid envelope as soon
as possible to assure that your shares will be voted at the CEI Meeting.
Sincerely,
F. M. Brown, President
<PAGE>
CONESTOGA ENTERPRISES, INC.
202 EAST FIRST STREET
BIRDSBORO, PENNSYLVANIA 19508
(610) 582-8711
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _____________________, 1996
TO THE SHAREHOLDERS OF THE COMPANY:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders (the "CEI
Meeting") of Conestoga Enterprises, Inc. will be held at the office of CEI, 202
East First Street, Birdsboro, Pennsylvania 19508, on Saturday,
_________________, 1996 at 10:00 A.M. local time. A Proxy Card and a Joint Proxy
Statement/Prospectus for the CEI Meeting are enclosed. The CEI Meeting is for
the purpose of considering and acting upon:
(1) A proposal to approve an amendment to CEI's Articles of Incorporation
to authorize a class of 900,000 shares of Series A Convertible Preferred Stock,
par value $65 per share;
(2) A proposal to approve the issuance of common stock and preferred stock
of CEI in the merger of Buffalo Valley Telephone Company into a subsidiary of
CEI under the terms of an Agreement and Plan of Merger dated as of October 18,
1995 among Buffalo Valley Telephone Company, CB Merger Corporation and CEI; and
(3) Such other matters as may properly come before the CEI Meeting or any
adjournment thereof.
The Board of Directors has fixed the close of business on
___________________, 1996, as the record date for the determination of
Shareholders entitled to notice of, and to vote at, the CEI Meeting.
Shareholders are requested to vote, date and sign the enclosed Proxy and
mail it promptly in the enclosed postage paid, return envelope. If you attend
the meeting and decide you want to vote in person, the Proxy will not be used.
BY ORDER OF THE BOARD OF DIRECTORS
Kenneth A. Benner
Secretary
Date:_____________________, 1996
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
BUFFALO VALLEY TELEPHONE COMPANY
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
_________________, 1996
-----------------
CONESTOGA ENTERPRISES, INC.
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
_______________, 1996
PROSPECTUS FOR UP TO
899,154 SHARES OF CEI SERIES A
CONVERTIBLE PREFERRED STOCK, PAR VALUE $65.00 PER SHARE
AND UP TO
2,349,787 SHARES OF CEI COMMON STOCK
PAR VALUE $5.00 PER SHARE
This Joint Proxy Statement/Prospectus is being furnished to holders of
common stock, without par value ("BVT Common Shares"), of Buffalo Valley
Telephone Company, a Pennsylvania corporation ("BVT"), in connection with the
solicitation of proxies by BVT's Board of Directors (the "BVT Board") for use at
a Special Meeting of Shareholders (the "BVT Meeting") to be held at the Country
Cupboard Inn, Route 15 North, Lewisburg, Pennsylvania 17837 on Saturday,
_____________, 1996 at 10:00 a.m., local time. At the BVT Meeting, shareholders
of BVT will be asked to consider and vote upon (i) a proposal to approve the
Agreement and Plan of Merger dated as of October 18, 1995 (the "Merger
Agreement") among BVT, Conestoga Enterprises, Inc., a Pennsylvania corporation
("CEI") and CB Merger Corporation, a wholly owned subsidiary of CEI ("Merger
Sub"), and (ii) such other business as may properly come before the BVT Meeting
or any adjournment thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
common stock, par value $5.00 per share ("CEI Common Shares"), of CEI in
connection with the solicitation of proxies by CEI's Board of Directors (the
"CEI Board") for use at a Special Meeting of Shareholders (the "CEI Meeting") to
be held at the office of CEI, 202 East First Street, Birdsboro, Pennsylvania
19508 on Saturday, _____________, 1996 at 10:00 a.m., local time. At the CEI
Meeting, shareholders of CEI will be asked to consider and vote upon (i) a
proposal to approve an amendment of CEI's Articles of Incorporation to authorize
a class of 900,000 shares of Series A Convertible Preferred Stock, par value $65
per share ("CEI Series A Preferred Shares"), (ii) a proposal to approve the
issuance of CEI Common Shares and CEI Series A Preferred Shares in connection
with the transactions contemplated by the Merger Agreement, and (iii) such other
business as may properly come before the CEI Meeting or any adjournment thereof.
Pursuant to the Merger Agreement, BVT would be merged (the "Merger") with
and into Merger Sub, with Merger Sub being the surviving corporation. Each BVT
Common Share outstanding as of the effective time of the Merger would be
converted into and become a right to receive either (i) cash in the amount of
$65 (the "Cash Merger Consideration"), (ii) one CEI Series A Convertible
Preferred Share (the "Preferred Stock Merger Consideration"), or (iii) 2.4 CEI
Common Shares, subject to certain adjustments described herein (the "Common
Stock Merger Consideration"). Shareholders of BVT will be entitled to elect to
receive the Cash Merger Consideration, the Preferred Stock Merger Consideration,
or the Common Stock Merger Consideration with respect to shares held by them,
but such elections will be subject to allocation procedures such that the number
of BVT Common Shares which will be converted into Cash Merger Consideration will
not exceed a specified percentage of all outstanding BVT Common Shares (the
"Cash Percentage"). The Cash Percentage, as determined by CEI, will be 50% or,
if lower, the maximum percentage that would permit the Merger to qualify as a
tax-free exchange for federal income tax purposes.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of CEI
filed as part of a registration statement filed with the Securities and Exchange
Commission (the "Commission") relating to up to 899,154 CEI Series A Preferred
Shares and 2,349,787 CEI Common Shares issuable pursuant to the Merger
Agreement. All information contained in this Joint Proxy Statement/Prospectus
with respect to CEI and its subsidiaries has been supplied by CEI, and all
information with respect to BVT has been supplied by BVT.
SHAREHOLDERS SHOULD CAREFULLY CONSIDER THE INFORMATION UNDER "RISK FACTORS"
BEGINNING ON PAGE ___ IN DETERMINING HOW TO VOTE WITH RESPECT TO THE MATTERS TO
BE CONSIDERED AT THE BVT MEETING AND THE CEI MEETING AND, WITH RESPECT TO BVT
SHAREHOLDERS, WHAT FORM OF MERGER CONSIDERATION TO ELECT AND WHETHER TO EXERCISE
DISSENTERS RIGHTS.
<PAGE>
This Joint Proxy Statement/Prospectus does not cover any resales of the CEI
Series A Preferred Shares or CEI Common Shares issuable in the Merger (or any
CEI Common Shares which may be issued upon the conversion of CEI Series A
Preferred Shares) by any shareholders deemed to be affiliates of BVT or CEI. No
person is authorized to make use of this Joint Proxy Statement/Prospectus in
connection with any such resale.
THE CEI SERIES A PREFERRED SHARES AND CEI COMMON SHARES ISSUABLE IN THE
MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus and the accompanying proxy cards and
notices of special meeting are first being mailed to shareholders of BVT and CEI
on or about _______________________, 1996.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS ________________,1996
-2-
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY CEI OR BVT. THIS JOINT PROXY STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITY OTHER THAN THE SECURITIES COVERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY TO OR FROM ANY PERSON IN
ANY JURISDICTION WHERE IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN
OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION ABOUT CEI OR BVT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
CEI is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed with the Commission are
available for inspection and copying at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at Seven World Trade Center, New York, New York 10048. Copies
of such documents may also be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. CEI Common Shares (symbol: CENI) is authorized for
quotation on the Nasdaq Small-Cap Market. Such materials and other information
concerning CEI, therefore, can also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
CEI has filed with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"), a Registration Statement on Form S-4 (including
all amendments and exhibits thereto, the "Registration Statement") with respect
to the CEI Series A Preferred Shares and CEI Common Shares issuable pursuant to
the Merger Agreement. This Joint Proxy Statement/Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. The Registration Statement is available for inspection and copying
as set forth above. Statements contained in this Joint Proxy
Statement/Prospectus as to the contents of any contract or other document are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE
DOCUMENTS RELATING TO CEI WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
THESE DOCUMENTS (NOT INCLUDING EXHIBITS THERETO, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE TO
ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST DIRECTED TO
CONESTOGA ENTERPRISES, INC., 202 EAST FIRST STREET, BIRDSBORO, PA 19508,
TELEPHONE NUMBER (610) 582-8711, ATTENTION: KENNETH A. BENNER, SECRETARY. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE NO
LATER THAN ____________________, 1996.
-3-
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
Certain documents previously filed by CEI (File No. 33-30715) with the
Commission pursuant to the Exchange Act are hereby incorporated by reference in
this Joint Proxy Statement/Prospectus as follows:
(1) the Annual Report on Form 10-K for the year ended December 31,
1994;
(2) the Quarterly Report on Form 10-Q for the three months ended
March 31, 1995;
(3) the Quarterly Report on Form 10-Q for the six months ended
June 30, 1995;
(4) the Quarterly Report on Form 10-Q for the nine months ended
September 30, 1995; and
(5) the Current Report on Form 8-K dated October 31, 1995.
ALL DOCUMENTS FILED BY CEI PURSUANT TO SECTIONS 13(A), 13(C), 14 OR
15(D) OF THE EXCHANGE ACT AFTER THE DATE HEREOF AND PRIOR TO THE CONSUMMATION OF
THE MERGER SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE HEREIN AND TO BE A
PART HEREOF FROM THE DATE OF FILING THEREOF. ANY STATEMENT CONTAINED IN A
DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED BY REFERENCE HEREIN SHALL BE
DEEMED TO BE MODIFIED OR SUPERSEDED FOR PURPOSES OF THIS JOINT PROXY
STATEMENT/PROSPECTUS TO THE EXTENT THAT A STATEMENT CONTAINED HEREIN, OR IN ANY
OTHER SUBSEQUENTLY FILED DOCUMENT THAT ALSO IS OR IS DEEMED TO BE INCORPORATED
BY REFERENCE HEREIN, MODIFIES OR SUPERSEDES SUCH STATEMENT. ANY SUCH STATEMENT
SO MODIFIED OR SUPERSEDED SHALL NOT BE DEEMED, EXCEPT AS SO MODIFIED OR
SUPERSEDED, TO CONSTITUTE A PART OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ALL
INFORMATION APPEARING IN THIS JOINT PROXY STATEMENT/PROSPECTUS SHOULD BE READ IN
CONJUNCTION WITH, AND IS QUALIFIED IN ITS ENTIRETY BY, THE INFORMATION AND
FINANCIAL STATEMENTS (INCLUDING NOTES THERETO) APPEARING IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE, EXCEPT TO THE EXTENT SET FORTH IN THE
IMMEDIATELY PRECEDING STATEMENT.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION.................................................................. 3
INCORPORATION OF DOCUMENTS BY REFERENCE................................................ 4
SUMMARY................................................................................ 8
The Companies...................................................................... 8
CEI.......................................................................... 8
BVT.......................................................................... 8
The BVT Meeting.................................................................... 8
General...................................................................... 8
Matters to be Considered at the BVT Meeting.................................. 9
Record Date; Shares Outstanding; Quorum; Vote Required....................... 9
The CEI Meeting.................................................................... 9
General...................................................................... 9
Matters to be Considered at the CEI Meeting.................................. 9
Record Date; Shares Outstanding; Quorum; Vote Required....................... 9
The Merger......................................................................... 10
Terms of the Merger.......................................................... 10
Election and Allocation Procedures........................................... 11
Opinion of BVT Financial Advisor............................................. 12
Recommendation of the BVT Board of Directors................................. 12
Opinion of CEI Financial Advisor............................................. 12
Recommendation of the Board of Directors of CEI.............................. 12
Conditions to the Merger..................................................... 12
Certain Covenants............................................................ 13
Effective Time............................................................... 13
Termination; Waiver; Amendment............................................... 13
All Cash Option; Failure of CEI Shareholder Approval......................... 14
Fees and Expenses............................................................ 14
Dissenters' Rights........................................................... 15
Certain Federal Income Tax Consequences...................................... 15
Accounting Treatment......................................................... 16
Financing the Merger......................................................... 16
Interest of Certain Persons in the Merger.................................... 16
Description of CEI Series A Preferred Shares................................. 16
Comparison of Shareholder Rights............................................. 17
Selected Historical and Pro Forma Financial Data................................... 17
Selected Historical Financial Data........................................... 18
Selected Unaudited Pro Forma Consolidated Financial Data..................... 19
Comparative Per Share Data................................................... 20
Market Price Data.................................................................. 21
Ratio of Earnings-To-Fixed Charges and Preferred Stock Dividends................... 21
RISK FACTORS........................................................................... 23
Competitive Industry............................................................... 23
Effect of Regulation............................................................... 23
Dividend Policy.................................................................... 23
Limited Trading Market for CEI Shares.............................................. 23
Effect of Substantial Indebtedness and Preferred Stock on Future Operations........ 24
Dilution to Earnings............................................................... 24
Conestoga Wireless Company......................................................... 24
THE BVT MEETING........................................................................ 25
General............................................................................ 25
Matters to be Considered at the BVT Meeting........................................ 25
BVT Record Date; Shares Outstanding; Quorum........................................ 25
Vote Required...................................................................... 25
Effect of Abstentions and Broker Nonvotes.......................................... 25
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Voting, Revocation and Solicitation of Proxies..................................... 26
THE CEI MEETING........................................................................ 26
General............................................................................ 26
Matters to be Considered at the CEI Meeting........................................ 26
CEI Record Date; Shares Outstanding; Quorum........................................ 27
Votes Required..................................................................... 27
Effect of Abstentions and Broker Nonvotes.......................................... 27
Voting, Revocation and Solicitation of Proxies..................................... 27
THE MERGER............................................................................. 29
Background of the Merger........................................................... 29
Merger Negotiations 31
BVT's Reasons for the Merger; Recommendation of the BVT Board of Directors......... 33
Opinion of BVT Financial Advisor................................................... 35
CEI's Reasons for the Merger; Recommendation of the Board of Directors............. 39
Opinion of CEI Financial Advisor................................................... 39
Terms of the Merger 40
Election, Allocation and Exchange Procedures....................................... 46
Regulatory Considerations.......................................................... 47
Interest of Certain Persons in the Merger.......................................... 48
Accounting Treatment............................................................... 48
Certain Federal Income Tax Consequences............................................ 48
Dissenters' Rights 51
RESALE RESTRICTIONS.................................................................... 53
DESCRIPTION OF CAPITAL STOCK OF CEI.................................................... 53
CEI Common Shares.................................................................. 53
CEI Series A Preferred Shares...................................................... 54
Pennsylvania Anti-Takeover Law Provisions.......................................... 58
COMPARISON OF SHAREHOLDER RIGHTS....................................................... 58
Introduction....................................................................... 58
Dividends.......................................................................... 58
Voting Rights Generally............................................................ 59
Classified Board of Directors...................................................... 59
Number of Directors................................................................ 59
Removal of Directors............................................................... 59
Filling Vacancies on the Board of Directors........................................ 59
Call of Special Shareholders' Meeting.............................................. 60
Notice of Shareholders' Meeting.................................................... 60
Quorum Requirements and Adjournment of Meetings.................................... 60
Action Without Meeting............................................................. 60
Dissenters' Rights................................................................. 60
Limitations on Directors' Liability................................................ 61
Indemnification.................................................................... 61
State Anti-Takeover Law Provisions................................................. 61
Amendment of Articles of Incorporation............................................. 62
Amendment of Bylaws................................................................ 62
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........................ 63
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF BVT............................ 71
Operations--Nine Months Ended September 30, 1995 vs. Nine Months Ended
September 30, 1994............................................................... 71
Operations--1994 vs. 1993.......................................................... 71
Operations--1993 vs. 1992.......................................................... 72
Income Taxes....................................................................... 73
Liquidity and Capital Resources.................................................... 73
Regulatory Accounting Principles................................................... 73
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Pennsylvania Public Utility Commission............................................. 73
Environmental Matters.............................................................. 73
BUSINESS OF BVT........................................................................ 74
Description of Business............................................................ 74
Properties......................................................................... 74
Legal Proceedings.................................................................. 75
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BVT.................. 76
EXPERTS................................................................................ 76
CEI................................................................................ 77
BVT................................................................................ 77
LEGAL OPINIONS......................................................................... 77
INDEX TO BVT FINANCIAL STATEMENTS..................................................... F-1
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APPENDIX A - MERGER AGREEMENT
APPENDIX B - FAIRNESS OPINION OF SNYDER & COMPANY
APPENDIX C - FAIRNESS OPINION OF JSI FINANCIAL SERVICES
APPENDIX D - PROVISIONS REGARDING DISSENTERS' RIGHTS
APPENDIX E - TAX OPINION OF MORGAN, LEWIS & BOCKIUS LLP
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SUMMARY
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information appearing elsewhere or incorporated by
reference in this Joint Proxy Statement/Prospectus and the Appendices hereto.
Shareholders are urged to read this entire Joint Proxy Statement/Prospectus,
including the Appendices hereto. Certain terms used in this summary and
elsewhere in this Joint Proxy Statement/Prospectus are used as defined in this
summary or elsewhere in this Joint Proxy Statement/Prospectus.
THE COMPANIES
CEI
Conestoga Enterprises, Inc. ("CEI"), incorporated in the Commonwealth of
Pennsylvania in 1989, is a holding company with wholly owned subsidiaries
engaged in various aspects of the telecommunications business.
CEI's principal subsidiary is Conestoga Telephone and Telegraph Company
("CTT"), an independent local exchange carrier ("LEC"), incorporated in 1902.
CTT furnishes communication services, mainly local and toll telephone service,
to an area of approximately 300 square miles, including parts of Berks, Chester,
Lancaster and Montgomery counties in Pennsylvania. CTT provides service to
approximately 45,400 main access lines. The population of CTT's service area is
estimated to be 118,850.
Other subsidiaries include Northern Communications, Inc. ("NCI"), which is
engaged in the resale of long distance service as a non-regulated business, and
Conestoga Mobile Systems, Inc. ("CMS"), which is engaged in the provision of
paging services. CMS provides service to approximately 4,700 paging access
lines.
CTT owns interests in two joint ventures which provide cellular telephone
services in the Reading, Harrisburg, Lancaster and York Metropolitan Areas. In
1995, CEI acquired an 11.85% interest in a partnership that provides Internet
and similar computer services in Pennsylvania east of the Susquehanna River.
CEI owns a 60% interest in the Conestoga Wireless Company, which was formed
in March 1995 to bid in the auction, scheduled for December 1995, by the Federal
Communications Commission for bandwidth to provide Personal Communication
Services ("PCS"), a wireless telecommunications technology.
CEI's executive offices are located at 202 East First Street, Birdsboro,
Pennsylvania 19508, and its telephone number is (610) 582-8711.
BVT
Buffalo Valley Telephone Company, a Pennsylvania corporation ("BVT"), is an
independent local exchange carrier founded in 1904 which provides local
telephone service to Union and Northumberland Counties in central Pennsylvania.
As of September 30, 1995, BVT had 17,641 telephone access lines. BVT's executive
offices are located at 20 South Second Street, Lewisburg, Pennsylvania 17837,
and its telephone number is (717) 523-1211.
THE BVT MEETING
GENERAL
The special meeting of the shareholders of BVT will be held on Saturday,
________________, 1996, at _____ a.m., local time, at the Country Cupboard Inn,
Route 15 North, Lewisburg, Pennsylvania 17837 (the "BVT Meeting").
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MATTERS TO BE CONSIDERED AT THE BVT MEETING
At the BVT Meeting, holders of common stock, without par value, of BVT
("BVT Common Shares"), will be asked to consider and vote upon (i) a proposal to
approve the Agreement and Plan of Merger dated as of October 18, 1995 (the
"Merger Agreement") among BVT, CEI and CB Merger Corporation, a wholly owned
subsidiary of CEI ("Merger Sub"), and (ii) such other business as may properly
come before the BVT Meeting or any adjournment thereof. See "THE MEETING--
Matters to be Considered at the BVT Meeting."
RECORD DATE; SHARES OUTSTANDING; QUORUM; VOTE REQUIRED
Only holders of record of BVT Common Shares at the close of business on
_______________, 1996 (the "Record Date"), will be entitled to notice of, and to
vote at, the BVT Meeting. Each BVT Common Share outstanding on the Record Date
entitles its holder, as of that date, to one vote. As of the Record Date, there
were 899,154 BVT Common Shares outstanding and entitled to be voted at the
Meeting, held by approximately _____ shareholders of record. The presence in
person or by proxy of the holders of a majority of the BVT Common Shares
entitled to vote at the BVT Meeting shall constitute a quorum at the BVT
Meeting. See "THE BVT MEETING--Record Date; Shares Outstanding; Quorum."
Pursuant to the applicable provisions of the Pennsylvania Business Corporation
Law ("PBCL") and BVT's bylaws (the "BVT Bylaws"), the affirmative vote of a
majority of the BVT Common Shares present and entitled to vote at the BVT
Meeting is required to approve the Merger Agreement. See "THE BVT MEETING--Votes
Required."
As of the Record Date, directors and executive officers of BVT beneficially
owned approximately 174,420 BVT Common Shares or approximately 19.4% of the BVT
Common Shares entitled to be voted at the BVT Meeting. See "SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BVT." The directors and executive
officers of BVT have indicated that they intend to vote all of such shares in
favor of approval of the Merger Agreement. See "THE BVT MEETING--Votes
Required."
THE CEI MEETING
GENERAL
The special meeting of the shareholders of CEI will be held on Saturday,
_______________________, 1996, at 10:00 A.M., local time, at the office of the
Company, 202 East First Street, Birdsboro, Pennsylvania 19508 (the "CEI
Meeting").
MATTERS TO BE CONSIDERED AT THE CEI MEETING
At the CEI Meeting, holders of common stock, $5.00 par value, of CEI ("CEI
Common Shares"), will be asked to consider and vote upon (i) a proposal to
approve an amendment to CEI's Articles of Incorporation to authorize a class of
900,000 shares of CEI Series A Convertible Preferred Stock, par value $65 per
share (the "CEI Series A Preferred Shares"); (ii) a proposal to approve the
issuance of CEI Common Shares and CEI Series A Preferred Shares in the Merger of
BVT into a subsidiary of CEI pursuant to the Merger Agreement; and (iii) such
other business as may properly come before the CEI Meeting or any adjournment
thereof. See "THE CEI MEETING--Matters to be Considered at the CEI Meeting."
RECORD DATE; SHARES OUTSTANDING; QUORUM; VOTE REQUIRED
Only holders of record of CEI Common Shares at the close of business on
________________, 1996 (the "CEI Record Date"), will be entitled to notice of,
and to vote at, the CEI Meeting. Each CEI Common Share outstanding on the CEI
Record Date entitles its holder, as of that date, to one vote. As of the CEI
Record Date there were 3,848,922 CEI Common Shares outstanding and entitled to
vote at the CEI Meeting, held by approximately ________ shareholders of record.
The presence in person or by proxy of the holders of a majority
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of the CEI Common Shares entitled to vote at the CEI Meeting shall constitute a
quorum at the CEI Meeting. See "THE CEI MEETING--Record Date; Shares
Outstanding; Quorum." Pursuant to the applicable provisions of the Pennsylvania
Business Corporation law ("PBCL") and CEI's bylaws (the "CEI Bylaws"), the
affirmative vote of a majority of the votes cast at the CEI Meeting is required
to approve an amendment of CEI's Articles of Incorporation to authorize the CEI
Series A Preferred Shares and the issuance of preferred and common stock of CEI
in the Merger. See "THE CEI MEETING--Votes Required."
As of the CEI Record Date, directors and executive officers of CEI
beneficially owned approximately _______________________ CEI Common Shares or
approximately ________________% of the CEI Common Shares entitled to be voted at
the CEI Meeting. All of the directors and executive officers of CEI have
indicated that they intend to vote such shares in favor of approval of the
aforementioned proposals. See "THE CEI MEETING--Votes Required."
THE MERGER
TERMS OF THE MERGER
Pursuant to the Merger Agreement, BVT would be merged (the "Merger") with
and into Merger Sub, with Merger Sub being the surviving corporation. Each BVT
Common Share outstanding as of the effective time of the Merger would be
converted into and become a right to receive either (i) cash in the amount of
$65 (the "Cash Merger Consideration"), (ii) one CEI Series A Preferred Share
(the "Preferred Stock Merger Consideration"), or (iii) 2.4 CEI Common Shares,
subject to certain adjustments described below (the "Common Stock Merger
Consideration").
In the event that the Market Value of a CEI Common Share (defined in the
Merger Agreement as the average of the bid and ask price on NASDAQ of a CEI
Common Share, as quoted by the four principal market makers for CEI Common
Shares, averaged over a ten trading day period ending shortly before the
effective time of the Merger) is less than $24.50 but not less than $22.50, the
Common Stock Merger Consideration shall consist of that number of CEI Common
Shares having a Market Value equal to $58.80, but in no event more than 2.61333
CEI Common Shares (the "Maximum Common Stock Exchange Ratio"). In the event that
the Market Value of a CEI Common Share is more than $30.00 but not more than
$32.70, the Common Stock Merger Consideration shall consist of that number of
CEI Common Shares having a Market Value equal to $72.00, but in no event less
than 2.20183 CEI Common Shares (the "Minimum Common Stock Exchange Ratio").
Shareholders of BVT will be entitled to elect to receive the Cash Merger
Consideration, the Preferred Stock Merger Consideration, or the Common Stock
Merger Consideration with respect to shares held by them. BVT Shareholders
requesting Preferred Stock Merger Consideration or the Common Stock Merger
Consideration will receive the type of consideration requested. BVT shareholders
making no election will receive Common Stock Merger Consideration.
Elections by BVT shareholders to receive Cash Merger Consideration will be
subject to allocation procedures such that the number of BVT Common Shares which
will be converted into Cash Merger Consideration will not exceed a specified
percentage of all outstanding BVT Common Shares (the "Cash Percentage"). The
Cash Percentage, as determined by CEI, will be 50% or, if lower, the maximum
percentage that would permit the Merger to qualify as a tax-free exchange for
federal income tax purposes. To the extent that cash elections are not
satisfied, BVT shareholders will receive Preferred Stock Merger Consideration.
See "THE MERGER--Terms of the Merger--Merger Consideration"; "THE MERGER--Terms
of the Merger--Cash Percentage"; and "THE MERGER--Election, Allocation and
Exchange Procedures."
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ELECTION AND ALLOCATION PROCEDURES
Shortly after the Effective Time of the Merger (as defined below), BVT and
CEI shall prepare and mail to each record holder of BVT Common Shares (other
than holders who perfect dissenters' rights) a form (the "Election Form") to
provide such holders with the opportunity to specify the whole number of BVT
Common Shares owned by each such holder as to which such holder desires to
receive (i) the Cash Merger Consideration (a "Cash Election"), (ii) the
Preferred Stock Merger Consideration (a "Preferred Stock Election") or (iii) the
Common Stock Merger Consideration (a "Common Stock Election"). Holders will be
permitted to make one type of election with respect to a portion of their shares
and to make other types of elections with respect to the remaining portion of
their shares. The Election Form shall specify the date by which all such
elections must be made (the "Election Deadline"), which date shall be determined
by BVT and CEI but shall be not earlier than 20 calendar days following the
Effective Time. Cash Elections will be subject to various allocation and pro
ration provisions, and the extent to which such Cash Elections will be
accommodated will depend upon the number of other BVT shareholders who make Cash
Elections as well as the exact Cash Percentage specified by CEI. Accordingly, a
BVT shareholder electing to receive only Cash Merger Consideration may
nonetheless receive a combination of cash and preferred stock consideration in
the Merger. BVT shareholders should not vote in favor of the Merger, therefore,
unless they are willing to receive at least a portion of their consideration in
the form of stock.
After the Election Deadline, CEI or its agent (the "Exchange Agent") will
determine the number of BVT Common Shares for which there has been made an
effective Cash Election ("Cash Election Shares"), Preferred Stock Election
("Preferred Stock Election Shares"), Common Stock Election ("Common Stock
Election Shares") or no election (a "Non-Election" and "Non-Election Shares").
CEI will then determine the Cash Percentage, which will be 50% or, if lower, the
maximum percentage that will permit the Merger to qualify as a tax-free exchange
for federal income tax purposes.
BVT shareholders making valid Preferred Stock Elections will receive
Preferred Stock Merger Consideration. BVT shareholders making valid Common Stock
Elections or making Non-Elections shall receive Common Stock Merger
Consideration.
If the number of Cash Election Shares plus the number of shares for which
dissenters' rights are being exercised ("Dissenters' Shares") is less than or
equal to the Cash Percentage, BVT shareholders making valid Cash Elections will
receive Cash Merger Consideration. If the number of Cash Election Shares and
Dissenters' Shares exceeds the Cash Percentage, to the extent necessary a pro
rata portion of each holder's Cash Election Shares shall receive Preferred Stock
Merger Consideration.
No fractional CEI Series A Preferred Shares or CEI Common Shares will be
issued. Holders of BVT Common Shares who would otherwise be entitled to receive
a fractional share of CEI preferred or common stock instead will receive a cash
payment determined by multiplying the fractional interest to which such holder
would otherwise be entitled by $65 or the Market Value of a CEI Common Share, as
appropriate.
Due to the foregoing procedures, Cash Elections by shareholders will be
subject to adjustment regardless of the percentage of cash and stock elected by
such shareholder, and the precise consideration to be issued will not be known
until after the Effective Date of the Merger. See "THE MERGER--Election,
Allocation and Exchange Procedures."
BVT SHAREHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES FOR BVT COMMON
SHARES TO CEI OR BVT UNTIL THEY HAVE RECEIVED ELECTION FORMS. BVT SHAREHOLDERS
SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
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OPINION OF BVT FINANCIAL ADVISOR
Snyder & Company ("Snyder & Co.") rendered its opinion to the Board of
Directors of BVT (the "BVT Board") on _____________, 1996 to the effect that the
consideration to be received by holders of BVT Common Shares in the Merger is
fair from a financial point of view. This opinion, which is attached to this
Joint Proxy Statement/Prospectus as Appendix B, should be read in its entirety
with respect to the assumptions made and other matters considered by Snyder &
Co. in rendering such opinion. To date, BVT has paid Snyder & Co. approximately
$_________ for acting as its financial advisor in connection with the Merger;
Snyder & Co. will receive an aggregate fee (including amounts already paid) of
approximately $690,000 if the Merger is consummated. See "THE MERGER--Opinion of
BVT Financial Advisor."
RECOMMENDATION OF THE BVT BOARD OF DIRECTORS
The consideration to be received by holders of BVT Common Shares in the
Merger was negotiated by the BVT Board in light of various factors, including
BVT's and CEI's recent operating results, current financial condition and
perceived future prospects. THE BOARD OF DIRECTORS OF BVT BELIEVES THAT THE
MERGER IS IN THE BEST INTERESTS OF BVT'S SHAREHOLDERS, HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND RECOMMENDS THAT BVT'S SHAREHOLDERS VOTE "FOR" APPROVAL
OF THE MERGER AGREEMENT. See "THE MERGER--BVT's Reasons for the Merger;
Recommendation of the BVT Board of Directors."
OPINION OF CEI FINANCIAL ADVISOR
JSI Financial Services ("JSI") rendered its opinion to the Board of
Directors of CEI (the "CEI Board") on ________________, 1996 to the effect that
the consideration to be paid by CEI to holders of BVT Common Shares in the
Merger is fair to the CEI shareholders from a financial point of view. This
opinion, which is attached to this Proxy Statement/Prospectus as Appendix C
should be read in its entirety with respect to the assumptions made and other
matters considered by JSI in rendering such opinion. CEI has agreed to pay JSI
$40,000 for acting as its financial advisor in connection with the Merger. See
"THE MERGER--Opinion of CEI Financial Advisor."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF CEI
The consideration to be paid by CEI in the Merger was negotiated by the CEI
Board in light of various factors, including BVT's and CEI's recent operating
results, current financial condition and perceived future prospects. THE BOARD
OF DIRECTORS OF CEI BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF CEI'S
SHAREHOLDERS, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT
CEI'S SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PROPOSAL TO AMEND CEI'S ARTICLES
OF INCORPORATION TO AUTHORIZE THE CEI SERIES A PREFERRED SHARES AND "FOR" THE
PROPOSAL TO APPROVE THE ISSUANCE OF CEI COMMON SHARES AND CEI SERIES A PREFERRED
SHARES IN THE MERGER. See "THE MERGER--CEI's Reasons for the Merger;
Recommendation of the Board of Directors of CEI."
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to various conditions, including
approval of the Merger by the Pennsylvania Public Utility Commission (the
"PaPUC"). CEI filed an application for approval of the Merger with the PaPUC on
_____________, 1995, and it is presently anticipated that PaPUC approval will be
obtained within 90 days thereafter. See "THE MERGER--Regulatory Considerations."
The Merger is also subject to satisfaction of various other conditions specified
in the Merger Agreement, including the approval of the Merger Agreement by the
requisite vote of the shareholders of BVT and the approval by the requisite vote
of CEI's shareholders of an amendment to CEI's articles of incorporation (the
"CEI Articles") authorizing a new class of preferred stock; except that if such
amendment is not approved by CEI's shareholders, BVT will have the
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option to proceed with the Merger with the merger consideration being solely
Cash Merger Consideration. See "THE MERGER--Terms of the Merger--Conditions to
the Merger" and "THE MERGER--Terms of the Merger--Cash Option."
CERTAIN COVENANTS
Upon consummation of the Merger, the separate existence of BVT and its
board of directors will terminate, but the directors and officers of CEI and
Merger Sub will continue in office. See "THE MERGER--Terms of the Merger--Effect
of the Merger. CEI has agreed, for a period of three years following the
Effective Time, subject to certain exceptions, to continue the employment and
current salary of all persons employed by BVT as of the Effective Time. CEI has
also agreed during such three-year period to continue the benefit plans of BVT
as are in effect as of the Effective Time, or to provide benefits to such
employees that are no less favorable, taken as a whole, than the benefits
provided to comparable employees of CEI. See "THE MERGER--Terms of the Merger--
Continued Employment of BVT Employees."
CEI has also agreed, from and after the Effective Time, subject to certain
exceptions, to indemnify the directors and officers of BVT to the fullest extent
permitted by applicable law and to provide directors and officers liability
insurance coverage for such directors and officers for a period of six years
following the Effective Time. See "THE MERGER--Terms of the Merger--
Indemnification of BVT Directors and Officers."
BVT has agreed that, except as described below, it will not initiate
discussions or negotiations relating to a transaction involving a merger,
consolidation, sale or similar transaction involving a significant portion of
the stock or assets of BVT (an "Acquisition Transaction"). BVT, however, is
permitted to disclose information to, and to engage in discussions and
negotiations with, a person who makes a bona fide offer to engage in such an
Acquisition Transaction on terms which are more favorable to the BVT
shareholders than the Merger, and who can reasonably be expected to consummate
such an Acquisition Transaction on the terms that have been proposed, and which
disclosure, discussions and negotiations, in the judgment of BVT, shall be
required by reason of the fiduciary obligations of the BVT Board. See "THE
MERGER--Terms of the Merger--No Solicitation; Pursuit of Other Transactions."
EFFECTIVE TIME
Once the conditions to the Merger have been satisfied, the Merger will
become effective upon the filing and acceptance of articles of merger by the
Corporation Bureau of the Commonwealth of Pennsylvania, or the effective time
specified therein, whichever is later (the "Effective Time"). See "THE MERGER--
Terms of the Merger--Closing; Effective Time."
TERMINATION; WAIVER; AMENDMENT
The Merger Agreement may be terminated at any time before the Closing Date
in a number of circumstances, including (i) by mutual consent of the parties,
(ii) by either party if the Effective Time shall not have occurred on or before
June 30, 1996 (except under certain circumstances), and (iii) by either party
upon a material breach of any representation, warranty, covenant or agreement by
the other party.
The Merger Agreement may be terminated by BVT if the Market Value of CEI
Common Shares at the time of closing is less than $22.50 (at which price the
Common Stock Merger Consideration would have a Market Value of $58.80); BVT will
not have a right to terminate the Merger Agreement in such event, however, if
CEI exercises its option to increase the Maximum Common Stock Exchange Ratio
from 2.61333 to that number determined by dividing $58.80 by the Market Value at
the time of closing. The Merger Agreement may be terminated by CEI if the Market
Value of CEI Common Shares at the time of closing is more than $32.70 (at which
price the Common Stock Merger Consideration would have a Market Value of
$72.00); CEI will not have a right to terminate the Merger Agreement in such
event, however, if BVT exercises its option to decrease the
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Minimum Common Stock Exchange Ratio from 2.20183 to that number determined by
dividing $72.00 by the Market Value at the time of closing.
In addition, if requested by the BVT Board pursuant to the fiduciary
obligations of BVT's directors, BVT may terminate the Merger Agreement (subject
to its obligations to pay the termination fee described below) in order to
accept an offer for an Acquisition Transaction other than the Merger which the
BVT Board concludes is more favorable to the BVT shareholders than the Merger.
See "THE MERGER--Terms of the Merger--Termination."
Prior to the Effective Time, any provision of the Merger Agreement may be
waived or amended under certain circumstances, as set forth in the Merger
Agreement. See "THE MERGER--Terms of the Merger--Waiver; Amendment."
ALL CASH OPTION; FAILURE OF CEI SHAREHOLDER APPROVAL
In the event that the CEI shareholders do not approve the Merger-related
proposals at the CEI Meeting, BVT shall have the option to terminate the Merger
Agreement or to proceed with the Merger as an all cash transaction at $65 per
BVT Common Share. If BVT elects the all cash option, the Merger Agreement may be
terminated by BVT if the Effective Time shall not have occurred by the later of
June 30, 1996 or the 60th day following BVT's election to proceed with the all
cash transaction.
FEES AND EXPENSES
Except as described below, whether or not the Merger is consummated, all
costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such
costs.
In the event that BVT terminates the Merger Agreement in order to enter
into an Acquisition Transaction, BVT must pay CEI a termination fee in the
amount of $585,000. See "THE MERGER--Terms of the Merger--Fees and Expenses."
In the following four circumstances, CEI has agreed to pay BVT a break-up
fee in the amount of $2,000,000: (i) the Merger Agreement is terminated by BVT
because the Market Value of a CEI Common Share at the time of closing is less
than $22.50 and CEI has not exercised its option to increase the Maximum Common
Stock Exchange Ratio so that the Common Stock Merger Consideration has a Market
Value of at least $58.80; (ii) the Merger Agreement is terminated by BVT or CEI
because CEI is unable to consummate its financing for the cash portion of the
merger consideration; (iii) the required approval from CEI's shareholders has
not been obtained, BVT elects to pursue the Merger as an all cash transaction,
and the Merger Agreement is terminated because the Merger is not consummated by
the later of June 30, 1996 or the 60th day following BVT's notice of its
intention to pursue an all cash transaction; or (iv) BVT terminates the Merger
Agreement due to a breach thereof by CEI.
In addition, CEI has agreed to reimburse BVT for the $300,000 break-up fee
paid by BVT upon the termination of its prior merger agreement with C-TEC
Corporation in the event that the Merger Agreement is terminated (a) by CEI
because the Merger has not been consummated by June 30, 1996, or (b) by BVT
because (i) of a CEI breach, (ii) the Merger has not been consummated by June
30, 1996 (or, if later, the 60th day following BVT's notice of its intention to
pursue an all cash transaction), (iii) the Market Value of a share of CEI Common
Share at the time of closing is less than $22.50 and CEI has not exercised its
option to increase the Maximum Common Stock Exchange Ratio so that the Common
Stock Merger Consideration has a Market Value of at least $58.80, or (iv)
because the required CEI shareholder approval has not been obtained.
-14-
<PAGE>
_______________________________________________________________________________
DISSENTERS' RIGHTS
Pursuant to the PBCL, the holders of BVT Common Shares will have the right
to dissent from approval of the Merger, and to demand and receive the "fair
value" of their BVT Common Shares. In order to assert such dissenters' rights, a
BVT shareholder must (i) file a written notice of intention to dissent with BVT
prior to the shareholder vote at the BVT Meeting, (ii) refrain from voting in
favor of the Merger, (iii) file a written demand for payment and deposit the
certificates representing his or her shares in accordance with the terms of the
notice to demand payment that will be sent by BVT, and (iv) comply with certain
other statutory procedures set forth in the PBCL. Proxies which are returned but
which do not contain voting instructions will be voted in favor of the Merger
Agreement, which will result in a forfeiture of dissenters' rights with respect
to the Merger. A copy of the applicable sections of the PBCL are attached to
this Joint Proxy Statement/Prospectus as Appendix D. Any deviation from the
procedures set forth in such statutory provisions may result in the forfeiture
of dissenters' rights with respect to the Merger. Accordingly, shareholders
wishing to assert dissenters' rights are urged to read carefully "THE MERGER--
Dissenters' Rights" and Appendix D to this Joint Proxy Statement/Prospectus.
CEI shareholders are not entitled to dissenters' rights in this
transaction.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that, accordingly,
for federal income tax purposes: (i) BVT and CEI will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code, (ii) no gain
or loss will be recognized by BVT by reason of the Merger, (iii) the gain, if
any, realized by a holder of BVT Common Shares upon receipt of CEI Series A
Preferred Shares, CEI Common Shares and/or cash in exchange for BVT Common
Shares pursuant to the Merger will not be recognized in excess of the amount of
cash received, and no loss will be recognized by those holders of BVT Common
Shares who exchange their BVT Common Shares solely for CEI Series A Preferred
Shares and/or CEI Common Shares, (iv) the basis of the CEI Series A Preferred
Shares or CEI Common Shares to be received by the BVT shareholders will
generally be, in each instance, the same as the basis of the BVT Common Shares
surrendered in exchange therefor (but reduced to the extent any cash received
exceeds the amount of gain recognized), and (v) the holding period of the CEI
Series A Preferred Shares or CEI Common Shares to be received by the
shareholders of BVT will include the period during which the BVT Common Shares
surrendered in exchange therefor were held, provided that the BVT Common Shares
surrendered were held as a capital asset as of the Effective Time.
No gain or loss will be recognized by a holder of CEI Series A Preferred
Shares upon the conversion of such shares into CEI Common Shares pursuant to the
terms of the CEI Series A Preferred Shares. Such conversion will be treated as a
recapitalization pursuant to Section 368(a)(1)(E) of the Code pursuant to which
converting shareholders do not recognize taxable gain or loss on the conversion.
A shareholder's basis in the CEI Common Shares received in the conversion will
be equal to such shareholder's basis in the CEI Series A Preferred Shares
converted.
The parties' obligations to consummate the Merger are conditioned upon
receipt of a ruling from the Internal Revenue Service or an opinion of Morgan,
Lewis & Bockius LLP, special tax counsel to BVT, substantially to the effect
that the federal income tax consequences of the Merger are as summarized above.
Such an opinion of Morgan, Lewis & Bockius LLP is attached to this Joint Proxy
Statement/Prospectus as Appendix E. See "THE MERGER--Certain Federal Income Tax
Consequences."
EACH BVT SHAREHOLDER IS ENCOURAGED TO CONSULT HIS OR HER OWN TAX ADVISORS
AS TO PARTICULAR FACTS AND CIRCUMSTANCES WHICH MAY BE UNIQUE TO SUCH SHAREHOLDER
AND NOT COMMON TO BVT SHAREHOLDERS AS A WHOLE AND ALSO AS TO ANY ESTATE, GIFT,
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES ARISING OUT OF
_______________________________________________________________________________
-15-
<PAGE>
THE MERGER AND/OR ANY SALE THEREAFTER OF CEI SERIES A PREFERRED SHARES OR CEI
COMMON SHARES RECEIVED IN THE MERGER.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase of BVT by CEI for accounting
and financial reporting purposes. See "THE MERGER--Accounting Treatment."
FINANCING THE MERGER
In the Merger Agreement, CEI has represented that it has the availability
of funds necessary to fund the Cash Merger Consideration from cash on hand and
from funds provided by its bank lender, which has issued a commitment letter to
CEI. For a presentation of the pro forma effects of the Merger, see "UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
INTEREST OF CERTAIN PERSONS IN THE MERGER
Certain directors and officers of BVT have interests in the Merger that are
in addition to their interests as shareholders of BVT generally. These include
CEI's agreement to indemnify and to provide insurance covering BVT's directors
and officers for a period of six years following the Effective Time and CEI's
agreement to continue the employment and benefits of BVT's employees for three
years following the Effective Time. See "THE MERGER--Terms of the Merger--
Continued Employment of BVT Employees," "--Indemnification of BVT Directors and
Officers" and "THE MERGER--Interest of Certain Persons in the Merger."
DESCRIPTION OF CEI SERIES A PREFERRED SHARES
A summary of the material terms of the CEI Series A Preferred Shares
issuable in the Merger is set forth below.
<TABLE>
<S> <C>
Stated Value $65 per share.
Dividends Cumulative semi-annual cash dividends at an annual
rate of $3.42 per share, as and if declared by the
CEI Board out of funds legally available therefor.
Liquidation Preference $65 per share, plus dividends accrued and unpaid to
the liquidation date.
Conversion Convertible at any time at the option of the holder
into shares of CEI Common Stock at a conversion
price equal to 125% of the Market Value of a CEI
Common Share on the NASDAQ Small Cap Market over a
ten trading day period ending shortly before the
Effective Date; provided, however, that the
conversion price may not be less than $28 nor more
than the higher of (i) $40 or (ii) such average
closing price of CEI Common Stock. The conversion
price is subject to anti-dilution adjustments under
certain circumstances.
Redemption by CEI Redeemable, in whole or in part, at the option of
CEI, commencing on the fourth anniversary of the
Effective Time, at a redemption price equal to $65
multiplied by the applicable percentage, such
percentage ranging from 103% as of the fourth
anniversary of the Effective Time to 100% as of the
seventh anniversary of the Effective Time, plus
accrued and unpaid dividends.
</TABLE>
-16-
<PAGE>
Redemption by Holder Redeemable at the option of the holder at any time
after the second anniversary of the Effective Time,
at a redemption price equal to $65, plus accrued
and unpaid dividends.
Voting Rights None, except as required by law and except that if
CEI shall fail to pay dividends on the CEI Series A
Preferred Shares in an amount equal to three full
semi-annual dividends or shall fail to redeem CEI
Series A Preferred Shares when required, then the
holders of the CEI Series A Preferred Shares shall
be entitled, voting as a class together with any
other series of CEI preferred stock having a
similar right, to elect two additional directors to
the CEI Board.
The foregoing description is intended as a summary only, and is qualified
by reference to the form of the CEI Series A Preferred Shares which is set forth
as Exhibit A to the Merger Agreement, which is attached to this Joint Proxy
Statement/Prospectus as Appendix A. See "DESCRIPTION OF CAPITAL STOCK OF CEI--
CEI Series A Preferred Shares." The issuance of the CEI Series A Preferred
Shares and CEI Common Shares pursuant to the Merger is subject to approval by
the CEI shareholders of such issuance, as well as of an amendment to the CEI
Articles authorizing a new class of preferred stock.
COMPARISON OF SHAREHOLDER RIGHTS
To the extent that they receive Preferred or Common Stock Merger
Consideration in the Merger, holders of BVT Common Shares will become holders of
CEI Series A Preferred Shares and/or CEI Common Shares. Upon conversion of such
CEI Series A Preferred Shares, former holders of BVT Common Shares would become
holders of CEI Common Shares. The rights of shareholders of CEI are governed by
the PBCL and by the CEI Articles and the bylaws of CEI (the "CEI Bylaws"). The
rights of common and preferred shareholders of CEI differ from the rights of
holders of BVT Common Shares with respect to certain matters. For a description
of these differences, see "COMPARISON OF SHAREHOLDER RIGHTS."
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables present selected financial data and selected unaudited
pro forma consolidated financial data for CEI and BVT. The selected financial
data set forth below for CEI and BVT for each of the years in the five-year
period ended December 31, 1994, are derived from the financial statements of CEI
and BVT, respectively. The selected financial data for CEI and BVT for the nine
months ended September 30, 1995 and 1994, are derived from the unaudited
financial statements of CEI and BVT, respectively, which in the opinion of
management reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of the interim
periods. The results for such interim periods are not necessarily indicative of
the results for the full fiscal year. The historical and unaudited pro forma
financial information are not necessarily indicative of future operations or the
actual results that would have occurred had the Merger been consummated at the
beginning of the periods presented and should not be construed as representative
of future operations. This information should be read in conjunction with the
unaudited pro forma consolidated condensed financial statements and notes
thereto and with the historical financial statements and notes thereto of CEI
and BVT included or incorporated by reference in this Joint Proxy
Statement/Prospectus. See "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS" and "INDEX TO BVT FINANCIAL STATEMENTS." Information regarding CEI
and BVT has been provided by CEI and BVT, respectively.
The percentage of BVT Common Shares that will be exchanged for Common Stock
Merger Consideration or Preferred Stock Merger Consideration is not limited by
the Merger Agreement; were the BVT shareholders to so elect, 100% of the BVT
Common Shares could be exchanged in the Merger for Common Stock Merger
Consideration or Preferred Stock Merger Consideration. Because of this degree of
variability in the terms of the
-17-
<PAGE>
Merger Agreement, the selected unaudited pro forma consolidated financial data
are presented for two scenarios, Scenario 1 and Scenario 2, based on different
assumptions of the consideration given for the acquisition of all outstanding
common stock of BVT as provided by the Merger Agreement. Scenario 1 assumes half
of the consideration in cash (the Merger Agreement limits the cash portion of
the total consideration given to no greater than 50%) and the remainder split in
equal proportions of CEI Series A Preferred Shares and CEI Common Shares.
Scenario 2 assumes the consideration in equal proportions of cash, CEI Series A
Preferred Shares and CEI Common Shares. Management of BVT and CEI believe that
these two scenarios provide a reasonable illustration of the likely pro forma
effects of the Merger on CEI.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE
NINE
MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------ -------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
CEI
Operating revenues.............. $23,075 $22,840 $29,828 $28,360 $27,234 $25,270 $25,102
Net income...................... 5,007 4,944 6,294 6,136 6,373 5,317 5,641
Net income per common share(1).. 1.30 1.28 1.64 1.60 1.66 1.38 1.47
Dividends per common share(1)... 0.90 0.82 1.11 1.10 1.09 1.05 0.90
Total assets.................... 58,709 55,108 55,799 53,232 52,041 51,550 49,666
Long-term debt, net of current
maturities..................... 4,743 5,133 5,035 5,425 5,815 6,515 6,825
Net book value per common
share(1)....................... 10.86 10.25 10.38 9.80 9.30 8.72 8.39
____________________
</TABLE>
(1) Per share data has been adjusted to reflect a 5% stock dividend paid to
CEI shareholders of record as of January 31, 1995.
<TABLE>
<CAPTION>
AT OR FOR THE
NINE
MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------ -------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- -------- ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BVT
Operating revenues................ $8,472 $8,520 $11,435 $10,532 $10,668 $9,498 $9,851
Net income........................ 2,027 2,127 2,853 2,490 2,798 2,176 2,650
Net income per common share....... 2.24 2.35 3.15 2.75 3.08 2.40 2.93
Dividends per common share........ 1.35 1.26 1.68 1.60 1.48 1.40 1.32
Total assets...................... 28,967 28,875 29,240 29,033 27,726 26,200 24,821
Long-term obligations and
redeemable preferred stock....... 1,404 1,885 1,885 1,966 3,047 3,128 3,209
Net book value per common
share............................ 22.67 21.40 21.79 20.76 19.16 17.57 16.57
</TABLE>
-18-
<PAGE>
------------------------------------------------------------------------------
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SCENARIO 1 SCENARIO 2
50% CASH, 25% COMMON STOCK, 1/3 CASH, 1/3 COMMON STOCK,
25% PREFERRED STOCK 1/3 PREFERRED STOCK
----------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Nine Months Year Ended Nine Months Year Ended
Ended September December 31, Ended September December 31,
30, 1995 (1) 1994 (1) 30, 1995 (1) 1994 (1)
--------------- ------------ --------------- -----------
Operating revenues............. $31,547 $41,263 $31,547 $41,263
Net income before preferred
dividends.................... 5,260 6,782 5,597 7,231
Net income per common share.... 1.07 1.38 1.06 1.37
Cash dividends declared per
common share (2)............. 0.90 1.11 0.90 1.11
</TABLE>
<TABLE>
<CAPTION>
September 30, September 30,
1995(1) 1995 (1)
---------------- ------------
<S> <C> <C>
Total assets................... $125,937 $126,143
Long term debt and
redeemable preferred stock,
net of current maturities.... 49,193 44,410
Net book value per common
share........................ 12.96 13.55
</TABLE>
__________________
(1) The unaudited pro forma combined balance sheet data assumes the Merger took
place on September 30, 1995 and combines CEI's September 30, 1995 balance
sheet data with BVT's September 30, 1995 balance sheet data. The unaudited
pro forma statement of income data for the year ended December 31, 1994
assumes that the Merger took place as of January 1, 1994 and combines the
statement of income data for CEI and BVT for the year ended December 31,
1994. Additionally, the interim unaudited pro forma statement of income
combines CEI's and BVT's statement of income data for the nine months ended
September 30, 1995. The unaudited pro forma data assumes a Common Stock
Exchange Ratio of 2.4 CEI Common Shares for each BVT Common Share receiving
Common Stock Merger Consideration, which represents the exchange ratio that
would have applied based upon the market price of a CEI Common Share on
September 30, 1995.
(2) While CEI is not obligated to pay cash dividends, the Board of Directors
presently intends to continue the policy of paying quarterly cash dividends.
Future dividends will depend, in part, upon the earnings and financial
condition of CEI.
- -------------------------------------------------------------------------------
-19-
<PAGE>
- --------------------------------------------------------------------------------
COMPARATIVE PER SHARE DATA
The following tables set forth certain historical per share data of CEI and
BVT, and unaudited pro forma combined per share data of CEI and BVT, based on
the assumption that the Merger was effective on January 1, 1994. Book value per
share data are computed on the assumption that the Merger occurred on September
30, 1995. Such data assumes that the Merger was accounted for under the purchase
method of accounting. The pro forma data are not necessarily indicative of
results of operations or financial position that would have been achieved had
the transaction been consummated on such date and should not be construed as
representative of results of future operations or financial position. This
presentation is subject to the assumptions set forth in the notes to the
Unaudited Pro Forma Condensed Consolidated Financial Statements appearing
elsewhere in this Joint Proxy Statement/Prospectus. The information should be
read in conjunction with such pro forma financial statements, and notes thereto,
and the historical financial statements, and notes thereto, of CEI and BVT
included or incorporated by reference in this Joint Proxy Statement/Prospectus.
The pro forma combined per share data of CEI and BVT are presented for two
scenarios, Scenario 1 and Scenario 2, based on different assumptions of the
consideration given for the acquisition of all outstanding common stock of BVT
as provided by the Merger Agreement. Scenario 1 assumes half of the
consideration in cash (the Merger Agreement limits the cash portion of the total
consideration given to no greater than 50%) and the remainder split in equal
proportions of CEI Series A Preferred Shares and CEI Common Shares. Scenario 2
assumes the consideration in equal proportions of cash, CEI Series A Preferred
Shares and CEI Common Shares.
<TABLE>
<CAPTION>
SCENARIO 1 SCENARIO 2
50% CASH, 25% COMMON 1/3 CASH, 1/3 COMMON
STOCK, 25% PREFERRED STOCK STOCK, 1/3 PREFERRED STOCK
--------------------------- ---------------------------
At or For At or For
At or For the the Year At or For the the Year
Nine Months Ended Nine Months Ended
Ended September December Ended September December
30, 1995 31, 1994 30, 1995 31, 1994
------------ ----------- -------------- -----------
<S> <C> <C> <C> <C>
HISTORICAL
Per CEI Common Share:
Net income........................... $1.30 $1.64 1.30 $1.64
Book value........................... 10.86 10.38 10.86 10.38
Cash dividends declared.............. 0.90 1.11 0.90 1.11
Per BVT Common Share:
Net income........................... $2.24 $3.15 $2.24 $3.15
Book value........................... 22.67 21.79 22.68 21.79
Cash dividends declared.............. 1.35 1.68 1.35 1.68
PRO FORMA COMBINED(1)
Per CEI Common Share:
Net income........................... 1.07 1.38 1.06 1.37
Book value........................... 12.96 N/A 13.55 N/A
PRO FORMA EQUIVALENT PER
BVT COMMON SHARE
Preferred Stock Merger Consideration
Received:(2)
Net income........................... N/A N/A N/A N/A
Book value........................... 12.96 N/A 13.55 N/A
Cash dividends declared.............. 2.57 3.42 2.57 3.42
Common Stock Merger Consideration
Received:(3)
</TABLE>
- -------------------------------------------------------------------------------
-20-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Net income........................... 2.57 3.31 2.54 3.29
Book value........................... 31.10 N/A 32.52 N/A
Cash dividends declared.............. 2.16 2.66 2.16 2.66
</TABLE>
___________________
(1) The pro forma combined per share of CEI Common Stock amounts are based upon
the amounts in the unaudited pro forma financial information. See "UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
(2) These equivalent pro forma combined per BVT Common Share amounts are the
same as the per share of CEI Common Stock pro forma combined amounts because
each BVT Common Share receiving Preferred Stock Merger Consideration will be
exchanged one-for-one. The cash dividends declared amounts represent the
per-share cumulative cash dividends holders of record of Series A Preferred
Stock shall be entitled to receive.
