CONESTOGA ENTERPRISES INC, S-4, 1999-12-16

CONESTOGA ENTERPRISES INC
S-4, 1999-12-16
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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As filed with the Securities and Exchange Commission on December , 1999

Registration No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

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FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

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CONESTOGA ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)

Pennsylvania 6719 23-2565087
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification No.)
organization)

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)

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ALBERT H. KRAMER
President
202 East First Street
Birdsboro, PA 19508
(610) 582-6204
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

Copies to:

JOHN S. HIBSCHMAN, ESQUIRE DAVID S. ANTZIS, ESQUIRE
Barley, Snyder, Senft & Cohen, LLC Saul, Ewing, Remick & Saul, LLP
501 Washington Street, Fifth Floor 1055 Westlakes Drive
P.O. Box 942 Berwyn, PA 19312
Reading, PA 19603-0942 (610) 251-5055
(610) 376-6651

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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 TeleBeam, Incorporated 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. [_]

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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed Proposed
Title of Each Class of Amount Maximum Maximum
Security Being Being Offering Price Aggregate Amount of
Registered Registered Per Share(1) Offering Price(1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, $1.00 Par
Value................. 900,000 $0.43 $387,000 $102.17
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</TABLE>
(1) Based on the book value of all of the outstanding shares of TeleBeam,
Incorporated for which Registrant is offering to exchange the shares being
registered, as of September 30, 1999, as required by Rule 457(f)(2).

----------------

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.

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<PAGE>

[CONESTOGA LOGO] [TELEBEAM LOGO]

Proxy Statement/Prospectus

Preliminary Proxy Statement/Prospectus

The information in this proxy statement/prospectus is not complete and may
be changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This proxy
statement/prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.

TELEBEAM, INCORPORATED
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
,

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CONESTOGA ENTERPRISES, INC.
PROSPECTUS FOR
A MAXIMUM OF 900,000 SHARES OF CONESTOGA COMMON STOCK
NASDAQ National Market Symbol: CENI

This proxy statement/prospectus is being furnished to holders of common
stock of TeleBeam, Incorporated, a Delaware corporation, in connection with
the solicitation of proxies by TeleBeam's Board of Directors for use at a
special meeting of shareholders to be held at The Sleep Inn, 111 Village
Drive, State College, Pennsylvania 16801, on Monday, at 10:00 a.m.,
local time. At the TeleBeam special meeting, TeleBeam shareholders will be
asked to consider and vote upon the following proposals:

2. To transact such other business as may properly come before the
TeleBeam special meeting or any adjournment or postponement thereof.

TeleBeam shareholders should carefully consider the information under "Risk
Factors" beginning on page 20 of this proxy statement/prospectus in
determining how to vote with respect to the matters to be considered at the
TeleBeam special meeting and whether to exercise appraisal rights.

This proxy statement/prospectus also constitutes a prospectus of Conestoga
filed as part of a registration statement filed with the Securities and
Exchange Commission relating to 900,000 shares of Conestoga common stock being
registered for this transaction. This proxy statement/prospectus does not
cover any resales of the Conestoga common stock being registered for this
transaction by any shareholders deemed to be affiliates of TeleBeam or
Conestoga. We have not authorized any person to make use of this proxy
statement/prospectus in connection with any such resale.

Conestoga supplied all information contained in this proxy
statement/prospectus with respect to Conestoga and its subsidiaries. TeleBeam
supplied all information with respect to TeleBeam.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the Conestoga common stock to be
issued under this proxy statement/prospectus or passed upon the adequacy or
accuracy of this proxy statement/prospectus. Any representation to the
contrary is a criminal offense.

This proxy statement/prospectus and the accompanying proxy cards and notice
of special meeting are first being mailed to shareholders of TeleBeam on or
about .

The date of this proxy statement/prospectus is .

You should rely only on the information contained in this document or that
this document has referred you to. We have not authorized anyone to provide
you with information that is different. You should not assume that the
information in this proxy statement/prospectus is accurate as of any date
other than the date on the front of the document.
<PAGE>

[TELEBEAM LOGO]

Dear Shareholder:

The Boards of Directors of TeleBeam, Incorporated and Conestoga Enterprises,
Inc. have agreed to merge TeleBeam with a wholly-owned subsidiary of
Conestoga. We estimate that the shares of Conestoga common stock to be issued
to TeleBeam shareholders will represent approximately 9.42% of the outstanding
Conestoga common stock after the merger.

In the merger, TeleBeam shareholders will have the right to receive
approximately .096 shares of Conestoga common stock for each share of TeleBeam
common stock they own. In lieu of receiving Conestoga common stock, TeleBeam
shareholders have appraisal rights. TeleBeam shareholders who properly demand
these rights will receive cash for the fair value of the TeleBeam common stock
that they held before the merger. The fair value would be determined by a
court or by agreement between TeleBeam and its shareholders who exercise their
appraisal rights.

The merger cannot be completed unless the holders of a majority of the
shares of TeleBeam common stock vote to approve the merger agreement and the
merger. Your vote is very important.

We have scheduled a special meeting for the TeleBeam shareholders to vote on
the matters described in this document. The date, time and place of this
special meeting are as follows:

Monday, ,
10:00 a.m., local time
The Sleep Inn
111 Village Drive
State College, Pennsylvania 16801

Whether or not you plan to attend the meeting, please take the time to vote
on the merger by completing and mailing the enclosed proxy card to us. If you
sign, date and mail your proxy card without indicating how you wish to vote,
your proxy will be counted as a vote in favor of the merger. The Board of
Directors unanimously recommends that you vote "FOR" approval of the merger.

This proxy statement/prospectus provides you with detailed information about
the proposed merger. Conestoga provided the information concerning Conestoga.
TeleBeam provided the information concerning TeleBeam. We encourage you to
read this entire document carefully, including the matters referred to under
"Risk Factors" beginning at page 20.

Sincerely,

Ara M. Kervandjian
Chairman of the Board, President
and Chief Executive Officer

We are first mailing this proxy statement/prospectus, notice of special
meeting and forms of proxy on or about , .
<PAGE>

TELEBEAM, INCORPORATED
467 EAST BEAVER AVENUE
STATE COLLEGE, PENNSYLVANIA 16801
(814) 238-0000

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ,

TO THE SHAREHOLDERS OF TELEBEAM, INCORPORATED

NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of
TeleBeam, Incorporated, a Delaware corporation, will be held on Monday ,
at 10:00 a.m., local time at The Sleep Inn, 111 Village Drive, State College,
Pennsylvania 16801 to consider and vote upon the following proposals:

1. To approve the Amended and Restated Agreement and Plan of Merger
between TeleBeam and Conestoga Enterprises, Inc. If the merger is
completed, TeleBeam will become a wholly-owned subsidiary of Conestoga, and
the shareholders of TeleBeam will become shareholders of Conestoga. A copy
of the merger agreement is attached as Appendix A to the proxy
statement/prospectus accompanying this notice; and

2. To transact such other business as may properly come before the
TeleBeam special meeting or any adjournment or postponement of the meeting.

Shareholders of record at the close of business on , are entitled to
notice of, and to vote at, the TeleBeam special meeting and any adjournments
or postponements of that meeting.

All shareholders are cordially invited to attend the TeleBeam special
meeting in person. Whether or not you expect to attend, we urge you to sign
and date the enclosed proxy card and return it promptly in the envelope
provided. Returned proxies which do not contain voting instructions will be
voted "FOR" approval of the merger.

TeleBeam shareholders are entitled to demand statutory appraisal rights with
respect to the merger. To exercise such rights, TeleBeam shareholders must
provide a written demand for appraisal of their shares before the vote at the
TeleBeam special meeting. The Board of Directors unanimously recommends that
you vote "FOR" approval of the merger.

By order of the Board of Directors,

Melinda K. Kenepp
Secretary

State College, Pennsylvania
,

Important: Please sign, date and complete the enclosed proxy card. The
prompt return of proxies will save TeleBeam the expense of further requests
for proxies to ensure a quorum. A self-addressed stamped envelope is enclosed
for your convenience. No additional postage is required if mailed in the
United States.
<PAGE>

TABLE OF CONTENTS

<TABLE>
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Page
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<S> <C>
SUMMARY................................................................... 1
The Companies............................................................. 1
The TeleBeam Special Meeting of Shareholders.............................. 2
General................................................................. 2
Matters to be Considered at the Special Meeting......................... 2
Record Date; Shares Outstanding; Quorum; Vote Required.................. 2
The Merger................................................................ 3
Terms of the Merger..................................................... 3
Recommendation of the TeleBeam Board of Directors....................... 3
Conditions to the Merger................................................ 3
Effective Time.......................................................... 4
Termination; Waiver; Amendment.......................................... 4
Fees and Expenses....................................................... 4
Appraisal Rights........................................................ 5
Certain Federal Income Tax Consequences................................. 5
Accounting Treatment.................................................... 6
Interest of Certain Persons in the Merger............................... 6
Comparison of Shareholder Rights........................................ 6
Selected Historical Financial Data........................................ 7
Unaudited Pro Forma Combined Selected Financial Data.................... 9
Comparative Per Share Data.............................................. 10
Market Price Data....................................................... 11

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.............. 12

RISK FACTORS.............................................................. 20
Risks Relating to the Merger............................................ 20
Risks Relating to the Combined Company.................................. 20

THE TELEBEAM MEETING...................................................... 25
General................................................................. 25
Matters to be considered at the TeleBeam Meeting........................ 25
TeleBeam Record Date; Shares Outstanding; Quorum........................ 25
Vote Required........................................................... 25
Effect of Abstentions................................................... 26
Voting, Revocation and Solicitation of Proxies.......................... 26

THE MERGER................................................................ 27
Background of the Merger................................................ 27
Merger Negotiations..................................................... 30
TeleBeam's Reasons for the Merger; Recommendation of the TeleBeam Board
of Directors........................................................... 31
Conestoga's Reasons for the Merger...................................... 32
Terms of the Merger..................................................... 33
Interest of Certain Persons in the Merger............................... 39
Accounting Treatment.................................................... 39
Certain Federal Income Tax Consequences................................. 39
Appraisal Rights........................................................ 40
Steps to Properly Exercise Appraisal Rights............................. 40

RESALE RESTRICTIONS....................................................... 42
</TABLE>

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<TABLE>
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Page
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DESCRIPTION OF CAPITAL STOCK OF CONESTOGA................................. 42
Conestoga Common Stock.................................................. 42
Conestoga $3.42 Series A Preferred Shares............................... 43
Pennsylvania Anti-Takeover Law Provisions............................... 47

COMPARISON OF SHAREHOLDER RIGHTS.......................................... 48
Introduction............................................................ 48
Size of the Board of Directors.......................................... 48
Classified Board of Directors........................................... 48
Cumulative Voting....................................................... 48
Removal of Directors.................................................... 49
Filling Vacancies on the Board of Directors............................. 49
Interested Director Transactions........................................ 49
Limitations on Directors' Liability..................................... 49
Indemnification of Directors and Officers............................... 50
Voting Rights Generally................................................. 50
Amendments to the Certificate of Incorporation and Articles of
Incorporation.......................................................... 51
Amendment of Bylaws..................................................... 51
Power to Call Special Shareholders' Meeting............................. 51
Notice of Shareholders' Meeting......................................... 51
Quorum Requirements and Adjournment of Meetings......................... 51
Action by Consent....................................................... 52
Inspection of Shareholders' List........................................ 52
Dividends and Repurchases of Shares..................................... 52
Approval of Certain Corporate Transactions.............................. 53
Business Combination Following a Change of Control...................... 53
Shareholder Derivative Suits............................................ 54
Appraisal Rights........................................................ 54
Dissolution............................................................. 55
Pre-emptive Rights...................................................... 55

BUSINESS OF TELEBEAM...................................................... 56
Description of Business................................................. 56
Management.............................................................. 57
Compensation of Directors............................................... 59
Security Ownership of Certain Beneficial Owners and Management of
TeleBeam............................................................... 60
Executive Compensation.................................................. 61

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 62
General................................................................. 62
Revenues................................................................ 62
Costs................................................................... 62
Results of Operations................................................... 64
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998..................................................... 64
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997... 65
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996... 66
Liquidity and Capital Resources......................................... 67
New Accounting Pronouncements........................................... 68
Impact of Year 2000..................................................... 68
</TABLE>

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Impact of Inflation...................................................... 69
Seasonality.............................................................. 69

MARKET RISK................................................................ 70

EXPERTS.................................................................... 70

LEGAL OPINIONS............................................................. 70

WHERE YOU CAN FIND MORE INFORMATION........................................ 71

FINANCIAL STATEMENTS OF TELEBEAM........................................... F-1
</TABLE>

APPENDIX A--AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
APPENDIX B--PROVISIONS REGARDING APPRAISAL RIGHTS

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SUMMARY

This summary is not intended to contain all of the information in the proxy
statement/prospectus. It is intended to be a summary of the most significant
aspects of the merger. The remainder of the proxy statement/ prospectus and its
appendices contain more detailed information regarding the merger. We urge you
to read the entire proxy statement/prospectus, including the appendices, in
order to understand the transaction fully.

The Companies

Conestoga Enterprises, Inc.
202 East First Street
Birdsboro, Pennsylvania 19508
(610) 582-8711

Conestoga Enterprises, Inc., a Pennsylvania Corporation, is a holding company
with wholly-owned subsidiaries engaged in various aspects of the
telecommunications business. Each of Conestoga's operating subsidiaries is
briefly described below:

Conestoga Telephone and Telegraph Company:

. 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 with an estimated population of 120,400 persons;

. provides service to approximately 56,000 access lines; and

. owns a 10% interest in a partnership that provides Internet and
similar computer services in Pennsylvania, east of the Susquehanna
River.

Buffalo Valley Telephone Company:

. provides local telephone service to Union and Northumberland
Counties in Central Pennsylvania with an estimated population of
32,000 persons; and

. provides service to approximately 22,000 access lines.

Conestoga Communications, Inc.:

. provides long distance services to approximately 23,000 customers;
and

. provides local telephone services, as a competitive local exchange
company, to approximately 3,730 customers outside of the franchise
telephone territory of Conestoga Telephone and Telegraph Company.

Conestoga Mobile Systems, Inc.:

. provides wireless paging services to approximately 6,000 customers.

Infocore, Inc.:

. provides services involving the design, installation and management
of telecommunications systems, including the sale of
telecommunications equipment.

Conestoga Wireless Company:

. holds licenses from the Federal Communications Commission to
provide wireless telephone services, known as personal
communications services, in the Reading, Pottsville, Williamsport,
Sunbury and State College, Pennsylvania basic trading areas as
defined by the Federal Communications Commission; and

. provides wireless telephone services to approximately 8,700
subscribers in these areas.

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TeleBeam, Incorporated
467 East Beaver Avenue
State College, Pennsylvania 16801
(814) 238-0000

TeleBeam, Incorporated, a Delaware corporation, is a diversified
telecommunications services company, which provides its services primarily to
businesses and mutiple-dwelling unit residential customers in less competitive,
non-metropolitan markets throughout eastern and central Pennsylvania. TeleBeam
provides a variety of individual and bundled services to its customers,
including:

. long distance voice services;

. Internet access and high-speed data transport;

. video; and

. other enhanced communication services.

TeleBeam has one wholly-owned subsidiary, TeleBeam USA, Inc., which owns all
of the intellectual property rights, including trademarks, registered marks and
service marks of TeleBeam.

The TeleBeam Special Meeting of Shareholders

General

The Board of Directors of TeleBeam has called a special meeting of
shareholders to be held on , , at 10:00 a.m., local time, at The Sleep
Inn, 111 Village Drive, State College, Pennsylvania 16801.

Matters to be Considered at the Special Meeting

The main purpose of the meeting is to vote on the acquisition by merger of
TeleBeam by Conestoga.

Record Date; Shares Outstanding; Quorum; Vote Required

Only shareholders whose ownership appears on the shareholders record of
TeleBeam at the close of business on , the record date, will be able to
attend and vote at the special meeting. As of the close of business on the
record date, shares of TeleBeam common stock were outstanding and entitled
to vote at the special meeting. In order for the vote taken at the meeting to
be valid, the holders of at least a majority of the common stock entitled to
vote at the meeting must be present in person or represented by proxy. The
holders of a majority of shares of TeleBeam common stock entitled to vote at
the special meeting must vote to approve the merger. If 10% or more of the
outstanding shares of TeleBeam common stock properly exercise their appraisal
rights, however, Conestoga is not obligated to consummate the merger.

As of the record date, directors and executive officers of TeleBeam owned
approximately shares of TeleBeam common stock that would be entitled to vote
at the special meeting. Management believes the directors and executive
officers of TeleBeam intend to vote all of these shares in favor of approval of
the merger.

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The Merger

Terms of the Merger

The proposed transaction provides for TeleBeam to be merged with a wholly-
owned subsidiary of Conestoga. The combined entities will continue to conduct
the business formerly conducted by TeleBeam following the merger. You, as a
shareholder of TeleBeam, will become a shareholder of Conestoga when the merger
is complete.

TeleBeam shareholders will not receive any fractional shares of Conestoga
common stock in the merger. Instead, Conestoga will issue a cash payment for
any fractional shares of TeleBeam common stock that a TeleBeam shareholder
would be entitled to receive in the merger. All together, Conestoga will issue
735,000 shares of Conestoga common stock in this transaction. However, if the
market price of Conestoga common stock for a ten-day period shortly before the
merger is completed is less than $18.085 per share, the total number of shares
of Conestoga common stock issued in the merger will increase, calculated as
follows:

$18.085 divided by the market price and multiplied by 735,000.

If the market price of Conestoga common stock for a ten-day period shortly
before the merger is greater than $21.085 per share, the total number of shares
of Conestoga common stock to be issued will be decreased, calculated as
follows:

$21.085 divided by the market price and multiplied by 735,000.

If the price of Conestoga common stock falls below $15.00 per share for a ten-
day period shortly before the merger is completed, TeleBeam may choose not to
consummate the merger.

TeleBeam shareholders should not forward stock certificates for TeleBeam
common stock to Conestoga or TeleBeam until they have received a return
instruction form. TeleBeam shareholders should not return stock certificates
with the enclosed proxy card.

Recommendation of the TeleBeam Board of Directors

The consideration to be received by holders of TeleBeam common stock in the
merger was negotiated by the TeleBeam Board of Directors in light of various
factors, including TeleBeam's and Conestoga's recent operating results, current
financial condition and perceived future prospects. The Board of Directors of
TeleBeam believes that the merger is in the best interests of TeleBeam
shareholders, has unanimously approved the merger agreement and recommends that
TeleBeam's shareholders vote "for" approval of the merger.

Conditions to the Merger

The merger is subject to various conditions, including:

. approval of the merger by the shareholders of TeleBeam;

. satisfaction of various conditions set forth in the Amended and Restated
Agreement and Plan of Merger, a copy of which is attached to this
document as Appendix A, including the exercise of appraisal rights by
holders of not more than 10% of the TeleBeam common stock;

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. execution of employment agreements with TeleBeam by the following
officers of TeleBeam for their continued employment after the merger:

<TABLE>
<C> <S>
Ara M. Kervandjian President and Chief Executive Officer;

Heidi A. Nicholas Senior Vice President of Finance and Chief Financial
Officer;

Mark J. Fetterolf Senior Vice President of Operations;

Jeffery C. Almoney Senior Vice President and Chief Technology and
Information Officer;

Troy A. Knecht Vice President of Technical Operations; and
</TABLE>

. approval of the merger by the Federal Trade Commission and Department of
Justice pursuant to the requirements of the Hart-Scott-Rodino Act, which
has been granted.

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.

Termination; Waiver; Amendment

The Board of Directors of both Conestoga and TeleBeam can jointly agree to
terminate the merger agreement at any time without completing the merger. In
addition, either Conestoga or TeleBeam can terminate the merger agreement if:

. the merger has not become effective on or before June 30, 2000, with
limited exceptions; or

. the other company materially breaches any representation, warranty,
covenant or agreement made by it. A material failure, in the case of
TeleBeam, means a failure which has a negative economic effect on
TeleBeam of more than $200,000 per single event or occurrence.

In addition, TeleBeam's Board of Directors may request to terminate the
agreement pursuant to its fiduciary obligations (subject to its obligations to
pay the break-up fee described below) if a third party makes an offer to
acquire TeleBeam's stock or assets which the TeleBeam Board concludes is more
favorable to the TeleBeam shareholders than the currently proposed merger.

Prior to the merger becoming effective, any provision of the merger agreement
may be waived or amended under certain circumstances, as set forth in the
merger agreement.

Fees and Expenses

Except as described below, whether or not the merger is completed, all costs
and expenses incurred in connection with the merger agreement will be paid by
the party that incurred the cost.

In certain instances, TeleBeam will pay Conestoga a break-up fee in the
amount of $250,000, as follows:

1. If Conestoga terminates the merger agreement in the following
circumstances:

. TeleBeam's representations and warranties contained in the merger
agreement are not true and correct in all material respects when
made or as of the date the transaction is consummated; or

. TeleBeam fails to perform in all material respects all obligations
and comply in all material respects with all agreements,
undertakings, covenants and conditions required by the merger
agreement to be performed or complied with by it at or prior to the
date the merger becomes effective;

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2. If TeleBeam terminates the merger agreement in order to accept a
better acquisition offer; or

3. If either Conestoga or TeleBeam terminates the merger agreement
because the TeleBeam shareholders fail to approve the merger.

In the following two instances, Conestoga will pay TeleBeam a break-up fee in
the amount of $250,000 plus a reimbursement of $110,000 to TeleBeam to cover a
terminated transaction expense:

1. If Conestoga's representations and warranties contained in the merger
agreement are not true and correct in all material respects when made or as
of the date the merger is consummated; or

2. If Conestoga fails to perform in all material respects all obligations
and comply in all material respects with all agreements, undertakings,
covenants and conditions required by the merger agreement to be performed
or complied with by Conestoga at or prior to the date of the merger.

Conestoga has paid $45,000 as the filing fee for an application for approval
of the merger by the Federal Trade Commission and Department of Justice under
the Hart-Scott-Rodino Act.

Appraisal Rights

Under the Delaware General Corporation Law, you have the right to object to
the merger and receive cash for the fair value of the TeleBeam common stock you
held before the merger if the merger is completed. However, in order to
preserve your appraisal rights, you must follow certain required steps. The
first required step is voting against approval of the merger. The steps are
explained in more detail at "THE MERGER--Appraisal Rights." In this merger,
Conestoga shareholders are not entitled to vote for or against the merger and
they do not have appraisal rights.

Certain Federal Income Tax Consequences

We structured the merger to qualify as a tax-free reorganization under the
Internal Revenue Code of 1986, as amended. As a result, it is anticipated that
TeleBeam will recognize no gain or loss due to the merger. Except for any cash
received in lieu of fractional shares, no gain or loss will be recognized by
holders of TeleBeam common stock who only receive Conestoga common stock in
exchange for shares of TeleBeam. TeleBeam shareholders who receive cash for
fractional shares will recognize taxable gain or loss upon the receipt of
Conestoga stock in exchange for TeleBeam stock based on the amount of cash
received. The basis of the Conestoga common stock received by a TeleBeam
shareholder will generally be the same as the basis of the shares of TeleBeam
common stock that were exchanged.

Holders of TeleBeam stock options who have not exercised such options prior
to the closing date of the merger will receive Conestoga common stock equal to
the deemed value of such holders' TeleBeam stock options. Such option holders
shall be considered as receiving ordinary income equal to the fair market value
of the Conestoga common stock received.

TeleBeam's and Conestoga's obligation to consummate the merger is conditioned
upon receipt of an opinion of Saul, Ewing, Remick & Saul, LLP, tax counsel to
TeleBeam, substantially to the effect that the federal income tax consequences
of the merger are as summarized above.

You are encouraged to consult your own tax advisor about particular facts and
circumstances that may be unique to you and not common to TeleBeam 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 Conestoga
common stock received in the merger.

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Accounting Treatment

We intend for the merger to be accounted for as a pooling of interests, which
means that we will treat our companies as if they had previously been combined
for accounting and financial reporting purposes.

Interest of Certain Persons in the Merger

Certain directors and officers of TeleBeam have interests in the merger that
are in addition to their interests as shareholders of TeleBeam generally. These
include the employment agreements between TeleBeam and certain executive
officers (Ara M. Kervandjian, Heidi A. Nicholas, Mark J. Fetterolf, Jeffery C.
Almoney and Troy A. Knecht).

Comparison of Shareholder Rights

When the merger is completed, you will become a shareholder of Conestoga. The
rights of shareholders of Conestoga are governed by the Pennsylvania Business
Corporation Law and by the Conestoga Articles of Incorporation and bylaws. The
rights of common shareholders of Conestoga differ from the rights of holders of
TeleBeam common stock with respect to certain matters.

6
<PAGE>

Selected Historical Financial Data

The following table presents selected historical financial data for Conestoga
and TeleBeam. The selected financial data set forth below for Conestoga for
each of the years in the five-year period ended December 31, 1998, and the nine
months ended September 30, 1998 and 1999, and for TeleBeam for each of the
years in the five-year period ended December 31, 1998 and the nine months ended
September 30, 1998 and 1999, are derived from the financial statements of
Conestoga and TeleBeam, respectively. The historical financial information is
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. Information regarding Conestoga and TeleBeam has been provided by
those companies, respectively.

Selected Historical Financial Data
(in thousands, except per share data)

Conestoga:
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating revenues................. $ 62,833 $ 56,185 $ 42,899 $32,553 $31,703
Net income......................... 10,352 9,314 8,506 6,531 6,294
Basic earnings per common
share(1).......................... 1.39 1.25 1.27 1.13 1.09
Diluted earnings per common
share(1).......................... 1.38 1.25 1.27 1.13 1.09
Dividends per common share(1)...... .814 .806 .800 .800 .740
Total assets....................... 150,609 129,290 119,852 58,595 55,799
Long-term debt and redeemable
preferred stock, net of current
maturities........................ 52,969 36,030 39,998 4,645 5,035
Net book value per common
share(1).......................... 10.73 10.15 9.32 7.29 6.92
</TABLE>

<TABLE>
<CAPTION>
At or For the
Nine Months Ended
September 30,
-----------------
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
Operating revenues.......................................... $ 52,277 $ 46,785
Net income.................................................. 3,370 9,420
Basic earnings per common share(1).......................... .42 1.28
Diluted earnings per common share(1)........................ .42 1.26
Dividends per common share(1)............................... .623 .610
Total assets................................................ 149,067 148,091
Long-term debt and redeemable preferred stock, net of
current maturities......................................... 48,704 53,465
Net book value per common share............................. 10.70 10.67
</TABLE>
- --------
(1) Per share data has been adjusted to reflect a 3 for 2 stock split payable
to Conestoga shareholders of record as of April 15, 1999, and a 5% stock
dividend paid to Conestoga shareholders of record as of January 31, 1995.

7
<PAGE>

Selected Historical Financial Data
(in thousands, except per share data)

TeleBeam:
<TABLE>
<CAPTION>
At or For the Year Ended December
31,
-----------------------------------
1998(1) 1997 1996 1995 1994
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating revenues........................ $14,515 $3,120 $2,923 $1,971 $1,163
Net income................................ 330 162 138 112 72
Basic earnings per common share........... .05 .03 .05 .04 .03
Diluted earnings per common share......... .05 .03 .04 .04 .03
Dividends per common share................ -- -- -- -- --
Total assets.............................. 19,288 3,772 2,987 1,809 1,139
Long-term debt, net of current
maturities............................... 12,387 5 443 728 429
Net book value per common share........... .48 .38 .34 .25 .18
</TABLE>

<TABLE>
<CAPTION>
At or For the
Nine Months
Ended
September 30,
----------------
1999 1998(2)
------- -------
(unaudited)
<S> <C> <C>
Operating revenues............................................ $12,032 $10,461
Net income (loss)............................................. (865) 439
Basic earnings (loss) per common share........................ (.13) .07
Diluted earnings (loss) per common share...................... (.13) .06
Dividends per common share.................................... -- --
Total assets.................................................. 20,004 18,773
Long-term debt, net of current maturities..................... 12,151 12,096
Net book value per common share............................... .43 .50
</TABLE>
- --------
(1) Results for the year ended December 31, 1998, include operating results for
North American Communications, Inc. from the date of acquisition (March 10,
1998).
(2) Results for the nine months ended September 30, 1998, includes six months
and twenty-one days of operating results for North American Communications,
Inc. from the date of acquisition (March 10, 1998).

8
<PAGE>

Unaudited Pro Forma Combined Selected Financial Data

The following table sets forth unaudited pro forma selected financial data
for Conestoga and TeleBeam which gives effect to the merger, accounted for as a
pooling of interests, as if it had been consummated as of the beginning of each
period presented. The pro forma selected data is not necessarily indicative of
the results that would have been achieved had the transaction been consummated
on such date and should not be construed as representative of future
operations. This presentation is subject to the assumptions set forth in the
Unaudited Pro Forma Combined Condensed Financial Information appearing
elsewhere in this proxy statement/prospectus, including the assumed exchange
ratio of 0.09602 shares of Conestoga common stock for each share of TeleBeam
common stock. The exchange ratio is subject to possible adjustment. See "THE
MERGER." The information presented should be read in conjunction with such pro
forma financial statements and the historical financial statements, including
the notes thereto of Conestoga and TeleBeam appearing elsewhere in or
incorporated by reference in this proxy statement/prospectus.

<TABLE>
<CAPTION>
At or For the
Nine Months For the Year
Ended September 30, Ended December 31,
-------------------- -----------------------
1999 1998 1998 1997 1996
---------- --------- ------- ------- -------
(unaudited)
(in thousands, except per common share data)
<S> <C> <C> <C> <C> <C>
Operating revenues............... $ 64,309 $ 57,246 $77,348 $59,305 $45,822
Net income....................... 2,505 9,859 10,682 9,476 8,644
Basic earnings per common share.. .27 1.24 1.33 1.18 1.23
Diluted earnings per common
share........................... .27 1.21 1.30 1.17 1.22
Total assets..................... 169,071
Long-term debt and redeemable
preferred stock, net of current
maturities...................... 60,855
Net book value per common share.. 10.06
</TABLE>

9
<PAGE>

Comparative Per Share Data

The following table sets forth certain unaudited historical pro forma per
share data for Conestoga common stock and the historical and equivalent pro
forma share data for TeleBeam common stock. The information presented should be
read in conjunction with such pro forma financial statements, and the notes
thereto, and the historical financial statements, including the notes thereto
of Conestoga and TeleBeam appearing elsewhere in or incorporated by reference
in this proxy statement/prospectus. The exchange ratio is subject to possible
adjustment. See "THE MERGER." Such pro forma data is not necessarily indicative
of results that would have been achieved had the merger been consummated on
such date.

<TABLE>
<CAPTION>
For the Nine For the Year
Months Ended Ended
September 30, December 31,
-------------- -----------------
1999 1998 1998 1997 1996
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Cash Dividends Per Common Share:
Conestoga actual............................ $ .623 $ .610 $.814 $.806 $.800
TeleBeam actual............................. -- -- -- -- --
TeleBeam pro forma equivalent(1)............ .060 .059 .078 .077 .077
Net Income (Loss) Per Common Share--Basic:
Conestoga actual............................ .42 1.28 1.39 1.25 1.27
TeleBeam actual............................. (.13) .07 .05 .03 .05
Conestoga and TeleBeam pro forma(2)......... .27 1.24 1.33 1.18 1.23
TeleBeam pro forma equivalent(3)............ .03 .12 .13 .11 .12
Net Income (Loss) Per Common Share--Diluted:
Conestoga actual............................ .42 1.26 1.38 1.25 1.27
TeleBeam actual............................. (.13) .06 .05 .03 .04
Conestoga and TeleBeam pro forma(2)......... .27 1.21 1.30 1.17 1.22
TeleBeam pro forma equivalent(3)............ .03 .12 .13 .11 .12
</TABLE>

<TABLE>
<CAPTION>
As of
September 30,
1999
-------------
<S> <C>
Book Value Per Common Share:
Conestoga actual.......................... $10.70
TeleBeam actual........................... .43
Conestoga and TeleBeam pro forma(4)....... 10.06
TeleBeam pro forma equivalent(5).......... .97
</TABLE>
- --------
(1) Represents the dividends declared on Conestoga common stock during the
respective periods multiplied by the exchange ratio (0.09602).
(2) Represents net income per share of Conestoga common stock on a pro forma
basis. Such amounts, for purposes of determining basic net income per share
of Conestoga common stock, have been determined by dividing pro forma net
income, less preferred stock dividends, by the sum of (i) the weighted
average number of shares of Conestoga common stock outstanding during each
period retroactively adjusted for stock splits and (ii) shares of Conestoga
common stock assumed to be issued pursuant to the merger. Such amounts for
purposes of determining diluted net income per common share have been
determined by dividing pro forma net income by the sum of (i) the weighted
average number of shares of Conestoga common stock and the effect of
convertible preferred stock during each period retroactively adjusted for
stock splits and (ii) shares of Conestoga common stock assumed to be issued
pursuant to the merger.
(3) Represents the amount computed pursuant to Note 2 above multiplied by the
exchange ratio (0.09602).
(4) Represents the pro forma combined net book value of Conestoga and TeleBeam
attributable to shares of Conestoga common stock, divided by the sum of (i)
the number of shares of Conestoga common stock outstanding retroactively
adjusted for stock splits and (ii) shares of Conestoga common stock assumed
to be issued pursuant to the merger.
(5) Represents the amount computed pursuant to Note 4 above multiplied by the
exchange ratio (0.09602).

10
<PAGE>

Market Price Data

There is no established public trading market for TeleBeam common stock, and,
accordingly, there are no published market quotations for such stock. Trading
in TeleBeam common stock is limited and sporadic. In addition, TeleBeam is not
required to file periodic reports with the SEC. The absence of an established
market and of publicly available current information regarding TeleBeam may
affect the prices at which TeleBeam common stock are traded. TeleBeam has no
history of paying dividends.

Conestoga common stock is quoted on the NASDAQ National Market under the
symbol "CENI". The following table sets forth the high and low sales prices for
Conestoga common stock as reported by NASDAQ for the periods indicated below.

<TABLE>
<CAPTION>
Cash
Dividends
High Sale Low Sale Declared
--------- -------- ---------
<S> <C> <C> <C>
1997
First Quarter(1)................................. $17.83 $15.58 $.200
Second Quarter................................... 17.83 15.83 .200
Third Quarter.................................... 19.33 16.83 .203
Fourth Quarter................................... 20.00 18.67 .203

1998
First Quarter.................................... 21.75 19.17 .203
Second Quarter................................... 22.33 21.33 .203
Third Quarter.................................... 22.42 21.00 .203
Fourth Quarter................................... 23.50 20.67 .203

1999
First Quarter.................................... 23.83 19.83 .203
Second Quarter................................... 23.25 18.17 .210
Third Quarter.................................... 22.00 18.25 .210
Fourth Quarter (through 12/7/99)................. 20.25 18.00 --
</TABLE>
- --------
(1) Share information has been adjusted to reflect a three for two stock split
payable to Conestoga shareholders of record as of April 15, 1999.

On November 3, 1999, the last day on which a trade occurred prior to the
announcement of the merger on November 4, 1999, the closing sale price of
Conestoga common stock on the NASDAQ National Market was $19.00.

11
<PAGE>

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION

The following unaudited pro forma combined condensed financial statements
assume a business combination between Conestoga and TeleBeam that qualifies as
a pooling of interests for financial reporting purposes. Under this method of
accounting, the recorded assets and liabilities of Conestoga and TeleBeam will
be carried forward to Conestoga at their recorded amounts, income of Conestoga
will include income of Conestoga and TeleBeam for the entire fiscal year in
which the merger occurs, and the reported income of Conestoga and TeleBeam for
prior periods will be combined and restated as income of Conestoga. The pro
forma combined condensed financial statements are based upon the historical
consolidated financial statements of Conestoga and TeleBeam and should be read
in conjunction with such historical financial statements and the notes thereto,
which are incorporated by reference or set forth in this proxy
statement/prospectus. The unaudited pro forma combined condensed balance sheet
is presented as if the merger occurred on the date thereof. The unaudited pro
forma combined condensed income statements are presented as if the merger
occurred at the beginning of the earliest period presented in the respective
income statement.

The number of shares of TeleBeam common stock that will be exchanged for
shares of Conestoga common stock can not be determined until the settlement
date due to stock options outstanding prior to the merger. Those individuals
with stock options could either exercise those options prior to the merger, or
if not exercised, those options would be converted into Deemed Conversion
Shares, as defined in the merger agreement. The unaudited pro forma combined
condensed financial statements are presented based on an assumption of the
hypothetical value of a TeleBeam stock option determined by the difference
between the exercise price of each option and the value of a share of TeleBeam
common stock in the merger, which results in an exchange ratio of 0.09602
shares of Conestoga common stock for each share of TeleBeam common stock. The
exchange ratio is subject to possible adjustment. See "THE MERGER".

The unaudited pro forma combined condensed financial information is presented
for illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred if the merger
had been consummated at the beginning of the earliest period presented with
respect to the unaudited pro forma combined condensed income statements or with
respect to the pro forma combined condensed balance sheet, nor is it
necessarily indicative of the future operating results or financial position of
Conestoga. The unaudited pro forma information does not give effect to any
synergies that may occur due to the integration of Conestoga's and TeleBeam's
operations. Additionally, the unaudited pro forma combined financial
information excludes the transaction costs of the merger.

Certain nonrecurring adjustments may be recorded in conjunction with the
merger, but the amounts of these adjustments cannot be determined until
Conestoga reviews all facilities, operations and systems of TeleBeam and
finalizes its plans with respect to integrating the businesses. The aggregate
amount of these adjustments may include costs associated with consolidating
operations and systems and charges. Conestoga has not yet quantified any of
these adjustments, and none are reflected in the unaudited pro forma combined
financial information.

12
<PAGE>

Unaudited Pro Forma Combined Condensed Balance Sheet as of September 30, 1999

PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(Dollars in Thousands)
(unaudited)

<TABLE>
<CAPTION>
Conestoga
Enterprises, TeleBeam,
Inc. Incorporated Pro Forma Combined
(Historical) (Historical) Adjustments Pro Forma
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.... $ 3,161 $ 1,182 $ 0 $ 4,343
Escrow-acquisition........... 0 536 0 536
Accounts receivable.......... 9,613 1,816 0 11,429
Other receivables............ 0 305 0 305
Inventories.................. 1,612 256 0 1,868
Prepaid expenses............. 284 664 0 948
Other........................ 0 453 0 453
-------- ------- ---- --------
Total current assets........... 14,670 5,212 0 19,882
-------- ------- ---- --------
Investments and Other Assets
Cost in excess of net assets
of businesses acquired...... 36,216 9,539 0 45,755
Investment in partnership.... 386 0 0 386
Investment in equity
securities.................. 3,360 0 0 3,360
Prepaid pension costs........ 2,845 0 0 2,845
Other........................ 2,082 325 0 2,407
-------- ------- ---- --------
44,889 9,864 0 54,753
-------- ------- ---- --------
Plant
In service................... 167,386 6,172 0 173,558
Under construction........... 5,021 0 0 5,021
-------- ------- ---- --------
172,407 6,172 0 178,579
Less accumulated
depreciation................ 82,899 1,244 0 84,143
-------- ------- ---- --------
89,508 4,928 0 94,436
-------- ------- ---- --------
$149,067 $20,004 $ 0 $169,071
======== ======= ==== ========
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
Conestoga
Enterprises, TeleBeam,
Inc. Incorporated Pro Forma Combined
(Historical) (Historical) Adjustments Pro Forma
------------ ------------ ----------- ---------
(in thousands)
<S> <C> <C> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-
term debt.................. $ 3,000 $ 947 $ 0 $ 3,947
Accounts payable............ 4,729 1,472 0 6,201
Accrued expenses............ 3,397 1,504 0 4,901
Advance billings and
customer deposits.......... 2,099 0 0 2,099
Other....................... 0 536 0 536
-------- ------- ------ --------
Total current liabilities..... 13,225 4,459 0 17,684
-------- ------- ------ --------
Long-term liabilities
Long-term debt, less current
maturities................. 38,500 12,151 0 50,651
Accrued postretirement
cost....................... 1,058 0 0 1,058
Other....................... 909 0 0 909
-------- ------- ------ --------
40,467 12,151 0 52,618
-------- ------- ------ --------
Deferred income taxes......... 9,520 530 0 10,050
-------- ------- ------ --------
Redeemable preferred stock.... 10,204 0 0 10,204
-------- ------- ------ --------
Common Stockholders' Equity
Common stock, $1 par value.. 7,163 67 668 (1) 7,898
Additional paid-in capital.. 42,015 3,040 (893)(1) 44,032
Retained earnings........... 26,675 (18) 0 26,787
Accumulated other
comprehensive income....... 1,559 0 0 1,559
Less cost of treasury
stock...................... (1,761) (225) 225(1) (1,761)
-------- ------- ------ --------
75,651 2,864 0 78,515
-------- ------- ------ --------
$149,067 $20,004 $ 0 $169,071
======== ======= ====== ========
- --------
(1) Pro forma adjustment to reflect par value of Conestoga shares to be issued.

(2) Historical and pro forma common stock outstanding as of September 30, 1999
(in thousands of shares) were as follows:

Conestoga common stock
(historical)............... 7,163 -- -- 7,163
TeleBeam common stock....... -- 6,475 (6,475) --
Conestoga common stock to be
issued..................... -- -- 735 735
--------
7,898
========
Less Conestoga treasury
stock...................... (95) -- -- (95)
-------- ------- ------ --------
7,068 6,475 (5,470) 7,803
</TABLE>

(3) The unaudited pro forma combined condensed financial statements are
presented based on an assumption of the hypothetical value of a TeleBeam
stock option determined by the difference between the exercise price of
each option and the value of a share of TeleBeam common stock in the
merger, which results in an exchange ratio of 0.09602 shares of Conestoga
common stock.

<TABLE>
<S> <C>
Conestoga common stock to be issued (in thousands).................. 735
TeleBeam common stock outstanding plus assumed exercise of stock
options (in thousands) ............................................ 7,655
Assumed exchange ratio.............................................. .09602
</TABLE>

14
<PAGE>

Unaudited Pro Forma Combined Condensed Income Statement
for the Nine Months ended September 30, 1999 and 1998, and
the Years ended December 31, 1998, 1997 and 1996

PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Dollars in Thousands, except per share data)
(unaudited)

<TABLE>
<CAPTION>
Conestoga
Enterprises, TeleBeam,
Inc. Incorporated Pro Forma Combined
(Historical) (Historical) Adjustments Pro Forma
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues............. $52,277 $12,032 $ 0 $64,309
Operating expenses............. 43,155 12,360 0 55,515
------- ------- --- -------
Operating income (loss)........ 9,122 (328) 0 8,794
Interest expense............... (2,212) (866) 0 (3,078)
Other income (expense), net.... 195 62 0 257
------- ------- --- -------
Income before (loss) income
taxes......................... 7,105 (1,132) 0 5,973
Income taxes................... 3,735 (267) 0 3,468
------- ------- --- -------
Net income (loss).............. $ 3,370 ($865) $ 0 $ 2,505
======= ======= === =======
Per share data:
Basic earnings (loss) per
common share................ $ 0.42 $ (0.13) $ 0.27
Diluted earnings (loss) per
common share................ 0.42 (0.13) $ 0.27
Average shares outstanding--
basic....................... 7,034 6,546 7,663
Average shares outstanding--
diluted..................... 7,332 6,546 8,037
</TABLE>
- --------
(1) No pro forma adjustments were made for merger related expenses.
(2) Additional Conestoga shares issued using assumed exchange ratio of .09602.

15
<PAGE>

Unaudited Pro Forma Combined Condensed Income Statement
for the Nine Months ended September 30, 1999 and 1998, and
the Years ended December 31, 1998, 1997 and 1996

PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Dollars in Thousands, except per share data)
(unaudited)

<TABLE>
<CAPTION>
Conestoga
Enterprises, TeleBeam,
Inc. Incorporated Pro Forma Combined
(Historical) (Historical) Adjustments Pro Forma
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues............. $46,785 $10,461 $ 0 $57,246
Operating expenses............. 36,687 9,121 0 45,808
------- ------- --- -------
Operating income............... 10,098 1,340 0 11,438
Interest expense............... (2,155) (671) 0 (2,826)
Gain on sale of partnership
interest...................... 7,749 0 0 7,749
Other income (expense), net.... 1,237 63 0 1,300
------- ------- --- -------
Income before income taxes..... 16,929 732 0 17,661
Income taxes................... 7,509 293 0 7,802
------- ------- --- -------
Net income..................... $ 9,420 $ 439 $ 0 $ 9,859
======= ======= === =======
Per share data:
Basic earnings per common
share....................... $ 1.28 $ 0.07 $ 1.24
Diluted earnings per common
share....................... 1.26 0.06 $ 1.21
Average shares outstanding--
basic....................... 6,972 6,093 7,557
Average shares outstanding--
diluted..................... 7,493 6,893 8,155
</TABLE>
- --------
(1) No pro forma adjustments were made for merger related expenses.
(2) Additional Conestoga shares issued using assumed exchange ratio of .09602.

16
<PAGE>

Unaudited Pro Forma Combined Condensed Income Statement
for the Nine Months ended September 30, 1999 and 1998, and
the Years ended December 31, 1998, 1997 and 1996

PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(Dollars in Thousands, except per share data)
(unaudited)

<TABLE>
<CAPTION>
Conestoga
Enterprises, TeleBeam,
Inc. Incorporated Pro Forma Combined
(Historical) (Historical) Adjustments Pro Forma
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues............. $62,833 $14,515 $ 0 $77,348
Operating expenses............. 50,263 12,932 0 63,195
------- ------- --- -------
Operating income............... 12,570 1,583 0 14,153
Interest expense............... (2,984) (945) 0 (3,929)
Gain on sale of partnership
interest...................... 7,740 0 0 7,740
Other income (expense), net.... 1,611 (70) 0 1,541
------- ------- --- -------
Income before income taxes..... 18,937 568 0 19,505
Income taxes................... 8,585 238 0 8,823
------- ------- --- -------
Net income..................... $10,352 $ 330 $ 0 $10,682
======= ======= === =======
Per share data:
Basic earnings per common
share....................... $ 1.39 $ 0.05 $ 1.33
Diluted earnings per common
share....................... 1.38 0.05 $ 1.30
Average shares outstanding--
basic....................... 6,971 6,147 7,561
Average shares outstanding--
diluted..................... 7,519 6,941 8,185
</TABLE>
- --------
(1) No pro forma adjustments were made for merger related expenses.
(2) Additional Conestoga shares issued using assumed exchange ratio of .09602.

17
<PAGE>

Unaudited Pro Forma Combined Condensed Income Statement
for the Nine Months ended September 30, 1999 and 1998, and
the Years ended December 31, 1998, 1997 and 1996

PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(Dollars in Thousands, except per share data)
(unaudited)

<TABLE>
<CAPTION>
Conestoga
Enterprises, TeleBeam,
Inc. Incorporated Pro Forma Combined
(Historical) (Historical) Adjustments Pro Forma
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues............. $56,185 $3,120 $ 0 $59,305
Operating expenses............. 40,633 2,920 0 43,553
------- ------ --- -------
Operating income............... 15,552 200 0 15,752
Interest expense............... (2,017) (17) 0 (2,034)
Gain on sale of partnership
interest...................... 1,890 0 0 1,890
Other income (expense), net.... 1,671 67 0 1,738
------- ------ --- -------
Income before income taxes..... 17,096 250 0 17,346
Income taxes................... 7,782 88 0 7,870
------- ------ --- -------
Net income..................... $ 9,314 $ 162 $ 0 $ 9,476
======= ====== === =======
Per share data:
Basic earnings per common
share....................... $ 1.25 $ 0.03 $ 1.18
Diluted earnings per common
share....................... 1.25 0.03 $ 1.17
Average shares outstanding--
basic....................... 6,930 5,833 7,490
Average shares outstanding--
diluted..................... 7,487 6,235 8,086
</TABLE>
- --------
(1) No pro forma adjustments were made for merger related expenses.
(2) Additional Conestoga shares issued using assumed exchange ratio of .09602.

18
<PAGE>

Unaudited Pro Forma Combined Condensed Income Statement
for the Nine Months ended September 30, 1999 and 1998, and
the Years Ended December 31, 1998, 1997 and 1996

PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(Dollars in Thousands, except per share data)
(unaudited)

<TABLE>
<CAPTION>
Conestoga
Enterprises, TeleBeam,
Inc. Incorporated Pro Forma Combined
(Historical) (Historical) Adjustments Pro Forma
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues............. $42,899 $2,923 $ 0 $45,822
Operating expenses............. 28,835 2,669 0 31,504
------- ------ --- -------
Operating income............... 14,064 254 0 14,318
Interest expense............... (1,297) (66) 0 (1,363)
Other income (expense), net.... 1,592 20 0 1,612
------- ------ --- -------
Income before income taxes..... 14,359 208 0 14,567
Income taxes................... 5,853 70 0 5,923
------- ------ --- -------
Net income..................... $ 8,506 $ 138 $ 0 $ 8,644
======= ====== === =======
Per share data:
Basic earnings per common
share....................... $ 1.27 $ 0.05 $ 1.23
Diluted earnings per common
share....................... 1.27 $ 0.04 $ 1.22
Average shares outstanding--
basic....................... 6,390 3,045 6,682
Average shares outstanding--
diluted..................... 6,716 3,757 7,077
</TABLE>
- --------
(1) No pro forma adjustments were made for merger related expenses.
(2) Additional Conestoga shares issued using assumed exchange ratio of .09602.

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RISK FACTORS

You should consider the following risks in deciding whether or not to adopt
the merger agreement and approve the merger. These matters should be
considered along with the other information included or incorporated by
reference in this proxy statement/prospectus.

Risks Relating to the Merger

If the conditions of the merger are not met, the merger will not occur.

Several conditions must be satisfied or waived to complete the merger.
Conestoga and TeleBeam cannot assure you that each of the conditions will be
satisfied. If the conditions are not satisfied or waived, the merger will not
occur or will be delayed, and Conestoga and TeleBeam each may lose some or all
of the intended benefits of the merger.

Regulatory agencies may impose conditions on consents relating to the
merger.

A condition to the parties' obligations to complete the merger is that
required governmental consents and approvals relating to the merger shall have
been received without material restrictions or conditions, including that of
the Pennsylvania Public Utility Commission. We cannot predict whether
governmental authorities will impose material restrictions as a condition of
their approval of the merger. Depending on the nature of any restrictions or
conditions, such restrictions or conditions may jeopardize or delay completion
of the merger, or lessen the anticipated benefits of the merger.

Decreases in Conestoga's trading price will reduce the value of what
TeleBeam shareholders receive in the merger.

Any decrease in the market price of Conestoga common stock after the date of
this proxy statement/prospectus will reduce the dollar value received by
TeleBeam shareholders until the price decreases below $18.085, after which
there will be an adjustment to the number of shares of Conestoga common stock
to be received by the TeleBeam shareholders. Such price is measured by the
average of the last reported bid and asked prices per share of Conestoga
common stock quoted by each of the four principal market makers for the ten
consecutive NASDAQ trading days ending four business days prior to the
closing. We strongly encourage TeleBeam shareholders to obtain the current
market price of Conestoga common stock before delivering their proxy. The
NASDAQ symbol for Conestoga's stock is "CENI".

The rights of holders of TeleBeam common stock will be different after the
merger because Conestoga is a Pennsylvania corporation.

Following the merger, TeleBeam shareholders will become shareholders of
Conestoga. Since TeleBeam is a Delaware corporation, and Conestoga is a
Pennsylvania corporation, there are important differences between the rights
of holders of TeleBeam and Conestoga common stock as discussed in Comparison
of Shareholder Rights.

Risks Relating to the Combined Company

If Conestoga and TeleBeam do not integrate their technology and operations
quickly and effectively, all of the potential benefits of the merger may not
occur.

Conestoga and TeleBeam cannot assure you that we will be able to integrate
our technology and operations quickly and smoothly. There may be substantial
difficulties, costs and delays involved in integrating Conestoga and TeleBeam,
including:

. distracting management from the business of the respective companies;

. potential incompatibility of business cultures;

. perceived adverse change in customer service standards, business focus,
billing practices or service offerings available to customers;

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. perceived uncertainty in career opportunities and benefits available to
employees;

. costs and delays in implementing common systems and procedures; and

. potential inefficiencies in delivering services to the customers of the
combined company.

Any one or all of these factors may cause increased operating costs, lower
than anticipated financial performance or the loss of customers and employees.

Our industry is undergoing rapid technological change and our future success
will depend on our ability to meet the changing needs of our industry.

The telecommunications industry is characterized by rapidly changing
technology, evolving industry standards and frequent new product
announcements. The areas influenced by rapid technological change include:

. transmission capacity;

. switching equipment;

. radio frequency utilization;

. video technologies;

. wireless communication technologies;

. computer hardware and software;

. computer networking; and

. the Internet and high speed data access technologies.

We could incur substantial costs to modify our services or infrastructure in
order to adapt to these changes. In particular, in order to succeed, Conestoga
must:

. rapidly complete and offer services under development;

. design and use new technologies;

. keep pace with changes in external technology and standards on which we
depend; and

. fulfill customer needs.

Our business could be adversely affected if we incur significant costs without
adequate results, or find ourselves unable to adapt rapidly to these
technological changes.

We may not be able to hire and retain sufficient technical sales and
marketing personnel that we need to succeed.

Competition for qualified technical sales and marketing personnel in the
telecommunications industry is intense, and we might not be able to hire and
retain sufficient numbers of qualified personnel. As we expand our personal
communications services and broadband fiber network initiatives, we will be
required to hire more technical personnel, and will also need to substantially
expand our sales operations and marketing efforts in order to increase market
awareness and sales of the products and services we offer. If we fail to hire
and retain sufficient numbers of qualified personnel, our business and results
of operations will be negatively affected.

Our industry is highly competitive and we cannot assure you that we will be
able to compete effectively.

The market for telecommunications services is highly competitive. In
addition to the competitive risks described above of adapting to rapid
technological change and being able to hire and retain skilled personnel, we
also expect competition to intensify as current competitors expand their
service offerings and new competitors enter the market. In particular, the
increasing trend toward deregulation and the Telecommunications Act of 1996
have increased competition in numerous respects, including:

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<PAGE>

. allowing competitive access providers and long distance carriers to offer
alternative access for the origination and termination of long distance
calls other than the local loop of local exchange carriers;

. opening the local telephone markets of local exchange carriers to new
competitors, such as AT&T, MCI, Sprint, cable television providers and
other local exchange carriers; and

. permitting local exchange carriers to enter into new lines of business
such as the long distance telephone business and the sale of television
services over telephone lines, satellite or (in certain circumstances)
coaxial cable.

Many of our new competitors have substantially greater financial, technical,
marketing and other resources, better name recognition, and a larger installed
base of customers than we do. In addition, certain of our competitors also
have well-established relationships with our existing and prospective
customers. Finally, our current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their services to address customer needs and
compete with our services. Increased competition may result in price
reductions, reduced gross margins and loss of market share, any of which could
have a significant negative effect on our business and results of operations.

The telecommunications industry is a highly regulated industry; changes in
existing regulations or the addition of new regulations could negatively
impact our business operations and profitability.

Conestoga Telephone and Telegraph Company and Buffalo Valley Telephone
Company are regulated by the Pennsylvania Public Utility Commission. An
amendment to the Pennsylvania Public Utility Act, passed in 1993, streamlines
rate regulation and methods for determining rates other than the rate of
return regulation and procedures. This new regulation is known as Chapter 30.
Conestoga and its subsidiaries may take advantage of the procedures permitted
by this new regulation, which may offer some price stability, by providing
universal broadband services by 2015. Both companies filed a plan to take
advantage of this regulation in July 1998. In November 1999, both companies
received permission to go ahead with their respective plans. We cannot
currently determine the effect of complying with the new regulation on the
future earnings and profits of Conestoga.

A limited trading market for Conestoga common stock may prevent you from
selling Conestoga shares when and as you desire.

Conestoga's common stock is listed and traded on the NASDAQ National Market.
During 1998 the average daily trading volume was 1,965 shares and during 1999
through November 15 the average daily trading volume was 3,245 shares. Because
of such limited trading, sales of significant amounts of Conestoga common
stock may be difficult and any such sales might have a material negative
impact on the prevailing market price for Conestoga common stock.

If our newly introduced and proposed services do not receive the market
acceptance we expect, our business will be adversely affected.

For the past several years, we have been developing our personal
communications service, or PCS. PCS is a wireless communications service based
on lower power and a higher frequency bandwidth than cellular service. It is
anticipated to be more reliable, of better quality and less expensive than
cellular. We were a successful bidder in FCC auctions for PCS bandwidth in the
basic trading areas of Reading, Pottsville, Sunbury, Williamsport, and State
College, Pennsylvania, which cover ten counties in southeastern and central
Pennsylvania with a population of 970,000. PCS is a highly competitive
business. We compete with cellular service providers and other PCS service
providers throughout our PCS license area. At least three service providers
have licenses or systems to compete with us in each license area.
Additionally, the PCS system will be in competition with cellular service,
which is already well established in our entire license area.

TeleBeam is in the process of developing a broadband fiber network in the
State College area and plans to develop similar networks in other markets
throughout central Pennsylvania. The broadband networks will compete with a
variety of other telecommunications providers. The extent to which these new
services are accepted by the market will have a significant effect on our
future earnings and prospects.

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Our PCS and broadband network initiatives will require additional financing
and will therefore increase our debt to equity ratio.

At December 31, 1998, we had already invested about $28 million in the PCS
networking business, and we expect to invest approximately an additional $32
million over the next five years. As a result of the acquisition of TeleBeam,
Conestoga will bear the entire financial burden and risk of building the
broadband networks. The cost of the buildout of TeleBeam's broadband fiber
network in State College is estimated to cost $11 million, and TeleBeam
expects to incur similar costs to develop networks in other central
Pennsylvania markets. We anticipate funding the balance of the cost of PCS and
the building of the broadband networks through internally generated earnings,
borrowings and/or raising additional equity.

At December 31, 1998, we had approximately $44.3 million of long-term debt
outstanding and approximately $11.7 million of redeemable preferred stock,
compared to approximately $74.9 million of common equity. This resulted in a
ratio of 43% debt and preferred stock to 57% equity, compared to a ratio of
35% debt to 65% equity at December 31, 1997. We will incur substantial
additional indebtedness in order to complete the PCS infrastructure and the
broadband network initiatives, which will likely result in an increased ratio
of debt and preferred stock to equity.

Such additional indebtedness will have significant impact upon our future
operations, including:

. we will incur significant interest expense along with significant
preferred stock dividend and principal repayment obligations;

. we are subject to significant unscheduled preferred stock redemption
obligations because our outstanding preferred shares may be "put" by the
holders of such stock;

. our increased leverage may make us more vulnerable to economic downturns
and reduce our flexibility in responding to changing business and
economic conditions;

. payment of dividends on our common stock, or future increases on the
dividend rate of our common stock, may be restricted by covenants in our
debt instruments or by the level of financial resources needed to service
our additional debt and preferred stock; and

. our significant future capital expenditures could adversely affect our
continued ability to pay, or increase, dividends.

Our non-regulated activities, which are subject to greater competition than
our regulated business, constitute an increasing percentage of our total
revenues.

The proportion of our revenues derived from our non-regulated activities
have been increasing in recent years. Such percentage increased from 13.9% in
1996 to 24.4% in 1998. All of our PCS revenues are non-regulated.
Consequently, as our offering of PCS services expands, an increasing
proportion of our revenues will be derived from our non-regulated businesses.

The shift from regulated to non-regulated revenues will afford us the
opportunity for higher rates of return from prices that are not limited by PUC
regulation. Such shift, however, will expose us to fluctuating rates of return
from prices governed by market forces, not regulation. Our regulated revenue
base, even with the advent of competition, has provided us with a relatively
stable earnings base. With the growth of our non-regulated businesses, this
stable earnings base will increasingly constitute a smaller portion, and the
fluctuating earnings base governed by market force a greater portion, of our
revenues. As a result of such shift, we will be more vulnerable to competition
and economic downturns.

We need to expand our management, information and processing systems and
controls in order to support our anticipated growth.

Our anticipated future growth, including the development and expansion of
the PCS and broadband network initiatives, will place a significant strain on
our management, information and processing systems and controls.

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<PAGE>

We cannot assure you that we will be able to adequately expand our technology
resources to support our anticipated growth. Such systems are vital to our
ability to control costs, bill customers, fulfill customer orders and achieve
operating efficiencies. Our plans for the development and implementation of
our operating support systems rely, for the most part, on choosing products
and services offered by third party vendors and successfully integrating such
products and services with our current systems. There may be many reasons why
we fail to control the implementation of these systems, including:

. failure of vendors to deliver products and services in a timely and
effective manner and at acceptable costs;

. our failure to adequately identify all of our information and processing
needs;

. failure of our related information systems;

. our failure to effectively integrate such products or services; and

. our failure to upgrade such systems as necessary.

If we do not obtain and appropriately maintain required permits, building
access agreements and rights-of-way, our operations will be adversely
affected.

In order to develop our PCS and broadband networks, we will be required to
enter into many important relationships with third parties, including:

. local franchises;

. building access agreements;

. rights to utilize underground conduit, pole space and other rights-of-way
and fiber capacity; and

. roaming alliances.

These arrangements must be entered into with a variety of third parties,
including:

. incumbent local exchange carriers;

. competitive access providers;

. utilities;

. railroads;

. long distance carriers;

. state highway authorities;

. local governments; and

. transit authorities.

We cannot be certain that we will be able to maintain our existing franchises,
permits and rights or obtain and maintain other required franchises, permits,
and rights needed to implement our business expansion plans on acceptable
terms.

Potential year 2000 problems with our internal operating systems or third
party software programs used by us could adversely affect our business.

Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four-digit entries to distinguish
21st century dates from 20th century dates. We are heavily dependent on
computer systems, and our internal systems, including those used to deliver
our services, utilize third party hardware and software. If it comes to our
attention that certain of our services need modification, or certain of our
third party hardware or

24
<PAGE>

software is not year 2000 compliant, then we will try to make modifications to
our services and systems on a timely basis. We do not believe that the cost of
such modifications will materially affect our operating results, but we cannot
assure you that we will be able to modify such products, services and systems
in a timely and successful manner. The failure to do so would negatively
affect our operating results.

You should not rely on forward-looking statements because they are
inherently uncertain.

This proxy statement/prospectus contains forward-looking statements that
involve risks and uncertainties. We use words such as "anticipates,"
"believes," "plans," "expects," "future," "intends" and similar expressions to
identify such forward-looking statements. You should not place undue reliance
on these forward-looking statements, which apply only as of the date of this
proxy statement/prospectus. Our actual results could differ materially from
those anticipated in these forward-looking statements for many reasons,
including the risks described in this section and elsewhere in this proxy
statement/prospectus.

THE TELEBEAM MEETING

General

This proxy statement/prospectus is being furnished to holders of TeleBeam
common stock in connection with the solicitation of proxies by the TeleBeam
Board to be used at the TeleBeam meeting or any adjournment of the meeting.

A proxy card has been enclosed with this proxy statement/prospectus for use
by the TeleBeam shareholders.

The TeleBeam meeting will be held on Monday, , at 10 a.m., local time,
at The Sleep Inn, 111 Village Drive, State College, Pennsylvania 16801.

Matters to be considered at the TeleBeam Meeting

At the TeleBeam meeting, the TeleBeam shareholders will consider and vote on
a proposal to approve and adopt the merger agreement. TeleBeam shareholders
will also consider other matters that may properly come before the TeleBeam
meeting or any adjournment of the meeting.

If the merger agreement is not approved at the TeleBeam meeting, it is
anticipated that TeleBeam's annual shareholders' meeting would be held in
April, 2000. If the merger is approved, TeleBeam management does not
anticipate that TeleBeam would hold its 2000 annual meeting unless the merger
agreement is terminated.

TeleBeam Record Date; Shares Outstanding; Quorum

Only shareholders of record of TeleBeam at the close of business on
will be entitled to receive notice of the TeleBeam meeting, and only holders
of record of TeleBeam common stock as of that date will be entitled to vote at
the TeleBeam meeting. At the close of business on , shares of
TeleBeam common stock were issued and outstanding. Each share of TeleBeam
common stock entitles the holder to one vote. The presence at the TeleBeam
meeting, in person or by proxy, of shareholders entitled to cast a majority of
the votes at the TeleBeam meeting will constitute a quorum at the TeleBeam
meeting.

Vote Required

Pursuant to Delaware corporation law, the affirmative vote of a majority of
the outstanding shares of TeleBeam common stock entitled to vote at the
TeleBeam meeting, or shares, is required to approve the merger
agreement.

As of , the directors and executive officers of TeleBeam owned
approximately shares of TeleBeam common stock, or approximately % of the
outstanding TeleBeam common stock entitled to vote

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<PAGE>

at the TeleBeam meeting. See "BUSINESS OF TELEBEAM--Security Ownership of
Certain Beneficial Owners and Management of TeleBeam." Management anticipates
that the directors and executive officers of TeleBeam will vote all shares
held by them in favor of the merger agreement.

Effect of Abstentions

TeleBeam shareholders entitled to vote at the TeleBeam meeting may withhold
authority to vote on the merger agreement. Abstentions will be considered as
shares present and entitled to vote at the TeleBeam meeting for the purposes
of determining the quorum, but will not be counted as votes cast in the
affirmative. Therefore, abstentions by TeleBeam shareholders will have the
effect of votes against the merger agreement.

Voting, Revocation and Solicitation of Proxies

All TeleBeam common stock represented by properly executed proxies received
at or before the TeleBeam meeting will be voted at the TeleBeam meeting in the
manner specified by the holders of the shares, unless such proxies have been
revoked before the vote. Proxies which do not contain voting instructions will
be voted for approval of the merger agreement.

TeleBeam management does not expect that any matter other than the approval
of the merger agreement will be brought before the TeleBeam meeting. If,
however, other matters are properly presented, the persons named as
proxyholders will vote in accordance with their judgment with respect to these
matters. In the event that TeleBeam's management desires to adjourn the
TeleBeam meeting in order to solicit additional votes in favor of the merger,
the persons named in the TeleBeam proxy card will not be permitted to use the
discretionary authority granted by the proxy card to vote any TeleBeam shares
which were voted against the merger in favor of any such adjournment.

A shareholder who executes and returns a proxy on the enclosed form may
revoke it at any time before it is voted. The giving of a proxy does not
affect the right of shareholders to attend the TeleBeam meeting and vote in
person. A shareholder's presence at the TeleBeam meeting, however, will not in
itself revoke the shareholder's proxy. A shareholder may revoke a proxy at any
time before it is exercised by filing with the Secretary of TeleBeam, at or
before the TeleBeam meeting, a signed revocation or a proxy bearing a later
date. Neither attendance at the TeleBeam meeting nor voting in person at the
TeleBeam meeting will in itself constitute revocation of a proxy.

TeleBeam will bear the cost of soliciting proxies from its shareholders.
Proxies may be solicited by directors, officers and employees of TeleBeam.
These directors, officers and employees will not be specifically compensated
for these services, but may be reimbursed for reasonable out-of-pocket
expenses incurred in connection with the proxy solicitation.

TeleBeam shareholders should not send stock certificates with their proxy
cards. As described below under the heading "THE MERGER--Terms of the Merger--
Delivery of Shares," each TeleBeam shareholder will be provided with materials
for exchanging TeleBeam common stock as promptly as practicable after the
effective date of the merger.

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THE MERGER

The information contained in this proxy statement/prospectus regarding the
merger is not intended to contain all of the information in the merger
agreement. It is intended to summarize the most significant aspects of the
merger agreement. We have attached the full merger agreement to this proxy
statement/prospectus as Appendix A, and we incorporate it into this document
by reference. We urge you to carefully read the full merger agreement. For a
summary description of the merger, see "SUMMARY--The Merger."

Background of the Merger

TeleBeam's Business

TeleBeam provides telephone, cable and data transmission services primarily
to businesses and multiple-dwelling unit residential customers in non-
metropolitan areas throughout central and eastern Pennsylvania.

The market for communication services, including telephone, cable and data
transmission (fax/Internet/pager) services, is highly competitive.
Traditionally, this competition has been fiercest in densely-populated
metropolitan areas, where communication service companies can service the
greatest number of customers with the least amount of equipment.

TeleBeam provides its services primarily to businesses and multiple-dwelling
unit residential customers, including people living in apartments, in less-
competitive non-metropolitan areas throughout central and eastern
Pennsylvania. Founded in 1992, TeleBeam is headquartered in State College,
Pennsylvania. TeleBeam's goal is to develop a broadband fiber network
connecting clusters of non-metropolitan service areas throughout central
Pennsylvania. A broadband fiber network consists of fiber optic and coaxial
cable and associated access, transport and termination electronics, which
combined, allows the service provider to provide multiple communication
services to customers as a "bundled" package through one service delivery
venue. For instance, over its broadband network, TeleBeam can provide
telephone, cable television and Internet access to customers as one seamless
service. Customers pay only one service charge and deal with only one service
provider.

When the broadband network is complete, TeleBeam will be one of the only
telecom service providers with the broadband capacity to deliver bundled
services in central Pennsylvania. TeleBeam's management believes that this
exclusivity will give it an early advantage as customers demand simpler and
more robust communications service offerings and other service providers are
required by competitive forces to establish their own networks. In addition,
TeleBeam will be able to rent or sell the excess capacity on its broadband
network to other communication service providers who need to transport high
volumes of their customers' voice, video or data traffic between major
metropolitan markets such as Pittsburgh and Philadelphia. Of course, this
strategy is entirely dependent on TeleBeam's ability to complete its broadband
network and offer bundled telecom services in central Pennsylvania before its
competitors.

TeleBeam common stock is not listed on NASDAQ or any stock exchange. No
market maker holds an inventory position in TeleBeam. There is no established
trading market for TeleBeam common stock. TeleBeam is not subject to the
reporting requirements of the Exchange Act.

Industry Overview

The communications industry has experienced rapid and fundamental changes in
recent years as a result of radical advances in technology, increased demand
for communication services and increased competition.

The provision of communication services, including local and long-distance
telephone services, Internet access and cable television, is an approximately
$250 billion a year business in the United States (source: FCC data). The
development and wide-spread use of new technologies has dramatically increased
the demand for communication services. These technologies include:

27
<PAGE>

. mobile and cellular phones;

. pagers;

. affordable personal computers;

. networking software;

. interactive video technologies; and

. the Internet and high speed data access.

Interactive video (for example, video conferencing) and other interactive
broadband communication services are expected to further increase demand. As
demand for communication services has increased, new service providers have
entered the market with very competitive rates. Federal and state lawmakers
have fostered this new competition with broad-sweeping legislation in the
communication services area.

Recent legislation aimed at providing greater market access to new service
providers has significantly increased competition in the communication
services industry, and forced service providers to find new, non-traditional
income sources.

As providers of telephone and data transmission services, TeleBeam and
Conestoga are subject to federal, state and local government regulation.
TeleBeam is subject to additional regulation at all levels because it also
provides cable television services.

At the federal level, TeleBeam and Conestoga are subject to federal
legislation as enforced by the Federal Communications Commission. The FCC has
jurisdiction over interstate and international communication services, which
are transmissions that originate within a state and terminate in another state
or country (for example, a telephone call from Pennsylvania to New York or
Canada). The FCC has authorized TeleBeam to provide interstate telephone
services throughout the United States and international service worldwide. In
addition, the FCC has licensed TeleBeam to provide cable television services
in State College, Pennsylvania. All of TeleBeam's agreements giving other
communication service providers access to its network must be reviewed and
approved by the FCC and state regulators.

State government, generally the Public Utilities Commission or Public
Service Commission, has jurisdiction over intrastate communication services,
which are transmissions that originate and terminate within the same state
(for example, a telephone call from Pittsburgh to Philadelphia). The
Pennsylvania Public Utility Commission has authorized TeleBeam to provide
local telephone services within the state. TeleBeam is also authorized to
provide intrastate long distance telephone service in nine states.

Over the last ten years, federal and state legislatures have passed numerous
laws making it easier for new service providers to enter and compete in the
market for communication services. The two central themes of this legislation
are (1) increased network access, and (2) nondiscriminatory pricing. This
legislation has seriously eroded the traditional competitive advantage for
established communication service providers.

Traditionally, the communications company that laid the cable in a
geographic area controlled the service to that area. That company could
provide access to its equipment in the area to selected competitors or not at
all, solely at its discretion. It could also set artificially high prices for
this access and charge different prices to different companies. As a result,
it was very difficult for new service providers to enter a particular market
unless they had something to offer the established companies in exchange for
access at competitive rates or the money to install their own equipment in the
area.

The federal Telecommunications Act of 1996 and subsequent federal and state
regulations vastly changed the traditional model of the communications
industry. This legislation mandates that service providers grant access to
their proprietary cable, switching centers and other physical facilities to
their competitors. In addition, the legislation requires service providers to
provide this access on nondiscriminatory terms and at

28
<PAGE>

nondiscriminatory, and often discounted, prices. As a result, established
communications companies can no longer use their advantage in physical
facilities to keep new service providers out of their markets. Furthermore,
access fees--traditionally a significant source of income--are no longer as
profitable as they once were. Communications service providers, therefore,
have been increasingly forced not only to compete with a greater number of
providers, many of whom are smaller and have lower overhead costs (often
because they do not own their own equipment), but also to find new, non-
traditional sources of revenue.

In addition to the legislation noted generally above, the FCC has broad
regulations governing many aspects of TeleBeam's day-to-day operations,
including:

. equal employment opportunities;

. syndicated program exclusivity;

. network program non-duplication;

. registration of cable systems;

. records maintenance and inspection;

. microwave frequency usage;

. lockbox availability;

. sponsorship identification;

. antenna structure notification;

. tower marking and lighting;

. sports broadcast programming;

. political broadcasts;

. limitations on advertising in non-broadcast children's programming;

. consumer protection and customer service;

. ownership of home wiring;

. indecent programming;

. programmer access to cable systems;

. programming agreements;

. technical standards;

. consumer electronics equipment compatibility; and

. closed captioning.

Cable televisions systems are subject to federal compulsory copyright
licensing covering the retransmission of television and radio broadcast
signals. In exchange for filing certain reports and contributing a percentage
of their revenues to a federal copyright royalty pool, cable operators can
obtain blanket licenses to retransmit the copyrighted material on broadcast
signals.

Because a cable communications system uses local streets and rights-of-way,
cable communications service providers are often also subject to local
regulation, typically imposed in the form of franchising requirements.
Generally speaking, state and local regulations prohibit cable communications
companies which have not qualified for and been granted a franchise in the
designated geographical area from providing services in that area. The terms
and conditions of state and local government franchises vary from one
jurisdiction to another, but typically contain provisions governing rates,
franchise fees (payable to the governmental body imposing the franchise
requirements), system construction, and maintenance obligations and customer
service standards.

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<PAGE>

This section is not intended to describe all present and proposed federal,
state and local legislation and regulations affecting the communication
services industry. Other bills and administrative proposals pertaining to this
industry, particularly to cable television services, have previously been
introduced in Congress or considered by other governmental bodies over the
past several years. It is probable that there will be legislative proposals in
the future by these governmental bodies relating to the regulation of
communication services.

Certain federal regulations and, in many jurisdictions, state and local
franchise requirements, are currently the subject of judicial proceedings,
legislative hearings and administrative proposals which could change, in
varying degrees, the manner in which communications companies operate. We
cannot predict the ultimate outcome of these proceedings or the impact on
TeleBeam, Conestoga and their businesses.

TeleBeam Strategic Options

In 1997, the Board of Directors and management of TeleBeam identified a
major opportunity for TeleBeam to establish itself as a competitive local
exchange carrier. TeleBeam believed that by constructing its own proprietary
fiber and coaxial facilities and networks, it would be able to not only
increase the services it offered and improve its gross margins, but also
attract existing customers to purchase all of their telephone, cable and
Internet access services from a single service provider, namely TeleBeam. The
construction of these facilities, however, was a major capital expense for
TeleBeam which could not be financed from its normal cash flow and lending
sources. The Board of Directors therefore authorized management to explore
several strategic options to fund these plans, including raising new equity
and debt and/or establishing strategic alliances with other telecommunications
providers within TeleBeam's geographic service area.

In April 1999, TeleBeam engaged the services of Amsterdam Pacific Securities
LLC, an investment banking firm in San Francisco, California. Amsterdam
Pacific agreed to act as TeleBeam's financial advisor to assist TeleBeam in
raising new debt and equity for the execution of its business plan. At the
same time, Amsterdam Pacific initiated discussions with other
telecommunications companies for potential strategic partnerships with
TeleBeam.

Merger Negotiations

In September 1999, management of Conestoga and TeleBeam held preliminary
discussions about both companies working with each other in a partnership to
develop TeleBeam's business plan and also assisting Conestoga with
implementing some of the data technology aspects of TeleBeam's plan throughout
Conestoga's network. Both companies executed a non-disclosure agreement on
September 14, 1999, and on or about September 16, 1999, TeleBeam released
certain information to Conestoga so that Conestoga could better evaluate the
partnership concept.

During the latter part of September and early October, TeleBeam continued to
pursue its debt and equity raising initiatives with the assistance of
Amsterdam Pacific, while also continuing its conversations with management of
Conestoga regarding partnering opportunities. During this period, TeleBeam's
discussions with Conestoga also expanded to include a possible acquisition by
Conestoga of TeleBeam.

On October 5, 1999, Conestoga's management visited TeleBeam's offices in
State College. As a result of that visit and an analysis of TeleBeam's
business and business plans, Conestoga's management decided that the
opportunity to acquire TeleBeam was attractive to Conestoga. On October 14,
1999, Albert H. Kramer, President of Conestoga and Harrison Clement, President
of Infocore (a wholly-owned subsidiary of Conestoga), contacted Ara M.
Kervandjian, President and Chief Executive Officer of TeleBeam, regarding the
possibility of merging TeleBeam with Conestoga. Mr. Kervandjian stated that he
would discuss such a transaction with the TeleBeam Board of Directors as well
as with the members of TeleBeam's management team. Subsequent to that meeting,
TeleBeam submitted information to Conestoga for Conestoga's due diligence
review.

During ongoing negotiations, Conestoga proceeded with its due diligence
efforts. In connection with this due diligence review, Conestoga used the
services of several professional organizations, including Barley,

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Snyder, Senft and Cohen, LLC, counsel to Conestoga, Beard and Company, Inc.,
its independent public accounting firm, and JSI Capital Advisors, LLC. The
purpose of the due diligence program was to further evaluate TeleBeam's
management team and various operational, financial and legal matters relating
to TeleBeam. In connection with this process, several telephone conferences,
meetings and facility site visits were scheduled by representatives of
Conestoga with the management of TeleBeam.

Conestoga's management presented its analysis of, and recommendations
concerning, TeleBeam to the Board of Directors of Conestoga at its monthly
meeting on October 26, 1999. Conestoga's legal counsel was present at the
meeting. Management recommended the acquisition of TeleBeam. The Board
discussed the proposed acquisition in terms of the assets and value of
TeleBeam to be acquired, the consideration Conestoga should pay and the
conditions that should attach to the transaction. The Board authorized
management to offer to acquire TeleBeam for 715,000 shares of Conestoga common
stock plus $500,000 in cash, provided that the principal officers of TeleBeam
would enter into acceptable employment agreements including a covenant not to
compete after the acquisition. The Board gave management some flexibility
concerning the mix between Conestoga stock and cash to be paid for all of the
outstanding stock of TeleBeam. The Board instructed management to structure
the transaction so that it could be accounted for as a pooling of interests.

On October 27, 1999, Mr. Kramer met with Mr. Kervandjian at the offices of
TeleBeam in State College, Pennsylvania to present Conestoga's proposal to
acquire all of the outstanding common stock of TeleBeam. Following Mr.
Kramer's meeting with Mr. Kervandjian, Conestoga delivered a draft merger
agreement to both TeleBeam's counsel and Mr. Kervandjian on October 29, 1999.
A special meeting of the Board of Directors of TeleBeam was held on November
1, 1999, to discuss, among other matters, Conestoga's merger proposal. A
majority of TeleBeam's directors, along with representatives of Amsterdam
Pacific and Saul, Ewing, Remick & Saul LLP, counsel to TeleBeam, participated
in the special meeting. Amsterdam Pacific provided the Board with a detailed
evaluation of the proposed merger price in light of TeleBeam's financial
results and industry group as well as publicly available financial and other
information regarding Conestoga. However, due to the relatively small size of
the merger, the Board decided that it would not be cost effective to obtain a
fairness opinion. The Board also reviewed, with counsel, other substantive
terms of the merger agreement. After due consideration, the members of the
TeleBeam Board present at the special meeting unanimously approved the merger
agreement. In addition, the TeleBeam Board voted unanimously in favor of
recommending the approval of the merger agreement and merger to the TeleBeam
shareholders, and directed that the transaction be submitted to the
shareholders of TeleBeam for their approval.

During the late afternoon of November 1, 1999, Mr. Kervandjian informed Mr.
Kramer of the decision of the TeleBeam Board. TeleBeam and Conestoga
management met in State College on November 3, 1999, with their counsel
participating by telephone, to finalize the merger agreement, which was signed
that evening. The execution of the merger agreement was publicly announced by
Conestoga on November 4, 1999.

After the merger agreement was signed, the parties agreed that Conestoga
would issue 735,000 shares (subject to adjustment) of Conestoga common stock
and no cash in the transaction in order to permit pooling of interests
treatment of the transaction. The parties amended the merger agreement to
reflect this change on November 12, 1999.

TeleBeam's Reasons for the Merger; Recommendation of the TeleBeam Board of
Directors

In reaching its determination that the merger with Conestoga will be
beneficial to TeleBeam and its shareholders, the TeleBeam Board considered a
number of factors, including the following:

. TeleBeam's business, financial condition, earnings and prospects, and the
current competitive conditions in the telecommunications industry, as
well as the evaluation of the merger consideration by Amsterdam Pacific,
and the belief that the terms of the merger agreement are attractive to
TeleBeam shareholders;

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. the fact that there is no public market for the TeleBeam common stock and
the Conestoga common stock to be exchanged in the merger will be publicly
listed on NASDAQ, providing a significant increase in liquidity for
TeleBeam shareholders;

. the merger is structured to qualify as a tax-free exchange so that the
TeleBeam shareholders will be able to convert their shares of TeleBeam
stock into Conestoga common stock without incurring any federal income
tax liability (other than as a result of the exercise or conversion of
certain stock options or the receipt of cash in lieu of fractional
shares);

. the risks of the strategic option of remaining independent, including
that TeleBeam must consummate multiple rounds of equity and debt
offerings in order to expand its core business, placing TeleBeam at a
competitive disadvantage to certain other communications companies whose
access to capital may not be an issue;

. from time to time in the past, TeleBeam management has had informal
discussions with third parties about the possible acquisition of
TeleBeam, and the merger consideration being offered by Conestoga was
attractive in light of such prior discussions. Based upon this
experience, the TeleBeam Board did not believe that it was likely that
TeleBeam would receive a more attractive offer in the near term;

. Conestoga's willingness to maintain the independent operations of
TeleBeam and initially to retain the continued employment of all TeleBeam
employees following the merger, enhancing the career opportunities of
TeleBeam employees; and

. the belief that most TeleBeam customers will continue to do business with
the new entity because of the reputation of Conestoga and the wider range
of communication services which TeleBeam will be able to offer in the
future.