(3) These equivalent pro forma combined per BVT Common Share amounts are based
upon the per CEI Common Share amounts multiplied by the Common Stock
Exchange Ratio of 2.4 CEI Common Shares per BVT Common Share. The cash
dividends declared amounts represent the historical per-share cash dividends
to holders of record of CEI Common Shares multiplied by the Common Stock
Exchange Ratio of 2.4 CEI Common Shares per BVT Common Share.
MARKET PRICE DATA
There is no established public trading market for BVT Common Shares, and
accordingly, there are no published market quotations for such stock. Trading in
BVT Common Shares is limited and sporadic. In addition, BVT is not subject to
the requirement of filing periodic reports with the Securities and Exchange
Commission. The absence of an established market and publicly available current
information regarding BVT may affect the prices at which BVT Common Shares are
traded.
There are no CEI Series A Preferred Shares presently outstanding. It is not
anticipated that an active public trading market for the CEI Series A Preferred
Shares will develop following the Merger.
CEI Common Shares have been included for quotation on the Nasdaq Small Cap
Market since June 9, 1994. The CEI Series A Preferred Shares issuable in the
Merger will be convertible into CEI Common Shares at a conversion price equal to
125% of the Market Value of a CEI Common Share shortly before the Merger. See
"DESCRIPTION OF CAPITAL STOCK OF CEI--CEI Series A Preferred Shares--Conversion
Rights." The following table sets forth the high and low bid quotations for CEI
Common Shares as reported by NASDAQ for the periods indicated below. Share
information has been adjusted to reflect a 5% stock dividend payable to CEI
shareholders of record as of January 31, 1995.
<TABLE>
<CAPTION>
High Bid Low Bid
-------- -------
<S> <C> <C> <C>
1994
Third Quarter................ 25.71 24.76
Fourth Quarter............... 25.71 24.29
1995
First Quarter................ 27.00 24.00
Second Quarter............... 26.50 24.50
Third Quarter................ 28.25 25.25
Fourth Quarter(1)............ 29.25 27.00
</TABLE>
_____________
(1) Through the close of business on November 30, 1995.
RATIO OF EARNINGS-TO-FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The table sets forth the ratio of CEI's pretax income to fixed charges and
preferred stock dividends.
-21-
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- -------------------------------------------
1995 1994 1993 1992 1991 1990
------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges and
preferred stock dividends (1)
Actual............................... 25.61x 26.39x 29.07x 20.48x 14.09x 14.40x
Pro Forma - Scenario 1 (2)........... 4.09x 3.69x
Pro Forma - Scenario 2 (2)........... 4.38x 3.95x
</TABLE>
_____________________
(1) In computing this ratio, earnings represent income before income taxes plus
fixed charges. Fixed charges represent interest expense (actual and pro
forma) and dividends on the CEI Series A Preferred Shares (pro forma only).
(2) The ratio is presented for two scenarios, Scenario 1 and Scenario 2, based
on different assumptions of the consideration given for the acquisition of
all outstanding BVT Common Shares as provided by the Merger Agreement.
Scenario 1 assumes half of the consideration in cash (the Merger Agreement
limits the cash portion of the total consideration to no greater than 50%)
and the remainder split in equal proportions of CEI Series A Preferred
Shares and CEI Common Shares. Scenario 2 assumes the consideration in equal
proportions of cash, CEI Series A Convertible Preferred Shares, and CEI
Common Shares.
- --------------------------------------------------------------------------------
-22-
<PAGE>
RISK FACTORS
A substantial portion of the consideration to be received by holders of BVT
Common Shares pursuant to the Merger consists of CEI Common Shares and CEI
Series A Preferred Shares (which shares are convertible into CEI Common Shares).
In addition to the other information contained in this Joint Proxy
Statement/Prospectus, holders of BVT Common Shares should consider carefully the
following risk factors relating to CEI, the CEI Common Shares and the CEI Series
A Preferred Shares before deciding how to vote with respect to the Merger and
what shareholder elections to make:
COMPETITIVE INDUSTRY
CEI engages in various aspects of the telecommunications industry which are
becoming increasingly competitive. As a result of technological, regulatory and
other legal developments, CEI faces the risk of new or increased competition in
virtually all businesses in which it engages. Although these developments are
expected to provide new opportunities to CEI, it is not possible to predict
their future effect on the telecommunications industry in general or on CEI in
particular.
EFFECT OF REGULATION
CEI's local exchange telephone subsidiary, CTT, is subject to a rate making
process regulated by the PaPUC. Consequently, the ability of CEI's telephone
subsidiary to generate increased income and cash flow is largely dependent on
its ability to increase its subscriber base, obtain higher message volumes and
control its expenses. During 1993 the PaPUC instituted a show cause order
against CTT concerning rates and earnings. In 1994, CTT entered into an
agreement with the PaPUC in which CTT agreed (i) to provide its residential
customers the enhancement of touch tone service free of charge; (ii) not to make
application for a rate increase for three years; (iii) that certain expense
deductions could not be included in determining its base rate; and (iv) that
certain dialing areas would be included within its local service charges. The
PaPUC agreed in turn not to file a show cause order concerning rates and
earnings for a period of three years. The agreement also states that, barring
unforeseen regulatory changes, CTT will not increase basic service rates prior
to January 1, 1997.
An amendment to the Pennsylvania Public Utility Act passed in 1993,
commonly referred to as Chapter 30, provides for streamlined rate regulation and
a method for determining rates other than the rate base/rate of return
regulation and procedures traditionally provided for in the Pennsylvania Public
Utility Act. Chapter 30 provides for what are being called "price caps" under a
price stability mechanism in which a telephone company's annual revenues from
non-competitive services may be permitted to increase or decrease from the
previous year's total as a result of price changes based upon the annual change
in the gross domestic product price index, as calculated by the United States
Department of Commerce, minus 2.25%, with no limitation on the profits or losses
that may be earned by a regulated telephone company. In order to avail itself of
the changed rate determination procedures permitted by Chapter 30, the utility
must commit itself to provide universal broadband services by 2015. Broadband
services are defined as a "communication channel using any technology and having
a bandwidth equal to or greater than 1.544 megabits per second." CEI has not
determined whether it wishes to avail itself of this alternate pricing procedure
and what effect such pricing would have upon CEI, if elected.
DIVIDEND POLICY
CEI has paid quarterly dividends since 1990. (CTT paid dividends from 1909
through 1989.) CEI does not intend to alter this policy in the foreseeable
future. However, as a holding company, CEI's ability to pay dividends on its
common stock and preferred stock will be dependent upon, among other factors,
its earnings, financial condition and cash requirements at the time such payment
is considered, and the payment of dividends to CEI by its subsidiaries. CEI's
main subsidiary, CTT, is subject to rate regulation by the PaPUC, and the amount
of earnings and dividends of such subsidiaries are affected by such regulation.
See "RISK FACTORS--Effect of Regulation."
LIMITED TRADING MARKET FOR CEI SHARES
CEI's Common Shares are listed on the NASDAQ Small Cap Market, which market
provides a trading market for CEI Common Shares. However, CEI Common Shares are
thinly traded with the result that it is difficult to determine a reliable
market price for such shares. Since CEI Common Shares were listed with NASDAQ in
June 1994, only an average of 13,000 shares have traded each month. Because of
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such limited trading, sales of significant amounts of CEI Common Shares may be
difficult; any such sales might have a material adverse effect upon the
prevailing market price for CEI Common Shares. The CEI Series A Preferred Shares
to be issued in the Merger will not be listed on NASDAQ and it is unlikely that
an active trading market will develop for such shares following the Merger.
EFFECT OF SUBSTANTIAL INDEBTEDNESS AND PREFERRED STOCK ON FUTURE OPERATIONS
To date, CEI has operated with a low level of debt and preferred equity
financing. At September 30, 1995, for example, CEI had approximately $4.7
million of long term debt outstanding as compared to approximately $41.7 million
of common shareholder equity. In connection with the Merger, CEI could incur up
to approximately $57.4 million of debt and preferred stock; at such levels CEI
would have a common equity to debt and preferred stock ratio of approximately
40%/60%. (The amount of debt and preferred stock required to consummate the
Merger will be lower, however, to the extent that BVT shareholders elect to
receive Common Stock Merger Consideration in the transaction.) Any preferred
stock issued in the Merger will have a priority as to dividends and a
liquidation preference over CEI Common Shares.
Although such a level of debt and preferred stock is not unusual in the
telephone utility industry, the additional debt and preferred stock will have
important consequences on CEI's future operations, including (i) CEI will incur
significant interest expense, and have significant preferred stock dividend and
principal repayment obligations, (ii) CEI will be subject to significant
unscheduled preferred stock redemption obligations because the CEI Series A
Preferred Shares issuable in the Merger may be "put" by the holders thereof
beginning two years after the Merger; (iii) CEI's increased leverage may make it
more vulnerable to economic downturns and reduce its flexibility in responding
to changing business and economic conditions; and (iv) payment of dividends on
CEI Common Shares, or future increases in the dividend rate on CEI Common
Shares, may be restricted by covenants in CEI's debt instruments or by the level
of financial resources needed to service CEI's additional debt and preferred
stock.
DILUTION TO EARNINGS
The purchase price being paid by CEI in the Merger is well in excess of the
current book value of BVT's assets. The purchase price in excess of such book
value will be accounted for by CEI as "goodwill", which will be amortized over
40 years. This goodwill amortization will each year result in a non-cash charge
to CEI's reported earnings. It is likely, therefore, that if the Merger is
consummated, reported earnings per CEI Common Share will be diluted below
present earnings levels for several years. See "SUMMARY--Comparative Per Share
Data" and "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
CONESTOGA WIRELESS COMPANY
In March 1995, CEI and Infocore, Inc. ("Infocore") formed Conestoga
Wireless Company. Conestoga Wireless Company will bid in the FCC auctions for
Personal Communication Services ("PCS") bandwidth to commence in December 1995.
These auctions may not be completed until mid-1996. CEI owns 60%, and Infocore
owns 40% of Conestoga Wireless Company. It is anticipated that, if Conestoga
Wireless is successful in the auction and obtains one or more licenses for PCS,
the purchase of such license or licenses will involve substantial capital, and
the development of a system to furnish PCS service in the licensed territories
will necessitate even greater capital expenditures. The service areas for which
Conestoga Wireless Company is bidding include the Reading, Lancaster,
Pottsville, Stroudsburg and Sunbury basic trading areas. PCS is a wireless
communications service based on lower power and a higher frequency bandwidth
than cellular service. PCS is anticipated to be more reliable, of better quality
and less expensive than cellular. This transaction may involve the start up of a
new business in the area of wireless communication, and there do not exist any
historical financial statements nor any factually supportable data to prepare
pro forma financial statements with respect to such potential business.
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THE BVT MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of BVT
Common Shares in connection with the solicitation of proxies by the BVT Board to
be used at the BVT Meeting or any adjournment thereof.
A proxy card has been enclosed with this Joint Proxy Statement/Prospectus
for use by holders of BVT Common Shares.
The Meeting will be held on Saturday, _______________, 1996, at _____ a.m.,
local time, at the Country Cupboard Inn, Route 15 North, Lewisburg, Pennsylvania
17837.
MATTERS TO BE CONSIDERED AT THE BVT MEETING
At the BVT Meeting, shareholders of BVT will consider and vote upon a
proposal to approve and adopt the Merger Agreement. Shareholders of BVT will
also consider such other matters as may properly come before the BVT Meeting or
any adjournment thereof.
If the Merger Agreement is not approved at the BVT Meeting, it is
anticipated that BVT's 1996 annual shareholders' meeting would be held in
_________________ 1996. If the Merger is approved, it is not anticipated that
BVT would hold its 1996 annual meeting unless the Merger Agreement is
terminated.
BVT RECORD DATE; SHARES OUTSTANDING; QUORUM
Only shareholders of record of BVT at the close of business on
________________, 1996 (the "BVT Record Date"), will be entitled to receive
notice of the BVT Meeting, and only holders of record of BVT Common Shares as of
the BVT Record Date will be entitled to vote at the BVT Meeting. At the close of
business on ______________, 1996, there were issued and outstanding 899,154 BVT
Common Shares. Each BVT Common Share entitles the holder to one vote. The
presence at the BVT Meeting, in person or by proxy, of shareholders entitled to
cast a majority of the votes at the BVT Meeting will constitute a quorum at the
BVT Meeting.
VOTE REQUIRED
Pursuant to the applicable provisions of the PBCL and BVT's bylaws (the
"BVT Bylaws"), the affirmative vote of a majority of the outstanding BVT Common
Shares present and entitled to vote at the BVT Meeting is required to approve
the Merger Agreement.
As of the BVT Record Date, directors and executive officers of BVT were the
beneficial owners of approximately 174,420 BVT Common Shares, or approximately
19.4% of the outstanding BVT Common Shares entitled to be voted at the BVT
Meeting. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
BVT." The directors and executive officers of BVT have indicated that they
intend to vote all such shares in favor of the Merger Agreement.
EFFECT OF ABSTENTIONS AND BROKER NONVOTES
Holders of BVT Common Shares entitled to vote at the BVT Meeting may
withhold authority to vote on the Merger Agreement. Such abstentions will be
considered as shares present and entitled to vote at the BVT Meeting, for the
purposes of determining the quorum and the required vote for approval of the
Merger Agreement, but will not be counted as votes cast in the affirmative.
THEREFORE, ABSTENTIONS BY HOLDERS OF BVT COMMON SHARES WILL HAVE THE EFFECT OF A
VOTE AGAINST THE MERGER AGREEMENT.
Brokers that are member firms of the New York Stock Exchange ("NYSE") and
who hold shares in street name for customers have authority under the rules of
the NYSE to vote those shares with respect to certain matters if they do not
receive instructions from a beneficial owner. Brokers will not have the
authority to vote shares with respect to the approval of the Merger Agreement.
Assuming that sufficient shares are present at the BVT Meeting to constitute a
quorum, a failure of brokers to vote shares because they have not received
instructions from beneficial owners (a "broker nonvote") will have no effect on
approval of the Merger Agreement because such shares will not be considered
present at the BVT Meeting.
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VOTING, REVOCATION AND SOLICITATION OF PROXIES
All BVT Common Shares represented by properly executed proxies received in
time for the BVT Meeting will be voted at the BVT Meeting in the manner
specified by the holders thereof, unless such proxies have been revoked prior to
the vote. Proxies which do not contain voting instructions will be voted for
approval of the Merger Agreement.
It is not expected that any matter other than those referred to herein will
be brought before the BVT Meeting. If, however, other matters are properly
presented, the persons named as proxyholders will vote in accordance with their
judgment with respect to such matters. In the event that BVT's management
desires to adjourn the BVT Meeting in order to solicit additional votes in favor
of the Merger, the persons named in the BVT proxy card shall not be permitted to
use the discretionary authority granted by such proxy card to vote in favor of
any such adjournment any BVT shares which were voted against the Merger.
A shareholder who executes and returns a proxy on the enclosed form has the
power to revoke it at any time before it is voted. The giving of a proxy does
not affect the right of shareholders to attend the BVT Meeting and vote in
person. A shareholder's presence at the BVT Meeting, however, will not in itself
revoke the shareholder's proxy. A shareholder may revoke a proxy at any time
prior to its exercise by filing with the Secretary of BVT, at or before the BVT
Meeting, a duly executed revocation or a proxy bearing a later date. Neither
attendance at the BVT Meeting nor voting in person at the BVT Meeting will in
itself constitute revocation of a proxy.
BVT will bear the cost of soliciting proxies from its shareholders.
Arrangements will be made with brokerage houses and other custodians, nominees
and fiduciaries for the forwarding of solicitation material to the beneficial
owners of stock held of record by such persons, and BVT will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
incurred in connection therewith. Proxies may also be solicited by directors,
officers and employees of BVT. Such directors, officers and employees will not
be specially compensated for such services, but may reimbursed for reasonable
out-of-pocket expenses incurred in connection therewith.
SHAREHOLDERS OF BVT SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS. AS DESCRIBED BELOW UNDER THE HEADING "THE MERGER--ELECTION, ALLOCATION
AND EXCHANGE PROCEDURES," EACH BVT SHAREHOLDER WILL BE PROVIDED WITH MATERIALS
FOR EXCHANGING BVT COMMON SHARES AS PROMPTLY AS PRACTICABLE AFTER THE EFFECTIVE
TIME OF THE MERGER.
THE CEI MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of CEI
Common Shares in connection with the solicitation of proxies by the CEI Board to
be used at the CEI Meeting or any adjournment thereof.
A Proxy Card has been enclosed with this Joint Proxy Statement/Prospectus
for use by holders of CEI Common Shares.
The CEI Meeting will be held at the office of CEI, 202 East First Street,
Birdsboro, Pennsylvania 19508, on Saturday, _________________, 1996 at 10:00
A.M., local time.
MATTERS TO BE CONSIDERED AT THE CEI MEETING
At the CEI Meeting, shareholders of CEI will consider and vote upon (i) a
proposal to approve an amendment to CEI's Articles of Incorporation to authorize
the CEI Series A Preferred Shares; and (ii) a proposal to approve the issuance
of CEI Series A Preferred Shares and CEI Common Shares in the Merger.
Shareholders of CEI will also consider such other matters as may properly come
before the CEI Meeting or any adjournment thereof.
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CEI RECORD DATE; SHARES OUTSTANDING; QUORUM
Only shareholders of record of CEI at the close of business on
____________________, 1996 (the "CEI Record Date"), will be entitled to receive
notice of the CEI Meeting, and only holders of record of CEI Common Shares as of
the CEI Record Date will be entitled to vote at the CEI Meeting. At the close of
business on ___________________, 1996, there were issued and outstanding
3,848,922 CEI Common Shares. Each CEI Common Share entitles the holder to one
vote. The presence at the CEI Meeting, in person or by proxy, of shareholders
entitled to cast a majority of votes at the CEI Meeting will constitute a quorum
at the CEI Meeting.
VOTES REQUIRED
Pursuant to the applicable provisions of the PBCL and the CEI Bylaws, the
affirmative vote of a majority of the votes cast at the CEI Meeting is required
to approve the amendment of CEI's Articles of Incorporation to authorize the CEI
Series A Preferred Shares and to approve the issuance of CEI Series A Preferred
Shares and CEI Common Shares in the Merger.
As of the CEI Record Date, directors and executive officers of CEI were the
beneficial owners of approximately ______________ CEI Common Shares or
approximately ______________% of the outstanding CEI Common Shares entitled to
be voted at the CEI Meeting. All of the directors and executive officers of CEI
have indicated that they intend to vote such shares in favor of the amendment of
CEI's Articles of Incorporation to authorize the class of CEI Series A Preferred
Shares and in favor of the issuance of CEI Series A Preferred Shares and CEI
Common Shares in the Merger.
EFFECT OF ABSTENTIONS AND BROKER NONVOTES
Holders of CEI Common Shares entitled to vote at the CEI Meeting may
withhold authority to vote on the amendment of CEI's Articles of Incorporation
to authorize the CEI Series A Preferred Shares and the issuance of CEI Series A
Preferred Shares and CEI Common Shares in the Merger. Such abstentions will be
considered as shares present and entitled to vote at the CEI Meeting for the
purposes of determining the quorum but will not be counted as votes cast in the
affirmative. Therefore, abstentions by holders of CEI Common Shares will have no
effect on the approval of the amendment of CEI's Articles of Incorporation to
authorize the CEI Preferred Shares or the issuance of CEI Preferred Shares and
CEI Common Shares in the Merger.
Brokers that are member firms of the New York Stock Exchange ("NYSE") and
who hold shares in street name for customers have authority under the rules of
the NYSE to vote those shares with respect to certain matters if they do not
receive instructions from a beneficial owner. Brokers will not have the
authority to vote shares with respect to the approval of the amendment of CEI's
Articles of Incorporation and the issuance of the CEI Series A Preferred Shares
and CEI Common Shares in the Merger. Assuming that sufficient shares are present
at the CEI Meeting to constitute a quorum, a failure of brokers to vote shares
because they have not received instruction from beneficial owners (a "Broker
Nonvote") will have no effect on the approval of the amendment or the approval
of the issuance of the CEI Series A Preferred Shares and CEI Common Shares in
the Merger, because such shares will not be votes cast at the CEI Meeting.
VOTING, REVOCATION AND SOLICITATION OF PROXIES
All CEI Common Shares represented by properly executed proxies received in
time for the CEI Meeting will be voted at the CEI Meeting in the manner
specified by the holders thereof, unless such proxies have been revoked prior to
the vote. Proxies which do not contain voting instructions will be voted for
approval of the amendment of the Articles of Incorporation and for the issuance
of the common and preferred shares.
It is not expected that any matters other than those referred to herein
will be brought before the CEI Meeting. If, however, other matters are properly
presented, the persons named as proxyholders will vote in accordance with their
judgment with respect to such matters. In the event that CEI management desires
to adjourn the CEI Meeting in order to solicit additional votes in favor of the
two proposals relating to the Merger, the persons named in the CEI proxy card
shall not be permitted to use the discretionary authority granted by such proxy
card to vote in favor of any such adjournment any CEI shares which were voted
against such proposals.
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A shareholder who executes and returns a proxy on the enclosed form has the
power to revoke it at any time before it is voted. The giving of a proxy does
not affect the right of shareholders to attend the CEI Meeting and vote in
person. A shareholder's presence at the CEI Meeting, however, will not in itself
revoke the shareholder's proxy. A shareholder may revoke a proxy at any time
prior to its exercise by filing with the Secretary of CEI at or before the CEI
Meeting, a duly executed revocation or a proxy bearing a later date. Neither
attendance at the CEI Meeting nor voting in person at the CEI Meeting will in
itself constitute revocation of a proxy.
CEI will bear the cost of soliciting proxies from its shareholders.
Arrangements will be made with brokerage houses and other custodians, nominees
and fiduciaries for the forwarding of solicitation material to the beneficial
owners of stock held of record by such persons, and CEI will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
incurred in connection therewith. Proxies may also be solicited by directors,
officers and employees of CEI. Such directors, officers and employees will not
be specially compensated for such services, but may be reimbursed for reasonable
out-of-pocket expenses incurred in connection therewith.
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THE MERGER
The information contained in this Joint Proxy Statement/Prospectus
regarding the Merger is not intended to be a complete description of all facts
regarding the Merger and is qualified in all respects by reference to the Merger
Agreement attached to this Joint Proxy Statement/Prospectus as Appendix A and
incorporated herein by reference. Shareholders of BVT are urged to read
carefully the Merger Agreement. For a summary description of the Merger, see
"SUMMARY--The Merger."
BACKGROUND OF THE MERGER
BVT
BVT is an independent local exchange carrier ("LEC") founded in 1904 which
provides local telephone service to Union and Northumberland Counties in central
Pennsylvania. BVT is one of approximately 1,300 LECs (or "telcos") in the United
States unaffiliated with the seven Regional Bell Operating Companies ("RBOCs").
As of September 30, 1995, BVT had 17,641 access lines, making BVT the fourth
largest of the 23 independent telephone companies in Pennsylvania not affiliated
with an RBOC or another national or regional telephone holding company.
BVT Common Shares are not listed on the Nasdaq National Market, the Nasdaq
Small-Cap Market or any stock exchange, and BVT is not subject to the reporting
requirements of the Exchange Act. There is no market maker holding an inventory
position in BVT Common Shares, and the trading market for BVT Common Shares is
extremely thin.
Historically, BVT, like other LECs, has operated as a regulated monopoly in
its telephone franchise area. As such, it has been free of competition in
offering local and network access telephone service to its franchise customers.
BVT's primary regulators, the PaPUC and the FCC, permit BVT to earn a reasonable
rate of return on its rate base. Despite its low basic service rates, BVT's lean
management organization and comparatively densely populated franchise area have
historically permitted BVT to achieve margins and profitability that compare
favorably to its peer group of independent LECs.
Industry Overview
In recent years, the telecommunications industry has been experiencing
rapid and fundamental changes. These changes have resulted from three long-term
telecommunications industry trends: (i) rapid advancements in telecommunications
technology; (ii) increasing demand for telecommunications services; and (iii)
increased competition.
Technological advancements in transmission capacity, including advancements
in switching equipment, the development of digital systems, the development of
fiber-optic cable, the advent of wireless technology such as cellular and now
PCS, and even the ability to enhance the capacity of basic twisted copper wire,
have greatly increased the speed and delivery capability of the
telecommunications infrastructure. Technological developments in equipment and
systems, including the advent of mobile telephones, computers, network software
technologies, FAX, and the Internet with its world-wide computer web, have all
greatly increased the demand for telecommunications services. These changes are
also blurring the divisions which formerly separated the computer, video,
telephone, and cable television industries.
The combination of advances in transmission and equipment technology will
soon make possible the offering of a wide range of new, interactive broadband
telecommunication services, including interactive video, which may further
enhance the demand for telecommunications services. All of these changes create
the opportunity for existing and new services to be delivered by a number of
different service providers. These changes provide growth opportunities to LECs,
so long as they have sufficient size and capital to make the necessary capital
investments and so long as they can successfully operate in new markets that
differ from traditional regulated telco operations.
Deregulation and competition are a principal focus of the
telecommunications industry both at the Federal and state levels. The LECs will
be under pressure to give competitors access to their local loops and switching
centers. This could divert revenue from the LECs. However, the LECs will still
own their local loops and switches, and the time and cost of building
competitive systems will be substantial. The LECs will have the right to charge
competitive amounts for such access, and such charges should reflect the cost
for their competitors to build competitive systems.
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Although the shape of future telecommunications industry regulation cannot
be predicted, it is likely that the incremental progress of deregulation will
continue to open new markets to service providers. As an example, in recent
years, competitive access providers ("CAPs") and system bypass offered by long
distance (interexchange or "IXC") carriers, have emerged to offer alternative
access for the origination and termination of long distance calls based on the
local loop. These alternative access providers represent a competitive inroad
into a significant source of LEC revenue--network access charges.
The combination of technological innovation, increased demand and
competition is greatly altering the telecommunications industry. Without a
doubt, the LECs will likely be faced with increasing challenges to their
historical revenue base. LECs will also have a variety of investment options in
a changing technological, competitive and regulatory environment. These
investment options offer the opportunity to take advantage of the increasing
demand for telecommunications services.
BVT Strategic Options
In response to the challenges and opportunities presented by these changing
business and industry conditions, in February 1994, BVT engaged Snyder & Co. to
perform a valuation of BVT and to study BVT's two main strategic options--a sale
of the company or remaining independent. In May 1994, Snyder & Co. reported its
conclusions to the BVT Board.
With respect to the strategic option of remaining independent, Snyder & Co.
indicated that:
. Margins and profitability of BVT's traditional LEC services will
be under pressure due to increased competition from interexchange
carriers, competitive access providers and wireless operators. In
order to enhance shareholder value in the future, access line
growth and revenue growth would have to more than offset any loss
of income from lower margins and loss of business from new
competitors.
. Because of its rural location and widely dispersed revenue base,
however, Snyder & Co. indicated that historical margins on BVT's
traditional telco operations might continue for a longer period
of time than for LECs which were closer to urban areas or which
had a large number of sizeable business accounts attractive to
system bypass competitors.
. Shareholder value in the future could be eroded if competitive,
technological and regulatory developments cause the equity
markets and potential purchasers to revise downward the pricing
benchmarks and formulas presently used to determine the value of
local telco franchises.
. Remaining independent in the current uncertain telecommunications
environment would require BVT to more aggressively manage and
invest in its business in order to exploit new revenue
opportunities and minimize potential customer attrition in the
future.
. BVT has excess cash on hand, unused borrowing capacity and cash
flow in excess of current capital expenditure requirements. BVT,
therefore, has financial resources which it could use to respond
to telecommunications industry trends by diversifying outside of
its LEC franchise into businesses such as cable television and
cellular communications or by adding new services within its
franchise area such as PCS or video on demand.
. BVT's management has limited experience outside of traditional
LEC operations. Entry into new businesses and services would
require the addition of new managers with strong backgrounds in
marketing, business and diversified telecommunications.
. Investments in new businesses and services would involve a higher
degree of risk than BVT's traditional telephone company
operations.
With respect to the strategic option of selling the company, Snyder & Co.
indicated that:
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. If BVT were sold, shareholders would forego any possible
appreciation in BVT shares above the sale price.
. A sale would limit the risks of the uncertain telecommunications
environment. These risks include (i) the potential impact on
margins and profitability from competitive inroads into BVT's LEC
franchise; (ii) the risks associated with BVT attempting to
invest and successfully compete in new areas of business; and
(iii) the possibility that cable providers rather than telcos
will establish the broadband connection or "drop" to customers,
thereby making cable the preferred means to develop the
"information superhighway" and deliver the next generation of
telecommunications services.
. A sale would provide increased liquidity to shareholders and
offer an opportunity for BVT shareholders to diversify outside of
their current investment in telco operations.
. Based upon analysis of other telephone industry acquisitions,
Snyder & Co. believed that a number of telephone companies would
be willing to make bids to acquire BVT. Snyder & Co. estimated
that the most likely price range for such bids would be between
$45 and $55 per BVT Common Share.
In summary, Snyder & Co. concluded that both options were viable
strategies. A sale of BVT, however, involved lower risk and fewer uncertainties
than remaining independent.
After considering the conclusions contained in Snyder & Co.'s report, the
BVT Board decided to ascertain the purchase prices that potential purchasers
would be willing to pay to acquire BVT. In October 1994, the BVT Board retained
Snyder & Co. to act as BVT's financial adviser to assist in exploring a possible
sale of BVT.
MERGER NEGOTIATIONS
During November and December 1994, Snyder & Co. made contact with fourteen
telephone holding companies regarding a potential sale of BVT. Each potential
acquiror was provided financial and other business information regarding BVT and
its operations. Eight of the fourteen potential acquirors made acquisition
proposals.
In December 1994, the BVT Board met to consider the acquisition proposals
which had been made. Snyder & Co. and BVT's legal counsel were present at this
meeting. At this meeting, Snyder & Co. reviewed with the BVT Board the specific
details of the proposals which had been made, as well as general information on
each of the potential acquirors. BVT's legal counsel discussed with the BVT
Board their legal duties and obligations in considering whether or not the
company should be sold, as well as the factors that the directors were entitled
to consider in reviewing one or more acquisition proposals.
The value (as estimated by Snyder & Co.) of the eight proposals ranged from
a low of approximately $30 per BVT Common Share to a high of $58 (all in cash)
per BVT Common Share. Four proposals were valued between $40 and $50 per share
and two proposals were valued between $50 and $55 per share. The types of
consideration offered in the proposals included cash, common stock, preferred
stock, debt securities and combinations of the foregoing.
After a discussion of each of the proposals, the BVT Board authorized
Snyder & Co. to negotiate further with each of the eight bidders. The BVT Board
did not determine at the December meeting whether or not the company should be
sold.
In late December 1994, Snyder & Co. again contacted each of the eight
bidders. Four of the bidders submitted revised proposals. In some cases the
amount of consideration to be paid was increased, while in other instances the
type of the consideration to be paid was modified.
In early January 1995, Snyder & Co. and BVT's legal counsel met with
representatives of CEI and C-TEC Corporation ("C-TEC") to more specifically
negotiate the terms of their proposals. The BVT Board was apprised of the
progress of these discussions at its January 18 meeting. Discussions with these
two bidders continued into February.
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At a February 8 special meeting, the BVT Board met with representatives of
CEI and C-TEC. Snyder & Co. and BVT's legal counsel were present at this
meeting. C-TEC and CEI made presentations to the BVT Board regarding the terms
of their proposal and their plans for BVT should it be acquired. After
discussion of the proposals, the BVT Board voted to accept the proposal from
CEI. The consideration to be paid in this proposal was, at the election of BVT
shareholders, either approximately $59.50 in cash or shares of common stock
having a value (as estimated by Snyder & Co.) of approximately $47.50, with at
least 50% of the aggregate consideration being paid in the form of stock.
Shortly after the February 8 meeting, however, C-TEC indicated that it was
willing to improve its proposal. CEI was informed and no letter of intent was
signed.
The BVT Board next met on February 16. Snyder & Co. and BVT's legal counsel
were present at this meeting. At this meeting, the BVT Board considered revised
proposals from CEI and C-TEC. After discussion of the revised proposals, the BVT
Board voted to accept a proposal from C-TEC. The consideration to be paid in the
C-TEC proposal was, at the election of BVT shareholders, either $61 in cash or
shares of convertible preferred stock having a value (as estimated by Snyder &
Co.) of approximately $54.25, with at least 50% of the aggregate consideration
paid in the form of stock. Although a letter of intent regarding this proposal
was executed by C-TEC and BVT, no press release was made because shortly after
the February 16 meeting, CEI indicated that it intended to make another revised
proposal. C-TEC was informed of this development.
The BVT Board next met on February 22. Snyder & Co. and BVT's legal counsel
were present at this meeting. At this meeting, the BVT Board again considered
proposals from each of the two bidders, each of which proposals had been revised
since February 16. After discussion, the BVT Board voted to accept a proposal
from C-TEC. The terms of the C-TEC proposal were similar to the transaction
terms approved at the February 16 meeting, except that changes in the preferred
stock redemption and conversion features raised the value (in Snyder & Co.'s
estimate) of the proposed preferred stock offered by C-TEC to approximately $61.
Another letter of intent was executed and C-TEC issued a press release regarding
the proposed transaction.
C-TEC thereafter commenced an extensive due diligence review of BVT. At the
same time, counsel for BVT and C-TEC commenced preparation and negotiation of
the definitive documentation for the proposed transaction. Due diligence and
negotiation continued throughout March and April. The February 22 letter of
intent with C-TEC expired and was terminated by BVT on April 7. Thereafter, BVT
had discussions with other potential acquirors. C-TEC and BVT, however, re-
commenced negotiations on or about April 18, 1995.
On April 20, the BVT Board approved the terms of a proposed transaction
with C-TEC. On May 10, 1995, C-TEC and BVT entered into a definitive merger
agreement.
Thereafter, C-TEC and BVT prepared the various regulatory filings and took
other actions necessary to complete the C-TEC transaction. A BVT proxy statement
was mailed to BVT shareholders in September and a special shareholders meeting
for the purpose of acting upon the C-TEC acquisition proposal was scheduled for
October 28, 1995.
In early October 1995, CEI contacted BVT and indicated that it was willing
to make another acquisition proposal to BVT. C-TEC was informed of this
development. Discussions between BVT and CEI commenced, and legal counsel
prepared definitive documentation for a new CEI proposal, which in form were
substantially similar to the documents relating to the C-TEC transaction.
On October 12, the CEI Board met to consider the terms of its acquisition
proposal for BVT. CEI's legal counsel was present at this meeting. Prior to this
meeting JSI delivered its written opinion that the consideration proposed to be
paid by CEI in the transaction was fair, from a financial point of view, to the
shareholders of CEI. See "THE MERGER--Opinion of CEI Financial Advisor." The CEI
Board approved the terms of the proposed transaction and authorized CEI to enter
into a definitive merger agreement with BVT.
On October 16, the BVT Board met with its legal counsel and financial
advisor to review the terms of CEI's new acquisition proposal. The business
terms of CEI's proposal were quite similar to C-TEC's, except that (i) CEI
offered $65 cash, as compared to $61 cash from C-TEC; (ii) the CEI Series A
Preferred Shares had a stated par value of $65 (as compared to $61 for the C-TEC
preferred stock) and an annual dividend of $3.42 (as compared to $3.20 from C-
TEC); (iii) the CEI Series A Preferred Shares could not be
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<PAGE>
called until four years after issue (compared to two years for the C-TEC
preferred stock), but could not be "put" until two years after issue (compared
to one year for the C-TEC preferred stock); (iv) CEI offered an option for BVT
shareholders to receive common stock (the C-TEC transaction did not include a
common stock feature); (v) the amount of CEI stock to be issued in the
transaction was not limited so that any BVT shareholder who elected to receive
CEI preferred or common stock would be assured of receiving the type of
consideration requested (C-TEC limited its stock to approximately 50% of the
total transaction consideration); and (vi) CEI increased the employment
guarantee for BVT employees from two to three years.
At the October 16 meeting Snyder & Co. orally presented its opinion that
the consideration to be received by shareholders in the Merger was fair, from a
financial point of view, to the shareholders of BVT. See "THE MERGER--Opinion of
BVT Financial Advisor." The BVT Board approved the terms of the proposed
transaction and authorized BVT to enter into a definitive merger agreement with
CEI. On October 18, 1995 BVT terminated its merger agreement with C-TEC; the
Merger Agreement was thereafter executed and a press release was issued
announcing that CEI and BVT had entered into the Merger Agreement. BVT
subsequently paid C-TEC a break-up fee under the C-TEC merger agreement of
$300,000.
BVT'S REASONS FOR THE MERGER; RECOMMENDATION OF THE BVT BOARD OF DIRECTORS
The BVT Board believes that the Merger will benefit BVT, its shareholders
and its employees for the reasons discussed below. The BVT Board believes that
the proposed transaction with CEI offers BVT's shareholders very favorable value
for their BVT shares, a substantial improvement in the dividend income and
liquidity of their investment, and significant flexibility for BVT shareholders
to select the tax and investment strategy that suits their individual situation.
As structured, the Merger will enable some holders of BVT Common Shares to
immediately receive cash for their shares. Other shareholders will be able to
acquire preferred or common stock on a tax-free basis, with the preferred stock
being convertible into the publicly-traded common stock of a larger, more
diversified company that the BVT Board believes is better positioned to compete
in a rapidly changing telecommunications industry. The BVT Board has concluded,
in view of the foregoing and the factors set forth below, that the Merger is in
the best interests of BVT and its shareholders and hereby recommends approval of
the Merger by BVT's shareholders.
In reaching its determinations and recommendations above, the BVT Board
considered a number of factors, including, without limitation, the following
material factors:
. The BVT Board's belief that, based on its familiarity with BVT's
business, financial condition, earnings and prospects, as well as
the current conditions in the telecommunications industry, the
terms of the Merger Agreement are attractive to BVT shareholders.
. The BVT Board's consideration of the investment attributes of the
CEI Series A Preferred Shares. As positive factors, the BVT Board
noted that (i) the $3.42 annual dividend on the CEI Series A
Preferred Shares represents a substantial increase over the
current annual dividend rate for BVT Common Shares of $1.80, (ii)
the ability of the holder to "put" the CEI Series A Preferred
Shares to CEI at $65 per share beginning two years after issuance
would provide significant liquidity and downside protection to
those BVT shareholders receiving Preferred Stock Merger
Consideration, and (iii) the conversion feature of the CEI Series
A Preferred Shares would provide BVT shareholders an opportunity
to participate in potential common stock appreciation of a
telecommunications company which is larger and more diversified
than BVT. As a negative factor, the BVT Board noted that CEI has
the ability to "call" the CEI Series A Preferred Shares beginning
four years after issuance.
. The BVT Board's consideration of the investment attributes of CEI
Common Shares. The BVT Board noted that the Market Value (as
defined in the Merger Agreement) at the time of closing of the
CEI Common Shares to be received for each BVT Common Share would
range from $58.80 to $72.00. The BVT Board also noted that the
current $2.88 annual dividend rate on the 2.4 CEI Common
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<PAGE>
Shares that would be received in exchange for each BVT Common
Share was a substantial increase over the $1.80 current dividend
rate on a BVT Common Share. The BVT Board noted that while
trading in CEI Common Shares is thin, CEI Common Shares are
listed on NASDAQ and are more actively traded than BVT Common
Shares. As a negative factor, the BVT Board noted that the Merger
could cause dilution to CEI's reported earnings per share for
several years.
. The opinion of Snyder & Co. that the consideration to be received
by the shareholders of BVT in the Merger was fair to such
shareholders from a financial point of view. The written opinion
of Snyder & Co. is reproduced in full as Appendix B hereto and
BVT's shareholders are urged to read the opinion carefully in its
entirety. See "THE MERGER--Opinion of BVT Financial Advisor."
. The BVT Board's extensive review of possible merger partners for
BVT other than CEI, as well as the BVT Board's review of the
acquisition prices proposed by other possible acquirors. Based
upon Snyder & Co.'s efforts in soliciting offers from possible
purchasers of BVT as described above, the BVT Board did not
believe that it was likely that attractive offers from additional
potential acquirors would materialize.
. The BVT Board concluded that the terms of the Merger were
financially superior to all other acquisition proposals that were
submitted to BVT, including the proposed transaction with C-TEC.
. The BVT Board considered the fact that, except for C-TEC as
described above, the prices offered by the potential acquirors
contacted by Snyder & Co. were significantly lower than the $65
per share price offered by CEI. The BVT Board also noted that the
price offered by CEI exceeded the top of the $45-55 likely bid
range estimated by Snyder & Co. in its May 1994 report.
. Although it is difficult to determine a reliable market price for
BVT Common Shares because they are so thinly traded, the BVT
Board noted that the $65 per share price offered by CEI was a
substantial premium over the $40 to $50 range at which BVT shares
had traded during 1994.
. The BVT Board's belief that the terms of the Merger Agreement
provide a significant increase in the liquidity of the investment
of BVT's shareholders. This increased liquidity results from (i)
up to half of the merger consideration being in the form of cash;
(ii) the CEI Series A Preferred Shares being redeemable at the
option of the holder beginning two years after issuance; and
(iii) the CEI Common Shares issuable in the Merger or that would
be received upon conversion of the CEI Series A Preferred Shares
being traded on the Nasdaq Small Cap Market.
. The fact that the Merger was structured to qualify as a tax free
exchange. The BVT Board noted that the holders of BVT Common
Shares would be able to receive CEI Series A Preferred Shares or
CEI Common Shares in the Merger on a tax-advantaged basis, and
that holders could subsequently convert CEI Series A Preferred
Shares into CEI Common Shares without incurring federal income
tax liability.
. The BVT Board's review of its strategic option of remaining
independent. The BVT Board concluded that BVT would be at a
competitive disadvantage as a small independent LEC attempting to
enter new businesses to compete in a rapidly changing
telecommunications industry. The BVT Board believes that an
affiliation with CEI will give BVT access to increased financial,
technological and managerial resources that will become
increasingly important in a changing competitive, regulatory and
technological environment.
. The BVT Board considered the fact that if BVT remained
independent for a period of time and was then sold at some point
in the future, future developments in the
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<PAGE>
presently uncertain telecommunications industry could result in a
sale price below the $65 per share price offered by CEI.
. The BVT Board considered CEI's willingness in the Merger
Agreement to guarantee the continued employment and benefits of
all BVT employees for three years following the Merger. The BVT
Board noted that because BVT would become a stronger competitor,
employment opportunities with BVT (or with other CEI affiliated
companies) for many of BVT's current employees should continue to
be available following the expiration of such three-year period.
The BVT Board did not assign any specific or relative weights to the
factors under its consideration.
FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS OF BVT BELIEVES THAT THE
MERGER IS IN THE BEST INTERESTS OF BVT SHAREHOLDERS, HAS APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT THE BVT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
MERGER AGREEMENT.
OPINION OF BVT FINANCIAL ADVISOR
BVT retained Snyder & Co. to act as its financial advisor in connection
with a potential sale of BVT and to investigate the proposed consideration
offered by CEI and provide an opinion as to the fairness, from a financial point
of view, to the BVT shareholders of the consideration to be paid in the Merger.
Snyder & Co. was selected to act as BVT's financial advisor based upon its
qualifications, expertise and reputation. Snyder & Co., as a customary part of
its investment banking business, is engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, private placements
and valuations for estate, corporate and other purposes.
On October 16, 1995, Snyder & Co. delivered its oral opinion to the BVT
Board that, based upon and subject to the considerations set forth therein, as
of such date the consideration to be received by the shareholders of BVT
pursuant to the Merger Agreement was fair from a financial point of view. This
opinion (the "Snyder & Co. Opinion") was confirmed in writing and updated as of
the date of this Joint Proxy Statement/Prospectus. The Snyder & Co. Opinion was
based upon economic, market and other conditions in effect as of the date of the
Snyder & Co. Opinion. No limitations were imposed by the BVT Board upon Snyder &
Co. with respect to the investigations made or procedures followed by them in
rendering the Snyder & Co. Opinion. The Snyder & Co. Opinion, which sets forth
assumptions made, material reviewed, matters considered and limits on the
review, is attached hereto as Appendix B to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference.
The following is a summary of the Snyder & Co. Opinion which is attached
hereto as Appendix B; however, BVT shareholders are urged to read the Snyder &
Co. Opinion in its entirety. Snyder & Co. has consented to the inclusion of its
opinion in this Joint Proxy Statement/Prospectus and has reviewed the following
summary of its opinion.
The consideration to be paid by CEI in the Merger was determined following
extensive negotiations between the management of CEI and BVT, and was approved
by the BVT Board. Snyder & Co. advised BVT with respect to the potential form
and amount of consideration that was proposed to be paid in the Merger and also
advised BVT with respect to the relative merits, from a financial point of view,
of the various proposals made by the potential acquirors of BVT. Snyder & Co.
played a significant role in the negotiation of the terms of the Merger
Agreement and the terms of the CEI Series A Preferred Shares.
In rendering the Snyder & Co. Opinion, Snyder & Co. (i) reviewed the Merger
Agreement, (ii) reviewed the terms of the CEI Series A Preferred Shares to be
issued by CEI in the Merger, (iii) reviewed certain other documents related to
the Merger, including this Joint Proxy Statement/Prospectus, (iv) reviewed
certain publicly available financial information concerning CEI and BVT and
certain other relevant financial and operating data of BVT made available from
internal records of BVT, (v) held discussions with BVT management concerning
BVT's current and future business prospects, (vi) held discussions with CEI
management concerning CEI's current and future business prospects, (vii)
reviewed the reported price and trading activity available for BVT Common Shares
and for the shares of CEI Common Stock which would be issuable upon conversion
of the CEI Series A Preferred Shares, (viii) compared certain financial and
stock market information for CEI and BVT, respectively, with similar information
for certain comparable companies whose securities are publicly traded, (ix)
compared the financial terms of the Merger Agreement
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<PAGE>
with those of certain recent business combinations in the telecommunications
industry which were deemed comparable in whole or in part, and (x) performed
such other studies and analyses and considered such other factors as Snyder &
Co. deemed appropriate.
Snyder & Co. relied upon, without independent verification, the accuracy
and completeness of all of the financial and other information reviewed by and
discussed with it for purposes of the Snyder & Co. Opinion. With respect to
information relating to the prospects of CEI and BVT and the underlying
assumptions, Snyder & Co. assumed that such information was reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
managements of CEI and BVT, respectively, as to the likely future financial
performance of CEI and BVT, and that such information provided a reasonable
basis upon which Snyder & Co. could form its opinion. Snyder & Co. did not make
independent evaluations or appraisals of the assets or liabilities of BVT or
CEI, nor was it furnished with any such appraisals. For purposes of its opinion,
Snyder & Co. assumed that the Merger would constitute a tax-free reorganization
under Section 368 of the Internal Revenue Code.
The summary set forth below does not purport to be a complete description
of the analyses performed by Snyder & Co. in this regard. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Accordingly, notwithstanding the separate
factors discussed below, Snyder & Co. believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying the Snyder & Co.
Opinion. No one of the analyses performed by Snyder & Co. was assigned a greater
significance than any other. In performing its analyses, Snyder & Co. made
numerous assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond BVT's or CEI's control.
The analyses performed by Snyder & Co. are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold. The following paragraphs summarize all material
analyses performed by Snyder & Co.
Selected Comparable Company Analysis. In connection with the preparation
------------------------------------
of its May 1994 report to the BVT Board, using public information, Snyder & Co.
compared selected historical financial, operating and stock market performance
data of BVT to the corresponding data of seventeen publicly traded telephone
companies - the seven RBOCs and ten large non-RBOC telephone holding companies
(not including CEI). Snyder & Co. analyzed the following valuation multiples for
each of the comparable companies: price to earnings (P/E) ratio; dividend yield;
price to book value; aggregate value (market value of common stock plus net debt
and preferred stock) to EBITDA (earnings before interest, taxes, depreciation
and amortization); aggregate value to revenues; aggregate value to telephone
access lines. In this analysis, Snyder & Co. gave greater weight to the
aggregate value to EBITDA multiple since this approach, unlike the P/E ratio,
adjusts to reflect the impact of cellular and cable operations, as well as the
amount of leverage (if any), on financial performance.
Because of the inherent differences between the operations of BVT and the
selected comparable companies, Snyder & Co. believed that an appropriate use of
comparable company analysis in this instance would involve qualitative judgments
concerning differences between the financial and operating characteristics which
would affect the public trading values of the selected companies and BVT. For
example, Snyder & Co. noted that eight of the comparable companies derived less
than 80% of revenues from telco operations, and that cable television and
cellular operations tended to be valued differently from telco operations.
Based upon its review of the comparable companies, after elimination of
those companies for which data was not relevant, in its May 1994 report Snyder &
Co. derived the following ranges for the most material valuation multiples:
COMPARABLE COMPANY VALUATION MULTIPLES
--------------------------------------
<TABLE>
<CAPTION>
Low High Average Median
--- ---- ------- ------
<S> <C> <C> <C> <C>
P/E Ratio.................... 13.7 18.4 16.4 16.1/16.9
Price/Book Value............. 1.5 3.3 2.5 2.6/2.8
Aggregate Value/EBITDA
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
1993 EBITDA.................. 5.4 8.1 6.7 6.6
Estimated 1994 EBITDA........ 4.6 7.4 5.8 5.6
Aggregate Value/Access Line.... $1,510 $2,395 $1,831 $1,810
</TABLE>
In comparing BVT with the comparable publicly-traded companies, Snyder &
Co. concluded that a reasonable value range for a BVT Common Share (before
applying a discount for the illiquidity of BVT Common Shares) was $45.00 to
$47.50. After applying a discount for illiquidity, Snyder & Co. determined that
the value range for a BVT Common Share was between $40.50 and $42.75. The table
below sets forth the valuation multiples implied by a BVT stock price of $45.00
and $47.50, as well as the multiples implied by the $65 valuation implied by the
terms of the Merger:
<TABLE>
<CAPTION>
VALUATION MULTIPLES AT A BVT
STOCK PRICE OF:
---------------------
<S> <C> <C> <C>
$45.00 $47.50 $65.00(1)
------ ------ ------
P/E Ratio.................... 16.4 17.3 20.6
Price/Book Value............. 2.2 2.3 3.0
Aggregate Value/EBITDA
1993 EBITDA............... 6.3 6.6 --
Estimated 1994 EBITDA..... 6.2 6.6 8.7
Aggregate Value/Access Line.. $2,283 $2,417 $3,236
</TABLE>
__________________
(1) Valuation multiples at the $65 per share price are based upon actual BVT
operating results for the year ended December 31, 1994 and the actual BVT
balance sheet at December 31, 1994. Other data in the table is based upon
operating results and the balance sheet for the year ended December 31,
1993.
Selected Comparable Transaction Analysis. In connection with the
----------------------------------------
preparation of its May 1994 report to the BVT Board, using public information,
Snyder & Co. analyzed the prices paid in 28 known acquisitions of telephone
companies since the beginning of 1992. No company or transaction was identical
to BVT, CEI or the Merger. Accordingly, an analysis of the results of this
review is not mathematical. Indeed, it involves complex judgments concerning
differences among the operations of the companies involved and other factors
affecting the public trading prices of the companies which are being compared.
The amount of information available with respect to these transactions varied
widely. In addition, the acquisition pricing of many of these transactions was
deemed by Snyder & Co. not to be relevant to the BVT transaction because of the
size, geographical location or business operations of the acquired telephone
company. Two telco acquisitions were deemed to be most relevant for Snyder &
Co.'s analysis because the acquired companies were of a comparable size to BVT
and there was sufficient information on the acquisition pricing, transaction
structure and the acquired company's financial statements to analyze the
comparative valuation multiples implied by these transactions. These
transactions were the 1992 acquisition of Central Telephone of Ohio by Century
Telephone and the 1992 acquisition of Statesboro Telephone in Georgia by
Rochester Telephone.
Based upon its analysis of these two transactions, Snyder & Co. derived the
following ranges for the most material valuation multiples:
<TABLE>
<CAPTION>
CONTROL PREMIUM VALUATIONS
--------------------------
Central Statesboro
------- ----------
<S> <C> <C>
Price/book value................. 4.1 4.1
Aggregate value/1991 EBITDA...... 8.2 10.8
Aggregate value/access line...... $2,075 $2,688
</TABLE>
<PAGE>
MINORITY INTEREST VALUATION RANGES
----------------------------------
<TABLE>
<CAPTION>
Central Statesboro
------- ----------
<S> <C> <C>
Price/book value
High............................... 3.5 3.4
Low................................ 3.1 3.0
Aggregate value/1991 EBITDA
High............................... 7.1 9.0
Low................................ 6.4 8.3
Aggregate value/access line
High............................... $1,797 $2,240
Low................................ $1,612 $1,991
</TABLE>
The values in the first table above reflect a control premium paid for
acquiring controlling ownership of the acquired company. Because publicly traded
stocks reflect minority rather than control ownership, the second table reflects
high and low valuation multiples implied by these transactions discounted for a
control premium of 20% and 35%. From the foregoing multiples, Snyder & Co.
concluded that the comparable transaction analysis implied a range of values per
BVT Common Share (after discount for illiquidity) of $36.50 to $51.50. Snyder &
Co. noted that the $65 valuation implied by the Merger compared favorably with
this value range. Snyder & Co. also noted that the $3,236 per access line
valuation of BVT implied by the Merger exceeded the per access line valuations
of both the Central and Statesboro transactions.
Analysis of Other Acquisition Proposals. In its May 1994 report, Snyder &
---------------------------------------
Co. advised BVT that it believed that a number of telecommunications companies
would be interested in acquiring BVT and the likely price range would be between
$45 and $55 per BVT Common Share based upon its analysis of other recent telco
acquisitions and a comparative analysis of the publicly-traded securities of
selected telecommunication companies. Further, it advised BVT that the best
method to determine BVT's fair market value was to solicit in an organized
manner a significant number of potential purchasers which Snyder & Co. believed
would be interested in making an offer to acquire BVT. As described above,
Snyder & Co. contacted a substantial number of telecommunications companies
regarding a potential acquisition of BVT. Snyder & Co. concluded that CEI's
proposal as reflected in the Merger Agreement was financially superior to all
other acquisition proposals that were submitted to BVT. Snyder & Co. also noted
that the prices offered by potential acquirors other than CEI and C-TEC were
significantly lower than $65 per share.
BVT Stock Trading Analysis. Snyder & Co. analyzed the stock trading
--------------------------
history of BVT Common Shares from the beginning of 1992 through the beginning of
1995. Snyder & Co. indicated that, because trading in BVT Common Shares is
extremely thin, it is difficult to develop a meaningful valuation range based on
such trading history. Snyder & Co., however, indicated that such trading history
indicated a broad range per BVT Common Share of between $40 and $50 per share.
Snyder & Co. also indicated that the more recent trading prices may have
reflected speculation regarding a potential sale of BVT.
From the foregoing analyses, Snyder & Co. determined that the consideration
to be received in the Merger was fair to the shareholders of BVT from a
financial point of view. Snyder & Co. also determined that its conclusion as to
the fairness of the merger consideration was supported by each of the valuation
methods utilized.
Pursuant to the terms of an engagement letter dated October 6, 1994, BVT
has agreed to pay Snyder & Co. a retainer of $5,000 per month for acting as
financial advisor in connection with the Merger (including rendering its
opinions). In addition, BVT has agreed to pay Snyder & Co. an aggregate fee
(including retainer amounts already paid) of approximately $690,000 to be paid
at and contingent upon the consummation of the Merger. Whether or not the Merger
is consummated, BVT also has agreed to indemnify Snyder & Co. and certain
related persons against certain liabilities relating to or arising out of its
engagement.
SNYDER & CO.'S OPINION IS DIRECTED ONLY TO THE CONSIDERATION TO BE PAID IN
THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY BVT SHAREHOLDER AS TO
HOW SUCH SHAREHOLDER SHOULD VOTE AT THE BVT MEETING.
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<PAGE>
CEI'S REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
The CEI Board believes that the Merger will benefit CEI, its shareholders
and employees and will also benefit the BVT shareholders who take CEI Common
Shares and CEI Series A Preferred Shares in the Merger. CEI's strategic long
range plan includes growth through acquisitions and participation in the
expansion of the communications industry and the developing technologies
available thereto. The CEI Board believes that the Merger offers CEI the
opportunity to make a strategic acquisition that, by increasing the access lines
of CEI and BVT to an amount in excess of 67,000 lines, will greatly increase the
capacity of CEI to compete in a competitive market and consequently increase the
value of the CEI shares. The CEI Board has concluded, in view of the foregoing
and the factors set forth below, that the Merger is in the best interests of CEI
and its shareholders and hereby recommends that the CEI shareholders approve the
authorization of the CEI Series A Preferred Shares and the issuance of CEI
Common Shares and CEI Series A Preferred Shares in the Merger. In reaching its
determinations and recommendations above, the CEI Board considered a number of
factors, including, without limitation, the following material factors:
. The CEI Board's belief, based on its familiarity with the business of
CEI and BVT, and the combined financial conditions, earnings and
prospects of the two companies, as well as the current conditions in
the telecommunications industry, that the terms of the Merger
Agreement are attractive to CEI shareholders.