The discussion above of the factors considered by the TeleBeam Board is not
intended to be exhaustive, but is intended to include substantially all of the
material factors considered by the TeleBeam Board. In view of the complexity
and variety of factors considered by the TeleBeam Board, the TeleBeam Board
did not consider it practical to quantify or otherwise attempt to assign any
relative or specific weights to the specific factors considered, and
individual directors may have given differing weights to different factors.

Conestoga's Reasons for the Merger

The Conestoga Board believes that the merger will benefit Conestoga, its
shareholders and employees and will also benefit the TeleBeam shareholders who
receive Conestoga common stock in the merger. Conestoga's strategic long range
plan includes growing the company through acquisitions of other
telecommunications firms and by participating in the expansion of the
communications industry and the industry's developing technologies. The
Conestoga Board believes that the merger offers Conestoga the opportunity to
increase the diversity of telecommunication services it is capable of offering
and to broaden its pool of talented telecommunication professionals, greatly
increasing the capacity of Conestoga to compete in a competitive market and
consequently increasing the value of Conestoga's common stock. Conestoga plans
to operate TeleBeam following the merger as a stand-alone subsidiary. The
Conestoga Board has concluded, in view of the foregoing and the factors set
forth below, that the merger is in the best interests of Conestoga. In
reaching its determinations and recommendations above, the Conestoga Board
considered a number of factors, some but not all of which are described below:

. Conestoga's strategic plan includes growth through the acquisition of
service providers in the telecommunications industry, including firms
like TeleBeam. The Board believes the merger with TeleBeam is consistent
with the company's strategic plan.

. The Conestoga Board's belief, based on its familiarity with the business
of Conestoga and TeleBeam, 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 Conestoga's shareholders.

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. The Conestoga Board's belief that TeleBeam's telecommunications system,
based in State College, Centre County, Pennsylvania, will complement its
own telecommunications systems and enhance its ability to expand into
State College and Centre County, Pennsylvania.

. The Conestoga Board's belief that TeleBeam's long distance business will
complement its own long distance business and that the combined long
distance businesses will offer opportunities to achieve favorable pricing
as a result of economies of scale.

. The Conestoga Board's belief that the addition of TeleBeam's
telecommunications services and products, areas of expertise, and pool of
talented employees will better enable Conestoga to take advantage of the
opportunities currently available in the telecommunications industry,
such as developing and expanding Conestoga's wireless telecommunications
services, providing ISDN and other broadband services to subscribers,
expanding data communication services, and providing cable television
services, while at the same time achieving cost savings due to economies
of scale.

. The Conestoga Board's confidence in, and respect for, the talented
employees of TeleBeam who will be able to make a major contribution to
Conestoga's future growth and economic well-being.

. The opinion of JSI Capital Advisors, LLC that the consideration to be
paid in the merger is fair, from a financial point of view, to the
shareholders of Conestoga.

The Conestoga Board did not assign any specific or relative weights to the
factors under its consideration.

For the foregoing reasons, the Board of Directors of Conestoga believes that
the merger is in the best interests of Conestoga's shareholders; has entered
into the merger agreement; and has approved the issuance of Conestoga's common
stock to the TeleBeam shareholders in the merger.

Terms of the Merger

Effect of the Merger

TeleBeam will be acquired by Conestoga, and will continue to operate as a
wholly-owned subsidiary of Conestoga.

Merger Consideration

In connection with the merger, each share of TeleBeam common stock
outstanding as of the effective time, and the value of TeleBeam stock options
that are not exercised prior to the effective date, (other than TeleBeam
common stock or options held by persons who have exercised appraisal rights)
will be converted into and become a right to receive Conestoga common stock.
For a description of the Conestoga common stock, see "DESCRIPTION OF CAPITAL
STOCK OF CONESTOGA."

The aggregate number of shares of Conestoga common stock to be exchanged in
the merger will be 735,000 shares, subject to the following possible
adjustments:

If the market price of Conestoga common stock for a ten-day period shortly
before the merger is completed is less than $18.085 per share, the total
number of shares of Conestoga common stock issued in the merger will increase,
calculated as follows:

$18.085 divided by the market price and multiplied by 735,000.

If the market price of Conestoga common stock for a ten-day period shortly
before the merger is completed is greater than $21.085 per share, the total
number of shares of Conestoga common stock to be issued will be decreased,
calculated as follows:

$21.085 divided by the market price and multiplied by 735,000.

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If the price of Conestoga common stock falls below $15.00 per share for a ten-
day period shortly before the merger is completed, TeleBeam may choose not to
consummate the merger.

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. See "THE MERGER--Terms of the Merger--Conditions to the Merger."

Representations and Warranties

TeleBeam and Conestoga have made certain customary representations and
warranties 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.

TeleBeam 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; and

. tax free reorganization matters.

Conestoga has made additional representations as to:

. the valid issuance of the Conestoga common stock in the merger;

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. filing of all tax and other returns and reports; and

. the delivery of, and absence of false information in, reports filed with
the SEC.

Conduct of Business Pending the Merger

TeleBeam has agreed that (except as expressly contemplated or permitted by
the merger agreement or to the extent that Conestoga otherwise consents in
writing), between the date of the merger agreement and the time when the
merger becomes effective:

. it will conduct its business in the ordinary course, consistent with past
practice;

. it will conduct its business so as to cause the representations and
warranties made in the merger agreement to be true on the closing date of
the merger;

. 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;

. 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, except for the issuance of
common stock as a result of the exercise of stock options granted prior
to the date of the merger agreement under the TeleBeam Equity
Compensation Plan;

. it will not declare, set aside or pay any dividends or repurchase capital
stock;

. it will not amend its charter document or bylaws;

. 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, except for bonuses awarded to management employees
in the ordinary course for year end 1999;

. it will not incur or guarantee any debt, except in the ordinary course
consistent with past practice;

. it will not sell or dispose of any assets except for sales of inventory
in the ordinary course of business consistent with past practice;

. it will not change in any material respect its accounting or tax
practices, policies or principles;

. it will not cancel or waive any debts or claims having a value of $10,000
in the aggregate;

. 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;

. it will not 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;

. it will not materially change its existing pricing structure, fees and
charges structure, marketing and promotional plans and policies; and

. 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 TeleBeam and Conestoga has agreed,
from the date of the merger agreement to the effective time of the merger:

. to promptly inform the other party in writing if any information set
forth in the schedules to the merger agreement is not accurate or
complete in all material respects;

. that TeleBeam will give Conestoga reasonable access to its personnel,
properties, books, contracts, documents and records;

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. to obtain all consents, approvals and authorizations required by the
merger agreement;

. to use reasonable best efforts to satisfy all conditions of the merger
agreement; and

. 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, TeleBeam has agreed:

. to call and hold a meeting of its shareholders for the purpose of voting
on the merger agreement;

. prior to the closing date, to deliver to Conestoga letters regarding
affiliates for purposes of Rule 145 under the Securities Act; and

. to provide Conestoga with all proxy materials which TeleBeam intends to
use in connection with the merger.

Pursuant to the terms of the merger agreement, Conestoga has also agreed:

. to file the Registration Statement with the SEC to register the Conestoga
common stock to be issued in the merger, and use its reasonable best
efforts to cause the Registration Statement to become effective;

. to file all applicable state securities applications and use its
reasonable best efforts to qualify the Conestoga common stock to be
issued in such states; and

. to file an application with the NASDAQ National Market to list the
Conestoga common stock issuable in connection with the merger, and to use
its reasonable best efforts to obtain approval of such application upon
official notice of issuance.

Employment Contracts with TeleBeam Employees

TeleBeam has agreed to employ Ara M. Kervandjian, President and Chief
Executive Officer of TeleBeam, for a period of three years following the
effective date, and to employ the following employees of TeleBeam for a period
of two years following the effective date: Heidi A. Nicholas, Senior Vice
President of Finance and Chief Financial Officer; Mark J. Fetterolf, Senior
Vice President of Operations; Jeffery C. Almoney, Senior Vice President and
Chief Technology and Information Officer; and Troy A. Knecht, Vice President
of Technical Operations. These persons may only be fired during such period
for due cause. During the periods of their contracts, TeleBeam has agreed to
provide these persons with the fringe benefits which were provided to them by
TeleBeam before the merger. Mr. Kervandjian's agreement also provides that, if
during the three year term of his agreement a third party acquires control of
Conestoga, he would be entitled to receive at least two times his annual
salary within fifteen days after his termination of employment within such
three year period. The agreement of each of the others provides that, if
during the two year term of their agreements a third party acquires control of
Conestoga, Ms. Nicholas and Messrs. Fetterolf, Almoney and Knecht,
respectively, are entitled to receive at least one and one-half times his or
her annual salary within fifteen days after his or her termination of
employment within such two year period. In turn, Messrs. Kervandjian,
Fetterolf, Almoney and Knecht and Ms. Nicholas agree for a period of one year
after the termination of their employment not to compete with Conestoga and
its subsidiaries in any facet of the telecommunications business carried on by
any of the Conestoga companies as of the date of termination in the territory
encompassed by the State College, Reading, Pottsville, Sunbury and
Williamsport basic Trading Areas, as defined by the Federal Communications
Commission for the issuance of personal communication services licenses, and
not to solicit the customers of Conestoga and its subsidiaries.

No Solicitation; Pursuit of Other Transactions

In the merger agreement, TeleBeam has agreed that, except as described
below, it will not, nor will it authorize anyone else to encourage or initiate
discussions or negotiations with any third party relating to any proposal to
acquire TeleBeam's assets or shares as more specifically described in the
merger agreement.

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TeleBeam has agreed to promptly notify Conestoga orally and in writing of any
inquiries or proposals regarding any such acquisition.

TeleBeam, however, is permitted to disclose information to, and to engage in
discussions and negotiations concerning an acquisition with a third party who
makes a bona fide offer to acquire TeleBeam assets or shares on terms that are
more favorable to the TeleBeam shareholders than the terms of the merger, and
who can reasonably be expected to complete the transaction on those terms, but
only if discussions and negotiations are required by reason of the fiduciary
obligations of the directors of TeleBeam. In addition, TeleBeam is permitted,
subject to its obligation to pay Conestoga a termination fee, to terminate the
merger agreement and accept such an offer.

Conditions to the Merger

The obligations of TeleBeam and Conestoga to consummate the merger are
subject to, among other things, the satisfaction of the following conditions:

. the performance by each of them of their respective obligations under the
merger agreement and the accuracy of their respective representations and
warranties in that document;

. approval of the merger agreement by the shareholders of TeleBeam;

. execution and delivery of employment agreements by Ara M. Kervandjian,
President and Chief Executive Officer, Heidi A. Nicholas, Senior Vice
President of Finance and Chief Financial Officer, Mark J. Fetterolf,
Senior Vice President of Operations, Jeffery C. Almoney, Senior Vice
President and Chief Technology and Information Officer, and Troy A.
Knecht, Vice President of Technical Operations;

. the absence of any injunctions which would prevent the consummation of
the merger;

. the absence of any action, suit or proceeding against TeleBeam or
Conestoga brought by the Antitrust Division of the Department of Justice
or the Federal Trade Commission challenging the merger;

. the listing on the NASDAQ National Market of the shares of Conestoga
common stock issuable in connection with the merger;

. the effectiveness of the Registration Statement and the absence of stop
orders suspending the effectiveness; and

. the receipt of approval of the merger pursuant to the Hart-Scott-Rodino
Act, which has been granted.

The obligations of Conestoga to consummate the merger are further subject
to:

. the receipt by Conestoga of letters from TeleBeam's affiliates for
purposes of Rule 145 under the Securities Act;

. the exercise of appraisal rights by the holders of no more than 10% of
the outstanding TeleBeam common stock;

. the receipt by Conestoga of an opinion from Saul, Ewing, Remick & Saul,
LLP, counsel to TeleBeam, in form and substance reasonably satisfactory
to Conestoga and its counsel; and

. the receipt by Conestoga of the written resignations of those TeleBeam
directors and officers designated by Conestoga.

The obligations of TeleBeam and of Conestoga to consummate the merger are
also subject to the receipt of an opinion from Saul, Ewing, Remick & Saul,
LLP, tax counsel to TeleBeam, as to certain tax matters.

Waiver; Amendment

Prior to the time the merger becomes effective, any provision of the merger
agreement may be: (a) waived by the party benefited by the provision, by board
of directors or authorized officer action, if in the judgment of

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such board or such officer the 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 TeleBeam or Conestoga, no amendment which by law requires
approval by the shareholders of TeleBeam or Conestoga may be made without such
shareholder approval.

Termination

Even if the merger agreement is approved by the shareholders of TeleBeam,
the merger agreement may be terminated and the merger abandoned at any time
prior to the closing date: (a) by mutual consent of Conestoga and TeleBeam,
(b) by either TeleBeam or Conestoga 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 merger has not become
effective on or by June 30, 2000, unless the failure is due to the breach of
the merger agreement by the party seeking to terminate or the parties agree to
extend the date by which the merger must become effective; or (iii) by
TeleBeam if, for a ten-day period shortly before consummation of the merger,
the price per share of Conestoga common stock is less than $15.00.

TeleBeam may terminate the merger agreement, subject to its obligations to
pay the termination fee described below, in order to accept an offer by a
third party to acquire stock or assets of TeleBeam on terms that the TeleBeam
Board concludes are more favorable to the TeleBeam shareholders than the
merger.

Fees and Expenses

Except as set forth below, whether or not the merger is consummated, all
costs and expenses incurred in connection with the merger shall be paid by the
party incurring such costs. If the merger is consummated, costs incurred by
TeleBeam will ultimately be reflected in Conestoga's consolidated financial
position.

Conestoga has paid the $45,000 Hart-Scott-Rodino Act filing fee.

In the three following circumstances, TeleBeam has agreed to pay Conestoga a
break-up fee of $250,000: (i) Conestoga terminates the merger agreement
because TeleBeam breaches it; (ii) TeleBeam terminates the merger agreement in
order to accept a better offer as described earlier; and (iii) either
Conestoga or TeleBeam terminates the merger agreement because the required
approval of TeleBeam's shareholders has not been obtained.

Conestoga has agreed to pay TeleBeam a break-up fee in the amount of
$250,000 plus a reimbursement of $110,000 to TeleBeam to cover a terminated
transaction expense if the merger agreement is terminated by TeleBeam because
Conestoga breaches it.

Conversion of TeleBeam Shares

On the date the merger becomes effective, all outstanding TeleBeam common
stock and the value of all TeleBeam stock options that have not been exercised
prior to that day shall be converted into Conestoga common stock, except for
fractional shares and appraisal shares. For a description of the TeleBeam
shareholder action required to perfect appraisal rights, see "THE MERGER--
Appraisal Rights."

No Fractional Shares

No fractional shares of Conestoga common stock or script certificates will
be issued in connection with the merger. Instead, each holder of shares of
TeleBeam common stock who would otherwise be entitled to a fraction of a share
of Conestoga common stock will be paid cash in an amount equal to such
fraction multiplied by an amount equal to the average of the last reported bid
and ask prices per share of Conestoga common stock on the effective date, as
reported on the NASDAQ Quotation System. No such holder will be entitled to
dividends, voting rights or other rights in respect of any such fractional
shares.

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Delivery of Shares

As soon as practicable after the effective date, each TeleBeam shareholder
and each holder of TeleBeam stock options that have not been exercised prior
to the effective date will be mailed instructions, a form letter of
transmittal and any materials to be used to surrender certificates
representing TeleBeam common stock or cancel TeleBeam stock options in
exchange for certificates representing the Conestoga common stock (and cash in
lieu of fractional shares) which such holder is entitled to receive pursuant
to the merger. All surrendered certificates and options will be cancelled.

Dividends or other distributions on Conestoga common stock which are
declared or made after the effective date will be withheld with respect to
shares of Conestoga common stock issued pursuant to the merger until the
certificates for the TeleBeam common stock or options which were converted
into withheld shares of Conestoga common stock have been surrendered and
replaced with Conestoga common stock certificates. Withheld dividends or other
distributions will not receive interest.

No transfer taxes will be due from TeleBeam shareholders in connection with
the exchange of certificates except that, if any Conestoga certificate is to
be issued in a name other than the name in which the surrendered TeleBeam
common stock is registered, transfer taxes may be due, and the person
requesting such exchange must pay Conestoga any transfer or other taxes
required in connection therewith or satisfy Conestoga that the tax has been
paid or is not applicable.

TeleBeam shareholders should not surrender their TeleBeam common stock
certificates for exchange until they have received instructions and other
materials. However, TeleBeam shareholders are urged to notify TeleBeam now at
(814) 238-0000 ext. 2238, if their certificates are lost, stolen or destroyed,
in order to begin the process of issuance of replacement certificates.

Interest of Certain Persons in the Merger

Certain directors and officers of TeleBeam have interests in the merger that
are in addition to their interests as shareholders of TeleBeam generally.
Specifically, TeleBeam will enter into employment agreements with Ara M.
Kervandjian, Heidi A. Nicholas, Mark J. Fetterolf, Jeffery C. Almoney and Troy
A. Knecht. See "THE MERGER--Terms of the Merger--Employment Contracts with
TeleBeam Employees."

Accounting Treatment

We intend for the merger to be accounted for as a pooling of interests,
which means that we will treat our companies as if they had previously been
combined for accounting and financial reporting purposes.

Certain Federal Income Tax Consequences

The following is a summary of the anticipated material federal income tax
consequences of the merger. Your individual circumstances may affect the tax
consequences of the merger to you. We are providing no information herein with
respect to the tax consequences of the merger under applicable foreign, state
or local laws. Consequently, you are advised to consult your own tax advisor
as to the specific tax consequences of the merger.

We structured the merger to qualify as a tax free reorganization under the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
Accordingly, for federal income tax purposes:

(i) no gain or loss will be recognized by TeleBeam or Conestoga due to
the merger;

(ii) except for any cash received in lieu of fractional shares, no gain
or loss will be recognized by holders of TeleBeam common stock who only
receive Conestoga common stock in exchange for their TeleBeam common stock;

(iii) the basis of the Conestoga common stock to be received by a
TeleBeam shareholder will generally be the same as the basis of the
TeleBeam common stock surrendered in exchange, less any basis attributable
to any fractional shares for which cash is received; and

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(iv) the holding period of the Conestoga common stock to be received by a
shareholder of TeleBeam will include the period during which the TeleBeam
common stock surrendered in exchange was held, provided that the TeleBeam
common stock surrendered was held as a capital asset on the date of the
exchange.

You are encouraged to consult your own tax advisor as to particular facts
and circumstances which may be unique to you 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 Conestoga
common stock received in the merger.

Appraisal Rights

TeleBeam shareholders have appraisal rights under Delaware law.

Under the Delaware General Corporation Law, TeleBeam shareholders have the
right to object to the merger and receive cash for the fair value of the
TeleBeam common stock they held before the merger if the merger is completed.
Fair value means the fair value of the shares immediately before completion of
the merger, taking into account all relevant factors, but excluding any
appreciation or depreciation in the value of the shares resulting from the
accomplishment or expectation of the merger. Conestoga shareholders do not
have appraisal rights in connection with the merger.

Below is a summary of the steps TeleBeam shareholders must take to properly
exercise their appraisal rights. Section 262 of the Delaware General
Corporation Law sets out these steps in detail. A copy of this Section is
attached as Appendix B to this proxy statement/prospectus. We encourage all
TeleBeam shareholders to read Section 262 carefully.

TeleBeam shareholders must take each step in the order listed and exactly as
directed in the statute to perfect their appraisal rights. Otherwise, they
will receive the Conestoga stock for their TeleBeam common stock described in
the merger agreement. See "THE MERGER--Terms of the Merger--Merger
Consideration."

Any written notice or demand required in connection with the exercise of
appraisal rights may be sent to TeleBeam at its principal office in State
College, Pennsylvania.

Steps to Properly Exercise Appraisal Rights

1. TeleBeam shareholders wishing to exercise their appraisal rights must
deliver written demand for appraisal of their shares to TeleBeam before the
vote on the merger at the TeleBeam special meeting. This demand will be
sufficient if it reasonably informs TeleBeam of the shareholder's identity and
intention to demand the appraisal of his or her shares of TeleBeam common
stock. A proxy or vote against the merger will not constitute a demand for
appraisal rights. However, shareholders wishing to exercise their appraisal
rights must not vote in favor of, or otherwise consent to, the merger and must
continue to hold their shares through the effective date of the merger.
Shareholders demanding appraisal rights will not be entitled to vote their
TeleBeam shares or to receive payments of dividends or other distributions on
the stock.

2. Within 10 days after the merger becomes effective, TeleBeam will send
written notice to each TeleBeam shareholder who has properly demanded
appraisal rights and has not voted in favor of or consented to the merger. No
notice will be given if the merger is not completed, but TeleBeam shareholders
will continue to hold their shares in that case.

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3. At any time within 60 days after the merger becomes effective, TeleBeam
shareholders who have demanded appraisal rights will be entitled to withdraw
their demand and to accept the Conestoga common stock offered in the merger.
Shareholders who withdraw their demand for appraisal rights will no longer be
entitled to appraisal rights in connection with the merger.

4. Within 120 days after the effective date of the merger, shareholders who
have properly demanded appraisal of their TeleBeam shares in accordance with
the statute will be entitled, upon written request to the corporation
surviving the merger, to receive a statement of the number of TeleBeam
shareholders who have similarly demanded appraisal and the total number of
shares subject to appraisal. The surviving corporation will mail this written
statement to a requesting shareholder within 10 days after it receives the
shareholder's written request for the statement, or 10 days after the period
for delivery of demands for appraisal expires, whichever is later.

5. Also within 120 days after the merger becomes effective, the corporation
surviving the merger or any TeleBeam shareholder who has properly demanded
appraisal, and not withdrawn that demand, may file a petition in the Delaware
Court of Chancery demanding a determination of the value of the TeleBeam
common stock held prior to the merger by all shareholders who have properly
demanded appraisal rights. If no petition for an appraisal is filed within 120
days after the effective date of the merger, no shareholder will be entitled
to an appraisal of his or her shares in connection with the merger.

6. If a shareholder files the petition, a copy of the petition will be
served on the surviving corporation. The surviving corporation will then have
20 days in which to file a duly verified list of the names and addresses of
all shareholders who have demanded payment for their shares, and with whom the
surviving corporation has not reached agreement as to the value of their
shares, with the office of the Register in Chancery in which the shareholder
filed the petition. If the surviving corporation files the petition, it must
file the verified list with the petition.

The Court may order the Register in Chancery to give notice of the time and
place fixed for the hearing on the petition by registered or certified mail to
the surviving corporation and the shareholders included on the list. The
notice will also be published one or more times at least one week before the
day of the hearing in a newspaper of general circulation published in the City
of Wilmington, Delaware, or another publication chosen by the Court. The Court
must approve the form of notice. The surviving corporation will pay the cost
of providing the notices.

7. At the hearing on the petition, the Court will determine the TeleBeam
shareholders who have properly demanded and become entitled to appraisal
rights. The Court may require the shareholders who have demanded an appraisal
of their shares to submit their certificates of stock to the Register in
Chancery for notation on the certificates of the pendency of the appraisal
proceedings. If any shareholder fails to submit their certificates when
requested to do so, the Court may dismiss the proceedings as to that
shareholder.

8. Typically, after determining the shareholders entitled to an appraisal,
the Court will appraise the shares, determining their fair value together with
a fair rate of interest, if any, to be paid on the amount determined to be the
fair value. In determining the fair rate of interest, the Court may consider
all relevant factors, including the rate of interest which the surviving
corporation would have had to pay to borrow money during the time the
proceeding was pending. On application by the surviving corporation or by any
shareholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
conduct a trial on the appraisal before determining the shareholders entitled
to an appraisal. Any shareholder whose name appears on the list filed by the
surviving corporation and who has submitted his or her certificates of stock
to the Register in Chancery, if required by the Court, may participate fully
in all proceedings until it is finally determined that the shareholder is not
entitled to appraisal rights under Delaware law.

Holders of TeleBeam common stock considering exercising appraisal rights
should recognize that the fair value of their shares determined by the Court
could be more than, the same as or less than the

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consideration they are entitled to receive pursuant to the merger agreement if
they do not exercise appraisal rights.

9. The Court will direct the surviving corporation to pay to the
shareholders entitled to appraisal the fair value of the shares, together with
interest, if any. Interest may be simple or compound, as the Court may direct.
Payment will be made to each shareholder upon the surrender to the corporation
of the certificates representing the TeleBeam stock. The Court's decree may be
enforced in the same way other decrees in the Court of Chancery may be
enforced.

10. The Court may order the surviving corporation, the shareholders, or both
to pay the costs of the appraisal proceeding. Upon application of a
shareholder, the Court may order all or a portion of the expenses incurred by
any shareholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled
to an appraisal. No appraisal proceeding in the Court of Chancery will be
dismissed as to any shareholder without the approval of the Court, and the
Court may set any conditions on the dismissal as it deems just.

RESALE RESTRICTIONS

The Conestoga common stock issuable in the merger has been registered under
the Securities Act, but such registration does not cover resales by
shareholders of TeleBeam who may be deemed to control, be controlled by or be
under common control with TeleBeam or Conestoga at the time of or after the
merger; such people may be deemed to be "affiliates" of TeleBeam or Conestoga.
Affiliates may not sell the Conestoga common stock acquired in the merger
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 affiliates may make
resales and also on the quantities of resales which 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
affiliate of TeleBeam enter into an agreement not to sell Conestoga common
stock acquired in the merger except as allowed by the Securities Act.

Persons who may be deemed to be affiliates of TeleBeam include directors,
officers and certain large holders of TeleBeam common stock. Management of
TeleBeam will notify those persons whom it believes may be such affiliates.
TeleBeam shareholders who are not deemed to be affiliates may sell their
Conestoga common stock without being subject to the above restrictions.

DESCRIPTION OF CAPITAL STOCK OF CONESTOGA

As of November 30, 1999, Conestoga's authorized capital stock consisted of
20,000,000 shares of common stock, par value $1.00 per share, 7,068,664 shares
of which were issued and outstanding, and 900,000 shares of $3.42 Series A
preferred stock, 156,979 shares of which were issued and outstanding.

Conestoga Common Stock

The following description of the Conestoga common stock is not intended to
be complete and is qualified in its entirety by reference to Conestoga's
Articles of Incorporation, a copy of which is on file with the SEC.

Voting Rights

Generally, with respect to all matters upon which shareholders are entitled
to vote (including the election of directors) or to which shareholders are
entitled to give consent, the holders of the outstanding Conestoga common

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stock are entitled to cast one vote for each share of Conestoga common stock
held. However, each shareholder has cumulative voting rights in all elections
for directors, which is the right to cast as many votes in the aggregate as
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 Conestoga common stock ranks, with respect to the payment of dividends
or distribution of assets upon liquidation, junior to the Conestoga $3.42
Series A preferred shares.

Dividends and Distributions

The Conestoga common stock receives such dividends as are from time to time
declared by the Conestoga Board, subject to the prior payment of the dividends
due on the Conestoga $3.42 Series A preferred shares.

In the case of dividends or other distributions payable in stock or stock
split-ups or divisions, shares of Conestoga shall be distributed only with
respect to Conestoga common stock.

Liquidation Rights

In the event of dissolution, liquidation or winding up of Conestoga, whether
voluntary or involuntary, holders of the Conestoga common stock are entitled
to payment out of the assets of Conestoga ratably in accordance with the
number of shares held by them, respectively, subject to the prior liquidation
rights of the Conestoga $3.42 Series A preferred shares.

General

Conestoga serves as the transfer agent and registrar for Conestoga common
stock.

Conestoga $3.42 Series A Preferred Shares

The following description of the material terms of the Conestoga $3.42
Series A preferred shares is not intended to be complete, and is qualified in
its entirety by reference to Conestoga's Articles of Incorporation, a copy of
which is on file with the SEC.

The Conestoga $3.42 Series A preferred shares were issued to some of the
shareholders of Buffalo Valley Telephone Company as a form of payment for
Conestoga's acquisition of Buffalo Valley.

Rank

The Conestoga preferred shares rank, with respect to the payment of
dividends or distribution of assets upon liquidation, senior to Conestoga's
common stock, or any other class or series of Conestoga stock expressly stated
to rank junior to the Conestoga preferred shares. The Conestoga preferred
shares rank pari passu with any other class or series of Conestoga stock
expressly stated to be on a parity with the preferred shares. As discussed
below under "--Voting Rights", Conestoga may not issue any stock ranking
senior to the Conestoga preferred shares without the consent of the holders,
voting together as a single class, of the preferred shares and any outstanding
class of stock expressly stated to be on a parity with the Series A preferred
stock.

Dividends

Holders of the Conestoga preferred shares are entitled to receive, as and if
declared by the Conestoga Board out of Conestoga funds legally available
therefor, cash dividends at an annual rate of $3.42 per share. Dividends are
paid in equal semi-annual installments of $1.71 and are cumulative. No
interest is payable in respect of any

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dividend payments which may be in arrears. So long as Conestoga has funds
legally available for such purpose, the Conestoga Board has a mandatory duty
to declare and pay dividends on the Conestoga preferred shares (as well as to
make required redemptions of Conestoga preferred shares), and holders shall
have the right to specifically enforce declaration and payment of dividends
(as well as required redemptions) to the extent permitted by Section 1521(b)
of the Pennsylvania Business Corporation Law.

Unless full cumulative dividends on outstanding Conestoga 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
Conestoga common stock, out of the proceeds of a substantially concurrent sale
of shares of junior stock.

Liquidation Rights

In the event of any liquidation, dissolution or winding up of Conestoga, the
holders of Conestoga preferred shares shall be entitled to receive from the
assets of Conestoga payment in cash of $65 per share, plus a further amount
equal to unpaid cumulative dividends on Conestoga 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 Conestoga preferred shares and any other outstanding
parity stock cannot be paid in full, then the holders of Conestoga 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 Conestoga for these purposes: (i) a merger or consolidation of
Conestoga with any other corporation; (ii) a reorganization or division of
Conestoga; (iii) the purchase or redemption of all or part of any outstanding
Conestoga stock; (iv) a sale or transfer of all or any part of Conestoga's
assets; or (v) a share exchange to which Conestoga is a party.

Conversion Rights

The preferred shares are convertible at the option of the holder at any time
into a number of whole shares of Conestoga 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 preferred shares which have been called for
redemption by Conestoga will terminate at the close of business on the
business day next preceding the redemption date unless Conestoga shall default
in paying the redemption price. See "--Redemption at the Option of Conestoga"
below.

The conversion price of the currently issued and outstanding Conestoga
preferred shares is $22.95 after the 3 for 2 split distributed in May, 1999.

The conversion price is subject to adjustment in certain events, including:
(i) dividends and other distributions on Conestoga common stock payable in
shares of any class or series of Conestoga capital stock; (ii) certain
subdivisions, combinations and reclassifications of Conestoga common stock;
(iii) the issuance to all holders of Conestoga common stock of rights, options
or warrants entitling them to subscribe for or purchase Conestoga common stock
at less than the current market price (as defined); and (iv) distributions to
all holders of Conestoga common stock of evidences of indebtedness of
Conestoga 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 Conestoga securities.

In the event of any (i) capital reorganization of Conestoga; (ii) merger,
consolidation or share exchange of Conestoga with or into another corporation;
(iii) division of Conestoga; or (iv) sale, lease, exchange or other
disposition of all or substantially all of the property and assets of
Conestoga as a result of which other than solely cash shall be exchanged for
Conestoga common stock, all holders of Conestoga preferred shares will
thereafter

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<PAGE>

have the right to convert their 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 shares of Conestoga common stock issuable upon conversion of
their 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 Conestoga preferred shares, Conestoga shall deliver
to the holder of the shares, together with the certificates for the Conestoga
common stock issued upon conversion, payment for all accrued and unpaid
cumulative dividends on such shares through the date of conversion.

Fractional Conestoga common stock will not be issued upon conversion. In
lieu thereof, Conestoga will either pay a cash adjustment based upon market
price of Conestoga common stock on the business day preceding the date of
conversion or deliver a scrip certificate of Conestoga in respect of such
fractional share.

Conestoga will reserve a number of shares of Conestoga common stock
sufficient for the satisfaction of any scrip certificates and the conversion
of all outstanding preferred shares. For so long as Conestoga common stock is
listed or included for quotation or trading on any securities exchange or
market or trading system, Conestoga will list or include on any such exchange,
market or system all Conestoga common stock issuable upon conversion of the
outstanding preferred shares.

Redemption at the Option of Conestoga

The Conestoga preferred shares are not subject to any mandatory redemption
or sinking fund provision. Commencing on May 31, 2000, the fourth anniversary
of the closing date of Conestoga's acquisition of Buffalo Valley, the
Conestoga preferred shares issued in such transaction will be redeemable for
cash, at the option of Conestoga, 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>
Percentage
----------
<S> <C>
May 31, 2000 until May 30, 2001................................ 103.00%
May 31, 2001 until May 30, 2002................................ 102.00%
May 31, 2002 until May 30, 2003................................ 101.00%
May 31, 2003 and after......................................... 100.00%
</TABLE>

Any Conestoga preferred shares which have been called for redemption may be
converted into Conestoga common stock at any time prior to the close of
business on the business day prior to the redemption date.

Unless full cumulative dividends due on outstanding Conestoga preferred
shares have been paid and all prior redemptions at the option of the holders
have been made, Conestoga may not redeem any preferred shares or shares of
parity stock unless all outstanding preferred shares are redeemed, and
Conestoga may not purchase or otherwise acquire any preferred shares or shares
of parity stock except in accordance with a purchase or exchange offer made
simultaneously to all holders of preferred shares and shares of parity stock
which, in the reasonable opinion of the Conestoga Board, will result in fair
and equitable treatment among all such shares. If less than all of the
outstanding Conestoga preferred shares are 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 Conestoga Board.

Redemption at the Option of the Holders

Commencing on May 30, 1998, the second anniversary of the closing date of
Conestoga's acquisition of Buffalo Valley and at any time or from time to time
thereafter, each holder of Conestoga preferred shares issued

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<PAGE>

in such transaction shall have the right, at such holder's option, to require
Conestoga to redeem all or a portion of such holder's 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 preferred shares will be irrevocable and (unless Conestoga shall
default in making the requested redemption) shall terminate all conversion
rights of the holder with respect to the preferred shares to be redeemed.

Holders may not exercise their optional redemption right for less than 100
shares of preferred shares (or, if less than 100, all shares of preferred
shares owned by such holder). As of each March 31, June 30, September 30 and
December 31, Conestoga shall redeem all preferred shares for which a notice of
optional redemption has been received by Conestoga prior to the close of
business on the immediately preceding February 15, May 15, August 15 or
November 15, respectively. Conestoga shall also redeem all preferred shares
for which a notice of optional redemption has been received by Conestoga
during the 30 day period following the date of mailing by Conestoga 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
Conestoga.

Voting Rights

Except as indicated below or as required by law, holders of preferred shares
will have no voting rights. In the event that (i) dividends upon the preferred
shares shall be in arrears in an amount equal to three full semi-annual
dividends or (ii) any redemption of preferred shares at the option of the
holder has not been made as required, the number of directors constituting the
full Conestoga Board shall be increased by two, and the holders of the
preferred shares, voting noncumulatively separately as a single class together
with the holders of any other shares of Conestoga preferred shares having
similar voting rights then exercisable, shall be entitled to elect two
additional members of the Conestoga 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
preferred shares, Conestoga may not amend, alter, change or repeal any of the
express terms of the preferred shares.

In addition, without the affirmative vote of the holders of at least a
majority of the preferred shares then outstanding or, if holders of other
series of Conestoga preferred shares have the right to vote as a class on such
matter under Conestoga's Articles of Incorporation, the holders of at least a
majority of Conestoga preferred shares and other series of Conestoga preferred
stock voting as a single class, Conestoga 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 Conestoga
permitted to be outstanding immediately prior to such merger, consolidation,
division or share exchange.

When holders of preferred shares have the right to vote as described above,
each holder of 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 Conestoga preferred share.

No Trading Market

The Conestoga preferred shares are not listed on NASDAQ or any securities
exchange. An active public trading market for the preferred shares has not
developed since they were issued as part of the acquisition of Buffalo Valley.

No Rating

Conestoga has not applied for a rating of the preferred shares from Moody's,
S&P or any other statistical rating organization.

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<PAGE>

Miscellaneous

Conestoga serves as the transfer agent, conversion agent and registrar for
the preferred shares. Holders of preferred shares have no preemptive rights
with respect to any shares of capital stock of Conestoga or any other
securities of Conestoga convertible into or carrying rights or options to
purchase any such shares.

Pennsylvania Anti-Takeover Law Provisions

Conestoga is subject to various statutory "anti-takeover" provisions
contained in the Pennsylvania Business Corporation Law, as described below:

If any person or group acquires 20% or more of the voting power of
Conestoga, the remaining shareholders may demand from such person or group the
fair value of their shares, including a proportionate amount of any control
premium. In addition, business combinations between an interested shareholder
and the corporation are delayed for five years and are subject to certain
conditions. Business combinations subject to this provision include various
transactions utilizing a corporation's assets for purchase price amortization
or refinancing purposes. A shareholder who is the beneficial owner of at least
20% of a corporation's voting shares would be an "interested shareholder" and
subject to this provision.

These statutes contain a wide variety of transactional and status
exemptions, exclusions and safe harbors. The foregoing descriptions are
qualified in their entirety by reference to Subchapters 25E and 25F of the
Pennsylvania Business Corporation Law which is incorporated herein by
reference.

Although other statutory anti-takeover protection is available under
Pennsylvania law, the Conestoga bylaws render some of these provisions
inapplicable to Conestoga, 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).

However, the Conestoga bylaws make applicable the provisions of sections
1715 and 1717 of Subchapter 17B of the Business Corporation Law, which give
directors broad discretion to consider the interests of a wide range of groups
affected by its decisions and to reject proposed acquisitions or changes in
control.

Finally, the Pennsylvania Business Corporation Law permits a corporation's
articles to provide, or other corporate action to permit, specified groups of
shareholders to be treated differently. Such a provision must be approved by
shareholders generally. For example, the corporation may provide that shares
of common stock held only by designated shareholders of record, and no other
shares of common stock, will be cashed out at a price determined by the
corporation, subject to applicable appraisal rights.

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COMPARISON OF SHAREHOLDER RIGHTS

Introduction

Upon consummation of the merger, holders of TeleBeam common stock, whose
rights presently are governed by the Delaware General Corporation Law and
TeleBeam's Certificate of Incorporation and Bylaws, will become holders of
Conestoga common stock. Accordingly, their rights will be governed by the
Pennsylvania Business Corporation Law and Conestoga's charter documents.
Because Pennsylvania and Delaware law and TeleBeam's and Conestoga's charter
documents contain different provisions, your rights as a shareholder of
TeleBeam will be different than your rights as a shareholder of Conestoga. The
following discussion is not intended to be a complete statement of all
differences and is qualified in its entirety by reference to applicable
Delaware corporate laws and Pennsylvania corporate laws and the charter
documents of TeleBeam and Conestoga. See "WHERE YOU CAN FIND MORE
INFORMATION."

Size of the Board of Directors

In accordance with Delaware corporation law, the TeleBeam bylaws state that
the number of directors will be set by the TeleBeam Board of Directors and
authorizes the TeleBeam Board to change the number by resolution, provided
that the corporation must have a minimum of three directors. The number of
directors of TeleBeam is currently fixed at ten. The TeleBeam Board acting
without shareholder approval may change that number at any time.

Under Pennsylvania corporation law, the number of directors is fixed by, or
in the manner provided in, the bylaws. If the number is not fixed or the
manner for fixing the number is not set forth in the bylaws, the number of
directors is the number stated in the articles of incorporation or three if no
number is so stated. The Conestoga bylaws fix the number of directors at nine.
The board of directors has the authority to amend the bylaws to change the
number of directors, subject to the power of the shareholders to change that
action.

Classified Board of Directors

A classified board is one in which a certain number, but not all, of the
directors are elected on a rotating basis each year. Delaware corporation law
permits, but does not require, a classified board of directors. With a
classified board, the directors can be divided into as many as three classes
with staggered terms of office, with only one class of directors standing for
election each year. The TeleBeam bylaws provide for a classified board of
directors with three classes of directors. Each class of directors is elected
to serve for a three year term.

Under Pennsylvania corporation law, a corporation is permitted to adopt a
classified board. If the directors are classified, each class must be as
nearly equal in number as possible, the term of office of at least one class
must expire in each year and the members of a class must not be elected for a
period longer than four years. Like TeleBeam's, the Conestoga bylaws provide
for a classified board of directors with three classes of directors. Each
class of directors is elected to serve for a three year term.