. The CEI Board's belief that the increase in access lines to an amount
in excess of 67,000 will enable CEI and BVT in combination better to
take advantage of many of the opportunities currently available in the
telecommunications industry, such as becoming a PCS provider,
provision of Internet access, providing access to ISDN and broadband
service to their subscribers, and eventually providing video, while at
the same time achieving cost savings due to economies of scale.
. The CEI Board's belief that BVT's physical plant is well maintained
and highly compatible with CEI's, and that the combining of the two
companies will be more efficient operationally.
. The CEI Board's confidence in, and respect for, the talented employees
of BVT who will be able to make a major contribution to CEI's future
growth and economic well-being.
. The opinion of JSI Financial Services that as of the date of such
opinion (October 12, 1995), the consideration to be paid pursuant to
the Merger was fair, from a financial point of view, to the
shareholders of CEI. The written opinion of JSI Financial Services is
reproduced in full as Appendix C hereto, and CEI's shareholders are
urged to read the opinion carefully in its entirety. See "THE MERGER--
Opinion of CEI Financial Advisor."
The CEI Board did not assign any specific or relative weights to the factors
under its consideration.
FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS OF CEI BELIEVES THAT THE
MERGER IS IN THE BEST INTERESTS OF CEI SHAREHOLDERS; HAS ENTERED INTO THE MERGER
AGREEMENT; HAS APPROVED THE AMENDMENT OF CEI'S ARTICLES OF INCORPORATION TO
AUTHORIZE THE CEI SERIES A PREFERRED SHARES; HAS APPROVED THE ISSUANCE OF CEI
COMMON SHARES AND CEI SERIES A PREFERRED SHARES TO THE BVT SHAREHOLDERS IN THE
MERGER; AND RECOMMENDS THAT THE CEI SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
AUTHORIZATION OF THE CEI SERIES A PREFERRED SHARES AND "FOR" THE ISSUANCE OF CEI
COMMON SHARES AND CEI SERIES A PREFERRED SHARES TO BVT SHAREHOLDERS IN THE
MERGER.
OPINION OF CEI FINANCIAL ADVISOR
CEI retained JSI Financial Services to act as its financial advisor in
connection with a potential purchase of BVT and to consider the proposed
consideration offered by CEI and provide an opinion as to the fairness, from a
financial point of view, to the CEI shareholders of the consideration to be paid
in the Merger. JSI Financial Services was selected to act as CEI's financial
advisor based upon its qualifications, expertise and reputation as an advisor to
firms engaged in the telecommunications industry.
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JSI Financial Services provides business and financial intermediation,
valuation, strategic and business planning, and syndication services to clients
in the telecommunications, broadcasting and cable industries. JSI Financial
Services has performed valuations of telecommunications concerns for a variety
of purposes, including mergers and acquisitions, divestitures, gift and estate
taxes, employee stock ownership plans, financial restructurings, and other
objectives.
On October 12, 1995, JSI Financial Services delivered its opinion to CEI
that, based upon and subject to the considerations set forth therein, as of such
date the consideration to be paid to the shareholders of BVT by CEI pursuant to
the Merger Agreement was fair, from a financial point of view, to the
shareholders of CEI. This opinion (the "JSI Financial Services' Opinion"), was
updated as of the date of this Joint Proxy Statement/Prospectus. The JSI
Financial Services' Opinion was based upon economic, market and other conditions
in effect as of the date thereof. No limitations were imposed by the CEI Board
upon JSI Financial Services with respect to the investigations made or
procedures followed by them in rendering the JSI Financial Services' Opinion.
The JSI Financial Services' Opinion, which sets forth assumptions made, material
reviewed, matters considered and limits on the review, is attached hereto as
Appendix C to this Joint Proxy Statement/Prospectus and is incorporated herein
by reference.
The following is a summary of the JSI Financial Services' Opinion which is
attached hereto as Appendix C; however, CEI shareholders are urged to read it in
its entirety. JSI Financial Services has consented to the inclusion of its
opinion in this Joint Proxy Statement/Prospectus and has reviewed the following
summary of its opinion.
JSI Financial Services have acted as advisors to CEI during the entire
bidding process with BVT commencing as early as December, 1994. In rendering its
opinion, JSI Financial Services, among other things, (i) considered the nature
and economic outlook of the telecommunications industry and in particular the
local exchange industry; (ii) the financial and operating history of CEI and BVT
(iii) CEI's and BVT's earnings and cashflow for the last three years and their
outlook for future earnings and cashflow; (iv) CEI's historical and projected
dividend paying capacity; (v) past transactions in CEI Common Shares; (vi)
prices at which telephone properties and other communication's properties have
been bought or sold in recent transactions within the industry.
In rendering the opinion, JSI Financial Services reviewed specific
documents, relied upon information and performed procedures as follows: (i)
reviewed CEI's and BVT's audited financial statements for the periods December
31, 1992 through December 31, 1994; (ii) reviewed interim financial statements
of BVT and CEI for the period ending June 30, 1995; (iii) reviewed Securities
and Exchange Commission Forms 10-K filed by CEI for the fiscal years ending
December 31, 1990 through December 31, 1994; (iv) reviewed BVT's Proxy
Statement/Prospectus prepared in anticipation of a merger by and between BVT and
C-TEC Corporation; (v) reviewed the history of CEI's stock transfer prices for
the period June 1, 1994 through October 12, 1995; (vi) reviewed the Merger
Agreement; (vii) reviewed the terms of the CEI Series A Preferred Stock; (viii)
had discussions with CEI management about the Merger and current and future
business prospects for both CEI and BVT; (ix) compared the financial terms of
the Merger Agreement with those of certain recent transactions within the local
exchange industry, which JSI Financial Services deemed comparable in whole or in
part; and (x) performed such other analysis and considered such other factors as
it deemed appropriate.
In rendering their opinion, JSI Financial Services relied, without
independent verification, on the accuracy, completeness, and fairness of all
financial and other information that was publicly available or furnished to it
by CEI, BVT and/or their advisors.
Based on the foregoing analysis, JSI Financial Services rendered the
opinion that, as of the date of this Joint Proxy Statement/Prospectus, the
consideration to be paid pursuant to the Merger is fair, from a financial point
of view, to the shareholders of CEI.
TERMS OF THE MERGER
Effect of the Merger
Pursuant to the Merger Agreement, BVT will be merged with and into Merger
Sub, with Merger Sub as the surviving entity (sometimes referred to as the
"Surviving Corporation") and a wholly owned subsidiary of CEI, and the separate
corporate existence of Merger Sub with all its rights, privileges, immunities,
powers and franchises shall continue unaffected by the Merger. The shares of
common stock of
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Merger Sub issued and outstanding immediately prior to the Effective Time will
remain outstanding and unchanged after the Merger, and will thereafter
constitute all of the issued and outstanding capital stock of the Surviving
Corporation. The articles of incorporation and bylaws of Merger Sub in effect
immediately prior to the Merger will remain in effect as the articles of
incorporation and bylaws of the Surviving Corporation, except that Article I of
the articles of incorporation will be amended to read as follows: "The name of
the corporation is Buffalo Valley Telephone Company." The directors and officers
of Merger Sub immediately prior to the Merger will remain in office as the
directors and officers of the Surviving Corporation.
Merger Consideration
In connection with the Merger, each BVT Common Share outstanding as of the
Effective Time, other than BVT Common Shares held by persons who have perfected
dissenters' rights and BVT Common Shares held directly or indirectly by CEI
which are not held in a fiduciary capacity or in satisfaction of a debt
previously contracted, will be converted into and become a right to receive
either (i) cash in the amount of $65 (the "Cash Merger Consideration"), (ii) one
CEI Series A Preferred Share (the "Preferred Stock Merger Consideration"), or
(iii) 2.4 CEI Common Shares, subject to certain adjustments described below (the
"Common Stock Merger Consideration"; the Cash Merger Consideration, the
Preferred Stock Merger Consideration and the Common Stock Merger Consideration,
as applicable, the "Per Share Merger Consideration"). For a description of the
terms of the CEI Series A Preferred Shares and the CEI Common Shares, see
"DESCRIPTION OF CAPITAL STOCK OF CEI."
Adjustments to the Common Stock Exchange Ratio
The Common Stock Exchange Ratio is fixed at 2.4 CEI Common Shares for each
BVT Common Share so long as the Market Value (defined below) of a CEI Common
Share is between $24.50 and $30.00. BVT shareholders electing Common Stock
Merger Consideration bear the risk and obtain the benefit of changes in the
Market Value of CEI Common Shares within such range.
In the event that the Market Value of a CEI Common Share is less than
$24.50 but not less than $22.50, the Common Stock Merger Consideration shall
consist of that number of CEI Common Shares having a Market Value equal to
$58.80, but in no event more than 2.61333 CEI Common Shares (the "Maximum Common
Stock Exchange Ratio"). In the event that the Market Value of a CEI Common Share
is more than $30.00 but not more than $32.70, the Common Stock Merger
Consideration shall consist of that number of CEI Common Shares having a Market
Value equal to $72.00, but in no event less than 2.20183 CEI Common Shares (the
"Minimum Common Stock Exchange Ratio").
The Merger Agreement may be terminated by BVT if the Market Value of
CEI Common Shares at the time of closing is less than $22.50 (at which price the
Common Stock Merger Consideration would have a Market Value of $58.80); BVT will
not have a right to terminate the Merger Agreement in such event, however, if
CEI exercises its option to increase the exchange ratio from 2.61333 to that
number determined by dividing $58.80 by the Market Value at the time of closing.
For example, if the Market Value at closing for a CEI Common Share was $20.00,
CEI could prevent BVT from terminating the Merger Agreement by increasing the
exchange ratio to 2.94. The Merger Agreement may be terminated by CEI if the
Market Value of CEI Common Shares at the time of closing is more than $32.70 (at
which price the Common Stock Merger Consideration would have a Market Value of
$72.00); CEI will not have a right to terminate the Merger Agreement in such
event, however, if BVT exercises its option to decrease the exchange ratio from
2.20183 to that number determined by dividing $72.00 by the Market Value at the
time of closing.
As defined in the Merger Agreement, the "Market Value" of a CEI Common
Share as of the effective date of the Merger means the average of the bid and
ask price on NASDAQ of a CEI Common Share, as quoted by the four principal
market makers for CEI Common Shares, over the last ten trading days immediately
preceding the fourth business day prior to the effective date of the Merger.
Cash Percentage
Shareholders of BVT will be entitled to elect to receive the Cash Merger
Consideration, the Preferred Stock Merger Consideration, or the Common Stock
Merger Consideration with respect to shares held by them. BVT Shareholders
requesting Preferred Stock Merger Consideration or Common Stock Merger
Consideration will receive the type of consideration requested. BVT shareholders
making no election will receive Common Stock Merger Consideration.
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Elections by BVT shareholders to receive Cash Merger Consideration will be
subject to allocation procedures such that the number of BVT Common Shares which
will be converted into Cash Merger Consideration will not exceed a specified
percentage of all outstanding BVT Common Shares (the "Cash Percentage"). The
Cash Percentage, as determined by CEI, will be 50% or, if lower, the maximum
percentage that would permit the Merger to qualify as a tax-free exchange for
federal income tax purposes. To the extent that cash elections are not be
satisfied, BVT shareholders will receive Preferred Stock Merger Consideration.
See "THE MERGER--Election, Allocation and Exchange Procedures."
Closing; Effective Time
The Merger Agreement provides that the Closing of the Merger will occur on
a mutually agreeable date no later than the fifth business day after
satisfaction or waiver of certain conditions set forth in the Merger Agreement
(the "Closing Date"). See "THE MERGER--Terms of the Merger--Conditions to the
Merger." On the Closing Date, or as soon thereafter as practicable, the parties
will execute and file in the office of the Corporation Bureau of the
Commonwealth of Pennsylvania appropriate articles of merger (the "Articles of
Merger") in accordance with the provisions of the PBCL. The Merger will become
effective (the "Effective Time") upon the filing of the Articles of Merger, or
the effective date specified therein, whichever is later.
Representations and Warranties
BVT, CEI and Merger Sub have made certain customary representations and
warranties as set forth in the Merger Agreement. The representations and
warranties relate to, among other things, proper organization, powers and
qualifications of each corporation; subsidiaries; authorized capital stock;
authorization of the Merger Agreement; absence of conflict with other
agreements; the consents and approvals that will be required for the
consummation of the Merger; compliance with law; adequacy of financial
statements; brokerage and other fees; absence of false or misleading statements
in the information supplied in connection with the Merger; and absence of false
or misleading statements in financial and other documents. BVT has made
additional representations involving the absence of certain adverse changes or
events, litigation or liabilities other than those previously disclosed;
contracts; labor relations; employee benefit plans; title to assets; compliance
with applicable laws; insurance; dividends and stock purchases; franchises,
licenses or permits; patents and trademarks; conduct of its business in the
ordinary course; tax free reorganization matters; and receipt of a fairness
opinion with respect to the Merger. CEI and Merger Sub have made additional
representations as to the valid issuance of the CEI Series A Preferred Shares
and the CEI Common Shares in the Merger; filing of all tax and other returns and
reports; the delivery of, and absence of false information in, reports filed
with the Commission; and access to funds necessary to pay the Cash Merger
Consideration.
Conduct of Business Pending the Merger
BVT has agreed that (except as expressly contemplated or permitted by the
Merger Agreement or to the extent that CEI otherwise consents in writing),
between the date of the Merger Agreement and the Effective Time (a) it will
conduct its business in the ordinary course, consistent with past practice; (b)
it will conduct its business so as to cause the representations and warranties
made in the Merger Agreement to be true at the Closing Date; (c) it will use its
reasonable best efforts to maintain services of its employees and goodwill with
suppliers, customers and other third parties with whom it does business; (d) it
will not change its capital structure and will not issue or sell any capital
stock, options or other rights to acquire any capital stock, or any securities
convertible into capital stock; (e) it will not declare, set aside or pay any
dividends or repurchase capital stock, except for the payment of regular
quarterly dividends on its outstanding common stock; (f) it will not amend its
charter document or bylaws; (g) it will not enter into or amend any employment
contracts or employee benefit plan, materially increase contributions to
employee benefit plans, or, except in the ordinary course consistent with past
practice, increase compensation; (h) it will not incur or guarantee any debt,
except in the ordinary course consistent with past practice; (i) it will not
sell or dispose of any assets except for sales of inventory in the ordinary
course of business consistent with past practice; (j) it will not change in any
material respect its accounting or tax practices, policies or principles; (k) it
will not cancel or waive any debts or claims having a value of $50,000 in the
aggregate; (l) it will pay all taxes as they become due, file all federal,
state, local and foreign tax returns within the time and in the manner
prescribed by law, and collect or withhold all taxes required to be collected or
withheld from employees, independent consultants or other third parties; (m) it
will not file any amended tax return or enter into a settlement or any audit or
other tax dispute with the IRS or any other taxing authority; (n) it will not
materially change its existing pricing structure, fees and charges structure,
marketing and promotional plans and policies; and (o)
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it will not enter into, or modify, any existing lease or contract, except in the
ordinary course consistent with past practice.
Certain Covenants
Pursuant to the Merger Agreement, each of BVT and CEI has agreed, from the
date of the Merger Agreement to the Effective Time, (a) to promptly inform the
other party in writing if any information set forth in the schedules called for
in the Merger Agreement is not accurate or complete in all material respects;
(b) that BVT will give CEI reasonable access to its personnel, properties,
books, contracts, documents and records; (c) to obtain all consents, approvals
and authorizations required by the Merger Agreement; (d) to use reasonable best
efforts to satisfy all conditions of the Merger Agreement; and (e) to refrain
from making, issuing or releasing any public announcements concerning the Merger
without making a good faith effort to inform the other party.
Pursuant to the terms of the Merger Agreement, BVT has agreed (a) to call
and hold a meeting of its shareholders for the purpose of voting on the Merger
Agreement; (b) prior to the Closing Date, to deliver to CEI letters regarding
affiliates for purposes of Rule 145 under the Securities Act; and (c) to provide
CEI with all proxy materials which BVT intends to use in connection with the
Merger.
Pursuant to the terms of the Merger Agreement, CEI has also agreed (a) to
file the Registration Statement with the SEC to register the CEI Series A
Preferred Shares and the CEI Common Shares to be issued in the Merger, and use
its reasonable best efforts to cause the Registration Statement to become
effective; (b) to file all applicable state securities applications and use its
reasonable best efforts to qualify the CEI Series A Preferred Shares and the CEI
Common Shares to be issued in such states; (c) to file an application with the
Nasdaq Small Cap Market to list the CEI Common Shares issuable in connection
with the Merger and upon conversion of CEI Series A Preferred Shares issued in
the Merger, and to use its reasonable best efforts to obtain approval of such
application upon official notice of issuance; and (d) to prepare, file with the
SEC, and mail to its shareholders as soon as possible, a proxy statement
including a proposal to amend the CEI Articles to authorize sufficient shares of
CEI preferred stock to permit the issuance of the CEI Series A Preferred Shares
in the Merger.
Continued Employment of BVT Employees
In the Merger Agreement, CEI has agreed to continue for a period of three
years following the Effective Time the employment and current salary of all
persons employed by BVT as of the Effective Time. Such persons may only be
terminated during such period for reasonable cause or if an employee reaches
normal retirement age. During this three-year period, CEI has also agreed to
cause to remain in effect all current BVT employee benefit plans or to provide
benefits to such employees that are no less favorable, taken as a whole, than
the benefits provided to comparable employees of CEI. To the extent eligibility
for participation or entitlement to benefits under any benefit plan is
determined by reference to periods of service, CEI has agreed that the
calculation of such periods of service will include periods of service with BVT.
The Merger Agreement permits CEI, in lieu of providing continued salary and
benefits, to offer BVT employees severance compensation. No BVT employee,
however, may be required to accept any such offer. CEI has also agreed to cause
BVT's pension plan to be amended, if permitted by applicable law, to eliminate
the benefit reduction which currently applies in the case of retirement after
age 62 and before age 65.
Indemnification of BVT Directors and Officers
In the Merger Agreement, CEI has agreed to indemnify and advance expenses
to the directors and officers of BVT to the fullest extent permitted by
applicable law for a period of six years following the Effective Time in
connection with actions or omissions occurring on or prior to the Effective
Time. CEI's obligations regarding such indemnification will be limited to a
maximum expenditure of $5,000,000 (including any amounts actually paid under
insurance policies maintained by CEI in accordance with the Merger Agreement).
CEI has also agreed to use all reasonable efforts to provide director and
officer liability insurance coverage for BVT's officers and directors for a
period of six years following the Effective Time, subject to a maximum aggregate
expenditure for such insurance of $80,000.
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No Solicitation; Pursuit of Other Transactions
In the Merger Agreement, BVT has agreed that, except as described below, it
will not, nor will it authorize any of its officers, directors, employees,
affiliates, investment bankers or other representatives or agents to, directly
or indirectly, solicit, encourage (including by way of furnishing non-public
information), initiate discussions or negotiations relating to or take any other
action to facilitate, any inquiries or the making of any proposal for an
"Acquisition Transaction," which is defined in the Merger Agreement to mean the
occurrence of any of the following events: (i) BVT is acquired by merger or
otherwise by any person or group, other than CEI, Merger Sub or any of their
respective affiliates (a "Third Party"); (ii) a Third Party acquires more than
30% in value of the assets of BVT; (iii) a Third Party acquires more than 30% of
the outstanding BVT Common Shares; (iv) BVT adopts and implements a plan of
liquidation relating to, or extraordinary dividend equal to, more than 30% in
value of the assets of BVT; or (v) BVT enters into a preliminary or definitive
agreement with a Third Party relating to any of the transactions referred to in
clauses (i) through (iv) above. BVT has agreed promptly to notify CEI orally and
in writing of any inquiries or proposals regarding an Acquisition Transaction.
BVT, however, is permitted to disclose information to, and to engage in
discussions and negotiations concerning an Acquisition Transaction with, a
person who makes a bona fide offer to engage in an Acquisition Transaction for
consideration and on terms which are more favorable to the BVT shareholders than
the terms of the Merger, and who can reasonably be expected to consummate the
Acquisition Transaction on the terms that have been proposed, and which
disclosure, discussions and negotiations shall be required by reason of the
fiduciary obligations of the directors of BVT.
In addition, BVT is permitted, subject to its obligations to pay CEI a
termination fee, to terminate the Merger Agreement and accept an offer for an
Acquisition Transaction which the BVT Board concludes is more favorable to the
BVT shareholders than the Merger.
Conditions to the Merger
The obligations of BVT, CEI and Merger Sub to consummate the Merger are
subject to, among other things, the satisfaction of the following conditions:
(a) the performance by BVT, CEI and Merger Sub of their respective obligations
under the Merger Agreement and the accuracy of their respective representations
and warranties contained therein (the representations and warranties made by BVT
need only be accurate as of November 30, 1995); (b) approval of the Merger
Agreement and the transactions contemplated thereby by the shareholders of BVT;
(c) approval of the amendment to CEI's Articles by the shareholders of CEI as
required by the Merger Agreement; (d) the absence of any injunctions which would
prevent the consummation of the transactions contemplated by the Merger
Agreement; (e) the absence of any action, suit or proceeding against BVT or CEI
brought by the Antitrust Division of the Department of Justice (the "Antitrust
Division") or the Federal Trade Commission (the "FTC") challenging the Merger
under federal antitrust laws; (f) the filing of all documents required to be
filed under the Pennsylvania Public Utility Code (the "PPUC") and the receipt of
the approval of the Merger by the PaPUC; (g) the listing on the NASDAQ Small Cap
Market of the shares of CEI Common Stock issuable in connection with the Merger
and upon conversion of the CEI Series A Preferred Shares issued pursuant to the
Merger; and (h) the effectiveness of the Registration Statement and the absence
of stop orders suspending the effectiveness.
The obligations of CEI and Merger Sub to consummate the Merger are further
subject to: (a) the receipt by CEI of letters from BVT's affiliates for purposes
of Rule 145 under the Securities Act; (b) the exercise of dissenters' rights by
no more than 10% of the outstanding BVT Common Shares; (c) the receipt of a
ruling from the Internal Revenue Service ("IRS") or an opinion from Morgan,
Lewis & Bockius LLP, special tax counsel to BVT, as to certain tax matters; (d)
the receipt by CEI of an opinion dated the Closing Date from Morgan, Lewis &
Bockius LLP, special counsel to BVT, in form and substance reasonably
satisfactory to CEI and its counsel; and (e) the receipt by CEI of the written
resignations of those BVT directors and officers designated by CEI.
The obligations of BVT to consummate the Merger is subject to the receipt
by BVT of the written opinion of Snyder & Co. that the consideration to be
received in the Merger by BVT's shareholders is fair from a financial point of
view and to such opinion not being withdrawn following the mailing of this Joint
Proxy Statement/Prospectus. The obligations of CEI to consummate the Merger is
subject to the receipt by CEI of the written opinion of JSI Financial Services
that the consideration to be paid by CEI in the Merger is fair to CEI's
shareholders from a financial point of view and to such opinion not being
withdrawn following the mailing of this Joint Proxy Statement/Prospectus.
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Waiver; Amendment
Prior to the Effective Time, any provision of the Merger Agreement may be:
(a) waived by the party benefitted by the provision, by board of directors or
authorized officer action, if in the judgment of such board or such officer such
waiver would not have a material adverse effect on the benefits intended to its
shareholders; or (b) amended or modified at any time by an agreement in writing
duly authorized and executed by each of the parties, except that after approval
of the Merger Agreement by the shareholders of BVT or CEI, no amendment which by
law requires approval by the shareholders of BVT or CEI may be made without such
shareholder approval.
Termination
The Merger Agreement provides that, notwithstanding approval by the
shareholders of BVT, the Merger Agreement may be terminated and the transactions
contemplated in the Merger Agreement abandoned at any time prior to the Closing
Date: (a) by mutual consent of CEI and BVT, or (b) by either BVT or CEI in the
event (i) of a material breach by the other party of any representation,
warranty, covenant or agreement contained in the Merger Agreement, or (ii) if
the Effective Time shall not have occurred on or by June 30, 1996, unless the
failure to do so is due to the breach of the Merger Agreement by the party
seeking to terminate or the parties agree to extend the Effective Time beyond
such date.
The Merger Agreement may be terminated by BVT if the Market Value of CEI
Common Shares at the time of closing is less than $22.50 (at which price the
Common Stock Merger Consideration would have a Market Value of $58.80); BVT will
not have a right to terminate the Merger Agreement in such event, however, if
CEI exercises its option to increase the exchange ratio from 2.61333 to that
number determined by dividing $58.80 by the Market Value at the time of closing.
The Merger Agreement may be terminated by CEI if the Market Value of CEI Common
Shares at the time of closing is more than $32.70 (at which price the Common
Stock Merger Consideration would have a Market Value of $72.00); CEI will not
have a right to terminate the Merger Agreement in such event, however, if BVT
exercises its option to decrease the exchange ratio from 2.20183 to that number
determined by dividing $72.00 by the Market Value at the time of closing.
BVT may terminate the Merger Agreement, subject to its obligations to pay
the termination fee described below, in order to accept an offer for an
Acquisition Transaction which the BVT Board concludes is more favorable to the
BVT shareholders than the Merger.
BVT may also terminate the Merger Agreement in certain circumstances
following a failure by CEI's shareholders to approve the Merger-related
proposals at the CEI Meeting. See "THE MERGER--Terms of the Merger--Cash
Option."
Fees and Expenses
Except as set forth below, whether or not the Merger is consummated, all
costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
costs. If the Merger is consummated, costs incurred by BVT will ultimately be
reflected in CEI's consolidated financial position.
In the event that BVT terminates the Merger Agreement in order to enter
into an Acquisition Transaction, BVT shall pay to CEI, within one business day
following the termination date, a termination fee in the amount of $585,000.
In the following four circumstances, CEI has agreed to pay BVT a break-up
fee in the amount of $2,000,000: (i) the Merger Agreement is terminated by BVT
because the Market Value of a share of CEI Common Share at the time of closing
is less than $22.50 and CEI has not exercised its option to increase the Common
Stock Exchange Ratio so that the Common Stock Merger Consideration has a Market
Value of at least $58.80; (ii) the Merger Agreement is terminated by BVT or CEI
because CEI is unable to consummate its financing for the cash portion of the
merger consideration; (iii) the required approval from CEI's shareholders has
not been obtained, BVT elects to pursue the Merger as an all cash transaction,
and the Merger Agreement is terminated because the Merger is not consummated by
the later of June 30, 1996 or the 60th day following BVT's notice of its
intention to pursue an all cash transaction; or (iv) BVT terminates the Merger
Agreement due to a breach thereof by CEI.
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In addition, CEI has agreed to reimburse BVT for the $300,000 break-up fee
paid by BVT upon the termination of its prior merger agreement with C-TEC
Corporation in the event that the Merger Agreement is terminated (a) by CEI
because the Merger has not been consummated by June 30, 1996, or (b) by BVT
because (i) of a CEI breach, (ii) the Merger has not been consummated by June
30, 1996 (or, if later, the 60th day following BVT's notice of its intention to
pursue an all cash transaction), (iii) the Market Value of a share of CEI Common
Share at the time of closing is less than $22.50 and CEI has not exercised its
option to increase the Common Stock Exchange Ratio so that the Common Stock
Merger Consideration has a Market Value of at least $58.80, or (iv) because the
required CEI shareholder approval has not been obtained.
Cash Option
The Merger is conditioned upon the shareholders of CEI approving an
amendment to CEI's Articles authorizing a new class of preferred stock and
approving the issuance of the CEI Series A Preferred Shares and CEI Common
Shares in the Merger. These matters will be considered at the CEI Meeting. If
such approvals are not obtained, BVT would have the option to terminate the
Merger Agreement or to proceed with the Merger with the Per Share Merger
Consideration being solely $65 in cash for each BVT Common Share. If BVT elects
the all-cash option, the Merger Agreement may be terminated by BVT if the
Effective Time shall not have occurred by the later of June 30, 1996 or the 60th
day following BVT's election to proceed with the all cash transaction.
ELECTION, ALLOCATION AND EXCHANGE PROCEDURES
Shareholder Elections; Allocation Rules
BVT shareholders will have the opportunity to specify the whole number of
BVT Common Shares owned by each such holder as to which such holder desires to
receive (i) the Cash Merger Consideration (a "Cash Election"), (ii) the Stock
Merger Consideration (a "Preferred Stock Election") and (iii) the Common Stock
Merger Consideration (a "Common Stock Election"). Holders will be permitted to
make one type of election with respect to a portion of their shares and to make
other types of elections with respect to the remaining portion of their shares.
Within five business days after the Effective Time, BVT and CEI shall prepare
and mail to each record holder of BVT Common Shares (other than holders who
perfect dissenters' rights) a form (the "Election Form") to provide such holders
with the opportunity to make their elections. The Election Form shall specify
the date by which all such elections must be made (the "Election Deadline"),
which date shall be determined by BVT and CEI but shall be not earlier than the
20 calendar days following the Effective Time. The failure by the holder of a
BVT Common Share to indicate a preference or to make an effective Cash Election
or Stock Election will, for purposes of the Merger Agreement, be deemed a "Non-
Election."
BVT shareholders making valid Preferred Stock Elections will receive
Preferred Stock Merger Consideration. BVT shareholders making valid Common Stock
Elections or making Non-Elections shall receive Common Stock Merger
Consideration.
Elections by BVT shareholders to receive Cash Merger Consideration will be
subject to allocation procedures such that the number of BVT Common Shares which
will be converted into Cash Merger Consideration will not exceed a specified
percentage of all outstanding BVT Common Shares (the "Cash Percentage"). The
Cash Percentage, as determined by CEI, will be 50% or, if lower, the maximum
percentage that would permit the Merger to qualify as a tax-free exchange for
federal income tax purposes. To the extent that cash elections are not
satisfied, BVT shareholders will receive Preferred Stock Merger Consideration.
Because Cash Elections will be subject to various allocation and pro ration
provisions, the extent to which such elections will be accommodated will depend
upon the number of other holders of BVT Common Shares who make Cash Elections,
as well as the exact Cash Percentage specified by CEI. Accordingly, BVT
shareholders should not vote in favor of the Merger unless they are willing to
receive at least a portion of their consideration in the form of stock.
After the Election Deadline, CEI or its agent (the "Exchange Agent") will
determine the number of BVT Common Shares for which there has been made an
effective Cash Election ("Cash Election Shares"), Preferred Stock Election
("Preferred Stock Election Shares"), Common Stock Election ("Common Stock
Election Shares") or Non-Election ("Non-Election Shares"). CEI will then
determine the Cash Percentage, which will be 50% or, if lower, the maximum
percentage that will permit the Merger to qualify as a tax-free exchange for
federal income tax purposes.
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If the number of Cash Election Shares plus the number of shares for which
dissenters' rights are being exercised ("Dissenters' Shares") is less than or
equal to the Cash Percentage, BVT shareholders making valid Cash Elections will
receive Cash Merger Consideration. If the number of Cash Election Shares and
Dissenters' Shares exceeds the Cash Percentage, to the extent necessary a pro
rata portion of each holder's Cash Election Shares shall receive Preferred Stock
Merger Consideration.
No fractional CEI Series A Preferred Shares or CEI Common Shares will be
issued. Holders of BVT Common Shares who would otherwise be entitled to receive
a fractional share of CEI preferred or common stock instead will receive a cash
payment determined by multiplying the fractional interest to which such holder
would otherwise be entitled by $65 or the Market Value of a CEI Common Share, as
appropriate.
Due to the foregoing procedures, Cash Elections by shareholders will be
subject to adjustment regardless of the percentage of cash and stock elected by
such shareholder, and the precise consideration to be issued will not be known
until after the Effective Date of the Merger.
Election and Exchange Procedures
Holders of BVT Common Shares will be required to make their election by
mailing a duly completed Election Form to CEI, or such other entity as may be
mutually acceptable to CEI and BVT as the exchange agent ("Exchange Agent"). To
be effective, an Election Form must be properly completed, signed and submitted
to the Exchange Agent accompanied by certificates representing the BVT Common
Shares as to which the election is being made (or by an appropriate guaranty of
delivery by a commercial bank or trust company in the United States or a member
of a registered national security exchange or the National Association of
Security Dealers, Inc.), or by evidence that such certificates have been lost,
stolen or destroyed accompanied by such security or indemnity as shall be
reasonably requested by CEI. An Election Form and accompanying share
certificates must be received by the Exchange Agent by the close of business on
the Election Deadline. An election may be changed or revoked but only by written
notice received by the Exchange Agent prior to the Election Deadline including,
in the case of a change, a properly completed revised Election Form. Any share
certificate which was submitted in connection with an election shall be returned
to the holder thereof in the event such election is revoked as aforesaid and
such holder requests in writing the return of such certificates.
CEI will have the discretion, which it may delegate in whole or in part to
the Exchange Agent, to determine whether the Election Forms have been properly
completed, signed and submitted or changed or revoked and to disregard
immaterial defects in Election Forms. The decision of CEI (or the Exchange
Agent) in such matters shall be conclusive and binding. Neither CEI nor the
Exchange Agent will be under any obligation to notify any person of any defect
in an Election Form submitted to the Exchange Agent. The Exchange Agent shall
also make all computations contemplated by the allocation procedures described
above.
A holder of BVT Common Shares who does not submit an effective Election
Form to the Exchange Agent prior to the Election Deadline shall be deemed to
have made a Non-Election. If CEI or the Exchange Agent shall determine that any
purported Cash Election, Preferred Stock Election or Common Stock Election was
not effectively made, such purported Cash Election, Preferred Stock Election or
Common Stock Election shall be deemed to be of no force and effect and the
shareholder making such purported election shall, for purposes of the Merger
Agreement, be deemed to have made a Non-Election.
BVT SHAREHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES FOR BVT COMMON
SHARES TO CEI, BVT OR THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED ELECTION
FORMS. BVT SHAREHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED
PROXY CARD.
REGULATORY CONSIDERATIONS
Pursuant to the requirements of the PaPUC, CEI filed an application with
the PaPUC for approval of the Merger on _______________, 1995. It is anticipated
that the PaPUC will approve this application within 90 days from the date of
filing. However, in the event that there is a protest filed, the approval
process may take an additional 90 days.
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INTEREST OF CERTAIN PERSONS IN THE MERGER
Certain directors and officers of BVT have interests in the Merger that are
in addition to their interests as shareholders of BVT generally. These include
CEI's agreement to indemnify and provide insurance to the directors and officers
of BVT following the Merger and CEI's agreement to continue the employment of
BVT's employees for three years following the Merger. See "THE MERGER--Terms of
the Merger--Indemnification of BVT Directors and Officers" and "THE MERGER--
Terms of the Merger--Continued Employment of BVT Employees."
ACCOUNTING TREATMENT
The Merger will be treated as a purchase of BVT by CEI for accounting and
financial reporting purposes. Under the purchase method of accounting, the
regulated assets and liabilities of BVT will be recorded on the consolidated
books of CEI at their book values at the Effective Time. The excess of the value
of the consideration paid by CEI over the book value of the assets and
liabilities acquired will be treated as goodwill and will be amortized over a
period of 40 years, subject to regulatory approval.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the anticipated material federal income tax
consequences of the Merger. Each shareholder's individual circumstances may
affect the tax consequences of the Merger to that shareholder. In addition, no
information is provided herein with respect to the tax consequences of the
Merger under applicable foreign, state or local laws. Consequently, each BVT
shareholder is advised to consult his own tax advisor as to the specific tax
consequences of the Merger.
It is intended that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that, accordingly,
for federal income tax purposes: (i) BVT and CEI will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code; (ii) no gain
or loss will be recognized by BVT or CEI by reason of the Merger; (iii) the
gain, if any, realized by a holder of BVT Common Shares upon receipt of CEI
Series A Preferred Shares, CEI Common Shares and/or cash in exchange for BVT
Common Shares pursuant to the Merger will not be recognized in excess of the
amount of cash received, and no loss will be recognized by those holders of BVT
Common Shares who exchange their BVT Common Shares solely for CEI Series A
Preferred Shares and/or CEI Common Shares; (iv) the basis of the CEI Series A
Preferred Shares and/or CEI Common Shares to be received by the BVT shareholders
will generally be, in each instance, the same as the basis of the BVT Common
Shares surrendered in exchange therefor (but reduced to the extent any cash
received exceeds the amount of gain recognized); and (v) the holding period of
the CEI Series A Preferred Shares and/or CEI Common Shares to be received by the
shareholders of BVT will include the period during which the BVT Common Shares
surrendered in exchange therefor were held, provided that the BVT Common Shares
surrendered were held as a capital asset on the date of the exchange pursuant to
the Merger.
The obligations of the parties to consummate the Merger is conditioned upon
receipt of an opinion of Morgan, Lewis & Bockius LLP, special tax counsel to
BVT, substantially to the effect that the federal income tax consequences of the
Merger are as summarized above. Such an opinion of Morgan, Lewis & Bockius LLP
is attached to this Joint Proxy Statement/Prospectus as Appendix E.
Assuming that the Merger satisfies all of the requirements of a
reorganization within the meaning of Section 368(a) of the Code, the Merger will
have the following tax consequences to a BVT shareholder who held BVT Common
Shares as a capital asset and will hold any CEI Series A Preferred Shares and/or
CEI Common Shares received in exchange therefor as a capital asset. Federal
income tax consequences to a BVT shareholder will depend on whether the
shareholder exchanges BVT Common Shares for CEI Series A Preferred Shares, CEI
Common Shares, cash or a combination thereof. If a BVT shareholder exchanges BVT
Common Shares for cash, the federal income tax consequences to that shareholder
will also depend on whether certain related shareholders receive CEI Series A
Preferred Shares, CEI Common Shares or cash.
Only CEI Shares Received
No gain or loss will be recognized by a BVT shareholder who receives only
CEI Series A Preferred Shares and/or CEI Common Shares in exchange for BVT
Common Shares. The tax basis of CEI Series A Preferred Shares and/or CEI Common
Shares received by a shareholder who exchanges all of his BVT
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Common Shares for CEI Series A Preferred Shares and CEI Common Shares will be
equal to the tax basis of the BVT Common Shares exchanged therefor, and the
holding periods of the CEI Series A Preferred Shares and/or CEI Common Shares
received by the shareholder will include the holding periods for the BVT Common
Shares.
Cash and CEI Shares Received
A BVT shareholder who receives both CEI Series A Preferred Shares or CEI
Common Shares and cash may recognize a gain, but not in excess of the cash
received. Whether a gain will be recognized for federal income tax purposes will
depend on whether the fair market value of the consideration (including CEI
Series A Preferred Shares and CEI Common Shares) received by the BVT shareholder
exceeds the shareholder's tax basis in the BVT Common Shares exchanged for that
consideration. Any such gain will be treated as a capital gain unless the
receipt of the cash is treated as having the effect of a dividend. If the
receipt of cash is treated as having the effect of a dividend, only the portion
of the recognized gain that is not in excess of a ratable share of the
undistributed accumulated earnings and profits of BVT is taxable as a dividend.
The cash received by a BVT shareholder will not be treated as a dividend if
the requirements of Section 302 of the Code are satisfied, determined in
conjunction with the application of Section 318 of the Code summarized herein
(relating to constructive ownership of stock). In order to determine whether
those requirements are satisfied, a shareholder would be treated as receiving
CEI Series A Preferred Shares or CEI Common Shares in the Merger (instead of the
cash actually received) and then receiving cash from CEI in a hypothetical
redemption of those shares. That hypothetical redemption will satisfy the
requirements under Section 302 if it (i) is "not essentially equivalent to a
dividend" within the meaning of Section 302(b)(1) of the Code or (ii) has the
effect of a "substantially disproportionate" redemption of CEI Series A
Preferred Shares or CEI Common Shares within the meaning of Section 302(b)(2) of
the Code. Whether the cash received by a BVT shareholder in hypothetical
redemption of CEI Series A Preferred Shares or CEI Common Shares is essentially
equivalent to a dividend depends on the individual facts and circumstances of
each shareholder. However, to qualify for treatment as a gain rather than a
dividend, the hypothetical redemption must result in a meaningful reduction of a
BVT shareholder's proportionate interest in CEI. The hypothetical redemption of
CEI Series A Preferred Shares or CEI Common Shares will be substantially
disproportionate if the shareholder's ownership of CEI Series A Preferred Shares
or CEI Common Shares after the hypothetical redemption is less than 80% of the
CEI Series A Preferred Shares or CEI Common Shares treated as owned by the
shareholder before the hypothetical redemption.
A BVT shareholder's tax basis in CEI Series A Preferred Shares and/or CEI
Common Shares received pursuant to the Merger will be such shareholder's basis
in the BVT Common Shares exchanged, decreased by any cash received and increased
by any gain recognized (including any gain treated as a dividend). The holding
period for CEI Series A Preferred Shares and/or CEI Common Shares received by
the shareholder of BVT will include the holding period for the BVT Common Shares
exchanged. If cash is received by a shareholder of BVT in lieu of a fraction of
a CEI Series A Preferred Share or CEI Common Shares, the shareholder will
recognize any gain or loss, or will be treated as having received a dividend, as
if the fractional share had been received and then redeemed for cash under the
rules described in the preceding paragraph.
Only Cash Received
Any BVT shareholder who exchanges all of his BVT Common Shares for cash
will be taxed on any gain or loss from such sale. In addition, any shareholder
who makes an election to receive cash for all his shares may nevertheless
receive some CEI Series A Preferred Shares under the proration provisions of the
Merger Agreement. See "THE MERGER--Election; Allocation and Exchange
Procedures." In such event, the discussion above under "--Cash and CEI Shares
Received" would be applicable.
Dividends on CEI Shares
Distributions of cash or other property received by holders of CEI Series A
Preferred Shares or CEI Common Shares will be taxable dividends taxed at
ordinary income tax rates to the extent of the earnings and profits of CEI.
Corporate holders, however, may be entitled to a dividends received deduction
under Section 243 of the Code (a 70 percent deduction is provided for corporate
recipients which own less than 20 percent of CEI).
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Conversion of CEI Series A Preferred Shares into CEI Common Shares
No gain or loss will be recognized by a holder of CEI Series A Preferred
Shares upon the conversion of such shares into CEI Common Shares pursuant to the
terms of the CEI Series A Preferred Shares. Such conversion is treated as a
recapitalization pursuant to Section 368(a)(1)(E) of the Code pursuant to which
converting shareholders do not recognize taxable gain or loss on the conversion.
A shareholder's basis in the CEI Common Shares received in the conversion will
be equal to such shareholder's basis in the CEI Series A Preferred Shares
converted. A holder of CEI Series A Preferred Shares will be subject to Federal
income tax on the amount of any dividends accrued on the CEI Series A Preferred
Shares paid to the holder at the time of the conversion (pursuant to the terms
of the CEI Series A Preferred Shares, such dividends shall be paid to the
converting shareholder in cash to the extent funds are available for such
purpose under Pennsylvania law). In such event, the discussion under "--
Dividends on CEI Shares" would be applicable.
Redemption Premium
Under the terms of the CEI Series A Preferred Shares, certain redemptions
at the option of CEI require a payment by CEI higher than the issue price (such
difference is referred to as a redemption premium). In certain cases, Federal
tax laws treat a redemption premium on preferred stock as a taxable distribution
to the holder of such shares recognized on an economic accrual basis annually
during the redemption period beginning with the date of issuance. If this rule
were applied to the redemption of the CEI Series A Preferred Shares, holders
could be required to recognize taxable income in the years during the redemption
period but preceding any actual redemption. In general, under proposed Treasury
regulations pursuant to Section 305 of the Code, a redemption premium will not
trigger annual income inclusions to holders so long as the redemption premium is
solely in the nature of a penalty for premature redemption. Further, the
redemption premium set forth in the terms of the CEI Series A Preferred Shares
falls within a safe harbor provided in such proposed regulations. Accordingly,
the presence of a redemption premium should not result in any adverse tax
consequences to holders of CEI Series A Preferred Shares.
Redemption or Sale of CEI Shares
CEI Series A Preferred Shares or CEI Common Shares received in the Merger
should not be treated as "Section 306 stock", and thus sales of CEI Series A
Preferred Shares or CEI Common Shares will result in the recognition of capital
gain or loss to the seller (provided the CEI Series A Preferred Shares or CEI
Common Shares were held as a capital asset at the time of the sale). Gain or
loss will be computed by determining the difference between the sales price
realized by the holder and such holder's basis in the shares sold.
In general, amounts received by a holder of CEI Series A Preferred Shares
upon redemption should be treated similar to a sale of such CEI Series A
Preferred Shares. While Section 302 of the Code does provide that certain stock
redemptions are treated as taxable dividends rather than as sales of stock, the
IRS has ruled that the redemption of non-voting preferred stock in a corporation
is treated as a sale of such shares if the holder does not hold any voting
shares (such as common stock) in such corporation. Further, even if the
shareholder holds a small amount of voting shares, the redemption of preferred
stock is treated as a sale of such shares. At least one court has held that
holding up to six percent (6%) of the outstanding voting common stock was not a
substantial enough holding to disqualify a redemption of preferred stock of such
holder from qualifying as a sale. Accordingly, any holder of CEI Series A
Preferred Shares that does not separately own CEI Common Shares (or only owns a
small amount of CEI Common Shares) will be taxed in connection with any
redemption as if such shares were sold. Any holder of CEI Series A Preferred
Shares that also own substantial amounts of CEI Common Shares will be treated as
selling such shares (rather than receiving a taxable dividend) only if such
redemption is treated under Section 302(b)(1) of the Code as being "not
essentially equivalent to a dividend." Such determination is based upon a
variety of facts and circumstances including the extent to which the CEI Series
A Preferred Share redemption results in a significant reduction in such holder's
overall stock holdings in CEI. Such individuals are advised to consult with
their individual tax advisors regarding the tax treatment of any such
redemption.
Adjustment of Conversion Price
Pursuant to the terms of the CEI Series A Preferred Shares, the conversion
price used to determine the number of shares of CEI Common Stock received for
each share of CEI Series A Preferred Shares will be adjusted in the event of a
CEI stock dividend, stock split or similar event and the resulting adjustment
will
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be made in order to take account of the readjustment of outstanding shares of
CEI Common Stock. Under Section 302(b)(4) of the Code, any such adjustment will
not give rise to a taxable gain or distribution.
Constructive Ownership
Section 318 of the Code provides that stock owned by a taxpayer includes
stock constructively owned. A shareholder is treated as owning (i) the stock
owned by his or her spouse, children, grandchildren and parents, (ii) stock
applicable to an option to acquire stock, (iii) stock owned by an estate and
certain trusts in which the shareholder is a beneficiary, (iv) stock owned by a
partnership (including a limited liability company treated as a partnership for
tax purposes) or Subchapter S corporation of which the shareholder is a partner
or a shareholder, and (v) stock owned by a corporation (including a limited
liability company treated as a corporation for tax purposes) which is not a
Subchapter S corporation of which the shareholder owns at least 50% of the value
of the stock. The constructive ownership rules are important in determining
whether the tests in Section 302 of the Code (dealing with capital gain or
dividend treatment of gain recognized as a result of the Merger) are met. An
individual who actually owns no CEI Series A Preferred Shares or CEI Common
Shares but pursuant to Section 318 of the Code, constructively owns CEI Series A
Preferred Shares or CEI Common Shares may avoid family attribution rules by
filing a timely agreement with the Internal Revenue Service under Section
302(c)(2) of the Code and the regulations thereunder. Because of the complexity
of these rules, each holder of BVT Common Shares who believes they might apply
to him is urged to consult his own tax advisor.
EACH BVT SHAREHOLDER IS ENCOURAGED TO CONSULT HIS OR HER OWN TAX ADVISORS
AS TO PARTICULAR FACTS AND CIRCUMSTANCES WHICH MAY BE UNIQUE TO SUCH SHAREHOLDER
AND NOT COMMON TO SHAREHOLDERS AS A WHOLE AND ALSO AS TO ANY ESTATE, GIFT,
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES ARISING OUT OF THE MERGER AND/OR ANY
SALE THEREAFTER OF CEI SERIES A PREFERRED SHARES OR CEI COMMON SHARES RECEIVED
IN THE MERGER.
DISSENTERS' RIGHTS
General
Pursuant to the PBCL, any holder of BVT Common Shares has the right to
dissent from the Merger and to obtain payment of the "fair value" (as defined
therein) of such holder's BVT Common Shares, in the event that the Merger is
consummated. CEI shareholders will not have dissenters' rights in connection
with the Merger.
Any shareholder of BVT who contemplates exercising a holder's right to
dissent is urged to read carefully the provisions of Subchapter D of Chapter 15
of the PBCL attached to this Joint Proxy Statement/Prospectus as Appendix C. The
following is a summary of the steps to be taken if the right to dissent is to be
exercised, and should be read in connection with the full text Subchapter D of
Chapter 15 of the PBCL. Each step must be taken in the indicated order and in
strict compliance with the applicable provisions of the statute in order to
perfect dissenters' rights. The failure of any holder of BVT Common Shares to
comply with the aforesaid steps will result in the holder receiving the
consideration contemplated by the Merger Agreement in the event that the Merger
is consummated. See "THE MERGER--Terms of the Merger--Merger Consideration."
Any written notice or demand which is required in connection with the
exercise of dissenters' rights, whether before or after the Effective Time, must
be sent to Buffalo Valley Telephone Company, at 20 South Second Street,
Lewisburg, Pennsylvania 17837, Attention: Secretary.
Pursuant to the Merger Agreement, CEI is not obligated to consummate the
Merger if holders of more than 10% of the outstanding BVT Common Shares exercise
dissenters' rights.
Fair Value
The term "fair value" means the value of a BVT Common Share immediately
before consummation of the Merger taking into account all relevant factors, but
excluding any appreciation or depreciation in anticipation of the Merger.
Notice of Intention to Dissent
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A BVT shareholder who wishes to dissent must file with BVT, prior to the
vote of shareholders on the Merger at the BVT Meeting, a written notice of
intention to demand payment of the fair value of such holder's BVT Common Shares
if the Merger is effected, must effect no change in the beneficial ownership of
his BVT Common Shares from the date of such notice through the Effective Time,
and must refrain from voting his BVT Common Shares for approval of the Merger
Agreement. Neither a proxy nor a vote against approval of the Merger will
constitute the necessary written notice of intention to dissent.
Notice to Demand Payment
If the Merger Agreement is approved by the required vote of holders of BVT
Common Shares, BVT will mail a notice to all dissenters who gave due notice of
intention to demand payment and who refrained from voting for approval of the
Merger Agreement. The notice will state where and when a written demand for
payment must be sent and certificates for BVT Common Shares must be deposited in
order to obtain payment, and will include a form for demanding payment and a
copy of Subchapter D of Chapter 15 of the PBCL. The time set for receipt of the
demand for payment and deposit of stock certificates will be not less than 30
days from the date of mailing of the notice.
Failure to Comply with Notice to Demand Payment, etc.
A holder of BVT Common Shares who fails to timely demand payment or fails
to timely deposit his BVT share certificates, as required by BVT's notice, will
forfeit his dissenters' rights and, if prior to the Election Deadline, his BVT
Common Shares will be considered to be Non-Election Shares, or, if subsequent to
the Election Deadline, such holder will receive cash in the amount of $65 per
BVT Common Share.
Payment of Fair Value of Shares
Promptly after the Effective Time, or upon timely receipt of demand for
payment if the Merger already has been consummated, BVT will either remit to
dissenters who have made demand and have deposited their stock certificates the
amount that BVT estimates to be the fair value of the BVT Common Shares or give
written notice that no such remittance is being made. The remittance or notice
will be accompanied by (i) a closing balance sheet and statement of income of
BVT for a fiscal year ending not more than 16 months before the date of
remittance or notice together with the latest available interim financial
statements; (ii) a statement of BVT's estimate of the fair value of the BVT
Common Shares; and (iii) a notice of the right of the dissenter to demand
supplemental payment under the PBCL accompanied by a copy of Subchapter D of
Chapter 15 of the PBCL.
Estimate by Dissenter of Fair Value of Shares
If a dissenter believes that the amount stated or remitted by BVT is less
than the fair value of the BVT Common Shares, a dissenter may send to BVT his
own estimate of the fair value of the BVT Common Shares, which shall be deemed
to be a demand for payment of the amount of the deficiency. If BVT remits
payment of its estimated value of a dissenter's BVT Common Shares and the
dissenter does not file his own estimate within 30 days after the mailing by BVT
of its remittance, the dissenter will be entitled to no more than the amount
remitted to him by BVT.
Valuation Proceedings
If any demands for payment remain unsettled, within 60 days after the
latest to occur of (i) the Effective Date; (ii) timely receipt by BVT of any
demands for payment; or (iii) timely receipt by BVT of any estimates by
dissenters of fair value, BVT may file in the Court of Common Pleas of Berks
County (the "Court") an application requesting that the fair value of the BVT
Common Shares be determined by the Court. In such case, all dissenters, wherever
residing, whose demands have not been settled, shall be made parties to the
proceeding as in an action against their shares, and a copy of the application
shall be served on each such dissenter.
If BVT were to fail to file such an application, then any dissenter, on
behalf of all dissenters who have made a demand and who have not settled their
claim against BVT, may file an application in the name of BVT at any time within
the 30-day period after the expiration of the 60-day period and request that the
fair value be determined by the Court. The fair value determined by the Court
may, but need not, equal the dissenters' estimates of fair value. If no
dissenter files such an application, then each dissenter entitled to do so shall
be paid BVT's estimate of the fair value of the BVT Common Shares and no more,
and may bring
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an action to recover any amount not previously remitted, plus interest at a rate
the Court finds fair and equitable.
BVT intends to negotiate in good faith with any dissenting shareholders. If
after negotiation a claim cannot be settled, then BVT intends to file an
application requesting that the fair value of the BVT Common Shares be
determined by the Court.
Costs and Expenses
The costs and expenses of any valuation proceedings in the Court, including
the reasonable compensation and expenses of any appraiser appointed by the Court
to recommend a decision on the issue of fair value, will be determined by the
Court and assessed against BVT except that any part of the costs and expenses
may be apportioned and assessed by the Court against all or any of the
dissenters who are parties and whose action in demanding supplemental payment
the Court finds to be dilatory, obdurate, arbitrary, vexatious or in bad faith.
RESALE RESTRICTIONS
The CEI Series A Preferred Shares and CEI Common Shares issuable in
connection with the Merger have been registered under the Securities Act, but
such registration does not cover resales by shareholders of BVT who may be
deemed to control, be controlled by or be under common control with BVT or CEI
at the time of or after the Merger and who therefore may be deemed "affiliates"
of BVT or CEI as that term is used in Rule 145 under the Securities Act. Such
affiliates may not sell the CEI Series A Preferred Shares and CEI Common Shares
acquired in connection with the Merger (or shares of CEI Common Stock acquired
upon conversion of CEI Series A Preferred Shares) except pursuant to: (i) an
effective registration statement under the Securities Act covering such shares;
(ii) the conditions contemplated by paragraph (d) of Rule 145; or (iii) another
applicable exemption from the registration requirements of the Securities Act.
Rule 145, as currently in effect, imposes restrictions on the manner in which
such affiliates may make resales and also on the quantities of resales which
such affiliates, and others with whom they act in concert, may make within any
three-month period.
The Merger Agreement requires as a condition to the Merger that each such
affiliate of BVT enter into an agreement not to sell CEI Series A Preferred
Shares and CEI Common Shares acquired in the Merger (or shares of CEI Common
Stock acquired upon conversion of CEI Series A Preferred Shares) except in
accordance with the requirements of the Securities Act and the regulations
thereunder.
Persons who may be deemed to be affiliates of BVT include directors,
officers and certain large holders of BVT Common Shares. Management of BVT will
notify those persons whom it believes may be such affiliates. BVT shareholders
who are not deemed to be affiliates of BVT or CEI may sell their CEI Series A
Preferred Shares and CEI Common Shares (or shares of CEI Common Stock acquired
upon conversion of CEI Series A Preferred Shares) without being subject to the
above restrictions.
DESCRIPTION OF CAPITAL STOCK OF CEI
As of ___________________, 1996, CEI's authorized capital stock consisted
of 10,000,000 CEI Common Shares, par value $5.00 per share, 3,848,922 shares of
which were issued and outstanding.
The CEI Board has adopted a resolution unanimously approving and
recommending to the CEI shareholders for approval at the CEI Meeting to be held
on ______________, 1996, an amendment to CEI's Articles authorizing the CEI
Series A Preferred Shares.
CEI COMMON SHARES
The following description of the CEI Common Shares is not intended to
be complete and is qualified in its entirety by reference to CEI's
Articles, a copy of which is on file with the Commission.
Voting Rights
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Generally, with respect to all matters upon which shareholders are entitled
to vote (including the election of directors) or to which shareholders are
entitled to give consent, the holders of the outstanding CEI Common Shares shall
be entitled to cast one vote for each CEI Common Share held, provided that each
shareholder has cumulative voting rights in all elections for directors, which
is the right to cast as many votes in the aggregate as shall equal the number of
shares held by him or her multiplied by the number of directors to be elected,
and each shareholder may cast a whole number of votes for one candidate or
distribute such votes among two or more candidates.
Ranking
The CEI Common Shares will rank, with respect to the payment of dividends
or distribution of assets upon liquidation junior to the CEI Series A Preferred
Shares.
Dividends and Distributions
The CEI Common Shares shall receive such dividends as are from time to time
declared by the CEI Board, subject to the prior payment of the dividends due on
the CEI Series A Preferred Shares.
In the case of dividends or other distributions payable in stock or stock
split-ups or divisions, shares of the CEI Common Shares shall be distributed
only with respect to CEI Common Shares.
Liquidation Rights
In the event of dissolution, liquidation or winding up of CEI, whether
voluntary or involuntary, holders of the CEI Common Shares shall be entitled to
payment out of the assets of CEI ratably in accordance with the number of shares
held by them, respectively, subject to the prior liquidation rights of the CEI
Series A Preferred Shares.
General
CEI serves as the transfer agent and registrar for CEI Common Shares.
CEI SERIES A PREFERRED SHARES
The following description of the material terms of the CEI Series A
Preferred Shares is not intended to be complete, and is qualified in its
entirety by reference to the form of the CEI Series A Preferred Shares, which is
set forth as Exhibit A to the Merger Agreement, which agreement is attached to
this Joint Proxy Statement/Prospectus as Appendix A. The authorization and
issuance of the CEI Series A Preferred Shares in connection with the Merger is
subject to approval by the CEI shareholders. These matters will be considered at
the CEI Meeting to be held on _____________, 1996.
Rank
The CEI Series A Preferred Shares will rank, with respect to the payment of
dividends or distribution of assets upon liquidation, senior to CEI's Common
Shares, or any other class or series of CEI stock expressly stated to rank
junior to the CEI Series A Preferred Shares ("Junior Stock"). The CEI Series A
Preferred Shares will rank pari passu with any other class or series of CEI
Stock expressly stated to be on a parity with the CEI Series A Preferred Shares
("Parity Stock"). As discussed below under "--Voting Rights", CEI may not issue
any stock ranking senior to the CEI Series A Preferred Shares ("Senior Stock")
without the consent of the holders, voting together as a single class, of the
CEI Series A Preferred Shares and any outstanding Parity Stock.
Dividends
Holders of the CEI Series A Preferred Shares will be entitled to receive,
as and if declared by the CEI Board out of CEI funds legally available therefor,
cash dividends at an annual rate of $3.42 per share. Dividends will be paid in
equal semi-annual installments of $1.71 and shall be cumulative. No interest
shall be payable in respect of any dividend payments which may be in arrears. So
long as CEI has funds legally available for such purpose, the CEI Board shall
have a mandatory duty to declare and pay dividends on the CEI Series A Preferred
Shares (as well as to make required redemptions of CEI Series A Preferred
Shares),
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and holders shall have the right to specifically enforce declaration and payment
of dividends (as well as required redemptions) to the extent permitted by
Section 1521(b) of the PBCL.
Unless full cumulative dividends on outstanding CEI Series A Preferred
Shares have been paid, no dividend or other distribution (except in Junior
Stock) shall be declared or paid on any Junior Stock and no amount shall be set
aside or applied to the redemption, purchase or other acquisition of Junior
Stock other than by exchange therefor of Junior Stock or, with respect to
redemptions, purchases or other acquisitions of Junior Stock other than CEI
Common Shares, out of the proceeds of a substantially concurrent sale of shares
of Junior Stock.
The ability of CEI, as a holding company, to pay dividends on the CEI
Series A Preferred Shares will be dependent upon, among other factors, CEI's
earnings, financial condition and cash requirements at the time such payment is
considered, and the payment to CEI of dividends by its subsidiaries. CEI's
principal subsidiary, CTT, is subject to rate regulation by the PaPUC, and the
amount of earnings and dividends of such subsidiary are affected by the manner
in which it is regulated by such authorities. In addition, CTT is subject to
covenants contained in debt instruments which restrict the payment of dividends
by CTT in certain circumstances.
Liquidation Rights
In the event of any liquidation, dissolution or winding up of CEI, the
holders of CEI Series A Preferred Shares shall be entitled to receive from the
assets of CEI payment in cash of $65 per share, plus a further amount equal to
unpaid cumulative dividends on CEI Series A Preferred Shares accrued to the date
of payment, before any amount shall be paid or set aside for, or any
distribution of assets shall be made to, the holders of Junior Stock. If upon
any such liquidation, dissolution or winding up, the amounts payable with
respect to the holders of CEI Series A Preferred Shares and any other
outstanding Parity Stock cannot be paid in full, then the holders of CEI Series
A Preferred Shares and such Parity Stock will share ratably in any such
distribution in proportion to the full respective preferential amounts
(including unpaid cumulative dividends, if any) to which they are entitled. None
of the following transactions will be considered a liquidation, dissolution or
winding up of CEI for these purposes: (i) a merger or consolidation of CEI with
any other corporation; (ii) a reorganization or division of CEI; (iii) the
purchase or redemption of all or part of any outstanding CEI stock; (iv) a sale
or transfer of all or any part of CEI's assets; or (v) a share exchange to which
CEI is a party.
Conversion Rights
The CEI Series A Preferred Shares will be convertible at the option of the
holder at any time into a number of whole shares of CEI Common Stock equal to
the liquidation preference of $65 divided by the conversion price in effect at
the time of such conversion (with fractional shares paid in cash as described
below). The right to convert CEI Series A Preferred Shares which have been
called for redemption by CEI will terminate at the close of business on the
business day next preceding the redemption date unless CEI shall default in
paying the redemption price. See "--Redemption at the Option of CEI" below.
The conversion price shall be 125% of the average "Market Value" of a CEI
Common Share for the ten consecutive business days immediately preceding the
fourth business day prior to the Closing Date. The "Market Value" for each day
shall be the average of the last reported bid and asked prices in the over-the-
counter market as furnished by each of the four principal market makers for CEI
Common Shares on the Nasdaq Small Cap Market. The conversion price, however, may
not be less than $28.00 nor more than the higher of (i) $40.00 or (ii) such
average "Market Value."
The conversion price will be subject to adjustment (under formulas set
forth in the form of the CEI Series A Preferred Shares) in certain events,
including: (i) dividends and other distributions on CEI Common Shares payable in
shares of any class or series of CEI capital stock; (ii) certain subdivisions,
combinations and reclassifications of CEI Common Shares; (iii) the issuance to
all holders of CEI Common Shares of rights, options or warrants entitling them
to subscribe for or purchase CEI Common Shares at less than the current market
price (as defined); and (iv) distributions to all holders of CEI Common Shares
of evidences of indebtedness of CEI or assets (excluding cash dividends) or
rights or warrants (other than the rights or warrants described in clause (iii)
above) to purchase or subscribe for any CEI securities
In the event of any (i) capital reorganization of CEI; (ii) merger,
consolidation or share exchange of CEI with or into another corporation; (iii)
division of CEI; or (iv) sale, lease, exchange or other disposition
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of all or substantially all of the property and assets of CEI as a result of
which other than solely cash shall be exchanged for CEI Common Shares, all
holders of CEI Series A Preferred Shares will thereafter have the right to
convert CEI Series A Preferred Shares into the kind and amount of securities,
stock or other assets which the holders would have been entitled to receive upon
such reorganization, merger, consolidation, share exchange, division, sale,
lease, exchange or other disposition if the holders had held the number of CEI
Common Shares issuable upon conversion of their CEI Series A Preferred Shares
immediately prior to such reorganization, merger, consolidation, share exchange,
division, sale, lease, exchange or other disposition.
No adjustment of the conversion price will be required to be made until
cumulative adjustments amount to 1% or more of the conversion price as last
adjusted, except that any adjustments which are not required to be made shall be
carried forward and taken into account in calculating each subsequent
adjustment.
Upon conversion of any CEI Series A Preferred Shares, CEI shall deliver to
the holder of the shares, together with the certificates for the CEI Common
Shares issued upon conversion, payment for all accrued and unpaid cumulative
dividends on such shares through the date of conversion.
Fractional CEI Common Shares will not be issued upon conversion. In lieu
thereof, CEI will either pay a cash adjustment based upon market price of CEI
Common Shares on the business day preceding the date of conversion or deliver a
scrip certificate of CEI in respect of such fractional share.
CEI will reserve a number of CEI Common Shares sufficient for the
satisfaction of any scrip certificates and the conversion of all outstanding CEI
Series A Preferred Shares. For so long as CEI Common Shares are listed or
included for quotation or trading on any securities exchange or market or
trading system, CEI will list or include on any such exchange, market or system
all CEI Common Shares issuable upon conversion of the outstanding CEI Series A
Preferred Shares.
Redemption at the Option of CEI
The CEI Series A Preferred Shares are not subject to any mandatory
redemption or sinking fund provision. Commencing on the fourth anniversary of
the Closing Date, the CEI Series A Preferred Shares will be redeemable for cash,
at the option of CEI, on at least 30 but not more than 60 days notice, in whole
or in part from time to time. The redemption price shall equal the applicable
percentage of $65 per share specified below, plus an amount equal to the accrued
and unpaid cumulative dividends to the redemption date:
<TABLE>
<CAPTION>
Beginning of the
Anniversary of the
Effective
Date Percentage
------------ ----------
<S> <C>
Fourth............... 103.00%
Fifth................ 102.00%
Sixth................ 101.00%
Seventh and
thereafter......... 100.00%
</TABLE>
Any CEI Series A Preferred Shares which have been called for redemption may
be converted into CEI Common Shares at any time prior to the close of business
on the business day prior to the redemption date.
Unless full cumulative dividends due on outstanding CEI Series A Preferred
Shares have been paid and all prior redemptions at the option of the holders
have been made, CEI may not redeem any CEI Series A Preferred Shares or shares
of Parity Stock unless all outstanding CEI Series A Preferred Shares are
redeemed, and CEI may not purchase or otherwise acquire any CEI Series A
Preferred Shares or shares of Parity Stock except in accordance with a purchase
or exchange offer made simultaneously to all holders of CEI Series A Preferred
Shares and shares of Parity Stock which, in the reasonable opinion of the CEI
Board, will result in fair and equitable treatment among all such shares. If
less than all of the outstanding CEI Series A Preferred Shares shall be called
for redemption, the particular shares to be redeemed shall be selected by lot or
by such other equitable manner as may be prescribed by the CEI Board.
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Redemption at the Option of the Holders
Commencing on the second anniversary of the Closing Date and at any time or
from time to time thereafter, each holder of CEI Series A Preferred Shares shall
have the right, at such holder's option, to require CEI to redeem all or a
portion of such holder's CEI Series A Preferred Shares at a redemption price of
$65, plus an amount equal to the accrued and unpaid cumulative dividends thereon
to the redemption date. Requests for redemption by holders of CEI Series A
Preferred Shares will be irrevocable and (unless CEI shall default in making the
requested redemption) shall terminate all conversion rights of the holder with
respect to the CEI Series A Preferred Shares to be redeemed.
Holders may not exercise their optional redemption right for less than 100
shares of CEI Series A Preferred Shares (or, if less than 100, all shares of CEI
Series A Preferred Shares owned by such holder). As of each March 31, June 30,
September 30 and December 31, CEI shall redeem all CEI Series A Preferred Shares
for which a notice of optional redemption has been received by CEI prior to the
close of business on the immediately preceding February 15, May 15, August 15 or
November 15, respectively. CEI shall also redeem all CEI Series A Preferred
Shares for which a notice of optional redemption has been received by CEI during
the 30 day period following the date of mailing by CEI to the holders of a
notice of a reclassification, capital reorganization, merger, consolidation,
share exchange, division, sale, lease, exchange or other disposition of assets,
liquidation, dissolution or winding-up relating to CEI.
Voting Rights
Except as indicated below or as required by law, holders of CEI Series A
Preferred Shares will have no voting rights. In the event that (i) dividends
upon the CEI Series A Preferred Shares shall be in arrears in an amount equal to
three full semi-annual dividends thereon or (ii) any redemption of CEI Series A
Preferred Shares at the option of the holder has not been made as required, the
number of directors constituting the full CEI Board shall be increased by two,
and the holders of the CEI Series A Preferred Shares, voting noncumulatively
separately as a single class together with the holders of any other shares of
CEI preferred stock having similar voting rights then exercisable, shall be
entitled to elect two additional members of the CEI Board until all accumulated
and unpaid dividends have been paid and all required redemptions have been made.
Without the affirmative vote of the holders of at least a majority of the
CEI Series A Preferred Shares, CEI may not amend, alter, change or repeal any of
the express terms of the CEI Series A Preferred Shares.
In addition, without the affirmative vote of the holders of at least a
majority of the CEI Series A Preferred Shares then outstanding or, if holders of
other series of CEI preferred stock have the right to vote as a class on such
matter under CEI's Articles, the holders of at least a majority of CEI Series A
Preferred Shares and other series of CEI preferred stock voting as a single
class, CEI shall not (i) authorize or permit any shares of Senior Stock to be
outstanding; (ii) increase the authorized number of shares of Senior Stock; or
(iii) merge, consolidate, divide or participate in a share exchange with any
other corporation if the corporation surviving or resulting from such
transaction would have outstanding shares of Senior Stock in excess of the
number of shares of Senior Stock of CEI permitted to be outstanding immediately
prior to such merger, consolidation, division or share exchange.
When holders of CEI Series A Preferred Shares have the right to vote as
described above, each holder of a CEI Series A Preferred Share shall be entitled
to one vote or fraction thereof, for each $10.00 or fraction thereof, of the $65
liquidation preference represented by such CEI Series A Preferred Share.
No Trading Market
The CEI Series A Preferred Shares will not be listed on Nasdaq or any
securities exchange. It is not anticipated that an active public trading market
for the CEI Series A Preferred Shares will develop following the Merger.
Miscellaneous
The transfer agent, conversion agent and registrar for the CEI Series A
Preferred Shares shall be _________________. When issued, the CEI Series A
Preferred Shares will be fully paid and nonassessable. Holders of CEI Series A
Preferred Shares will have no preemptive rights with respect to any shares of
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capital stock of CEI or any other securities of CEI convertible into or carrying
rights or options to purchase any such shares.
PENNSYLVANIA ANTI-TAKEOVER LAW PROVISIONS
CEI is subject to various statutory "anti-takeover" provisions of the PBCL,
including Subchapters 25E and F of the PBCL.
Subchapter 25E (relating to control transactions) provides that if any
person or group acquires 20% or more of the voting power of a covered
corporation, the remaining shareholders may demand from such person or group the
fair value of their shares, including a proportionate amount of any control
premium. Subchapter 25F (relating to business combinations) delays for five
years and imposes conditions upon "business combinations" between an "interested
shareholder" and the corporation. The term "business combination" is defined
broadly to include various transactions utilizing a corporation's assets for
purchase price amortization or refinancing purposes. An "interested shareholder"
is defined generally as the beneficial owner of at least 20% of a corporation's
voting shares. Subchapters 25E and F contain a wide variety of transactional and
status exemptions, exclusions and safe harbors. The foregoing descriptions are
qualified in their entirety by reference to the applicable statutory provisions
incorporated herein by reference.
The CEI Bylaws, however, render several other "anti-takeover" provisions of
the PBCL inapplicable to CEI, including Subchapters 25G (relating to control-
share acquisitions), 25H (relating to disgorgement), 25I (relating to certain
required severance payments) and 25J (relating to labor contracts), as well as a
standard of required director conduct giving directors broader discretion than
is permitted under the traditional rule of director conduct to consider the
interests of a wide range of groups affected by its decisions and to reject
proposed acquisitions or changes in control.
The PBCL permits an amendment of the corporation's articles or other
corporate action, if approved by shareholders generally, to provide mandatory
special treatment for specified groups of nonconsenting shareholders of the same
class by providing, for example, that shares of common stock held only by
designated shareholders of record, and no other shares of common stock, shall be
cashed out at a price determined by the corporation, subject to applicable
dissenters' rights.
COMPARISON OF SHAREHOLDER RIGHTS
INTRODUCTION
Upon consummation of the Merger, to the extent that they receive CEI shares
Stock Merger Consideration in the transaction, holders of BVT Common Shares,
whose rights presently are governed by the PBCL and BVT's Articles and Bylaws,
will become holders of CEI Common Shares or CEI Series A Preferred Shares. Upon
conversion of CEI Series A Preferred Shares, former BVT shareholders will become
holders of CEI Common Shares. Accordingly, their rights will be governed by the
PBCL and CEI's Articles and Bylaws. Certain differences arise from differences
between the BVT Articles and the BVT Bylaws, on the one hand, and the CEI
Articles and CEI Bylaws, on the other hand, as well as from differences in
treatment under the PBCL in certain instances of publicly traded or "registered"
corporations, such as CEI, as compared to privately held "non-registered"
corporations, such as BVT. The following discussion is not intended to be a
complete statement of all differences and is qualified in its entirety by
reference to applicable Pennsylvania corporate laws and the Articles and Bylaws
of BVT and CEI. See "INCORPORATION OF DOCUMENTS BY REFERENCE" and "AVAILABLE
INFORMATION."
DIVIDENDS
Holders of BVT Common Shares receive such dividends as may be declared by
the BVT Board from time to time. BVT's present dividend policy is to pay
quarterly dividends of $.45 ($1.80 annually) per BVT Common Share. Holders of
CEI Series A Preferred Shares will be entitled to cumulative semi-annual cash
dividends of $1.71 ($3.42 annually) per share. CEI Preferred Shares will have
preference over CEI Common Shares as to dividends. See "DESCRIPTION OF CAPITAL
STOCK OF CEI--CEI Preferred Shares."
Holders of CEI Common Shares are entitled to receive such dividends as may
be declared by the CEI Board from time to time. CEI and its predecessor publicly
held corporation, CTT, have maintained a policy of paying cash dividends since
1909, and CEI does not intend to alter this policy in the foreseeable
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future. During 1995 CEI has paid dividends on the CEI Common Shares at the
annual rate of $1.20 per share. At the Common Stock Exchange Ratio of 2.4 CEI
Common Shares for each BVT Common Share, under CEI's current dividend policy,
each share of BVT common exchanged into CEI Common Shares will be paid annual
dividends totalling $2.88. See "DESCRIPTION OF CAPITAL STOCK OF CEI--CEI Common
Shares."
VOTING RIGHTS GENERALLY
With respect to most matters on which shareholders are entitled to vote,
holders of BVT Common Shares are entitled to one vote per share. Holders of BVT
Common Shares are entitled to cumulate their votes for the election of
directors. Except for the election of directors, in general, any action to be
taken by vote of the BVT shareholders shall be authorized upon the affirmative
vote of a majority of the BVT Common Shares represented and entitled to vote at
a shareholders meeting.
Except as required by law or as described below, holders of CEI Series A
Preferred Shares will have no voting rights. If CEI fails to pay dividends in an
amount equal to three full semi-annual dividends or fails to redeem CEI Series A
Preferred Shares when required, holders of CEI Series A Preferred Shares, voting
as a class together with any other CEI preferred shareholders having a similar
right, will be entitled to elect two directors to the CEI Board. Holders of CEI
Series A Preferred Shares will also have voting rights in limited circumstances
where CEI desires to take specified corporate actions that may be adverse to the
rights and preferences of the CEI Series A Preferred Shares. Where any such
voting rights apply, each CEI Preferred Share shall have one vote (or fraction
thereof) for each $10 (or fraction thereof) of liquidation preference of such
shares. See "DESCRIPTION OF CAPITAL STOCK OF CEI--CEI Series A Preferred Stock."
With respect to all matters on which shareholders are entitled to vote
(including the election of directors), CEI Common Shares are entitled to one
vote per share. Holders of CEI Common Shares are entitled to cumulate their
votes for the election of directors. See "DESCRIPTION OF CAPITAL STOCK OF CEI--
CEI Common Shares." Except for the election of directors, in general, any action
to be taken by vote of the CEI shareholders shall be authorized upon the
affirmative vote of a majority of the votes cast at a shareholders meeting.
CLASSIFIED BOARD OF DIRECTORS
The PBCL permits a corporation's Board of Directors to be divided into
various classes serving staggering terms of office. The CEI Bylaws provide that
the CEI Board be divided into three classes of directors of three directors
each. At each annual meeting of shareholders, one class of directors is elected
to serve for a three-year term. Classification of directors has the effect of
making it more difficult for shareholders to change the composition of the Board
of Directors. At least two annual meetings of shareholders, instead of one, will
generally be required to effect a change in the majority of the Board of
Directors. Such classification provisions could have the effect of discouraging
a third party from initiating a proxy contest, making a tender offer or
otherwise attempting to obtain control of CEI.
BVT's Board is not classified. Any shareholders seeking to elect its
designees to a majority of the seats on the BVT Board, therefore, could do so at
any annual meeting.
NUMBER OF DIRECTORS
The BVT Bylaws establish the number of directors at nine. The CEI Bylaws
establish the number of directors at nine.
REMOVAL OF DIRECTORS
BVT directors may be removed from office without cause by shareholder vote.
CEI directors may only be removed for cause by shareholder vote. This removal
restriction strengthens the anti-takeover effect of the classified board
provision in the CEI Bylaws.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
The BVT Bylaws provide that vacancies occurring on the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors,
even if the number of remaining directors
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constitutes less than a quorum. Any director so chosen shall have a term of
office continuing only until the next election of directors.
The CEI Bylaws provide that vacancies occurring on the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors,
even if the number of remaining directors constitutes less than a quorum. Any
director so chosen shall have a term of office equal to the unexpired portion of
the term of the director whose place shall be vacant.
CALL OF SPECIAL SHAREHOLDERS' MEETING
Special meetings of the shareholders of BVT may be called by (i) the board
of directors, or (ii) the president at the request of the holders of not less
than 20% of all the outstanding shares of BVT entitled to vote at such meeting.
Special meetings of CEI's shareholders may be called by (i) the president, (ii)
the Board of Directors or (iii) the president upon the written request of the
holders of not less than 20% of all outstanding shares of CEI entitled to vote
at such meeting, provided such request specifies the purpose of the meeting. No
business other than that stated in the notice of meeting may be acted upon at a
BVT or a CEI special shareholders' meeting.
NOTICE OF SHAREHOLDERS' MEETING
Notice of a BVT shareholders' meeting must be delivered at least two weeks
in advance of the scheduled meeting, unless in the judgment of the BVT Board, a
special meeting requires a shorter notice period, in which case the BVT Bylaws
require that the notice be delivered at least five days in advance of the
scheduled meeting. Notice of a CEI shareholders' meeting must be given at least
ten days before the date of the meeting, unless a greater period of notice is
required by law in a particular case.
QUORUM REQUIREMENTS AND ADJOURNMENT OF MEETINGS
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares entitled to vote at a meeting constitutes a quorum for a BVT
or CEI shareholders' meeting. A majority of the outstanding shares represented
at the meeting, even if less than a quorum, may adjourn a BVT or CEI
shareholders' meeting from time to time. Notice of adjournment is not required
unless, in the case of BVT, the adjourned meeting occurs more than six months
following the date of the original meeting for which notice was given.
Shareholders present at a duly convened BVT shareholders' meeting may
continue to transact business until adjournment of the meeting, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum. In the case
of a BVT shareholders' meeting called for the election of directors, such
meeting may be adjourned for any period not exceeding 15 days; those BVT
shareholders who attend the meeting which had previously been adjourned shall,
even if they are less than a quorum, constitute a quorum for the purpose of
electing directors, but for no other purpose.
If a quorum is not present at a CEI shareholders' meeting, no business may
be transacted except to adjourn the meeting to a future time.
ACTION WITHOUT MEETING
BVT and CEI shareholders may take action only at a shareholders' meeting or
by unanimous written consent.
DISSENTERS' RIGHTS
Under the PBCL, shareholders are generally entitled to dissent from, and
demand payment of the fair value of their shares in connection with a plan of
merger, consolidation, share exchange, asset transfer or division. In accordance
with the PBCL, holders of BVT Common Shares are entitled to dissenters' rights
in connection with the Merger. See "THE MERGER--Dissenters' Rights."
Dissenters' rights under the PBCL would be available to holders of CEI
Common Shares in connection with a plan of merger, consolidation, share
exchange, asset transfer or division to which CEI is a party. CEI is not a party
to the Merger.
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LIMITATIONS ON DIRECTORS' LIABILITY
As permitted by the PBCL, both the BVT and CEI Bylaws provide that
directors shall not be personally liable to the corporation or its shareholders
for monetary damages for any action taken, or any failure to take any action,
unless the director has breached or failed to perform the duties of his or her
office under applicable Pennsylvania law and the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. These provisions,
however, do not apply to the responsibility or liability of a director pursuant
to any criminal statute or the liability of a director for the payment of taxes
pursuant to local, state or federal law.
INDEMNIFICATION
Sections 1741 and 1742 of the PBCL generally provide that a corporation may
indemnify directors and officers against liabilities they may incur in such
capacity provided that the particular person acted in good faith and in a manner
he or she reasonably believed to be in, or not opposed to, the best interests of
the corporation, and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. In the case of actions against
a director or officer by or in the right of the corporation, the power to
indemnify extends only to expenses (not judgments and amounts paid in
settlement) and such power generally does not exist if the person otherwise
entitled to indemnification shall have been adjudged to be liable to the
corporation unless it is judicially determined that, despite the adjudication of
liability but in view of all the circumstances of the case, the person is fairly
and reasonably entitled to indemnification for specified expenses. Section 1743
of the PBCL also requires a corporation to indemnify directors and officers
against expenses they may incur in defending actions against them in such
capacities if they are successful on the merits or otherwise in the defense of
such actions.
Section 1746 of the PBCL also grants a corporation broad authority, beyond
the power granted under Sections 1741 and 1742, to indemnify its directors,
officers and other agents for liabilities and expenses incurred in such
capacity, except in circumstances where the act or failure to act giving rise to
the claim for indemnification is determined by a court to have constituted
willful misconduct or recklessness. Pursuant to the authority of Section 1746 of
the PBCL, both the CEI and BVT Bylaws provide for indemnification of directors,
officers and other agents of the corporation to the extent otherwise permitted
by Section 1741 of the PBCL and also in certain circumstances not otherwise
permitted by Sections 1741 and 1742 of the PBCL.
The BVT Bylaws provide, except as expressly prohibited by law, an
unconditional right to indemnification for expenses and any liability paid or
incurred by any representatives of BVT in connection with any actual or
threatened claim, action, suit or proceeding (including derivative suits) in
which he or she may be involved by reason of being or having been a director or
officer of BVT or serving at the request of BVT as a director, officer, employee
or agent of another entity. The BVT Bylaws specifically authorize
indemnification against both judgments and amounts paid in settlement of
derivative suits, unlike Section 1742 of the PBCL which authorizes
indemnification only of expenses incurred in defending a derivative action.
Unlike the provisions of PBCL Sections 1741 and 1742, the BVT Bylaws do not
require BVT to determine the availability of indemnification by the procedures
or the standard of conduct specified in Sections 1741 and 1742 of the PBCL.
As authorized by Section 1745 of the PBCL, the BVT Bylaws require the
corporation to pay the expenses of a director or officer incurred in defending
an action or proceeding in advance of the final disposition thereof upon receipt
of an undertaking from such person to repay the amounts advanced unless it is
ultimately determined that such person is entitled to indemnification from the
corporation.
The BVT Bylaws permit the corporation, by action of its board of directors,
to provide indemnification to employees and agents with the same scope and
effect as the indemnification provisions for directors and officers described
above.
STATE ANTI-TAKEOVER LAW PROVISIONS
The PBCL contains certain "anti-takeover" provisions that are only
applicable to "registered" corporations. These provisions do not apply to BVT.
Because CEI is a registered corporation, however, certain of these provisions
are applicable to CEI. See "DESCRIPTION OF CAPITAL STOCK OF CEI--Pennsylvania
Anti-Takeover Law Provisions."
-61-
<PAGE>
Subchapter 25E of the PBCL is a "cash-out" antitakeover statute which
generally provides that if any person or group acquires 20% or more of the
voting power of a corporation, the remaining shareholders may demand from such
person or group the fair value of their shares, including a proportionate amount
of any control premium.
Under Subchapter 25F of the PBCL, CEI is prohibited from engaging in
specified business combination transactions with an interested stockholder
(defined in general as any beneficial owner of at least 20% of CEI's outstanding
voting power) during the five-year period following the date such person became
an interested stockholder unless (i) the business combination or share
acquisition is approved by CEI's Board prior to the date such person becomes an
interested stockholder, (ii) the business combination is approved by unanimous
vote of the holders of all outstanding common stock, or (iii) the interested
shareholder owns at least 80% of CEI's outstanding voting power, the business
combination is approved by a majority of the holders of CEI voting shares (not
including shares held by the interested shareholder), and the interested
shareholder complies with specified procedural and minimum fair price criteria.
After the five-year period, a business combination may be effected if (i) the
transaction is approved by a majority of the outstanding CEI voting power (not
including shares held by the interested shareholder), or (ii) the transaction is
approved by a majority of the outstanding CEI voting power (including shares
held by the interested shareholder) and the interested shareholder complies with
specified procedural and minimum fair price criteria. CEI is also subject to
another Pennsylvania law provision (PBCL Section 2538) which requires certain
fundamental transactions with an interested shareholder to be approved by a
majority of the corporation's directors who are unaffiliated with such
shareholder.
AMENDMENT OF ARTICLES OF INCORPORATION
Persons holding at least 10% of the BVT Common Shares may propose
amendments to the BVT Articles. Because CEI is a registered corporation, under
the PBCL, CEI shareholders are not entitled to propose amendments to the CEI
Articles, and all amendments must first be approved by the CEI Board.
Except for the general requirement that charter amendments affecting any
particular class or series of stock be approved by the affected class or series,
proposed amendments to (i) the BVT Articles, require shareholder approval by the
affirmative vote of a majority of the shares represented and entitled to vote at
a shareholders' meeting, or (ii) the CEI Articles require a majority of the
votes cast at a shareholders' meeting. For a description of the amendments to
the CEI Articles requiring a separate class vote, see "DESCRIPTION OF CAPITAL
STOCK OF CEI--CEI Series A Preferred Stock--Voting Rights."
AMENDMENT OF BYLAWS
Amendments to the BVT Bylaws may be made by an affirmative vote of at least
two-thirds of the members of BVT's Board or by a two-thirds vote of the stock
represented at any annual meeting or special meeting of BVT's shareholders
called for the purpose of amending the BVT Bylaws. At each annual meeting of
BVT's shareholders, all amendments to the BVT Bylaws effected by BVT's Board
since the previous annual meeting must be reported and will be deemed to have
the approval of the shareholders unless rejected by a majority vote.
Additionally, the BVT Bylaws require that (i) any amendment by BVT's Board which
is disapproved by the shareholders may not be revived within two years of such
disapproval except upon a two-thirds vote of the stock represented at the annual
meeting of shareholders or a special meeting of shareholders called for the
purpose of instituting such amendment, and (ii) any provision of the BVT Bylaws
previously rescinded, amended or added to the BVT Bylaws by vote of the BVT
shareholders may not be revived, amended or rescinded by the BVT Board within
two years of such recision, amendment or addition.
The CEI Bylaws may be amended at any regular or special meeting of the CEI
shareholders by a majority vote of all the shares represented and entitled to
vote at the meeting.
-62-
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Balance Sheets as
of September 30, 1995 give effect to the Merger and the acquisition of all
outstanding common stock of BVT as though they had occurred on September 30,
1995. The following Unaudited Pro Forma Condensed Consolidated Statements of
Income for the nine months ended September 30, 1995 and the year ended December
31, 1994 give effect to the Merger as though it had occurred on January 1, 1994.
These pro forma financial statements should be read in conjunction with (i) the
historical financial statements and notes thereto of BVT contained in this Joint
Proxy Statement/Prospectus, and (ii) the historical consolidated financial
statements and notes thereto of CEI contained in CEI's Annual Report on Form 10-
K for the year ended December 31, 1994 and in CEI's Quarterly Report on Form 10-
Q for the nine months ended September 30, 1995, which reports are incorporated
herein by reference. The Pro Forma Condensed Consolidated Statements of Income
and Balance Sheets are not necessarily indicative of the actual results of
operations or financial position which would have been reported if the Merger
transaction had occurred on the respective dates referred to above nor do they
purport to indicate the results of future operations or the future financial
position of CEI. In the opinion of management, all adjustments necessary to
present fairly such pro forma financial statements have been made. The results
for interim periods are not necessarily indicative of the results for the full
fiscal year. Information regarding CEI and BVT has been provided by CEI and BVT,
respectively.
The percentage of BVT Common Shares that will be exchanged for Common Stock
Merger Consideration or Preferred Stock Merger Consideration is not limited by
the Merger Agreement; were the BVT shareholders to so elect 100% of the BVT
Common Shares could be exchanged in the Merger for Common Stock Merger
Consideration or Preferred Stock Merger Consideration. Because of this degree of
variability in the terms of the Merger Agreement, the Unaudited Pro Forma
Condensed Consolidated Financial Statements are presented for two scenarios,
Scenario 1 and Scenario 2, based on different assumptions of the consideration
given for the acquisition of all outstanding common stock of BVT as provided by
the Merger Agreement. Scenario 1 assumes half of the consideration in cash (the
Merger Agreement limits the cash portion of the total consideration given to no
greater than 50%) and the remainder split in equal proportions of CEI Series A
Convertible Preferred Shares and CEI Common Shares. Scenario 2 assumes the
consideration in equal proportions of cash, CEI Series A Convertible Preferred
Shares and CEI Common Shares.
-63-
<PAGE>
SCENARIO 1 - 50% CASH, 25% COMMON STOCK, 25% PREFERRED STOCK
CONESTOGA ENTERPRISES INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER, 30 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Conestoga Buffalo Valley
Enterprises, Telephone
Inc. Company
September 30, September 30, Acquisition Pro
1995 (Actual) 1995 (Actual) Adjustments Forma
------------- ------------- ------------ -----
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,501 $ 1,970 $ -- $ 3,471
Short-term investments -- 1,998 -- 1,998
Accounts receivable, net, including
unbilled revenue 3,979 2,581 -- 6,560
Inventories, at average cost 518 266 -- 784
Prepaid expenses 340 1,959 -- 2,299
------- ------- -------- --------
Total current assets 6,338 8,774 -- 15,112
------- ------- -------- --------
Property, Plant and Equipment
Telephone plant 83,862 28,548 -- 112,410
Other property, plant and equipment 2,543 2,511 (968) (C) 4,086
------- ------- -------- --------
Total property, plant and equipment 86,405 31,059 (968) 116,496
Accumulated depreciation 40,228 12,311 (171) (C) 52,368
------- ------- -------- --------
Net property, plant and equipment 46,177 18,748 (797) 64,128
Investments 4,731 182 (776) (D) 4,137
Prepaid pension costs 1,396 518 -- 1,914
Intangible assets -- -- 40,034 (A)(C)(D)(E)(F) 40,034
Other assets 67 545 -- 612
------- ------- -------- --------
$58,709 $28,767 $ 38,461 $125,937
======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 1,000 $ -- $ -- $ 1,000
Current maturities of long-term debt 390 81 -- 471
Accounts payable 1,723 1,195 -- 2,918
Accrued:
Taxes -- 1,682 -- 1,682
Payroll and vacation pay 477 102 -- 579
Other -- 42 1,152 (E) 1,194
Advance billings and customer deposits 946 2 -- 948
------- ------- -------- --------
Total current liabilities 4,536 3,104 1,152 8,792
Long-term debt 4,743 1,404 28,697 (A) 34,844
Deferred income taxes and investment tax credits 7,043 3,610 (319) (C) 10,334
Other liabilities and deferred credits 594 264 -- 858
Minority interest 99 -- -- 99
Redeemable preferred stock -- -- 14,349 (A) 14,349
Stockholders' Equity
Common stock 19,245 600 2,049 (A)(F) 21,894
Additional paid-in capital 4,769 467 11,851 (A)(F) 17,087
Retained earnings 17,358 19,357 (19,357) (F) 17,358
Net unrealized appreciation on marketable
equity securities, net of tax 322 -- -- 322
Treasury stock -- (39) 39 (F) --
------- ------- -------- --------
Total Stockholders' Equity 41,694 20,385 (5,418) 56,661
------- ------- -------- --------
Total Liabilities and Stockholders' Equity $58,709 $28,767 $ 38,461 $125,937
======= ======= ======== ========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
-64-
<PAGE>
SCENARIO 1 - 50% CASH, 25% COMMON STOCK, 25% PREFERRED STOCK
CONESTOGA ENTERPRISES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Conestoga Buffalo Valley
Enterprises, Telephone
Inc. Company
September 30, September 30, Acquisition Pro
1995 (Actual) 1995 (Actual) Adjustments Forma
------------ ------------- ----------- -----
<S> <C> <C> <C> <C>
Operating revenues $ 23,075 $8,472 $ -- $ 31,547
Operating expenses 14,999 5,299 751 (G) 21,049
---------- ------ ------- ----------
Operating income 8,076 3,173 (751) 10,498
Interest expense (345) (100) (1,722) (H) (2,167)
Other income, net 754 179 -- 933
---------- ------ ------- ----------
Income before income taxes 8,485 3,252 (2,473) 9,264
Provision (benefit) for income taxes 3,478 1,225 (699) (I) 4,004
---------- ------ ------- ----------
Net income before preferred dividends 5,007 2,027 (1,774) 5,260
Preferred dividends -- (16) (550) (J) (566)
---------- ------ ------- ----------
Net income available for common
stock $ 5,007 $2,011 $(2,324) $ 4,694
========== ====== ======= ==========
Earnings per common share $1.30 $1.07
========== ==========
Weighted average common shares
outstanding 3,848,922 4,378,814
========== ==========
</TABLE>
See Notes to Pro Forma Condensed Financial Statements.
-65-
<PAGE>
SCENARIO 1 - 50% CASH, 25% COMMON STOCK, 25% PREFERRED STOCK
CONESTOGA ENTERPRISES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Conestoga Buffalo Valley
Enterprises, Telephone
Inc. Company
December 31, December 31, Acquisition Pro
1994 (Actual) 1994 (Actual) Adjustments Forma
------------- ------------- ----------- -----
<S> <C> <C> <C> <C> <C>
Operating revenues $ 29,828 $11,435 $ -- $ 41,263
Operating expenses 19,177 6,759 1,001 (G) 26,937
---------- ------- ------- ----------
Operating income 10,651 4,676 (1,001) 14,326
Interest expense (422) (165) (2,296) (H) (2,883)
Other income (expense), net 490 170 -- 660
---------- ------- ------- ----------
Income before income taxes 10,719 4,681 (3,297) 12,103
Provision (benefit) for income taxes 4,425 1,828 (932) (I) 5,321
---------- ------- ------- ----------
Net income before preferred
dividends 6,294 2,853 (2,365) 6,782
Preferred dividends -- (16) (739) (J) (755)
---------- ------- ------- ----------
Net income available for
common stock $ 6,294 $ 2,837 $(3,104) 6,027
========== ======= ======= ==========
Earnings per common share $ 1.64 $ 1.38
========== ==========
Weighted average common
shares outstanding 3,843,174 4,373,066
========== ==========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
-66-
<PAGE>
SCENARIO 2 - 1/3 CASH, 1/3 COMMON STOCK, 1/3 PREFERRED STOCK
CONESTOGA ENTERPRISES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Conestoga Buffalo Valley
Enterprises, Telephone
Inc. Company
September 30, September 30, Acquisition Pro
1995 (Actual) 1995 (Actual) Adjustments Forma
------------- -------------- ------------ -----
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,501 $ 1,970 $ -- $ 3,471
Short-term investments -- 1,998 -- 1,998
Accounts receivable, net, including unbilled
revenue 3,979 2,581 -- 6,560
Inventories, at average cost 518 266 -- 784
Prepaid expenses 340 1,959 -- 2,299
------- ------- -------- --------
Total current assets 6,338 8,774 -- 15,112
------- ------- -------- --------
Property, Plant and Equipment
Telephone plant 83,862 28,548 -- 112,410
Other property, plant and equipment 2,543 2,511 (968) (C) 4,086
------- ------- -------- --------
Total property, plant and equipment 86,405 31,059 (968) 116,496
Accumulated depreciation 40,228 12,311 (171) (C) 52,368
------- ------- -------- --------
Net property, plant and equipment 46,177 18,748 (797) 64,128
Investments 4,731 182 (776) (D) 4,137
Prepaid pension costs 1,396 518 -- 1,914
Intangible assets -- -- 40,240 (B)(C)(D)(F) 40,240
Other assets 67 545 -- 612
------- ------- -------- --------
$58,709 $28,767 $ 38,667 $126,143
======= ======= ======== ========
Current Liabilities
Notes payable $ 1,000 $ -- $ -- $ 1,000
Current maturities of long-term debt 390 81 -- 471
Accounts payable 1,723 1,195 -- 2,918
Accrued:
Taxes -- 1,682 -- 1,682
Payroll and vacation pay 477 102 -- 579
Other -- 42 1,152 (E) 1,194
Advance billings and customer deposits 946 2 -- 948
------- ------- -------- --------
Total current liabilities 4,536 3,104 1,152 8,792
Long-Term Debt 4,743 1,404 19,131 (B) 25,278
Deferred income taxes and investment tax credits 7,043 3,610 (319) (C) 10,334
Other liabilities and deferred credits 594 264 -- 858
Minority interest 99 -- -- 99
Redeemable preferred stock -- -- 19,132 (B) 19,132
Stockholders' Equity
Common stock 19,245 600 2,932 (B)(F) 22,777
Additional paid-in capital 4,769 467 15,957 (B)(F) 21,193
Retained earnings 17,358 19,357 (19,357) (F) 17,358
Net unrealized appreciation on marketable
equity securities, net of tax 322 -- -- 322
Treasury stock -- (39) (39) (F) --
------- ------- -------- --------
Total Stockholder's Equity 41,694 20,385 (429) 61,650
------- ------- -------- --------
Total Liabilities and Stockholders' Equity $58,709 $28,767 $ 38,667 $126,143
======= ======= ======== ========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
-67-
<PAGE>
SCENARIO 2 - 1/3 CASH, 1/3 COMMON STOCK, 1/3 PREFERRED STOCK
CONESTOGA ENTERPRISES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Conestoga Buffalo Valley
Enterprises, Telephone
Inc. Company
September 30, September 30, Acquisition Pro
1995 (Actual) 1995 (Actual) Adjustments Forma
------------- ------------- ------------ -----
<S> <C> <C> <C> <C>
Operating revenues $ 23,075 $8,472 $ -- $ 31,547
Operating expenses 14,999 5,299 755 (G) 21,053
--------- ----- ------- ---------
Operating income 8,076 3,173 (755) 10,494
Interest expense (345) (100) (1,148) (H) (1,593)
Other income, net 754 179 -- 933
--------- ----- ------- ---------
Income before income taxes 8,485 3,252 (1,903) 9,843
Provision (benefit) for income taxes 3,478 1,225 (466) (I) 4,237
--------- ----- ------- ---------
Net income before preferred dividends 5,007 2,027 (1,437) 5,597
Preferred dividends -- (16) (739) (J) (755)
--------- ----- ------- ---------
Net income available for common stock $ 5,007 $2,011 $(2,176) $ 4,842
========= ===== ======= =========
Earnings per common share $ 1.30 $1.06
========= =========
Weighted average common shares
outstanding 3,848,922 4,555,445
========= =========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
-68-
<PAGE>
SCENARIO 2 - 1/3 CASH, 1/3 COMMON STOCK, 1/3 PREFERRED STOCK
CONESTOGA ENTERPRISES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Conestoga Buffalo Valley
Enterprises, Telephone
Inc. Company
December 31, December 31, Acquisition Pro
1994 (Actual) 1994 (Actual) Adjustments Forma
------------- ------------- ------------ -----
<S> <C> <C> <C> <C>
Operating revenues $ 29,828 $11,435 $ -- $ 41,263
Operating expenses 19,177 6,759 1,006 (G) 26,942
---------- ------- ------- ----------
Operating income 10,651 4,676 (1,006) 14,321
Interest expense (422) (165) (1,531) (H) (2,118)
Other income (expense), net 490 170 -- 660
---------- ------- ------- ----------
Income before income taxes 10,719 4,681 (2,537) 12,863
Provision (benefit) for income taxes 4,425 1,828 (621) (I) 5,632
---------- ------- ------- ----------
Net income before preferred dividends 6,294 2,853 (1,916) 7,231
Preferred dividends -- (16) (991) (J) (1,007)
---------- ------- ------- ----------
Net income available for common stock $ 6,294 $ 2,837 $(2,907) $ 6,224
========== ======= ======= ==========
Earnings per common share $ 1.64 $ 1.37
========== ==========
Weighted average common shares
outstanding 3,843,174 4,549,697
========== ==========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
-69-
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Scenario 1
(a) Adjustments to record consideration for the Merger assuming 50% cash,
25% CEI Series A Preferred Stock and 25% CEI Common Shares and the related
acquisition adjustment (excess cost over net assets required) for the difference
between the purchase price and book value of assets and liabilities acquired (as
mandated by regulators). Also, adjustments to record the issuance of CEI Series
A Preferred Stock at $65 per share, CEI Common Shares at a conversion ratio of
2.4 assuming a market value of $28.25 per share, the market value at September
30, 1995, and debt to fund the cash consideration of $65 per share. This debt
assumes a four year revolving commitment, converting to an eleven year term loan
with interest payments only for the first two years, then repayment to be
negotiated over the remaining term.
Scenario 2
(b) Adjustments to record consideration for the Merger assuming one-third
cash, one-third CEI Series A Preferred Stock and one-third CEI Common Shares and
the related acquisition adjustment (excess cost over net assets acquired) for
the difference between the purchase price and book value of assets and
liabilities acquired (as mandated by regulators). Also, adjustments to record
the issuance of CEI Series A Preferred Stock at $65 per share, CEI Common Shares
at a conversion ratio of 2.4 assuming a market value of $28.25 per share, the
market value at September 30, 1995, and debt to fund the cash consideration of
$65 per share. This debt assumes a four year revolving commitment, converting to
an eleven year term loan with interest payments only for the first two years,
then repayment to be negotiated over the remaining term.
Scenarios 1 & 2
(c) Adjustments to record the estimated fair value of non-regulated
property, plant and equipment acquired in the acquisition of BVT.
(d) Adjustment to record cancellation of 16,000 shares of outstanding
BVT common stock owned by CEI prior to the Merger at original cost.
(e) Adjustment to accrue estimated acquisition costs including
investment banker, legal and accounting, consulting and other fees.
(f) Adjustment to record the redemption of outstanding BVT common stock
and eliminate BVT stockholders equity at closing.
(g) Adjustment to reflect amortization of acquisition adjustment over
forty years, subject to regulatory approval.
(h) Adjustment to reflect interest on debt at 8% issued to fund the
acquisition of stock.
(i) Adjustment to reflect tax benefits associated with the interest
expense on the debt issued to fund the acquisition of stock.
(j) Adjustment to reflect dividends on CEI Series A Preferred Shares
issued to fund the acquisition of stock, at $3.42 per share per annum.
-70-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF BVT
OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1995 VS. NINE MONTHS ENDED SEPTEMBER
30, 1994
For the nine months ended September 30, 1995, operating revenues
decreased by $47,820 to $8,471,939 from $8,519,759 for the same period in 1994.
Details of the 1995 revenue decrease are as follows:
<TABLE>
<CAPTION>
INCREASE
----------
(DECREASE) PERCENT
---------- -------
<S> <C> <C>
Local........... $ 63,134 4.4
Network Access.. (96,578) (2.0)
Long Distance... (38,057) (2.7)
Miscellaneous... 16,626 1.7
Uncollectible... (7,055) (9.3)
--------
$(47,820) (0.6)
========
</TABLE>
Network access revenues reflect a reduction over the same period last year
as a result of a reduction in intrastate usage partially offset by an increase
in interstate usage. The reduction in long distance revenues resulted from a
decrease in intralata toll billings and the implementation of a negative state
tax adjustment surcharge.
Operating expenses, excluding depreciation, increased $168,115 or 5.0% and
primarily relate to increases in certain salary and wages, employee benefits,
insurances and expenses associated with the Merger.
Interest expense decreased by $31,696 or 24.1% in the nine months ended
September 30, 1995 due to the repayment of a $1.1 million of long term debt.
BVT's effective tax rate was approximately 40.6% and 41.9% for the nine
months ended September 30, 1995 and 1994, respectively. This primarily relates
to a decrease in the state income tax rate from 11.99% to 9.99% in 1995.
During the second quarter of 1995, BVT's largest customer elected to by-
pass BVT's toll network through a competitive carrier. This service was
previously provided to this customer through deregulated long distance
operations at a reduced margin. Accordingly, this decision is not expected to
significantly impact BVT's operating results.
Access lines in service increased by 361 for the nine months ending
September 30, 1995 as compared to an increase of 334 for the same period in
1994.
OPERATIONS--1994 VS. 1993
In 1994, operating revenues increased by $903,000 to $11,435,000 compared
to $10,532,000 in 1993. Details of the 1994 revenue increase are as follows:
<TABLE>
<CAPTION>
INCREASE
(DECREASE) PERCENT
---------- --------
<S> <C> <C>
Local........... $ 71,000 3.8
Network Access.. 656,000 11.4
Long Distance... 80,000 4.6
Miscellaneous... 66,000 5.2
Uncollectible... (30,000) (23.1)
--------
$903,000 8.6
========
</TABLE>
-71-
<PAGE>
Access lines in service increased by 457 or 2.7% as a result of population
growth and economic stability throughout BVT's rural operating territory. The
above revenue improvement primarily reflects increased usage or access of BVT's
local exchange network for long distance calling.
Network access revenues primarily relate to services provided to
interexchange carriers in connection with the completion of long distance
telephone calls. Substantially all of BVT's interstate network access revenues
are received through pooling arrangements administered by the National Exchange
Carrier Association ("NECA") based on cost separations studies and average
schedule settlement agreements. NECA receives access charges billed by BVT and
other participating local exchange carriers to interstate long distance carriers
for their use of the local exchange network to complete long distance calls.
These charges to the long distance carriers are based on tariffed access rates
filed with the FCC by NECA on behalf of BVT and other participating local
exchange telephone companies. Long distance and intrastate network access
revenues are based on access rates, cost separations studies or special
settlement arrangements with intrastate long distance carriers.
Miscellaneous revenues include revenues related to billing and collection
services for interexchange long distance carriers and directories.
Operating expenses increased by $492,000 or 8.7% and primarily relate to
increases in salaries and wages, employee benefits, insurance and operating
taxes. In addition, 1994 include approximately $100,000 in connection with costs
directly related to the sale of BVT. Increases in depreciation expense relate to
a higher level of plant in service.
Interest expense decreased by $61,000 or 27% in the year 1994 due to the
repayment of a $1,000,000 promissory note in April of 1994.
OPERATIONS--1993 VS. 1992
BVT's operating revenues decreased by $136,000 to $10,532,000 compared to
$10,668,000 in 1992. Details of the 1993 revenue decrease are as follows:
<TABLE>
<CAPTION>
INCREASE
(DECREASE) PERCENT
---------- -------
<S> <C> <C>
Local........... $ 110,000 6.2
Network Access.. (150,000) (2.5)
Long Distance... (23,000) (1.3)
Miscellaneous... (1,000) (0.0)
Uncollectible... 72,000 12.4
---------
$(136,000) (1.3)
=========
</TABLE>
The major portion of the decrease was due to a decline in Interstate Access
Service Revenues. This decline is attributed to a decision in late 1992 by a
major university, BVT's largest customer, that elected to by-pass BVT's
regulated toll network. BVT successfully countered competitive bids from outside
carriers and as a result continued to provide toll services to that university
through deregulated long-distance operations, however, at lower negotiated
rates. Beginning September 1, 1995, however, this customer began to use another
carrier for toll services. BVT management does not expect the loss of this
customer's toll business to have a material adverse effect on BVT's financial
condition or results of operations.
Operating revenues were additionally affected by a rise in uncollectibles,
resulting from adjustments to correct prior years' underestimated forecasts
attributed, in part, to restrictions on collection processes mandated by
regulations.
BVT continued to prosper from population increases in its market region,
officially identified in census reports as among the fastest growing areas in
Pennsylvania. Ongoing population gains helped push Local Service Revenues to a
1993 increase of 6.2% over 1992, which accounted for 17.8% of all operating
revenues. In addition, access lines increased 2.6% to 16,823 in 1993.
Operating expenses for 1993 were held to an overall increase of only 2.6%,
primarily as a result of an increase in the net periodic pension credit of
$175,000. This net period pension credit related to Statement of Financial
Accounting Standards No. 87 "Employers Accounting For Pensions" ("SFAS 87").
SFAS 87 was adopted
-72-
<PAGE>
by BVT in 1992. Excluding the benefit associated with pension income, 1993
expenses increased approximately $65,000 or 1.1% over 1992.
INCOME TAXES
The provision for Income Taxes increased by approximately $153,000 in 1994
compared to an increase of approximately $15,000 in 1993. BVT's effective tax
rate was approximately 39.1%, 39.0% and 36.8% in 1994, 1993 and 1992,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
BVT historically has relied on cash provided by operations to provide all
of its cash needs. The telephone operations have historically provided a stable
source of cash flow which has helped BVT to continue its program of capital
improvements and to pay dividends. Net cash provided by operating activities was
$4,404,000 and $2,447,000 in 1994 and 1993, respectively. Temporary cash
investments were $1,989,931 and $2,000,000 in 1994 and 1993, respectively. Net
cash provided by operating activities was $3,214,000 and $1,282,000 for the nine
months ended September 30, 1995 and 1994, respectively.
BVT has moved forward aggressively with its plan to modernize its plant in
order to offer new optional residential and business calling features. BVT plant
facility additions in 1994 and 1993 totaled $2,145,000 and $1,125,000,
respectively. Although capital expenditures were lower during the first nine
months of 1995, total capital expenditures for 1995 are expected to approximate
the 1994 year end level.
On September 1, 1995, BVT redeemed all of its outstanding cumulative
preferred stock for $400,000. In 1994, BVT reduced debt by $1.1 million. Both
transactions were accomplished by using cash reserves. There were no credit
facilities available to BVT as of September 30, 1995.
REGULATORY ACCOUNTING PRINCIPLES
BVT follows the accounting for regulated enterprises prescribed by
Statement of Financial Accounting Standards No. 71--"Accounting for the Effects
of Certain Types of Regulation" ("SFAS 71"). SFAS 71 recognizes the economic
effect of rate regulation by recording costs and a return on investment as such
amounts are recovered through rates authorized by regulatory authorities.
BVT annually reviews the continued applicability of SFAS 71 based upon the
current regulatory and competitive environment and currently expects to follow
the accounting prescribed by SFAS 71 in the foreseeable future. If BVT were
required to discontinue the application of accounting principles for regulated
entities (SFAS 71), the impact on the financial statements would be to write off
the regulatory assets and liabilities.
PENNSYLVANIA PUBLIC UTILITY COMMISSION
On August 25, 1993, the PaPUC reversed itself by vacating and terminating
its May 1992 Order to show cause filed against BVT. The Order raised issues
regarding whether BVT was in an excess earnings position.
Whenever the PaPUC desires to institute a proceeding against a person under
statutory or other authority, the PaPUC may commence the action where
appropriate by an order to show cause setting forth the grounds for the action.
Such an order generally contains a statement of the particular matter about
which the PaPUC is inquiring, which is deemed to be tentative and for the
purpose of framing issues for consideration and decision by the PaPUC in the
proceeding. The PaPUC concluded in this case, upon investigation, that BVT was
not in an excess earnings position.
ENVIRONMENTAL MATTERS
BVT has been designated as a potentially responsible party for
participation in an Environmental Protection Agency clean up of a hazardous
waste site. BVT allegedly sold to a salvage yard scrap lead cable which has been
identified as a contaminant. BVT's liability, if any, for sharing in the clean
up of costs is unknown to date. BVT, however, believes that its ultimate
liability should not have a material adverse effect on its financial position.
-73-
<PAGE>
BUSINESS OF BVT
DESCRIPTION OF BUSINESS
Buffalo Valley is an independent local exchange carrier with its principal
executive office located at 20 South Second Street, Lewisburg, Pennsylvania,
17837, telephone number (717) 523-1211. As of September 30, 1995, BVT had 17,641
telephone access lines.
Founded in 1904, BVT provides local telephone service to all but the
northern portion of Union County and to a small section of western
Northumberland County in central Pennsylvania. BVT's franchise area is isolated
from major metropolitan areas of Pennsylvania, and has enjoyed relative economic
stability with Bucknell University and the Lewisburg Federal Penitentiary
representing the two major area employers. The population of BVT's service area
is estimated to be approximately 36,000.
BVT provides local telephone network service, comprising approximately 17%
of 1994 operating revenues; network access service, consisting of intrastate
access (approximately 23% of 1994 operating revenues) and interstate access
(approximately 33% of 1994 operating revenues), and "long distance" revenues
(approximately 16% of 1994 operating revenues) which represent intralata
traffic. Other revenues are derived from participation in the Yellow Pages
advertising program, sale and lease of telephone systems and equipment, billing
services provided to long distance carriers, and (until the expiration of an
agreement with Bucknell University on September 1, 1995) a limited amount of
resale of long distance phone service. BVT's participation in cellular telephone
operations is limited principally to terminating cellular calls to wireline
customers.