Cumulative Voting

In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number
of directors to be elected. A shareholder may then cast all of his or her
votes for a single candidate or may allocate them among as many candidates as
the shareholder may choose. Under Delaware corporation law, cumulative voting
in the election of directors is not available unless specifically provided in
the certificate of incorporation. The TeleBeam certificate of incorporation
prohibits cumulative voting.

Pennsylvania corporation law provides that any shareholder is entitled to
cumulate his or her votes in the election of directors unless the articles of
incorporation provide otherwise. Holders of Conestoga common stock are
entitled to cumulate their votes for the election of directors.

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<PAGE>

Removal of Directors

Under Delaware corporation law, if a corporation has a classified board, the
shareholders may remove a director only for cause, unless the certificate of
incorporation provides otherwise. The TeleBeam bylaws provide that the
TeleBeam shareholders are entitled to vote on the removal, with or without
cause, of any director.

Under Pennsylvania corporation law, unless otherwise provided in a bylaw
adopted by the shareholders, any director or the entire board of directors of
a corporation may be removed, with or without cause, if the removal is
approved by the affirmative vote of a majority of the outstanding shares
entitled to vote. The Conestoga bylaws provide that Conestoga directors may
only be removed for cause by shareholder vote.

Filling Vacancies on the Board of Directors

Under Delaware corporation law, vacancies and newly created directorships
may be filled by a majority of the directors then in office, even though less
than a quorum, unless otherwise provided in the certificate of incorporation
or the bylaws (and unless the certificate of incorporation directs that a
particular class of stock is to elect such director, in which case any other
directors elected by such class, or a sole remaining director so elected, may
fill the vacancy). Under the TeleBeam certificate of incorporation and
TeleBeam bylaws, a vacancy on the board may be filled by either the vote of
the TeleBeam shareholders or by the remaining directors then in office, even
though less than a quorum. Newly created directorships may be filled only by a
majority vote of all directors then in office.

The Conestoga 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 will serve only the unexpired portion of the
term of the vacating director.

Interested Director Transactions

Under Delaware corporation law and TeleBeam's bylaws, certain contracts or
transactions in which one or more of the corporation's directors has an
interest are not void or voidable because of that interest, provided that
certain conditions are met. Under Delaware corporation law and TeleBeam's
bylaws, the conditions are that either (1) the shareholders or the
disinterested directors must approve the contract or transaction after the
full disclosure of material facts, or (2) the contract or transaction must
have been fair as to the corporation at the time it was approved. Under
Delaware corporation law, if board approval is sought, the contract or
transaction must be approved by a majority of the disinterested directors,
even though less than a quorum.

Similarly, under Pennsylvania corporation law, a transaction between a
corporation and an interested director will not be void or voidable solely
because of the director's interest if (1) the board of directors knows about
the director's interest and authorizes the transaction by the affirmative vote
of a majority of the disinterested directors even though the disinterested
directors are less than a quorum, (2) the shareholders entitled to vote on the
transaction know about the director's interest and the transaction is
specifically approved in good faith by vote of those shareholders, or (3) the
transaction is fair to the corporation as of the time it is authorized,
approved or ratified by the board of directors or the shareholders.

Limitations on Directors' Liability

Both the TeleBeam and Conestoga bylaws provide that directors will 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 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 under any criminal statute or the liability of a
director for the payment of taxes.

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<PAGE>

TeleBeam's certificate of incorporation also provides that no director of
the corporation will have any personal liability to the corporation or to any
of its shareholders for monetary damages for breach of fiduciary duty as a
director. However, this provision does not eliminate or limit the liability of
a director (1) for any breach of the director's duty of loyalty to the
corporation or its shareholders, (2) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (3) for
unlawful payment of dividends or unlawful stock purchases or redemptions, or
(4) for any transaction from which the director derived an improper personal
benefit.

Indemnification of Directors and Officers

TeleBeam and Conestoga each provide indemnification of their directors,
officers and employees. The TeleBeam Certificate of Incorporation and Bylaws
provide that TeleBeam will indemnify and protect any director, officer,
employee or agent to the fullest extent permitted by Delaware corporation law.

Under both Delaware and Pennsylvania corporation law, other than an action
brought by or in the right of the corporation, indemnification is available if
it is determined that the director, officer, employee or agent 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
action or proceedings, had no reasonable cause to believe his or her conduct
was unlawful. In actions brought by or on behalf of the corporation,
indemnification is limited to expenses actually and reasonably incurred and is
permitted only if the director, officer, employee or agent 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 company. The corporation may not indemnify any director,
officer, employee or agent from any claim, issue or matter as to which the
director, officer, employee or agent is determined to be liable to the
corporation, unless and only to the extent that the court in which the action
was brought determines that, despite the determination of liability, but in
view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnification for his or her expenses. If any director, officer,
employee or agent is successful in defending any action, suit or proceeding,
the corporation must indemnify him or her against expenses actually and
reasonably incurred in connection with the action.

Pennsylvania corporation law grants a corporation broad authority, beyond
the power described above, 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 Pennsylvania corporation law, the
Conestoga bylaws provide for broad indemnification of directors, officers and
other agents of the corporation.

Voting Rights Generally

With respect to most matters on which shareholders are entitled to vote,
holders of TeleBeam common stock are entitled to one vote per share. Any
action to be taken by vote of the TeleBeam shareholders will be effective upon
the affirmative vote of a majority of the TeleBeam common stock represented
and entitled to vote at a shareholders meeting, if a quorum is present, unless
a different vote is required by Delaware corporation law.

Except as required by law or as described below, holders of Conestoga $3.42
Series A Preferred Shares have no voting rights. If Conestoga fails to pay
dividends in an amount equal to three full semi-annual dividends or fails to
redeem Conestoga $3.42 Series A Preferred Shares when required, holders of
Conestoga $3.42 Series A Preferred Shares, voting as a class together with any
other Conestoga preferred shareholders having a similar right, will be
entitled to elect two directors to the Conestoga Board. Holders of Conestoga
$3.42 Series A Preferred Shares also have voting rights in limited
circumstances where Conestoga desires to take specified corporate actions that
may be adverse to the rights and preferences of the Conestoga $3.42 Series A
Preferred Shares. Where any such voting rights apply, each Conestoga Preferred
Share will have one vote (or fraction thereof) for each $10 (or fraction
thereof) of liquidation preference of such shares. See "DESCRIPTION OF CAPITAL
STOCK OF CONESTOGA--CONESTOGA $3.42 Series A Preferred Shares."

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<PAGE>

With respect to all matters on which shareholders are entitled to vote
(excluding the election of directors), holders of Conestoga common stock are
entitled to one vote per share. Except for the election of directors, in
general, any action to be taken by vote of the Conestoga shareholders will be
effective upon the affirmative vote of a majority of the votes cast at a
shareholders meeting.

Amendments to the Certificate of Incorporation and Articles of Incorporation

Under Delaware corporation law and TeleBeam's charter documents, the
corporation's certificate of incorporation can be amended by the affirmative
vote of the board of directors and approved by the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote on the
amendment.

Because Conestoga is a registered corporation, under Pennsylvania
corporation law Conestoga shareholders are not entitled to propose amendments
to the Conestoga Articles, and all amendments must first be approved by the
Conestoga Board of Directors. 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 the Conestoga Articles
require shareholder approval by the affirmative vote of a majority of the
votes cast by all shareholders entitled to vote thereon. For a description of
the amendments to the Conestoga Articles requiring a separate class vote, see
"DESCRIPTION OF CAPITAL STOCK OF CONESTOGA--CONESTOGA $3.42 Series A Preferred
Shares--Voting Rights."

Amendment of Bylaws

The TeleBeam bylaws may be altered, amended or repealed, or new bylaws may
be added, by a majority vote of the board of directors at any regular or
special meeting of the board. Notice of such alteration, amendment, repeal or
adoption must be included in the notice of any special meeting called for that
purpose.

The Conestoga bylaws may be amended at any regular or special meeting of the
Conestoga shareholders by a majority vote of all the shares represented and
entitled to vote at the meeting.

Power to Call Special Shareholders' Meeting

Special meetings of the shareholders of TeleBeam may be called by (i) the
board of directors, (ii) the chairman of the board or the president, or (iii)
at the request of the holders of not less than 20% of all the outstanding
shares of TeleBeam entitled to vote at such meeting. Special meetings of
Conestoga'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 Conestoga 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 Conestoga special shareholders' meeting.

Notice of Shareholders' Meeting

Notice of a TeleBeam shareholders' meeting must be delivered at least ten
days before the date of the meeting. Notice of a Conestoga shareholders'
meeting must also 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
TeleBeam and Conestoga shareholders' meetings. A majority of the outstanding
shares represented at the meeting, even if less than a quorum, may adjourn a
TeleBeam or Conestoga shareholders' meeting from time to time. In the case of
Conestoga, notice of adjournment is not required. Under Delaware corporation
law and TeleBeam's bylaws, if adjournment is for more than 30 days, or if
after the adjournment a new record date is fixed for the adjourned meeting,
the corporation must send out a notice of the adjourned meeting.

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<PAGE>

Action by Consent

Under Delaware corporation law and TeleBeam's bylaws, any action required or
permitted to be taken at any annual or special meeting of TeleBeam
shareholders may be taken without a meeting, without prior notice and without
a vote, if a consent or consents in writing, setting forth the action to be
taken, are signed by the holders of TeleBeam common stock having not less than
the minimum number of votes that would be necessary to authorize or take the
action at a meeting at which all shares entitled to vote thereon were present
and delivered to TeleBeam.

In order for an action by written consent to be effective, each signature
must be dated, and written consents signed by a sufficient number of holders
to take the action must be delivered to the corporation within 60 days of the
earliest dated consent.

If an action is taken without a meeting by less than unanimous written
consent of the shareholders, the corporation must give prompt notice to those
shareholders who have not consented in writing and who, if the action had been
taken at a meeting, would have been entitled to notice of the meeting if the
record date for such meeting had been the date that written consents signed by
a sufficient number of holders to take the action were delivered to the
corporation.

Under Pennsylvania corporation law, unless otherwise restricted in the
corporation's bylaws, any action required or permitted to be taken at a
meeting of the shareholders or class of shareholders of a corporation may be
taken without a meeting of the shareholders if, prior or subsequent to the
action, a consent or consents to the action by all the shareholders who would
be entitled to vote at a meeting for such purpose are filed with the secretary
of the corporation. Conestoga's bylaws do not contain any restrictions on
Conestoga shareholders' ability to act by unanimous written consent.
Pennsylvania corporation law also provides that, if the corporation's bylaws
so provide, any action required or permitted to be taken at a meeting of the
shareholders or of a class of shareholders may be taken without a meeting upon
the written consent of shareholders who would have been entitled to cast the
minimum number of votes that would be necessary to authorize the action at a
meeting at which all shareholders entitled to vote thereon were present and
voting. Conestoga's bylaws do not provide for shareholder action by partial
written consent.

Inspection of Shareholders' List

Delaware corporation law allows any shareholder to inspect the shareholders'
list for a purpose reasonably related to such person's interest as a
shareholder.

Pennsylvania corporation law provides that the officer or agent having
charge of the transfer books for the shares of the corporation must make a
complete list of the shareholders entitled to vote at a shareholder meeting,
arranged in alphabetical order, with the address of and the number of shares
held by each shareholder. The list must be produced and kept open at the time
and place of the shareholder meeting and will be subject to the inspection of
any shareholder during the whole time of the meeting for the purposes thereof.

Dividends and Repurchases of Shares

Delaware corporation law permits a corporation, unless otherwise restricted
by its certificate of incorporation, to declare and pay dividends out of its
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared or for the preceding fiscal year as long as the
amount of capital of the corporation is not less than the aggregate amount of
the capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets. Delaware corporation law
generally provides that a corporation may redeem or repurchase its shares only
if such redemption or repurchase would not impair the capital of the
corporation. The ability of a Delaware corporation to pay dividends on, or to
make repurchases or redemptions of, its shares is dependent on the financial
status of the corporation standing alone and not on a consolidated basis. In
determining the amount of surplus of a Delaware corporation, the assets of the
corporation, including stock of subsidiaries owned by the corporation, must be
valued at their fair market

52
<PAGE>

value as determined by the board of directors, regardless of their historical
book value. TeleBeam's certificate of incorporation does not contain any
additional restrictions on the corporation's ability to declare and pay
dividends or to redeem or repurchase its shares.

Pennsylvania corporation law provides that, unless otherwise restricted in
the bylaws, a distribution may be made unless if, after giving effect thereto,
(1) the corporation would be unable to pay its debts as they become due in the
usual course of its business, or (2) the total assets of the corporation would
be less than the sum of its total liabilities plus the amount that would be
needed, if the corporation were to be dissolved at the time as of which the
distribution is measured, to satisfy the preferential rights upon dissolution
of shareholders whose preferential rights are superior to those receiving the
distribution. Pennsylvania corporation law also permits corporations to
acquire their own shares. Holders of Conestoga $3.42 Series A Preferred Shares
are entitled to cumulative semi-annual cash dividends of $1.71 ($3.42
annually) per share. Conestoga preferred shares have preference over Conestoga
common stock as to dividends. See "DESCRIPTION OF CAPITAL STOCK OF CONESTOGA--
CONESTOGA $3.42 Series A Preferred Shares."

Holders of Conestoga common stock are entitled to receive such dividends as
may be declared by the Conestoga Board from time to time. Conestoga and its
predecessor publicly held corporation, CTT, have maintained a policy of paying
cash dividends since 1909, and Conestoga does not intend to alter this policy
in the foreseeable future. During 1999 Conestoga paid dividends on the
Conestoga common stock at the annual rate of $0.833 per share.

Approval of Certain Corporate Transactions

Under Delaware corporation law, with certain exceptions, any merger,
consolidation or sale, lease or exchange of all or substantially all of the
assets of the corporation must be approved by the board of directors and by
the affirmative vote of a majority of the outstanding shares entitled to vote
thereon.

Pursuant to Pennsylvania corporation law a plan of merger or consolidation
generally must be adopted by the affirmative vote of a majority of the
outstanding shares of each of the domestic corporations that is a party to the
merger or consolidation and, if any class or series of shares is entitled to
vote thereon as a class, the affirmative vote of a majority of the votes cast
in each class to vote. The sale, lease, exchange or other disposition of all,
or substantially all the property and assets, with or without the goodwill, of
a corporation, must be made only pursuant to a plan of asset transfer which is
approved in the same manner.

Business Combination Following a Change of Control

Delaware corporation law prohibits certain business combinations between a
Delaware corporation, the shares of which are listed on a national securities
exchange, and an "interested shareholder" for a period of three years
following the time that such person became an "interested shareholder,"
without board approval, unless certain conditions are met and unless the
certificate of incorporation of the corporation contains a provision expressly
electing not to be governed by these provisions. TeleBeam has elected out of
these provisions.

Pennsylvania corporation law contains certain "anti-takeover" provisions
that are only applicable to "registered" corporations. These provisions do not
apply to TeleBeam. Because Conestoga is a registered corporation, these
provisions could be applicable to Conestoga. See "DESCRIPTION OF CAPITAL STOCK
OF CONESTOGA--Pennsylvania Anti-Takeover Law Provisions."

Under Pennsylvania corporation law, 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.

Pennsylvania corporation law also prohibits Conestoga from engaging in
specified business combination transactions with an interested shareholder
(defined in general as any beneficial owner of at least 20% of

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<PAGE>

Conestoga's outstanding voting power) during the five-year period following
the date such person became an interested shareholder unless (i) the business
combination or share acquisition is approved by Conestoga's board before the
person becomes an interested shareholder, (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 Conestoga's outstanding
voting power, the business combination is approved by a majority of the
holders of Conestoga 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, Conestoga may engage in a business combination if (i) the transaction
is approved by a majority of the outstanding Conestoga voting power (not
including shares held by the interested shareholder), or (ii) the transaction
is approved by a majority of the outstanding Conestoga voting power (including
shares held by the interested shareholder) and the interested shareholder
complies with specified procedural and minimum fair price criteria. Conestoga
is also subject to another Pennsylvania law provision 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.

Shareholder Derivative Suits

A shareholder derivative suit is a lawsuit brought by a shareholder on
behalf of the corporation, generally because the corporation refuses to
exercise its rights to the action. Under Delaware corporation law, a
shareholder may only bring a derivative action on behalf of the corporation if
the shareholder was a shareholder of the corporation at the time of the
transaction in question or his or her stock thereafter devolved upon him or
her by operation of law.

Similarly, Pennsylvania corporation law provides that in any derivative
action, each plaintiff must aver and it must be made to appear that each
plaintiff was a shareholder of the corporation or owner of a beneficial
interest in the shares at the time of the transaction of which he complains,
or that his shares or beneficial interest in the shares devolved upon him by
operation of law from a person who was a shareholder or owner of a beneficial
interest in the shares at that time. However, under Pennsylvania corporation
law, any shareholder who otherwise would be entitled to maintain the action or
proceeding and who does not meet the above requirements may, in the discretion
of the court, be allowed to maintain the action or proceeding if the
shareholder can show the court that there is a strong prima facie case in
favor of the claim asserted on behalf of the corporation and that without the
action serious injustice will result. If an action or proceeding is instituted
or maintained by holders or owners of less than 5% of the outstanding shares
of any class of the corporation, unless the shares held or owned by the
holders or owners have an aggregate fair market value in excess of $200,000,
the corporation will be entitled to require the plaintiffs to give security
for the reasonable expenses, including attorneys' fees, that may be incurred
by the corporation in connection with the action or proceeding or for which it
may become liable in connection with mandatory indemnification.

Appraisal Rights

Under Delaware corporation law, shareholders of a corporation participating
in certain major corporate transactions may, under varying circumstances, be
entitled to object to the transaction and to receive cash in the amount of the
fair market value of the shares held by them (as determined by a court or by
agreement of the corporation and the shareholders) in lieu of the
consideration such shareholders may otherwise receive in the transaction.
Under Delaware corporation law, these so-called appraisal rights are not
available: (1) with respect to a merger or consolidation by a corporation
whose shares are either listed on a national securities exchange or traded on
NASDAQ or are held by more than 2,000 holders if such shareholders receive
only shares of the surviving corporation or shares of any other corporation
which are similarly listed or traded or are held by more than 2,000 holders;
or (2) to shareholders of a corporation surviving a merger if no vote of the
shareholders of the surviving corporation is required to approve the merger
because, among other things, the number of shares to be issued in the merger
does not exceed 20% of the shares of the surviving corporation outstanding
immediately prior to the merger, and if certain other conditions are met.

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<PAGE>

TeleBeam shareholders are entitled to appraisal rights in connection with
the merger. See "THE MERGER--Appraisal Rights."

Under Pennsylvania corporation law, a shareholder of a corporation generally
has the right, under varying circumstances, to dissent from certain corporate
transactions (including mergers, share exchanges, the sale of all or
substantially all of the corporate assets and corporate divisions) and to
obtain payment in cash of the fair value of his shares in lieu of the
consideration he would otherwise receive in the transaction. Pursuant to
Pennsylvania corporation law, if the proposed corporate action is submitted to
a vote at a meeting of shareholders of a corporation, any persons wishing to
dissent and obtain payment of the fair value of their shares must file with
the corporation, prior to the vote, a written notice of intention to demand
that they be paid the fair value for their shares if the proposed action is
effectuated. The demanding shareholders must also hold on to their shares from
the date of the filing continuously through the effective date of the proposed
action and must not vote their shares in favor of the action. Dissenters who
fail to follow these rules will not acquire any right to payment of the fair
value of their shares. Neither a proxy nor a vote against the proposed
corporate action will constitute the written notice required. Under
Pennsylvania corporation law, a person who wishes to exercise appraisal rights
must also comply with the other requirements set forth in Pennsylvania
corporation law.

Pennsylvania corporation law also does not provide shareholders of a
corporation with appraisal rights when the corporation acquires another
business through the issuance of its capital stock: (1) in exchange for all or
substantially all of the assets of the business to be acquired; (2) in
exchange for more than fifty percent of the outstanding shares of the
corporation to be acquired; or (3) in a merger of the corporation to be
acquired with a subsidiary of the acquiring corporation.

Conestoga shareholders are not entitled to dissenter's rights in connection
with the merger.

Dissolution

Under Delaware corporation law, unless approved by shareholders holding 100%
of the total voting power of the corporation, a dissolution must be initiated
by the TeleBeam Board and approved by the affirmative vote of the holders of a
majority of the outstanding stock of the corporation.

Under Pennsylvania corporation law, a resolution to dissolve a corporation
must be adopted by the affirmative vote of a majority of the votes cast by all
shareholders of the corporation entitled to vote on the dissolution and, if
any class of shares is entitled to vote thereon as a class, the affirmative
vote of a majority of the votes cast in each class vote. A proposal for the
voluntary dissolution of a corporation will not be deemed to have been adopted
by the corporation unless it has also been recommended by resolution of the
board of directors, regardless of the fact that the board has directed the
submission of a proposal for dissolution and/or actually submitted the
proposal to the shareholders for action.

Pre-emptive Rights

Delaware law does not automatically grant pre-emptive rights to
shareholders, nor does Pennsylvania law. In both states, shareholders are
entitled to pre-emptive rights only if the corporation's Articles or
Certificate of Incorporation provides that they exist. Neither Conestoga nor
TeleBeam shareholders have pre-emptive rights.

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<PAGE>

BUSINESS OF TELEBEAM

Description of Business

TeleBeam provides telephone, cable and data transmission services primarily
to businesses and multiple-dwelling unit residential customers in less
competitive non-metropolitan areas throughout central and eastern
Pennsylvania.

Founded in 1992, TeleBeam is headquartered in State College, Pennsylvania.
TeleBeam's goal is to develop a broadband fiber network connecting clusters of
non-metropolitan service areas throughout central Pennsylvania. A broadband
fiber network consists of fiber optic and coaxial cable and associated access,
transport and termination electronics, which combined, allows the service
provider to provide multiple communication services to customers as a
"bundled" package through one service delivery venue. For instance, over its
broadband network, TeleBeam can provide telephone, cable television and
Internet access to customers as one seamless service. Customers pay only one
service charge and deal with only one service provider.

When the broadband network is complete, TeleBeam will be one of the only
communication service providers with the broadband capacity to deliver bundled
services in central Pennsylvania. TeleBeam's management believes that this
exclusivity will give it an early advantage as customers demand simpler and
more robust communications service offerings and other service providers are
required by competitive forces to establish their own networks. In addition,
TeleBeam will be able to rent or sell the excess capacity on its broadband
network to other communication service providers who need to transport high
volumes of their customers' voice, video or data traffic between major
metropolitan markets such as Pittsburgh and Philadelphia. Of course, this
strategy is entirely dependent on TeleBeam's ability to complete its broadband
network and offer bundled communication services in central Pennsylvania
before its competitors.

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Management

The following table sets forth the names and ages of TeleBeam's senior
executive officers and directors and their respective positions with TeleBeam.
Certain of the directors listed below will not continue to serve as directors
of the combined company following the merger. No determination has yet been
made as to which directors will continue to serve on the Board of TeleBeam
following the merger.

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Ara M. Kervandjian......... 33 Director (Class III)(1), Chairman of the Board,
President and Chief Executive Officer
Hrach Kervandjian.......... 68 Director (Class II)(2) and Executive Vice
President
Heidi A. Nicholas.......... 45 Senior Vice President of Finance and Chief
Financial Officer
Mark J. Fetterolf.......... 33 Senior Vice President of Operations
Jeffery C. Almoney......... 40 Senior Vice President and Chief Technology and
Information Officer
Melinda K. Kenepp.......... 35 Vice President of Finance, Controller, Secretary
and Treasurer
Troy A. Knecht............. 28 Vice President of Technical Operations
Daniel R. Ehrlich.......... 45 Vice President of Information Systems
Thomas L. Daley............ 50 Director (Class III)
Bruce K. Heim.............. 56 Director (Class I)(3)
Robert B. Mitinger......... 59 Director (Class III)
Fred Nicholas.............. 73 Director (Class II)
Joseph V. Paterno.......... 72 Director (Class I)
Henry D. Sahakian.......... 62 Director (Class II)
Frederick I. Sahakian...... 33 Director (Class III)
Fred C. Thompson........... 71 Director (Class I)
</TABLE>
- --------
(1) Class III directors serve until the 2002 annual meeting of shareholders.
(2) Class II directors serve until the 2001 annual meeting of shareholders.
(3) Class I directors serve until the 2000 annual meeting of shareholders.

Ara M. Kervandjian founded TeleBeam and has been the Chairman, President and
Chief Executive Officer since June 1996. Previously, Mr. Kervandjian served
TeleBeam in the capacity of President and Chief Executive Officer from March
1994 to June 1996. He has been the President and Chief Executive Officer of
TeleBeam's subsidiary since its date of incorporation. Mr. Kervandjian is the
recipient of the 1997 Ernst & Young LLP Entrepreneur of the Year Award in
Communications for Central Pennsylvania and the 1998 Chamber of Business and
Industry of Centre County Pennsylvania's Entrepreneur of the Year Award. Mr.
Kervandjian attended Adelphi University, pursuing his studies in Business and
Administration. Mr. Kervandjian is the son of Hrach Kervandjian.

Hrach Kervandjian is the co-founder of TeleBeam and has served as Executive
Vice President of TeleBeam and its subsidiary since June 1996. Previously, Mr.
Kervandjian served TeleBeam in the capacity of Chairman of the Board and
Executive Vice President from March 1994 to June 1996. Mr. Kervandjian holds a
B.S. degree in Business Administration from Boston University.

Heidi A. Nicholas has been the Senior Vice President of Finance and Chief
Financial Officer of TeleBeam since January 1998. Previously, Ms. Nicholas
served as Corporate Strategy and Development Vice President for Pacific
Telesis Group in San Francisco, California from March 1996 to November 1997.
In that capacity, Ms. Nicholas was responsible for the formation of joint
ventures and merger and acquisition activities for the Pacific

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<PAGE>

Telesis Group until the time of its sale to SBC Communications. Prior to March
1996, Ms. Nicholas held the position at Pacific Telesis Group of Executive
Director of Corporate Development from July 1994 to March 1996. Ms. Nicholas
holds B.A. and M.A. degrees in Fine Arts from UCLA and an M.B.A in Finance and
Accounting from the Cornell Graduate School of Management. Ms. Nicholas is the
daughter of Fred Nicholas, a director of TeleBeam.

Mark J. Fetterolf has been the Senior Vice President of Operations of
TeleBeam since June 1998. Previously, Mr. Fetterolf had served as TeleBeam's
Vice President of Operations since June 1996. Mr. Fetterolf joined TeleBeam in
August 1994 and has been involved with the development and growth of
TeleBeam's various operations. Mr. Fetterolf served four years with the United
States Marine Corps and was honorably discharged in July 1989. Mr. Fetterolf
holds a B.S. degree in Physiology and Business Administration from The
Pennsylvania State University.

Jeffery C. Almoney has been the Senior Vice President and Chief Technology
and Information Officer of TeleBeam since May 1998. Previously, Mr. Almoney
served as Director of Advanced Information Technologies at The Pennsylvania
State University (PSU) from July 1991 to May 1998, Assistant Director of
Advanced Projects from September 1988 to July 1991 and Lead System Developer
from March 1985 to September 1988. During his tenure at PSU, Mr. Almoney
designed and built computing systems that currently support over 140,000 users
on the Internet. Mr. Almoney also served PSU as Director of Applications
Development for the Internet 2 project. Mr. Almoney holds a B.S. in Computer
Science from The Pennsylvania State University.

Melinda K. Kenepp has been the Vice President of Finance, Controller,
Secretary and Treasurer of TeleBeam since April 1, 1997. Previously, Ms.
Kenepp served TeleBeam in the capacity of Controller since November 1994.
Prior to Ms. Kenepp's service to TeleBeam, she was a Senior Accountant with
Boles, Grove and Metzger, P.C., from February 1991 until November 1994. Ms.
Kenepp is a Certified Public Accountant and a member of the American Institute
of Certified Public Accountants and the Pennsylvania Institute of Certified
Public Accountants.

Troy A. Knecht has been the Vice President of Technical Operations of
TeleBeam since April 1, 1997. Previously, Mr. Knecht served TeleBeam as a
Systems Engineer since July 1996. Prior to Mr. Knecht's service to TeleBeam,
he held positions with Broadband Networks, Inc., as a Fiber Optic/RF
Electronics Technician from October 1995 to July 1996. From September 1994 to
July 1995, Mr. Knecht worked for TKR Cable of Louisville, Kentucky, as a
Headend Electronics Technician.

Daniel R. Erhlich has been the Vice President of Information Systems since
July 1998. Prior to joining TeleBeam, Mr. Ehrlich served as the Senior Systems
Analyst for the Department of Computer Science and Engineering (CS&E) at The
Pennsylvania State University (PSU) from May 1986 to June 1998. During his
tenure at PSU, Mr. Ehrlich designed and built computing and network systems to
support the teaching and research objectives of the CS&E department. These
systems support approximately 150 faculty and staff, along with 2,000 graduate
and undergraduate students.

Thomas L. Daley has been a director of TeleBeam since November 1993. Mr.
Daley has served as the Executive Vice President of Unico Corporation since
August 1978, which develops and manages commercial real estate and operates a
chain of automobile lubrication centers throughout the state of Pennsylvania
under the Valvoline Lube Center franchise name.

Bruce K. Heim has been a director of TeleBeam since December 1996. Mr. Heim
has served for the past 13 years as Chairman of the Board and President of
Keystone Real Estate Group, Inc., a property management and investment company
located in State College, Pennsylvania. He is a Certified Commercial and
Investment Member of the National Association of Realtors and is a Certified
Property Manager.

Robert B. Mitinger has been a director of TeleBeam since November 1993. Mr.
Mitinger is the senior partner in the law firm of Mitinger & DeBoef, which he
founded in 1985. Among his other achievements, he

58
<PAGE>

was a professional athlete with the San Diego Chargers Professional Football
Club, and taught undergraduate classes at The Pennsylvania State University as
an instructor in Business Law, Theory and Practice, Legal Organizations,
Agency, Partnerships and Corporations and Real Estate Investment Analysis.

Fred Nicholas has been a director of TeleBeam since December 1996. Mr.
Nicholas is the President of Fred Nicholas, Inc., a company he founded in 1962
that engages in the development of commercial and multi-unit apartment real
estate projects. He has over forty years experience as a multi-discipline
architectural engineer through his own firm, Engineering Advisory Services,
Inc., which specializes in commercial and industrial real estate projects.

Joseph V. Paterno has been a director of TeleBeam since December 1996. Mr.
Paterno has been the head coach of The Pennsylvania State University football
team for the past 32 years. His achievements with the Nittany Lion football
organization are renowned within the NCAA. Among his other awards and titles
to his credit, he has led the Nittany Lions to two National Championships, won
"Coach-of-the-Year" honors an unprecedented four times in balloting by the
American Football Coaches Association, and led his teams to 19 Bowl victories,
more than anyone in his profession.

Henry D. Sahakian has been a director of TeleBeam since December 1996. Mr.
Sahakian is the Chairman and Chief Executive Officer of Uni-Marts, Inc., a
publicly-traded convenience store chain (AMEX--"UNI"), which was founded by
Mr. Sahakian in 1972. Mr. Sahakian is also a member of the Board of Trustees
of Lycoming College, Williamsport, Pennsylvania and Chairman of the Board of
The Centre County Community Foundation, State College, Pennsylvania.

Frederick I. Sahakian has been a director of TeleBeam since November 1992.
Mr. Sahakian is the President of Body Works Health and Fitness Centers, Inc.,
a company he founded in 1987, and the President of FSRH, Inc., a commercial
real estate holding company. Mr. Sahakian is the son of Henry D. Sahakian, a
director of TeleBeam.

Fred C. Thompson has been a director of TeleBeam since December 1996. For
the past 45 years, Mr. Thompson has been involved with research, development
and manufacturing of cable and defense electronics in the telecommunication
industry. Mr. Thompson was one of the original members of the Board of
Directors of C-COR.NET Corporation (NASDAQ--"CCBL") from 1954 to 1960. He was
also the founder of Locus, Inc. which was engaged in the systems evaluation,
design, development and manufacture of equipment for defense electronics and
the telecommunication industry from 1968 to 1988. Mr. Thompson is a registered
professional engineer.

Compensation of Directors

TeleBeam does not pay any cash remuneration for service as directors.
Directors of TeleBeam who are not employees of TeleBeam do, however, receive
non-qualified stock option grants to purchase shares under the TeleBeam Equity
Compensation Plan for each annual year of service on the Board of Directors
and committees. Directors who are officers of, or employed by, TeleBeam or its
subsidiary are not compensated for their Board activities.

59
<PAGE>

Security Ownership of Certain Beneficial Owners and Management of TeleBeam

The following table sets forth as of December 10, 1999 certain information
regarding the beneficial ownership of TeleBeam common stock and those shares
issuable upon exercise of stock options exercisable within 60 days of December
10, 1999 by (i) each director and executive officer of TeleBeam, (ii) all
directors and executive officers of TeleBeam as a group, and (iii) each other
person known by TeleBeam to own beneficially more than 5% of the TeleBeam
common stock.

<TABLE>
<CAPTION>
Beneficial Ownership of
TeleBeam Common Stock(1)
---------------------------
Number Percent
of Shares(2) of Total
-------------- ----------
<S> <C> <C>
Directors:
Ara M. Kervandjian(3)............................ 2,565,000 35.0
Hrach Kervandjian(4)............................. 935,000 14.0
Henry D. Sahakian(5)............................. 899,557 13.8
Frederick I. Sahakian(6)......................... 396,833 6.1
Bruce K. Heim(7),(19)............................ 362,115 5.5
Fred Nicholas(8),(19)............................ 753,008 11.4
Robert B. Mitinger(9)............................ 133,500 2.0
Fred C. Thompson(10)............................. 86,000 1.3
Joseph V. Paterno(11)............................ 76,000 1.2
Thomas L. Daley(12).............................. 94,500 1.4
Executive Officers:
Mark J. Fetterolf(13)............................ 100,000 1.5
Heidi A. Nicholas(14)............................ 45,000 *
Jeffery C. Almoney(15)........................... 40,000 *
Troy A. Knecht(16)............................... 55,000 *
Melinda K. Kenepp(17)............................ 60,000 *
Daniel R. Ehrlich(18)............................ 8,000 *
All Directors and Officers as a Group (16
persons)(20).................................... 6,609,513 93.4
</TABLE>
- --------
* Denotes 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
shares of TeleBeam common stock indicated above.
(2) Beneficial ownership assumes a total of (a) 6,474,518 shares of TeleBeam
common stock outstanding, plus (b) those shares subject to currently
exercisable stock options, and stock options exercisable within 60 days
of December 10, 1999 as to each particular holder for whom this
calculation is being made.
(3) Includes (a) 850,000 shares issuable upon exercise of stock options
exercisable within 60 days of December 10, 1999, (b) 410,000 shares owned
by Mr. Kervandjian and his wife jointly, (c) 1,230,000 shares owned by
Mr. Kervandjian and his wife jointly subject to the exercise of previous
stock options for which TeleBeam has a promissory note for the amount of
such exercise, and (d) 75,000 shares owned by the Kervandjian Family
Limited Partnership.
(4) Includes (a) 200,000 shares issuable upon exercise of stock options
exercisable within 60 days of December 10, 1999, (b) 350,000 shares owned
by Mr. Hrach Kervandjian and his wife jointly, and (c) 385,000 shares
owned by Mr. Kervandjian and his wife jointly subject to the exercise of
previous stock options for which TeleBeam has a promissory note for the
amount of such exercise.
(5) Includes (a) 29,333 shares issuable upon exercise of stock options
exercisable within 60 days of December 10, 1999, (b) 150,000 shares owned
by Mr. Henry Sahakian, (c) 70,224 shares owned by Mr. Henry Sahakian's
wife, (d) 450,000 shares owned by the Irrevocable Life Insurance Trust of
Henry D. Sahakian, Seda Sahakian Trustee, and (e) 200,000 shares owned by
HFL Corporation, of which Mr. Henry Sahakian and his three adult children
are principal stockholders.

60
<PAGE>

(6) Includes (a) 66,833 shares issuable upon exercise of stock options
exercisable within 60 days of December 10, 1999.
(7) Includes (a) 26,000 shares issuable upon exercise of stock options to Mr.
Heim exercisable within 60 days of December 10, 1999, (b) 125,000 shares
issuable upon exercise of stock options to the Heim Family Limited
Partnership exercisable within 60 days of December 10, 1999, and (c)
211,115 shares owned by the Heim Family Limited Partnership.
(8) Includes (a) 29,333 shares issuable upon exercise of stock options to Mr.
Nicholas exercisable within 60 days of December 10, 1999, (b) 125,000
shares issuable upon exercise of stock options to the Nicholas Family
Limited Partnership exercisable within 60 days of December 10, 1999, (c)
532,008 shares owned by Mr. Nicholas, and (d) 66,667 shares owned by the
Nicholas Family Limited Partnership.
(9) Includes (a) 63,500 shares issuable upon exercise of stock options
exercisable within 60 days of December 10, 1999, (b) 68,000 shares owned
by Mr. Mitinger and his wife jointly, and (c) 2,000 shares owned by
Mr. Mitinger's two adult children.
(10) Includes 26,000 shares issuable upon exercise of stock options
exercisable within 60 days of December 10, 1999.
(11) Includes 26,000 shares issuable upon exercise of stock options
exercisable within 60 days of December 10, 1999.
(12) Includes 93,500 shares issuable upon exercise of stock options
exercisable within 60 days of December 10, 1999.
(13) Includes 100,000 shares issuable upon exercise of stock options
exercisable within 60 days of December 10, 1999.
(14) Includes 45,000 shares issuable upon exercise of stock options
exercisable within 60 days of December 10, 1999.
(15) Includes 40,000 shares issuable upon exercise of stock options
exercisable within 60 days of December 10, 1999.
(16) Includes 55,000 shares issuable upon exercise of stock options
exercisable within 60 days of December 10, 1999.
(17) Includes 60,000 shares issuable upon exercise of stock options
exercisable within 60 days of December 10, 1999.
(18) Includes 8,000 shares issuable upon exercise of stock options exercisable
within 60 days of December 10, 1999.
(19) Does not include stock options granted to Gulfstream Equity Partners LP
to purchase 250,000 shares of TeleBeam's common stock issuable upon
exercise within 60 days of December 10, 1999, which is majority
controlled by Mr. Heim and Mr. Nicholas.
(20) The TeleBeam executive officers as a group also holds stock options to
acquire an additional 217,000 shares of TeleBeam's common stock pursuant
to TeleBeam's Equity Compensation Plan.

Executive Compensation

The following table presents certain information regarding compensation paid
by TeleBeam for services rendered in all capacities during 1998 to TeleBeam's
Chief Executive Officer. Mr. Kervandjian was the only executive officer in
1998 to earn more than $100,000.

<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------ -----------------------------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Principal Salary Bonus Compen- Award(s) Options/ Payouts Compen-
Position Year ($) ($) sation ($) ($) SARs (#) ($) sation ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
------------------ ---- ------- ------ ---------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ara M. Kervandjian
Chairman of the Board,
President and Chief
Executive Officer..... 1998 110,000 50,000 -- -- -- -- --
</TABLE>

61
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
TeleBeam Consolidated Financial Statements and notes thereto appearing
elsewhere herein.

General

As discussed in other sections of this proxy statement/prospectus, TeleBeam
is a full service facilities-based integrated communications provider, which
offers a wide range of communication services to business and multiple
dwelling unit residential customers. TeleBeam generates revenues from the
following lines of business: (i) long distance voice (which includes prepaid
phone card and pay telephone businesses) and Internet/data communication
services (the "communication services"); (ii) video programming, and (iii)
other services.

Revenues

Communication Services

Revenues from long distance voice services are generated primarily by the
number of customer lines installed and in service. Customers for long distance
voice services are generally billed a flat monthly fee and/or a per-minute
usage charge. Internet/data communications service revenue is generally billed
at a flat monthly rate for the amount of bandwidth capacity ordered. Revenue
growth is dependent upon the addition of new customers in TeleBeam's existing
markets, cross-selling additional services to TeleBeam's existing customers
and TeleBeam's expansion into other markets. Revenues from communication
services were approximately $3.8 million for the third quarter ended September
30, 1999, in comparison to $3.7 million for the second quarter ended June 30,
1999 and $3.8 million for the first quarter ended March 31, 1999. TeleBeam
anticipates that its most significant source of revenue growth will be derived
from the increasing demand for bandwidth sensitive communication services.

Video Programming

Video programming revenues are derived from billings of one month in
advance, in addition to certain event type purchases by customers, such as
pay-per-view, and recorded as revenue in the period in which the service is
provided. Revenue is also recognized through installation and service charges
to the extent that direct selling costs are incurred.

Other Services

Other services include "dial-around" revenue from calls that are dialed from
TeleBeam's pay telephones to gain access to a long distance company other than
the carrier that is pre-programmed into the telephone. In addition, TeleBeam
recognizes revenues from charges associated with monthly service fees, FCC
filed surcharge amounts on gross monthly billables, vendor discounts, operator
service commissions and system management fees paid to TeleBeam for managing
local and long distance telephone service networks primarily for business and
residential customers.