Local service rates, custom calling service rates and intralata service
rates are regulated by the PaPUC. BVT's rates for basic local services are among
the lowest in the Commonwealth of Pennsylvania. Interstate access revenues are
derived from pooling arrangements administered by the National Carrier Exchange
Association ("NECA"); the charges billed to long distance carriers are based
upon average rate schedules of the participating LECs.
BVT faces competition from private communication systems and interexchange
carriers who have the capacity to originate and/or terminate calls without the
use of BVT's facilities in its franchise service area. To date, BVT's widely
dispersed customer base and primarily rural operating territory has limited its
exposure to competitive inroads from intralata toll bypass and alternative local
access telephone service providers. Current competition focuses on
telecommunications equipment sales and services; this revenue source does not
represent a significant portion of BVT's business.
BVT has made substantial investments in upgrading its facilities. Its
switching system is 100% digital; all trunk lines from the host to remote
switching stations are fiber optic. This network permits BVT to offer custom
calling features, such as call waiting and call forwarding to customers. BVT's
telephone system consists of a central switching station located in the
Lewisburg headquarters building and twelve remote switching stations.
The following table indicates the development of BVT by summarizing, as of
December 31 of each of the last five years and as of September 30, 1995 and
1994, the number of access lines.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, AS OF DECEMBER 31,
-------------- --------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Access lines.. 17,641 17,157 17,280 16,823 16,403 15,965 15,501
</TABLE>
PROPERTIES
BVT owns and maintains in good operating condition switching centers,
cables and wires connecting BVT and its customers with the switching centers and
other telephone instruments and equipment.
-74-
<PAGE>
LEGAL PROCEEDINGS
On August 1, 1994 a representative of the United States Environmental
Protection Agency notified BVT that it has been designated as a potentially
responsible party for participation in the clean up of a hazardous waste site.
BVT allegedly sold to a salvage yard scrap lead cable which has been identified
as a contaminant. A representative of the current owners of the scrap yard has
indicated that there were approximately twelve other additional potential
responsible parties. Management of BVT is currently monitoring the progress of
the clean-up of the site to assess its potential liability and based on
information known to date believes that its ultimate liability should not have a
material adverse effect on its financial position. In the normal course of
business, there are various other legal proceedings outstanding. In the opinion
of management of BVT, these proceedings will not have a material adverse effect
on its financial position.
-75-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BVT
The following table sets forth as of ____________, 1996 certain information
regarding the beneficial ownership of BVT Common Shares by (i) each director and
executive officer of BVT, (ii) all directors and executive officers of BVT as a
group, and (iii) each other person known by BVT to own beneficially more than 5%
of the outstanding BVT Common Shares.
<TABLE>
<CAPTION>
Beneficial Ownership of
BVT Common Shares(1)
----------------------
Number Percent of
of Shares Total
---------- -------
<S> <C> <C>
DIRECTORS:
James G. Apple(2)............................................. 4,240 *
John W. Coleman, Jr........................................... 6,000 *
R. Lowell Coolidge............................................ 16,270 1.8%
Roger A. Holtzapple(3)........................................ 2,450 *
Elizabeth B. McClure(4)....................................... 33,465 3.7%
W. Gale Reish(5).............................................. 1,315 *
Robert C. Rooke(6)............................................ 45,585 5.1%
Jean M. Ruhl(7)............................................... 55,550 6.2%
Fitz R. Walling(8)............................................ 2,350 *
EXECUTIVE OFFICER:
David E. Lynn................................................. 7,195 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (10 PERSONS).. 174,420 19.4%
OTHER 5% SHAREHOLDERS
Nancy L. Diver(9)............................................. 74,370 8.2%
Mary Ruhl Maher and Roland P. Maher(10)....................... 44,250 4.9%
</TABLE>
_____________________
*Less than 1%.
(1) Except as indicated in the footnotes to this table, the persons named
in this table have sole voting and investment power with respect to
all BVT Common Shares indicated above.
(2) Consists of 1,240 shares jointly owned with Mr. Apple's wife and 3,000
shares held in a trust as to which Mr. Apple shares voting and
investment power.
(3) Consists of shares held jointly with Mr. Holtzapple's wife.
(4) Consists of 18,000 shares owned jointly with Mrs. McClure's husband
and 15,465 shares owned by Mrs. McClure's husband.
(5) Includes 200 shares owned by Mr. Reish's wife as to which Mr. Reish
disclaims beneficial ownership.
(6) Includes 39,510 shares held in a trust as to which Mr. Rooke shares
voting and investment power. Mr. Rooke's address is 175 South Street,
Morristown, New Jersey 07960.
(7) Includes 45,000 shares held in a trust as to which Ms. Ruhl has sole
voting and investment power. Ms. Ruhl's address is 601 Buffalo Road,
Lewisburg, Pennsylvania 17837.
(8) Includes 1,175 shares owned by Mr. Walling's wife.
(9) Mrs. Diver's address is 1004 Overbrook Road, Wilmington, Delaware
19807.
(10) Consists of 22,250 shares owned by Mrs. Maher, 17,000 shares owned by
Mr. Maher, and 5,000 shares owned jointly by Mrs. Maher and her
daughter as to which Mrs. Maher shares voting and investment power.
The Mahers' address is 270 Meeting House Lane, Lewisburg, Pennsylvania
17837.
-76-
<PAGE>
EXPERTS
CEI
The consolidated financial statements of CEI included in its Annual Report
on Form 10-K for the year ended December 31, 1994 have been audited by Beard &
Company, Inc., independent accountants, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing. Representatives of Beard & Company, Inc. are expected to be present at
the CEI Meeting with the opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions.
BVT
The balance sheets of BVT as of December 31, 1994 and 1993 and the related
statements of income, retained earnings and cash flows for each of the years in
the three-year period ended December 31, 1994, included in this Joint Proxy
Statement/Prospectus, have been included herein in reliance on the report of
William R. Maslo, independent public accountant to BVT, given upon the authority
of said accountant as an expert in auditing and accounting. Mr. Maslo is
expected to be present at the BVT Meeting with the opportunity to make a
statement if he desires to do so and is expected to be available to respond to
appropriate questions.
LEGAL OPINIONS
The legality of the CEI Series A Preferred Shares and CEI Common Shares to
be issued in connection with the Merger is being passed upon by Miller & Murray,
Reading, Pennsylvania. James H. Murray, a partner in Miller & Murray, is Vice
President and a Director of CEI. Partners of Miller and Murray beneficially own
CEI Common Shares as follows: James H. Murray, 37,624 CEI Common Shares; John S.
Hibschman, 4,382 CEI Common Shares; William F. Colby, Jr., 1,901 CEI Common
Shares; and Brian R. Ott, 118 CEI Common Shares. The tax consequences of the
Merger are being passed upon by Morgan, Lewis & Bockius LLP, Philadelphia,
Pennsylvania, special tax counsel to BVT. Certain legal matters relating to BVT
will be passed upon at the Effective Time by Morgan, Lewis & Bockius LLP,
Harrisburg, Pennsylvania, special counsel to BVT.
-77-
<PAGE>
INDEX TO BVT FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report.............................................................. F-2
Balance Sheets, December 31, 1994 and 1993................................................ F-3
Statements of Income for the Years Ended December 31, 1994 and 1993....................... F-5
Statements of Retained Earnings for the Years Ended December 31, 1994 and 1993............ F-6
Statements of Cash Flows for the Years Ended December 31, 1994 and 1993................... F-7
Notes to Financial Statements, Years Ended December 31, 1994 and 1993..................... F-8
Independent Auditor's Report.............................................................. F-12
Balance Sheets, December 31, 1993 and 1992................................................ F-13
Statements of Income for the Years Ended December 31, 1993 and 1992....................... F-15
Statements of Retained Earnings for the Years Ended December 31, 1993 and 1992............ F-16
Statements of Cash Flows for the Years Ended December 31, 1993 and 1992................... F-17
Notes to Financial Statements for the Years Ended December 31, 1993 and 1992.............. F-18
Balance Sheet, September 30, 1995 (unaudited)............................................. F-22
Statements of Income for the Nine Months Ended September 30, 1995 and 1994 (unaudited).... F-24
Statements of Cash Flows for the Nine Months Ended September 30, 1995 and 1994............
(unaudited)............................................................................ F-25
Statements of Retained Earnings for the Nine Months Ended September 30, 1995 and 1994
(unaudited)............................................................................ F-26
Condensed Note to Financial Statements for the Nine Months Ended September 30, 1995 and 1994
(unaudited)............................................................................ F-27
Quarterly Information (unaudited) F-28
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Buffalo Valley Telephone Company
20 South Second Street
Lewisburg, Pennsylvania 17837
Gentlemen:
I have audited the accompanying balance sheets of the Buffalo Valley
Telephone Company as of December 31, 1994 and 1993 and the related statements of
income, retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Buffalo Valley Telephone
Company as of December 31, 1994 and 1993, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
William R. Maslo
Reading, Pennsylvania
February 24, 1995
F-2
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
BALANCE SHEETS
DECEMBER 31, 1994 AND DECEMBER 31, 1993
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Equivalents............................. $ 2,501,313.80 $ 3,377,926.87
Temporary Cash Investments....................... 1,989,931.00 2,000,000.00
Accounts Receivable.............................. 2,662,815.53 2,605,913.89
Material and Supplies--At Average Costs.......... 240,882.51 285,520.03
Prepaid Expenses................................. 2,326,407.92 1,960,785.00
-------------- --------------
Total Current Assets.......................... 9,721,350.76 10,230,145.79
-------------- --------------
NONCURRENT ASSETS
Investments in Nonaffiliated Companies--at Cost.. 46,847.93 54,849.58
(Market Value-12/31/94--$107,910.16)
(Market Value-12/31/93--$244,132.17)
Nonregulated Investments--Deregulated Equipment.. 2,085,010.60 2,086,616.02
Unamortized Debt Issuance Expense................ 1,371.45 2,026.13
Other Noncurrent Assets.......................... 816,647.79 998,879.05
Deferred Extraordinary Retirements............... 125,459.28 158,238.12
Deferred Charges................................. 119,117.04 151,567.26
-------------- --------------
Total Noncurrent Assets....................... 3,194,454.09 3,452,176.16
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT
Telephone Plant in Service....................... 26,278,393.06 24,955,797.82
Telephone Plant Under Construction............... 850,778.58 296,201.56
Non-Operating Plant.............................. 28,051.89 28,051.89
-------------- --------------
27,157,223.53 25,280,051.27
Less: Accumulated Depreciation................... 10,832,670.91 9,928,942.01
-------------- --------------
Net Telephone Property........................ 16,324,552.62 15,351,109.26
-------------- --------------
TOTAL ASSETS........................................ $29,240,357.47 $29,033,431.21
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
BALANCE SHEETS
DECEMBER 31, 1994 AND DECEMBER 31, 1993
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Maturities of Long-Term Debt............. $ 81,000.00 $ 1,081,000.00
Accounts Payable................................. 1,071,362.73 1,220,135.73
Customer Deposits................................ 2,140.00 2,270.00
Accrued Taxes--Income............................ 1,977,086.99 1,635,385.44
Accrued Taxes--Other............................. 464,858.85 454,718.61
Accrued Interest, Pension and Other.............. 228,944.12 236,417.94
-------------- --------------
Total Current Liabilities..................... 3,825,392.69 4,629,927.72
-------------- --------------
LONG-TERM DEBT
Notes Payable.................................... 1,485,000.00 1,566,000.00
-------------- --------------
Total Long-Term Debt.......................... 1,485,000.00 1,566,000.00
-------------- --------------
OTHER LIABILITIES AND DEFERRED CREDITS
Unamortized Investment Tax Credit--Net........... 393,670.76 455,303.34
Deferred Income Taxes............................ 3,249,637.49 3,679,518.97
Other Deferred Credits........................... 298,230.87 40,183.51
-------------- --------------
Total Other Liabilities and Deferred Credits.. 3,941,539.12 4,175,005.82
-------------- --------------
STOCKHOLDERS' EQUITY
Common Stock--900,000 Shares--No Par............. 600,000.00 600,000.00
Preferred Stock--8,000 Shares--$50.00 Par........ 400,000.00 400,000.00
-------------- --------------
Total Stock Issued............................ 1,000,000.00 1,000,000.00
Additional Paid-In Capital....................... 467,279.96 467,279.96
Less: Treasury Stock--846 Common Shares.......... 38,628.36 38,628.36
Retained Earnings................................ 18,559,774.06 17,233,846.07
-------------- --------------
Total Stockholders' Equity.................... 19,988,425.66 18,662,497.67
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $29,240,357.47 $29,033,431.21
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
OPERATING REVENUES
Local Service............................ $ 1,942,071.82 $ 1,871,107.84
Interstate Access Service................ 3,745,432.69 3,265,079.10
Intrastate Access Service................ 2,665,357.90 2,489,753.18
Long Distance Service.................... 1,837,614.04 1,757,527.48
Miscellaneous............................ 1,344,073.73 1,278,495.19
Less: Uncollectibles..................... 99,509.29 130,028.52
-------------- --------------
Total Operating Revenue............... 11,435,040.89 10,531,934.27
-------------- --------------
OPERATING EXPENSES
Plant Specific........................... 1,267,403.11 1,168,598.54
Plant Non-Specific.......................
Network and Other...................... 1,322,031.57 1,213,571.38
Depreciation and Amortization.......... 1,781,245.76 1,727,777.42
Customer Operations...................... 1,026,726.25 989,155.17
Corporate Operations..................... 893,621.35 699,911.06
-------------- --------------
Total Operating Expenses............. 6,291,028.04 5,799,013.57
-------------- --------------
NET OPERATING REVENUE....................... 5,144,012.85 4,732,920.70
-------------- --------------
OPERATING TAXES
Investment Credit--Net................... (61,632.58) (62,541.07)
Income Taxes--Current.................... 1,909,010.88 1,678,702.16
Income Taxes--Deferred................... (19,118.88) 58,230.46
Other Operating Taxes.................... 467,671.65 436,293.13
-------------- --------------
Total Operating Taxes................ 2,295,931.07 2,110,684.68
-------------- --------------
NET OPERATING INCOME........................ 2,848,081.78 2,622,236.02
-------------- --------------
OTHER INCOME AND EXPENSES
Dividend Income.......................... 8,656.30 9,664.37
Interest Income.......................... 194,518.46 128,120.88
Other Income and Expense--Net............ (50,022.36) (10,796.71)
Deregulated Activities--Net.............. 16,715.38 (32,076.11)
-------------- --------------
Total Other Income and Expenses. 169,867.78 94,912.43
-------------- --------------
INCOME AVAILABLE FOR FIXED CHARGES.......... 3,017,949.56 2,717,148.45
-------------- --------------
FIXED CHARGES
Interest and Amortization................ 165,442.85 226,679.03
-------------- --------------
NET INCOME.................................. $ 2,852,506.71 $ 2,490,469.42
============== ==============
EARNINGS PER SHARE--COMMON STOCK............ $ 3.15 $ 2.75
</TABLE>
The accompanying notes are in integral part of the financial statements.
F-5
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
BALANCE AT JANUARY 1.............................. $17,233,846.07 $16,198,023.05
-------------- --------------
ADDITIONS:
Net Income.................................. 2,852,506.71 2,490,469.42
-------------- --------------
Total Additions........................ 2,852,506.71 2,490,469.42
-------------- --------------
DEDUCTIONS:
Common Dividends............................ 1,510,578.72 1,438,646.40
Preferred Dividends......................... 16,000.00 16,000.00
-------------- --------------
Total Deductions....................... 1,526,578.72 1,454,646.40
-------------- --------------
BALANCE AT DECEMBER 31............................ $18,559,774.06 $17,233,846.07
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income...................................................... $ 2,852,506.71 $ 2,490,469.42
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities
Depreciation.................................................. 1,896,828.12 1,788,130.77
Amortization.................................................. 33,433.52 33,940.08
Deferred Income Taxes and Investment Tax Credit............... (65,614.73) 23,377.95
Net gain on Sale of Stock in Non Affiliated Companies......... (119,969.74) 0.00
Net Changes in:
Temporary Cash Investments (Increase) Decrease................ 10,069.00 (2,000,000.00)
Accounts Receivable (Increase) Decrease....................... (56,901.64) (4,864.09)
Material and Supplies (Increase) Decrease..................... 44,637.52 101,681.97
Prepaid Expenses (Increase) Decrease.......................... (365,622.92) 43,513.90
Prepaid Pension Asset (Increase) Decrease..................... 10,407.00 (123,622.62)
Deferred Charges (Increase) Decrease.......................... 32,450.22 (10,777.42)
Accounts Payable Increase (Decrease).......................... (148,773.00) 94,702.77
Customer Deposits Increase (Decrease)......................... (130.00) (100.00)
Accrued Expenses Increase (Decrease).......................... 344,367.97 71,869.38
Other Deferred Credits and Reserves Increase (Decrease)....... (63,286.36) (61,676.23)
-------------- --------------
Cash Provided by Operating Activities....................... 4,404,401.67 2,446,645.88
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Addition of Plant (Including Work Under Construction)........... (2,699,345.22) (1,301,428.84)
Addition of Deregulated Telephones and Other.................... (35,581.39) (232,546.83)
Salvage from Plant Retired...................................... 30,318.00 36,077.66
Cost of Removal of Plant Retired................................ (52,883.06) (52,482.83)
Purchase of Interest in NonAffiliated Companies................. (8,259.30) (9,644.37)
Increase in Cash Surrender Value................................ (43,915.74) (42,224.45)
Sale of Stock in NonAffiliated Companies........................ 136,230.69 0.00
------------- -------------
Cash Used by Investing Activities.......................... (2,673,436.02) (1,602,249.66)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments of Long-Term Debt............................ (1,081,000.00) (81,000.00)
Dividends Paid.................................................. (1,526,578.72) (1,454,646.40)
------------- -------------
Cash Used by Financing Activities.......................... (2,607,578.72) (1,535,646.40)
------------- -------------
NET INCREASE (DECREASE) IN CASH.................................... (876,613.07) (691,250.18)
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR....................... 3,377,926.87 4,069,177.05
-------------- --------------
CASH AND CASH EQUIVALENTS--END OF YEAR............................. $ 2,501,313.80 $ 3,377,926.87
============== ==============
</TABLE>
SUPPLEMENTAL DISCLOSURES
The Company paid interest totalling $171,950 and $226,378 during 1994 and
1993, respectively.
The Company paid federal and state income taxes of $2,005,999 and $1,506,886
during 1994 and 1993, respectively.
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1--ACCOUNTING POLICIES
The Company's accounting policies are in conformity with generally accepted
accounting principles as prescribed by the Pennsylvania Public Utility
Commission. Revenues and expenses are recorded on the accrual basis in order to
match them with the period to which they apply. Effective January 1, 1988, the
Company adopted certain accounting changes which substantially restructured the
system of accounts.
Telephone Plant--Telephone plant is recorded by the Company at original cost.
Normal additions and replacements and renewals of property, considered to be
units of property, are charged to telephone plant accounts. Retirements are
eliminated from the telephone plant accounts at original costs, and these costs
plus removal expense, less salvage, are charged to accumulated depreciation.
Ordinary repairs and replacements of items considered to be less than units of
property are charged to maintenance. No gain or loss is recognized in connection
with ordinary retirements of depreciable property.
Depreciation--For financial reporting purposes, depreciation is computed
using straight-line method over the estimated useful lives of the plant in
service. For income tax purposes all additions commencing in 1974 are
depreciated using accelerated methods. For assets acquired after January 1,
1981, depreciation is calculated using the Accelerated Cost Recovery System
(ACRS) and modified ACRS for assets purchased after January 1, 1987.
Cash Equivalents--All highly liquid investments, with original maturity of
three months or less, having insignificant risk of changes in value are
classified as cash equivalents.
Temporary Cash Investments--Temporary cash investments at December 31, 1994
consisted of various U.S. Treasury Notes with maturities through September 30,
1996. At December 31, 1993, this account consisted of stock in a short term bond
fund. The investment is recorded at cost. Premium and discount on the U.S.
Treasury Notes is amortized using the straight-line method.
Income Taxes--The company adopted Statement of Accounting Standards (SFAS)
No. 109, ''Accounting for Income Taxes'' effective for fiscal 1993. Under the
provisions of this pronouncement, an entity recognizes deferred tax assets and
liabilities for the future tax consequences of events that have been previously
recognized in the Company's financial statements or tax returns. Regulated
companies, such as telephone companies, are required to record regulatory assets
or liabilities when adjusting their deferred income tax liabilities.
There was no significant income statement impact related to the adoption of
FAS 109.
The difference between the statutory income tax rate and the Company's
effective tax rate is due primarily to Pennsylvania Corporate Net Income Tax and
deferred timing differences such as depreciation, provision for pensions,
amortization of investment tax credit, amortization of extraordinary
retirements, and allowance for uncollectible accounts.
Investment Tax Credit--The investment tax credits recorded have been deferred
and are being amortized to income at the rate of 5% per annum.
Unamortized Debt Expense--Unamortized debt expense is being amortized by
charges to income over the life of the related issue.
Extraordinary Retirement--The early retirement of plant due to obsolescence
is being amortized by charges to income over a period of ten years.
Capital Stock Expense--Expenses relating to the issuance of common stock are
deferred indefinitely, and are charged to Additional Paid-In Capital.
F-8
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31,1994
Treasury Stock--Treasury stock is reported at cost.
NOTE 2--PREFERRED STOCK
The stock is preferred as to liquidation and dividends which are cumulative
at 4% per annum. Shares are callable on any dividend payment date at par value
plus accrued dividends. There are no dividends in arrears.
NOTE 3--COMMON STOCK AND RETAINED EARNINGS
Covenants contained in the note agreement covering long-term debt include a
provision that the Company will not declare or pay any dividends on any shares
of its capital stock of any class (other than dividends in shares of its common
stock); or to make any payment to purchase, redeem or otherwise acquire any such
shares, if the aggregate amount of all dividends, distributions, and payments
made on all shares of its capital stock of all classes after December 31, 1977,
would exceed an amount equal to the retained earnings accumulated after December
31, 1977. The unrestricted retained earnings at December 31, 1994 is
$16,393,126.62.
NOTE 4--LONG-TERM DEBT
The Company issued $2,700,000.00 in long-term notes as of May 31, 1978. The
terms of the note agreement required an annual payment on account of principal
in the amount of $81,000.00 commencing on June 1, 1981, and continuing to and
including June 1, 1997, and a final payment of the balance of $1,323,000.00
shall be made on June 1, 1998. The note bears interest at a rate of 8.5% payable
semi-annually on the unpaid balance commencing December 1, 1978.
See Note 3 for covenants contained in the note agreement which restrict
retained earnings.
Following are maturities of long-term debt for each of the next five years.
<TABLE>
<CAPTION>
<S> <C>
1995..................................................... 81,000.00
1996..................................................... 81,000.00
1997..................................................... 81,000.00
1998..................................................... 1,323,000.00
1999..................................................... 0.00
</TABLE>
NOTE 5--CONCENTRATION OF CREDIT RISK
The Company's revenue is derived primarily from the providing of public
utility telephone service in Union and Northumberland Counties of Pennsylvania.
NOTE 6--EMPLOYEE BENEFIT PLANS
The Company has a noncontributing defined benefit pension plan covering
substantially all employees. The plan provides benefits based upon years of
service and compensation levels. Contributions are intended to provide not only
benefits attributed to service to date but also for those expected to be earned
in the future.
F-9
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31,1994
A summary of the components of net periodic income for the plan for 1994 is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Service cost--benefits earned during the period............. $ 118,075
Interest cost on projected benefit obligation............... 196,474
Expected return on plan assets.............................. (49,693)
Net amortization and deferral............................... (318,797)
---------
Net periodic pension income................................. $ (53,941)
=========
</TABLE>
The discount rate and rate of increase in future compensation levels (where
applicable) used in determining the actuarial present value of the projected
benefit obligation were 7.5 percent and 5.5 percent, respectively. The expected
long--term rate on plan assets was 8.50 percent.
The following table sets forth the funded status and amounts recognized in
the balance sheet at December 31, 1994 for the Company's defined benefit plan:
<TABLE>
<CAPTION>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.................................... $ 1,571,467
===========
Accumulated benefit obligation............................... $ 1,994,013
===========
Projected benefit obligation..................................... $(2,797,945)
Plan assets at fair value........................................ 3,667,392
-----------
Plan assets in excess of projected benefit obligation............ 869,447
Unrecognized net gain............................................ 428,114
Unrecognized net assets at January 1, 1991, net of amortization.. (804,456)
-----------
Net pension asset recognized in the balance sheet................ $ 493,105
===========
</TABLE>
Plan assets at December 31, 1994 and 1993 were invested in listed common
stocks, U.S. Government securities, short-term money market instruments, and
corporate bonds and mortgages.
The Company also has a 401(k) plan whereby participants may contribute up to
fifteen percent of their salaries. The Company currently contributes up to
twenty-five percent of the employees' contribution up to the first eight percent
of their salaries. The Company contributed $31,024 during 1994 and $26,675
during 1993.
The Company has a nonqualified supplemental retirement plan for certain
management employees. The pension liability, as determined by an actuary, under
this plan at December 31, 1994 was $64,168.
The Financial Accounting Standards Board requires implementation of
Statement Of Financial Accounting Standard 106, ''Employers' Accounting for
Postretirement Benefits other Than Pensions'' (SFAS 106) effective in 1993. SFAS
106 requires benefit costs to be recognized on an accrual basis as benefits are
earned by employees. The Company does not have a material liability for
postretirement benefits other than those previously stated.
NOTE 7--CONTINGENCIES
The Company has been notified of potential liability for participation in an
Environmental Protection Agency clean up of a hazardous waste site. The Company
allegedly sold scrap lead cable to a salvage yard which has been identified as a
contaminant. The Company's liability, if any, for sharing in the clean up costs
is unknown at this date, however the Company believes that its ultimate
liability should not have a material adverse effect on its financial position.
F-10
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31,1994
NOTE 8--RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the 1993 financial statements
to conform to the 1994 financial statement presentation. Such reclassification
had no effect on net income as previously reported.
NOTE 9--SUBSEQUENT EVENTS
On April 20, 1995, the Board of Directors of Buffalo Valley Telephone
Company agreed in principal for C-TEC Corporation (a diversified
telecommunications and high technology company) to acquire the stock of the
Company for cash and preferred stock.
On October 18, 1995, the Board of Directors of Buffalo Valley Telephone
Company terminated its merger agreement with C-TEC Corporation and entered into
a definitive merger agreement providing for the stock of the Company to be
acquired by Conestoga Enterprises, Inc. (a telecommunications company) for cash,
preferred stock and common stock.
F-11
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Buffalo Valley Telephone Company
20 South Second Street
Lewisburg, Pennsylvania 17837
Gentlemen:
I have audited the accompanying balance sheets of the Buffalo Valley
Telephone Company as of December 31, 1993 and 1992 and the related statements of
income, retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Buffalo Valley Telephone
Company as of December 31, 1993 and 1992, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
William R. Maslo
Reading, Pennsylvania
February 17, 1994
F-12
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
BALANCE SHEETS
DECEMBER 31, 1993 AND DECEMBER 31, 1992
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Equivalents................................. $ 3,377,926.87 $ 4,069,177.05
Temporary Cash Investments........................... 2,000,000.00 0.00
Accounts Receivable.................................. 2,605,913.89 2,601,049.80
Material and Supplies--At Average Costs.............. 285,520.03 387,202.00
Prepaid Expenses..................................... 1,960,785.00 2,004,298.90
-------------- --------------
Total Current Assets............................ 10,230,145.79 9,061,727.75
-------------- --------------
NONCURRENT ASSETS
Investments in Nonaffiliated Companies--at Cost...... 54,849.58 45,205.21
(Market Value-12/31/93--$244,132.17)
(Market Value-12/31/92--$198,714.57)
Nonregulated Investments--Deregulated Equipment...... 2,086,616.02 2,031,931.25
Unamortized Debt Issuance Expense.................... 2,026.13 3,187.37
Other Noncurrent Assets.............................. 998,879.05 514,723.60
Deferred Extraordinary Retirements................... 158,238.12 191,016.96
Deferred Charges..................................... 151,567.26 140,789.84
-------------- --------------
Total Noncurrent Assets......................... 3,452,176.16 2,926,854.23
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT
Telephone Plant in Service........................... 24,955,797.82 24,079,760.29
Telephone Plant Under Construction................... 296,201.56 123,848.63
Non-Operating Plant.................................. 28,051.89 28,051.89
-------------- --------------
25,280,051.27 24,231,660.81
Less: Accumulated Depreciation....................... 9,928,942.01 8,493,751.301
-------------- --------------
Net Telephone Property........................... 15,351,109.26 15,737,909.51
-------------- --------------
TOTAL ASSETS............................................ $29,033,431.21 $27,726,491.49
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
BALANCE SHEETS
DECEMBER 31, 1993 AND DECEMBER 31, 1992
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Maturities of Long-Term Debt.................. $ 81,000.00 $ 81,000.00
Accounts Payable...................................... 1,220,135.73 1,125,432.96
Customer Deposits..................................... 2,270.00 2,370.00
Accrued Taxes--Income................................. 1,635,385.44 1,566,382.46
Accrued Taxes--Other.................................. 454,718.61 472,311.42
Accrued Interest, Pension and Other................... 236,417.94 215,958.73
-------------- --------------
Total Current Liabilities......................... 3,629,927.72 3,463,455.57
-------------- --------------
LONG-TERM DEBT
Funded Debt........................................... 1,566,000.00 1,647,000.00
Other................................................. 1,000,000.00 1,000,000.00
-------------- --------------
Total Long-Term Debt.............................. 2,566,000.00 2,647,000.00
-------------- --------------
OTHER LIABILITIES AND DEFERRED CREDITS
Unamortized Investment Tax Credit--Net................ 455,303.34 517,844.41
Deferred Income Taxes................................. 3,679,518.97 3,313,711.95
Other Deferred Credits................................ 40,183.51 157,804.91
-------------- --------------
Total Other Liabilities and Deferred Credits...... 4,175,005.82 3,989,361.27
-------------- --------------
STOCKHOLDERS' EQUITY
Common Stock--900,000 Shares--No Par.................. 600,000.00 600,000.00
Preferred Stock--8,000 Shares--$50.00 Par............. 400,000.00 400,000.00
-------------- --------------
Total Stock Issued................................ 1,000,000.00 1,000,000.00
Additional Paid-In Capital............................ 467,279.96 467,279.96
Less: Treasury Stock--846 Common Shares............... 38,628.36 38,628.36
Retained Earnings..................................... 17,233,846.07 16,198,023.05
-------------- --------------
Total Stockholders' Equity........................ 18,662,497.67 17,626,674.65
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $29,033,431.21 $27,726,491.49
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-14
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
--------------- ---------------
<S> <C> <C>
OPERATING REVENUES
- ------------------
Local Service............................. $ 1,871,107.84 $ 1,762,216.79
Interstate Access Service................. 3,265,079.10 3,478,847.21
Intrastate Access Service................. 2,489,753.18 2,425,584.45
Long Distance Service..................... 1,757,527.48 1,780,642.57
Miscellaneous............................. 1,278,495.19 1,278,674.68
Less: Uncollectibles...................... 130,028.52 58,401.47
---------------- ---------------
Total Operating Revenue................ 10,531,934.27 10,667,564.23
---------------- ---------------
OPERATING EXPENSES
Plant Specific............................ 1,168,598.54 1,180,028.58
Plant Non-Specific
Network and Other....................... 1,213,571.38 1,264,344.75
Depreciation and Amortization........... 1,727,777.42 1,654,731.74
Customer Operations....................... 989,155.17 968,627.91
Corporate Operations...................... 699,911.06 768,422.47
Other Operating Income and Expenses....... 0.00 (185,144.00)
---------------- ----------------
Total Operating Expenses............... 5,799,013.57 5,651,011.45
---------------- ----------------
NET OPERATING REVENUE........................ 4,732,920.70 5,016,552.78
---------------- ---------------
OPERATING TAXES
Investment Credit--Net.................... (62,541.07) (63,732.22)
Income Taxes--Current..................... 1,678,702.16 1,576,758.63
Income Taxes--Deferred.................... 58,230.46 147,078.55
Other Operating Taxes..................... 436,293.13 507,449.15
--------------- --------------
Total Operating Taxes.................. 2,110,684.68 2,167,554.11
--------------- --------------
NET OPERATING INCOME......................... 2,622,236.02 2,848,998.67
--------------- ---------------
OTHER INCOME AND EXPENSES
Dividend Income........................... 9,664.37 12,003.39
Interest Income........................... 128,120.88 106,949.31
Other Income and Expense--Net............. (10,796.71) 82,692.37
Deregulated Activities--Net............... (32,076.11) (18,390.00)
-------------- ----------------
Total Other Income and Expenses........ 94,912.43 183,255.07
-------------- ---------------
INCOME AVAILABLE FOR FIXED CHARGES........... 2,717,148.45 3,032,253.74
--------------- ----------------
FIXED CHARGES
Interest and Amortization................. 226,679.03 233,689.84
--------------- ---------------
NET INCOME................................... $ 2,490,469.42 $ 2,798,563.90
=============== ===============
EARNINGS PER SHARE--COMMON STOCK............. $ 2.75 $ 3.09
</TABLE>
The accompanying notes are an integral part of the financial statements
F-15
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
-------------- --------------
<S> <C> <C>
BALANCE AT JANUARY 1,.......... $16,198,023.05 $14,747,146.13
-------------- --------------
ADDITIONS:
Net Income............... 2,490,469.42 2,798,563.90
-------------- --------------
Total Additions...... 2,490,469.42 2,798,563.90
-------------- --------------
DEDUCTIONS:
Common Dividends......... 1,438,646.40 1,331,686.98
Preferred Dividends...... 16,000.00 16,000.00
-------------- --------------
Total Deductions..... 1,454,646.40 1,347,686.98
-------------- --------------
BALANCE AT DECEMBER 31,........ $17,233,846.07 $16,198,023.05
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income.............................................. $2,490,469.42 $2,798,563.90
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation........................................ 1,788,130.77 1,688,547.05
Amortization of Extraordinary Retirements........... 33,940.08 33,939.74
Deferred Income Taxes and Investment Tax Credit..... 23,377.95 94,231.70
Accounts Receivable (Increase) Decrease............. (4,864.09) (211,355.40)
Material and Supplies (Increase) Decrease........... 101,681.97 (160,540.81)
Prepaid Expenses (Increase) Decrease................ 43,513.90 (170,761.41)
Prepaid Pension Asset (Increase) Decrease........... (123,622.62) (277,321.00)
Deferred Charges (Increase) Decrease................ (10,777.42) 68,735.26
Accounts Payable Increase (Decrease)................ 94,702.77 (87,019.63)
Customer Deposits Increase (Decrease)............... (100.00) (280.00)
Accrued Expenses Increase (Decrease)................ 71,869.38 367,781.96
Deferred Credits and Reserves Increase (Decrease)... (61,676.23) 1,091.56
-------------- --------------
Cash Provided by Operating Activities............... 4,446,645.88 4,145,612.92
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Addition of Plant (Including Work Under Construction)... (1,301,428.84) (1,378,739.83)
Addition of Deregulated Telephones and Other............ (232,546.83) (138,596.30)
Salvage from Plant Retired.............................. 36,077.66 37,192.57
Cost of Removal of Plant Retired........................ (52,482.83) (45,739.29)
Purchase of Interest in NonAffiliated Companies......... (2,009,644.37) (9,032.99)
Increase in Cash Surrender Value........................ (42,224.45) (38,341.40)
Purchase of Treasury Stock.............................. 0.00 (63,193.44)
Sale of Treasury Stock.................................. 0.00 24,565.08
-------------- --------------
Cash Used in Investing Activities................... (3,602,249.66) (1,611,885.60)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments of Long-Term Debt.................... (81,000.00) (81,000.00)
Dividends Paid.......................................... (1,454,646.40) (1,347,686.98)
-------------- --------------
Cash Used by Financing Activities................... (1,535,646.40) (1,428,686.98)
-------------- --------------
NET INCREASE (DECREASE) IN CASH............................ (691,250.18) 1,105,040.34
CASH AND CASH EQUIVALENTS--BEGINNING OF
YEAR...................................................... 4,069,177.05 2,964,136.71
-------------- --------------
CASH AND CASH EQUIVALENTS--END OF YEAR..................... $ 3,377,926.87 $ 4,069.177.05
============== ==============
</TABLE>
______________
SUPPLEMENTAL DISCLOSURES
(1) The Company considers short-term debt securities purchased in money market
funds to be cash equivalents.
(2) The Company paid interest totaling $226,378.41 and $231,599.69 during 1993
and 1992, respectively.
(3) The Company paid Federal and State Income Taxes of $1,506,886.00 and
$1,454,075.17 for 1993 and 1992, respectively.
The accompanying notes are an integral part of the financial statements
F-17
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE 1--ACCOUNTING POLICIES
The Company's accounting policies are in conformity with generally accepted
accounting principles as prescribed by the Pennsylvania Public Utility
Commission. Revenues and expenses are recorded on the accrual basis in order to
match them with the period to which they apply. Effective January 1, 1988, the
Company adopted certain accounting changes which substantially restructured the
system of accounts.
Telephone Plant--Telephone plant is recorded by the Company at original
cost. Normal additions and replacements and renewals of property, considered to
be units of property, are charged to telephone plant accounts. Retirements are
eliminated from the telephone plant accounts at original costs, and these costs
plus removal expense, less salvage, are charged to accumulated depreciation.
Ordinary repairs and replacements of items considered to be less than units of
property are charged to maintenance. No gain or loss is recognized in connection
with ordinary retirements of depreciable property.
Depreciation--For financial reporting purposes, depreciation is
computed using straight-line method over the estimated useful lives of the
plant in service. For income tax purposes all additions commencing in 1974
are depreciated using accelerated methods. For assets acquired after
January 1, 1981, depreciation is calculated using the Accelerated Cost
Recovery System (ACRS) and modified ACRS for assets purchased after January
1, 1987.
Temporary Cash Investments--The Company has an investment in a short
term bond fund at 12/31/93. The investment is carried at cost. Market value
is $1,980,392.16 at 12/31/93.
Income Taxes--Effective for the current fiscal year, the Company
adopted Statement of Financial Accounting Standard No. 109, ''Accounting
for Income Taxes'' (FAS 109). Under the provisions of FAS 109, an entity
recognizes deferred tax assets and liabilities for future tax consequences
of events that have been previously recognized in the Company's financial
statements or tax returns. Specific provisions of FAS 109 require regulated
companies, such as telephone companies, to record regulatory assets or
liabilities when adjusting their deferred income tax liabilities.
As a result of implementing this provision, the Company recorded a
regulatory asset of $279,888. This asset resulted from recording deferred
taxes relating to the cumulative amount of federal income taxes previously
flowed through to the ratepayers.
There was no significant income statement impact related to the
adoption of FAS 109.
The difference between the statutory income tax rate and the
Company's effective tax rate is due primarily to Pennsylvania Corporate Net
Income Tax and deferred tax timing differences such as depreciation,
provision for pensions, and amortization of investment tax credits.
Investment Tax Credit--The investment tax credits recorded have been
deferred and are being amortized to income at the rate of 5% per annum.
Unamortized Debt Expense--Unamortized debt expense is being amortized
by charges to income over the life of the related issue.
Extraordinary Retirement--The early retirement of plant due to
obsolescence is being amortized by charges to income over a period of ten
years.
Capital Stock Expense--Expenses relating to the issuance of common
stock are deferred indefinitely, and are charged to Additional Paid-In
Capital.
Treasury Stock--Treasury stock is reported at cost.
F-18
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
DECEMBER 31, 1993
NOTE 2--PREFERRED STOCK
The stock is preferred as to liquidation and dividends which are cumulative
at 4% per annum. Shares are callable on any dividend payment date at par value
plus accrued dividends. There are no dividends in arrears.
NOTE 3--COMMON STOCK AND RETAINED EARNINGS
Covenants contained in the note agreement covering long-term debt include a
provision that the Company will not declare or pay any dividends on any shares
of its capital stock of any class (other than dividends in shares of its common
stock); or to make any payment to purchase, redeem or otherwise acquire any such
shares, if the aggregate amount of all dividends, distributions, and payments
made on all shares of its capital stock of all classes after December 31, 1977,
would exceed an amount equal to the retained earnings accumulated after December
31, 1977. The unrestricted retained earnings at December 31, 1993 is
$15,067,198.63.
NOTE 4--LONG-TERM DEBT
The Company issued $2,700,000.00 in long-term notes as of May 31, 1978. The
terms of the note agreement required an annual payment on account of principal
in the amount of $81,000.00 commencing on June 1, 1981, and continuing to and
including June 1, 1997, and a final payment of the balance of $1,323,000.00
shall be made on June 1, 1998. The note bears interest at a rate of 8.5% payable
semi-annually on the unpaid balance commencing December 1, 1978.
See Note 3 for covenants contained in the note agreement which
restrict retained earnings.
In addition to the above, there is a $1,000,000.00 promissory note dated
April 30, 1982, payable to the Penn Mutual Life Insurance Company (formerly Penn
Diversified Insurance and Annuity Company), due April 30, 1994. The rate of
interest shall equal 117.5% of Moody's Investor Service, Inc. three-year index
of yields on U.S. Treasury Issues. Effective May 1, 1991 the rate is 8.25%
payable semi-annually on June 1, and December 1, each year.
Following are maturities of long-term debt for each of the next five years.
<TABLE>
<S> <C>
1994................................... $1,081,000.00
1995................................... 81,000.00
1996................................... 81,000.00
1997................................... 81,000.00
1998................................... 1,323,000.00
</TABLE>
F-19
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1993
NOTE 5--CONCENTRATION OF CREDIT RISK
The Company's revenue is derived primarily from the providing of public
utility telephone service in Union and Northumberland Counties of Pennsylvania.
NOTE 6--EMPLOYEE BENEFIT PLANS
The Company has a noncontributing defined benefit pension plan covering
substantially all employees. The plan provides benefits based upon years of
service and compensation levels. The Company's funding policy is to contribute
annually an amount that can be deducted for federal income tax purposes.
Contributions are intended to provide not only benefits attributed to service to
date but also for those expected to be earned in the future.
In 1992, the Company adopted FASB No. 87, ''Employers' Accounting for
Pensions'', the effect of the adoption was to record pension income of $277,321
in 1992, of which $92,177 related to 1991 and prior. Pension expense for 1991
has not been restated. Pension Income for 1993 was $162,043.
A summary of the components of net periodic income for the plan for 1993 is
as follows:
<TABLE>
<S> <C>
Service cost--benefits earned during the period.................. $ 83,528
Interest cost on projected benefit obligation.................... 160,023
Expected return on plan assets................................... (329,052)
Net amortization and deferral.................................... (76,542)
---------
Net periodic pension income...................................... $(162,043)
=========
</TABLE>
The discount rate and rate of increase in future compensation levels (where
applicable) used in determining the actuarial present value of the projected
benefit obligation were 7.5 percent and 5.5 percent, respectively. The expected
long-term rate on plan assets was 9 percent.
The following table sets forth the funded status and amounts recognized in
the balance sheet at December 31, 1993 for the Company's defined benefit plan:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.................................... $ 1,850,996
===========
Accumulated benefit obligation............................... $ 2,011,881
===========
Projected benefit obligation..................................... $(2,374,861)
Plan assets at fair value........................................ 3,913,356
-----------
Plan assets in excess of projected benefit obligation............ 1,538,495
Unrecognized net gain............................................ (221,543)
Unrecognized net assets at January 1, 1991, net of amortization.. (877,588)
-----------
Net pension asset recognized in the balance sheet................ $ 439,364
===========
</TABLE>
Plan assets at December 31, 1993 and 1992 were invested in listed common
stocks, U.S. Government securities, short-term money market instruments, and
corporate bonds and mortgages.
F-20
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1993
The Company also has a 401(k) plan whereby participants may contribute up
to fifteen percent of their salaries. The Company currently contributes up to
twenty-five percent of the employees' contribution up to the first eight percent
of their salaries. The Company contributed $26,675 during 1993 and $21,252
during 1992.
The Financial Accounting Standards Board requires implementation of
Statement Of Financial Accounting Standard 106, "Employers' Accounting for
Postretirement Benefits other Than Pensions" (FAS 106) effective in 1993. FAS
106 requires benefit costs to be recognized on an accrual basis as benefits are
earned by employees. The Company does not have a material liability for
postretirement benefits other than pension.
F-21
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Equivalents.................................. $ 1,969,630 $ 2,501,314
Temporary Cash Investments............................ 1,997,806 1,989,931
Accounts Receivable................................... 2,581,495 2,662,815
Material and Supplies--At Average Cost................ 266,391 240,883
Prepaid Expenses...................................... 1,958,581 2,326,408
----------- -----------
Total Current Assets.............................. 8,773,903 9,721,351
----------- -----------
NONCURRENT ASSETS
Investments in Nonaffiliated Companies--At Cost....... 182,018 46,848
Nonregulated Investments--Deregulated Equipment....... 2,483,009 2,085,011
Unamortized Debt Issuance Expense..................... 1,070 1,371
Other Noncurrent Assets............................... 841,349 816,648
Deferred Extraordinary Retirements.................... 100,875 125,459
Deferred Charges...................................... 119,867 119,117
----------- -----------
Total Noncurrent Assets........................... 3,728,188 3,194,454
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Telephone Plant in Service............................ 27,594,622 26,278,393
Telephone Plant Under Construction.................... 953,786 850,778
Non-Operating Plant................................... 28,052 28,052
----------- -----------
28,576,460 27,157,223
----------- -----------
Less: Accumulated Depreciation 12,311,097 10,832,671
----------- -----------
Net Telephone Property............................ 16,265,363 16,324,552
----------- -----------
TOTAL ASSETS............................................. $28,767,454 $29,240,357
=========== ===========
</TABLE>
The accompanying note is an integral part of thiss statement.
F-22
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------- -----------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Maturities of Long Term Debt............. $ 81,000 $ 81,000
Accounts Payable................................. 1,195,293 1,071,363
Customer Deposits................................ 2,040 2,140
Accrued Taxes--Income............................ 1,329,051 1,977,087
Accrued Taxes--Other............................. 352,746 464,859
Accrued Interest, Pension and Other.............. 144,208 228,944
----------- -----------
Total Current Liabilities..................... 3,104,338 3,825,393
----------- -----------
LONG-TERM DEBT
Notes Payable.................................... 1,404,000 1,485,000
----------- -----------
Total Long-Term Debt.......................... 1,404,000 1,485,000
----------- -----------
OTHER LIABILITIES AND DEFERRED CREDITS
Unamortized Investment Tax Credit-Net............ 348,142 393,671
Deferred Income Taxes............................ 3,261,609 3,249,637
Other Deferred Credits........................... 263,514 298,230
----------- -----------
Total Other Liabilities and Deferred Credits.. 3,873,265 3,941,538
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock--900,000 Shares--No Par............. 600,000 600,000
Preferred Stock--8,000 Shares--$50.00 Par........ 0 400,000
----------- -----------
Total Stock Issued............................ 600,000 1,000,000
Additional Paid-In Capital....................... 467,280 467,280
Less: Treasury Stock--846 Common Shares........ 38,628 38,628
Retained Earnings................................ 19,357,199 18,559,774
----------- -----------
Total Stockholders' Equity.................... 20,385,851 19,988,426
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $28,767,454 $29,240,357
=========== ===========
</TABLE>
The accompanying note is an integral part of this statement.
F-23
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1995 1994
----------- -----------
<S> <C> <C>
OPERATING REVENUES
Local Service......................... $1,512,810 $1,449,675
Interstate Access Service............. 2,762,788 2,753,533
Intrastate Access Service............. 1,893,552 1,999,385
Long Distance Service................. 1,378,396 1,416,453
Miscellaneous......................... 992,797 976,171
Less: Uncollectibles.................. 68,404 75,458
--------- ---------
Total Operating Revenue.............. 8,471,939 8,519,759
--------- ---------
OPERATING EXPENSES
Plant Specific........................ 979,779 972,006
Plant Non-Specific
Network and Other.................... 942,344 1,010,888
Depreciation and Amortization........ 1,412,827 1,345,954
Customer Operations................... 786,491 722,882
Corporate Operations.................. 813,500 648,223
--------- ---------
Total Operating Expenses............. 4,934,941 4,699,953
--------- ---------
NET OPERATING REVENUE.................. 3,536,998 3,819,806
--------- ---------
OPERATING TAXES
Investment Credit - Net............... (45,529) (46,224)
Income Taxes - Current................ 1,264,924 1,425,128
Income Taxes - Deferred............... 5,088 (12,034)
Other Operating Taxes................. 364,834 340,805
--------- ---------
Total Operating Taxes................ 1,589,317 1,707,675
--------- ---------
NET OPERATING INCOME................... 1,947,681 2,112,131
--------- ---------
OTHER INCOME AND EXPENSES
Dividend Income....................... 3,185 7,624
Interest Income....................... 175,128 138,819
Other Income and Expense - Net........ (55,008) (46,959)
Deregulated Activities - Net.......... 56,353 47,303
--------- ---------
Total Operating Income and Expenses.. 179,658 146,787
--------- ---------
INCOME AVAILABLE FOR FIXED CHARGES.....
2,127,339 2,258,918
--------- ---------
FIXED CHARGES
Interest and Amortization............. 100,056 131,752
--------- ---------
NET INCOME............................. $2,027,283 $2,127,166
========== ==========
EARNINGS PER SHARE - COMMON STOCK...... $2.24 $2.35
</TABLE>
The accompanying note is an integral part of this statement.
F-24
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDING
SEPTEMBER 30,
--------------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income............................................... $ 2,027,283.05 $ 2,127,166.33
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Depreciation........................................... 1,498,915.90 1,410,395.84
Amortization........................................... 24,885.18 25,075.13
Deferred Income Taxes and Investment Tax Credit........ (33,557.21) (74,893.83)
Net Gain on Sale of Stock in Non Affiliated Companies.. 0.00 (119,969.74)
Net Changes in:
Temporary Cash Investments (Increase) Decrease......... (7,875.00) (1,609,163.79)
Accounts Receivable - net (Increase) Decrease.......... 81,320.49 (138,110.80)
Material and Supplies (Increase) Decrease.............. (25,508.72) (37,190.18)
Prepaid Expenses (Increase) Decrease................... 367,827.17 (155,678.64)
Deferred Charges (Increase) Decrease................... (750.39) (27,144.42)
Prepaid Pension Asset (Increase) Decrease.............. (24,700.50) (48,735.00)
Accounts Payable Increase (Decrease)................... 123,930.60 106,769.51
Customer Deposits Increase (Decrease).................. (100.00) (130.00)
Accrued Liabilities Increase (Decrease)................ (844,885.28) (183,831.40)
Other Deferred Credits Increase (Decrease)............. 27,249.26 7,494.48
-------------- --------------
Cash Provided by Operating Activities................. 3,214,034.55 1,282,053.49
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Addition of Plant (Including Work Under Construction).... (1,634,819.61) (2,161,470.59)
Addition of Deregulated Telephones and Other Equipment... (403,732.44) 0.00
Sale of Deregulated Telephones and Other Equipment....... 0.00 77,785.03
Salvage from Plant Retired............................... 181,513.10 21,918.02
Cost of Removal of Plant Retired......................... (35,277.07) (40,330.97)
Investment in Non Affiliated Companies................... (135,169.86) (7,608.90)
Sale of Land............................................. 5,124.91 0.00
Capital Improvements to Land Nonregulated................ (12,500.00) 0.00
Sale of Stock in Non Affiliated Companies................ 0.00 136,230.69
-------------- --------------
Cash Used by Investing Activities..................... (2,034,860.97) (1,973,476.72)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments of Long Term Debt..................... (81,000.00) (1,081,000.00)
Dividends Paid........................................... (1,229,857.90) (1,148,934.04)
Retirement of Preferred Stock............................ (400,000.00) 0.00
-------------- --------------
Cash Used by Financing Activities..................... (1,710,857.90) (2,229,934.04)
-------------- --------------
NET INCREASE (DECREASE) IN CASH.................................. (531,684.32) (2,921,357.27)
-------------- --------------
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR..................... 2,501,313.80 3,377,926.87
-------------- --------------
CASH AND CASH EQUIVALENTS--END OF PERIOD......................... $ 1,959,629.48 $ 456,569.60
============== ==============
</TABLE>
The Company paid interest totalling $68,772.64 and $105,145.15 for the
nine month periods ended September 30, 1995 and 1994, respectively.
The Company paid federal and state income taxes totalling $1,977,096.00
and $1,635,385.00 for the nine month periods ended September 30, 1995 and 1994
respectively.
The accompanying note is an integral part of this statement.
F-25
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
STATEMENTS OF RETAINED EARNINGS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Balance at January 1..................... $18,559,774 $17,233,846
----------- -----------
ADDITIONS:
Net Income........................ 2,027,283 2,127,166
--------- ---------
TOTAL ADDITIONS............... 2,027,283 2,127,166
-------- ---------
DEDUCTIONS:
Common Dividends.................. 1,213,858 1,132,934
Preferred Dividends............... 16,000 16,000
--------- ---------
TOTAL DEDUCTIONS.............. 1,229,858 1,148,934
--------- ---------
Balance at September 30.................. $19,357,199 $18,212,078
=========== ===========
</TABLE>
The accompanying note is an integral part of this statement
F-26
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
NOTE TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(a) The Interim Financial Statements included herein have been
prepared by BVT, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. However, in the opinion of the management of BVT, the
Interim Financial Statements include all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial information.
The Interim Financial Statements should be read in conjunction with BVT's 1994,
1993 and 1992 financial statements and notes thereto included herein.
F-27
<PAGE>
BUFFALO VALLEY TELEPHONE COMPANY
QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995
REVENUES..................... $2,788,000 $2,678,000 $3,007,000 N/A
OPERATING INCOME............. $1,048,000 $ 937,000 $1,187,000 N/A
NET INCOME................... $610,000 $664,000 $753,000 N/A
NET INCOME PER COMMON SHARE.. $.67 $.74 $.80 N/A
1994
REVENUES..................... $2,822,000 $2,902,000 $2,796,000 $2,915,000
OPERATING INCOME............. $1,098,000 $1,268,000 $1,112,000 $1,198,000
NET INCOME................... $654,000 $781,000 $692,000 $726,000
NET INCOME PER COMMON SHARE.. $.72 $.86 $.77 $.80
1993
REVENUES..................... $2,591,000 $2,680,000 $2,709,000 $2,552,000
OPERATING INCOME............. $1,012,000 $1,016,000 $1,140,000 $1,129,000
NET INCOME................... $570,000 $610,000 $653,000 $657,000
NET INCOME PER COMMON SHARE.. $.63 $.67 $.72 $.73
</TABLE>
The accompanying note is an integral part of this statement
F-28
<PAGE>
APPENDIX A
----------
================================================================================
AGREEMENT AND PLAN OF MERGER
Among
BUFFALO VALLEY TELEPHONE COMPANY,
CONESTOGA ENTERPRISES, INC.
and
CB MERGER CORPORATION
Dated as of October 18, 1995
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page No.
--------
<S> <C>
ARTICLE I
PLAN OF MERGER ......................... A-1
1.1 The Merger .................................................... A-1
1.2 Effects of the Merger.......................................... A-1
1.3 Conversion of Target Common Shares............................. A-2
1.4 Timing......................................................... A-4
1.5 Dissenters' Rights............................................. A-5
1.6 Surrender and Exchange of Target Certificates.................. A-5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET....................... A-8
2. Representations and Warranties of Target....................... A-8
2.1 Organization, Powers and Qualifications........................ A-8
2.2 Subsidiaries................................................... A-8
2.3 Capital Stock.................................................. A-8
2.4 Authority...................................................... A-9
2.5 Conflict with Other Agreements; Consents and
Approvals...................................................... A-9
2.6 Compliance with Law............................................ A-10
2.7 Financial Statements........................................... A-10
2.8 Absence of Undisclosed Liabilities............................. A-11
2.9 Absence of Adverse Changes..................................... A-11
2.10 Tax and Other Returns and Reports.............................. A-11
2.11 Dividends and Stock Purchases.................................. A-12
2.12 Assets......................................................... A-12
2.13 Contracts...................................................... A-13
2.14 Litigation..................................................... A-14
2.15 Insurance...................................................... A-14
2.16 Labor Matters.................................................. A-15
2.17 Employee Benefit Plans......................................... A-15
2.18 Franchises, Licenses, Permits, Etc............................. A-16
2.19 Patents and Trademarks......................................... A-16
2.20 Ordinary Course................................................ A-17
2.21 Brokerage and Other Fees....................................... A-18
2.22 Opinion of Financial Advisor................................... A-19
2.23 Information Supplied........................................... A-19
2.24 Disclosure..................................................... A-19
2.25 Tax Free Reorganization Matters................................ A-20
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
AND SUB.............................. A-20
3. Representations and Warranties of Buyer........................ A-21
3.1 Organization, Powers and Qualifications........................ A-21
3.2 Subsidiaries................................................... A-21
</TABLE>
A-i
<PAGE>
<TABLE>
Page No.
--------
<S> <C>
3.3 Authority...................................................... A-21
3.4 Capital Stock.................................................. A-22
3.5 Valid Issuance of Buyer Stock.................................. A-22
3.6 Conflict with Other Agreements; Consents and Approvals......... A-23
3.7 Financial Statements........................................... A-23
3.8 Brokerage...................................................... A-24
3.9 Reports........................................................ A-24
3.10 Information Supplied........................................... A-24
3.11 Disclosure..................................................... A-25
3.12 Tax Matters.................................................... A-25
3.13 Available Funds................................................ A-25
3.14 Opinion of Financial Advisor................................... A-26
ARTICLE IV
COVENANTS.............................. A-26
4.1 Conduct of Business Prior to Closing........................... A-26
4.2 Updating of Schedules.......................................... A-28
4.3 Access......................................................... A-28
4.4 Proxy Material, Registration Statement, Other Filings and
Applications................................................... A-28
4.5 Shareholder Meeting............................................ A-30
4.6 Third Party Consents........................................... A-30
4.7 Satisfaction of Conditions..................................... A-30
4.8 Public Announcements........................................... A-30
4.9 Employees and Employee Benefit Plans........................... A-30
4.10 Director and Officer Indemnification........................... A-32
4.11 Other Proposals................................................ A-33
4.12 Intentionally Omitted.......................................... A-34
4.13 Buyer Shareholder Approval..................................... A-34
4.14 Affiliates..................................................... A-34
ARTICLE V
CONDITIONS TO OBLIGATIONS OF BUYER AND SUB..................... A-35
5. Conditions To Obligations of Buyer and Sub To Consummate the
Merger......................................................... A-35
5.1 Representations, Warranties, and Covenants of Target........... A-35
5.2 Target Shareholder Approval.................................... A-35
5.3 Buyer Shareholder Approval..................................... A-35
5.4 Intentionally Omitted.......................................... A-35
5.5 No Injunctions................................................. A-36
5.6 No Antitrust Litigation........................................ A-36
5.7 Filings........................................................ A-36
5.8 NASDAQ Listing................................................. A-36
5.9 Securities Laws................................................ A-36
5.10 Affiliate Letters.............................................. A-37
</TABLE>
A-ii
<PAGE>
<TABLE>
Page No.
--------
<S> <C>
5.11 Dissenters Rights.............................................. A-37
5.12 Tax Opinion or Tax Ruling...................................... A-37
5.13 Legal Opinion.................................................. A-38
5.14 Resignations................................................... A-38
5.15 Fairness Opinion............................................... A-38
ARTICLE VI
CONDITIONS TO OBLIGATION OF TARGET.......................... A-38
6. Conditions To Obligation of Target To Consummate the Merger.... A-38
6.1 Representations, Warranties, and Covenants of
Buyer and Sub.................................................. A-38
6.2 Target Shareholder Approval.................................... A-39
6.3 Buyer Shareholder Approval..................................... A-39
6.4 Intentionally Omitted.......................................... A-39
6.5 No Injunctions................................................. A-39
6.6 No Antitrust Litigation........................................ A-39
6.7 Filings........................................................ A-39
6.8 NASDAQ Listing................................................. A-39
6.9 Securities Laws................................................ A-39
6.10 Fairness Opinion............................................... A-40
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT........................... A-40
7.1 Termination.................................................... A-40
7.2 Effect of Termination.......................................... A-42
7.3 Waiver of Terms................................................ A-42
7.4 Amendment of Agreement......................................... A-42
7.5 Fees and Expenses.............................................. A-43
7.6 Failure of Buyer Shareholder Approval.......................... A-44
ARTICLE VIII
GENERAL PROVISIONS.......................................... A-44
8.1 Cooperation.................................................... A-44
8.2 Counterparts................................................... A-45
8.3 Contents of Agreement, Etc..................................... A-45
8.4 No Survival of Representations and Warranties.................. A-45
8.5 Section Headings, Gender and "Person."......................... A-45
8.6 Notices........................................................ A-45
8.7 Governing Law.................................................. A-46
</TABLE>
LIST OF EXHIBITS
A. Buyer Preferred Stock Terms
B. Affiliate Agreement
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of October 18, 1995, among
BUFFALO VALLEY TELEPHONE COMPANY, a Pennsylvania corporation ("Target"),
CONESTOGA ENTERPRISES, INC., a Pennsylvania corporation ("Buyer"), and CB MERGER
CORPORATION, a Pennsylvania corporation and a wholly owned subsidiary of Buyer
("Sub").
BACKGROUND
The Boards of Directors of Buyer, Sub and Target deem it advisable and in
the best interests of the shareholders of their respective corporations that
Target be acquired by Buyer through the merger of Target with and into Sub (the
"Merger") pursuant to the Pennsylvania Business Corporation Law (the
"Corporation Law") in accordance with the provisions of this Agreement (together
with the Schedules attached hereto, the "Agreement").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto do hereby agree that they will carry out and
consummate the following Agreement.
ARTICLE I
PLAN OF MERGER
1.1 The Merger. At the Effective Time (as hereinafter defined),
----------
Target shall be merged with and into Sub pursuant to this Agreement and the
separate existence of Target shall cease. For federal income tax purposes, it is
intended that the Merger shall constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
1.2 Effects of the Merger. Sub shall be the surviving corporation
---------------------
in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"), and the separate corporate existence of Sub with all its rights,
privileges, immunities, powers and franchises shall continue unaffected by the
Merger. The shares of common stock of Sub issued and outstanding immediately
prior to the Effective Time shall remain outstanding and unchanged after the
Merger, and shall thereafter constitute all of the issued and outstanding shares
of the capital stock of the Surviving Corporation. The articles of incorporation
and bylaws of Sub in effect
A-1
<PAGE>
immediately prior to the Merger shall remain in effect as the articles of
incorporation and bylaws of the Surviving Corporation, except that Article 1 of
the articles of incorporation of Sub shall be amended to read as follows: "The
name of the corporation is Buffalo Valley Telephone Company." The directors and
officers of Sub immediately prior to the Merger shall remain in office as the
directors and officers of the Surviving Corporation.
1.3 Conversion of Target Common Shares.
----------------------------------
(a) Conversion of Shares. At the Effective Time (defined below), by
virtue of the Merger and without any action on the part of any holder thereof,
subject to the provisions of Section 1.5 hereof with respect to dissenters'
rights, if any, each share of common stock, no par value, of Target (the "Target
Common Stock") issued and outstanding at the Effective Time (other than (i)
shares the holders of which (each a "Dissenting Shareholder") are exercising
dissenters rights pursuant to the Corporation Law (the "Dissenters' Shares"),
and (ii) shares held directly or indirectly by Buyer which are not held in a
fiduciary capacity or in satisfaction of a debt previously contracted) shall
become and be converted into the right to receive the cash and/or shares of
stock of Buyer constituting the Per Share Merger Consideration (as defined in
paragraph (b) below). As of the Effective Time, each share of Target Common
Stock held directly or indirectly by Buyer, other than shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted, and each
share held as treasury stock of Target, shall be cancelled and retired and cease
to exist, and no exchange or payment shall be made with respect thereto.
(b) Per Share Merger Consideration Defined. As used herein, the term
"Per Share Merger Consideration" shall mean, at the election of the holder of
the share of Target Common Stock in accordance with Schedule 1.3 hereto and
subject to proration in accordance with Schedule 1.3 hereto, either:
(i) $65.00 in cash (the "Cash Merger Consideration");
(ii) one fully paid and nonassessable share of the Buyer's
Series A Convertible Preferred Stock, par value $65.00 per share
("Buyer Preferred Stock") (the "Preferred Stock Merger
Consideration"); or
(iii) subject to the adjustments provided in paragraph (c)
below, that number of shares (the
A-2
<PAGE>
"Common Stock Exchange Ratio") of the Buyer's common stock, par value
$5.00 per share ("Buyer Common Stock"; Buyer Common Stock and Buyer
Preferred Stock are collectively referred to herein as "Buyer Stock"),
specified in the following subparagraphs:
(A) 2.4 shares of Buyer Common Stock so long as the Market
Value (defined below) of Buyer Common Stock is between $24.50 and
$30.00 per share, inclusive;
(B) in the event that the Market Value of Buyer Common Stock
is less than $24.50 but not less than $22.50 per share, that
number of shares of Buyer Common Stock determined by dividing
$58.80 by the Market Value, carried out to five decimal places,
but in no event more than 2.61333 (the "Maximum Common Stock
Exchange Ratio"); or
(C) in the event that the Market Value of Buyer Common Stock
is more than $30.00 but not more than $32.70 per share, that
number of shares of Buyer Common Stock determined by dividing
$72.00 by the Market Value, carried out to five decimal places,
but in no event less than 2.20183 (the "Minimum Common Stock
Exchange Ratio").
(c) Adjustments to Common Stock Exchange Ratio. In the event that the
Market Value of Buyer Common Stock is less than $22.50 per share, the Maximum
Common Stock Exchange Ratio may be increased, at the option of Buyer, to the
number determined by dividing $58.80 by the Market Value, carried out to five
decimal places. In the event that the Market Value of Buyer Common Stock is more
than $32.70, the Minimum Common Stock Exchange Ratio may be decreased, at the
option of Target, to the number determined by dividing $72.00 by the Market
Value, carried out to five decimal places. The option of Buyer to increase the
Maximum Common Stock Exchange Ratio, and the option of Target to decrease the
Minimum Common Stock Exchange Ratio, must be exercised by notice to the other
party received no later than 5:00 p.m. on the second business day prior to the
Closing Date. As provided in Article VII hereof, if the Market Value is less
than $22.50 and Buyer does not exercise its option to increase the Maximum
Common Stock Exchange Ratio, Target shall have the right to terminate this
Agreement; if the Market Value is more than $32.70 and Target does not exercise
its option to decrease the Minimum Common Stock Exchange Ratio, Buyer shall have
the right to terminate this Agreement. In addition, if prior to
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the Closing Date the outstanding shares of Buyer Common Stock shall have been
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities through a stock dividend, stock split or reverse stock
split, appropriate adjustment shall be made to the Common Stock Exchange Ratio
and the Market Value dollar amounts specified in Section 1.3(b) and Section
1.3(c).
(d) Market Value Defined. As used herein, the term "Market Value"
shall mean (i) the sum of the average of the last reported bid and ask prices
per share of Buyer Common Stock quoted by each of the four principal market
makers for Buyer Common Stock for each of the last 10 NASDAQ trading days
immediately preceding the fourth business day prior to the Closing Date, (ii)
divided by 10.
(e) Shareholder Elections. All holders of Target Common Stock electing
to receive Preferred Stock Merger Consideration or Common Stock Merger
Consideration shall receive the type of consideration requested. Holders of
Target Common Stock making no election shall receive Common Stock Merger
Consideration. As more fully described on Schedule 1.3 hereto, holders of Target
Common Stock electing to receive Cash Merger Consideration shall receive cash,
however, only to the extent that the aggregate percentage of the outstanding
Target Common Stock receiving Cash Merger Consideration (the "Cash Percentage")
does not exceed 50% or, if lower, the maximum possible percentage which would
permit the Merger to qualify as a tax-free exchange for federal income tax
purposes. As more fully described on Schedule 1.3 hereto, if the number of
holders of Target Common Stock electing to receive Cash Merger Consideration
exceeds the Cash Percentage, such holders would receive a combination of
Preferred Stock Merger Consideration and Cash Merger Consideration to the extent
necessary so that no more than the permitted amount of cash would be paid in the
Merger.
1.4 Timing.
------
(a) Shareholder Approval. Target shall submit this Agreement to its
shareholders for approval as provided in Section 4.5 hereof. In connection with
such meeting, Target and Buyer shall each take, as promptly as practical, such
reasonable steps as shall be necessary for the preparation and filing by Buyer
of a registration statement under the Securities Act of 1933 (the "1933 Act") on
Form S-4 (the "Registration Statement") with the Securities and Exchange
Commission ("SEC") and shall use its reasonable best efforts to cause the
Registration Statement to become effective as soon as practicable.
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(b) Closing and Effective Time. The parties shall hold a closing (the
"Closing") on a mutually agreeable date (the "Closing Date") no later than the
fifth business day after the satisfaction or waiver of the conditions set forth
in Article V and Article VI of this Agreement, at 10:00 A.M., local time, at the
offices of Buyer, or at such other place or time as the parties agree upon. On
the Closing Date or as soon thereafter as practicable, the parties shall execute
and file in the offices of the Corporation Bureau of the Commonwealth of
Pennsylvania appropriate Articles of Merger in accordance with the provisions of
the Corporation Law. The "Effective Time" shall be the date of filing the
Articles of Merger, or the effective date specified therein, whichever is later.
1.5 Dissenters' Rights. Any Dissenting Shareholder who shall be
------------------
entitled to be paid the "fair value" of his or her Dissenters' Shares, as
provided in the Corporation Law, shall not be entitled to the Per Share Merger
Consideration unless and until the holder thereof shall have failed to perfect
or shall have effectively withdrawn or lost such holder's right to dissent from
the Merger under the Corporation Law, and shall be entitled to receive only the
payment to the extent provided for by the Corporation Law. If any such holder
shall fail to perfect or shall have effectively withdrawn or lost the right to
dissent, the Dissenters' Shares held by such Dissenting Shareholder shall
thereupon be treated as though such shares had been converted into the right to
receive the Per Share Merger Consideration pursuant to Section 1.3, and unless
such holder shall have made a valid and timely election in accordance with this
Agreement, such shares shall be deemed to be Non-Election Shares as described on
Schedule 1.3 hereto.
1.6 Surrender and Exchange of Target Certificates.
---------------------------------------------
(a) Election and Transmittal Materials. Within five business days
after the Effective Time, Buyer shall cause to be sent to each person who
immediately prior to the Effective Time was a holder of record of Target Common
Stock (i) a form for purposes of making elections for the kind of Per Share
Merger Consideration desired by such holder and containing instructions with
respect thereto, and (ii) transmittal materials and instructions for
surrendering certificates for Target Common Stock ("Old Certificates") in
exchange for that amount of cash, that number of shares of Buyer Preferred Stock
and/or that number of shares of Buyer Common Stock to which such person is
entitled under Section 1.3 hereof, after proration in accordance with Schedule
1.3 hereto.
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(b) No Fractional Shares. No certificates for fractional shares of
Buyer Preferred Stock or Buyer Common Stock shall be issued in connection with
the Merger. In lieu thereof, Buyer shall issue to any holder of Target Common
Stock certificates otherwise entitled to a fractional share, upon surrender of
such certificates in accordance with the instructions furnished by Buyer, a
check for an amount of cash equal to the fraction of a share represented by the
certificates so surrendered multiplied by (i) $65.00 in the case of Buyer
Preferred Stock, or (ii) the Market Value per share of Buyer Common Stock in the
case of Buyer Common Stock.
(c) Dividends. If any dividend on Buyer Preferred Stock or Buyer
Common Stock is declared after the Effective Time, the declaration shall include
dividends on all shares of Buyer Preferred Stock or Buyer Common Stock into
which shares of Target Common Stock have been converted under this Agreement,
but no former holder of Target Common Stock shall be entitled to receive payment
of any such dividend until surrender of the shareholder's Old Certificates shall
have been effected in accordance with the instructions furnished by Buyer. Upon
surrender for exchange of a shareholder's Old Certificates, such shareholder
shall be entitled to receive from Buyer an amount equal to all such dividends,
without interest thereon and less the amount of taxes, if any, which may have
been imposed or paid thereon, declared, and for which the payment date has
occurred, on the shares of Buyer Preferred Stock or Buyer Common Stock into
which the shares represented by such Old Certificates have been converted.
(d) Closing of Stock Transfer Books. After the Effective Time, there
shall be no transfer on the stock transfer books of Target or Buyer of shares of
Target Common Stock. If Old Certificates are presented for transfer after the
Effective Time, they shall be cancelled and cash or certificates representing
shares of Buyer Preferred Stock or Buyer Common Stock shall be issued in
exchange therefor as provided herein.
(e) Unclaimed Merger Consideration. To the extent permitted by law, in
the event that any Old Certificates have not been surrendered for exchange in
accordance with this Section on or before the second anniversary of the
Effective Time, Buyer may at any time thereafter, with or without notice to the
holders of record of such Old Certificates, sell for the accounts of any or all
of such holders any or all of the shares of Buyer Preferred Stock or Buyer
Common Stock which such holders are entitled to receive under Section 1.3 hereof
(the "Unclaimed Shares"). Any such sale may be made by public or private sale or
sale at any broker's board or on any securities exchange in such manner and at
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such times as Buyer shall determine. If in the opinion of counsel for Buyer it
is necessary or desirable, any Unclaimed Shares may be registered for sale under
the 1933 Act and applicable state laws. Buyer shall not be obligated to make any
sale of Unclaimed Shares if it shall determine not do so, even if notice of sale
of the Unclaimed Shares has been given. The net proceeds of any such sale of
Unclaimed Shares shall be held for holders of the unsurrendered Old Certificates
whose Unclaimed Shares have been sold, to be paid to them upon surrender of the
Old Certificates. From and after any such sale, the sole right of the holders of
the unsurrendered Old Certificates whose Unclaimed Shares have been sold shall
be the right to collect the net sale proceeds held by Buyer for their respective
accounts, and such holders shall not be entitled to receive any interest on such
net sale proceeds held by Buyer.
(f) Escheat. If outstanding certificates for shares of Target Common
Stock are not surrendered prior to the date on which such certificates would
otherwise escheat to or become the property of any governmental unit or agency,
the unclaimed items shall, to the extent permitted by abandoned property and any
other applicable law, become the property of Buyer (and to the extent not in its
possession shall be paid over to it), free and clear of all claims or interest
of any person previously entitled to such claims. Notwithstanding the foregoing,
neither Buyer nor its agents or any other person shall be liable to any former
holder of Target Common Stock for any property delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(g) Lost or Stolen Certificates. In the event any Old Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Old Certificate to be lost, stolen or
destroyed and, if required by Buyer, the posting by such person of a bond in
such amount as Buyer may direct as indemnity against any claim that may be made
against it with respect to such Certificate, Buyer will issue in exchange for
such lost, stolen or destroyed Old Certificate, that amount of cash and/or that
number of shares of Buyer Preferred Stock or Buyer Common Stock into which such
Old Certificates has been converted pursuant to this Agreement.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
2. Representations and Warranties of Target. Target
----------------------------------------
represents and warrants to Buyer and Sub as follows, except as set forth in a
disclosure schedule (the "Target Schedule") delivered by Target
contemporaneously with the execution of this Agreement:
2.1 Organization, Powers and Qualifications. Target is a
---------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania. Target has all requisite corporate power
and authority to carry on its business as it has been and is now being conducted
and to own, lease and operate the properties and assets used in connection
therewith. Target is duly qualified as a foreign corporation authorized to do
business and is in good standing in every jurisdiction in which such
qualification is required, other than such jurisdictions where the failure so to
qualify would not have a material adverse effect on the business, condition
(financial or otherwise), assets, liabilities or operations of Target and its
Subsidiaries (defined below) taken as a whole (a "Target Material Adverse
Effect"). As used in this Agreement, "Target Material Adverse Effect" shall
include, without limitation, any item which individually would have an adverse
economic effect on Target of more than $100,000, except that for purposes of
Section 2.9 hereof, such term shall mean any item individually, or items, in the
aggregate, having an adverse economic effect on Target of more than $250,000.
The Target Schedule sets forth a complete and correct copy of the Articles of
Incorporation and Bylaws (together with all amendments thereto and restatements
thereof) of Target.
2.2 Subsidiaries. As used in this Agreement, the term "Subsidiary"
------------
means, with respect to Target, any entity in which a person owns or controls 50%
or more of the legal or beneficial interest in such entity. Target does not have
any Subsidiaries.
2.3 Capital Stock. Target has authorized capital stock consisting
-------------
of 5,000,000 shares of Common Stock, without par value, of which 899,154 are
issued and outstanding and 846 shares are held as treasury shares, and 10,000
shares of Cumulative Preferred Stock, par value $50.00 per share, none of which
are issued and outstanding. All of the issued and outstanding shares have been
duly authorized and are validly issued and outstanding, fully paid and
nonassessable. No shares of capital stock issued by Target are or were at the
time of their issuance subject to preemptive rights. There are no existing
subscriptions, options, warrants, calls,
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commitments, agreements, conversion rights or other rights of any character
(contingent or otherwise) providing for the issuance, sale, purchase,
redemption, transfer, voting or registration, at any time, or upon the happening
of any stated event, of any shares of the capital stock of Target whether or not
presently issued or outstanding. All previously outstanding shares of Target's
Cumulative Preferred Stock were redeemed by Target as of September 1, 1995.
2.4 Authority. The execution and delivery of this Agreement and
---------
the consummation of the transactions contemplated hereby have been authorized by
all necessary corporate action on the part of the Board of Directors of Target
and, subject to approval by the shareholders of Target of this Agreement in
accordance with the Corporation Law, no other corporate proceedings on the part
of Target are necessary to authorize this Agreement or the carrying out of the
transactions contemplated hereby. This Agreement is binding and enforceable upon
Target in accordance with its terms, subject to any bankruptcy, insolvency,
moratorium or other laws affecting the enforcement of creditors' rights.
2.5 Conflict with Other Agreements; Consents and Approvals. With
------------------------------------------------------
respect to the following:
(a) the Articles of Incorporation or By-laws of, or any securities
issued by, Target or any Subsidiary,
(b) any law, statute, rule or regulation applicable to Target or any
Subsidiary,
(c) any Contract (as defined in Section 2.13) to which Target or any
Subsidiary is a party or may be bound or any Authorization (as defined in
Section 2.18) held by Target or any Subsidiary, and
(d) any judgment, order, injunction, decree or ruling of any court,
arbitrator or governmental or regulatory official, body or authority
applicable to Target or any Subsidiary,
the execution, delivery and performance by Target of this Agreement and the
transactions contemplated hereby will not (i) result in any violation, conflict
or default, or give to others any interest or rights, including rights of
termination, cancellation or acceleration which would have a Target Material
Adverse Effect, (ii) result in the creation of any lien upon any assets of
Target or any Subsidiary or (iii) require any authorization, consent, approval
or exemption by any person, the failure to obtain which would have a Target
Material Adverse Effect, which has not been
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obtained, or any notice to or filing which has not been given or done, other
than the consent of The Penn Mutual Life Insurance Company under that Note
Agreement dated May 31, 1978, the premerger notification ("Premerger
Notification") required by the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, filings pursuant to the Pennsylvania Public Utility Code,
filings pursuant to the 1933 Act and applicable state securities laws, the
shareholder approval referred to in Section 2.4 hereof, and the filing of
appropriate merger documentation under the Corporation Law. Prior to the
execution and delivery of this Agreement, Target validly terminated that
Agreement and Plan of Merger dated as of May 10, 1995 among Target, C-TEC
Corporation and BVT Merger Corporation (the "C-TEC Agreement") in accordance
with Section 7.1(d) thereof. If required under the C-TEC Agreement, Target will
pay the $550,000 fee payable in accordance with Section 7.5(a) of the C-TEC
Agreement within one business day of the date of this Agreement.
2.6 Compliance with Law. Target and the Subsidiaries and their use
-------------------
and occupancy of their assets and properties wherever located, are and have been
in compliance with all applicable laws, statutes, rules, regulations, judgments,
orders, injunctions, decrees and rulings of any court, arbitrator or of any
governmental or regulatory official, body or authority applicable to them
(including, without limitation, the Americans with Disabilities Act and all
laws, rules and regulations relating to the protection of the environment,
health and safety, and the generation, storage, handling or disposal of
hazardous wastes and hazardous materials), the non-compliance with which, or the
violation of which, would have a Target Material Adverse Effect, and neither
Target nor any Subsidiary has received any claim or notice of any such non-
compliance or violation. Target and the Subsidiaries have duly and timely filed
all reports and filings that are required to be filed or provided under such
laws, statutes, rules, regulations, or which are otherwise required and have
paid all assessments required thereunder, except where the failure to file or
pay assessments would not have a Target Material Adverse Effect.
2.7 Financial Statements.
--------------------
(a) Target has provided Buyer with the audited balance sheets of
Target as of December 31, 1994 and 1993 and the related statements of income,
retained earnings and cash flows for the two years ended December 31, 1994.
Following the date hereof, Target will deliver to Buyer, within 45 days
following the end of each calendar quarter, an unaudited quarterly balance sheet
and income statement for Target. Such financial statements have been, or will
be, prepared in accordance with generally accepted accounting principles
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consistently applied throughout the periods involved (except as may be indicated
in the notes thereto and except for the omission of footnote information in the
case of unaudited statements), and fairly present or will fairly present
(subject, in the case of unaudited statements to normal recurring audit
adjustments which in the aggregate are not material) the financial position of
Target at the dates indicated and the results of operations and cash flows of
Target for the periods indicated (such financial statements are hereinafter
referred to as the "Target Financial Statements"). The balance sheet of Target
at December 31, 1994 described above is referred to herein as the "Target
Balance Sheet."
(b) Target's books and records are complete and in reasonable detail,
and accurately and fairly reflect the transactions and dispositions of Target's
assets. Target has consistently maintained a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles or any
other criteria applicable to such statements and to maintain accountability for
such assets, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
2.8 Absence of Undisclosed Liabilities. Target has no liabilities
----------------------------------
or obligations (direct or indirect, contingent or absolute, matured or
unmatured) of any nature, except for liabilities and obligations (i) in the
amounts and categories reflected, reserved against or given effect to in the
Target Financial Statements, (ii) described in, or disclosed pursuant to, this
Agreement, (iii) incurred in the ordinary course of business since December 31,
1994, (iv) which would not constitute a Target Material Adverse Effect, or (v)
as of the Effective Time, those arising from actions that shall not have
violated Section 4.1 hereof.
2.9 Absence of Adverse Changes. Since December 31, 1994, there has
--------------------------
been no change in the business, assets, liabilities, financial condition,
results of operations or prospects of Target and its Subsidiaries, taken as a
whole, which would constitute a Target Material Adverse Effect.
2.10 Tax and Other Returns and Reports. All federal, state, local
---------------------------------
and foreign tax returns, reports and statements required to be filed by Target
or any Subsidiary
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have been filed within the time and in the manner prescribed by law. Such
returns correctly reflected the facts regarding the income, businesses, assets,
operations and activities of Target and any Subsidiary. Such returns correctly
reflected all taxes, due or payable by Target or any Subsidiary through the date
of this Agreement. Taxes shown to be due and payable thereon have been paid or
adequately reserved, and there are no pending assessments, asserted deficiencies
or claims for additional taxes which have not been paid. There are no material
deficiencies which representatives of the Internal Revenue Service ("IRS") or
any other taxing authority have advised Target are expected to be included in an
audit report, and no material special charges, penalties, interest or fines are
being asserted against Target or any of its Subsidiaries with respect to payment
or failure to pay any taxes. The Target Schedule sets forth the year through
which Target has been audited by the IRS. In the opinion of Target's management,
the reserve or accrual for taxes shown on the Target Balance Sheet is sufficient
for payment of all unpaid federal, state, local and foreign taxes of Target and
its Subsidiaries through such date.
2.11 Dividends and Stock Purchases. Except for Target's (x) payment
-----------------------------
of scheduled dividends on its outstanding common and preferred stock and (y) the
redemption of all outstanding preferred stock effective as of September 1, 1995,
since December 31, 1994 Target has not declared, set aside or paid any dividend,
or made or agreed to make any other distribution or payment in respect of shares
of Target's capital stock nor has it redeemed, purchased or otherwise acquired
or agreed to redeem, purchase or otherwise acquire any shares of Target's
capital stock.
2.12 Assets. Target and its Subsidiaries have good and marketable
------
title to all material assets owned by them constituting real property and good
title to all material assets owned by them constituting personal property,
including without limitation those assets reflected in the Target Financial
Statements in the amounts and categories reflected therein, free and clear of
all mortgages, liens, pledges, charges or encumbrances or other third party
interests of any nature whatsoever, except (a) the lien of current taxes not yet
due and payable, (b) assets disposed of by Target or any Subsidiary since
December 31, 1994 solely in the ordinary course of business consistent with past
practice, (c) such secured indebtedness, financing or capital lease obligations,
or purchase money security interests as are disclosed in the Target Financial
Statements covering the properties referred to therein, and (d) such other
imperfections of title, easements, mortgages, liens, pledges, charges and
encumbrances, if any, as do not materially detract from the value, or interfere
with the present or
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proposed use, of the assets subject thereto. All tangible assets material to the
operation of the telephone business are in good working order and repair and
comply in all material respects with applicable rules, regulations and standards
regarding their intended use. No material portion of the cable or fiber optics
used in Target's telephone business shall require any substantial rearrangement
on utility poles or substantial rehabilitation. Target's tangible assets meet,
in all material respects, all current industry technical performance standards,
including industry fiber optic standards, for a system of its particular design.
Target has an inventory of spare parts and other materials relating to its
telephone business of the type, nature and amount consistent with Target's past
practices and good telephone company industry practices.
2.13 Contracts.
---------
(a) Except for those contracts, agreements or understandings that
may be terminated without liability or penalty on not more than thirty days
notice and those under which the executory obligation of Target or any
Subsidiary involves an individual amount of less than $25,000, the Target
Schedule sets forth each contract, agreement or understanding to which Target
or any Subsidiary is a party or may be bound and which is:
(i) with any present or former shareholder, director, officer,
employee or consultant or for the employment of any person or consultant;
(ii) a note, debenture, bond, equipment trust agreement, letter
of credit agreement, loan agreement or other contract or commitment for
the borrowing or lending of money or agreement or arrangement for a line
of credit or a guarantee, pledge or undertaking of the indebtedness of
any other person, or a security arrangement relating to any of the
foregoing;
(iii) a material license, distributor, dealer, franchise,
manufacturer's representative, sale agency or advertising arrangement;
(iv) an arrangement limiting or restraining Target from
engaging or competing in any manner or in any business;
(v) for the future purchase of, or payment for, supplies or
products, or for the
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performance of services by a third party, in excess of $50,000 in any
individual case;
(vi) for the sale or supply of products or the provision of
services in excess of $50,000 in any individual case;
(vii) any lease of real or personal property; or
(viii) a material arrangement not made in the ordinary course
of business.
(b) All contracts, leases, mortgages, commitments, agreements or
understandings referred to in the Target Schedule ("Contracts") are in force
in accordance with their terms. Neither Target nor any Subsidiary (nor any
other party) has violated any provision of, or committed or failed to perform
any act which with notice, lapse of time or both would constitute a default
under the provisions of, any Contract, the termination or violation of which
would have a Target Material Adverse Effect. The Target Schedule identifies
all Contracts which require the consent or approval of third parties to the
execution and delivery of this Agreement or to the consummation and
performance of the transactions contemplated hereby, except where the failure
to obtain such consent or approval would not have a Target Material Adverse
Effect.
2.14 Litigation. No claim, action, suit, arbitration,
----------
investigation or other proceeding is pending, or known by Target to be
threatened against Target or any Subsidiary or any of their properties before
any court, governmental or regulatory official, body or authority arbitrator
or mediator in which an unfavorable judgment, decision, ruling, or finding
would have a Target Material Adverse Effect. There are no judgments, consent
decrees, injunctions, or any other judicial or administrative mandates of any
nature outstanding against Target or any Subsidiary which would have a Target
Material Adverse Effect. There are no claims, actions, suits or other
proceedings pending, or known by Target to be threatened, against any director
or officer of Target relating to their service as such. To the knowledge of
Target, no events have occurred which could reasonably be expected to form the
basis for a claim or other proceeding against Target's directors or officers
for breach of fiduciary duty.
2.15 Insurance. Each of Target and its Subsidiaries maintains
---------
insurance coverage on its structures, facilities, machinery, equipment and
other assets and properties and with respect to its employees and operations
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which covers liabilities and risks customarily insured against by similar
businesses on customary terms. The Target Schedule contains a complete and
accurate description of the insurance coverage applicable to Target and its
Subsidiaries, including amounts and lines of coverage, term, expiration date,
premium and loss experience history by line of coverage. Except for the
directors and officers insurance policy, all such policies are occurrence,
rather than claims made policies. There are no provisions in such policies for
retroactive or retrospective premium adjustments. The insurance binders and
policies listed on the Target Schedule are valid and in full force and effect
and will continue in full force and effect until the Effective Time. Neither
Target nor any Subsidiary has been refused any insurance by an insurance carrier
to which it has applied for insurance during the past three years. Target and
each Subsidiary has complied in all material respects with the provisions of
said policies.
2.16 Labor Matters. Neither Target nor any Subsidiary is a party
-------------
to or bound by any collective bargaining agreements with respect to any
employees of Target or any Subsidiary. Since December 31, 1994 there has not
been, nor to the knowledge of Target was there or is there threatened, any
strike, slowdown, picketing or work stoppage by any union or other group of
employees against Target or any Subsidiary or any of their premises, or any
other labor trouble or other occurrence, event or condition of a similar
character which may have a Target Material Adverse Effect. The Target Schedule
sets forth the names and present annual salary of all persons employed by
Target.
2.17 Employee Benefit Plans.
----------------------
(a) With respect to each employee benefit plan (including, without
limitation, any "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (all the
foregoing being herein called "Benefit Plans"), maintained or contributed to by
Target or any of its Subsidiaries, Target has made available to Buyer a true and
correct copy of (i) the most recent annual report (Form 5500) filed with the
IRS, (ii) such Benefit Plan, (iii) each trust agreement and group annuity
contract, if any, relating to such Benefit Plan and (iv) the most recent
actuarial report or valuation relating to any Benefit Plan subject to Title IV
of ERISA.
(b) With respect to the Benefit Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Target, there exists
no condition or set of circumstances in connection with which Target or any of
its Subsidiaries is subject to any liability that could be
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reasonably expected to have a Target Material Adverse Effect, under ERISA, the
Code or any other applicable law. All Benefit Plans conform to, and have been
administered and operated in compliance, in all material respects, with the
requirements of the applicable plan documents, ERISA, the Code and any other
applicable law.
(c) With respect to the Benefit Plans, individually and in the
aggregate, there are no material funded benefit obligations for which
contributions have not been made or properly accrued and there are no material
unfunded benefit obligations which have not been accounted for by reserves, or
otherwise properly footnoted in accordance with generally accepted accounting
principles, on the consolidated financial statements of Target and its
Subsidiaries.
(d) Each Benefit Plan that is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service. No such Benefit Plan has been completely or partially
terminated since December 31, 1990.
(e) No Benefit Plan, nor any fiduciary thereof, has engaged in a
transaction which is reasonably likely to subject any Benefit Plan, or any
fiduciary thereof, to any material taxes or penalties for a "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) or
any material penalty under Section 502 of ERISA.
2.18 Franchises, Licenses, Permits, Etc. Target and its
----------------------------------
Subsidiaries own or possess in the operation of their respective businesses all
franchises, licenses, permits, consents, approvals, rights, waivers and other
governmental authorizations ("Authorizations") which are material to the conduct
of the business of Target and its Subsidiaries, taken as a whole. Neither Target
nor any Subsidiary is in material default, or has received any notice of any
claim of material default, with respect to any such Authorization or any notice
of any other material claim or proceeding or threatened proceeding relating to
any such Authorization or claimed lack of any necessary material Authorization.
Except for filings under the Pennsylvania Public Utility Code and the approval
of the Pennsylvania Public Utility Commission, neither the execution or delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will require any notice or consent under or have any material adverse effect
upon any such Authorization.
2.19 Patents and Trademarks. Except as set forth on the Target
----------------------
Schedule, Target does not own, license or use in its business any material
patents, trademarks, copyrights
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or other intellectual property assets. Target and its Subsidiaries own (free and
clear of all liens) all such patents, trademarks, tradenames, copyrights and
applications with respect thereto and other intellectual property, has entered
into a subsisting license agreement with respect thereto, or otherwise has
adequate authority to use such intellectual property in the conduct of Target's
business. Neither Target nor any Subsidiary has received any notice or other
information with respect to any alleged infringement or unlawful use of any such
asset nor has Target or any Subsidiary granted or agreed to grant any license to
use any such asset.
2.20 Ordinary Course. Except for the transactions contemplated by
---------------
the C-TEC Agreement, since December 31, 1994, Target and its Subsidiaries have
conducted their business solely in the ordinary course consistent with past
practice. Without limitation of the foregoing, since December 31, 1994,
Target (except as otherwise expressly disclosed to Buyer pursuant to this
Agreement):
(a) has not made any change in its authorized, issued or outstanding
capital stock and has not granted any options or other rights to acquire,
whether directly or contingently, any of its capital stock, nor has it
permitted any third party to acquire, or gained any rights to acquire, any
shares of capital stock of any Subsidiary;
(b) except for the payment of regular scheduled dividends on its
outstanding common and the redemption of preferred stock referenced in Section
2.11 hereof, has not declared, set aside, or paid any dividend or made any
other distribution in respect of, nor repurchased any of, its capital stock;
(c) has not suffered any physical damage or destruction to its
assets which would have a Target Material Adverse Effect;
(d) has not been the subject of any actual or threatened organizing
campaign, strike, slowdown, picketing or work stoppage by any union or other
group of employees, or any other labor trouble or other occurrence, event or
condition of a similar character which may have a Target Material Adverse
Effect;
(e) has not entered into or amended any employment contracts or any
employee benefit plan or arrangement, increased the rate of compensation (or
other bonus or benefit) payable or to become payable by it to any officer or
any other executive employee, made any general increase in compensation or
rate of compensation (or other
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bonus or benefit) payable or to become payable to hourly employees or salaried
employees except in the ordinary course of business consistent with past
practice;
(f) has not incurred or guaranteed any debt except in the ordinary
course of business consistent with past practice;
(g) has not encumbered, sold or disposed of any assets (tangible or
intangible) except for sales of inventory in the ordinary course of business
consistent with past practice;
(h) has not changed in any material respect its accounting and tax
practices, policies or principles;
(i) has not cancelled or waived any debts or claims having a value
of $50,000 in the aggregate;
(j) has paid all taxes as they become due, filed all federal, state,
local and foreign tax returns, reports and statements required to be filed
within the time and in the manner prescribed by law, and collected or withheld
all taxes required to be collected or withheld from employees, independent
consultants or other third parties;
(k) has not filed any amended tax return or entered into a
settlement of any audit or other tax dispute with the IRS or any other taxing
authority;
(l) has not received any communication (oral or written) from any
customer, supplier or governmental or regulatory agency which constitutes (or
which could reasonably be expected to result in) a Target Material Adverse
Effect;
(m) has not changed in any material respect its existing pricing
structure, fees and charges structure, marketing and promotional plans and
policies; and
(n) has not entered into any (or modified any existing) lease,
contract, commitment or agreement or engaged in any transaction (including
without limitation any borrowing, capital expenditure, capital financing,
leasing arrangement or purchase commitment) except in the ordinary course of
business consistent with past practice and except for the C-TEC Agreement.
2.21 Brokerage and Other Fees. In connection with the transactions
------------------------
contemplated by this Agreement, no broker, finder or similar agent has been
employed by or on behalf of Target, and no person with which Target has had
dealings or
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communications of any kind is entitled to any brokerage or finder's fee or other
commission in connection with the transactions other than its financial adviser,
Snyder & Co. (whose fee will be paid at closing) pursuant to that agreement
dated October 6, 1994, a true and correct copy of which has been provided to
Buyer. No additional fees are payable to Snyder & Co. in connection with their
delivery of the oral and written fairness opinions referred to in this
Agreement.
2.22 Opinion of Financial Advisor. Target has received the oral
----------------------------
opinion of Snyder & Co., as of the date hereof, that the consideration to be
received in the Merger by Target's shareholders is fair to Target's shareholders
from a financial point of view.
2.23 Information Supplied. None of the information supplied or to
--------------------
be supplied by Target or any of its Subsidiaries for inclusion or incorporation
by reference in the prospectus and proxy statement forming a part of the
Registration Statement (the "Prospectus and Proxy Statement")) to be filed with
the SEC by Buyer in connection with the issuance of Buyer Preferred Stock and
Buyer Common Stock pursuant to the Merger or any other documents to be filed
with the SEC in connection with the transactions contemplated hereby will, at
the respective times such documents are filed, and, in the case of the
Registration Statement, when it becomes effective and at all times necessary to
comply with the 1933 Act, and, with respect to the Prospectus and Proxy
Statement, when mailed and, as amended or supplemented, at all times through the
Closing Date, contain any untrue statement of material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances in which they are made, not misleading. All documents filed by
Target and its Subsidiaries with the SEC and any other regulatory agency in
connection with the Merger will comply in all material respects with the
provisions of all applicable rules and regulations.
2.24 Disclosure. No representation or warranty hereunder or
----------
information contained in the financial statements referred to in Section 2.7,
the Target Schedule or any certificate, statement, or other document delivered
by Target hereunder contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained
therein or herein, in light of the circumstances in which they were made, not
misleading.
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2.25 Tax Free Reorganization Matters.
-------------------------------
(a) To the best of the knowledge of the management of Target, there
is no current plan or intention by the shareholders of Target to sell,
exchange or otherwise dispose of a number of shares of Buyer Preferred Stock
or Buyer Common Stock received in the Merger that would reduce the former
Target shareholders' ownership of Buyer Preferred Stock and Buyer Common Stock
to a number of shares having a value, as of the date of the Merger, of less
than 50% of the value of all of the formerly outstanding common and preferred
stock of Target as of the same date. For purposes of this representation,
shares of Target Common Stock exchanged for cash or other property and shares
of Target preferred stock redeemed prior to the Merger will be treated as
outstanding Target stock on the date of the Merger.
(b) As a result of the Merger, Target will transfer and Sub will
acquire at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Target immediately
prior to the Merger. For purposes of this representation, the amount of
Target assets used to pay Target reorganization expenses, and the amount of
Target assets used by the Target for all redemptions and distributions
including the redemption of Target preferred stock (except for regular, normal
dividends) made by the Target immediately preceding the Merger, will be
included as assets of Target held immediately prior to the Merger.
(c) The liabilities of Target assumed by Sub and the liabilities to
which the transferred assets of Target are subject were incurred by Target in
the ordinary course of its business.
(d) Target and the shareholders of Target will pay their respective
expenses, if any, incurred in connection with the Merger.
(e) Target is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(f) Target is not an investment company as defined in Section
38(a)(2)(F)(iii) and (iv) of the Code.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
AND SUB
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3. Representations and Warranties of Buyer and Sub. Buyer and Sub
-----------------------------------------------
represent and warrant to Target as follows, except as set forth in a disclosure
schedule (the "Buyer Schedule") delivered by Buyer contemporaneously with the
execution of this Agreement:
3.1 Organization, Powers and Qualifications. Buyer is a corporation
---------------------------------------
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Buyer has all requisite corporate power and
authority to carry on its business as it has been and is now being conducted and
to own, lease and operate the properties and assets used in connection
therewith. Buyer is duly qualified as a foreign corporation authorized to do
business and is in good standing in every jurisdiction in which such
qualification is required, other than such jurisdictions where the failure so to
qualify would not have a material adverse effect on the business, condition
(financial or otherwise), assets, liabilities or operations of Buyer and its
Subsidiaries taken as a whole (a "Buyer Material Adverse Effect").
3.2 Subsidiaries. Sub and each other Subsidiary of Buyer listed on
------------
exhibit 21 to Buyer's annual report on Form 10-K for the year ended December 31,
1994 is duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization. Each such Subsidiary has all requisite
power and authority to carry on its business as it has been and is now being
conducted and to own, lease and operate the assets and properties used in
connection therewith. Each such Subsidiary is duly qualified to do business and
is in good standing in each jurisdiction in which such qualification is
required, other than such jurisdictions where the failure so to qualify would
not have a Buyer Material Adverse Effect. All issued and outstanding shares of
capital stock of Sub have been duly authorized, are fully paid and
nonassessable, and are owned of record and beneficially by Buyer free and clear
of all pledges, liens, claims, security interests and other charges or defects
in title of any nature whatsoever.
3.3 Authority. Except for the approval of Buyer's shareholders of
---------
the amendment to Buyer's articles of incorporation as described in Section 4.13
hereof, the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been authorized by all necessary corporate
action on the part of the Boards of Directors and shareholders (if necessary) of
Buyer and Sub and, no other corporate proceedings on the part of Buyer or Sub
are necessary to authorize this Agreement or to carry out the transactions
contemplated hereby. This Agreement is binding and enforceable upon Buyer and
Sub in accordance with
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its terms, subject to any bankruptcy, insolvency, moratorium or other laws
affecting the enforcement of creditors' rights.
3.4 Capital Stock.
-------------
(a) As of October 1, 1995, the authorized capital of Buyer consists
of 10,000,000 shares of Common Stock, par value $5.00 per share, of which
3,848,922 shares were issued and outstanding and no shares were held as treasury
shares as of the date of this Agreement.
(b) Assuming shareholder approval of the amendment to Buyer's
articles of incorporation described in Section 4.13 hereof, as of the Closing
Date the authorized capital of Buyer will include a number of shares of Series A
Convertible Preferred Stock sufficient for Buyer to issue the Preferred Stock
Merger Consideration in the Merger. As of the Effective Time, the rights,
privileges and preferences of the Buyer Preferred Stock will be as stated in the
resolution of the Buyer's board of directors attached to this Agreement as
Exhibit A, which resolution will have been validly and effectively filed as a
charter amendment in the Corporation Bureau of the Commonwealth of Pennsylvania
at or prior to the Effective Time.
(c) As of the Closing Date, Buyer shall not have authorized any
series of preferred stock other than the Series A Convertible Preferred Stock.
(d) All of the issued and outstanding shares of the Buyer's capital
stock have been duly authorized and are validly issued and outstanding, fully
paid and nonassessable, and were issued in compliance with all applicable
federal and state securities laws. No shares of capital stock issued by Buyer
are or were at the time of their issuance subject to preemptive rights.
3.5 Valid Issuance of Buyer Stock, Etc. The Buyer Preferred Stock
----------------------------------
and the Buyer Common Stock which will be issued in connection with the Merger,
when issued and delivered in accordance with the terms hereof, will be duly and
validly issued, fully paid and nonassessable and will be issued in compliance
with all applicable federal and state securities laws. The shares of Buyer
Common Stock issuable upon conversion of the Buyer Preferred Stock issued in
connection with the Merger have been duly and validly reserved for issuance and,
upon issuance in accordance with the terms of the Buyer Preferred Stock, shall
be duly and validly issued, fully paid and nonassessable, and issued in
compliance with all applicable securities laws, as presently in effect, of the
United States and each of the states whose
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<PAGE>
securities laws govern the issuance of any of the Buyer Stock hereunder.
3.6 Conflict with Other Agreements; Consents and Approvals. With
------------------------------------------------------
respect to the following:
(a) the Articles of Incorporation or By-laws of, or any securities
issued by, Buyer or any subsidiary thereof,
(b) any law, statute, rule or regulation applicable to Buyer or any
subsidiary thereof,
(c) any contract to which Buyer or any subsidiary thereof is a party
or may be bound or any Authorization held by Buyer or any subsidiary
thereof, and
(d) any judgment, order, injunction, decree or ruling of any court,
arbitrator or governmental or regulatory official, body or authority
applicable to Buyer or any subsidiary thereof,
the execution, delivery and performance by Buyer of this Agreement and the
transactions contemplated hereby will not (i) result in any violation, conflict
or default, or give to others any interest or rights, including rights of
termination, cancellation or acceleration which would have a Buyer Material
Adverse Effect, or (ii) require any authorization, consent, approval or
exemption by any person, the failure to obtain which would have a Buyer Material
Adverse Effect, which has not been obtained, or any notice to or filing which
has not been given or done, other than the consent of Bank of Pennsylvania under
the Buyer's current term loan agreement, the Premerger Notification, filings
pursuant to the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act") and applicable state securities laws, the shareholder approval
referred to in Section 4.13 hereof, filings pursuant to the Pennsylvania Public
Utility Code, and the filing of appropriate merger documentation under the
Corporation Law.
3.7 Financial Statements. The financial statements of Buyer included
--------------------
in the Buyer SEC Documents (defined below) comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved (except as may be indicated in the notes thereto
or, in the case of the unaudited statements, as permitted by Form 10-Q of the
SEC), and fairly present (subject, in the case of unaudited statements to
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<PAGE>
normal, recurring audit adjustments which in the aggregate are not material) the
consolidated financial position of Buyer and its Subsidiaries at the dates
indicated and the consolidated results of operations and cash flows of Buyer and
Subsidiaries for the periods indicated (such financial statements are
hereinafter referred to as the "Buyer Financial Statements"). The consolidated
balance sheet of Buyer and Subsidiaries at December 31, 1994 described above is
referred to herein as the "Buyer Balance Sheet." Except as disclosed in the
Buyer SEC Documents, Buyer is not a party to any material probable business
combination for which financial statements are required to be disclosed pursuant
to Section 3-05 of Regulation S-X under the 1933 Act.
3.8 Brokerage. In connection with the transactions contemplated by
---------
this Agreement, no broker, finder or similar agent has been employed by or on
behalf of Buyer, and no person with which Buyer has had dealings or
communications of any kind is entitled to any brokerage or finder's fee or other
commission in connection with the transactions other than its financial advisor,
JSI Financial Services.
3.9 Reports. Buyer has previously furnished Target with true and
-------
complete copies of (i) each final prospectus and definitive proxy statement
filed by Buyer with the SEC since December 31, 1992, and (ii) each report filed
by Buyer with the SEC with respect to the year ended December 31, 1992 or any
months or periods ending thereafter (the "Buyer SEC Documents"). None of such
documents or other communications contained as of the date of such document any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Each of
such documents which is subject to the 1933 Act or the 1934 Act, or the
regulations promulgated thereunder, complied in all material respects when filed
in form with such Acts and the applicable regulations thereunder.
3.10 Information Supplied. None of the information supplied or to
--------------------
be supplied by Buyer or any of its Subsidiaries for inclusion or incorporation
by reference in the Registration Statement (including the Prospectus and Proxy
Statement) to be filed with the SEC by Buyer in connection with the issuance of
Buyer Preferred Stock or Buyer Common Stock pursuant to the Merger or any other
documents to be filed with the SEC in connection with the transactions
contemplated hereby, will, at the respective times such documents are filed,
and, in the case of the Registration Statement, when it becomes effective and at
all times necessary to comply with the 1933 Act, and, with
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<PAGE>
respect to the Prospectus and Proxy Statement, when mailed and at all times
through the Closing Date contain any untrue statement of material fact or omit
to state any material fact necessary in order to make the statements therein, in
light of the circumstances in which they are made, not misleading. All documents
filed by Buyer and its Subsidiaries with the SEC and any other regulatory agency
in connection with the Merger will comply in all material respects with the
provisions of all applicable rules and regulations.
3.11 Disclosure. No representation or warranty hereunder or
----------
information contained in the financial statements referred to in Section 3.7,
the Buyer Schedule or any written certificate, statement, or other document
delivered by Buyer hereunder contains any untrue statement of material fact or
omits to state a material fact necessary in order to make the statements
contained therein or herein, in light of the circumstances in which they were
made, not misleading.
3.12 Tax Matters. Buyer has no present plan or intention (i) to
-----------
reacquire any of the shares of Buyer Preferred Stock or Buyer Common Stock it
will issue to the shareholders of Target pursuant to the Merger, (ii) to
liquidate Sub, to merge with and into another corporation or to sell or
otherwise dispose of the stock of Sub. Sub has no present plan or intention to
sell or dispose of any of the assets of Target or its subsidiaries after the
Effective Time, except for sales, transfers or other distributions made in the
ordinary course of business and for transfers described in Section 368(a)(2)(C)
of the Code. Following the Effective Time, Sub will continue the historic
business of Target and its subsidiaries as presently conducted. Buyer presently
controls Sub within the meaning of Section 368(c) of the Code, and following the
Effective Time Sub will not issue additional shares of its stock that would
result in Buyer losing control of Sub within the meaning of Section 368(c) of
the Code.
3.13 Available Funds. Buyer has obtained a commitment letter from
---------------
a financial institution to lend to Buyer funds which, together with funds which
Buyer currently has on hand, will be sufficient to fund the cash merger
consideration contemplated by this Agreement (including, without limitation
Section 7.6 hereof) and the associated fees and expenses of Buyer. The terms and
conditions set forth in such commitment letter are acceptable to Buyer. Buyer
knows of no reason why it will not be able to satisfy all conditions to funding
set forth in such commitment letter (a copy of which has been provided to
Target) or why such funds will not be available at the Effective Time.
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3.14 Opinion of Financial Advisor. Buyer has received the written
----------------------------
opinion of JSI Financial Services, as of the date hereof, that the consideration
to be paid by Buyer in the Merger by Target's shareholders is fair to Buyer's
shareholders from a financial point of view.
ARTICLE IV
COVENANTS
4.1 Conduct of Business Prior to Closing. From the date of this
------------------------------------
Agreement to the Effective Time, Target (except as expressly contemplated or
permitted by this Agreement, or to the extent that Buyer shall otherwise consent
in writing) agrees as to itself and its Subsidiaries that it:
(a) will, and will cause each Subsidiary to, conduct and operate
its business only in the ordinary course consistent with past practice;
(b) will not, and will cause each Subsidiary not to, conduct its
business in such a manner so as to cause the representations and warranties made
by it and its Subsidiaries herein not to be true on the Closing Date as though
such representations and warranties were made on and as of such date;
(c) will, and will cause each Subsidiary to, use its reasonable
best efforts to keep available the services of the present employees and agents
of it and the Subsidiaries, and to maintain the relations and goodwill with the
suppliers, customers and any others having business relations with it or its
Subsidiaries;
(d) will make no change in its authorized, issued or outstanding
capital stock and will not grant any options or other rights to acquire, whether
directly or contingently, any of its capital stock, nor will it permit any third
party to acquire, or gain any rights to acquire, any shares of capital stock of
any Subsidiary;
(e) except for the payment of regular scheduled dividends on its
outstanding common stock, will not declare, set aside, or pay any dividend or
make any other distribution in respect of, nor repurchase any of, its capital
stock;
(f) will not, and will not permit any Subsidiary to, modify or
amend its charter documents or By-laws;
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(g) will not, and will not permit any Subsidiary to, enter into
or amend any employment contracts or any employee benefit plan or arrangement;
increase the rate of compensation (or other bonus or benefit) payable or to
become payable by it to any officer or any other executive employee; make any
general increase in compensation or rate of compensation (or other bonus or
benefit) payable or to become payable to hourly employees or salaried employees
except in the ordinary course of business consistent with past practice; or make
any material increase in the contributions to any employee benefit program or
arrangement;
(h) will not, and will not permit any Subsidiary to, incur or
guarantee any debt except in the ordinary course of business consistent with
past practice;
(i) will not, and will not permit any Subsidiary to, sell or
dispose of any assets (tangible or intangible) except for sales of inventory in
the ordinary course of business consistent with past practice;
(j) will not, and will not permit any Subsidiary to, change in
any material respect its accounting and tax practices, policies or principles;
(k) will not, and will not permit any Subsidiary to, cancel or
waive any debts or claims having a value of $50,000 in the aggregate;
(l) will, and will cause each Subsidiary to, pay all taxes as
they become due, file all federal, state, local and foreign tax returns,
reports and statements required to be filed by Target or any Subsidiary within
the time and in the manner prescribed by law, and collect or withhold all taxes
required to be collected or withheld from employees, independent consultants or
other third parties;
(m) will not, and will not permit any Subsidiary to, file any
amended tax return or enter into a settlement of any audit or other tax
dispute with the IRS or any other taxing authority;
(n) will not, and will not permit any Subsidiary to, change in
any material respect its existing pricing structure, fees and charges
structure, marketing and promotional plans and policies; and
(o) will not, and will not permit any Subsidiary to, enter into
any (or modify any existing) lease, contract, commitment or agreement or engage
in any transaction (including without limitation any borrowing, capital
expenditure, capital financing, leasing arrangement
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or purchase commitment) except in the ordinary course of business consistent
with past practice.
4.2 Updating of Schedules. From the date of this Agreement to the
---------------------
Closing Date, each of Target and Buyer agrees that it will promptly inform the
other in writing if any information set forth in its Schedule is not accurate
and complete in all material respects as of such later date and will promptly
disclose to the other in writing any information which arises after the date
hereof and which would have been required to be included in its Schedule to make
such Schedule accurate and complete in all material respects as of such later
date; provided, however, that none of such disclosures shall be deemed to
modify, amend or supplement its representations and warranties or its Schedule
for purposes of any provision hereof unless the other shall have consented
thereto in writing.
4.3 Access. From the date of this Agreement to the Closing Date,
------
Target agrees that it will give to Buyer and its financial advisers, counsel,
accountants and other representatives full access, during normal business hours
upon reasonable advance notice, to all personnel, properties, books, contracts,
documents and records with respect to its affairs as Buyer may reasonably
request, including without limitation all work papers, schedules and
calculations relating to financial statements, and any other information that
may be necessary for Buyer to conduct an audit of the books and records of
Target. Any information relating to Target shall be delivered subject to the
provisions of the Confidentiality Agreement referred to in Section 8.3 of this
Agreement.