Costs

Communication Services

Costs associated with TeleBeam's communication services business include
significant up-front capital expenditures for the infrastructure required for
it to provide facilities-based local, long distance voice and Internet/data
services. These capital expenditures include the purchase of switching and
customer premises equipment and the related costs associated with the
construction of TeleBeam's local and long-haul networks

62
<PAGE>

(the "backbone" facilities). TeleBeam also incurs the following direct costs
associated with rendering communication services to its customers, including
transmission, interconnection and other related telephone charges and
commission fees paid monthly from the revenues generated by TeleBeam's pay
telephone operations to customers, and to retailers on sales of TeleBeam's
prepaid phone card products. In addition, TeleBeam incurs certain costs that
are not capitalized, including engineering, sales offices and personnel,
marketing, administration and other personnel who will be needed in advance of
related revenues.

Video Programming

Costs associated with TeleBeam's video programming business include
programming fees paid to satellite-broadcast networks, pay-per-view event
providers and copyright fees for local affiliate programming. In addition,
TeleBeam amortizes the costs of certain customer premises equipment such as
set-top convertor boxes and other related transmission equipment associated
with its delivering local and satellite programming.

Field Service

Costs associated with field service pertain to certain expenses incurred
with TeleBeam's pay telephone and prepaid phone card business, including the
collecting and processing of coin revenue, maintaining and repairing the
telephones, software maintenance and diagnostics, as well as the costs
associated with the production and sales of prepaid phone card products.

On March 10, 1998, pursuant to a Stock Purchase Agreement, TeleBeam acquired
all of the 20,000 outstanding shares of $1 par value capital stock of North
American Communications, Inc., a facilities-based interexchange company, for
approximately $12.3 million, including acquisition related costs, subject to
any post-closing adjustment, as defined. Also in connection with the
acquisition, TeleBeam assumed North American Communications, Inc.'s obligation
for the gross receipts tax imposed by the Commonwealth of Pennsylvania, which
is currently being disputed, through the acquisition date up to a maximum of
$600,000. The estimated amount in dispute as of the acquisition date totaled
approximately $460,000, for which no amount has been recorded as part of the
allocation of the purchase price for liabilities assumed. North American
Communications, Inc. was founded in 1985 and provides long-distance
communications products and services to over 6,000 customers, primarily to the
business sector, located in non-metropolitan markets in Pennsylvania. The
acquisition was recorded under the purchase method of accounting and
accordingly, the results of operations of the acquired business are included
in the financial statements of TeleBeam beginning on March 10, 1998. The
initial purchase price has been allocated on a preliminary basis to assets
acquired and liabilities assumed based on estimated fair values. Goodwill is
being amortized over twenty-five years on the straight-line method.

63
<PAGE>

Results of Operations

The following table sets forth the percentage relationship of certain
expense items to total revenues derived from TeleBeam's consolidated
statements of operations for the periods indicated:

<TABLE>
<CAPTION>
Year Ended December Nine Months Ended
31, September 30,
--------------------- -------------------
1996 1997 1998(1) 1998(2) 1999
----- ----- ------- ---------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Communication services......... 93.9% 77.4% 93.5% 93.5% 93.5%
Video programming.............. -- 9.1 3.1 3.1 2.7
Other services................. 6.1 13.5 3.4 3.4 3.8
----- ----- ------ -------- --------
Total revenues............... 100.0 100.0 100.0 100.0 100.0
----- ----- ------ -------- --------
Operating costs and expenses:
Communication services......... 57.8 48.4 45.6 45.5 50.4
Programming fees............... -- 1.9 0.9 0.9 0.8
Field service.................. 8.3 9.7 5.3 5.0 6.7
Selling, general and
administrative(3)............. 20.2 25.5 32.5 30.3 37.9
Depreciation and amortization.. 5.0 8.1 5.8 5.5 6.9
Interest....................... 1.6 (1.6) 6.0 5.8 6.7
----- ----- ------ -------- --------
Total costs and expenses..... 92.9 92.0 96.1 93.0 109.4
----- ----- ------ -------- --------
Earnings (loss) before income tax
expense......................... 7.1 8.0 3.9 7.0 (9.4)
Income tax expense (benefit)..... 2.4 2.8 1.6 2.8 (2.2)
----- ----- ------ -------- --------
Net earnings (loss).............. 4.7% 5.2% 2.3% 4.2% (7.2)%
===== ===== ====== ======== ========
</TABLE>
- --------
(1) Results for the year ended December 31, 1998, include results of North
American Communications, Inc. from the date of acquisition (March 10,
1998).
(2) Results for the nine months ended September 30, 1998, include six months
plus twenty-one days of North American Communications, Inc. operating
results from the date of acquisition (March 10, 1998).
(3) Includes abandoned private offering and acquisition expenses of $152,258
for the year ended December 31, 1998.

Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998

Total revenues for TeleBeam increased by $1.6 million, or 15.4%, to $12.0
million for the nine months ended September 30, 1999, from $10.4 million for
the nine months ended September 30, 1998. This increase was primarily
attributable to TeleBeam's ownership of North American Communications, Inc.
for the full nine months ended September 30, 1999. Earnings before income
taxes, interest expense, depreciation and amortization totaled $0.5 million
for the nine months ended September 30, 1999, compared to $1.9 million for the
nine months ended September 30, 1998.

Revenues from communication services increased by $1.5 million, or 15.3%, to
$11.3 million for the nine months ended September 30, 1999, from $9.8 million
for the nine months ended September 30, 1998. This was again caused in large
part by TeleBeam's ownership of North American Communications, Inc. for the
full nine months ended September 30, 1999, and TeleBeam's efforts to cross-
sell other types of services to its existing customer base including long
distance voice and high-capacity Internet/data services. In addition, TeleBeam
expanded its geographic service area and network operations to attract new
small and medium-sized business customers to its bundled communications
service offering.

Revenues from video programming were $300,000 for the nine month period
ended September 30, 1998 and for the nine month period ended September 30,
1999. The video subscriber base remained relatively constant at approximately
2,300 subscribers over the same time period.

64
<PAGE>

Revenues from other services increased 33.3% from $0.3 million for the nine
months ended September 30, 1998 to $0.4 million for the nine months ended
September 30, 1999. The increase includes approximately $55,000 associated
with the sale of TeleBeam's cellular resale customer base.

Cost of communication services and video programming increased by $1.3
million, or 26.5%, to $6.2 million for the nine months ended September 30,
1999, from $4.9 million for the nine months ended September 30, 1998. As a
percentage of total revenues, cost of services and products was 51.2% for the
nine months ended September 30, 1999, compared to 46.4% for the nine months
ended September 30, 1998, primarily as a result of an increasingly price
competitive long distance market. Field service expenses increased to 6.7% of
total revenues for the nine months ended September 30, 1999, compared to 5.0%
for the nine months ended September 30, 1998.

Selling, general and administrative costs increased by $1.4 million, or
43.8%, to $4.6 million for the nine months ended September 30, 1999, from $3.2
million for the nine months ended September 30, 1998. As a percentage of total
revenues, selling, general and administrative costs was 37.9% for the nine
months ended September 30, 1999, compared to 30.3% for the nine months ended
September 30, 1998. The increase is primarily attributable to TeleBeam's
ownership of North American Communications, Inc. for the full nine months
ended September 30, 1999 and the continued increase in hiring sales,
marketing, network and related personnel and professional fees in connection
with TeleBeam's expansion of its facilities-based network and its geographic
service area. In addition, during the nine months ended September 30, 1999,
TeleBeam wrote off $0.2 million of telephone equipment that was decomissioned
in 1999. TeleBeam anticipates that selling, general and administrative
expenses will continue to grow as it needs to continue to hire in all areas of
its operations, including engineering, sales offices and personnel, marketing,
administration and other personnel who will be needed in advance of related
revenues.

Depreciation and amortization expense increased by $0.2 million, or 33.3%,
to $0.8 million for the nine months ended September 30, 1999, from $0.6
million for the nine months ended September 30, 1998, primarily resulting from
TeleBeam's acquisition of North American Communications, Inc. and purchase of
equipment and buildout of its facilities-based network and switching systems.

Interest expense increased to $0.9 million for the nine months ended
September 30, 1999, from $0.7 million for the nine months ended September 30,
1998, primarily resulting from the borrowings by TeleBeam for the funding of
the acquisition of North American Communications, Inc. and certain capital
expenditures that were funded from TeleBeam's available working line of
credit. Interest income decreased to $61,000 for the nine months ended
September 30, 1999, from $68,000 for the nine months ended September 30, 1998.

TeleBeam's effective tax rate for the nine months ended September 30, 1999
was significantly impacted by net operating losses. TeleBeam does not expect
that it will generate positive net earnings in 1999 and therefore does not
expect to pay any federal or state income tax.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Total revenues for TeleBeam increased by $11.4 million, or 367.7%, to $14.5
million for the year ended December 31, 1998, from $3.1 million for the year
ended December 31, 1997. This increase was primarily attributable to
TeleBeam's growth in revenues generated by TeleBeam's acquisition of North
American Communications, Inc. on March 10, 1998. Earnings before income taxes,
interest expense, depreciation and amortization totaled $2.3 million for the
year ended December 31, 1998, compared to $0.5 million for the year ended
December 31, 1997.

Revenues from communication services increased by $11.1 million, or 462.5%,
to $13.5 million for the year ended December 31, 1998, from $2.4 million for
the year ended December 31, 1997. This was again caused in large part by
TeleBeam's acquisition of North American Communications, Inc. on March 10,
1998, and TeleBeam's efforts to cross-sell other types of services to its
existing customer base including long distance voice and high-capacity
Internet/data services. In addition, TeleBeam expanded its geographic service
area and network operations to attract new small and medium-sized business
customers to its bundled communication service offering.

65
<PAGE>

Revenue from video programming increased 66.7%, from $0.3 million for the
year ended December 31, 1997 to $0.5 million for the year ended December 31,
1998. This is reflective of four full quarters of operations in 1998, with a
subscriber base of 2,283 on December 31, 1998 compared to the first year of
operations in 1997, with a subscriber base of 2,279 on December 31, 1997.

Revenues from other services increased 25.0% from $0.4 million for the year
ended December 31, 1997, to $0.5 million for the year ended December 31, 1998.
The increase is primarily attributable to the "dial-around" revenue from calls
that are dialed from TeleBeam's pay telephones to gain access to a long
distance company other than the carrier that is pre-programmed into the
telephone.

Cost of communication services and video programming increased by $5.1
million, or 318.8%, to $6.7 million for the year ended December 31, 1998, from
$1.6 million for the year ended December 31, 1997. As a percentage of total
revenues, cost of services and products was 46.5% for the year ended December
31, 1998, compared to 50.3% for the year ended December 31, 1997. This was
primarily a result of TeleBeam's acquisition of North American Communications,
Inc. Field service expenses decreased to 5.3% of total revenues for the year
ended December 31, 1998, compared to 9.7% for the same period in 1997.

Selling, general and administrative costs increased by $3.8 million, to $4.6
million for the year ended December 31, 1998, from $0.8 million for the year
ended December 31, 1997. As a percentage of total revenues, selling, general
and administrative costs was 32.5% for the year ended December 31, 1998,
compared to 25.5% for the year ended December 31, 1997. The increase is
attributable to TeleBeam's acquisition of North American Communications, Inc.
and the continued increase in hiring sales, marketing, network and related
personnel and professional fees in connection with TeleBeam's expansion of its
packet-based data competitive local exchange carrier network and its
geographic service area. TeleBeam had 14 employees as of December 31, 1997 and
approximately 70 employees at December 31, 1998.

Depreciation and amortization expense increased by $0.6 million, or 200.0%,
to $0.9 million for the year ended December 31, 1998, from $0.3 million for
the year ended December 31, 1997, primarily resulting from TeleBeam's
acquisition of North American Communications and purchase of equipment and
buildout of its facilities-based network and switching systems.

Interest expense increased considerably to $0.9 million for the year ended
December 31, 1998, from $17,000 for the year ended December 31, 1997,
primarily resulting from the borrowings by TeleBeam for the funding of the
acquisition of North American Communications, Inc. and certain capital
expenditures associated with the expansion of TeleBeam's physical network that
were funded from TeleBeam's available working line of credit. Interest income
increased to approximately $82,000 for the year ended December 31, 1998 from
$67,000 for the year ended December 31, 1997.

During 1998, TeleBeam incurred expenses associated with capital raising and
acquisition efforts which were abandoned due to certain factors related to
market conditions and revisions to TeleBeam's business plan. No such costs
were incurred in 1997.

TeleBeam's combined federal and state income tax rate was approximately 42%
and 35% in fiscal 1998 and 1997, respectively. The effective income tax rate
for 1998 was higher than the rate for 1997 because of the acquisition of North
American Communications, Inc.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Total revenues for TeleBeam increased by $0.2 million, or 6.9%, to $3.1
million for the year ended December 31, 1997, from $2.9 million for the year
ended December 31, 1996. This increase was primarily attributable to the
increase in dial-around compensation as mandated by the Telecommunications Act
of 1996. Earnings before income taxes, interest expense, depreciation and
amortization totaled $0.5 million for the year ended December 31, 1997,
compared to $0.4 million for the year ended December 31, 1996.

Revenues from communication services decreased by approximately $0.3
million, or 11.1%, to $2.4 million for the year ended December 31, 1997, from
$2.7 million for the year ended December 31, 1996. This was primarily a result
of lower prepaid calling card sales recognized in 1997 that was caused by the
depletion efforts

66
<PAGE>

of both TeleBeam and its prepaid phone card customers of existing inventories
that were priced at higher retail values.

Revenues from video programming were $0.3 million for the year ended
December 31, 1997. TeleBeam's video programming services were introduced in
January 1997.

Revenues from other services increased approximately 100.0% from $0.2
million for the year ended December 31, 1996, to $0.4 million for the year
ended December 31, 1997. The increase is primarily attributable to the "dial-
around" revenue from calls that are dialed from TeleBeam's pay telephones to
gain access to a long distance company other than the carrier that is pre-
programmed into the telephone.

Cost of communication services and video programming decreased by $0.1
million, or 5.9%, to $1.6 million for the year ended December 31, 1997, from
$1.7 million for the year ended December 31, 1996. As a percentage of total
revenues, cost of services and products was 50.3% for the year ended December
31, 1997, compared to 57.8% for the year ended December 31, 1996. Field
service expenses increased to 9.7% of total revenues for the year ended
December 31, 1997, compared to 8.3% for the year ended December 31, 1996.

Selling, general and administrative costs increased by $0.2 million, or
33.3%, to $0.8 million for the year ended December 31, 1997, from $0.6 million
for the year ended December 31, 1996. As a percentage of total revenues,
selling, general and administrative costs was 25.5% for the year ended
December 31, 1997, compared to 20.2% for the year ended December 31, 1996. The
increase is attributable to the additional administrative costs associated
with TeleBeam's video programming service operations.

Depreciation and amortization expense increased by $0.1 million, or 50.0%,
to $0.3 million for the year ended December 31, 1997, from $0.2 million for
the year ended December 31, 1996, primarily resulting from TeleBeam's expenses
and capital equipment purchased for its video programming service operations.

Interest expense decreased by $49,000, or 74.2%, to approximately $17,000
for the year ended December 31, 1997, from $66,000 for the year ended December
31, 1996, primarily resulting from principal debt reductions made as a result
of positive cash flows derived from the sale of TeleBeam's common stock.
Interest income increased to $67,000 for the year ended December 31, 1997 from
$20,000 for the year ended December 31, 1996.

Liquidity and Capital Resources

TeleBeam has financed its operations and growth primarily through proceeds
received from the issuance of common stock, bank borrowings, and cash flows
from operations. Net cash provided by operating activities was approximately
$536,778 for the nine months ended September 30, 1999 compared to $576,768 for
the nine months ended September 30, 1998. Net cash provided by operating
activities was $764,195, $381,874 and $494,271 for fiscal 1998, 1997 and 1996,
respectively. Cash was utilized in these years to support TeleBeam's existing
operations.

Cash flow used in investing activities was $378,198 for the nine months
ended September 30, 1999 compared to $13,038,312 for the nine months ended
September 30, 1998. Cash flow used in investing activities was $13,673,277,
$564,659 and $750,465 for fiscal 1998, 1997 and 1996, respectively. In 1998,
the cash used in investing activities was used primarily to purchase North
American Communications, Inc.

Net cash provided by financing activities was $625,634 for the nine months
ended September 30, 1999 compared to $13,234,237 for the nine months ended
September 30, 1998. Net cash provided by (used in) financing activities was
$13,232,327, $(104,520) and $548,346 for fiscal 1998, 1997 and 1996. In 1998,
net cash provided by financing activities was provided by net borrowings and
was used for the acquisition of North American Communications, Inc. In 1997,
net cash used in financing activities was provided by the issuance of common
stock and was used to make principal payments on existing indebtedness. In
1996, net cash provided by financing activities was primarily attributable to
net proceeds from the issuance of common stock and was used to make principal
payments on existing indebtedness and to purchase treasury stock.

67
<PAGE>

In February 1998, TeleBeam entered into credit agreements with PNC Bank,
N.A., (PNC) as its primary lender, and Keystone Financial (Keystone), formerly
Mid-State Bank, N.A. PNC extended two new facilities, the proceeds of which
were used by TeleBeam to acquire North American Communications, Inc. The first
PNC credit facility provides for a $7 million term loan with a seven-year
maturity. The second PNC credit facility provides for a $6 million revolving
credit facility with similar terms and conditions as the first facility. Both
facilities offer TeleBeam the option of fixing the preferred interest rate on
any outstanding balances drawn on either credit facility for a period of up to
180 days. TeleBeam also entered into an interest rate hedge agreement with PNC
for all outstanding borrowings under the term loan and $2 million of the
revolving credit facility. In addition to the PNC facilities, TeleBeam also
obtained a $2 million subordinated debt commitment from Keystone that was used
entirely toward TeleBeam's acquisition of North American Communications, Inc.
The subordinated debt is subordinate to PNC's credit facilities and matures 12
months following the maturity date of both PNC credit facilities.

As of April 28, 1999, TeleBeam and PNC agreed to amend the credit facility.
The amendment included revising certain financial covenants for 1999 by making
the covenants less restrictive, effective with the first quarter of 1999.
Subsequent to the first amendment, TeleBeam and PNC agreed to amend the credit
facility throughout 1999 as needed in order for TeleBeam to remain in
compliance with its financial covenants.

TeleBeam believes that its cash from operations, existing cash balance and
available bank borrowings will be sufficient to meet requirements to fund its
existing operations for the next twelve months.

New Accounting Pronouncements

In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-up
Activities." The SOP is effective beginning on January 1, 1999, and requires
that start-up costs, including organization costs as defined by the SOP,
capitalized prior to January 1, 1999 be written-off and any future start-up
costs to be expensed as incurred. TeleBeam management has completed its
assessment of SOP 98-5 and has determined that its adoption will not have a
material impact on the financial statements.

In 1998, TeleBeam adopted another new disclosure pronouncement, SFAS No.131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 requires companies to report selected segment information when certain
size tests are met. TeleBeam has determined that it operates in only one
reportable segment meeting the applicable tests.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS 133 is effective
for TeleBeam's financial statements beginning January 1, 2001. TeleBeam
management has not completed its assessment of SFAS 133 and has not determined
the impact adoption will have on TeleBeam's financial statements.

Impact of Year 2000

The following disclosure is designated as Year 2000 readiness disclosure for
purposes of the Year 2000 Information and Readiness Disclosure Act.

Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems will
recognize the Year 2000 as "00" and may assume that the year is 1900 rather
than 2000. This could cause many computer applications to fail completely or
to create erroneous results unless corrective measures are taken. TeleBeam
recognizes the need to minimize the risk that its operations will be adversely
affected by Year 2000 software failures and is in the process of preparing for
the Year 2000.

68
<PAGE>

TeleBeam has developed a plan to modify its information systems technology
to recognize the Year 2000. TeleBeam's project to address the Year 2000 issue
includes ensuring the readiness of its business applications, operating
systems and hardware on network servers, personal computers and local area
networks. The project also addresses issues related to non-information
embedded software and equipment, the readiness of key business partners and
updating business continuity plans.

The project has four phases: (1) assessment, (2) planning, (3) remediation
and (4) testing and acceptance. During phase one, TeleBeam determined the size
and scope of the problem and prepared an inventory of the hardware, software,
interfaces and other items that may be affected. Third parties were contacted
to determine the status of their efforts. During phase two, TeleBeam assessed
the risks and decided whether to fix, replace, discard, or test the items
identified in the inventory and then, if necessary, prepared a project plan
and allocated appropriate resources. Phase three covers remediation where date
occurrences in internally maintained systems are analyzed and corrected.
Software and hardware are replaced where necessary. Operating systems that
interface with outside parties are examined in more detail and modified if
required. Phase four includes testing and acceptance of software, hardware,
third-party interfaces and related items to ensure they will work in a number
of different Year 2000 scenarios.

The most significant categories of outside parties to TeleBeam are financial
institutions, software vendors, governmental agencies, third-party service
providers and utility providers (gas, electric, and telecommunications).
TeleBeam's assessment of its key business partners is nearly completed.
Communications with outside parties are underway and strategies are being
developed to address issues as they are identified. TeleBeam has completed all
of the tests it believes are necessary for Year 2000 readiness through
September 30, 1999, however it is unable to predict any unforeseen problems
that it may encounter through third-party service providers.

As of September 30, 1999, the total cost associated with required
modifications and/or permanent improvements to become ready for the Year 2000
has been approximately $350,000 which has been expensed as incurred and/or
capitalized as appropriate. At this time there can be no assurance that these
estimates will not be exceeded. Actual results may differ significantly from
those projected. Some factors that may cause actual expenditures to differ
include the availability and cost of trained personnel and the ability to
locate and correct all relevant computer problems. This estimate includes
internal costs, but excludes the costs to upgrade and replace systems in the
normal course of business.

TeleBeam believes it will achieve Year 2000 readiness; however, the
dependency of its systems and the need for them to interface with other
systems internally and with those of its customers, vendors, partners,
governmental agencies and other outside parties, create the possibility that
some of its systems may experience Year 2000 problems. Specific factors that
give rise to this concern include a possible loss of qualified resources,
failure to identify and remediate all affected systems, noncompliance by third
parties whose systems and operations interface with TeleBeam's systems and
other similar uncertainties. TeleBeam will be developing contingency plans to
minimize any potential disruptions to operations, especially from externally
interfaced systems over which it has limited or no control.

Impact of Inflation

TeleBeam does not believe that inflation has had a material effect on
TeleBeam's business; however, general operating expenses such as salaries,
interest expense, employee benefits and occupancy costs are subject to normal
inflationary pressures.

Seasonality

TeleBeam experiences some seasonality in its results of operations,
particularly in the pay telephone operations, with its second and third
quarters typically producing a greater volume of calls than its first and
fourth quarters.

69
<PAGE>

MARKET RISK

TeleBeam is exposed to market risk from changes in interest rates. TeleBeam
does not have any foreign currency exchange risk or commodity price risk.

As of December 31, 1998 and September 30, 1999, TeleBeam had solely variable
rate debt. At December 31, 1998 the fair value of TeleBeam's variable rate
debt was estimated to be $13.0 million, which approximated the carrying value
based on TeleBeam's current incremental borrowing rates for similar types of
borrowing arrangements. At this borrowing level, a hypothetical 10% adverse
change in interest rates on the variable rate debt would increase interest
expense and decrease net earnings by approximately $87,500. The amount was
determined by considering the impact of the hypothetical interest rate
increase on TeleBeam's borrowing cost at the December 31, 1998 borrowing
level.

At September 30, 1999 the fair value of TeleBeam's variable rate debt was
estimated to be $13.1 million, which approximated the carrying value based on
TeleBeam's current incremental borrowing rates for similar types of borrowing
arrangements. At this borrowing level, a hypothetical 10% adverse change in
interest rates on the variable rate debt would increase interest expense and
increase net loss by approximately $79,900. The amount was determined by
considering the impact of the hypothetical interest rate increase on
TeleBeam's borrowing cost at the September 30, 1999 borrowing level.

TeleBeam's credit facility with PNC requires TeleBeam to enter into interest
rate swap and cap agreements to manage the interest rate exposure pertaining
to borrowings under the credit facility. At December 31, 1998 and September
30, 1999, TeleBeam had entered into interest rate caps and swaps with a total
notional amount of $9 million. Generally these instruments have initial terms
of 3 years and effectively convert the variable interest rate option component
to a fixed interest rate to which the applicable margin is added.

The above market risk discussion and the estimated amounts presented are
forward-looking statements of market risk assuming the occurrence of certain
adverse market conditions. Actual results in the future may differ materially
from those projected as a result of actual developments in the market.

EXPERTS

The consolidated financial statements of Conestoga included in its Annual
Report on Form 10-K for the year ended December 31, 1998 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 said firm as experts in
accounting and auditing.

The consolidated financial statements of TeleBeam, Incorporated at December
31, 1998, and for the year then ended, appearing in this proxy
statement/prospectus and registration statement have been audited by Ernst &
Young LLP, independent auditors, and at December 31, 1997, and for each of the
two years in the period ended December 31, 1997, by Arthur Andersen LLP,
independent auditors, as set forth in their respective reports thereon
appearing elsewhere herein, and are included in reliance upon such reports
given on the authority of such firms as experts in accounting and auditing.

LEGAL OPINIONS

The legality of the Conestoga common stock to be issued in connection with
the merger is being passed upon by Barley, Snyder, Senft & Cohen, LLC,
Reading, Pennsylvania. James H. Murray, of counsel to Barley, Snyder, Senft &
Cohen, LLC, is Vice President and a Director of Conestoga and owns of record,
or beneficially, 43,700 shares of Conestoga common stock. The tax consequences
of the merger are being passed upon by Saul, Ewing, Remick & Saul, LLP,
Berwyn, Pennsylvania, tax counsel to TeleBeam. Saul, Ewing, Remick and Saul,
LLP, will pass upon certain legal matters relating to TeleBeam at the
effective time.

70
<PAGE>

WHERE YOU CAN FIND MORE INFORMATION

Conestoga is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and, accordingly, files reports, proxy
statements and other information with the Securities and Exchange Commission.
You may inspect and copy these documents at any of the following SEC
locations:

. Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 [Note: you may also obtain copies of the documents at this location
at prescribed prices];

. Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661;

. Seven World Trade Center, New York, New York 10048.

Certain of these documents and other information is also available from the
SEC over the Internet at http://www.sec.gov. Conestoga common stock (symbol:
CENI) is traded on the NASDAQ National Market. Therefore, you can also inspect
reports, proxy statements and other information concerning Conestoga at the
offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.

Conestoga has filed a registration statement with the SEC on Form S-4 with
respect to the Conestoga common stock to be issued pursuant to the merger
agreement. This proxy statement/prospectus does not contain all of the
information set forth in the registration statement. We omitted certain parts
of the registration statement in accordance with the SEC's rules and
regulations. The registration statement is available for inspection and
copying as described above.

Statements in this proxy statement/prospectus as to the contents of any
contract or document are not necessarily complete. You should refer to the
contract or document filed as an exhibit to the registration statement for the
complete contents of all contracts or documents referenced in this proxy
statement/prospectus.

The SEC allows us to "incorporate by reference" information into this proxy
statement/prospectus, which means that we can disclose important information
to you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be a part of this proxy
statement/prospectus, except for any information superceded by information
contained directly in this proxy statement/prospectus. This proxy
statement/prospectus incorporates by reference, as set forth below, documents
relating to Conestoga that are not presented in or delivered with this proxy
statement/prospectus.

(1) the Annual Report on Form 10-K for the year ended December 31, 1998.

(2) the Quarterly Report on Form 10-Q for the quarter ended March 30,
1999.

(3) the Quarterly Report on Form 10-Q for the quarter ended June 30,
1999.

(4) the Quarterly Report on Form 10-Q for the quarter ended September 30,
1999.

(5) the Current Report on Form 8-K, dated November 18, 1999.

All documents filed by Conestoga pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the date of the
TeleBeam meeting shall be deemed to be incorporated by reference herein and to
be a part hereof from the date of filing thereof. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this proxy
statement/prospectus to the extent that a statement contained herein, or in
any other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this proxy
statement/prospectus. All information appearing in this proxy
statement/prospectus should be read in conjunction with, and is qualified in
its entirety by, the information and financial statements (including notes
thereto) appearing in the documents incorporated herein by reference, except
to the extent set forth in the immediately preceding statement.

71
<PAGE>

You may obtain a free copy of these documents* by calling or writing
Conestoga's Secretary, Kenneth A. Benner, at:

Conestoga Enterprises, Inc.
202 East First Street
Birdsboro, PA 19508
Phone: (610) 582-8711

To ensure timely delivery of the documents, you should make your request no
later than .

* Documents requested will be provided without exhibits unless the exhibits
are also specifically incorporated by reference in this proxy
statement/prospectus.

72
<PAGE>

INDEX TO TELEBEAM FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors........................................... F-2
Report of Independent Public Accountants................................. F-3
Consolidated Balance Sheets, December 31, 1998 and 1997.................. F-4
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996........................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996.................................. F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996..................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
Unaudited Financial Statements
Consolidated Balance Sheets, September 30, 1999 and December 31, 1998
(unaudited)............................................................. F-21
Consolidated Statements of Operations for the nine months ended September
30, 1999 and 1998 (unaudited)........................................... F-22
Consolidated Statements of Cash Flows for the nine months ended September
30, 1999 and 1998 (unaudited)........................................... F-23
Notes to Consolidated Financial Statements for the nine months ended
September 30, 1999 and 1998 (unaudited)................................. F-24
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
TeleBeam, Incorporated

We have audited the accompanying consolidated balance sheet of TeleBeam,
Incorporated as of December 31, 1998, and the related consolidated statements
of income, changes in stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of TeleBeam's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we 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. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the 1998 financial statements referred to above present
fairly, in all material respects, the financial position of TeleBeam,
Incorporated as of December 31, 1998, and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

Ernst & Young LLP
Harrisburg, Pennsylvania
April 28, 1999

F-2
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors
of TeleBeam, Incorporated:

We have audited the accompanying consolidated balance sheet of TeleBeam,
Incorporated (a Delaware corporation) and Subsidiaries as of December 31,
1997, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the two years in the period
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we 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. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TeleBeam, Incorporated and
Subsidiaries as of December 31, 1997, and the results of their operations and
their cash flows for each of the two years then ended in conformity with
generally accepted accounting principles.

Pittsburgh, Pennsylvania, Arthur Andersen LLP
March 18, 1998

F-3
<PAGE>

TELEBEAM, INCORPORATED

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................... $ 397,747 $ 74,502
Restricted cash in escrow account related to
acquisition........................................ 518,245 --
Accounts receivable, trade less allowance for
doubtful accounts of $107,750 in 1998.............. 1,814,348 314,235
Accounts receivable, related party.................. 129,169 482,575
Notes receivable, officers.......................... 443,294 215,354
Inventories......................................... 193,807 199,735
Prepaid taxes....................................... -- 41,815
Prepaid expenses.................................... 154,844 197,512
Deferred income taxes............................... 235,989 30,154
Other current assets................................ 140,417 --
----------- ----------
Total current assets.............................. 4,027,860 1,555,882
Property and equipment, net........................... 5,024,936 2,126,135
Goodwill, net of accumulated amortization of $322,598
in 1998.............................................. 9,843,942 --
Other assets, net..................................... 350,883 90,282
Deposits.............................................. 40,367 --
----------- ----------
Total assets...................................... $19,287,988 $3,772,299
=========== ==========
Liabilities and stockholders' equity
Current liabilities:
Current maturities of long-term debt................ $ 632,841 $ 40,381
Accounts payable, trade............................. 643,537 76,544
Accounts payable, related party..................... 72,387 322,238
Accrued long-distance service charges............... 15,983 603,738
Liability for acquisition in escrow account......... 518,245 --
Accrued post-closing purchase price adjustment--
acquisition........................................ 559,837 --
Accrued income taxes................................ 264,325 --
Other accrued expenses and current liabilities...... 695,985 255,435
----------- ----------
Total current liabilities......................... 3,403,140 1,298,336
Long-term debt, less current maturities............... 12,387,357 4,678
Deferred income taxes................................. 419,087 221,382
----------- ----------
Total liabilities................................. 16,209,584 1,524,396
Stockholders' equity:
Preferred stock--authorized and unissued, 250,000
shares, $100 par value in 1998..................... -- --
Common stock, par value, $0.01 per share:
Authorized, 15,000,000 shares
Issued, 4,744,185 shares in 1998; 4,379,185 shares
in 1997........................................... 47,442 43,792
Common stock subscribed, par value, $0.01 per share:
1,615,000 shares in 1998 and 1997.................. 16,150 16,150
Additional paid-in capital.......................... 3,137,667 2,604,377
Stock subscriptions receivable...................... (744,746) (708,697)
Less treasury stock, 250,000 shares at cost......... (225,000) (225,000)
Retained earnings................................... 846,891 517,281
----------- ----------
Total stockholders' equity........................ 3,078,404 2,247,903
----------- ----------
Total liabilities and stockholders' equity........ $19,287,988 $3,772,299
=========== ==========
</TABLE>

See accompanying notes.

F-4
<PAGE>

TELEBEAM, INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Communication services................. $13,571,180 $2,415,507 $2,744,813
Video programming...................... 452,047 283,039 --
Other services......................... 491,398 422,108 178,053
----------- ---------- ----------
Total revenues....................... 14,514,625 3,120,654 2,922,866
Costs and expenses:
Communication services charges......... 6,622,592 1,507,816 1,690,460
Video programming fees................. 125,143 58,839 --
Field services......................... 769,447 304,139 242,592
Selling, general, and administrative
expenses.............................. 4,566,227 796,920 590,890
Depreciation and amortization.......... 848,621 252,450 144,855
----------- ---------- ----------
Total costs and expenses............. 12,932,030 2,920,164 2,668,797
----------- ---------- ----------
Operating income......................... 1,582,595 200,490 254,069
Other (income) expense:
Interest expense....................... 945,036 17,091 66,346
Interest income........................ (82,433) (67,381) (20,015)
Abandoned private offering and acquisi-
tion expenses......................... 152,258 -- --
----------- ---------- ----------
1,014,861 (50,290) 46,331
----------- ---------- ----------
Income before income taxes............... 567,734 250,780 207,738
Provision for income taxes............... 238,124 88,622 69,816
----------- ---------- ----------
Net income............................... $ 329,610 $ 162,158 137,922
=========== ========== ==========
Earnings per common share:
Basic.................................. $ 0.05 $ 0.03 $ 0.05
Diluted................................ $ 0.05 $ 0.03 $ 0.04
Weighted average common shares and equiv-
alents outstanding:
Basic.................................. 6,147,268 5,832,764 3,045,180
Diluted................................ 6,940,781 6,234,578 3,756,873
</TABLE>

See accompanying notes.

F-5
<PAGE>

TELEBEAM, INCORPORATED

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Common Additional Stock Total
Common Stock Paid-In Subscriptions Treasury Retained Stockholders'
Stock Subscribed Capital Receivable Stock Earnings Equity
------- ---------- ---------- ------------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... $25,450 $ -- $ 381,050 $ -- $ -- $217,201 $ 623,701
Issuance of common stock
(1,306,685 shares)..... 13,067 -- 1,070,024 -- -- -- 1,083,091
Treasury stock acquired
(250,000 shares)....... -- -- -- -- (225,000) -- (225,000)
Stock options exercised
(926,000 shares)....... -- 9,260 295,880 (305,140) -- -- --
Tax benefit of options
exercised.............. -- -- 5,563 -- -- -- 5,563
Net income.............. -- -- -- -- -- 137,922 137,922
------- ------- ---------- --------- --------- -------- ----------
Balance, December 31,
1996................... 38,517 9,260 1,752,517 (305,140) (225,000) 355,123 1,625,277
Issuance of common stock
(467,500 shares)....... 4,675 -- 416,075 -- -- -- 420,750
Stock options exercised
(749,000 shares)....... 600 6,890 377,570 (360,910) -- -- 24,150
Tax benefit of options
exercised.............. -- -- 58,215 -- -- -- 58,215
Interest accrued on
stock subscriptions.... -- -- -- (42,647) -- -- (42,647)
Net income.............. -- -- -- -- -- 162,158 162,158
------- ------- ---------- --------- --------- -------- ----------
Balance, December 31,
1997................... 43,792 16,150 2,604,377 (708,697) (225,000) 517,281 2,247,903
Issuance of common stock
(350,000 shares)....... 3,500 -- 521,500 -- -- -- 525,000
Stock options exercised
(15,000 shares)........ 150 -- 6,350 -- -- -- 6,500
Tax benefit of options
exercised.............. -- -- 5,440 -- -- -- 5,440
Interest accrued on
stock subscriptions.... -- -- -- (36,049) -- -- (36,049)
Net income.............. -- -- -- -- -- 329,610 329,610
------- ------- ---------- --------- --------- -------- ----------
Balance, December 31,
1998................... $47,442 $16,150 $3,137,667 $(744,746) $(225,000) $846,891 $3,078,404
======= ======= ========== ========= ========= ======== ==========
</TABLE>

See accompanying notes.

F-6
<PAGE>

TELEBEAM, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------
1998 1997 1996
------------ --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 329,610 $ 162,158 $ 137,922
Adjustments to reconcile net income to
net cash provided by operating activ-
ities:
Depreciation and amortization....... 848,621 252,450 144,855
Bad debt expense.................... 107,750 -- --
Write-off of other assets........... 17,167 -- --
Gain on disposal of assets.......... (1,257) (51) (207)
Interest on stock subscriptions re-
ceivable........................... (36,049) (42,647) --
Deferred income taxes............... (8,130) 52,106 56,050
Changes in operating assets and
liabilities, net of effects of
acquisition of a business:
Accounts receivable............... 372,750 (567,662) (93,396)
Inventories....................... 6,985 23,392 (139,948)
Prepaids and other................ 97,922 (103,861) 25,196
Other current assets.............. (140,417) -- --
Accounts payable and accrued ex-
penses........................... (830,757) 642,245 428,781
Other assets...................... -- (36,256) (64,982)
------------ --------- ----------
Net cash provided by operating activi-
ties................................. 764,195 381,874 494,271
Cash flows from investing activities:
Acquisition of business, net of cash
acquired............................. (12,076,519) -- --
Proceeds from disposal of property and
equipment............................ 47,273 201 8,100
Purchases of property and equipment... (1,315,927) (422,404) (753,857)
Net change in notes receivable, offi-
cers................................. (227,940) (142,456) (4,708)
Purchases of other assets............. (100,164) -- --
------------ --------- ----------
Net cash used in investing activi-
ties................................. (13,673,277) (564,659) (750,465)
Cash flows from financing activities:
Proceeds from borrowings.............. 14,275,520 319,130 100,000
Principal payments on loans........... (775,381) (868,550) (409,745)
Debt issuance costs................... (274,312) -- --
Issuance of common stock.............. -- 420,750 1,083,091
Exercise of common stock options...... 6,500 24,150 --
Treasury stock purchased.............. -- -- (225,000)
------------ --------- ----------
Net cash provided by (used in) financ-
ing activities....................... 13,232,327 (104,520) 548,346
------------ --------- ----------
Net increase (decrease) in cash and
cash equivalents..................... 323,245 (287,305) 292,152
Cash and cash equivalents, at begin-
ning of year......................... 74,502 361,807 69,655
------------ --------- ----------
Cash and cash equivalents, at end of
year................................. $ 397,747 $ 74,502 $ 361,807
============ ========= ==========
</TABLE>

See accompanying notes.

F-7
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1998

1. Organization

The consolidated financial statements present the business activities of
TeleBeam, Incorporated (the "Company"). TeleBeam is a full service facilities-
based provider of communication services primarily to businesses and multiple-
dwelling unit residential customers in less competitive, non-metropolitan
markets in Pennsylvania. TeleBeam provides a variety of individual and bundled
services to its customers, including local and long-distance voice services,
Internet access and high-speed data transport, video programming and other
enhanced communication services.

2. Acquisition

The preliminary allocated fair value of assets acquired and liabilities
assumed is summarized as follows:

<TABLE>
<S> <C>
Current assets................................................ $ 1,921,558
Property and equipment........................................ 2,051,130
Goodwill...................................................... 9,606,703
-----------
Total....................................................... 13,579,391
Less: liabilities assumed..................................... 1,223,017
-----------
Net cost of acquisition....................................... $12,356,374
===========
</TABLE>

As part of the initial purchase price TeleBeam deposited $500,000 into an
escrow account. As of December 31, 1998, TeleBeam continues to carry a
liability for the acquisition for the unpaid portion of the purchase price
totaling the amount of cash in the escrow account. Also, a post-closing
purchase price adjustment of $559,837 was calculated as an amount due to the
sellers which was accrued as a liability and additional goodwill subsequent to
the acquisition and the initial purchase price allocation. TeleBeam continues
to withhold payment of the cash in the escrow account and the post-closing
purchase price adjustment due to claims made by TeleBeam against the sellers
under the Stock Purchase Agreement. TeleBeam is seeking indemnification from
the sellers for losses and liabilities in excess of the total of these
amounts.

F-8
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following unaudited pro forma results of operations give effect to the
operations of North American Communications, Inc. as if the acquisition had
occurred as of the beginning of the periods presented. The pro forma results
of operations do not purport to represent what TeleBeam's results of
operations would have been had such transaction in fact occurred at the
beginning of the periods presented or to project TeleBeam's results of
operations in any future periods.

<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1998 1997
------------ ------------
(in thousands, except for
earnings per share data)
<S> <C> <C>
Total revenues.................................... $ 17,307 $ 16,529
Net income........................................ $ 428 $ 365
Basic earnings per share.......................... $ 0.07 $ 0.06
Diluted earnings per share........................ $ 0.06 $ 0.06
</TABLE>

3. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the financial statements of
TeleBeam and its wholly-owned subsidiaries. On December 31, 1998, TeleBeam's
stockholders approved the merger of TeleBeam, Incorporated and its wholly-
owned subsidiaries North American Communications, Inc. and Smart Choice Long
Distance, Inc. with TeleBeam, Incorporated being the surviving corporation. As
of December 31, 1998, TeleBeam, USA, Inc. (a Delaware company), remains
TeleBeam's sole wholly-owned subsidiary. All significant intercompany accounts
and transactions have been eliminated.

Revenue and Cost Recognition

Communication services consist of local, long-distance, public pay telephone
revenues, and Internet services. These revenues are recognized when customers
use the communication services. Video programming and other revenues are
recognized as the services are rendered.

Costs of revenues include all direct telephone and commission charges and
other expenses related to the operation of local and long-distance services,
public pay telephones, Internet services, video programming, and other
communication services.

Accounts Receivable

Credit losses are provided for in the financial statements and have been
within management's expectations. TeleBeam generally does not require
collateral.

Advertising

TeleBeam expenses the cost of advertising as incurred. Advertising expense
for the years ended December 31, 1998, 1997 and 1996 was approximately
$209,459, $60,159 and $47,821, respectively.

Cash and Cash Equivalents

TeleBeam considers cash and cash equivalents as those liquid investments
purchased with an original maturity of three months or less.

F-9
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Allowance for Doubtful Accounts

During the years ended December 31, 1998, 1997 and 1996 amounts charged to
bad debt expense and accounts written off, net of recoveries, were as follows:

<TABLE>
<CAPTION>
Charged
Balance at to Costs Charged to Balance
Beginning and Other at End of
Year Ended of Period Expenses Accounts Deductions Period
- ---------- ---------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1998......... $-- $72,679 $51,000(2) $15,929(1) $107,750
December 31, 1997......... -- -- -- -- --
December 31, 1996......... -- -- -- -- --
</TABLE>
- --------
(1) Uncollectable accounts written off, net of recoveries.
(2) Allowance for bad debts of acquired companies.

Inventories

TeleBeam values its inventories, which consist primarily of replacement
parts, pay telephone equipment, wireless broadcast equipment, dialers, pagers
and prepaid calling cards, at the lower of cost or market with cost determined
using the first-in, first-out (FIFO) method.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the assets' estimated useful lives which range
from five to fifteen years. Repairs and maintenance are charged to expense and
betterments are capitalized.

Goodwill and Other Assets

Goodwill represents the costs in excess of net assets of the business
acquired and is amortized on a straight-line basis over twenty-five years.
Other assets include primarily debt issuance costs. Amortization is computed
using the straight-line method over the terms of the related debt of five to
seven years for debt issuance costs and five years for other items.

The carrying value of goodwill and other intangible assets is reviewed for
impairment whenever events or changes in circumstances indicate that it may
not be recoverable. If this review indicates that the value assigned to
intangible assets would not be recoverable, as determined based on
undiscounted future cash flows over the remaining amortization period,
TeleBeam's carrying value of intangible assets would be reduced by the excess
of such value over projected future cash flows.

Income Taxes

TeleBeam accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109) which
requires the use of the liability method. Under the liability method, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled.

F-10
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Derivatives

TeleBeam enters into interest rate swap and cap agreements to hedge the
exposure to increasing rates with respect to its Credit Facility. The
differential to be paid or received as a result of these agreements is accrued
as interest rates change and recognized as an adjustment to interest expense
under the Credit Facility.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The following methods and assumptions were used by TeleBeam in estimating
its fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts approximate the fair value
because of the short maturity of such instruments.

Accounts receivable, notes receivable, accounts payable and accrued
liabilities: The carrying amounts approximate the fair value because of the
short maturity of such instruments.

Short and long-term debt: The carrying amounts approximate the fair value
based on current financing for similar loans available to TeleBeam.

Segment Information

In 1998, TeleBeam adopted new disclosure pronouncement, SFAS No.131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 requires companies to report selected segment information when certain
size tests are met. TeleBeam has determined that it operates in only one
reportable segment meeting the applicable tests.

Reclassifications

Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.

New Accounting Pronouncements

In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-up
Activities." The SOP is effective beginning on January 1, 1999, and requires
that start-up costs, including organization costs as defined by the SOP,
capitalized prior to January 1, 1999 be written-off and any future start-up
costs to be expensed as incurred. Management has completed its assessment of
SOP 98-5 and has determined that its adoption will not have a material impact
on the financial statements.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS 133 is effective
for TeleBeam's financial statements beginning January 1, 2001. Management has
not completed its assessment of SFAS 133 and has not determined the impact
adoption will have on TeleBeam's financial statements.

F-11
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. Accounts Receivable for Dial Around Compensation

At December 31, 1998 and 1997, accounts receivable included $354,909 and
$229,951, respectively, relating to "dial around" compensation. The balance at
December 31, 1998 includes approximately $116,000 from 1997. A dial around
call occurs when a non-coin call is placed from the Company's public pay
telephones and utilizes a carrier other than the Company's dedicated provider
of long-distance and operator-assisted service. Payments relating to such
receivables are normally received quarterly in arrears.

Several parties, including interexchange carriers ("IXCs"), filed petitions
with the U.S. Court of Appeals for review of certain of the Federal
Communications Commission ("FCC") regulations under the 1996 Payphone Order,
which stated the Company was to receive dial around compensation of $45.85 per
installed pay telephone from November 6, 1996 through October 6, 1997 and per
call compensation of $0.35 per call from October 7, 1997 to October 6, 1998,
and thereafter, at a per call rate equal to the local coin rate for each dial
around call.

The FCC reevaluated their rules and regulations and issued the 1997 Payphone
Order establishing new dial around compensation rates of $0.284 per call. On
March 9, 1998, the FCC issued a Memorandum Opinion and Order establishing a
timetable for Local Exchange Carriers ("LECs") to implement a system for
identifying dial around calls placed from pay telephones. The Memorandum
reiterated the obligation of the IXCs to pay, by April, 1998, $0.284 per call
based on the actual number of dial around calls per pay telephone, if such
call data is available. A number of parties filed a Motion to Stay the 1997
Payphone Order. The Court of Appeals elected not to vacate the $0.284 per call
rate on the understanding that if and when on remand the FCC established some
different rate of fair compensation for dial around calls, the FCC may adjust
the dial around compensation rate retroactively, should the equities so
dictate.

In January 1999, the FCC issued its ruling in the current proceeding and set
the per call compensation rate at $0.24 per call. The FCC did not specify a
future date that the $0.24 per call rate will be effective nor did they
indicate whether the rate would be applied prospectively or retroactively.
Effective February 1, 1999, the Company adopted the $0.24 per call rate.

Based on the information available under the 1997 Payphone Order, the
Company believes that the minimum amount it is entitled to as fair
compensation for the period of November 7, 1996 through December 31, 1998 is
$0.284 per call. Further, the Company does not believe that it is reasonably
possible that the amount will be materially less than this amount. During
1998, 1997 and 1996, the Company recognized dial around revenues of $319,457,
$332,604 and $107,054, respectively.

F-12
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. Property and Equipment

The components of property and equipment are as follows as of December 31:

<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Office equipment and software...................... $ 533,375 $ 185,738
Tools.............................................. 103,408 45,485
Network monitoring and switching equipment......... 2,142,423 285,987
Enclosure equipment................................ 143,918 163,534
Telephone equipment................................ 744,105 778,929
Installation costs................................. 247,840 247,611
Transportation equipment........................... 173,566 134,787
Buildings.......................................... 488,224 --
Leasehold improvements............................. 82,985 71,339
Wireless broadcast equipment....................... 524,666 518,809
Hybrid fiber/co-axial network...................... 749,952 180,014
---------- ----------
5,934,462 2,612,233
Accumulated depreciation........................... (909,526) (486,098)
---------- ----------
$5,024,936 $2,126,135
========== ==========
</TABLE>
6. Debt Arrangements

Long-term debt consists of the following as of December 31:

<TABLE>
<CAPTION>
1998 1997
----------- --------
<S> <C> <C>
Credit facility:
Term loan........................................... $ 7,000,000 $ --
Revolving loan...................................... 4,015,520 --
Subordinated debt facility............................ 2,000,000 --
Previous credit facility.............................. -- 33,000
Vehicle loans......................................... 4,678 12,059
----------- --------
13,020,198 45,059
Less amounts classified as current.................... (632,841) (40,381)
----------- --------
Total long-term debt.................................. $12,387,357 $ 4,678
=========== ========
</TABLE>

Credit Facility

The Company has a credit facility with PNC Bank, N.A. ("PNC") (the "Credit
Facility") pursuant to which the bank provided the availability of loans to
the Company, on a revolving-credit basis, in an aggregate principal amount not
to exceed $6 million (the "Revolving Loan") and a term loan (the "Term Loan)
of $7 million. The Company is required to make quarterly payments on the
outstanding principal of the Term Loan beginning June 30, 1999. These payments
increase each year on the anniversary date of the initial payment, until the
borrowings on the Term Loan are paid in full on the expiration date of
December 31, 2004. The amount of outstanding borrowings allowed under the
Revolving Loan is to be reduced from the maximum $6 million on a quarterly and
cumulative basis beginning December 31, 1999. These reductions in commitment
increase at the end of each quarter of each succeeding fiscal year until the
Revolving Loan is paid in full on expiration at December 31, 2004. The Credit
Facility restricts the Company's ability to, among other things, pledge
assets, incur additional indebtedness, make loans to subsidiaries and/or
officers above certain amounts, make distributions or dividends to
stockholders or provide a return of capital from common stock, merge with or
acquire other entities, permit a change of control and sell fixed assets. The
Credit Facility also contains restrictive financial covenants that include
requiring the Company to maintain ratios of debt to cash flow and interest
coverage and certain other ratios.

F-13
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As of April 28, 1999, the Company and PNC agreed to amend the Credit
Facility agreement for certain financial covenants. The amendment includes
revising certain financial covenants for 1999 by making the covenants less
restrictive, effective with the first quarter of 1999. The Company believes
that it will be able to comply with all covenants, as amended. The Company and
the Bank expect to complete and execute the documents related to the amendment
to the Credit Facility agreement by May 31, 1999.

Any loan shall, at the Company's option, be made as a Base Rate Loan,
Eurodollar Loan, or both. Under the Credit Facility, interest is payable at
the prevailing base rate and/or Eurodollar rate plus an applicable margin
determined quarterly based on the Company's debt to cash flow ratio. The
applicable margin as of December 31, 1998 on the outstanding borrowings under
the Revolving Loan and Term Loan was 2.625%. During 1998, all borrowings under
the Credit Facility had been borrowed using the Eurodollar Loan option. The
weighted average interest rate, including the applicable margin, as of
December 31, 1998 on the Term Loan was 7.66%.

As of December 31, 1998, the Company had $4,015,520 in outstanding
borrowings under the Revolving Loan. As of December 31, 1998, the weighted
average interest rate on the outstanding borrowings was 7.66%. The Credit
Facility also provides for an annual fee ranging from 0.25% to 0.375% on the
unused commitment, payable quarterly. As of December 31, 1998, the unused
portion of the commitment under the Credit Facility was $1,984,480.

The Credit Facility requires the Company to enter into interest rate swap
and cap agreements to manage the interest rate exposure pertaining to
borrowings under the Credit Facility. At December 31, 1998, the Company had
entered into interest rate caps and swaps with a total notional amount of $9
million. Generally these instruments have initial terms of 3 years and
effectively convert the variable interest rate option component to a fixed
interest rate to which the applicable margin is added. The fixed interest rate
under these agreements was approximately 5.96% at December 31, 1998.

The repayment of the Credit Facility is collateralized by, among other
things, the grant of a security interest in substantially all of the assets of
the Company. The Chairman, President and Chief Executive Officer of the
Company has also provided a personal guarantee in the amount of $1 million.

Upon execution of the Credit Facility, the Company repaid all of its
outstanding indebtedness under its then existing revolving and term loan
agreement and the majority of the proceeds was used in connection with the
Company's acquisition of North American Communications, Inc.

Subordinated Debt Facility

On March 10, 1998, the Company entered into a subordinated debt agreement
with Keystone Financial ("Keystone"), formerly Mid-State Bank, N.A., as a
condition of the Company receiving its Credit Facility, which required the
entire amount of the Subordinated Facility to be used for the acquisition of
North American Communications, Inc. The entire principal balance of the
Subordinated Debt Facility is due on March 10, 2005. No other principal
payment is required under the Subordinated Debt Facility during the term of
the loan. Under the Subordinated Debt Facility, interest is paid monthly at
the prime rate plus 1.0%. As of December 31, 1998, the interest rate was
8.75%.

The repayment of the Subordinated Debt Facility is collateralized by, among
other things, the grant of a junior security interest to the Credit Facility
in substantially all assets of the Company. In addition, the Company's
Chairman, President and Chief Executive Officer, Executive Vice President,
members of the Board of Directors and one individual stockholder of the
Company provided personal guarantees to Keystone as a condition of extending
the Subordinated Debt Facility to the Company.

F-14
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Vehicle Loans

The Company has various vehicle loans with interest rates varying from 9.00%
to 9.29%, payable in monthly installments through November 2000.

Previous Credit Facility

As of December 31, 1997, the Company had two credit facilities with Keystone
(the "Previous Credit Facility"). The Previous Credit Facility included a $2
million term loan and a $500,000 revolving working line of credit. The
Previous Credit Facility was collateralized by substantially all of the
Company's assets. Any loan that was made under the previous term loan was made
to the Company on an interest-only basis for a period of twenty-four months
and thereafter automatically converted to an amortized loan for a period of
eighty-four months until paid in full. Any loan that was made under the
previous revolver loan was made to the Company on an interest-only basis for a
period of twenty-four months. The previous revolver loan was reviewed for
renewal every two years by the bank. In the event that the bank would choose
not to review the previous revolver loan, the Company would then have had
twelve months to repay any outstanding principal balance.

Under the Previous Credit Facility, outstanding borrowings bore interest at
a rate approximating the prime rate with no margin, or the London Interbank
Offered Rate ("LIBOR") plus a margin of 2.75%. The Company had the option to
choose either the prime rate or LIBOR rate, or both under its borrowings. As
of December 31, 1997, all outstanding balances of $33,000 were drawn under the
LIBOR rate option. During 1997, the Company had borrowings and repayments of
$319,130 under the Previous Credit Facility. The weighted average interest
rate, including margin, as of December 31, 1997 was 8.38%. These credit
facilities were fully satisfied and terminated as of the date of closing on
the North American Communications, Inc. acquisition.

The schedule of maturities of long-term debt is as follows as of December
31, 1998:

<TABLE>
<S> <C>
1999........................................................ $ 632,841
2000........................................................ 981,837
2001........................................................ 1,190,000
2002........................................................ 2,275,520
2003........................................................ 2,840,000
Thereafter.................................................. 5,100,000
-----------
Total..................................................... $13,020,198
===========
</TABLE>

Interest paid totaled $937,586, $23,886 and $59,551 in 1998, 1997 and 1996,
respectively.

7. Lease Obligations

The Company has various leases for different office facilities. The Company
leases its headquarters office facility from an affiliated company. The lease
terms expire at various dates through the year 2003, with optional renewal
periods. Lease expense charged to operations was $117,682, $64,778 and $37,477
for the years ended December 31, 1998, 1997 and 1996, respectively.

Minimum future rental payments under noncancelable operating leases as of
December 31, 1998 are as follows:

<TABLE>
<S> <C>
1999............................................................ $56,585
2000............................................................ 10,746
2001............................................................ 10,796
2002............................................................ 8,752
2003............................................................ 1,125
-------
Total......................................................... $88,004
=======
</TABLE>

F-15
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Related Party Transactions

Certain stockholders of the Company are also stockholders in other companies
with whom the Company has business transactions. These transactions and
balances are summarized as follows:

<TABLE>
<CAPTION>
Year ended December 31
-----------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Expense transactions:
Commissions from telecommunication servic-
es........................................ $ 403,862 $ 406,938 $ 620,846
Lease of office facility................... 73,596 64,778 37,477
Revenue transactions:
Pay telephones at related party locations
and other telecommunications services..... 1,345,164 1,620,620 1,823,237
</TABLE>

<TABLE>
<CAPTION>
December 31
-----------------
1998 1997
-------- --------
<S> <C> <C>
Balances:
Accounts receivable...................................... $129,169 $482,575
Accounts payable......................................... $ 72,387 $322,238
</TABLE>

The Company has short-term interest bearing notes receivable with the
Company's Chairman, President and Chief Executive Officer, the Company's
Executive Vice President and a partnership owned by certain officers of the
Company. The balance of these notes receivable, including accrued interest,
was $443,294 and $215,354 as of December 31, 1998 and 1997, respectively.
Interest income on these notes totaled $19,303, $10,413 and $6,122 during
1998, 1997 and 1996, respectively.

9. Stock Option Plan

The Company adopted an Equity Compensation Stock Option Plan in 1993 for its
directors and certain key employees, which provides for non-qualified and
qualified stock options. The Board of Directors determines the option price,
which cannot be less than the fair market value of the underlying stock at the
date of grant. Options are generally exercisable one to four years after the
date of grant and expire five (5) or ten (10) years after the date of grant.

A summary of option activity is as follows:

<TABLE>
<CAPTION>
Number Option Price Per
of Shares Share
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995................. 1,180,000 $0.25 - $0.44
Granted during 1996............................ 1,557,500 $0.50 - $0.90
Exercised during 1996.......................... (926,000) $0.28 - $0.44
--------- -------------
Outstanding at December 31, 1996................. 1,811,500 $0.25 - $0.90
Granted during 1997............................ 942,500 $0.90 - $0.99
Exercised during 1997.......................... (749,000) $0.44 - $0.55
--------- -------------
Outstanding at December 31, 1997................. 2,005,000 $0.25 - $0.99
Granted during 1998............................ 667,082 $1.50 - $1.65
Exercised during 1998.......................... (15,000) $0.40 - $0.50
Canceled during 1998........................... (737,250) $0.90 - $1.65
--------- -------------
Outstanding at December 31, 1998................. 1,919,832 $0.25 - $1.65
========= =============
</TABLE>

F-16
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Additional information with respect to outstanding options as of December
31, 1998 is as follows:

<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
--------------------------------------------------------------- -----------
Weighted Average
Number of Remaining Number of
Exercise Prices Options Contractual Life Options
--------------- --------- ---------------- -----------
<S> <C> <C> <C>
$0.25 - $0.55 1,035,000 3.25 1,035,000
$0.90 - $0.99 530,000 5.41 530,000
$1.50 - $1.65 354,832 9.06 --
--------- ---- ---------
$0.25 - $1.65 1,919,832 4.92 1,565,000
========= ==== =========
</TABLE>

At December 31, 1998, options to purchase 1,565,000 shares were vested,
1,890,168 shares were available for future grants and 354,832 were unvested.
The Company has reserved 3,810,000 shares of common stock for options issued
under the plan.

The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123) during the year ended
December 31, 1996. SFAS 123 applies to stock options issued in 1995 or later.
As such, approximately 650,000 options issued prior to 1995 are not accounted
for in accordance with SFAS 123. In accordance with the provisions of SFAS
123, the Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for its plan. Therefore, the Company does not
recognize compensation expense for its stock-based compensation plan because
the exercise price of the options is at least equal to the fair market value
of the underlying common stock at the grant date. If the Company had elected
to recognize compensation expense based upon the fair value of the options at
the grant date for awards under this plan consistent with the methodology
prescribed by SFAS 123, the Company's net income and basic and diluted
earnings per share would have been reduced to the following for those options
issued in 1995 and later:

<TABLE>
<CAPTION>
Year ended December 31
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income:
As reported.................................... $329,610 $162,158 $137,922
Pro forma...................................... $219,343 $101,924 $ 63,067
Basic earnings per share:
As reported.................................... $ 0.05 $ 0.03 $ 0.05
Pro forma...................................... $ 0.03 $ 0.02 $ 0.02
Diluted earnings per share:
As reported.................................... $ 0.05 $ 0.03 $ 0.04
Pro forma...................................... $ 0.03 $ 0.02 $ 0.02
</TABLE>

These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over
the vesting period and additional options may be granted in future years.

The fair value for these options was estimated at the date of grant using
the Black-Scholes option pricing model with the following assumptions:

<TABLE>
<S> <C>
Risk free interest rates................................. 5.03% to 7.04%
Expected lives........................................... 3 or 7 years
Expected volatility...................................... 0.0%
Expected dividend yield.................................. 0.0%
</TABLE>

F-17
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10. Retirement Plan

In July 1998, the Company adopted a defined contribution retirement plan as
defined under Section 401(k) of the Internal Revenue Code under which all full
time employees are eligible to participate after 90 days of continuous service
and providing they have attained their twenty-first birthday. Employee
contributions vest immediately and employer contributions become 50% vested
after two years of service and fully vested by the end of the third year of
service. Fund withdrawals typically are not permitted prior to attaining the
normal retirement age of 65 with the exception of hardship withdrawals as
defined in the plan.

The Company may contribute a discretionary amount determined in its sole
judgment. Such additional contribution, if any, shall be allocated to each
participant in proportion to his or her compensation for the Company's tax
year. In 1998, the Company matched up to 50% of 3% of participating employees'
wages. Employer contributions for 1998 totaled $6,838.

11. Income Taxes

The provision (benefit) for income taxes attributable to income from
operations consists of the following:

<TABLE>
<CAPTION>
Year ended December 31
--------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal......................................... $156,537 $25,440 $ --
State........................................... 89,717 11,076 --
-------- ------- -------
246,254 36,516 --
Deferred:
Federal......................................... (6,908) 53,680 61,448
State........................................... (1,222) (1,574) 8,368
-------- ------- -------
(8,130) 52,106 69,816
-------- ------- -------
$238,124 $88,622 $69,816
======== ======= =======
</TABLE>

The above income tax expense differed from the amounts computed by applying
the federal income tax rate to pretax income as a result of the following:

<TABLE>
<CAPTION>
Year ended December 31
--------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate............. $193,030 $85,265 $72,708
State and local income taxes, net of federal
income tax benefit............................ 50,855 9,501 2,829
Nondeductible expenses......................... 5,296 187 343
Alternative minimum tax........................ -- 5,937 5,645
Benefit of graduated tax rates................. -- (12,268) (11,709)
Other.......................................... (11,057) -- --
-------- ------- -------
$238,124 $88,622 $69,816
======== ======= =======
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

F-18
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Significant components of the deferred tax assets and deferred tax
liabilities are as follows:

<TABLE>
<CAPTION>
December 31
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax asset (liability):
State net operating loss carryforward... $ 78,848 $ 30,154 $ 12,124
Accrued expenses........................ 107,118 -- --
Other................................... 50,023 -- --
Property and equipment, principally due
to differences in depreciation......... (332,142) (221,382) (151,246)
Goodwill, due to differences in
amortization period.................... (86,945) -- --
--------- --------- ---------
Net deferred tax liability................ $(183,098) $(191,228) $(139,122)
========= ========= =========
</TABLE>

Income taxes paid totaled $24,913, $14,058 and $7,642 in 1998, 1997 and
1996, respectively.

12. Stockholders' Equity

In February 1997, the Company issued 467,500 shares of stock at $.90 per
share. The proceeds were used to reduce long-term debt.

In February 1998, the Company issued various Promissory Notes to a group of
individuals. The aggregate amount of the Notes totaled $625,000 bearing
interest at a rate of 9.50%. Interest was payable monthly with the principal
amount of the Notes due on October 1, 1999. Under the Notes, the holders had
been given conversion rights, at the holder's option, during the term of the
Notes, to convert the outstanding balance of each Note for shares of common
stock in the Company. During 1998, $525,000 of the Notes were converted to
shares of the Company's common stock at a price per share of $1.50. The
remaining $100,000 Note that was not converted to the Company's common stock
was repaid and canceled during 1998.

Subscriptions receivable includes notes receivable with the Company's
Chairman, President and Chief Executive Officer and the Company's Executive
Vice President, executed during 1997 and 1996. The balance of these notes
receivable including accrued interest, was $772,030 and $744,746 as of
December 31, 1998 and 1997, respectively. The notes bear interest ranging from
5.24% to 5.83% and are payable on demand commencing at various dates from
December 1999 to December 2000.

13. Earnings Per Share

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128") in February
1997. SFAS 128 simplifies the standards for computing earnings per share
("EPS") previously found in APB Opinion No. 15, "Earnings Per Share." SFAS 128
replaces the presentation of primary EPS with a presentation of basic EPS,
which includes only the weighted average number of shares of common stock
outstanding and does not include any potential dilutive securities in the
calculation. The following is the reconciliation of the basic and diluted per
share computations for the years ended December 31, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- --------------------------- ---------------------------
Average Per Average Per Average Per
Net Shares Share Net Shares Share Net Shares Share
Income Outstanding Amount Income Outstanding Amount Income Outstanding Amount
-------- ----------- ------ -------- ----------- ------ -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS............... $329,610 6,147,268 $.05 $162,158 5,832,764 $.03 $137,922 3,045,180 $.05
Effect of dilutive
securities:
Common stock options... -- 793,513 -- -- 401,814 -- -- 711,693 --
-------- --------- ---- -------- --------- ---- -------- --------- ----
Diluted EPS............. $329,610 6,940,781 $.05 $162,158 6,234,578 $.03 $137,922 3,756,873 $.04
======== ========= ==== ======== ========= ==== ======== ========= ====
</TABLE>

F-19
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

14. Contingencies

In Pennsylvania, the gross receipts of public utility companies are subject
to taxation at a rate of 0.05 mils. On June 16, 1994, Pennsylvania signed into
law a bill that clearly identified interexchange telecommunications carriers
as being subject to this gross receipts tax. North American Communications,
Inc. has been on public record as an interexchange reseller since filing
tariffs with the Pennsylvania Public Utilities Commission on August 17, 1992
and being issued a Certificate of Public Convenience at that time. The
Pennsylvania Department of Revenue notified North American Communications,
Inc. in 1996 that they were subject to the gross receipts tax from the date of
inception and estimated the tax due based on the 1995 level of calls. In order
to appeal this decision, North American Communications, Inc. had to file
returns for 1985 through 1993 with their calculations supporting actual levels
of calls in each year. These returns have been filed and notice of settlement
received from the state, but no payments have been made by North American
Communications, Inc. Corresponding appeals for each of these years had been
filed by North American Communications, Inc. and the Company. The Company does
not believe that any liability exists for the gross receipts tax, including
the tax period prior to 1994 and as such has not recorded any in the financial
statements. The Company estimates that considering additional penalties and
interest, and the potential expense of approximately $126,000 for the period
subsequent to the acquisition of North American Communications, Inc. by the
Company through December 31, 1998, the potential liability for this tax would
be approximately $656,000 as of December 31, 1998.

On March 16, 1998 North American Communications, Inc. paid $140,417 for the
estimated gross receipts tax liability for calendar year 1998. On March 15,
1999 the Company filed a gross receipts tax return with no tax due, requesting
a refund of the $140,417 paid previously. During April 1999, the Company
received this refund.

The Company has entered into agreements with several carriers to purchase
long-distance service from them. Some of these contracts contain minimum usage
requirements as well as penalties if minimums are not reached. Management
believes that the minimums are such that their normal volume of business is
sufficient to cover these requirements.

The Company has entered into agreements with several customers that state an
agreed to cost per minute for a period of 12 to 36 months. These contracts
hold the customer liable for certain costs if they terminate the contract
prior to the minimum one-year commitment. This type of agreement is considered
an amendment to the customer service agreement and as such is subject to the
terminology in that agreement that states that if underlying costs were to
change due to actions by regulatory bodies, those costs could be passed on to
the customer. Based on this, management believes they have little exposure to
potential losses should their costs increase while locked into these customer
agreements.

F-20
<PAGE>

TELEBEAM, INCORPORATED

CONSOLIDATED BALANCE SHEETS
(Unaudited)

<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------ -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $ 1,181,961 $ 397,747
Restricted cash in escrow account related to
acquisition...................................... 535,693 518,245
Accounts receivable, trade less allowance for
doubtful accounts of $254,750 as of September 30,
1999 and $107,750 as of December 31, 1998........ 1,816,291 1,814,348
Accounts receivable, related party................ 85,014 129,169
Notes receivable, officers........................ 219,938 443,294
Inventories....................................... 256,491 193,807
Prepaid taxes..................................... 97,707 --
Prepaid expenses.................................. 565,765 154,844
Deferred income taxes............................. 453,097 235,989
Other current assets.............................. -- 140,417
----------- -----------
Total current assets.............................. 5,211,957 4,027,860
Property and equipment, net........................ 4,927,833 5,024,936
Goodwill, net of accumulated amortization of
$627,594 as of September 30, 1999 and $322,598 as
of December 31, 1998 9,538,946 9,843,942
Other assets, net.................................. 300,598 350,883
Deposits........................................... 24,727 40,367
----------- -----------
Total assets...................................... $20,004,061 $19,287,988
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Current maturities of long-term debt.............. $ 946,966 $ 632,841
Accounts payable, trade........................... 1,455,003 643,537
Accounts payable, related party................... 17,374 72,387
Accrued long-distance service charges............. 1,528 15,983
Liability for acquisition in escrow account....... 535,700 518,245
Accrued post-closing purchase price adjustment --
acquisition...................................... 559,837 559,837
Accrued income taxes.............................. -- 264,325
Other accrued expenses and current liabilities.... 942,844 695,985
----------- -----------
Total current liabilities......................... 4,459,252 3,403,140
Long-term debt, less current maturities............ 12,150,866 12,387,357
Deferred income taxes.............................. 530,233 419,087
----------- -----------
Total liabilities................................. 17,140,351 16,209,584
Stockholders' equity:
Preferred stock--authorized and unissued, 250,000
shares, $100 par value........................... -- --
Common stock, par value, $0.01 per share:
Authorized, 15,000,000 shares.....................
Issued, 5,109,500 as of September 30, 1999;
4,744,185 shares as of December 31, 1998......... 51,095 47,442
Common stock subscribed, par value, $0.01 per
share: 1,615,000 shares.......................... 16,150 16,150
Additional paid-in capital........................ 3,812,013 3,137,667
Stock subscriptions receivable.................... (772,030) (744,746)
Less treasury stock, 250,000 shares at cost....... (225,000) (225,000)
Retained earnings................................. (18,518) 846,891
----------- -----------
Total stockholders' equity........................ 2,863,710 3,078,404
----------- -----------
Total liabilities and stockholders' equity........ $20,004,061 $19,287,988
=========== ===========
</TABLE>

See accompanying notes.

F-21
<PAGE>

TELEBEAM, INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Communication services............................ $11,256,427 $ 9,783,153
Video programming................................. 323,318 327,248
Other services.................................... 452,145 351,138
----------- -----------
Total revenues.................................. 12,031,890 10,461,539
Costs and expenses:
Communication services charges.................... 6,063,029 4,764,181
Video programming fees............................ 93,202 95,620
Field services.................................... 811,321 522,255
Selling, general, and administrative expenses..... 4,560,541 3,166,169
Depreciation and amortization..................... 831,902 572,855
----------- -----------
Total costs and expenses........................ 12,359,995 9,121,080
----------- -----------
Operating income (loss)............................. (328,105) 1,340,459
Other (income) expense:
Interest expense.................................. 866,193 671,480
Interest income................................... (60,980) (67,911)
(Gain) loss on disposal of assets................. (820) 5,111
----------- -----------
804,393 608,680
----------- -----------
Income (loss) before income taxes................... (1,132,498) 731,779
Provision for income taxes.......................... (267,087) 292,953
----------- -----------
Net income (loss)................................... $ (865,411) $ 438,826
=========== ===========
Earnings (loss) per common share:
Basic............................................. $ (0.13) $ 0.07
Diluted........................................... $ (0.13) $ 0.06
Weighted average common shares and equivalents
outstanding:
Basic............................................. 6,545,911 6,093,296
Diluted........................................... 6,545,911 6,892,695
</TABLE>

See accompanying notes.

F-22
<PAGE>

TELEBEAM, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------------------
1999 1998
---------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ (865,411) $ 438,826
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 831,901 572,855
Bad debt expense................................... 147,000 69,730
Non-cash lease termination expense................. 130,000 --
Write-off of telephone equipment................... 222,856 --
(Gain) loss on disposal of assets.................. (820) 5,111
Interest on stock subscriptions receivable......... (27,282) (26,962)
Deferred income taxes.............................. (105,962) 85,189
Changes in operating assets and liabilities, net of
effects of acquisition of a business:
Accounts receivable.............................. (104,788) (120,170)
Inventories...................................... (62,683) (52,111)
Prepaids and other............................... (492,988) (40,661)
Other current assets............................. 140,417 --
Accounts payable and accrued expenses............ 724,538 (357,575)
Other assets..................................... -- 2,536
---------- ------------
Net cash provided by operating activities...... 536,778 576,768
Cash flows from investing activities:
Acquisition of business, net of cash acquired........ -- (12,076,519)
Proceeds from disposal of property and equipment..... 5,900 19,800
Purchases of property and equipment.................. (605,363) (881,696)
Net change in notes receivable, officers............. 223,356 37,289
Purchases of other assets............................ (2,091) (62,608)
---------- ------------
Net cash used in investing activities................ (378,198) (13,038,312)
Cash flows from financing activities:
Proceeds from borrowings............................. 500,000 14,275,520
Principal payments on loans.......................... (422,366) (773,471)
Debt issuance costs.................................. -- (274,312)
Issuance of common stock (365,315 shares at $1.50 per
share).............................................. 548,000 --
Exercise of common stock options..................... -- 6,500
---------- ------------
Net cash provided by (used in) financing activities.. 625,634 13,234,237
---------- ------------
Net increase (decrease) in cash and cash
equivalents......................................... 784,214 772,693
Cash and cash equivalents, at beginning of period.... 397,747 74,502
---------- ------------
Cash and cash equivalents, at end of period.......... $1,181,961 $ 847,195
========== ============
</TABLE>

See accompanying notes.

F-23
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1999
(Unaudited)

1. Basis of Presentation

The consolidated financial statements present the business activities of
TeleBeam, Incorporated (the "Company"). The Company is a full service
facilities-based provider of communication services primarily to businesses
and multiple-dwelling unit residential customers in less competitive, non-
metropolitan markets in Pennsylvania. The Company provides a variety of
individual and bundled services to its customers, including local and long-
distance voice services, Internet access and high-speed data transport, video
programming and other enhanced communication services.

The unaudited consolidated balance sheet as of September 30, 1999 and the
related unaudited consolidated statements of operations, stockholders' equity,
and cash flows for the nine months ended September 30, 1999 and 1998 (interim
financial statements) have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions of Article 10 of Regulation S-X. Accordingly, they do not include
all the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
the interim consolidated financial statements include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the interim results.

The interim consolidated financial statements should be read in conjunction
with the audited consolidated financial statements appearing herein. The
results of the nine months ended September 30, 1999 may not be indicative of
operating results for the full year.

2. Acquisition

On March 10, 1998, pursuant to a Stock Purchase Agreement, the Company
acquired all of the 20,000 outstanding shares of $1 par value capital stock of
North American Communications, Inc., a facilities-based interexchange company,
for approximately $12.3 million, including acquisition related costs, subject
to any post-closing adjustment, as defined. Also in connection with the
acquisition, the Company assumed North American Communications, Inc.'s
obligation for the gross receipts tax imposed by the Commonwealth of
Pennsylvania, which is currently being disputed, through the acquisition date
up to a maximum of $600,000. The estimated amount in dispute as of the
acquisition date totaled approximately $460,000, for which no amount has been
recorded as part of the allocation of the purchase price for liabilities
assumed. North American Communications, Inc. was founded in 1985 and provides
long-distance communications products and services to over 6,000 customers,
primarily to the business sector, located in non-metropolitan markets in
Pennsylvania. The acquisition was recorded under the purchase method of
accounting and accordingly, the results of operations of the acquired business
are included in the financial statements of the Company beginning on March 10,
1998. The initial purchase price has been allocated on a preliminary basis to
assets acquired and liabilities assumed based on estimated fair values.
Goodwill is being amortized over twenty-five years on the straight-line
method.

The preliminary allocated fair value of assets acquired and liabilities
assumed is summarized as follows:

<TABLE>
<S> <C>
Current assets.................................................. $ 1,921,558
Property and equipment.......................................... 2,051,130
Goodwill........................................................ 9,606,703
-----------
Total........................................................... 13,579,391
Less: liabilities assumed....................................... 1,223,017
-----------
Net cost of acquisition......................................... $12,356,374
===========
</TABLE>

F-24
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As part of the initial purchase price the Company deposited $500,000 into an
escrow account. As of December 31, 1998 and September 30, 1999, the Company
continues to carry a liability for the acquisition for the unpaid portion of
the purchase price totaling the amount of cash in the escrow account. Also, a
post-closing purchase price adjustment of $559,837 was calculated as an amount
due to the sellers which was accrued as a liability and additional goodwill
subsequent to the acquisition and the initial purchase price allocation. The
Company continues to withhold payment of the cash in the escrow account and
the post-closing purchase price adjustment due to claims made by the Company
against the sellers under the Stock Purchase Agreement. The Company is seeking
indemnification from the sellers for losses and liabilities in excess of the
total of these amounts. The Company's action is currently subject to an
arbitration proceeding and the sellers have filed a counter claim disputing
the Company's claims.

The following unaudited pro forma results of operations give effect to the
operations of North American Communications, Inc. as if the acquisition had
occurred as of the first day of 1998. The pro forma results of operations do
not purport to represent what the Company's results of operations would have
been had such transaction in fact occurred at the beginning of the period
presented or to project the Company's results of operations in any future
period.

<TABLE>
<CAPTION>
Nine months ended
September 30, 1998
-------------------
(in thousands,
except for earnings
per share data)
<S> <C>
Total revenues........................................... $13,249
Net income............................................... $ 535
Basic earnings per share................................. $ 0.09
Diluted earnings per share............................... $ 0.08
</TABLE>

3. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the financial statements of
the Company and its wholly-owned subsidiary TeleBeam, USA, Inc. All
significant intercompany accounts and transactions have been eliminated.

Use of Estimates

4. Accounts Receivable for Dial Around Compensation

At September 30, 1999 and December 31, 1998, accounts receivable included
$363,794 and $354,909, respectively, relating to "dial around" compensation.
The balance at September 30, 1999 and December 31, 1998 includes approximately
$116,000 from 1997. A dial around call occurs when a non-coin call is placed
from the Company's public pay telephones and utilizes a carrier other than the
Company's dedicated provider of long-distance and operator-assisted service.
Payments relating to such receivables are normally received quarterly in
arrears.

F-25
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

from November 6, 1996 through October 6, 1997 and per call compensation of
$0.35 per call from October 7, 1997 to October 6, 1998, and thereafter, at a
per call rate equal to the local coin rate for each dial around call.

Based on the information available under the 1997 Payphone Order, the
Company believes that the minimum amount it is entitled to as fair
compensation for the period of November 7, 1996 through December 31, 1998 is
$0.284 per call. Further, the Company does not believe that it is reasonably
possible that the amount will be materially less than this amount. During the
nine months ended September 30, 1999 and for the year ended December 31, 1998,
the Company recognized dial around revenues of $225,542 and $319,457,
respectively.

5. Income Taxes

The Company effective tax rate for the nine months ended September 30, 1999
was significantly impacted by net operating losses. The Company does not
expect that it will have positive pre-tax earnings in 1999 and therefore does
not expect to pay any federal or state income taxes.

6. Earnings Per Share

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128") in February
1997. SFAS 128 simplifies the standards for computing earnings per share
("EPS") previously found in APB Opinion No. 15, "Earnings Per Share." SFAS 128
replaces the presentation of primary EPS with a presentation of basic EPS,
which includes only the weighted average number of common stocks outstanding
and does not include any potential dilutive securities in the calculation. The
following is the reconciliation of the basic and diluted per share
computations for the nine months ended September 30, 1999 and 1998:

<TABLE>
<CAPTION>
1999 1998
------------------------------ -----------------------------
Average Per Average Per
Net Income Shares Share Shares Share
(Loss) Outstanding Amount Net Income Outstanding Amount
---------- ----------- ------ ---------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings (loss)
per share.............. $(865,411) 6,545,911 $(.13) $438,826 6,093,296 $.07
Effect of dilutive
securities:
Common stock options.. -- -- -- -- 799,399 --
--------- --------- ----- -------- --------- ----
Diluted earnings (loss)
per share.............. $(865,411) 6,545,911 $(.13) $438,826 6,892,695 $.06
========= ========= ===== ======== ========= ====
</TABLE>

The Company has excluded 1,557,500 stock options outstanding as of September
30, 1999 from the 1999 diluted per share computation as they are antidilutive.