4.4 Proxy Material, Registration Statement, Other Filings and
---------------------------------------------------------
Applications. In connection with the transactions contemplated by this
- ------------
Agreement:
(a) Buyer shall file with the SEC the Registration Statement to
register under the 1933 Act the Buyer Preferred Stock and Buyer Common Stock to
be offered to the holders of Target Common Stock in connection with this
Agreement and shall use its reasonable best efforts to cause the Registration
Statement to become effective and to provide Target with the necessary copies of
the Prospectus and Proxy Statement for mailing to the shareholders of Target at
the earliest practicable date after the effective date of the Registration
Statement. Buyer shall file all such amendments to the Registration Statement as
shall be necessary to keep it current and effective until the Merger shall have
been consummated.
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(b) In connection with the preparation of the Registration
Statement, Target shall provide Buyer with all proxy material which Target
intends to use in connection with obtaining the necessary Target shareholder
approval for the Merger and the transactions contemplated hereby and all other
material which in the opinion of counsel for Buyer is required by applicable law
to be sent to the shareholders of Buyer in connection with such approval. Target
agrees to cause the Prospectus and Proxy Statement to be mailed to its
shareholders at the earliest practicable date after the effective date of the
Registration Statement. Target agrees to make reasonable best efforts to cause a
copy of the written fairness opinion of its financial advisor to be included in
the Prospectus and Proxy Statement.
(c) Buyer shall file all applicable state securities or "blue
sky" applications and use its reasonable best efforts to qualify the Buyer
Preferred Stock issuable pursuant to this Agreement under such applicable state
securities or "blue sky" laws prior to the Closing Date; provided, however, that
Buyer shall not be required to consent to general service of process or qualify
as a foreign corporation or take any action that would subject Buyer to any
taxing authority to which it is not now subject.
(d) Buyer shall file an additional listing application with the
NASDAQ Small Cap Market covering the Buyer Common Stock issuable as Common Stock
Merger Consideration and issuable upon conversion of the Buyer Preferred Stock
issued as Preferred Stock Merger Consideration in connection with this Agreement
and shall use its reasonable best efforts to obtain approval of such application
upon official notice of issuance
(e) Target and Buyer shall promptly prepare and file Premerger
Notifications and shall use their reasonable best efforts to obtain termination
of the waiting period thereunder as promptly as practicable.
(f) Buyer shall promptly prepare and file with the Pennsylvania
Public Utility Commission and all other governmental agencies (if any) all
documents necessary for such agency (or agencies) to approve the consummation of
the transactions contemplated by this Agreement. Buyer shall use its reasonable
best efforts to obtain all required regulatory approvals as promptly as
practical.
In connection with the preparation and filing of the Registration
Statement, any state securities or "blue sky" application, listing application,
Premerger Notification, or other regulatory application, or any amendment
thereto pursuant to this Section 4.4, the parties
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<PAGE>
hereto shall provide to each other such information and documents (or access
thereto), and shall render such assistance, as the other party may reasonably
request or as may be necessary to carry out the provisions of this Section
4.4.
4.5 Shareholder Meeting. Target shall call and hold a meeting of
-------------------
its shareholders to be held as soon as is practicable for the purpose of voting
on this Agreement. A majority of the Board of Directors of Target will recommend
to its shareholders approval of this Agreement and the Merger and shall take all
such actions consistent with the fiduciary obligations of such Board to obtain
such approvals as promptly as practicable, including without limitation the
solicitation of proxies. In addition, Target shall call and hold as soon as
possible its 1995 annual meeting for the sole purpose of electing directors.
4.6 Third Party Consents. Prior to the Effective Time, each of
--------------------
Buyer and Target shall obtain all consents, approvals or authorizations of third
parties which are required to be obtained by each of them in order to effect the
transactions contemplated by this Agreement and such other consents, approvals
or authorizations the absence of which would have a Target Material Adverse
Effect or a Buyer Material Adverse Effect, as appropriate.
4.7 Satisfaction of Conditions. Each party hereto will use all
--------------------------
reasonable best efforts to satisfy all the conditions to be satisfied by it to
effect the transactions contemplated hereby.
4.8 Public Announcements. Neither Target nor Buyer will make,
--------------------
issue or release any oral or written public announcement or statement
concerning, or acknowledgment of the existence of, or reveal the terms,
conditions and status of, the transactions contemplated by this Agreement, or
any other communication to its shareholders or the investing public, directly or
indirectly (including without limitation press releases and statements to
securities analysts), without first making a good faith attempt to inform the
other of the contents of such announcement, acknowledgment or statement.
4.9 Employees and Employee Benefit Plans.
------------------------------------
(a) For a period of three years following the Effective Time, Buyer
shall continue the employment (in a position not unreasonably dissimilar to the
position occupied immediately prior to the Effective Time) and current salary of
all persons employed by Target as of the Effective Time. Such persons may be
terminated by Buyer during such three-
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<PAGE>
year period only (i) for reasonable cause and (ii) if the employee reaches
normal retirement age. For purposes of this Section 4.9(a), "cause" shall
include, but not be limited to, the failure of an employee, following reasonable
notice and reasonable opportunity to comply, to perform duties with due care,
refusal to follow lawful instructions of superiors, commission of tortious or
criminal acts, failure to comply with attendance policies and failure to comply
with other general employment policies that may be announced by Buyer from time
to time.
(b) For a period of three years following the Effective Time, Buyer
will either (i) cause to remain in effect all Benefit Plans of Target and its
Subsidiaries, as in effect on the date of this Agreement or (ii) to provide
benefits to employees of Target and its Subsidiaries under Benefit Plans of
Buyer that provide benefits that are no less favorable, taken as a whole, to the
benefits provided to comparable employees of Buyer.
(c) To the extent that eligibility for participation or entitlement
to benefits under any Benefit Plan of Buyer is determined by reference to
periods of service, then for purposes of determining the eligibility of
employees of Target and its Subsidiaries to participate in Benefit Plans of
Buyer after the Effective Time or their entitlement to benefits thereunder
(including entitlement to early retirement subsidies under any pension plan and
any severance or vacation plans or arrangements of Buyer), the calculation of
such periods of service shall include periods of service with Target and its
Subsidiaries.
(d) In lieu of providing the continued salary and benefits that
otherwise would have been provided under this Section 4.9, Buyer, in its
discretion, may offer to any person employed by Target as of the Effective Time
severance compensation. Buyer agrees that all employees of Target shall have the
rights to continued employment provided under this Section 4.9 notwithstanding
any offer of severance compensation, and that no employee shall be required to
accept any such offer.
(e) Buyer agrees to cause or permit Target to amend as of the Closing
Date, Target's current pension plan to eliminate the benefit reduction currently
provided for in such plan in the event of retirement after age 62 and prior to
age 65. Buyer shall have no obligation under this Section 4.9(e) if such plan
amendment is impermissible under ERISA or any other applicable law.
(f) The provisions of this Section 4.9 are intended to benefit, and
may be enforced by, the employees or
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<PAGE>
officers covered by such provisions. This Section 4.9 shall be binding upon all
successors and assigns of Target, Buyer, Sub and the Surviving Corporation.
4.10 Director and Officer Indemnification.
------------------------------------
(a) From and after the Effective Time, Buyer shall, and shall cause
the Surviving Corporation to, indemnify, defend and hold harmless the present
and former directors and officers of Target (the "Indemnified Parties") against
losses, claims, damages, liabilities, expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the Indemnified Parties arising out of actions or omissions occurring on or
prior to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement) to the fullest extent permitted by applicable
law unless such indemnification is expressly prohibited by applicable law or if
the conduct of the Indemnified Party is finally determined by a court to have
constituted willful misconduct or recklessness within the meaning of Section
1746(b) of the Corporation Law or any superseding provision. In addition, Buyer
shall, and shall cause the Surviving Corporation to, advance expenses as
incurred to the fullest extent permitted by applicable law if the Indemnified
Party to whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such Indemnified Party is not
entitled to indemnification. The obligations of Buyer and the Surviving
Corporation under this Section 4.10(a) shall continue for six years following
the Effective Time, provided that all rights to indemnification and advancement
of expenses in respect of any claim made, asserted or commenced within such
period shall continue until the final disposition of such claim. Buyer's
obligations under this Section 4.10(a) shall be limited to a maximum expenditure
of $5,000,000 (including any amounts actually paid under insurance policies
maintained by Buyer under Section 4.10(b) below).
(b) For a period of six years following the Effective Time, Buyer
shall use all reasonable efforts to, at the option of Buyer, (i) include the
Indemnified Parties under Buyer's current director and officer liability
insurance policy, (ii) maintain in effect the director and officer liability
policy currently maintained by Target, or (iii) provide coverage to the
Indemnified Parties under one or more other insurance policies providing terms
and conditions which are substantially no less advantageous to the Indemnified
Parties than the coverage that would be provided under clause (i) or (ii) above,
such that coverage thereunder will be provided to Indemnified Parties for claims
arising on or after the Effective Time with respect to
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<PAGE>
matters existing or occurring on or prior to the Effective Time. In no event
shall Buyer be obligated to expend, in order to maintain or provide the
insurance pursuant to this Section 4.10(b), an aggregate amount in excess of
$80,000, but in such case shall purchase as much coverage as possible for such
amount.
(c) All rights and obligations under this Section 4.10 shall be in
addition to any rights an Indemnified Party may have under the articles of
incorporation or bylaws of Target as in effect on the date hereof, or pursuant
to any other agreement, arrangement or document in effect prior to the Effective
Time and disclosed to Buyer. The provisions of this Section 4.10 are intended to
benefit, and may be enforced by, all Indemnified Parties, and their respective
heirs and representatives. This Section 4.10 shall be binding upon all
successors and assigns of Target, Buyer, Sub and the Surviving Corporation.
4.11 Other Proposals. Target hereby agrees that it shall not, nor
---------------
shall it permit any of its Subsidiaries to, nor shall it authorize or permit any
of its or its Subsidiaries' officers, directors, employees, affiliates,
investment bankers or other representatives or agents (collectively, the
"Representatives") to, directly or indirectly, solicit, encourage (including by
way of fur nishing non-public information), initiate discussions or negotiations
relating to or take any other action to facilitate, any inquiries or the making
of any proposal for an Acquisition Transaction. As used herein, the term
"Acquisition Transaction" shall mean the occurrence of any of the following
events: (i) Target is acquired by merger or otherwise by any "person" or
"group," as such terms are defined in Section 13(d) of the 1934 Act, other than
Buyer, Sub or any of their respective affiliates (a "Third Party"); (ii) a Third
Party acquires more than 30% (as reflected in accordance with generally accepted
accounting principles on Target's most recent quarterly financial statements) in
value of the total assets of Target and its Subsidiaries, taken as a whole;
(iii) a Third Party acquires more than 30% of the outstanding Target Common
Shares; (iv) Target adopts and implements a plan of liquidation relating to, or
extraordinary dividend equal to, more than 30% in value of the total assets of
Target (as reflected in accordance with generally accepted accounting principles
on Target's most recent quarterly financial statements); or (v) Target enters
into a preliminary or definitive agreement with a Third Party relating to any of
the transactions referred to in clauses (i) through (iv) above. Target agrees
that it shall promptly notify Buyer orally and in writing of any such inquiries
or proposals. Any such notification shall include the identity of the person
making such proposal or request, the terms
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<PAGE>
thereof, and any other information with respect thereto as Buyer may reasonably
request. Nothing contained in this Agreement shall be construed to prohibit
Target from (a) disclosing, under protection of an appropriate confidentiality
agreement, non-public information concerning Target to, and engaging in
discussions and negotiations concerning an Acquisition Transaction with, a
person who has made a bona fide offer to engage in an Acquisition Transaction
for a consideration and on terms which are more favorable to the Target
shareholders than the terms of the Merger, and who can reasonably be expected to
consummate the Acquisition Transaction on the terms that have been proposed, and
which disclosure, discussions and negotiations, in the judgment of Target, shall
be required by reason of the fiduciary obligations of the Board of Directors of
Target and (b) subject to Target's obligations under Section 7.5 hereof and only
after terminating this Agreement in accordance with Section 7.1(d) hereof,
accepting such offer for an Acquisition Transaction from such person which the
Board of Directors of Target concludes is more favorable to the Target
shareholders than the Merger contemplated hereby.
4.12 Intentionally Omitted.
---------------------
4.13 Buyer Shareholder Approval. Buyer shall make reasonable best
--------------------------
efforts to prepare and file with the SEC a proxy statement containing a proposal
to amend Buyer's articles of incorporation to authorize sufficient shares of
Series Preferred Stock to permit the issuance of the Buyer Preferred Stock in
the Merger. Such proxy statement may be either a separate proxy statement of
Buyer or a joint proxy statement to be mailed to the shareholders of both Target
and Buyer. Buyer shall call and hold a meeting of its shareholders to be held as
soon as is practicable for the purpose of voting on such proposal. Buyer agrees
to cause such proxy statement to be mailed to its shareholders at the earliest
practicable date. Buyer agrees to make reasonable best efforts to cause a copy
of the written fairness opinion of its financial advisor to be included in such
proxy statement. In such proxy statement the Board of Directors of Buyer will
recommend to its shareholders approval of such proposal and will take all such
actions consistent with the fiduciary obligations of such Board to obtain such
approvals as promptly as practicable, including without limitation the
solicitation of proxies. In the event that the requisite shareholder approval is
not obtained at such shareholders meeting (or any adjournment thereof), Target
shall have the right to terminate this Agreement in accordance with Section
7.1(e) hereof.
4.14 Affiliates. Prior to the Closing Date, Target shall deliver
----------
to Buyer a letter identifying all
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<PAGE>
persons who (in Target's reasonable judgment) are, at the time this Agreement is
submitted for approval to the shareholders of Target, "affiliates" of Target for
purposes of Rule 145 under the 1933 Act. Target shall use its reasonable best
efforts to cause each such person to deliver to Buyer, on or prior to the
Closing Date, a written agreement, in the form attached hereto as Exhibit B
acknowledging and agreeing to abide by the limitations imposed by law in respect
of the sale or other disposition of Buyer Preferred Stock and Buyer Common Stock
received by such person pursuant to the Merger.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF BUYER AND SUB
5. Conditions To Obligations of Buyer and Sub To Consummate the
------------------------------------------------------------
Merger. The obligations of Buyer and Sub to consummate the Merger provided
- ------
for in this Agreement shall be subject to satisfaction, on or before the
Closing Date, of the following conditions:
5.1 Representations, Warranties, and Covenants of Target. The
----------------------------------------------------
representations and warranties of Target herein contained and the information
contained in the Target Schedule and other documents delivered by Target in
connection with this Agreement shall be true and correct at November 30, 1995 in
all material respects with the same effect as though made at such time, except
to the extent waived hereunder or affected by the transactions contemplated
herein; Target shall have performed in all material respects all obligations and
complied in all material respects with all agreements, undertakings, covenants
and conditions required by this Agreement to be performed or complied with by it
at or prior to the Closing Date; and Target shall have delivered to Buyer a
certificate in form and substance satisfactory to Buyer dated the Closing Date
and signed by the Chairman of the Board and the Vice President of Target to such
effect.
5.2 Target Shareholder Approval. The requisite approval of this
---------------------------
Agreement and the transactions contemplated hereby shall have been given by the
shareholders of Target.
5.3 Buyer Shareholder Approval. Subject to the provisions of
--------------------------
Section 7.6 hereof, the requisite approval of the amendment to Buyer's articles
of incorporation referred to in Section 4.13 shall have been given by the
shareholders of Buyer.
5.4 Intentionally Omitted.
---------------------
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<PAGE>
5.5 No Injunctions. No preliminary or permanent injunction or
--------------
other order, decree or ruling by any federal, state or provincial court in the
United States or by any United States governmental, regulatory or administrative
agency which prevents the consummation of the transactions contemplated by this
Agreement (including the Merger) shall have been issued and remain in effect;
provided, however, that each of the parties hereto shall have used its
- -------- -------
reasonable best efforts to prevent any such injunction or other order, and to
appeal as promptly as possible any such injunction or order that may be entered.
5.6 No Antitrust Litigation. No action, suit or proceeding against
-----------------------
Buyer or Target brought by the Antitrust Division of the Department of Justice
or the Federal Trade Commission challenging the Merger under the federal
antitrust laws shall be pending or shall have been threatened by either such
agency.
5.7 Filings. Buyer and Target shall have made all filings required
-------
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the required
statutory waiting period under such Act shall have terminated. Target shall have
made all required filings under the Pennsylvania Public Utility Code and the
required approval from the Pennsylvania Utility Commission shall have been
obtained. For purposes of the required approval from the Pennsylvania Utility
Commission, Buyer's shall not be obligated to consummate the Merger if such
approval is subject to any further action of any kind (including, without
limitation, reconsideration, rehearing, review or appeal) and consummating the
Merger prior to the completion (or the expiration of the possibility) of such
further action would have a Buyer Material Adverse Effect.
5.8 NASDAQ Listing. The NASDAQ Small Cap Market shall have
--------------
approved the listing, upon official notice of issuance, of all Buyer Common
Stock issuable as Common Stock Merger Consideration or upon conversion of the
Buyer Preferred Stock issued as Preferred Stock Merger Consideration in
connection with this Agreement.
5.9 Securities Laws. The Registration Statement shall have been
---------------
declared effective by the SEC, no stop order shall have been issued or
proceedings instituted or threatened suspending the effectiveness of the
Registration Statement, and all approvals, consents, permits, licenses or
qualifications from authorities administering the securities laws of any state
having jurisdiction, required in the reasonable judgment of Buyer for the
consummation of this Agreement and the Merger shall have been obtained and shall
be effective and in full force and effect.
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<PAGE>
5.10 Affiliate Letters. Buyer shall have received the letters from
-----------------
Target's affiliates referenced in Section 4.14 hereof.
5.11 Dissenters Rights. The holders of no more than ten percent of
-----------------
the outstanding shares of Target Common Stock shall have effectively exercised
dissenters rights pursuant to the Corporation Law.
5.12 Tax Opinion or Tax Ruling.
-------------------------
(a) Target shall have received a ruling from the Internal Revenue
Service (the "IRS") or an opinion of Morgan, Lewis & Bockius LLP, special
counsel to Target, to the effect that:
(i) the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code and Target and Buyer will each be a "party
to a reorganization" within the meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by Target by reason of the
Merger;
(iii) the gain, if any, realized by a holder of shares of Target
Common Stock upon receipt of shares of Buyer Preferred Stock, Buyer
Common Stock and/or cash in exchange for shares of Target Common Stock
pursuant to the Merger will be recognized but not in excess of the amount
of cash received, and no loss will be recognized by those holders of
Target Common Stock who exchange their shares of Target Common Stock
solely for shares of Buyer Preferred Stock and Buyer Common Stock; and
(iv) the basis of the Buyer Preferred Stock and Buyer Common Stock
to be received by the Target shareholders will be, in each instance, the
same as the basis of the Target Common Stock surrendered in exchange
therefor and the holding period of the Buyer Preferred Stock and Buyer
Common Stock to be received by Target shareholders will include the
period during which Target Common Stock surrendered in exchange therefor
was held, provided the Target Common Stock was held as a capital asset by
such Target shareholder at the Effective Time.
(b) In case a ruling from the IRS is sought, Target and Buyer shall
cooperate and each shall furnish to the other and to the IRS such information
and representations as shall, in the opinion of counsel for Buyer and Target,
be necessary or advisable to obtain such ruling.
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<PAGE>
5.13 Legal Opinion. Buyer shall have received an opinion dated the
-------------
Closing Date from Morgan, Lewis & Bockius LLP, special counsel to Target, in
the form and substance reasonably satisfactory to Buyer and its counsel.
5.14 Resignations. Without in any way limiting the obligations of
------------
Buyer under Section 4.9 hereof, Buyer shall have received the written
resignations, in a form reasonably acceptable to Buyer (which shall include a
representation with respect to the matters referred to in the last two sentences
of Section 2.14 hereof), of those Target directors and officers designated by
Buyer.
5.15 Fairness Opinion. Subject to the provisions of Section 7.6
----------------
hereof, Buyer shall have received the written opinion of its financial advisor,
JSI Financial Services, dated as of a date no later than the date of the mailing
of the proxy statement to Buyer shareholders and not subsequently withdrawn,
that the consideration to be paid by Buyer in the Merger is fair to Buyer's
shareholders from a financial point of view.
ARTICLE VI
CONDITIONS TO OBLIGATION OF TARGET
6. Conditions To Obligation of Target To Consummate the Merger.
-----------------------------------------------------------
The obligation of Target to consummate the Merger provided for in this Agreement
shall be subject to satisfaction, on or before the Closing Date, of the
following conditions:
6.1 Representations, Warranties, and Covenants of Buyer and Sub.
-----------------------------------------------------------
The representations and warranties of Buyer and Sub herein contained and the
information contained in the Buyer Schedule and other documents delivered by
Buyer and Sub in connection with this Agreement shall be true and correct at the
Closing Date in all material respects with the same effect as though made at
such time except to the extent waived hereunder or affected by the transactions
contemplated herein; Buyer and Sub shall have performed in all material respects
all obligations and complied in all material respects with all agreements,
undertakings, covenants and conditions required by this Agreement to be
performed or complied with by them at or prior to the Closing Date; and Buyer
shall have delivered to Target a certificate in form and substance satisfactory
to Target dated the Closing Date and signed by the President and by the Chief
Financial Officer of Buyer to such effect.
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<PAGE>
6.2 Target Shareholder Approval. The requisite approval of this
---------------------------
Agreement and the transactions contemplated hereby shall have been given by the
shareholders of Target.
6.3 Buyer Shareholder Approval. Subject to the provisions of
--------------------------
Section 7.6 hereof, the requisite approval of the amendment to Buyer's articles
of incorporation referred to in Section 4.13 shall have been given by the
shareholders of Buyer.
6.4 Intentionally Omitted.
---------------------
6.5 No Injunctions. No preliminary or permanent injunction or
--------------
other order, decree or ruling by any federal, state or provincial court in the
United States or by any United States governmental, regulatory or administrative
agency which prevents the consummation of the transactions contemplated by this
Agreement (including the Merger) shall have been issued and remain in effect;
provided, however, that each of the parties hereto shall have used its
- -------- -------
reasonable best efforts to prevent any such injunction or other order, and to
appeal as promptly as possible any such injunction or order that may be entered.
6.6 No Antitrust Litigation. No action, suit or proceeding against
-----------------------
Buyer or Target brought by the Antitrust Division of the Department of Justice
or the Federal Trade Commission challenging the Merger under the federal
antitrust laws shall be pending or shall have been threatened by either such
agency.
6.7 Filings. Buyer and Target shall have made all filings required
-------
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the required
statutory waiting period under such Act shall have terminated. Buyer shall have
made all required filings under the Pennsylvania Public Utility Code and the
required approval from the Pennsylvania Utility Commission shall have been
obtained.
6.8 NASDAQ Listing. The NASDAQ Small Cap Market shall have
--------------
approved the listing, upon official notice of issuance, of all Buyer Common
Stock issuable as Common Stock Merger Consideration or upon conversion of the
Buyer Preferred Stock issued as Preferred Stock Merger Consideration in
connection with this Agreement.
6.9 Securities Laws. The Registration Statement shall have been
---------------
declared effective by the SEC, no stop order shall have been issued or
proceedings instituted or threatened suspending the effectiveness of the
Registration Statement, and all approvals, consents, permits, licenses or
qualifications from authorities administering the securities
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<PAGE>
laws of any state having jurisdiction, required in the reasonable judgment of
Target for the consummation of this Agreement and the Merger shall have been
obtained and shall be effective.
6.10 Fairness Opinion. Target shall have received the written
----------------
opinion of its financial advisor, Snyder & Co., dated as of a date no later than
the date of the mailing of the Prospectus and Proxy Statement to the Target
shareholders and not subsequently withdrawn, that the consideration to be
received in the Merger by Target's shareholders is fair to Target's shareholders
from a financial point of view.
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
7.1 Termination. This Agreement may be terminated by written
-----------
notice of termination at any time before the Closing Date (whether before or
after action by shareholders of Target) only as follows:
(a) by mutual consent of Buyer and Target;
(b) by Buyer
(i) upon written notice to Target given at any time if the
representations and warranties of Target contained in Article II hereof
were not true and correct in all material respects when made or as of
November 30, 1995 (except to the extent qualified by materiality in which
event such representations and warranties shall be true and correct) or if
Target fails to perform all obligations and comply in all material respects
with all agreements, undertakings, covenants and conditions required by
this Agreement to be performed or complied with by it at or prior to the
Effective Time (except to the extent such performance or compliance is
qualified by materiality in which event such performance or compliance
shall have failed to occur);
(ii) upon written notice to Target given at any time after
June 30, 1996 if the Effective Time shall not have occurred on or before
June 30, 1996 unless the absence of such occurrence shall be due to the
failure of Buyer or any of its Subsidiaries to perform in all material
respects each of its obligations under this Agreement required to be
performed by it at or prior to the Effective Time (except to the extent
such performance or compliance is qualified by
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<PAGE>
materiality in which event such performance or compliance shall have failed
to occur);
(iii) upon written notice to Target given no later than
5:00 p.m. on the business day prior to the Closing Date where it has been
determined, in accordance with Section 1.3, that the Market Value is more
than $32.70 (subject to adjustment in accordance with Section 1.3 hereof)
and Target has not exercised its option to decrease the Common Stock
Exchange Ratio as provided in Section 1.3 hereof;
(c) by Target
(i) upon written notice given to Buyer at any time if the
representations and warranties of Buyer and Sub contained in Article III
hereof were not true and correct in all material respects when made or as
of the Closing Date (except to the extent qualified by materiality in which
event such representations and warranties shall be true and correct) or if
Buyer or Sub fails to perform in all material respects all obligations and
comply in all material respects with all agreements, undertakings,
covenants and conditions required by this Agreement to be performed or
complied with by it at or prior to the Effective Time (except to the extent
such performance of compliance is qualified by materiality in which event
such performance or compliance shall have failed to occur);
(ii) upon written notice to Buyer given at any time after
June 30, 1996 if the Effective Time shall not have occurred on or before
the later of June 30, 1996 or the 60th day following Target's notice under
Section 7.6 hereof with respect to an all-cash transaction, unless the
absence of such occurrence shall be due to the failure of Target or any of
its Subsidiaries to perform in all material respects each of its
obligations under this Agreement required to be performed by it at or prior
to the Effective Time (except to the extent such performance or compliance
is qualified by materiality in which event such performance or compliance
shall have failed to occur);
(iii) upon written notice to Buyer given no later than 5:00
p.m. on the business day prior to the Closing Date where it has been
determined, in accordance with Section 1.3, that the Market Value is less
than $22.50 (subject to adjustment in accordance with Section 1.3 hereof)
and Buyer has not exercised its option to increase the Common Stock
Exchange Ratio as provided in Section 1.3 hereof;
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<PAGE>
(d) upon written notice to Buyer by Target if Target is
terminating this Agreement in order to enter into an Acquisition Transaction
with a person not a party hereto, provided that Target was entitled to pursue
the proposal of such Acquisition Transaction pursuant to the provisions of
Section 4.11 hereof;
(e) upon written notice to Buyer by Target if the requisite Buyer
shareholder approval referred to in Section 4.13 hereof is not obtained at the
meeting of Buyer's shareholders (or any adjournment thereof) called pursuant to
Section 4.13; and
(f) as provided in Section 7.6.
7.2 Effect of Termination. In the event of the termination of this
---------------------
Agreement and the abandonment of the Merger, the provisions of this Agreement
other than the provisions of Section 7.5 shall thereafter become void and have
no effect, and no party thereto shall have any liability to any other party
hereto or its shareholders or directors or officers in respect thereof, except
that nothing herein shall relieve any party from liability for any willful
breach thereof or from its obligations under the Confidentiality Agreement
referred to in Section 8.4.
7.3 Waiver of Terms. Any of the terms or conditions of this
---------------
Agreement may be waived at any time prior to the Effective Time by the party
which is, or whose shareholders are, entitled to the benefit thereof, by action
taken by the Board of Directors of such party, or by its chairman, president or
any vice president authorized to act for such party; provided, however, that
such waiver shall be in writing and shall be taken only if, in the judgment of
the Board of Directors or officer taking such action, such waiver will not have
a materially adverse effect on the benefits intended hereunder to the
shareholders of such corporation, and the other parties hereto may rely on the
delivery of such a waiver as conclusive evidence of such judgment and the
validity of the waiver.
7.4 Amendment of Agreement. Anything herein or elsewhere to the
----------------------
contrary notwithstanding, to the extent permitted by law, this Agreement may be
amended, supplemented or interpreted at any time prior to the Closing Date by
written instrument duly authorized and executed by each of the parties hereto;
provided, however, that after approval by the shareholders of Target or Buyer,
no amendment shall be made which by law requires further approval by the
shareholders without such further approval.
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<PAGE>
7.5 Fees and Expenses.
-----------------
(a) In order to induce Buyer and Sub to enter into this Agreement
and to structure the Merger in the manner set forth herein and as a means of
compensating Buyer for the substantial direct and indirect monetary and other
costs incurred and to be incurred in connection with the Merger and for the loss
of its ability to pursue other advantageous transactions and the potential
adverse consequences if the Merger is not completed, Target agrees that if this
Agreement is terminated by Target pursuant to Section 7.1(d), then Target shall
pay to Buyer within one business day following the date of the termination
pursuant to Section 7.1(d) a break-up fee in the amount of $585,000, such fee
being in the nature of liquidated damages as exclusive compensation to Buyer and
Sub for any and all claims and losses which Buyer and Sub have or may have
incurred in connection with this Agreement and the transactions contemplated
hereby.
(b) In the event that: (i) the Market Value of a share of Buyer
Common Stock is less than $22.50, Buyer has not exercised its option to increase
the Common Stock Exchange Ratio as provided in Section 1.3 hereof and Target
terminates this Agreement pursuant to Section 7.1(c)(iii) hereof; (ii) Buyer is
unable to consummate its financing for the cash portion of the Per Share Merger
Consideration and as a result of such inability this Agreement is terminated by
Target pursuant to Section 7.1(c)(ii) or by Buyer pursuant to Section 7.1(b)(ii)
hereof; (iii) Buyer's shareholders have voted to dissapprove the charter
amendment referred to in Section 4.13 hereof, Target exercises its option
pursuant to Section 7.6 hereof to proceed with an all-cash transaction, and this
Agreement is terminated by Target pursuant to Section 7.1(c)(ii) or by Buyer
pursuant to Section 7.1(b)(ii); or (iv) this Agreement is terminated by Target
pursuant to Section 7.1(c)(i), then in any of such events Buyer will pay Target
within one business day following the date of any termination referred to in
clauses (i) through (iv) above a break-up fee in the amount of $2,000,000, such
fee being in the nature of liquidated damages as exclusive compensation
(together with any reimbursement made pursuant to Section 7.5(c) below) to
Target for any and all claims and losses which Target has or may have incurred
in connection with this Agreement and the transactions contemplated hereby.
Buyer has agreed to this provision in order to induce Target to enter into this
Agreement and as a means of compensating Target for the substantial direct and
indirect monetary and other costs incurred or to be incurred in connection with
the Merger and for the loss of its ability to pursue other advantageous
transactions and the potential adverse consequences if the Merger is not
completed.
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<PAGE>
(c) In addition to Section 7.5(b) above, in the event that this
Merger Agreement is terminated by Buyer pursuant to Section 7.1(b)(ii) or by
Target pursuant to Section 7.1(c)(i), (ii) or (iii) or Section 7.1(e) or Section
7.6, then Buyer shall pay to Target within one business day following the date
of any such termination an amount not to exceed $550,000 in reimbursement of any
termination fee paid by Target to C-TEC Corporation upon termination of the C-
TEC Agreement.
(d) Whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that all
filing fees for Premerger Notifications shall be shared equally by the parties.
7.6 Failure of Buyer Shareholder Approval. In the event that the
-------------------------------------
requisite Buyer shareholder approval referred to in Section 4.13 hereof is not
obtained at the meeting of Buyer's shareholders (or any adjournment thereof)
called for the purpose specified in Section 4.13, Buyer shall promptly notify
Target in writing of such failure. In such event Target shall have the option,
exercisable by written notice to Buyer within 45 days of Buyer's notice and in
addition to its right to terminate this Agreement pursuant to Section 7.1(e)
hereof, to proceed with the Merger on the terms contemplated by this Agreement,
except that the "Per Share Merger Consideration" defined in Section 1.3(b) shall
be deemed to be $65.00 in cash. In the event that Target exercises such option,
this Agreement shall continue in full force and effect, except that the
provisions of this Agreement shall be deemed to have been amended, mutatis
-------
mutandis, to the extent necessary to reflect the fact that the Per Share Merger
- --------
Consideration is cash rather than a combination of cash and stock. The parties
specifically acknowledge and agree that the shareholder approval specified in
Section 4.13 and the fairness opinion specified in Section 5.15 shall not be a
condition to the closing of the all cash transaction contemplated by this
Section 7.6. In the event that Target does not exercise its option under this
Section 7.6 within the time provided above, this Agreement shall terminate.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Cooperation. Subject to the terms and conditions herein
-----------
provided, each party shall cooperate with the other party in carrying out the
provisions of this
A-44
<PAGE>
Agreement and shall execute and deliver, or cause to be executed and delivered,
such governmental notifications and additional documents and instruments and do,
or cause to be done, all additional things necessary, proper or advisable under
applicable law to consummate and make effective the transactions contemplated
hereby.
8.2 Counterparts. This Agreement may be executed in two or more
------------
counterparts each of which shall be deemed an original, but all of which
counterparts together shall be deemed to be one and the same instrument. It
shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any other counterpart.
8.3 Contents of Agreement, Etc. With the exception of the matters
--------------------------
addressed in the Letter Agreement dated October 31, 1994 between Target and
Buyer (the "Confidentiality Agreement"), this Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof. Any
previous agreements or understandings between the parties regarding the subject
matter hereof, except for arrangements between the parties concerning
confidential information, are merged into and superseded by this Agreement.
Except as provided in Section 4.9 and 4.10 hereof, nothing herein express or
implied is intended or shall be construed to confer upon or to give any person,
other than Buyer and Target and their respective shareholders, any rights or
remedies under or by reason of this Agreement.
8.4 No Survival of Representations and Warranties. None of the
---------------------------------------------
representations and warranties in this Agreement shall survive the Effective
Time.
8.5 Section Headings, Gender and "Person." The section headings
--------------------------------------
herein have been inserted for convenience of reference only and shall in no way
modify or restrict any of the terms or provisions hereof. The use of the
masculine or any other pronoun herein when referring to any person has been for
convenience only and shall be deemed to refer to the particular person intended
regardless of the actual gender of such person. Any reference to a "person"
herein shall include an individual, firm, corporation, partnership, trust,
government or political subdivision or agency or instrumentality thereof,
association, unincorporated organization or any other entity.
8.6 Notices. All notices, consents, waivers or other
-------
communications which are required or permitted hereunder shall be sufficient if
given in writing and delivered personally, by overnight mail service, by
facsimile
A-45
<PAGE>
transmission (which is confirmed) or by registered or certified mail, return
receipt requested, postage prepaid, as follows (or to such other addressee or
address as shall be set forth in a notice given in the same manner):
If to Buyer or Sub:
Conestoga Enterprises, Inc.
202 E. First Street
Birdsboro, PA 19508
Attention: Executive Vice President
(610) 582-6475 (Fax)
With a required copy to:
Miller and Murray
542 Court Street
P.O. Box 942
Reading, PA 19603-0942
Attention: James H. Murray, Esquire
(610) 376-5243 (Fax)
If to Target:
Buffalo Valley Telephone Company
20 South Second Street
Lewisburg, Pennsylvania 17837
Attention: Chairman of the Board
(717) 524-0459 (Fax)
With a required copy to:
Morgan, Lewis & Bockius LLP
One Commerce Square
417 Walnut Street
Harrisburg, Pennsylvania 17101
Attention: James H. Carroll, Esquire
(717) 237-4004 (Fax)
All such notices shall be deemed to have been given three business
days after mailing if sent by registered or certified mail, one business day
after mailing if sent by overnight courier service or on the date transmitted if
sent by facsimile transmission.
8.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAW PROVISIONS.
A-46
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and Plan
of Merger as of the date first above written.
CONESTOGA ENTERPRISES, INC.
By:_________________________
F.M. Brown
President
CB MERGER CORPORATION
By:_________________________
F.M. Brown
President
BUFFALO VALLEY TELEPHONE
COMPANY
By:_________________________
James G. Apple
Chairman of the Board
A-47
<PAGE>
SCHEDULE 1.3
Election and Allocation Procedures
----------------------------------
A. Election and Allocation.
-----------------------
1. Subject to and in accordance with the allocation and election
procedures set forth in this Schedule 1.3, each record holder of Target Common
Shares (other than holders of Dissenters' Shares) (the "Holders") shall, prior
to the Election Deadline (as hereinafter defined) specify (a) the number of
whole Target Common Shares held by such Holder as to which such Holder shall
desire to receive the Cash Merger Consideration, (b) the number of whole Target
Common Shares held by such Holder as to which such Holder shall desire to
receive the Preferred Stock Merger Consideration, and (c) the number of whole
Target Common Shares held by such Holder as to which such Holder shall desire to
receive the Common Stock Merger Consideration.
2. An election as described in clause (a) of Paragraph 1 is herein referred
to as a "Cash Election," and Target Common Shares as to which a Cash Election
has been made are herein referred to as "Cash Election Shares." An election as
described in clause (b) of Paragraph 1 is herein referred to as a "Preferred
Stock Election," and shares as to which a Preferred Stock Election has been made
are herein referred to as "Preferred Stock Election Shares." An election as
described in clause (c) of Paragraph 1 is herein referred to as a "Common Stock
Election," and shares as to which a Common Stock Election has been made are
herein referred to as "Common Stock Election Shares." A failure to indicate a
preference in accordance herewith is herein referred to as a "Non-Election," and
shares as to which there is a Non-Election are herein referred to as "Non-
Election Shares."
3. Any record holder of Target Common Shares who is holding shares for a
beneficial owner, or as a nominee for one or more beneficial owners, may submit
a form for purposes of making elections and containing instructions with respect
thereto (the "Election Form") on behalf of any such beneficial owners. Any
beneficial owner of Target Common Shares on whose behalf a record owner of
Target Common Shares has submitted an Election Form in accordance with this
paragraph A.3 will be considered a separate Holder of Target Common Shares for
purposes of this Schedule 1.3.
4. As used herein, the term "Cash Percentage" means the maximum permissible
percentage of the Aggregate Shares (defined below) for which Cash Merger
Consideration may be
A-48
<PAGE>
issued. The Cash Percentage shall be selected by Buyer, in its sole discretion,
and Buyer shall give Target written notice of such election within five business
days following the Election Deadline (defined below). The Cash Percentage shall
be 50% or, if lower, the maximum possible percentage which would permit the
Merger to qualify as a tax-free exchange for federal income tax purposes.
5. All Preferred Stock Election Shares shall receive Preferred Stock
Merger Consideration (and cash in lieu of fractional shares). All Common Stock
Election Shares shall receive Common Stock Merger Consideration (and cash in
lieu of fractional shares). All Non-Election Shares shall receive Common Stock
Merger Consideration (and cash in lieu of fractional shares).
6. Cash Election Shares shall receive Cash Merger Consideration only to
the extent permitted by this Schedule 1.3. Payment of the Cash Merger
Consideration shall be allocated to Holders making Cash Elections such that the
number of Target Common Shares (outstanding and including Dissenters' Shares) as
to which cash is paid shall not exceed the Cash Percentage times the aggregate
number of Target Common Shares outstanding (including Dissenters' Shares) (the
"Aggregate Shares"). To the extent Cash Election Shares are not permitted to
receive cash, such shares will receive Preferred Stock Merger Consideration, as
follows:
If the number of Cash Election Shares plus the number of Dissenters' Shares
is more than the Cash Percentage, (i) the Cash Election Shares of each
Holder shall be reduced pro rata by multiplying the number of Cash Election
Shares of such Holder by a fraction, the numerator of which is the number
of Target Common Shares equal to (x) the Cash Percentage times (y) the
Aggregate Shares minus the aggregate number of Dissenters' Shares and the
denominator of which is the aggregate number of Cash Election Shares, and
(ii) the shares of such Holder representing the difference between such
Holder's initial Cash Election and such Holder's reduced Cash Election
pursuant to clause (i) shall be converted into and be deemed to be
Preferred Stock Election Shares.
B. Procedures.
----------
1. Target and Buyer shall prepare the Election Form for purposes of making
elections and containing instructions with respect thereto. The Election Form
shall be distributed to each Holder at such time as Target and Buyer shall
determine and shall specify the date by which all such elections must be made
(the "Election Deadline"), which date shall be
A-49
<PAGE>
determined by Target and Buyer but shall be not earlier than the 20 calendar
days following the Effective Time.
2. Elections shall be made by Holders by mailing to such bank or entity as
may be mutually acceptable to Buyer and Target as the exchange agent ("Exchange
Agent"), a duly completed Election Form. To be effective, an Election Form must
be properly completed, signed and submitted to the Exchange Agent accompanied by
certificates representing the Target Common Shares as to which the election is
being made (or by an appropriate guaranty of delivery by a commercial bank or
trust company in the United States or a member of a registered national security
exchange or the National Association of Security Dealers, Inc.), or by evidence
that such certificates have been lost, stolen or destroyed accompanied by such
security or indemnity as shall be reasonably requested by Buyer. An Election
Form and accompanying share certificates must be received by the Exchange Agent
by the close of business on the Election Deadline. An election may be changed or
revoked but only by written notice received by the Exchange Agent prior to the
Election Deadline including, in the case of a change, a properly completed
revised Election Form. Any share certificates which were submitted in connection
with an election shall be returned to the holder thereof in the event such
election is revoked as aforesaid and such holder requests in writing the return
of such certificates.
3. Buyer will have the discretion, which it may delegate in whole or in
part to the Exchange Agent, to determine whether the Election Forms have been
properly completed, signed and submitted or changed or revoked and to disregard
immaterial defects in Election Forms. The decision of Buyer (or the Exchange
Agent) in such matters shall be conclusive and binding. Neither Buyer nor the
Exchange Agent will be under any obligation to notify any person of any defect
in an Election form submitted to the Exchange Agent. Either Buyer (or the
Exchange Agent) shall also make all computations contemplated by Part A of this
Schedule 1.3.
4. For the purposes hereof, a Holder who does not submit an effective
Election Form to the Exchange Agent prior to the Election Deadline shall be
deemed to have made a Non-Election. If Buyer or the Exchange Agent shall
determine that any purported Cash Election, Preferred Stock Election or Common
Stock Election was not effectively made, such purported elections shall be
deemed to be of no force and effect and the Holder making such purported
election shall, for purposes hereof, be deemed to have made a Non-Election.
5. In the event that this Agreement is terminated pursuant to the
provisions hereof and any shares have been
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<PAGE>
transmitted to the Exchange Agent pursuant to the provisions hereof, Buyer and
Target shall cause the Exchange Agent to promptly return such shares to the
person submitting the same.
A-51
<PAGE>
EXHIBIT A
RESOLUTION OF THE BOARD OF DIRECTORS OF
CONESTOGA ENTERPRISES, INC.
ESTABLISHING AND DESIGNATING
SERIES A CONVERTIBLE PREFERRED STOCK
AS A CLASS OF CAPITAL STOCK
RESOLVED, that the articles of incorporation of Conestoga Enterprises,
Inc. (herein called the "Corporation") be amended to authorize and establish, as
a class of the corporation's authorized capital stock, the Series A Convertible
Preferred Stock having a par value of $65.00 per share (such class being herein
called the "Series A Stock"), having the following voting rights, designations,
preferences, limitations and special rights under and subject to the following
provisions:
Section 1. Designation. There shall be a class of capital stock
-----------
which shall consist of 900,000 shares and shall be designated as Series A
Convertible Preferred Stock. The Series A Stock is being issued in connection
with the transactions contemplated by that certain Agreement and Plan of Merger
dated as of October 18, 1995 among Conestoga Enterprises, Inc., CB Merger
Corporation and Buffalo Valley Telephone Company which transactions closed on
_______________, 1996.
Section 2. Definitions.
-----------
(a) The term "Common Stock" as used in this resolution shall be
deemed to mean stock of the Corporation of any class, whether now or hereafter
authorized, which has the right to participate in the distribution of either
earnings or assets of the Corporation without limit as to the amount or
percentage; except that Common Stock issuable upon conversion of Series A Stock
as provided in this resolution shall mean only Common Stock authorized at the
time of original issue of Series A Stock and stock of any other class into which
the then authorized Common Stock shall thereafter have been changed by
reclassification or otherwise.
(b) The term "Dividend Parity Stock" as used in this resolution
with respect to Series A Stock shall be deemed to mean all other stock of the
Corporation ranking equally therewith as to the payment of dividends. The term
"Liquidation Parity Stock" as used in this resolution with respect to Series A
Stock shall be deemed to mean all other stock of the Corporation ranking equally
therewith as to distribution of assets upon liquidation.
A-52
<PAGE>
(c) The term "Junior Stock" as used in this resolution with
respect to Series A Stock shall be deemed to mean the Common Stock and all other
stock of the Corporation ranking junior to the Series A Stock as to the payment
of dividends and the distribution of assets upon liquidation. The term "Dividend
Junior Stock" as used in this resolution with respect to Series A Stock shall be
deemed to mean the Common Stock and all other stock of the Corporation ranking
junior to the Series A Stock as to the payment of dividends. The term
"Liquidation Junior Stock" as used in this resolution with respect to Series A
Stock shall be deemed to mean the Common Stock and all other stock of the
Corporation ranking junior to the Series A Stock as to distribution of assets
upon liquidation.
(d) The term "Senior Stock" as used in this resolution with
respect to Series A Stock shall be deemed to mean all other stock of the
Corporation ranking senior thereto as to the payment of dividends or
distribution of assets upon liquidation.
Section 3. Dividends.
---------
(a) The holders of record of Series A Stock shall be entitled to
receive, as and if declared by the board of directors, cumulative cash dividends
thereon of $3.42 per annum, and no more, but only out of funds legally available
for the payment of such distributions under 15 Pa.C.S. (S) 1551 (relating to
distributions to shareholders) or under any corresponding superseding provision
of law. Dividends on the Series A Stock shall be payable semi-annually on
_____________ and _____________/1/ in each year. Dividends shall accrue from
-
____________/2/. Accumulations of dividends shall not bear interest. Unless full
-
cumulative dividends on outstanding shares of Series A Stock have been paid, no
dividend or other distribution (except in Junior Stock) shall be declared or
paid on Common Stock or on other Dividend Junior Stock and no amount shall be
set aside or applied to the redemption, purchase or other acquisition of Common
Stock or other Dividend Junior Stock other than by exchange therefor of Junior
Stock or, with respect to redemptions, purchases or other acquisitions of
Dividend Junior Stock other than Common Stock, out of the proceeds of a
substantially concurrent sale of shares of Junior Stock.
_________________________
/1/ Insert the month and day of the date sixth months following the
-
closing date of the Merger and the closing date, respectively.
/2/ Insert the closing date of the Merger.
-
A-53
<PAGE>
(b) In the event that full cumulative dividends upon the Series A
Stock and stated dividends on all Dividend Parity Stock are not paid in full,
all shares of Series A Stock and all shares of Dividend Parity Stock shall
participate ratably in the payment of dividends, including accumulations, if
any, in accordance with the sums which would be payable thereon if all
dividends thereon were declared and paid in full.
Section 4. Liquidation Rights.
------------------
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, the holders of Series A Stock shall be entitled to receive from
the assets of the Corporation payment in cash of $65.00 per share, plus a
further amount equal to unpaid cumulative dividends on Series A Stock accrued to
the date when such payments shall be made available to the holders thereof, and
no more, before any amount shall be paid or set aside for, or any distribution
of assets shall be made to the holders of Common Stock or other Liquidation
Junior Stock. If, upon such liquidation, dissolution or winding up, the amounts
available for distribution to the holders of Series A Stock and all Liquidation
Parity Stock, shall be insufficient to permit the payment in full to such
holders of the preferential amounts to which they are entitled, then such
amounts shall be paid ratably among the shares of Series A Stock and Liquidation
Parity Stock in accordance with the respective preferential amounts (including
unpaid cumulative dividends, if any) payable with respect thereto if paid in
full.
(b) None of the following shall be considered a liquidation,
dissolution or winding up of the Corporation within the meaning of this section:
(1) a consolidation of the Corporation with any other
corporation;
(2) a merger of the Corporation into any other corporation or
a merger of any other corporation into the Corporation;
(3) a reorganization of the Corporation;
(4) the purchase or redemption of all or part of the
outstanding shares of any class or classes of the Corporation;
(5) a sale or transfer of all or any part of the assets of
the Corporation;
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<PAGE>
(6) a share exchange to which the Corporation is a party; or
(7) a division of the Corporation.
Section 5. Redemption at the Option of the Corporation. Commencing
-------------------------------------------
on the fourth anniversary of the Closing Date, the Series A Stock may be called
for redemption and redeemed at the option of the Corporation by resolution of
the board of directors, in whole at any time or in part at any time or from time
to time upon the notice hereinafter provided for in section 7, by the payment in
cash of a redemption price equal to the applicable percentage of $65.00 per
share specified below, plus an amount equal to the accrued and unpaid cumulative
dividends thereon to the date fixed by the board of directors as the redemption
date:
<TABLE>
<CAPTION>
If redeemed during the period/3/ Applicable
-
(dates inclusive) percentage
------------------------------- ----------
<S> <C>
____________, 2000 through ___________, 2001 103.00%
____________, 2001 through ___________, 2002 102.00%
____________, 2002 through ___________, 2003 101.00%
From and after _________________, 2003 100.00%
</TABLE>
Section 6. Redemption at the Option of the Holders. Commencing on
---------------------------------------
the second anniversary of the Closing Date and at any time or from time to time
thereafter in accordance with this section 6, each holder of Series A Stock
shall have the right, at such holder's option, to require the Corporation to
redeem all or a portion of such holder's shares of Series A Stock at a
redemption price of $65.00, plus an amount equal to the accrued and unpaid
cumulative dividends thereon to the redemption date. To exercise the redemption
right provided for in this section 6, a holder must provide to the Corporation
(i) an irrevocable written notice of the holder's exercise of such right, which
notice shall set forth the name of the holder of the Series A Stock, the number
of shares to be redeemed and a statement that the election to exercise the
redemption right is being made thereby; and (ii) the shares of Series A Stock
with respect to which such redemption right is being exercised, duly endorsed
for transfer to the Corporation. Such written notice shall be irrevocable and
(unless the Corporation shall default in making the requested redemption) shall
terminate
_________________________
/3/ Insert the month and day of the closing date of the Merger and
-
the date immediately preceding such closing date, respectively.
A-55
<PAGE>
all conversion rights of the holder under section 11 with respect to the shares
of Series A Stock to be redeemed pursuant to this section 6. Holders may not
exercise the redemption right pursuant to this section 6 for less than 100
shares of Series A Stock (or, if less than 100, all shares of Series A Stock
owned by such holder). Subject to the last sentence of this section 6, the
Corporation as of each March 31, June 30, September 30 and December 31 shall
redeem all shares (if any) of Series A Stock for which a notice of redemption
under this section 6 has been received by the Corporation prior to the close of
business on the immediately preceding February 15, May 15, August 15 or November
15, respectively. The Corporation shall also redeem all shares (if any) of
Series A Stock for which a notice of redemption under this section 6 has been
received by the Corporation during the 30 day period following the date of
mailing by the Corporation pursuant to paragraphs 11(g)(3) and 11(g)(4) of
notice of a reclassification, capital reorganization, merger, consolidation,
share exchange, division, sale, lease, exchange or other disposition of assets,
liquidation, dissolution or winding-up; any shares submitted for redemption
during such 30 day period shall be redeemed no later than 60 days following the
mailing date of such notice.
Section 7. Manner of Redemption of Series A Stock
--------------------------------------
(a) If less than all of the outstanding shares of Series A Stock
shall be called for redemption under section 5, the particular shares to be
redeemed shall be selected by lot or by such other equitable manner as may be
prescribed by resolution of the board of directors.
(b) Notice of redemption under section 5 of any shares of Series A
Stock shall be given by the Corporation by first-class mail, not less than 30
nor more than 60 days prior to the date fixed by the board of directors of the
Corporation for redemption (the "redemption date"), to the holders of record of
the shares to be redeemed at their respective addresses then appearing on the
records of the Corporation. The notice of the redemption shall state:
(1) the redemption date;
(2) the redemption price;
(3) that the redemption is an optional redemption
pursuant to section 5 of this resolution;
(4) if less than all outstanding shares of Series A
Stock of the holder are to be redeemed,
A-56
<PAGE>
the identification of the shares of Series A Stock to be redeemed;
(5) the conversion price on the date of the notice,
(6) that on the redemption date the redemption price
will become due and payable upon each share of Series A Stock to be
redeemed and the right to convert each such share shall cease as of
the close of business on the business day prior to the redemption
date, unless default shall be made in the payment of the redemption
price; and
(7) the place or places where such shares of Series A
Stock to be redeemed are to be surrendered for payment of the
redemption price.
(c) On or before the redemption date for a redemption made
under section 5 or section 6 of this resolution, the Corporation may deposit
in trust, for the account of the holders of the shares to be redeemed, so as
to be and continue to be available therefor, the moneys necessary for such
redemption with a bank or trust company, to be designated in the notice of
such redemption, doing business in New York City, Philadelphia, Reading,
Lewisburg or Harrisburg, and having capital, surplus and undivided profits
aggregating at least $100,000,000. Upon the making of such deposit, and upon
the mailing as hereinabove provided in this section 7 or in section 6 of the
notice of such redemption or upon the earlier delivery to the bank or trust
company of irrevocable authorization and direction to mail such notice, all
shares with respect to the redemption of which such deposit shall have been
made and such mailing effected or authorization therefor given shall, whether
or not the certificates for such shares shall have been surrendered for
cancellation, be deemed to be no longer outstanding for any purpose and all
rights with respect to such shares shall thereupon cease and terminate, except
only the right of the holders of the certificates for such shares (i) to
receive, out of the moneys so deposited in trust, from and after the time of
such deposit, the amount payable upon the redemption thereof, without interest
and (ii) to exercise any privilege of conversion not theretofore expiring. At
the expiration of two years after the redemption date any such moneys then
remaining on deposit with such bank or trust company shall be paid over to the
Corporation, free of trust, and thereafter the holders of the certificates for
such shares shall have no claims against such bank or trust company, but only
claims as unsecured creditors against the Corporation for amounts equal to
their pro rata portions of the moneys so paid over, without interest; except
that any
A-57
<PAGE>
moneys so deposited which shall not be required for the payment of the
redemption price of such shares because of the exercise of any right of
conversion subsequent to the date of such deposit, shall, upon request of the
Corporation, be paid over to the Corporation forthwith. Interest, if any,
accrued on moneys deposited with any bank or trust company pursuant to the
foregoing provisions of this section shall belong to and upon its request be
paid over to the Corporation. The Corporation and its agents shall not be liable
to any holder of Series A Stock failing to surrender certificates for
cancellation for any property delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(d) Shares of Series A Stock redeemed by the Corporation shall
be restored to the status of authorized and unissued shares of Series A, and may
be reissued by the Corporation as shares of Series A Stock.
(e) Where less than all of the Series A Stock represented by a
holder's certificate have been redeemed in accordance with section 5 or section
6 hereof, the Corporation shall promptly provide such holder a new certificate
representing that number of shares of Series A Stock that remain outstanding
following such redemption.
Section 8. Limitation on Redemption or Purchase. Unless full
------------------------------------
cumulative dividends due on outstanding shares of Series A Stock have been paid
or declared and set apart for payment and all prior redemptions pursuant to
section 6 of Series A Stock made or provided for, the Corporation shall not
redeem any Series A Stock, Dividend Parity Stock or Liquidation Parity Stock
unless all outstanding shares of Series A Stock are redeemed, and the
Corporation shall not purchase or otherwise acquire for value any Series A
Stock, Dividend Parity Stock or Liquidation Parity Stock except in accordance
with a purchase or exchange offer made simultaneously by the Corporation to all
holders of record of Series A Stock and Dividend Parity Stock and Liquidation
Parity Stock which, considering the annual dividend rates and the other relative
rights and preferences of such shares, in the reasonable opinion of the board of
directors (whose determination shall be conclusive), will result in fair and
equitable treatment among all such shares.
Section 9. Voting Rights.
-------------
(a) Except as expressly provided to the contrary in this
resolution or as otherwise required by law, the holders of Series A Stock shall
have no right to vote at, or to participate in, any meeting of shareholders of
the Corporation, or to receive any notice of such meeting.