F-26
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

7. Debt Arrangements

Long-term debt consists of the following as of September 30, 1999 and
December 31, 1998:

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Credit facility:
Term loan...................................... $ 6,580,000 $ 7,000,000
Revolving loan................................. 5,015,520 4,015,520
Subordinated debt facility....................... 1,500,000 2,000,000
Previous credit facility......................... -- --
Vehicle loans.................................... 2,312 4,678
----------- -----------
13,097,832 13,020,198
Less amounts classified as current............... (946,966) (632,841)
----------- -----------
Total long-term debt............................. $12,150,866 $12,387,357
=========== ===========
</TABLE>

Credit Facility

The Company has a credit facility with PNC Bank, N.A. (PNC) (the "Credit
Facility") pursuant to which PNC provided the availability of loans to the
Company, on a revolving-credit basis, in an aggregate principal amount not to
exceed $6 million (the "Revolving Loan") and a term loan (the "Term Loan) of
$7 million. The Company is required to make quarterly payments on the
outstanding principal of the Term Loan beginning June 30, 1999. These payments
increase each year on the anniversary date of the initial payment, until the
borrowings on the Term Loan are paid in full on the expiration date of
December 31, 2004. The amount of outstanding borrowings allowed under the
Revolving Loan is to be reduced from the maximum $6 million on a quarterly and
cumulative basis beginning December 31, 1999. These reductions in commitment
increase at the end of each quarter of each succeeding fiscal year until the
Revolving Loan is paid in full on expiration at December 31, 2004. The Credit
Facility restricts the Company's ability to, among other things, pledge
assets, incur additional indebtedness, make loans to subsidiaries and/or
officers above certain amounts, make distributions or dividends to
stockholders or provide a return of capital from common stock, merge with or
acquire other entities, permit a change of control and sell fixed assets. The
Credit Facility also contains restrictive financial covenants that include
requiring the Company to maintain ratios of debt to cash flow and interest
coverage and certain other ratios.

As of April 28, 1999, the Company and PNC agreed to amend the Credit
Facility agreement for certain financial covenants. The amendment included
revising certain financial covenants for 1999 by making the covenants less
restrictive, effective with the first quarter of 1999. Subsequent to this
amendment, the Company and PNC agreed to amend the Credit Facility throughout
1999 as needed in order for the Company to remain in compliance with its
financial covenants (see Note 10).

Any loan shall, at the Company's option, be made as a Base Rate Loan,
Eurodollar Loan, or both. Under the Credit Facility, interest is payable at
the prevailing base rate and/or Eurodollar rate plus an applicable margin
determined quarterly based on the Company's debt to cash flow ratio. The
applicable margin as of September 30, 1999 on the outstanding borrowings under
the Revolving Loan and Term Loan was 3.00%. During 1999, all borrowings under
the Credit Facility had been borrowed using the Eurodollar Loan option. The
weighted average interest rate, including the applicable margin, as of
September 30, 1999 on the Term Loan was 8.0%.

As of September 30, 1999, the Company had $5,015,520 in outstanding
borrowings under the Revolving Loan. As of September 30, 1999, the weighted
average interest rate on the outstanding borrowings was 8.0%. The Credit
Facility also provides for an annual fee ranging from 0.25% to 0.375% on the
unused commitment,

F-27
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

payable quarterly. As of September 30, 1999, the unused portion of the
commitment under the Credit Facility was $984,480.

The Credit Facility requires the Company to enter into interest rate swap
and cap agreements to manage the interest rate exposure pertaining to
borrowings under the Credit Facility. At September 30, 1999, the Company had
entered into interest rate caps and swaps with a total notional amount of $9
million. Generally these instruments have initial terms of 3 years and
effectively convert the variable interest rate option component to a fixed
interest rate to which the applicable margin is added. The fixed interest rate
under these agreements was approximately 5.96% at September 30, 1999.

Subordinated Debt Facility

On March 10, 1998, the Company entered into a subordinated debt agreement
with Keystone Financial (Keystone), formerly Mid-State Bank, N.A., as a
condition of the Company receiving its Credit Facility, which required the
entire amount of the Subordinated Facility to be used for the acquisition of
North American Communications, Inc. The entire principal balance of the
Subordinated Debt Facility is due on March 10, 2005. No other principal
payment is required under the Subordinated Debt Facility during the term of
the loan. Under the Subordinated Debt Facility, interest is paid monthly at
the prime rate plus 1.0%. As of September 30, 1999, the interest rate was
9.25%.

Vehicle Loans

The Company has various vehicle loans with interest rates varying from 9.00%
to 9.29%, payable in monthly installments through November 2000.

8. Contingencies

F-28
<PAGE>

TELEBEAM, INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Company does not believe that any liability exists for the gross receipts tax,
including the tax period prior to 1994 and as such has not recorded any in the
financial statements. The Company estimates that considering additional
penalties and interest, and the potential expense of approximately $126,000
for the period subsequent to the acquisition of North American Communications,
Inc. by the Company through September 30, 1999, the potential liability for
this tax would be approximately $815,000 as of September 30, 1999. The Company
continues to dispute all claims to these balances with the Pennsylvania
Department of Revenue.

9. Related Party Transactions

During May 1999, the Company granted stock options of 125,000 shares to each
of two directors at an exercise price of $1.50 per share, which were
immediately exercisable, as consideration for completing the leasehold
improvements on a building which the Company planned to occupy.

During September 1999, the Company defaulted under a lease agreement for
this building with a partnership owned by these two directors and an officer
of the Company. The Company granted to the partnership stock options for
250,000 shares at an exercise price of $1.50 per share, which were immediately
exercisable, as compensation for the default in accordance with the terms of
the lease. The Company recognized an expense of $130,000 for these
transactions.

10. Subsequent Events

On November 3, 1999, the Company entered into a definitive merger agreement
with Conestoga Enterprises, Inc., (CEI) pursuant to which CEI will acquire the
Company by exchanging 735,000 shares of CEI's common stock for all of the
common stock and stock options of the Company. This calculation could be
subject to adjustments as defined in the amended and restated merger agreement
dated November 12, 1999. The consummation of the merger will cause an event of
default under the Company's debt arrangements. Under the terms of the merger
agreement, CEI shall pay off all of the Company's indebtedness to banks or
make other reasonably satisfactory arrangements upon consummation of the
merger. In connection with executing the merger agreement, the Company
terminated a financing transaction in progress and incurred a termination fee
expense of $110,000.

The Company expects the merger to be completed during the first quarter of
2000, subject to customary closing conditions, including regulatory approvals
and approval by the stockholders of TeleBeam, Incorporated.

F-29
<PAGE>

APPENDICES
<PAGE>

APPENDIX A

AMENDED AND RESTATED

AGREEMENT AND PLAN OF MERGER

Among

CONESTOGA ENTERPRISES, INC.,

TELEBEAM, INCORPORATED

and

TE MERGER CORPORATION

Dated as of November 12, 1999
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
ARTICLE I
DEFINITIONS......................................................... 5

ARTICLE II

PLAN OF MERGER...................................................... 7
2.1 The Merger.................................................... 7
2.2 Conversion and Exchange of Shares............................. 7
2.3 Timing........................................................ 8
2.4 Appraisal Rights.............................................. 9
2.5 Surrender and Exchange of TeleBeam Certificates............... 9
2.6 Articles of Incorporation, By-laws, and Directors and Officers
of Sub........................................................ 10

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF TELEBEAM.......................... 10
3 Representations and Warranties of TeleBeam.................... 10
3.1 Organization, Powers and Qualifications....................... 10
3.2 Subsidiary.................................................... 10
3.3 Capital Stock................................................. 11
3.4 Authority..................................................... 11
3.5 Conflict with Other Agreements; Consents and Approvals........ 11
3.6 Compliance with Law........................................... 11
3.7 Financial Statements.......................................... 12
3.8 Absence of Undisclosed Liabilities............................ 12
3.9 Absence of Adverse Changes.................................... 12
3.10 Tax and Other Returns and Reports............................. 12
3.11 Dividends and Stock Purchases................................. 12
3.12 Assets........................................................ 13
3.13 Accounts Receivable........................................... 13
3.14 Contracts..................................................... 13
3.15 Litigation.................................................... 13
3.16 Insurance..................................................... 13
3.17 Labor Matters................................................. 14
3.18 Employee Benefit Plans........................................ 14
3.19 Franchises, Licenses, Permits, Etc............................ 14
3.20 Patents and Trademarks........................................ 15
3.21 Ordinary Course............................................... 15
3.22 Brokerage and Other Fees...................................... 16
3.23 Information Supplied.......................................... 16
3.24 Disclosure.................................................... 16
3.25 Tax Free Reorganization Matters............................... 16

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF CEI AND SUB....................... 17
4 Representations and Warranties of CEI and Sub................. 17
4.1 Organization, Powers and Qualifications....................... 17
4.2 Subsidiaries.................................................. 17
</TABLE>

A-2
<PAGE>

<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
4.3 Authority..................................................... 17
4.4 Capital Stock................................................. 17
4.5 Valid Issuance of CEI Stock, Etc.............................. 18
4.6 Conflict with Other Agreements; Consents and Approvals........ 18
4.7 Financial Statements.......................................... 18
4.8 Brokerage..................................................... 18
4.9 Reports....................................................... 18
4.10 Information Supplied.......................................... 19
4.11 Disclosure.................................................... 19
4.12 Tax Matters................................................... 19
4.13 Absence of Adverse Changes.................................... 19

ARTICLE V

COVENANTS........................................................... 19
5.1 Conduct of Business Prior to Closing.......................... 19
5.2 Updating of Schedules......................................... 20
5.3 Access........................................................ 21
5.4 Proxy Material, Registration Statement, Other Filings and
Applications.................................................. 21
5.5 Stockholder Meeting........................................... 22
5.6 Third Party Consents.......................................... 22
5.7 Satisfaction of Conditions.................................... 22
5.8 Public Announcements.......................................... 22
5.9 Other Proposals............................................... 22
5.10 Affiliates.................................................... 23
5.11 Assurances.................................................... 23
5.12 TeleBeam's Employees.......................................... 23

ARTICLE VI

CONDITIONS TO OBLIGATIONS OF CEI AND SUB............................ 23
6 Conditions to Obligations of CEI and Sub to Consummate the
Merger........................................................ 23
6.1 Representations, Warranties, and Covenants of TeleBeam........ 23
6.2 TeleBeam Stockholder Approval................................. 23
6.3 Employment Agreements......................................... 23
6.4 No Injunctions................................................ 23
6.5 No Antitrust Litigation....................................... 24
6.6 Securities Laws............................................... 24
6.7 Filings....................................................... 24
6.8 NASDAQ Listing................................................ 24
6.9 Affiliate Letters............................................. 24
6.10 Appraisal Rights.............................................. 24
6.11 Legal Opinion................................................. 24
6.12 Resignations.................................................. 24

ARTICLE VII

CONDITIONS TO OBLIGATION OF TELEBEAM................................ 24
7 Conditions to Obligations of TeleBeam to Consummate the
Merger........................................................ 24
7.1 Representations, Warranties, and Covenants of CEI and Sub..... 24
7.2 TeleBeam Stockholder Approval................................. 24
</TABLE>

A-3
<PAGE>

<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
7.3 No Injunctions................................................... 25
7.4 No Antitrust Litigation.......................................... 25
7.5 NASDAQ Listing................................................... 25
7.6 Securities Laws.................................................. 25
7.7 Tax Opinion...................................................... 25
7.8 TeleBeam Bank Obligations........................................ 25

ARTICLE VIII

TERMINATION, WAIVER AND AMENDMENT..................................... 25
8.1 Termination...................................................... 25
8.2 Effect of Termination............................................ 26
8.3 Waiver of Terms.................................................. 26
8.4 Amendment of Agreement........................................... 26
8.5 Fees and Expenses................................................ 27

ARTICLE IX

GENERAL PROVISIONS.................................................... 27
9.1 Cooperation...................................................... 27
9.2 Counterparts..................................................... 27
9.3 Contents of Agreement, Etc....................................... 27
9.4 No Survival of Representations and Warranties.................... 28
9.5 Section Headings, Gender and "Person"............................ 28
9.6 Notices.......................................................... 28
9.7 Governing Law.................................................... 28

LIST OF EXHIBITS
A. Letter regarding Affiliates
B. Employment Agreements
</TABLE>

A-4
<PAGE>

AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER

AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of November 12,
1999, among CONESTOGA ENTERPRISES, INC. ("CEI"), a Pennsylvania corporation,
TELEBEAM, INCORPORATED ("TeleBeam"), a Delaware corporation, and TE MERGER
CORPORATION ("Sub"), a Pennsylvania corporation and a wholly owned subsidiary
of CEI.

Background

The Boards of Directors of CEI, Sub and TeleBeam deem it advisable and in
the best interests of the shareholders of their respective corporations that
TeleBeam be acquired by CEI through the merger of TeleBeam 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, this "Agreement").

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and intending to be legally bound hereby, the parties agree
that they will carry out and consummate this Agreement.

ARTICLE I

Definitions

The following terms shall have the following meanings, respectively, when
used in this Agreement (applicable to both the singular and plural forms of
the terms defined):

Acquisition Transaction--as defined in Section 5.9.

Appraisal Shares--as defined in Section 2.4.

Authorizations--as defined in Section 3.19.

Benefit Plans--as defined in Section 3.18(a).

CEI--Conestoga Enterprises, Inc., a Pennsylvania corporation.

CEI Balance Sheet--as defined in Section 4.7.

CEI Common Stock--the shares of the common stock, par value $1.00 per share,
of CEI.

CEI Financial Statements--as defined in Section 4.7.

CEI Material Adverse Effect--a material adverse effect on the business,
condition (financial or otherwise), assets, liabilities or operations of CEI
and its Subsidiaries taken as a whole.

CEI Schedule--as defined in Section 4.

CEI SEC Documents--as defined in Section 4.9.

Closing--as defined in Section 2.3(b).

Closing Date--as defined in Section 2.3(b).

Code--the Internal Revenue Code of 1986, as amended.

A-5
<PAGE>

Contracts--as defined in Section 3.14(a).

Corporation Laws--the Delaware Corporate Law and the Pennsylvania
Corporation Law.

Deemed Conversion Shares--As defined in Section 2.2(g).

Delaware Corporation Law--the Delaware Corporation Law, as amended from time
to time.

Effective Date--as defined in Section 2.3(b).

ERISA--the Employment Retirement Income Security Act of 1974, as amended.

IRS--the Internal Revenue Service.

Market Price--as defined in Section 2.2(f).

Merger--the merger of TeleBeam with and into Sub described in Section 2.1.

Merger Consideration--as defined in Section 2.2(d).

1933 Act--the Securities Act of 1933, as amended.

1934 Act--the Securities Exchange Act of 1934, as amended.

Objecting Shareholder--as defined in Section 2.4.

Old Certificates--as defined in Section 2.5(a).

Pennsylvania Corporation Law--the Pennsylvania Business Corporation Law, as
amended from time to time.

Per Share Merger Consideration Price--as defined in Section 2.2(g).

Prospectus and Proxy Statement--as defined in Section 3.23.

Registration Statement--as defined in Section 2.3(a).

Representatives--as defined in Section 5.9.

SEC--the Securities and Exchange Commission.

Sub--TE Merger Corporation, a Pennsylvania corporation.

Sub Common Stock--the shares of the common stock, without par value, of Sub.

Subsidiary--an entity of which the referenced person owns or controls fifty
percent (50%) or more of the legal or beneficial ownership interests therein.

Surviving Corporation--as defined in Section 2.1.

TeleBeam--TeleBeam, Incorporated, a Delaware corporation.

TeleBeam Balance Sheet--as defined in Section 3.7(a).

TeleBeam Common Stock--the shares of common stock, par value $.01 per share,
of TeleBeam.

A-6
<PAGE>

TeleBeam Financial Statements--as defined in Section 3.7(a).

TeleBeam Material Adverse Effect--a material adverse effect on the business,
condition (financial or otherwise), assets, liabilities or operations of
TeleBeam and its Subsidiary taken as a whole, including, without limitation,
any single event or occurrence which individually would have an adverse
economic effect on TeleBeam of more than $200,000.

TeleBeam Schedule--as defined in Section 3.

Third Party--as defined in Section 5.9.

Unclaimed Shares--as defined in Section 2.5(e).

ARTICLE II

Plan of Merger

2.1 The Merger. On the Effective Date TeleBeam shall be merged with and into
Sub pursuant to this Agreement and the separate existence of TeleBeam shall
cease. 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 TeleBeam Equity
Compensation Plan, as amended, shall be terminated as of the Effective Date.

2.2 Conversion and Exchange of Shares.

(a) CEI Common Stock. The shares of CEI Common Stock issued and outstanding
immediately prior to the Effective Date shall, on the Effective Date, continue
to be issued and outstanding.

(b) Sub Common Stock. The shares of Sub Common Stock issued and outstanding
immediately prior to the Effective Date 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.

(c) TeleBeam Common Stock. Upon the Effective Date, the shares of TeleBeam
Common Stock issued and outstanding and held by any person, except for
Appraisal Shares, shall, by virtue of the Merger and without any action on the
part of the holder thereof, shall become and be converted into the right to
receive the shares of CEI Common Stock constituting the holder's applicable
portion of the Merger Consideration (as defined in Subparagraph (d) below). As
of the Effective Date, each share of TeleBeam Common Stock held as treasury
stock of TeleBeam, shall be canceled and retired and cease to exist, and no
exchange or payment shall be made with respect thereto.

(d) Merger Consideration. CEI has agreed to issue 735,000 shares of CEI
Common Stock (subject to the collars provided in subsection (e) below) as
merger consideration (the "Merger Consideration"). Each TeleBeam stockholder
shall be entitled to receive that portion of the Merger Consideration
determined by multiplying the Merger Consideration by a fraction, the
numerator of which is the sum of (i) the number of shares of TeleBeam Common
Stock owned of record by such stockholder immediately prior to the Effective
Date and (ii) the number of Deemed Conversion Shares, as determined in
subsection (g) below, accrued to such stockholder immediately prior to the
Effective Date, and the denominator of which is the sum of (i) the total
number of shares of TeleBeam Common Stock issued and outstanding immediately
prior to the Effective Date, including shares acquired by reason of the
exercise of stock options between the date hereof and the Effective Date, and
(ii) the total number of Deemed Conversion Shares.

(e) Collar. The CEI Common Stock to be exchanged in the Merger shall be
735,000 shares, if the Market Price of the CEI Common Shares is not less than
$18.085 per share and not more than $21.085 per share on the

A-7
<PAGE>

Effective Date. The number of shares of CEI Common Stock to be exchanged in
the Merger shall be subject to adjustment as follows:

(i) In the event that the Market Price of the CEI Common Stock is less
than $18.085 per share, the number of shares of CEI Common Stock shall
increase by a fraction determined by $18.085 divided by the Market Price
multiplied by 735,000.

(ii) In the event that the Market Price of the CEI Common Stock exceeds
$21.085 per share, the number of shares of CEI Common Stock shall decrease
by a fraction determined by 21.085 divided by the Market Price multiplied
by 735,000.

(iii) If the Market Price of the CEI Common Stock is less than $15.00 per
share, TeleBeam may terminate this Agreement.

(iv) If prior to the Effective Date the outstanding shares of CEI Common
Stock shall have been increased, decreased or 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 consideration specified in Section 2.2(d) and
(e) above.

(f) Market Price Defined. As used herein, the term "Market Price" shall mean
(i) the sum of the average of the last reported bid and ask prices per share
of CEI Common Stock quoted by each of the four principal market makers for CEI
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.

(g) Deemed Conversion Shares. Holders of TeleBeam stock options who do not
exercise such options prior to the Effective Date shall be deemed to receive a
number of shares of TeleBeam Common Stock ("Deemed Conversion Shares") valued
at the Per Share Merger Consideration Price defined below which shall then be
exchanged in the Merger for shares of CEI Common Stock, equal to the deemed
value of such holder's TeleBeam stock options. Such deemed value shall be
calculated as the difference between the Per Share Merger Consideration Price
and the exercise price per share pursuant to the holder's TeleBeam stock
option multiplied by the number of shares subject to such stock option. As
used herein, the Per Share Merger Consideration Price shall mean the Merger
Consideration (using $19.585 per share of CEI Common Stock to value such
shares unless the number of shares of CEI Common Stock exchanged in the Merger
is different than 735,000 because of the collars provided in subsection (e)
above, in which case the Market Price of the CEI Common Stock as defined in
subsection (f) above shall be used to value such shares) divided by the sum of
(A) the number of shares of TeleBeam Common Stock issued and outstanding on
the date hereof and (B) the number of shares of TeleBeam Common Stock subject
to outstanding and unexercised stock options on the date hereof.

2.3 Timing.

(a) Shareholder Approval. TeleBeam shall submit this Agreement to its
stockholders for approval as provided in Section 5.5 hereof. In connection
with such meeting, TeleBeam and CEI shall each take, as promptly as practical,
such reasonable steps as shall be necessary for the preparation and filing by
CEI of a registration statement under the 1933 Act on Form S-4 (the
"Registration Statement") with the SEC and shall use its reasonable best
efforts to cause the Registration Statement to become effective as soon as
practicable.

(b) Closing and Effective Date. 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 CEI, or at such other place or time as the parties
agree upon. On the Closing Date or as soon thereafter as is practicable, the
parties shall execute and file in the offices of the Corporation Bureaus of
the Commonwealth of Pennsylvania and the State of Delaware appropriate
Articles of Merger in accordance with the provisions of the Corporation Laws.
The "Effective Date" shall be the date of filing the Articles of Merger.

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<PAGE>

2.4 Appraisal Rights. The shares of TeleBeam Common Stock ("Appraisal
Shares") held by any stockholder of TeleBeam who has exercised appraisal
rights pursuant to the Delaware Corporation Law (an "Objecting Shareholder")
shall not be converted pursuant to this plan unless and until the holder
thereof shall have failed to perfect or shall have effectively withdrawn or
lost such holder's appraisal rights under the Delaware Corporation Law, and
shall be entitled to receive only the payment to the extent provided for by
the Delaware Corporation Law. If any such holder shall fail to perfect or
shall have effectively withdrawn or lost the appraisal right, the Appraisal
Shares held by such Objecting Shareholder shall thereupon be treated as though
such shares had been converted into shares of CEI Common Stock pursuant to the
terms hereof.

2.5 Surrender and Exchange of TeleBeam Certificates.

(a) Delivery of Certificates. As soon as feasible after the Effective Date,
CEI will, upon surrender of all certificates for TeleBeam Common Stock ("Old
Certificates") held by a TeleBeam stockholder, accompanied by a duly executed
letter of transmittal in proper form (if required by CEI), issue and deliver
to such TeleBeam stockholder a certificate representing the number of shares
of CEI Common Stock to which such TeleBeam stockholder is entitled under the
terms of the Merger, and a check for fractional shares as provided below.

(b) No Fractional Shares. No certificates for fractional shares of CEI
Common Stock shall be issued in connection with the Merger. In lieu thereof,
CEI shall issue to any holder of TeleBeam Common Stock certificates otherwise
entitled to a fractional share, upon surrender of such certificates as
provided above, a check for an amount of cash equal to the fraction of a share
represented by the certificates so surrendered multiplied by an amount equal
to the sum of the average of the last reported bid and ask prices per share of
CEI Common Stock for the Effective Date, as reported on the NASDAQ Quotation
System.

(c) Dividends. If any dividend on CEI Common Stock is declared after the
Effective Date, the declaration shall include dividends on all shares of CEI
Common Stock into which shares of TeleBeam Common Stock have been converted
under this Agreement, but no former holder of TeleBeam Common Stock shall be
entitled to receive payment of any such dividend until surrender of the
stockholder's Old Certificates have been effected in accordance with the
instructions furnished by CEI. Upon surrender for exchange of a stockholder's
Old Certificates, such stockholder shall be entitled to receive from CEI an
amount equal to all such dividends declared and for which the payment date has
occurred, without interest thereon and less the amount of taxes, if any, which
may have been imposed or paid thereon, on the shares of CEI Common Stock into
which the shares represented by such Old Certificates have been converted.

(d) Closing of Stock Transfer Books. After the Effective Date, there shall
be no transfer on the stock transfer books of TeleBeam or CEI of shares of
TeleBeam Common Stock. If Old Certificates are presented for transfer after
the Effective Date, they shall be cancelled and certificates representing
shares of CEI Common Stock and cash for fractional shares 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 Date, CEI 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 CEI Common Stock which such
holders are entitled to receive under Subsection (a) hereof (the "Unclaimed
Shares"). Any such sale may be made by public or private sale or sales at any
broker's board or on any securities exchange in such manner and at such times
as CEI shall determine. If in the opinion of counsel for CEI it is necessary
or desirable, any Unclaimed Shares may be registered for sale under the 1933
Act and applicable state laws. CEI shall not be obligated to make any sale of
Unclaimed Shares if it shall determine not to 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 CEI for their respective accounts, and such holders shall not be entitled
to receive any interest on such net sale proceeds held by CEI.

A-9
<PAGE>

(f) Escheat. If outstanding certificates for shares of TeleBeam 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 CEI (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 CEI nor its agents or any other person
shall be liable to any former holder of TeleBeam 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 CEI, the posting by such person of a bond in such amount
as CEI may direct as indemnity against any claim that may be made against it
with respect to such Certificate, CEI will issue in exchange for such lost,
stolen or destroyed Old Certificate, a certificate for that number of shares
of CEI Common Stock into which such Old Certificates have been converted
pursuant to this Agreement and cash for fractional shares as provided herein.

2.6 Articles of Incorporation, By-laws, and Directors and Officers of
Sub. The Articles of Incorporation and By-laws of Sub in effect immediately
prior to the Merger shall remain in effect as the Articles of Incorporation
and By-laws of the Surviving Corporation, except that Article I of the
Articles of Incorporation of Sub shall be amended to read as follows: "The
name of the Corporation is TeleBeam, Incorporated." The directors of Sub
immediately prior to the Merger shall remain in office as the directors of the
Surviving Corporation. Provided they have executed and delivered the
employment agreements referred to in Section 6.3, the following shall become
the officers of the Surviving Corporation as indicated after their respective
names:

Ara M. Kervandjian President and Chief Executive
Heidi A. Nicholas Officer
Senior Vice President of Finance and
Mark J. Fetterolf Chief Financial Officer
Jeffery C. Almoney Senior Vice President of Operations
Senior Vice President and Chief
Troy A. Knecht Technology and Information Officer
Vice President of Technical
Operations

ARTICLE III

Representations and Warranties of Telebeam

3. Representations and Warranties of TeleBeam. TeleBeam represents and
warrants to CEI and Sub as follows, except as set forth in a disclosure
schedule (the "TeleBeam Schedule") delivered by TeleBeam contemporaneously
with the execution of this Agreement:

3.1 Organization, Powers and Qualifications. TeleBeam is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware. TeleBeam 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. TeleBeam
is duly qualified as a foreign corporation authorized to do business and is in
good standing in the Commonwealth of Pennsylvania and every other jurisdiction
in which such qualification is required, other than such jurisdictions where
the failure so to qualify would not have a TeleBeam Material Adverse Effect.
The TeleBeam Schedule sets forth a complete and correct copy of the Articles
of Incorporation and By-laws (together with all amendments thereto and
restatements thereof) of TeleBeam.

3.2 Subsidiary. TeleBeam's only subsidiary is TeleBeam USA, Inc., a Delaware
corporation.

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3.3 Capital Stock. As of October 1, 1999, the authorized capital stock of
TeleBeam consists of 15,000,000 shares of TeleBeam Common Stock, par value
$.01 per share, and 250,000 shares of TeleBeam Preferred Stock, $1.00 par
value of which 6,474,518 shares of TeleBeam Common Stock were 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 TeleBeam are or were at
the time of their issuance subject to preemptive rights. There are no existing
subscriptions, options, warrants, calls, commitments, agreements, plans,
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 TeleBeam whether or not presently issued or
outstanding, except for outstanding options to purchase shares of TeleBeam
Common Stock granted pursuant to the TeleBeam Equity Compensation Plan, as
amended, all of which outstanding options are listed on the TeleBeam Schedule.

3.4 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
TeleBeam and, subject to the approval by the stockholders of TeleBeam of this
Agreement in accordance with the Corporation Laws, no other corporate
proceedings on the part of TeleBeam are necessary to authorize this Agreement
or the carrying out of the transactions contemplated hereby. This Agreement is
binding and enforceable upon TeleBeam in accordance with its terms, subject to
any bankruptcy, insolvency, moratorium or other laws affecting the enforcement
of creditors' rights.

3.5 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, TeleBeam or any Subsidiary,

(b) any law, statute, rule or regulation applicable to TeleBeam or any
Subsidiary,

(c) any Contract to which TeleBeam or any Subsidiary is a party or may be
bound or any Authorization held by TeleBeam 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 TeleBeam or any Subsidiary,

the execution, delivery and performance by TeleBeam 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
TeleBeam Material Adverse Effect, except that the Closing will constitute
events of default under TeleBeam's bank loans, if the lending banks refuse to
approve the merger (ii) result in the creation of any lien upon any assets of
TeleBeam or any Subsidiary or (iii) require any authorization, consent,
approval or exemption by any person, which has not been obtained, or any
notice to or filing which has not been given or done, other than filings
pursuant to the 1933 Act and applicable state securities laws, the shareholder
approval referred to in Section 3.4 hereof, and the filing of appropriate
merger documentation under the Corporation Laws, except as listed on the
TeleBeam schedule.

3.6 Compliance with Law. TeleBeam and its Subsidiary and their use and
occupancy of their assets and properties wherever located, are and have been,
to the knowledge of TeleBeam, 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 TeleBeam Material Adverse Effect, and neither TeleBeam nor any
Subsidiary has received any claim or notice of any such non-compliance or
violation nor is aware of any actual or potential non-compliance or violation.
TeleBeam and the Subsidiary 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.

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3.7 Financial Statements.

(a) TeleBeam has provided CEI with the audited balance sheets of TeleBeam as
of December 31, 1997 and 1998 and the related statements of income, retained
earnings and cash flows for the two years ended December 31, 1998, and
unaudited financial statements for the eight (8) months ending on August 31,
1999. Following the date hereof, TeleBeam will deliver to CEI, within 45 days
following the end of each calendar month, an unaudited monthly balance sheet
and income statement for TeleBeam. Such financial statements have been, or
will be, prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as may be
indicated in the notes thereto and except for the omission of footnote
information in the case of unaudited statements), and fairly present or will
fairly present (subject, in the case of unaudited statements to normal
recurring audit adjustments which in the aggregate are not material) the
financial position of TeleBeam at the dates indicated and the results of
operations and cash flows of TeleBeam for the periods indicated (such
financial statements are hereinafter referred to as the "TeleBeam Financial
Statements"). The balance sheet of TeleBeam at August 31, 1999 described above
is referred to herein as the "TeleBeam Balance Sheet".

(b) TeleBeam's books and records are complete and in reasonable detail, and
accurately and fairly reflect the transactions and dispositions of TeleBeam's
assets.

3.8 Absence of Undisclosed Liabilities. TeleBeam 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 TeleBeam
Financial Statements, (ii) described in, or disclosed pursuant to, this
Agreement, or (iii) incurred in the ordinary course of business since August
31, 1999.

3.9 Absence of Adverse Changes. Since August 31, 1999, there has been no
change in the business, assets, liabilities, financial condition, results of
operations or prospects of TeleBeam and its Subsidiary, taken as a whole,
which would constitute a TeleBeam Material Adverse Effect.

3.10 Tax and Other Returns and Reports. All federal, state, local and
foreign tax returns, reports and statements required to be filed by TeleBeam
or any Subsidiary have been filed within the time and in the manner prescribed
by law. Such returns correctly reflected the facts regarding the income,
businesses, assets, operations and activities of TeleBeam and any Subsidiary.
Such returns correctly reflected all taxes due or payable by TeleBeam 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 IRS or any other taxing authority have advised TeleBeam
are expected to be included in an audit report, and no material special
charges, penalties, interest or fines are being asserted against TeleBeam or
its Subsidiary with respect to payment or failure to pay any taxes. None of
the federal tax returns filed by TeleBeam have been audited by the IRS. In the
opinion of TeleBeam's management, the reserve or accrual for taxes shown on
the TeleBeam Balance Sheet is sufficient for payment of all unpaid federal,
state, local and foreign taxes of TeleBeam and its Subsidiary through such
date.

3.11 Dividends and Stock Purchases. Since August 31, 1999 TeleBeam 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 TeleBeam's capital stock nor
has it redeemed, purchased or otherwise acquired or agreed to redeem, purchase
or otherwise acquire any shares of TeleBeam's capital stock.

3.12 Assets. TeleBeam and its Subsidiary 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 TeleBeam 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)

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assets disposed of by TeleBeam or any Subsidiary since August 31, 1999 solely
in the ordinary course of business consistent with past practice, (c) such
secured indebtedness, financing or capital lease obligations, or purchase
money security interest as are disclosed in the TeleBeam Financial Statements
covering the properties referred to therein, and (d) such other imperfections
of title, easements, mortgages, liens, pledges, charges and encumbrances, if
any, as do not materially detract from the value, or interfere with the
present or proposed use, of the assets subject thereto. All tangible assets
material to the operation of TeleBeam's business are in good working order and
repair and comply in all material respects with applicable rules, regulations
and standards regarding their intended use. TeleBeam's tangible assets meet,
in all material respects, all current industry technical performance standards
for assets of their particular design. TeleBeam has an inventory of spare
parts and other materials relating to its business of the type, nature and
amount consistent with TeleBeam's past practices and good industry practices.

3.13 Accounts Receivable. The accounts receivable reflected on the TeleBeam
Balance Sheet and arising thereafter to and including the Effective Date,
arose, and will arise, from bona fide transactions in the ordinary course of
business and are and will be, to the knowledge of TeleBeam, fully collectible,
subject to any reserve for doubtful accounts on the TeleBeam Balance Sheet.
The amount of accounts receivable reflected on the TeleBeam Balance Sheet is
accurately reflected in the invoices and statements rendered by TeleBeam and
its Subsidiary.

3.14 Contracts.

(a) The TeleBeam Schedule sets forth each contract, agreement, note,
debenture, bond, lease, mortgage, license, understanding, or arrangement to
which TeleBeam or any Subsidiary is a party or may be bound, except for (i)
those under which the executory obligation requiring future performance of
TeleBeam or any Subsidiary involves an individual amount of less than $25,000
per year, or (ii) those under which the sole executory obligation of TeleBeam
consists of outstanding equipment warranties (collectively the "Contracts").

(b) All Contracts are in force in accordance with their terms. Neither
TeleBeam nor any Subsidiary (nor, to the knowledge of TeleBeam, any other
party) has violated any material provision of, or committed or failed to
perform any act which with notice, lapse of time or both would constitute a
material default under the provisions of, any Contract. The TeleBeam 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.

3.15 Litigation. Except as disclosed in the TeleBeam Schedule concerning
North American Communications, Inc., no claim, action, suit, arbitration, or
other proceeding is pending, or known by TeleBeam to be threatened against
TeleBeam or any Subsidiary or any of their properties before any court,
governmental or regulatory official, body or authority, arbitrator or
mediator. To the knowledge of TeleBeam, no investigation is pending or
threatened against TeleBeam or any Subsidiary or any of their properties
before any court, governmental or regulatory official, body or authority,
arbitrator or mediator. There are no judgments, consent decrees, injunctions,
or any other judicial or administrative mandates of any nature outstanding
against TeleBeam or any Subsidiary. There are no claims, actions, suits or
other proceedings pending, or known by TeleBeam to be threatened, against any
director or officer of TeleBeam. To the knowledge of TeleBeam, no events have
occurred which could reasonably be expected to form the basis for a claim or
other proceedings against TeleBeam's directors or officers for breach of
fiduciary duty.

3.16 Insurance. Each of TeleBeam and its Subsidiary maintains insurance
coverage on its structures, facilities, machinery, equipment and other assets
and properties and with respect to its employees and operations which covers
liabilities and risks customarily insured against by similar businesses on
customary terms. The TeleBeam Schedule contains a complete and accurate
description of the insurance coverage applicable to TeleBeam and its
Subsidiary, including amounts and lines of coverage, terms, expiration date,
premium and loss experience history by line of coverage. There are no
provisions in such policies for retroactive or retrospective premium
adjustments. The insurance binders and policies listed on the TeleBeam
Schedule are valid and in full

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force and effect and will continue in full force and effect until the
Effective Date. Neither TeleBeam nor any Subsidiary has been refused any
insurance by an insurance carrier to which it has applied for insurance during
the past three years. TeleBeam and each Subsidiary has complied in all
material respects with the provisions of such policies.

3.17 Labor Matters. Neither TeleBeam nor any Subsidiary is a party to or
bound by any collective bargaining agreements with respect to any employees of
TeleBeam or any Subsidiary. Since August 31, 1999, there has not been, nor to
the knowledge of TeleBeam was there or is there threatened, any strike,
slowdown, picketing or work stoppage by any union or other group of employees
against TeleBeam 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 TeleBeam Material Adverse Effect.

3.18 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 ERISA)
(all the foregoing being herein called "Benefit Plans"), maintained or
contributed to by TeleBeam or its Subsidiary, TeleBeam has made available to
CEI 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 TeleBeam, there exists no
condition or set of circumstances in connection with which TeleBeam or its
Subsidiary is subject to any liability that could be reasonably expected to
have a TeleBeam 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 TeleBeam and its
Subsidiary.

(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, 1992.

(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.

3.19 Franchises, Licenses, Permits, Etc. TeleBeam and its Subsidiary 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 TeleBeam and its Subsidiary, taken as a whole. Neither TeleBeam
nor any Subsidiary is in material default, or has received any notice of any
claim or 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. 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, except for those applied for by TeleBeam prior to Closing.

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3.20 Patents and Trademarks. Except as set forth on the TeleBeam Schedule,
TeleBeam does not own, license or use in its business any material patents,
trademarks, copyrights or other intellectual property assets. TeleBeam and its
Subsidiary own (free and clear of all liens) all such patents, trademarks,
tradenames, copyrights and applications with respect thereto and other
intellectual property, have entered into a subsisting license agreement with
respect thereto, or otherwise have adequate authority to use such intellectual
property in the conduct of TeleBeam's business. Neither TeleBeam 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 TeleBeam or any
Subsidiary granted or agreed to grant any license to use any such asset.

3.21 Ordinary Course. Other than for changes in business due to competitive
conditions, since August 31, 1999, TeleBeam and its Subsidiary have conducted
their business solely in the ordinary course consistent with past practice.
Without limitation of the foregoing, since August 31, 1999, TeleBeam (except
as otherwise expressly disclosed to CEI 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, except for the issuance of
TeleBeam Common Stock as a result of the exercise of stock options granted
prior to the date of this Agreement under the TeleBeam 1994 Equity
Compensation Plan;

(b) 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 TeleBeam Material Adverse Effect;

(d) has not been the subject of any actual or threatened organized
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 TeleBeam
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, extended any credit or made any
loans to any employee, made any general increase in compensation or rate of
compensation (or other bonus or benefit) payable or to become payable to
hourly employees or salaried employees except in the ordinary course of
business consistent with past practice;

(f) has not incurred or guaranteed any debt except in the ordinary course
of business consistent with past practice;

(g) has not encumbered, sold or disposed of any assets (tangible or
intangible) except for sales of inventory in the ordinary course of
business consistent with past practice;

(h) has not changed in any material respect its accounting and tax
practices, policies or principles, other than those consistent with GAAP;

(i) has not cancelled or waived any debts or claims having a value of
$1,000 in the aggregate, other than those arising in the ordinary course of
business associated with customer bad debt;

(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 or
any audit or other tax dispute with the IRS or any other taxing authority;

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<PAGE>

(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 TeleBeam 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 other than existing product lines' pricing structure modifications
in order to remain competitive in TeleBeam's markets and existing customers
serviced;

(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 expenditures, capital financing, leasing
arrangement or purchase commitment) except in the ordinary course of
business consistent with past practice.

3.22 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 TeleBeam, and no person with which TeleBeam has
had dealings or communications of any kind is entitled to any brokerage or
finder's fee or other commission in connection with the transactions.

3.23 Information Supplied. None of the information supplied or to be
supplied by TeleBeam or any of its Subsidiary 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 CEI in connection with the issuance of CEI 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 TeleBeam and its
Subsidiary 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.

3.24 Disclosure. No representation or warranty hereunder or information
contained in the TeleBeam Financial Statements, the TeleBeam Schedule or any
certificate, statement, or other document delivered by TeleBeam 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 are made, not misleading.

3.25 Tax Free Reorganization Matters.

(a) To the best of the knowledge of the management of TeleBeam, there is no
current plan or intention by the shareholders of TeleBeam to sell, exchange or
otherwise dispose of a number of shares of CEI Common Stock received in the
Merger that would reduce the former TeleBeam stockholders' ownership of CEI
Common Stock to a number of shares having a value, as of the date of the
Merger, of less than fifty percent (50%) of the value of all of the formerly
outstanding capital stock of TeleBeam as of the same date. For purposes of
this representation, shares of TeleBeam Common Stock exchanged for cash in
lieu of fractional shares will be treated as outstanding TeleBeam stock on the
date of the Merger.

(b) As a result of the Merger, TeleBeam will transfer and Sub will acquire
at least ninety percent (90%) of the fair market value of the net assets and
at least seventy percent (70%) of the fair market value of the gross assets
held by TeleBeam immediately prior to the Merger. For purposes of this
representation, the amount of TeleBeam assets used to pay TeleBeam
reorganization expenses will be included as assets of TeleBeam held
immediately prior to the Merger.

(c) The liabilities of TeleBeam assumed by Sub and the liabilities to which
the transferred assets of TeleBeam are subject, if any, were incurred by
TeleBeam in the ordinary course of its business.

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(d) TeleBeam will pay its expenses, if any, incurred in connection with the
Merger.

(e) TeleBeam 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) TeleBeam is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.