A-58
<PAGE>
(b)(1) In the event that (i) dividends upon the Series A
Stock shall be in arrears in an amount equal to three full semi-
annual dividends thereon or (ii) any redemption of Series A Stock
has not been made or provided pursuant to section 6 of this
resolution, the number of directors constituting the full board
shall be increased by two, and the holders of the Series A Stock,
voting noncumulatively separately as a single class together with
the holders of any other shares of preferred stock having the right
to elect directors as a class under such circumstances, shall be
entitled to elect two additional members of the board of directors
of the Corporation at the next annual meeting of shareholders of the
Corporation or at a special meeting called as hereinafter provided
in this section. Such voting rights of the holders of Series A Stock
shall continue until all accumulated and unpaid dividends thereon
and all redemptions thereof shall have been paid in full, whereupon
such special voting rights of the holders of Series A Stock shall
cease (and the term of the two additional directors shall thereupon
expire and the number of directors constituting the full board shall
be decreased by two) subject to being again revived from time to
time upon the recurrence of the conditions described in this section
as giving rise thereto.
(2) At any time when such right of holders of Series A Stock
to elect two additional directors shall have so vested, the
Corporation may, and upon the written request of the holders of
record of not less than 10% of the Series A Stock then outstanding
(or 10% of all shares of preferred stock having the right to vote
for such directors in case holders of shares of other classes or
series of preferred stock shall also have the right to elect
directors as a class in such circumstances) shall, call a special
meeting of holders of such Series A Stock (and other class or series
of preferred stock, if applicable) for the election of directors.
In the case of such a written request, such special meeting shall be
held within 60 days after the delivery of such request, and, in
either case, at the place and upon the notice provided by law and in
the bylaws of the Corporation; except that the Corporation shall not
be required to call such a special meeting if such request is
received less than 120 days before the date fixed for the next
ensuing annual meeting of shareholders of the Corporation.
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(3) Whenever the number of directors of the Corporation
shall have been increased by two as provided in this section, the
number as so in creased may thereafter be further increased or
decreased in such manner as may be permitted by the bylaws of the
Corporation and without the vote of the holders of Series A Stock.
No such action shall impair the right of the holders of Series A
Stock to elect and to be represented by two directors as provided in
this section.
(4) The two directors elected as provided in this section
shall serve until the next annual meeting of shareholders of the
Corporation and until their respective successors shall be elected
and qualified or the earlier expiration of their terms as provided
in this section. No such director may be removed without the vote or
consent of holders of a majority of the shares of Series A Stock (or
holders of a majority of shares of preferred stock having the right
to vote in the election of such director in case holders of shares
of other classes or series of preferred stock shall also have the
right to elect such director as a class). If, prior to the
expiration of the term of any such director, a vacancy in the office
of such director shall occur, such vacancy shall, until the
expiration of such term, in each case be filled by appointment made
by the remaining director elected as provided in this section.
Section 10. Restrictions on Certain Corporate Action.
----------------------------------------
(a) Without the affirmative vote of the holders of at least a
majority of the Series A Stock at the time outstanding or, if holders of other
classes or series of preferred stock have the right to vote as a class on such
matter under the articles of incorporation of the Corporation, the holders of
at least a majority of Series A Stock and other classes or series of preferred
stock voting as a single class, the Corporation shall not:
(1) permit to be outstanding any shares of any class
or series of Senior Stock, or increase the outstanding number of
shares of any class or series of Senior Stock beyond the number of
shares permitted in accordance with this section 10; or
(2) merge, consolidate, divide or participate in a
share exchange with any other corporation if any corporation
surviving or
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resulting from such merger, consolidation, division or share
exchange would have after such merger, consolidation, division or
share exchange any outstanding shares of any class or series of
Senior Stock in excess of the number of shares of Senior Stock of
the Corporation permitted to be outstanding immediately preceding
such merger, consolidation, division or share exchange.
(b) Without the affirmative vote of the holders of at
least a majority of the Series A Stock at the time outstanding, the
Corporation shall not amend, alter, change or repeal any of the express terms
of the Series A Stock.
(c) At all meetings at which the holders of the Series
A Stock have the right to vote under the express provisions of section 9 or
this section 10 (regardless of whether or not holders of any other classes or
series of preferred stock have voting rights on such matter), each holder of
Series A Stock shall be entitled to one vote or fraction thereof, for each
$10.00 or fraction thereof, of the involuntary liquidating value represented
by the shares of Series A Stock.
Section 11. Conversion Rights.
-----------------
(a) The holder of any outstanding share or shares of
Series A Stock shall have the right at any time or from time to time to
convert, subject to the provisions of this section, any such share or shares,
at the initial conversion price per share of Common Stock of $_______/4/,
-
into that number of fully paid and nonassessable shares of Common Stock of the
Corporation determined by dividing $65.00 by the conversion price in effect at
the time of such conversion; except that (i) such conversion price shall be
subject to adjustment upon the happening of certain contingencies as provided
in subsection (b), (ii) whenever the Corporation shall call for redemption any
Series A Stock, the conversion rights of the holder thereof shall terminate
_____________________
/4/ The initial conversion price shall be 125% of the average
-
"market price" of a share of Common Stock for the ten consecutive business day
period immediately preceding the fourth business day prior to the closing date
under the Merger Agreement. The "market price" for each day shall be the average
of the last reported bid and asked prices quoted by each of the four principal
market makers for Common Stock on the NASDAQ Small Cap Market. The initial
conversion price, however, may not be less than $28.00 nor more than the higher
of (i) $40.00 or (ii) such average "market price."
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as to the shares called for redemption at the close of business on the business
day next preceding the redemption date unless default shall be made in the
payment of the redemption price or in the conversion thereof and (iii) in the
event of the liquidation of the Corporation, whether voluntary or involuntary,
or a consolidation or merger of the Corporation with or into any other
corporation or a share exchange or division, as a result of which consolidation,
merger, share exchange or division only cash shall be payable or distributable
to the holders of the Common Stock, the conversion rights of the holders of
Series A Stock shall terminate on such date as shall be fixed by the board of
directors, not less than 30 days after the mailing to such holders of the notice
required by subsection (g).
(b) The conversion price shall be subject to adjustment as
follows:
(1) If the Corporation shall:
(i)pay or make a dividend or distribution on its
Common Stock in shares of its capital stock;
(ii)subdivide its outstanding shares of Common Stock
into a greater number of shares;
(iii)combine its outstanding shares of Common Stock
into a smaller number of shares;
(iv)issue to holders of Common Stock by
reclassification of its shares of Common Stock or any
recapitalization or reorganization any shares of capital
stock of the Corporation; or
(v)take any other action having the same effect as
any of the actions described in subparagraphs (i) through
(iv);
then, in each such case, the conversion price in effect immediately
prior thereto shall be adjusted so that the holder of any share of
Series A Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of the Corporation which
such holder would have owned or been entitled to receive after the
happening of any of such events had such share of Series A Stock
been converted immediately prior to the happening thereof. An
adjustment made pursuant to this paragraph (1) shall become
effective retroactively as of the time immediately after the record
date in those cases specified in subparagraph (i) and shall
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become effective as of the time immediately after the effective date
in those cases specified in subparagraphs (ii) through (v).
(2) If the Corporation shall issue rights or warrants to all
holders of its Common Stock entitling them (for a period expiring
within 90 days after the record date mentioned in the last sentence
of this paragraph) to subscribe for or purchase shares of Common
Stock at a price per share less than the current market price
(determined as provided in paragraph (5) of this subsection) per
share of Common Stock on the business day immediately preceding the
record date mentioned in the last sentence of this paragraph or, if
earlier, the date such issuance is given effect for trading
purposes, the conversion price in effect immediately prior thereto
shall be adjusted so that the same shall equal the price determined
by multiplying the conversion price in effect immediately prior
thereto by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding on the date of issuance of such
rights or warrants (without giving effect to their exercise) plus
the number of shares which the aggregate exercise price of the total
number of shares offered for subscription or purchase would purchase
at such current market price, and of which the denominator shall be
the number of shares of Common Stock outstanding on the date of
issuance of such rights or warrants (without giving effect to their
exercise) plus the number of additional shares of Common Stock
offered for subscription or purchase. Such adjustment shall be made
whenever such rights or warrants are issued and shall become
effective retroactively as of the time immediately after the record
date for the determination of shareholders entitled to receive such
rights or warrants.
(3) If the Corporation shall distribute to all holders of
its Common Stock evidences of its indebtedness or assets (excluding
cash dividends) or rights or warrants to subscribe for or purchase
Common Stock (excluding those referred to in paragraph (2)) or other
securities issued by the Corporation or property of the Corporation,
then and in each such case the conversion price shall be adjusted so
that the same shall equal the price determined by multiplying the
conversion price in effect immediately prior thereto by a fraction,
of which the numerator shall be the current market
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price per share of the Common Stock on the business day immediately
preceding the record date mentioned in the last sentence of this
paragraph or, if earlier, the date such distribution is given effect
for trading purposes less the then fair market value (as determined
in good faith by resolution of the board of directors of the
Corporation, whose determination shall be conclusive) of the portion
of the assets or evidences of indebtedness so distributed or of such
rights or warrants applicable to one share of Common Stock, and of
which the denominator shall be the current market price per share of
Common Stock on the business day immediately preceding the record
date mentioned in the last sentence of this paragraph or, if
earlier, the date such distribution is given effect for trading
purposes. Such adjustment shall be made whenever any such
distribution is made and shall become effective retroactively as of
the time immediately after the record date for the determination of
shareholders entitled to receive such distribution.
(4) If any such rights or warrants referred to in paragraphs
(2) and (3) above shall expire without having been exercised, the
conversion price as theretofore adjusted because of the issue of
such rights or warrants shall forthwith be readjusted to the
conversion price which would have been in effect had an adjustment
been made on the basis that the only rights or warrants so issued or
sold were those rights or warrants actually exercised and that with
respect to any such rights or warrants to subscribe for or purchase
securities issued by the Corporation, other than Common Stock, or
property of the Corporation the fair market value thereof shall be
the fair market value of the rights or warrants actually exercised.
(5) For the purpose of any computation under this
subsection, the current market price per share of Common Stock at
any date shall be deemed to be the average of the daily closing
prices for the ten consecutive business days commencing five
business days before the day in question. The closing price for
each day shall be, in the event that the Common Stock is listed on
any national securities exchange, the last reported sale price
regular way or, in case no such reported sale takes place on such
day, the average of the last reported bid and asked prices regular
way, in either case as
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reported on the applicable consolidated or composite tape for issues
traded on the principal national securities exchange on which the
Common Stock is admitted to trading, or, if the Common Stock is not
listed or admitted to trading on any national securities exchange,
the average of the last reported bid and asked prices in the over-
the-counter market as furnished by any national quotation system or,
if not available, any New York Stock Exchange member firm selected
from time to time by the Corporation for the purpose. The term
"business day" shall include any day on which securities are traded
on such exchange or in such market.
(6) No adjustment in the conversion price shall be required
unless such adjustment would require an increase or decrease of at
least one percent; except that any adjustments which by reason of
this sentence are not required to be made shall be carried forward,
and taken into account in calculating each subsequent adjustment,
until made. All calculations under this subsection shall be made to
the nearest cent or to the nearest 1/100 of a share as the case may
be.
(7) In determining the number of shares of Common Stock
outstanding at any particular time, for the purpose of computations
pursuant to the formula in this subsection there shall be included
all Common Stock issuable in respect of any then outstanding scrip
certificates representing fractional interests with respect to
Common Stock.
(c) Notwithstanding anything to the contrary set forth in
subsection (b), no adjustment of the conversion price shall be made as a
result of or in connection with the issuance of Common Stock of the
Corporation pursuant to any dividend reinvestment plan now existing or
hereafter established by the Corporation for the benefit of holders of Common
Stock.
(d) In the event of any:
(1) capital reorganization of the Corporation;
(2) merger, consolidation or share exchange of the
Corporation with or into another corporation;
(3) division of the Corporation; or
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(4) sale, lease, exchange or other disposition of all or
substantially all of the property and assets of the Corporation as a
result of which sale, lease, exchange or other disposition of
property, other than solely cash, shall be payable or distributable
in exchange for shares of Common Stock, then, as a condition of such
reorganization, merger, consolidation, share exchange, division,
sale, lease, exchange or other disposition, the Corporation or such
successor or purchasing corporation, as the case may be, shall make
provision that the holder of each share of Series A Stock shall have
the right thereafter to convert such share into the kind and amount
of stock, securities or assets receivable upon such reorganization,
merger, consolidation, share exchange, division, sale, lease,
exchange or other disposition by a holder of the number of shares of
Common Stock into which such share of Series A Stock might have been
converted immediately prior to such reorganization, merger,
consolidation, share exchange, division, sale, lease, exchange or
other disposition, subject to adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in
subsection (b). The provisions of this subsection shall similarly
apply to successive reorganizations, mergers, consolidations, share
exchanges, divisions, sales, leases, exchanges or other
dispositions.
(e) Subject to the provisions of subsection (b) of section 3 above,
upon conversion of any shares of Series A Stock, the Corporation shall deliver
to the holder of the shares, together with the certificates for the Common
Stock issued upon conversion, payment (but only out of funds legally available
for the payment of such distributions under 15 Pa.C.S. (S) 1551) for all
accrued and unpaid cumulative dividends on such shares through the date of
conversion as determined in accordance with subsection (h) below.
(f) Whenever the conversion prices shall be adjusted as provided in
subsection (b), the Corporation, as soon as practicable and in no event later
than ten business days thereafter, shall file with each transfer agent and
conversion agent for Series A Stock a statement, signed by the president, any
vice president or the treasurer of the Corporation, stating the adjusted
conversion prices determined as therein provided and setting forth in
reasonable detail the facts requiring such adjustment, and shall promptly mail
a copy of such statement to each holder of Series A Stock at the address of
such holder then appearing on the record books of the Corporation. Each
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<PAGE>
transfer and conversion agent shall be fully protected in relying on such
statement and shall be under no duty to examine into the truth or accuracy
thereof. If any question shall at any time arise with respect to the adjusted
conversion prices, it shall be resolved by a firm of independent public
accountants selected by the Corporation, who may be the Corporation's
auditors, and such determination shall be binding upon the Corporation and the
holders of such shares.
(g) If the Corporation shall propose:
(1) to pay any dividend in stock upon its Common Stock or to
make any other distribution, other than a cash dividend payable out
of retained earnings, to the holders of its Common Stock;
(2) to offer to the holders of its Common Stock rights to
subscribe to any additional shares of any class or any other rights
or options;
(3) to effect any reclassification of its Common Stock
(other than a reclassification involving merely the subdivision or
combination of outstanding Common Stock), or to effect any capital
reorganization, or to engage in any merger, consolidation, share
exchange, division or sale, lease, exchange or other disposition of
all or substantially all of its property and assets in a transaction
in which approval of any holders of the Common Stock or Series A
Stock is required; or
(4) to liquidate, dissolve or wind-up;
then, in each such case, the Corporation shall file with each transfer agent
for Series A Stock and shall mail to the holders of record of Series A Stock
at their respective addresses then appearing on the record books of the
Corporation notice of such proposed action, such notice to be filed and mailed
at least ten days, if the proposed action is that referred to in paragraph (1)
or (2), and at least 30 days, if the proposed action is that referred to in
paragraph (3) or (4), prior to the record date for the purpose of determining
holders of the Common Stock entitled to the benefits of the action referred to
in paragraph (1) or (2) or to vote with respect to the action referred to in
paragraph (3) or (4) or, if no record date is taken for any such purpose, the
date of the taking of such proposed action. Such notice shall specify the
record date for such stock dividend, distribution of such rights or options,
or the date on which such reclassification, reorganization, merger,
consolidation, share exchange, division, sale, lease,
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exchange or other disposition, liquidation, dissolution or winding up shall
take place, as the case may be, and the date of participation therein by the
holders of Common Stock if any such date is to be fixed. If such notice
relates to any proposed action referred to in paragraph (3) or (4), it shall
set forth facts with respect thereto as shall be reasonably necessary to
inform each transfer agent and the holders of such shares as to the effect of
such action upon their conversion rights. Failure to file any certificate or
notice, or to mail any notice, or any defect in any certificate or notice,
pursuant to this subsection, shall not affect the legality or validity of any
adjustment, dividend, distribution or right referred to in this subsection.
(h) In order to convert shares of Series A Stock into Common Stock
the holder thereof shall surrender at the office of any transfer or conversion
agent for the Series A Stock the certificate or certificates therefor, duly
endorsed to the Corporation or in blank, and give written notice to the
Corporation at such office that the holder elects to convert such shares and
shall state in writing therein the name or names (with addresses) in which
such holder wishes the certificate or certificates for Common Stock to be
issued. Shares of Series A Stock shall be deemed to have been converted
immediately prior to the close of business on the date of the receipt by the
transfer or conversion agent of such certificate or certificates for shares
for conversion as provided in this subsection, and the person or persons
entitled to receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such Common Stock
after such date of receipt. As soon as practicable on or after the date of
conversion, the Corporation shall issue and deliver at such office a
certificate or certificates for the number of full shares of Common Stock
issuable upon such conversion, together with (x) a scrip certificate for, or
cash in lieu of, any fraction of a share, as provided in subsection (j), and
(y) all accrued and unpaid cumulative dividends on the converted shares of
Series A Stock through the date of conversion as provided in subsection (e),
to the person or persons entitled to receive the same.
(i) The Corporation shall pay any and all federal or state original
issue taxes that may be payable in respect of the issue or delivery of shares
of Common Stock on conversion of shares of Series A Stock pursuant to this
resolution. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which the
shares of Series A Stock so converted were registered, and no issue or
delivery shall be made unless and until the person requesting
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such issue has paid to the Corporation the amount of any such tax, or has
established to the satisfaction of the Corporation either that such tax has
been paid or that no such tax is payable.
(j) The Corporation shall not issue fractional shares of
Common Stock upon any conversion of shares of Series A Stock. As to any final
fraction of a share which the holder of one or more shares of Series A Stock
would be entitled to receive upon exercise of such shareholder's conversion
right, the Corporation shall, at its option as to any such exercise, either:
(1) deliver a scrip certificate of the Corporation in
respect of such final fraction; or
(2) pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction times the closing
price per share of Common Stock on the business day which next
precedes the day of exercise.
The closing price for such day shall be, in the event that the Common Stock is
listed on any national securities exchange, the last reported sale price
regular way or, in case no such reported sale takes place on such day, the
average of the last reported bid and asked prices regular way, in either case
as reported on the composite tape for issues traded on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the average of the last reported bid and asked
prices in the over-the-counter market as furnished by any national quotation
system or, if not available, any New York Stock Exchange member firm selected
from time to time by the Corporation for the purpose.
(k) The Corporation shall at all times have authorized and
unissued a number of shares of Common Stock sufficient for the satisfaction of
any scrip certificates and the conversion of all shares of Series A Stock at
the time outstanding.
(l) For so long as the Common Stock is listed or included
for quotation or trading on any securities exchange or market or trading
system, the Company agrees to list or include on any such exchange, market or
system all shares of Common Stock issuable upon conversion of the Series A
Stock.
Section 12. Shareholder Rights as to Dividends and Redemptions. It
--------------------------------------------------
shall be the mandatory and not discretionary
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duty of the board of directors to (i) declare and cause to be paid all
dividends relating to the Series A Stock and (ii) make redemptions of shares
of Series A Stock in accordance with the terms of such stock, so long as such
dividends or redemptions are not then prohibited by 15 Pa.C.S. (S) 1551(b) (or
any successor provision). The rights of a holder to the declaration and
payment of dividends on, and the redemption of, shares of Series A Stock shall
be specifically enforceable by a holder to the maximum extent permitted by 15
Pa.C.S. (S) 1521(b) (or any successor provision).
Section 13. Financial Statements and Information. For so long as any
------------------------------------
shares of Series A Stock shall be outstanding, the Corporation shall furnish
to the holders of record of the Series A Stock at their respective addresses
then appearing on the record books of the Corporation, copies of all annual
and quarterly reports, proxy statements and all other information and reports
furnished by the Corporation to the holders of Common Stock. Such information
shall be furnished in the same manner and by the same means as furnished to
the holders of Common Stock. If at any time the Corporation shall cease to be
required, under the Securities Exchange Act of 1934, as amended, to furnish
reports and proxy statements to the holders of the Common Stock, then the
Corporation shall in lieu of such information furnish the holders of Series A
Stock the financial reports required by, within the time period specified in,
Pa.C.S. (S) 1554 (or any successor provision).
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EXHIBIT B
---------
_______________, 1996
Conestoga Enterprises, Inc.
202 E. First Street
Birdsboro, PA 19508
Attention: Executive Vice President
Dear Sir:
This letter is delivered to you in compliance with Section 5.10 of
the Agreement and Plan of Merger, dated October 18, 1995 (the "Agreement"),
between Buffalo Valley Telephone Company ("Target"), Conestoga Enterprises,
Inc. ("Buyer") and CB Merger Corporation ("Sub"), providing for the merger
(the "Merger") of Target with and into Sub.
(a) The undersigned hereby acknowledges, solely for the purpose of
this undertaking, that it may be deemed to be an "affiliate" of Target as that
term is used in paragraph (c) of Rule 145 under the Securities Act of 1933, as
amended (the "Act").
(b) The undersigned represents and warrants to you that the shares
of Series A Convertible Preferred Stock ("Series A Preferred") of Buyer and
the shares of common stock of the Buyer issued as Common Stock Merger
Consideration or issuable upon the conversion of shares of Series A Preferred
("Buyer Common Stock", and together with the Series A Preferred, "Merger
Stock") which the undersigned shall receive in exchange for any shares of
common stock of Target are not being acquired by the undersigned with a view
to their distribution except to the extent and in the manner provided for in
paragraph (d) of Rule 145 under the Act.
(c) The undersigned acknowledges that it has been advised by
counsel for Target of the provisions of the federal securities laws which
relate to resales of Merger Stock to be received by it in connection with the
Merger, and the undersigned hereby undertakes to comply fully with such
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provisions. The undersigned also agrees that Buyer may place the legend set
forth below on the certificate or certificates for any or all Merger Stock to
be received by the undersigned in connection with the Merger, may file stop-
transfer instructions with respect to such shares with the transfer agent for
such shares and may refuse to transfer such shares except upon delivery to
Buyer of an opinion, in form and substance satisfactory to Buyer, of counsel
acceptable to Buyer to the effect that the proposed transfer of some or all of
such shares does not violate federal securities laws.
(d) Pursuant to the provisions of the preceding paragraph, the
certificate or certificates evidencing Merger Stock received by me may bear
the following legend:
"The shares represented by this certificate are transferable
only upon, and are otherwise subject to, certain conditions
specified in a certain letter dated ______________, 1996 from the
registered owner hereof to Conestoga Enterprises, Inc. (a copy of
which is on file with the Secretary of Conestoga Enterprises, Inc.),
and no transfer of such shares shall be valid or effective until
such conditions have been fulfilled."
(e) It is understood that Buyer is required to file certain
periodic reports under the Securities Exchange Act of 1934, as amended, with
the Securities and Exchange Commission and that no sales of Merger Stock
received by the undersigned in the Merger may be made under Rule 145(d) unless
Buyer has informed the undersigned that it has filed all such reports required
to be filed during the 12 months preceding a proposed sale. It is further
understood that Buyer will promptly respond to requests by the undersigned as
to the filing of such reports.
Very truly yours,
___________________
Signature
___________________
Print Name of Shareholder
Attachments: Rules 144 and 145
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APPENDIX B
____________________, 1996
The Board of Directors
Buffalo Valley Telephone Company
20 South Second Street
Lewisburg, PA 17837
Ladies and Gentlemen:
You have requested our opinion as to the fairness to the common shareholders
of Buffalo Valley Telephone Company, a Pennsylvania corporation ("BVT"), from a
financial point of view, of the consideration to be paid by Conestoga
Enterprises, Inc., a Pennsylvania corporation ("CEI") for each share of Common
Stock of BVT (the "Shares") pursuant to the Agreement and Plan of Merger dated
as of October 18, 1995 by and between CEI, CB Merger Corporation and BVT (the
"Merger Agreement"). Pursuant to the Merger Agreement, each of the Shares will
be exchanged for either: (A) $65 in cash ("Cash Consideration"); (B) one share
of $65 CEI Series A Convertible Preferred Stock (the "CEI Series A Preferred
Shares") of CEI (the "Preferred Stock Consideration"). or (c) 2.4 shares of CEI
common stock, subject to certain adjustments (the "Common Stock Consideration").
Snyder & Co., as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, private placements and valuations for estate,
corporate and other purposes. We have acted as financial advisor to the Board of
Directors of BVT in connection with the transactions described above and will
receive a fee for our services, a significant portion of which is contingent
upon the consummation of the transaction contemplated by the Merger Agreement.
In connection with this opinion, we have, among other things, (i) reviewed the
Merger Agreement, (ii) reviewed the terms of the CEI Series A Preferred Shares
to be issued by CEI in the Merger, (iii) reviewed certain other documents
related to the Merger, including the Joint Proxy Statement/Prospectus, (iv)
reviewed certain publicly available financial information concerning CEI and BVT
and certain other relevant financial and operating data of BVT made available
from internal records of BVT, (v) held discussions with BVT management
concerning BVT's current and future business prospects, (vi) held discussions
with CEI management concerning CEI's current and future business prospects,
(vii) reviewed the reported price and trading activity available for the Shares
and for the shares of CEI common stock, (viii) compared certain financial and
stock market information for CEI and BVT, respectively, with similar information
for certain comparable companies whose securities are publicly traded, (ix)
compared the financial terms of the Merger Agreement with those of certain
recent business combinations in the telecommunications industry which we deemed
comparable in whole or in part, and (x) performed such other studies and
analyses and considered such other factors as we deemed appropriate.
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to information relating to the prospects of CEI and BVT,
we have assumed that such information reflects the best currently available
estimates and judgments of the managements of CEI and BVT, respectively, as to
the likely future financial performance of CEI and BVT. In addition, we have not
made an independent evaluation or appraisal of the assets or liabilities of CEI
or BVT, nor have we been furnished with any such evaluation or appraisal. Our
opinion is based on market, economic and other
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conditions as they exist and can be evaluated as of the date of this letter. We
have assumed for purposes of our opinion that the Merger constitutes a tax-free
reorganization under Section 368 of the Internal Revenue Code.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Cash Consideration, Preferred Stock Consideration and
Common Stock Consideration to be paid in the Merger is fair, from a financial
point of view, to the shareholders of BVT.
Very truly yours,
SNYDER & COMPANY
By: W. Lloyd Snyder, III
Principal
B-2
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APPENDIX C
_____________________, 1996
The Board of Directors
Conestoga Enterprises, Inc.
202 East First Street
Birdsboro, PA 19508-0448
Ladies and Gentlemen:
JSI Financial Services (JSIFS) has been retained by the Board of Directors of
Conestoga Enterprises, Inc., a Pennsylvania corporation (Conestoga), to express
an opinion as to the fairness, from a financial point of view, to Conestoga's
common shareholders of the consideration to be paid by Conestoga for each share
of Common Stock of Buffalo Valley Telephone Company, a Pennsylvania corporation
(Buffalo Valley), pursuant to an Agreement and Plan of Merger dated October 18,
1995 by and between Conestoga and Buffalo Valley (the "Merger Agreement").
Pursuant to the Merger Agreement, each share of Buffalo Valley will be exchanged
for either (A) $65 in cash; (B) one share of $65 Conestoga Convertible Preferred
Stock; or (C) 2.4 shares of Conestoga Common Stock (collectively the
"Consideration").
JSIFS provides business and financial intermediation, valuation, strategic and
business planning, and syndication services to clients in the
telecommunications, broadcasting and cable industries. JSIFS has performed
valuations of telecommunications concerns for a variety of purposes including
mergers and acquisitions, divestitures, gift and estate taxes, employee stock
ownership plans, financial restructurings, and other objectives.
In arriving at our opinion, we have, among other things, (i) considered the
nature and economic outlook of the telecommunications industry and, in
particular, the local exchange industry, (ii) the financial and operating
history of Conestoga and Buffalo Valley, (iii) Conestoga's and Buffalo Valley's
earnings and cash flow for the last three years and their outlook for future
earnings and cash flow, (iv) Conestoga's historical and projected dividend-
paying capacity, (v) past transactions in Conestoga's stock, (vi) and prices at
which telephone properties and other communications properties have been bought
or sold in recent transactions within the industry.
Specific documents and information relied upon and procedures performed in
arriving at our opinion included reviewing Conestoga's and Buffalo Valley's
audited financial statements for the periods December 31, 1990 through December
31, 1994; reviewing nine month interim financial statements of Conestoga and
Buffalo Valley for the period ending September 30, 1995; reviewing Securities
and Exchange Commission Forms 10-K filed by Conestoga for the fiscal years
ending December 31, 1990 through December 31, 1994; reviewing Buffalo Valley's
Proxy Statement/Prospectus prepared in anticipation of a merger by and between
Buffalo Valley and C-TEC Corporation; reviewing the history of Conestoga's stock
transfer prices for the period June 1, 1994 through the date of this letter;
reviewing the Merger Agreement; reviewing the terms of the Conestoga Convertible
Preferred Stock to be issued by Conestoga pursuant to the Merger; having
discussions with Conestoga management about the Merger and current and future
business prospects for both Conestoga and Buffalo Valley; comparing the
financial terms of the Merger Agreement with those at certain recent
transactions within the local exchange industry which we deemed comparable in
whole or in part; and performing such other analysis and considering such other
factors as we deemed appropriate.
C-1
<PAGE>
The Board of Directors
Conestoga Enterprises, Inc.
______________________, 1996
Page 2
In rendering this opinion, we have relied, without independent verification, on
the accuracy, completeness, and fairness of all financial and other information
that was publicly available or furnished to us by Conestoga, Buffalo Valley
and/or their advisors.
Based upon our analysis of the factors deemed relevant, it is our opinion that,
as of the date of this letter, the Consideration to be paid pursuant to the
Merger is fair, from a financial point of view, to the shareholders of
Conestoga.
Very truly yours,
JSI Financial Services
By: William E. King, CPA
Director
C-2
<PAGE>
APPENDIX D
PROVISIONS OF
PENNSYLVANIA BUSINESS CORPORATION LAW RELATING TO
DISSENTERS' RIGHTS OF SHAREHOLDERS
----------------------------------
15 Pa. C.S.A. Sections 1571 through 1580, inclusive.
<PAGE>
(S) 1571. APPLICATION AND EFFECT OF SUBCHAPTER
(A) GENERAL RULE.--Except as otherwise provided in subsection (b),
any shareholder of a business corporation shall have the right to dissent from,
and to obtain payment of the fair value of his shares in the event of, any
corporate action, or to otherwise obtain fair value for his shares, where this
part expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special
treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedures).
(B) EXCEPTIONS.--
(1) Except as otherwise provided in paragraph (2), the holders of
the shares of any class or series of shares that, at the record date
fixed to determine the shareholders entitled to notice of and to vote
at the meeting at which a plan specified in any of section 1930,
1931(d), 1932(c) or 1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such shares
under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall
be available without regard to the exception provided in that
paragraph in the case of:
(i) Shares converted by a plan if the shares are not
converted solely into shares of the acquiring, surviving, new or
other corporation or solely into such shares and money in lieu of
fractional shares.
D-1
<PAGE>
(ii) Shares of any preferred or special class unless the
articles, the plan or the terms of the transaction entitle all
shareholders of the class to vote thereon and require for the
adoption of the plan or the effectuation of the transaction the
affirmative vote of a majority of the votes cast by all
shareholders of the class.
(iii) Shares entitled to dissenters rights under section
1906(c) (relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase,
lease, exchange or other disposition all or substantially all of the
shares, property or assets of another corporation by the issuance of
shares, obligations or otherwise, with or without assuming the
liabilities of the other corporation and with or without the
intervention of another corporation or other person, shall not be
entitled to the rights and remedies of dissenting shareholders
provided in this subchapter regardless of the fact, if it be the case,
that the acquisition was accomplished by the issuance of voting shares
of the corporation to be outstanding immediately after the acquisition
sufficient to elect a majority or more of the directors of the
corporation.
(C) GRANT OF OPTIONAL DISSENTERS RIGHTS.--The bylaws or a resolution
of the board of directors may direct that all or a part of the shareholders
shall have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholders to dissenters
rights.
(D) NOTICE OF DISSENTERS RIGHTS.--Unless otherwise provided by
statute, if a proposed corporate action that would give rise to dissenters
rights under this subpart is submitted to a vote at a meeting of shareholders,
there shall be included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair
value of their shares by complying with the terms of this subchapter;
and
(2) a copy of this subchapter.
(E) OTHER STATUTES.--The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
(F) CERTAIN PROVISIONS OF ARTICLES INEFFECTIVE.--This subchapter may
not be relaxed by any provision of the articles.
(G) CROSS REFERENCES.--See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
(S) 1572. DEFINITIONS
The following words and phrases when used in this subchapter shall
have the meanings given to them in this section unless the context clearly
indicates otherwise:
"CORPORATION." The issuer of the shares held or owned by the
dissenter before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation for
the purposes of this subchapter. The successor corporation in a division shall
have sole responsibility for payments to dissenters and other liabilities under
this subchapter except as otherwise provided in the plan of division.
D-2
<PAGE>
"DISSENTER." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed every
act required up to the time involved for the assertion of those rights.
"FAIR VALUE." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects, taking into
account all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"INTEREST." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
(S) 1573. RECORD AND BENEFICIAL HOLDERS AND OWNERS
(A) RECORD HOLDERS OF SHARES.--A record holder of shares of a
business corporation may assert dissenters rights as to fewer than all of the
shares registered in his name only if he dissents with respect to all the shares
of the same class or series beneficially owned by any one person and discloses
the name and address of the person or persons on whose behalf he dissents. In
that event, his rights shall be determined as if the shares as to which he has
dissented and his other shares were registered in the names of different
shareholders.
(B) BENEFICIAL OWNERS OF SHARES.--A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
(S) 1574. NOTICE OF INTENTION TO DISSENT
If the proposed corporate action is submitted to a vote at a meeting
of shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.
(S) 1575. NOTICE TO DEMAND PAYMENT
(A) GENERAL RULE.--If the proposed corporate action is approved by
the required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed corporate action is
to be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a notice of the adoption of the plan or other corporate action. In
either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to
obtain payment.
D-3
<PAGE>
(2) Inform holders of uncertificated shares to what extent
transfer of shares will be restricted from the time that demand for
payment is received.
(3) Supply a form for demanding payment that includes a request
for certification of the date on which the shareholder, or the person
on whose behalf the shareholder dissents, acquired beneficial
ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(B) TIME FOR RECEIPT OF DEMAND FOR PAYMENT.--The time set for receipt
of the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.
(S) 1576. FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
(A) EFFECT OF FAILURE OF SHAREHOLDER TO ACT.--A shareholder who fails
to timely demand payment, or fails (in the case of certificated shares) to
timely deposit certificates, as required by a notice pursuant to section 1575
(relating to notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
(B) RESTRICTION ON UNCERTIFICATED SHARES.--If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).
(C) RIGHTS RETAINED BY SHAREHOLDER.--The dissenter shall retain all
other rights of a shareholder until those rights are modified by effectuation of
the proposed corporate action.
(S) 1577. RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES
(A) FAILURE TO EFFECTUATE CORPORATE ACTION.--Within 60 days after the
date set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.
(B) RENEWAL OF NOTICE OF DEMAND PAYMENT.--When uncertificated shares
have been released from transfer restrictions and deposited certificates have
been returned, the corporation may at any later time send a new notice
conforming to the requirements of section 1575 (relating to notice to demand
payment), with like effect.
(C) PAYMENT OF FAIR VALUE OF SHARES.--Promptly after effectuation of
the proposed corporate action, or upon timely receipt of demand for payment if
the corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the
issuer of the shares held or owned by the dissenter for a fiscal year
ending not more than 16 months before the date of remittance or
notice together with the latest available interim financial
statements.
D-4
<PAGE>
(2) A statement of the corporation's estimate of the fair value
of the shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of
this subchapter.
(D) FAILURE TO MAKE PAYMENT.--If the corporation does not remit the
amount of its estimate of the fair value of the shares as provided by
subsection (c), it shall return any certificates that have been deposited
and release uncertificated shares from any transfer restrictions imposed by
reason of the demand for payment. The corporation may make a notation on
any such certificate or on the records of the corporation relating to any
such uncertificated shares that such demand has been made. If shares with
respect to which notation has been made shall be transferred, each new
certificate issued therefor or the records relating to any transferred
uncertificated shares shall bear a similar notation, together with the name
of the original dissenting holder or owner of such shares. A transferee of
such shares shall not acquire by such transfer any rights in the
corporation other than those that the original dissenter had after making
demand for payment of their fair value.
(S) 1578. ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES
(A) GENERAL RULE.--If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's shares as
permitted by section 1577(c) (relating to payment of fair value of shares)
and the dissenter believes that the amount stated or remitted is less than
the fair value of his shares, he may send to the corporation his own
estimate of the fair value of the shares, which shall be deemed a demand
for payment of the amount or the deficiency.
(B) EFFECT OR FAILURE TO FILE ESTIMATE.--Where the dissenter does not
file his own estimate under subsection (a) within 30 days after the mailing
by the corporation of its remittance or notice, the dissenter shall be
entitled to no more than the amount stated in the notice or remitted to him
by the corporation.
(S) 1579. VALUATION PROCEEDINGS GENERALLY
(A) GENERAL RULE.--Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578
(relating to estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
(B) MANDATORY JOINDER OF DISSENTERS.--All dissenters, wherever
residing, whose demands have not been settled shall be made parties to the
proceeding as in an action against their shares. A copy of the application shall
be served on each such dissenter. If a dissenter is a nonresident, the copy may
be served on
D-5
<PAGE>
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international
procedure)./1/
-
(C) JURISDICTION OF THE COURT.--The jurisdiction of the court shall
be plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(D) MEASURE OF RECOVERY.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(E) EFFECT OF CORPORATION'S FAILURE TO FILE APPLICATION.--If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.
(S) 1580. COSTS AND EXPENSES OF VALUATION PROCEEDINGS
(A) GENERAL RULE.--The costs and expenses of any proceeding under
section 1579 (relating to valuation proceedings generally), including the
reasonable compensation and expenses of the appraiser appointed by the court,
shall be determined by the court and assessed against the business corporation
except that any part of the costs and expenses may be apportioned and assessed
as the court deems appropriate against all or some of the dissenters who are
parties and whose action in demanding supplemental payment under section 1578
(relating to estimate by dissenter of fair value of shares) the court finds to
be dilatory, obdurate, arbitrary, vexatious or in bad faith.
(B) ASSESSMENT OF COUNSEL FEES AND EXPERT FEES WHERE LACK OF GOOD
FAITH APPEARS.--Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against the corporation
and in favor of any or all dissenters if the corporation failed to comply
substantially with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any other party, if
the court finds that the party against whom the fees and expenses are assessed
acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious manner in
respect to the rights provided in this subchapter.
(C) AWARD OF FEES FOR BENEFITS TO OTHER DISSENTERS.--If the court
finds that the services of counsel for any dissenter were of substantial benefit
to other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
_______________________
/1/42 Pa.C.S.A. (S) 5301 et. seq.
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D-6
<PAGE>
APPENDIX E
______________________, 1996
Buffalo Valley Telephone, Inc.
20 South Second Street
Lewisburg, PA 17837
Re: Agreement and Plan of Merger among Buffalo Valley Telephone Company,
Conestoga Enterprises, Inc., and CB Merger Corporation
-------------------------------------------------------------------
Gentlemen:
We have acted as special tax counsel to Buffalo Valley Telephone Company, a
Pennsylvania corporation ("BVT"), in connection with the proposed merger (the
"Merger") of BVT with and into CB Merger Corporation, a Pennsylvania corporation
("Merger Sub"), pursuant to the terms of the Agreement and Plan of Merger among
BVT, Conestoga Enterprises, Inc., a Pennsylvania corporation ("CEI"), and Merger
Sub dated as of October 18, 1995 (the "Merger Agreement"), and as further
described in the Registration Statement on Form S-4 filed by CEI with the
Securities and Exchange Commission (the "Registration Statement").
This opinion is being rendered pursuant to your request and in accordance with
the requirements of Form S-4 and Section 5.12(a) of the Merger Agreement. All
capitalized terms, unless otherwise specified, have the meaning assigned to them
in the Registration Statement.
In rendering the opinion set forth below, we have relied upon certain
written representations and covenants of CEI and of BVT ("Representation
Certificates"), as well as those representations set forth in Sections 2.25
and 3.12 of the Merger Agreement. In connection with this opinion, we have
examined and are familiar with originals or copies, certified or otherwise
identified to our satisfaction, of (i) the Merger Agreement, (ii) the
Representation Certificates, (iii) the Registration Statement, and (iv)
such other documents as we have deemed necessary or appropriate in order to
enable us to render the opinion below. In our examination, we have assumed
the genuineness of all signatures, the legal capacity of all natural
persons, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified, conformed or photostatic copies, and the authenticity of the
originals of such copies.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant.
Based upon and subject to the foregoing, and based upon our reliance on the
accuracy of the representations set forth in the Merger Agreement and
Representation Certificates and subject to the assumptions and
qualifications set forth herein, we are of the opinion that:
E-1
<PAGE>
Buffalo Valley Telephone
________________,1996
Page 2
1. The Merger will, under current law, constitute a tax-free reorganization
under Section 368(a) of the Code.
2. CEI, Merger Sub, and BVT will each be a party to the reorganization within
the meaning of Section 368(b) of the Code.
As a tax-free reorganization, the Merger will have the following Federal income
tax consequences for BVT shareholders, BVT, and CEI:
3. No gain or loss will be recognized by BVT (or by Merger Sub by reason of
being the successor to BVT) by reason of the Merger.
4. No gain or loss will be recognized by CEI by reason of its issuance of CEI
Series A Preferred Shares or CEI Common Shares pursuant to Section 1032 of the
Code.
5. The gain, if any, realized by a holder of BVT Common Shares upon receipt of
shares of CEI Series A Preferred Shares, CEI Common Shares and/or cash in
exchange for BVT Common Shares pursuant to the Merger will be recognized but not
in excess of the amount of cash received, and no loss will be recognized by
those holders of BVT Common Shares who exchange their BVT Common Shares solely
for shares of CEI Series A Preferred Shares and/or CEI Common Shares.
6. The basis of the CEI Series A Preferred Shares and/or CEI Common Shares to
be received by a holder of BVT Common Shares will be, in each instance, the same
as the basis of the BVT Common Shares surrendered in exchange therefor (but
reduced to the extent any cash received exceeds the amount of gain recognized)
and the holding period of the CEI Series A Preferred Shares or CEI Common Shares
to be received by a holder of BVT Common Shares will include the period during
which the BVT Common Shares surrendered in exchange therefor were held, provided
the BVT Common Shares were held as a capital asset by such BVT shareholder at
the Effective Time.
The opinions expressed in this opinion letter are limited to the matters set
forth herein and no other opinions should be inferred beyond those expressly
stated. Accordingly, except as expressly set forth above, we express no opinion
as to the tax consequences to any party, whether Federal, state, local or
foreign, of the Merger or of any transactions related to the Merger or
contemplated by the Merger Agreement or the Registration Statement. This opinion
letter is given as of the date hereof. We assume no obligation to update or
supplement this opinion to reflect facts or circumstances which may hereafter
come to our attention or any changes in laws which may hereafter occur.
This opinion is being furnished only to you in connection with the Merger and
solely for your benefit in connection therewith and may not be used or relied
upon for any other purpose and may not be circulated, quoted or otherwise
referred to for any purpose without our express written consent.
Notwithstanding the foregoing, we hereby consent to the use of this opinion as
Appendix E to the joint proxy statement/prospectus forming a part of the
Registration Statement. We also consent to all references to our firm in the
Registration Statement.
Very truly yours,
Morgan, Lewis & Bockius LLP
E-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 1741 and 1742 of the Pennsylvania Business Corporation Law of
1988, as amended (the "PBCL"), provide that a business corporation may indemnify
directors and officers against liabilities that they may incur as such provided
that the particular person acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. In the case of actions against
a director or officer by or in the right of the corporation, the power to
indemnify extends only to expenses (not judgments and amounts paid in
settlement) and such power generally does not exist if the person otherwise
entitled to indemnification shall have been adjudged to be liable to the
corporation unless it is judicially determined that, despite the adjudication of
liability but in view of all the circumstances of the case, the person is fairly
and reasonably entitled to indemnification for specified expenses. Under Section
1743 of the PBCL, the corporation is required to indemnify directors and
officers against expenses they may incur in defending actions against them in
such capacities if they are successful on the merits or otherwise in the defense
of such actions. Under Section 1745 of the PBCL, a corporation may pay the
expenses of a director or officer incurred in defending an action or proceeding
in advance of the final disposition thereof upon receipt of an undertaking from
such person to repay the amounts advanced unless it is ultimately determined
that such person is entitled to indemnification from the corporation.
Section 1746 of the PBCL grants a corporation broad authority to indemnify
its directors, officers and other agents for liabilities and expenses incurred
in such capacity, except in circumstances where the act or failure to act giving
rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness. Pursuant to the authority of
Section 1746 of the PBCL, the CEI Bylaws provide that in connection with any
action, suit or proceeding in which a person may be involved by reason of being
or having been a director, officer, employee or agent of CEI, the directors and
officers of CEI shall be indemnified to the fullest extent permitted by law,
except for liabilities arising under the Securities Act of 1933, as amended.
As authorized by Section 1747 of the PBCL, CEI maintains, on behalf of its
directors and officers, insurance protection against certain liabilities arising
out of the discharge of their duties, as well as insurance covering CEI for
indemnification payments made to its directors and officers for certain
liabilities. The premiums for such insurance are paid by CEI.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
(a) Exhibits:
Exhibit
Number Description
----- -----------
<C> <S>
2.1 Merger Agreement, dated as of October 18, 1995, by and among CEI, BVT
and CB Merger Corporation is Appendix A to the Joint Proxy
Statement/Prospectus included in Part I and is incorporated herein by
reference.
3.1 Articles of Incorporation of CEI. (1)
3.2 By-laws of CEI. (2)
4.1 Form of the CEI Series A Preferred Shares is contained as Exhibit A to the
Merger Agreement which is Appendix A to the Joint Proxy
Statement/Prospectus included in Part I and is incorporated herein by
reference.
5.1* Opinion of Miller and Murray regarding legality of the CEI Series A Preferred
Shares and CEI Common Shares being registered.
8.1** Opinion of Morgan, Lewis & Bockius LLP regarding tax matters is Appendix
E to the Joint Proxy Statement/Prospectus included in Part I and is
incorporated herein by reference.
12.1** Statement Regarding Calculation of Earnings to Fixed Charges and Preferred
Stock Dividends.
23.1* Consent of Miller & Murray (included in opinion filed as Exhibit 5.1 hereto).
23.2** Consent of Morgan, Lewis & Bockius LLP (included in its opinion attached as
Appendix E to the Joint Proxy Statement/Prospectus included in Part I and is
incorporated herein by reference).
23.3* Consent of Beard & Company, Inc. regarding CEI.
23.4* Consent of William P. Maslo regarding BVT.
23.5** Consent of Snyder & Company.
23.6** Consent of JSI Financial Services.
24.6* Powers of Attorney (included on the signature page).
99.1* Form of BVT Proxy.
99.2* Form of CEI Proxy.
_________________
</TABLE>
* Filed herewith.
**To be filed by amendment.
(1) Incorporated herein by reference to sequentially numbered pages 53-56 to
CEI's Annual Report on Form 10-K for the year ended December 31, 1992.
(2) Incorporated herein by reference to sequentially numbered pages 57-66
to CEI's Annual Report on Form 10-K for the year ended December 31,
1992.
II-2
<PAGE>
(b)Financial Statement Schedules:
None.
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(2) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated documents by
first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(3) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the
II-3
<PAGE>
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(6) The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Birdsboro,
Pennsylvania on December 22, 1995.
CONESTOGA ENTERPRISES, INC.
By: /s/ F. M. Brown
-------------------------
F. M. Brown
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. Each person whose
signature appears below in so signing also makes, constitutes and appoints
John R. Bentz, Albert H. Kramer and Donald R. Breitenstein, and each of
them acting alone, such person's true and lawful attorney-in-fact, with
full power of substitution, for such person in any and all capacities, to
execute and cause to be filed with the Securities and Exchange Commission
any or all amendments and post-effective amendments to this Registration
Statement, with exhibits thereto and other documents in connection
therewith, and hereby ratifies and confirms all that said attorney-in-fact
or his substitute or substitutes may do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Alvin W. Sponagle Chairman of the Board of December 22, 1995
- ----------------------------------------------
Alvin W. Sponagle Directors
/s/ F. M. Brown President and a Director December 22, 1995
- ----------------------------------------------
F. M. Brown
/s/ John R. Bentz Executive Vice President and December 22, 1995
- ----------------------------------------------
John R. Bentz a Director
/s/ James H. Murray Vice President and a Director December 22, 1995
- ----------------------------------------------
James H. Murray
/s/ Kenneth A. Benner Secretary/Treasurer and a December 22, 1995
- ----------------------------------------------
Kenneth A. Benner Director
/s/ Albert H. Kramer Vice President, Finance and December 22, 1995
- ----------------------------------------------
Albert H. Kramer Administration (principal
financial officer)
/s/ Donald R. Breitenstein Controller and a Director December 22, 1995
- ----------------------------------------------
Donald R. Breitenstein (principal accounting officer)
/s/ Emma F. Mullen Director December 22, 1995
- ----------------------------------------------
Emma F. Mullen
/s/ John M. Sausen Director December 22, 1995
- ----------------------------------------------
John M. Sausen
/s/ Richard G. Weidner Director December 22, 1995
- ----------------------------------------------
Richard G. Weidner
</TABLE>
S - 1
<PAGE>
EXHIBIT 5.1
<PAGE>
MILLER AND MURRAY
Attorneys at Law
542 Court Street
P.O. Box 942
Reading, Pennsylvania 19603-0942
Telephone: (610) 376-6651
Telecopier:(6100 376-5243
December 22, 1995
Conestoga Enterprises, Inc.
202 East First Street
Birdsboro, Pennsylvania 19508
Re: Conestoga Enterprises, Inc. (the "Company) and Buffalo Valley
Telephone Company ("BVT") Registration Statement on Form S-4
---------------------------------------------------------------
Gentlemen:
We have acted as counsel for the Company, a Pennsylvania corporation,
in connection with the preparation of a registration statement on Form S-4
(the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended (the "Act"),
relating to the proposed Agreement and Plan of Merger dated October 18,
1995 ("Merger Agreement") by and among the Company, BVT and CB Merger
Corporation, a wholly owned subsidiary of the Company whereby the Company
will offer up to 899,154 shares of Company Series A Convertible Preferred
Stock, par value $65.00 per share, and up to 2,349,787 shares of Company
Common Stock, par value $5 per share, to the BVT shareholders under the
Merger Agreement. In connection thereto, we have reviewed (a) the
Registration Statement; (b) the Company's Articles of Incorporation and By-
Laws; and (c) a copy of the Merger Agreement. Our opinion, as set forth
below is limited to the Pennsylvania Business Corporation Law of 1988, as
amended.
In our opinion, the issuance of the shares of Company Series A
Convertible Preferred Stock and Company Common Stock in connection with the
Merger Agreement will be legal and enforceable. This opinion is
conditioned upon approval of the following proposals by the shareholders of
the Company:
(a) amendment of the Company's Articles of Incorporation to
authorize a class of 900,000 shares of Company Series A Preferred
Preferred Stock; and
(b) approval of the issuance of Series A Convertible Preferred
Stock and Common Stock of the Company in the merger of BVT into a
subsidiary of the Company.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement. The opinion expressed herein is for the sole benefit of,
and may be relied upon, only by the Company.
Very truly yours,
Miller and Murray
<PAGE>
EXHIBIT 23.3
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement on Form S-4 of our report,
dated January 20, 1995, relating to the consolidated financial statements of
Conestoga Enterprises, Inc. and subsidiaries, and to the reference to our Firm
under the caption "Experts."
Beard & Company, Inc.
Reading, Pennsylvania
December 19, 1995
<PAGE>
EXHIBIT 23.4
<PAGE>
CONSENT OF INDEPENDENT AUDITOR
I hereby consent to the use in this Registration Statement on Form S-4 of
Conestoga Enterprises, Inc. of my independent auditor's reports (i) dated
February 24, 1995 on my audit of the financial statements of Buffalo Valley
Telephone Company as of December 31, 1994 and 1993 and the years ended December
31, 1994 and 1993, and (ii) dated February 17, 1994 on my audit of the financial
statements of Buffalo Valley Telephone Company as of December 31, 1993 and 1992
and the years ended December 31, 1993 and 1992. I also consent to the reference
to me under the caption "Experts."
William R. Maslo
Reading, Pennsylvania
December 20, 1995
<PAGE>
EXHIBIT 99.1
<PAGE>
REVOCABLE PROXY
BUFFALO VALLEY TELEPHONE COMPANY
SPECIAL MEETING OF SHAREHOLDERS
___________________, 1996
The undersigned hereby appoints David E. Lynn, ___________ and Fitz R.
Walling, with full powers of substitution, to act as attorneys and proxies for
the undersigned, to vote all shares of the common stock of Buffalo Valley
Telephone Company which the undersigned is entitled to vote at the Special
Meeting of Shareholders, to be held at the Country Cupboard Inn, Route 15 North,
Lewisburg, Pennsylvania 17837 on Saturday, ________________ at 10:00 a.m., local
time, and at any and all adjournments thereof, as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C> <C>
1. The approval of an Agreement and Plan of Merger [_] [_] [_]
(the "Merger Agreement") among Buffalo Valley
Telephone Company, Conestoga Enterprises, Inc.
and CB Merger Corporation.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED
PROPOSITIONS.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED "FOR" OF THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, INCLUDING MATTERS RELATING TO THE CONDUCT OF THE
MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST
JUDGMENT; PROVIDED, HOWEVER THAT IF THIS PROXY IS VOTED AGAINST MERGER
--------
AGREEMENT, THIS PROXY MAY NOT BE VOTED IN FAVOR OF A PROPOSAL TO ADJOURN THE
SPECIAL MEETING SO THAT ADDITIONAL VOTES IN FAVOR OF THE MERGER AGREEMENT
MAY BE SOLICITED. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned may revoke this proxy prior to its exercise by filing
a subsequent proxy or a duly executed revocation with the Secretary.
The undersigned acknowledges receipt from Buffalo Valley Telephone
Company prior to the execution of this proxy of notice of the Meeting and a
Joint Proxy Statement/Prospectus dated _____________, 1996
Dated: __________________, 1996
_____________________________ ______________________________
PRINT NAME OF SHAREHOLDER PRINT NAME OF SHAREHOLDER
_____________________________ ________________________________
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
Please sign exactly as your name appears on the enclosed card. When signing as
attorney, executor, adminis trator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
<PAGE>
EXHIBIT 99.2
<PAGE>
REVOCABLE PROXY
CONESTOGA ENTERPRISES, INC.
SPECIAL MEETING OF SHAREHOLDERS
________________, 1996
The undersigned hereby appoints _____________, ____________ and
__________, with full powers of substitution, to act as attorneys and proxies
for the undersigned, to vote all shares of the common stock of Conestoga
Enterprises, Inc., which the undersigned is entitled to vote at the Special
Meeting of Shareholders, to be held at the offices of the Company, 202 East
First Street, Birdsboro, Pennsylvania 19508 on Saturday, ________________ at
10:00 a.m., local time, and at any and all adjournments thereof, as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C> <C>
1. The approval of an amendment to the Articles of [_] [_] [_]
Incorproation of Conestoga Enterprises, Inc. to
authorize as a class of preferred stock 900,000
shares of the Series A Convertible Preferred
Stock, par value $65.00 per share
2. The issuance of preferred stock and common
stock of Conestoga Enterprises, Inc. pursuant to [_] [_] [_]
the Agreement and Plan of Merger (the "Merger
Agreement") among Buffalo Valley Telephone
Company, Conestoga Enterprises, Inc. and CB
Merger Corporation.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED
PROPOSITIONS.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED "FOR" OF THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, INCLUDING MATTERS RELATING TO THE CONDUCT OF THE
MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST
JUDGMENT; PROVIDED, HOWEVER THAT IF THIS PROXY IS VOTED AGAINST EITHER OF THE
--------
ABOVE-REFERENCED PROPOSALS, THIS PROXY MAY NOT BE VOTED IN FAVOR OF A PROPOSAL
TO ADJOURN THE SPECIAL MEETING SO THAT ADDITIONAL VOTES IN FAVOR OF SUCH
PROPOSALS MAY BE SOLICITED. AT THE PRESENT TIME, THE BOARD OF DIRECCTORS KNOWS
OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned may revoke this proxy prior to its exercise by filing
a subsequent proxy or a duly executed revocation with the Secretary.
The undersigned acknowledges receipt from Conestoga Enterprises, Inc.
prior to the execution of this proxy of notice of the Meeting and a Joint
Proxy Statement/Prospectus dated _____________, 1996
Dated: ______________________, 1996
______________________________ ____________________________
PRINT NAME OF SHAREHOLDER PRINT NAME OF SHAREHOLDER
______________________________ ____________________________
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
Please sign exactly as your name appears on the enclosed card. When
signing as attorney, executor, adminis trator, trustee or guardian, please
give your full title. If shares are held jointly, each holder should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