ARTICLE IV

Representations and Warranties of Cei and Sub

4. Representations and Warranties of CEI and Sub. CEI and Sub represent and
warrant to TeleBeam as follows, except as set forth in a disclosure schedule
(the "CEI Schedule") delivered by CEI contemporaneously with the execution of
this Agreement:

4.1 Organization, Powers and Qualifications. CEI is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. CEI 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. CEI 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 CEI Material Adverse Effect.

4.2 Subsidiaries. Sub and each other Subsidiary of CEI 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
jurisdiction where the failure so to qualify would not have a CEI 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 CEI free and clear of all pledges, liens, claims,
security interests and other charges or defects in title of any nature
whatsoever.

4.3 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 Boards of Directors of CEI
and Sub and no other corporate proceedings on the part of CEI or Sub are
necessary to authorize this Agreement or to carry out the transactions
contemplated hereby. This Agreement is binding and enforceable upon CEI and
Sub in accordance with its terms, subject to any bankruptcy, insolvency,
moratorium or other laws affecting the enforcement of creditors' rights.

4.4 Capital Stock.

(a) As of October 1, 1999, the authorized capital stock of CEI consists of:
(i) 20,000,000 shares of CEI Common Stock, par value $1.00 per share, of which
7,162,952 shares were issued and outstanding and 97,017 shares were held as
treasury shares, and (ii) 900,000 shares of Series A Convertible Preferred
Stock, par value of $65.00 per share, of which 157,604 shares were issued and
outstanding and no shares were held as treasury shares.

(b) All of the issued and outstanding shares of the CEI'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 CEI are or were at
the time of their issuance subject to preemptive rights.

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<PAGE>

4.5. Valid Issuance of CEI Stock, Etc. The CEI 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.

4.6 Conflict with Other Agreements; Consents and Approvals. With respect to
the following:

(a) the By-laws of, or any securities issued by, CEI or any of its
Subsidiaries,

(b) any law, statute, rule or regulation applicable to CEI or any of its
Subsidiaries,

(c) any contract to which CEI or any of its Subsidiaries is a party or
may be bound or any Authorization held by CEI or any of its Subsidiaries,
and

(d) any judgment, order, injunction, decree or ruling of any court,
arbitrator or governmental or regulatory official, body or authority
applicable to CEI or any of its Subsidiaries,

the execution, delivery and performance by CEI 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 CEI
Material Adverse Effect, or (ii) require any authorization, consent, approval
or exemption by any person, the failure to obtain which would have a CEI
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 CEI's current term loan agreement, filings pursuant to the
1933 Act, the 1934 Act, and applicable state securities laws, and the filing
of appropriate merger documentation under the Corporation Law.

With respect to the Articles of Incorporation of CEI, the execution,
delivery and performance by CEI 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 or (ii) require any authorization, consent,
approval or exemption by any person which has not been obtained or any notice
to or filing which has not been given or done.

4.7 Financial Statements. The financial statements of CEI included in the
CEI SEC Documents comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
the unaudited statements, as permitted by Form 10-Q of the SEC), and fairly
present (subject, in the case of unaudited statements to normal recurring
audit adjustments which in the aggregate are not material) the consolidated
financial position of CEI and its Subsidiaries at the dates indicated and the
consolidated results of operations and cash flows of CEI and its Subsidiaries
for the periods indicated (such financial statements are hereinafter referred
to as the "CEI Financial Statements"). The consolidated balance sheet of CEI
and its Subsidiaries at December 31, 1998 described above is referred to
herein as the "CEI Balance Sheet". Except as disclosed in the CEI SEC
Documents, CEI 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.

4.8 Brokerage. In connection with the transactions contemplated by this
Agreement, no broker, finder or similar agent has been employed by or on
behalf of CEI, and no person with which CEI 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.

4.9 Reports. CEI has previously furnished TeleBeam with true and complete
copies of (i) each final prospectus and definitive proxy statement filed by
CEI with the SEC since December 31, 1997, and (ii) each report filed by CEI
with the SEC with respect to the year ended December 31, 1998 or any months or
periods ending thereafter (the "CEI 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

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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. Each
of the CEI SEC Documents was timely filed and all reports required to be filed
by CEI with the SEC from the date of this Agreement through the Effective Date
shall be timely filed.

4.10 Information Supplied. None of the information supplied or to be
supplied by CEI 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 CEI in connection with the issuance of
CEI 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 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 CEI 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.

4.11 Disclosure. No representation or warranty hereunder or information
contained in the CEI Financial Statements, the CEI Schedule or any written
certificate, statement, or other document delivered by CEI 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 are made, not misleading.

4.12 Tax Matters. CEI has no present plan or intention to reacquire any of
the shares of CEI Common Stock it will issue to the shareholders of TeleBeam
pursuant to the Merger. Following the Effective Date, Sub, CEI, and/or its
affiliates will continue the historic business of TeleBeam and its Subsidiary
as presently conducted. CEI presently controls Sub within the meaning of
Section 368(c) of the Code, and following the Effective Date, Sub will not
issue additional shares of its stock that would result in CEI losing control
of Sub within the meaning of Section 368(c) of the Code.

4.13 Absence of Adverse Changes. Since December 31, 1998, there has been no
change in the business, assets, liabilities, financial condition, results of
operations or prospects of CEI and its Subsidiaries, taken as a whole, which
would constitute a CEI Material Adverse Effect.

ARTICLE V

Covenants

5.1 Conduct of Business Prior to Closing. From the date of this Agreement to
the Effective Date, TeleBeam (except as expressly contemplated or permitted by
this Agreement, or to the extent that CEI 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 purposely 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;

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(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, except for the issuance of TeleBeam Common
Stock and the issuance of Deemed Conversion Shares as a result of the
exercise of stock options granted prior to the date of this Agreement under
the TeleBeam 1994 Equity Compensation Plan;

(e) will not declare, set aside, or pay any dividend or make any other
distribution in respect of, nor repurchase any of, its capital stock;

(f) will not, and will not permit any Subsidiary to, modify or amend its
charter documents or By-laws;

(g) will not, and will not permit any Subsidiary to, enter into or amend
any employment contracts or any employee benefit plan or arrangement,
increase the rate of compensation (or other bonus or benefit) payable or to
become payable by it to any officer or any other executive employee, extend
any credit or make any loans to any 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 (which will
include standard increases in pay and bonuses at the end of calendar 1999),
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 $10,000 in the aggregate, except for such
cancellations and waivers which will not cause a TeleBeam Material Adverse
Effect;

(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 TeleBeam 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 (other
than the disclosed gross receipts tax issue in Pennsylvania) 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 (except to remain
competitive in TeleBeam's markets), fees and charges structure, marketing
and promotional plans and policies; and

(o) will not, and will not permit any Subsidiary to, enter into any (or
modify any existing) lease, contract, commitment or agreement or engage in
any transaction (including without limitation any borrowing, capital
expenditure, capital financing, leasing arrangement or purchase commitment)
except in the ordinary course of business consistent with past practice
(other than special arrangements with brokers, attorneys, and accountants
to consummate a fundamental transaction and any break up fees due to
proposed equity investors in TeleBeam which break up fees shall not exceed
$120,000.00.).

5.2 Updating of Schedules. From the date of this Agreement to the Closing
Date, each of TeleBeam and CEI 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

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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.

5.3 Access. From the date of this Agreement to the Closing Date, TeleBeam
agrees that it will give to CEI 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 CEI 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 CEI to conduct an audit of the books and records of
TeleBeam. Any information relating to TeleBeam shall be delivered subject to
the provisions regarding confidentiality set forth in the Confidentiality
Agreement between the parties, dated September 15, 1999, shall be deemed to be
Information as defined therein, and CEI and Sub shall be bound by the
provisions of the Confidentiality Agreement which are incorporated herein by
this reference.

5.4 Proxy Material, Registration Statement, Other Filings and
Applications. In connection with the transactions contemplated by this
Agreement:

(a) CEI shall file with the SEC the Registration Statement to register
under the 1933 Act the CEI Common Stock to be issued to the holders of
TeleBeam 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 TeleBeam with the necessary copies of the
Prospectus and Proxy Statement for mailing to the shareholders of TeleBeam
at the earliest practicable date after the effective date of the
Registration Statement. CEI shall file all such amendments to the
Registration Statement as shall be necessary to keep it current and
effective until the Merger shall have been consummated.

(b) In connection with the preparation of the Registration Statement,
TeleBeam shall provide CEI with all proxy material which TeleBeam intends
to use in connection with obtaining the necessary TeleBeam stockholder
approval for the Merger and the transactions contemplated hereby and all
other material which in the opinion of counsel for CEI is required by
applicable law to be sent to the shareholders of CEI in connection with
such approval. TeleBeam agrees to cause the Prospectus and Proxy Statement
to be mailed to its stockholders at the earliest practicable date after the
effective date of the Registration Statement.

(c) CEI shall file all applicable state securities or "blue sky"
applications and use its reasonable best efforts to qualify the CEI Common
Stock issuable pursuant to this Agreement under such applicable state
securities or "blue sky" laws prior to the Closing Date; provided, however,
that CEI shall not be required to consent to general service of process or
qualify as a foreign corporation or take any action that would subject CEI
to any taxing authority to which it is not now subject.

(d) CEI shall file an additional listing application with the NASDAQ
National Market covering the CEI Common Stock to be issued to the holders
of TeleBeam Common Stock in connection with this Agreement and shall use
its reasonable best efforts to obtain approval of such application upon
official notice of issuance.

(e) CEI shall promptly prepare and file (and shall pay the entire Hart
Scott Rodino filing fee, if such filing is necessary) with 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. CEI 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, or other
regulatory application, or any amendment thereto pursuant to this Section 5.4,
the parties hereto shall provide to each other such information and documents
(or access thereto), and shall render such assistance, as the other party may
reasonably request or as may be necessary to carry out the provisions of this
Section 5.4.

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5.5 Stockholder Meeting. TeleBeam shall call and hold a meeting of its
stockholders to be held as soon as is practicable for the purpose of voting on
this Agreement. A majority of the Board of Directors of TeleBeam will
recommend to its stockholders 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.

5.6 Third Party Consents. Prior to the Effective Date, each of CEI and
TeleBeam 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 TeleBeam
Material Adverse Effect or a CEI Material Adverse Effect, as appropriate.

5.7 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.

5.8 Public Announcements. Neither TeleBeam nor CEI 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
communications 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 and,
unless in the opinion of counsel to such party such statement or release is
required by applicable law, without first obtaining the consent of the other.
The parties agree to issue such a press release promptly following the
execution of this Agreement.

5.9 Other Proposals. TeleBeam hereby agrees that it shall not, nor shall it
permit its Subsidiary to, nor shall it authorize or permit any of its or its
Subsidiary's officers, directors, employees, affiliates, investment bankers or
other representatives or agents (collectively, the "Representatives") to,
directly or indirectly, solicit, encourage (including by way of furnishing
non-public information), initiate discussions or negotiations relating to or
take any other action to facilitate, any inquiries or the making of any
proposal for an Acquisition Transaction. As used herein, the term "Acquisition
Transaction" shall mean the occurrence of any of the following events: (i)
TeleBeam 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 CEI, Sub
or any of their respective affiliates (a "Third Party"); (ii) a Third Party
acquires more than thirty percent (30%) (as reflected in accordance with
generally accepted accounting principles on TeleBeam's most recent monthly
financial statements) in value of the total assets of TeleBeam and its
Subsidiary, taken as a whole; (iii) a Third Party acquires more than thirty
percent (30%) of the outstanding TeleBeam Common Shares; (iv) TeleBeam adopts
and implements a plan of liquidation relating to, or extraordinary dividend
equal to, more than thirty percent (30%) in value of the total assets of
TeleBeam (as reflected in accordance with generally accepted accounting
principles on TeleBeam's most recent monthly financial statements); or (v)
TeleBeam 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. TeleBeam agrees that it shall promptly notify CEI orally and in writing
of any such inquiries or proposals. Any such notification shall include the
identity of the person making such proposal or request, the terms thereof, and
any other information with respect thereto as CEI may reasonably request.
Nothing contained in this Agreement shall be construed to prohibit TeleBeam
from (a) disclosing, under protection of an appropriate confidentiality
agreement, non-public information concerning TeleBeam 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 TeleBeam
stockholders 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 TeleBeam, shall be required by reason of the fiduciary obligations of the
Board of Directors of TeleBeam and (b) subject to TeleBeam's obligations under
Section 8.5(a) hereof and only after terminating this Agreement in accordance
with Section 8.1(c)(iii) hereof, accepting such offer for an Acquisition
Transaction from such person which the Board of Directors of TeleBeam
concludes is more favorable to the TeleBeam stockholders than the Merger
contemplated hereby.

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5.10 Affiliates. Prior to the Closing Date, TeleBeam shall deliver to CEI a
letter identifying all persons who (in TeleBeam's reasonable judgment) are, at
the time this Agreement is submitted for approval to the stockholders of
TeleBeam, "affiliates" of TeleBeam for purposes of Rule 145 under the 1933
Act. TeleBeam shall use its reasonable best efforts to cause each such person
to deliver to CEI, on or prior to the Closing Date, a written agreement, in
the form attached hereto as Exhibit "A" acknowledging and agreeing to abide by
the limitations imposed by law in respect of the sale or other disposition of
CEI Common Stock received by such person pursuant to the Merger.

5.11 Assurances. TeleBeam shall use its best efforts to receive reasonable
assurances that all material contractual rights of TeleBeam will survive the
Merger.

5.12 TeleBeam's Employees. Sub shall retain as employees all of TeleBeam's
employees for at least one year after Closing, except for terminations for
cause. TeleBeam shall use its best efforts to retain all of the TeleBeam
employees through Closing.

ARTICLE VI

Conditions to Obligations of CEI and Sub

6. Conditions to Obligations of CEI and Sub to Consummate the Merger. The
obligations of CEI 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:

6.1 Representations, Warranties, and Covenants of TeleBeam. The
representations and warranties of TeleBeam herein contained and the
information contained in the TeleBeam Schedule and other documents delivered
by TeleBeam in connection with this Agreement shall be true and correct at the
Closing Date (except for such inaccuracies as would not cause a TeleBeam
Material Adverse Effect) with the same effect as though made at such time,
except to the extent waived hereunder or affected by the transactions
contemplated herein; TeleBeam 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 (except for
such failures to perform or comply as would not cause a TeleBeam Material
Adverse Effect); and TeleBeam shall have delivered to CEI a certificate in
form and substance satisfactory to CEI dated the Closing Date and signed by
the President and Chief Executive Officer of TeleBeam to such effect.

6.2 TeleBeam Stockholder Approval. The requisite approval of this Agreement
and the transactions contemplated hereby shall have been given by the Board of
Directors and the stockholders of TeleBeam.

6.3 Employment Agreements. Certain employees shall have executed and
delivered to CEI employment agreements in the form attached hereto as Exhibit
"B".

6.4 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.

6.5 No Antitrust Litigation. No action, suit or proceeding against CEI or
TeleBeam 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.

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6.6 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 CEI for the consummation
of this Agreement and the Merger, shall have been obtained and shall be in
full force and effect.

6.7 Filings. CEI and TeleBeam 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. TeleBeam 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, CEI shall not be obligated to consummate the Merger if such
approval is subject to any further material 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 CEI Material Adverse Effect.

6.8 NASDAQ Listing. The NASDAQ National Market shall have approved the
listing, upon official notice of issuance, of all CEI Common Stock issuable as
Merger Consideration.

6.9 Affiliate Letters. CEI shall have received the letters from TeleBeam's
affiliates referenced in Section 5.10 hereof.

6.10 Appraisal Rights. The holders of no more than ten percent (10%) of the
outstanding shares of TeleBeam Common Stock shall have effectively exercised
appraisal rights pursuant to the Delaware Corporation Law.

6.11 Legal Opinion. CEI shall have received an opinion dated the Closing
Date from Saul, Ewing, Remick & Saul, counsel to TeleBeam, in the form and
substance reasonably satisfactory to CEI and its counsel.

6.12 Resignations. CEI shall have received the written resignations, in a
form reasonably acceptable to CEI (which shall include a representation with
respect to the matters referred to in the last two sentences of Section 3.15
hereof), of those TeleBeam directors and officers designated by CEI.

ARTICLE VII

CONDITIONS TO OBLIGATION OF TELEBEAM

7. Conditions to Obligations of TeleBeam to Consummate the Merger. The
obligations of TeleBeam to consummate the Merger provided for in this
Agreement shall be subject to satisfaction, on or before the Closing Date, of
the following conditions:

7.1 Representations, Warranties, and Covenants of CEI and Sub. The
representations and warranties of CEI and Sub herein contained and the
information contained in the CEI Schedule and other documents delivered by CEI
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; CEI 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 CEI shall have delivered to TeleBeam a certificate in form and
substance satisfactory to TeleBeam dated the Closing Date and signed by the
President and by the Chief Financial Officer of CEI to such effect.

7.2 TeleBeam Stockholder Approval. The requisite approval of this Agreement
and the transactions contemplated hereby shall have been given by the
shareholders of TeleBeam.

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7.3 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.

7.4 No Antitrust Litigation. No action, suit or proceeding against CEI or
TeleBeam 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.

7.5 NASDAQ Listing. The NASDAQ National Market shall have approved the
listing, upon official notice of issuance, of all CEI Common Stock issuable in
connection with this Agreement.

7.6 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 TeleBeam for the
consummation of this Agreement and the Merger shall have been obtained and
shall be in full force and effect.

7.7 Tax Opinion. TeleBeam shall have received an opinion of Saul, Ewing,
Remick & Saul, counsel to TeleBeam, to the effect that:

(a) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and TeleBeam and CEI will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;

(b) No gain or loss will be recognized by TeleBeam by reason of the
Merger;

(c) Except for any cash received in lieu of any fractional shares, no
gain or loss will be recognized by holders of TeleBeam Common Stock who
receive pursuant to the Merger solely CEI Common Stock in exchange for the
shares of TeleBeam Common Stock which they hold;

(d) The basis of the CEI Common Stock to be received by the TeleBeam
stockholders will be, in each instance, the same as the basis of the
TeleBeam Common Stock surrendered in exchange therefore, less any basis
attributable to fractional shares for which cash is received; and

(e) The holding period of the CEI Common Stock to be received by TeleBeam
stockholders will include the period during which the TeleBeam Common Stock
surrendered in exchange therefore was held, provided the TeleBeam Common
Stock was a capital asset in the hands of the holder thereof on the
Effective Date.

7.8 TeleBeam Bank Obligations. At Closing CEI shall pay off all of
TeleBeam's indebtedness to banks or make other reasonably satisfactory
arrangements therefor.

ARTICLE VIII

Termination, Waiver and Amendment

8.1 Termination. This Agreement may be terminated by written notice of
termination at any time before the Effective Date (whether before or after
action by the shareholders of TeleBeam) only as follows:

(a) by mutual consent of CEI and TeleBeam;

(b) by CEI

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(i) upon written notice to TeleBeam given at any time if the
representations and warranties of TeleBeam contained in Article III
hereof were not true and correct when made(except to the extent of
inaccuracies which do not cause a TeleBeam Material Adverse Effect) or
if TeleBeam fails to perform all obligations and comply in all 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 Date (except to the extent of any failure to perform or
comply which does not cause a TeleBeam Material Adverse Effect);

(ii) upon written notice to TeleBeam given at any time after June 30,
2000, if the Effective Date shall not have occurred on or before June
30, 2000 unless the absence of such occurrence shall be due to the
failure of CEI 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 Date (except to the extent
such performance or compliance is qualified by materiality in which
event such performance or compliance shall have failed to occur); and

(i) upon written notice given to CEI at any time if the
representations and warranties of CEI and Sub contained in Article IV
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 CEI 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 Date
(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 CEI given at any time after June 30, 2000
if the Effective Date shall not have occurred on or before June 30,
2000 unless the absence of such occurrence shall be due to the failure
of TeleBeam or its Subsidiary to perform each of its obligations under
this Agreement required to be performed by it at or prior to the
Effective Date and such failure to perform causes a TeleBeam Material
Adverse Effect;

(iii) upon written notice to CEI by TeleBeam if TeleBeam is
terminating this Agreement in order to enter into an Acquisition
Transaction with a person not a party hereto, provided that TeleBeam
was entitled to pursue the proposal of such Acquisition Transaction
pursuant to the provisions of Section 5.9 hereof.

8.2 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 8.5 shall thereafter become void and have no effect,
and no party hereto 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 provisions of the
Confidentiality Agreement between the parties, referred to and incorporated by
reference in Section 5.3.

8.3 Waiver of Terms. Any of the terms or conditions of this Agreement may be
waived at any time prior to the Effective Date 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.

8.4 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
only by written instrument duly authorized and executed by each of the parties
hereto; provided, however,

A-26
<PAGE>

that after approval by the shareholders of TeleBeam, no amendment shall be
made which by law requires further approval by the shareholders without such
further approval.

8.5 Fees and Expenses.

(a) In the event that: (1) this Agreement is terminated by CEI pursuant to
Section 8.1(b)(i), (2) this Agreement is terminated by TeleBeam pursuant to
Section 8.1(c)(iii), or (3) this Agreement is terminated by either CEI or
TeleBeam as a result of the failure to obtain TeleBeam stockholder approval of
this Agreement and the transactions contemplated hereby, then in any of such
events TeleBeam will pay CEI within one business day following the date of
termination a break-up fee in the amount of $250,000, such fee being in the
nature of liquidated damages as exclusive compensation to CEI for any and all
claims and losses which CEI has or may have incurred in connection with this
Agreement and the transactions contemplated hereby. TeleBeam has agreed to
this provision in order to induce CEI to enter into this Agreement and as a
means of compensating CEI 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.

(b) In the event that this Agreement is terminated by TeleBeam pursuant to
Section 8.1(c)(i), CEI will pay TeleBeam within one business day following the
date of termination a break-up fee in the amount of $250,000, such fee being
in the nature of liquidated damages as exclusive compensation to TeleBeam for
any and all claims and losses which TeleBeam has or may have incurred in
connection with this Agreement and the transactions contemplated hereby. CEI
has agreed to this provision in order to induce TeleBeam to enter into this
Agreement and as a means of compensating TeleBeam 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.

(c) 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.

ARTICLE IX

General Provisions

9.1 Cooperation. Subject to the terms and conditions herein provided, each
party shall cooperate with the other party in carrying out the provisions of
this Agreement and shall execute and deliver, or cause to be executed and
delivered, such governmental notifications and additional documents and
instruments and do, or cause to be done, all additional things necessary,
proper or advisable under applicable law to consummate and make effective the
transactions contemplated hereby. The parties intend the Merger transaction to
be subject to pooling of interests accounting. If either party receives notice
of any condition prohibiting pooling of interests accounting for the Merger
transaction, the parties will negotiate in good faith to agree to cure the
condition prior to Closing.

9.2 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.

9.3 Contents of Agreement, Etc. 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.
Nothing herein express or implied is intended or shall be construed to confer
upon or to give any person, other than CEI and TeleBeam and their respective
shareholders, any rights or remedies under or by reason of this Agreement.

A-27
<PAGE>

9.4 No Survival of Representations and Warranties. None of the
representations and warranties in this Agreement shall survive the Effective
Date.

9.5 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.

9.6 Notices. All notices, consents, waivers or other communications which
are required or permitted hereunder shall be sufficient if given in writing
and delivered personally, by overnight mail service, by facsimile transmission
(which is confirmed) or by registered or certified mail, return receipt
requested, postage prepaid, as follows (or to such other addressee or address
as shall be set forth in a notice given in the same manner):

If to CEI or Sub:

Conestoga Enterprises, Inc.
202 East First Street
Birdsboro, PA 19508
Attention: Albert H. Kramer, President
(610) 582-6338 (Fax)

With a required copy to:

Barley, Snyder, Senft & Cohen, LLC
501 Washington Street, Fifth Floor
P. O. Box 942
Reading, PA 19603-0942
Attention: John S. Hibschman, Esquire
(610) 376-5243 (Fax)

If to TeleBeam:

TeleBeam, Incorporated
467 East Beaver Avenue
State College, PA 16801
Attention: Ara M. Kervandjian, President
(814) 234-4821 (Fax)

With a required copy to:

Saul, Ewing, Remick & Saul, LLP
1055 Westlakes Drive, Suite 150
Berwyn, PA 19312
Attention: David S. Antzis, Esquire
(610) 408-4401 (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.

9.7 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-28
<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: _________________________________
Albert H. Kramer, President

TE Merger Corporation

By: _________________________________
Albert H. Kramer, President

Telebeam, Incorporated

By: _________________________________
Ara M. Kervandjian, President

A-29
<PAGE>

APPENDIX B

PROVISIONS OF
DELAWARE GENERAL CORPORATION LAW RELATING TO
APPRAISAL RIGHTS OF STOCKHOLDERS
<PAGE>

STATUTE RELATING TO DISSENTERS' RIGHTS

(Section 262 of the Delaware General Corporation Law)

(S) 262. Appraisal rights.

(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S) 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:

(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:

a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;

b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;

c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or

d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.

(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.

B-2
<PAGE>

(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or

(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each consitutent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constitutent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constitutent corporation shall send a second notice before
the effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constitutent corporation
that are entitled to appraisal rights of the effective date of the merger
or consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constitutent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.

B-3
<PAGE>

(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholder's written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.

(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.

(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that such
stockholder is not entitled to appraisal rights under this section.

(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation

B-4
<PAGE>

of the certificates representing such stock. The Court's decree may be
enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of
any state.

(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of such stockholder's demand for an appraisal and an acceptance of the merger
or consolidation, either within 60 days after the effective date of the merger
or consolidation as provided in subsection (e) of this section or thereafter
with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.

(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.

B-5
<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 Conestoga 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 Conestoga, the
directors and officers of Conestoga 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, Conestoga 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
Conestoga for indemnification payments made to its directors and officers for
certain liabilities. The premiums for such insurance are paid by Conestoga.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed 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.

II-1
<PAGE>

Item 21. Exhibits

(a) Exhibits:

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
November 12, 1999, by and among Conestoga Enterprises, Inc., TeleBeam
Incorporated and TE Merger Corporation is Appendix A to the proxy
statement/prospectus included in Part I and is incorporated herein by
reference.

3(I) Articles of Incorporation of Conestoga Enterprises, Inc.

3(II) By-laws of Conestoga Enterprises, Inc. (1)

5.1 Opinion of Barley, Snyder, Senft & Cohen, LLC, regarding legality of
the Conestoga Enterprises, Inc. common shares being registered.

8.1 Opinion of Saul, Ewing, Remick & Saul, LLP, regarding tax matters. (2)

10.1 Employment Contract of Ara M. Kervanjian.

10.2 Employment Contract of Heidi A. Nicholas.

10.3 Employment Contract of Mark J. Fetterolf.

10.4 Employment Contract of Jeffrey C. Almoney.

10.5 Employment Contract of Troy A. Knecht.

23.1 Consent of Barley, Snyder, Senft & Cohen, LLC (included in opinion
filed as Exhibit 5.1 hereto).

23.2 Consent of Arthur Andersen, LLP

23.3 Consent of Ernst & Young LLP.

23.4 Consent of Beard and Company, Inc.

23.5 Consent of JSI Financial Services.

24.1 Powers of Attorney (included on the signature page).

99.1 Form of TeleBeam, Incorporated Proxy.
</TABLE>

(1) Incorporated herein by reference to Exhibit 5 to Conestoga Enterprises,
Inc.'s Registration Statement on Form 8-A/A, Amendment Number 1, filed with
the SEC on June 14, 1999.

(2) To be filed by amendment.

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.

II-2
<PAGE>

(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(2) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.

(3) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of 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-3
<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 16, 1999.

Conestoga Enterprises, Inc.

/s/ Albert H. Kramer
By: _________________________________
Albert H. Kramer
President

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ John R. Bentz Chairman of the Board of December 16, 1999
______________________________________ Directors
Name

/s/ James H. Murray Vice President and a December 16, 1999
______________________________________ Director
Name

/s/ Kenneth A. Benner Secretary/Treasurer and a December 16, 1999
______________________________________ Director
Name

/s/ Albert H. Kramer President December 16, 1999
______________________________________
Name

/s/ Donald R. Breitenstein Controller and a Director December 16, 1999
______________________________________ (principal financial and
Name accounting officer)

/s/ Robert M. Myers Director December 16, 1999
______________________________________
Name

/s/ Jean M. Ruhl Director December 16, 1999
______________________________________
Name

/s/ John M. Sausen Director December 16, 1999
______________________________________
Name

/s/ Richard G. Weidner Director December 16, 1999
______________________________________
Name

/s/ Thomas E. Brown Director December 16, 1999
______________________________________
Name
</TABLE>

S-1

<PAGE>

EXHIBIT 3.I
<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLES OF INCORPORATION PLEASE INDICATE (CHECK ONE) TYPE CORPORATION:
(PREPARE IN TRIPLICATE) [ ] DOMESTIC BUSINESS CORPORATION FEE
$75.00
COMMONWEALTH OF PENNSYLVANIA [ ] DOMESTIC BUSINESS CORPORATION
DEPARTMENT OF STATE - CORPORATION BUREAU A CLOSE CORPORATION - COMPLETE BACK
308 NORTH OFFICE BUILDING, HARRISBURG, PA 17120
[ ] DOMESTIC PROFESSIONAL CORPORATION
ENTER BOARD LICENSE NO.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NAME OF CORPORATION (MUST CONTAIN A CORPORATE INDICATOR UNLESS EXEMPT UNDER 15
P.S. 2908 B)

CONESTOGA ENTERPRISES, INC.
- --------------------------------------------------------------------------------
ADDRESS OF REGISTERED OFFICE IN PENNSYLVANIA (P.O. BOX NUMBER NOT ACCEPTABLE)

202 E. First St.
- --------------------------------------------------------------------------------
CITY COUNTY STATE ZIP CODE
Birdsboro, Berks PA 19508
- --------------------------------------------------------------------------------
EXPLAIN THE PURPOSE OR PURPOSES OF THE CORPORATION

To engage in and to do any lawful act or acts concerning any or all lawful
business for which corporations may be incorporated under the provisions of the
Business Corporation Law of Pennsylvania, Act of May 5, 1933, P.L. 364, as
amended and supplemented, and to do all things and exercise all powers, rights
and privileges which a business corporation may now or hereafter be organized or
authorized to do or to exercise under such Act.

(ATTACH 81/2 x 11 SHEET IF NECESSARY)
- --------------------------------------------------------------------------------
The Aggregate Number of Shares, Class of Shares and Par Value of Shares Which
the Corporation Shall have Authority to Issue:
<TABLE>
<CAPTION>
Number and Class of Shares Stated Par Value Per Total Authorized Capital Term of Existence
Share If Any
<S> <C> <C> <C>
10,000,000 $5.00 $50,000,000 Perpetual
</TABLE>

The Name and Address of Each Incorporator, and the Number of Class of Shares
Subscribed to by each Incorporator

<TABLE>
<CAPTION>
Name Address (Street, City, State, Zip Code) Number & Class of Shares
<S> <C> <C> <C>
F. M. Brown R.D.#2, Box 425, Birdsboro, PA 19508 1 share common
- ------------------------------------------------------------------------------------------------------------------------------------
James H. Murray 618 E. 5th Street, Birdsboro, PA 19508 1 share common
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. Benner 496 Crestview Estates, New Holland, PA 17557 1 share common
- ------------------------------------------------------------------------------------------------------------------------------------
(ATTACH 81/2 x 11 SHEET IF NECESSARY)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
IN TESTIMONY WHEREOF, THE INCORPORATOR(S), HAS (HAVE) SIGNED AND SEALED THE
ARTICLES OF INCORPORATION THIS 24th day of January, 1989.

__________________________ ________________________________________________
(Franklin M. Brown) (James H. Murray)

__________________________ ________________________________________________
(Kenneth A. Benner)
- --------------------------------------------------------------------------------
- FOR OFFICE USE ONLY -
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FILED CODE REV BOX SEQUENTIAL NO. MICROFILM NUMBER
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------
REVIEWED BY SICC AMOUNT CORPORATION NUMBER
----------------------------------------------------------------------------------
DATE APPROVED $
----------------------------------------------------------------------------------
DATE REJECTED CERTIFY TO INPUT BY LOG IN LOG IN (REFILE)
----------------------------------------------------------------------------------
MAILED BY DATE [ ] REV. VERIFIED BY LOG OUT LOG OUT (REFILE)
----------------- ----------------------------------------------------
[ ] L & 1

[ ] OTHER
SECRETARY OF THE COMMONWEALTH
Department of State
Commonwealth of Pennsylvania

Microfilm Number______________________________________ Filed with the Department of State on _____________________________________

Entity Number_________________________________________ ___________________________________________________________________________
</TABLE>
<PAGE>

ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB:15-1915 (Rev 91)

In compliance with the requirements of 15 Pa.C.S. /s/1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:

1. The NAME of the corporation is: Conestoga Enterprises, Inc.
---------------------------

2. The (a) ADDRESS of this corporation's current registered office in this
Commonwealth or (b) NAME of its commercial registered office provider and
the county of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):

(a) 202 East First Street Birdsboro PA 19508 Berks
-------------------------------------------------------------
Number and Street City State Zip County

(b) c/o: N/A
------------------------------------------------------------
Name of Commercial Registered Office Provider County

For a corporation represented by a commercial registered office provider, the
county in (b) shall be deemed the county in which the corporation is located for
venue and official publication purposes.

3. The STATUTE by or under which it was incorporated is:Business Corporation
--------------------
Law of 1988
-----------

4. The DATE of its incorporation is: January 27, 1989
----------------

5. (CHECK, AND IF APPROPRIATE COMPLETE, ONE OF THE FOLLOWING):
___ The amendment shall be effective upon filing these Articles of Amendment
in the Department of State.

X The amendment shall be effective on:May 31, 1996 at 11:50 P.M.
--- ------------ -----------
Date Hour
Eastern Time
------------

6. (CHECK ONE OF THE FOLLOWING):
X The amendment was adopted by the shareholders (or members) pursuant to
---
15 Pa.C.S. /s/ 1914(a) and (b).

___ The amendment was adopted by the board of directors pursuant to 15
Pa.C.S. /s/ 1914(c).

7. (CHECK, AND IF APPROPRIATE COMPLETE, ONE OF THE FOLLOWING):
___ The amendment adopted by the corporation, set forth in full, is as
follows:

X The amendment adopted by the corporation is set forth in full in
---
Exhibit A attached hereto and made a part hereof.

8. (CHECK IF THE AMENDMENT RESTATES THE ARTICLES):
___ The restated Articles of Incorporation supersede the original Articles
and all amendments thereto.

IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles
of Amendment to be signed by a duly authorized officer thereof this 31st day of
May, 1996.

CONESTOGA ENTERPRISES, INC.

BY:________________________
John R. Bentz

TITLE: President
---------------------
<PAGE>

Exhibit A

ESTABLISHMENT AND DESIGNATION OF
CONESTOGA ENTERPRISES, INC.
SERIES A CONVERTIBLE PREFERRED STOCK
AS A CLASS OF CAPITAL STOCK

There is hereby authorized and established, as an additional class of the
corporation's authorized capital stock, 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 May 31, 1996.

Section 2. Definitions.
-----------

(a) The term "Common Stock" as used herein 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 herein 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 herein 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 herein 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.

(c) The term "Junior Stock" as used herein 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 herein 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 herein 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 herein 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.
<PAGE>

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
November 30 and May 31 in each year. Dividends shall accrue from May 31, 1996.
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.

(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;
<PAGE>

(4) the purchase or redemption of all or part of the outstanding shares
of any class or classes of the Corporation;

(5) a sale or transfer of all or any part of the assets of the
Corporation;

(6) a share exchange to which the Corporation is a party; or

(7) a division of the Corporation.

Section 5. Redemption at the Option of the Corporation. Commencing on the
-------------------------------------------
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:

If redeemed during the period Applicable
(dates inclusive) percentage
--------------------------------------- ----------

May 31, 2000 through May 30, 2001 103.00%

May 31, 2001 through May 30, 2002 102.00%

May 31, 2002 through May 30, 2003 101.00%

From and after May 31, 2003 100.00%

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
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
<PAGE>

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;

(4) if less than all outstanding shares of Series A Stock of the holder
are to be redeemed, 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, 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
<PAGE>

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 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 herein 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.
<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, 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.

(3) Whenever the number of directors of the Corporation shall have been
increased by two as provided in this section, the number as so increased may
thereafter be further increased or decreased in such manner as may be permitted
by the bylaws of the Corporation and without the vote of the holders of Series 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
<PAGE>

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 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 $_______, 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 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
<PAGE>

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 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
<PAGE>

(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 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
<PAGE>

securities exchange, the last reported sale price regular way or, in
case no such reported sale takes place on such day, the average of the
last reported bid and asked prices regular way, in either case as
reported on the applicable consolidated or composite tape for issues
traded on the principal national securities exchange on which the
Common Stock is admitted to trading, or, if the Common Stock is not
listed or admitted to trading on any national securities exchange, the
average of the last reported bid and asked prices in the over-the-
counter market as furnished by any national quotation system or, if
not available, any New York Stock Exchange member firm selected from
time to time by the Corporation for the purpose. The term "business
day" shall include any day on which securities are traded on such
exchange or in such market.

(6) No adjustment in the conversion price shall be required unless
such adjustment would require an increase or decrease of at least one
percent; except that any adjustments which by reason of this sentence
are not required to be made shall be carried forward, and taken into
account in calculating each subsequent adjustment, until made. All
calculations under this subsection shall be made to the nearest cent
or to the nearest 1/100 of a share as the case may be.

(7) In determining the number of shares of Common Stock outstanding at
any particular time, for the purpose of computations pursuant to the
formula in this subsection there shall be included all Common Stock
issuable in respect of any then outstanding scrip certificates
representing fractional interests with respect to Common Stock.

(c) Notwithstanding anything to the contrary set forth in subsection (b),
no adjustment of the conversion price shall be made as a result of or in
connection with the issuance of Common Stock of the Corporation pursuant to any
dividend reinvestment plan now existing or hereafter established by the
Corporation for the benefit of holders of Common Stock.

(d) In the event of any:

(1) capital reorganization of the Corporation;

(2) merger, consolidation or share exchange of the Corporation with or
into another corporation;

(3) division of the Corporation; or

(4) sale, lease, exchange or other disposition of all or substantially
all of the property and assets of the Corporation as a result of which
sale, lease, exchange or other disposition of property, other than
solely cash, shall be payable or distributable in exchange for shares
of Common Stock, then, as a condition of such reorganization, merger,
consolidation, share exchange, division, sale, lease, exchange or
other disposition, the Corporation or such successor or purchasing
corporation, as the case may be, shall make provision that the holder
of each share of Series A Stock shall have the right thereafter to
convert such share into the kind and amount of stock, securities or
assets receivable upon such
<PAGE>

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 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;
<PAGE>

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, 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 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.
<PAGE>

(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 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
<PAGE>

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).
<PAGE>

ARTICLES OF AMENDMENT

CONESTOGA ENTERPRISES, INC
A DOMESTIC BUSINESS CORPORATION

In compliance with the requirements of 15 Pa. C.S. (S)1915 (relating
to articles of amendment), the undersigned business corporation, desiring to
amend its Articles, hereby states that:

1. The name of the corporation is Conestoga Enterprises, Inc.

2. The address of this corporation's current registered office in
this Commonwealth is: 202 East First Street, Birdsboro, Berks County,
Pennsylvania 19508.

3. The statute by or under which it was incorporated is: the Business
Corporation Law of 1988, as amended.

4. The original date of incorporation is: January 27, 1989.

5. The amendment shall be effective upon filing these Articles of
Amendment in the Department of State.

6. The amendment was adopted by the shareholders pursuant to 15 Pa.
C.S. (S)1914(a) and (b).

7. The amendment adopted by the corporation, set forth in full, is as
follows:
"The corporation shall have authority to issue capital stock as
follows:
i. 20,000,000 shares of voting common stock, par value,
$1.00 per share; and

ii. Series A Convertible Preferred Stock, as described in
an Amendment to the corporation's Articles filed with
the
<PAGE>

Department of State on May 31,1996, which amendment and
share provisions shall remain in full force and
effect."

IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer thereof this 4th
day of May, 1999.
CONESTOGA ENTERPRISES, INC.

By:___________________________

Title:________________________

<PAGE>

EXHIBIT 5.1
<PAGE>

December , 1999

Conestoga Enterprises, Inc.
202 East First Street
Birdsboro, Pennsylvania 19508

Re: Conestoga Enterprises, Inc. (the "Company") and TeleBeam, Incorporated
("TeleBeam") 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 Amended and Restated Agreement and Plan of Merger dated as of November
12, 1999 ("Merger Agreement") by and among the Company, TeleBeam and TE Merger
Corporation, a wholly owned subsidiary of the Company whereby the Company will
offer up to 900,000 shares of Company Common Stock, par value $1 per share
subject to adjustment, to the TeleBeam 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 Common Stock in
connection with the Merger Agreement will be legally issued, fully paid and
non-assessable.

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 and the TeleBeam shareholders.

Very truly yours,

BARLEY, SNYDER, SENFT & COHEN, LLC

<PAGE>

EXHIBIT 10.1
<PAGE>

EMPLOYMENT AGREEMENT
--------------------

THIS AGREEMENT is made November 12, 1999, by and between TE MERGER
CORPORATION (the "Company"), a Pennsylvania corporation, and ARA M. KERVANDJIAN
(the "Employee"), of State College, Centre County, Pennsylvania.

BACKGROUND

Pursuant to an Agreement and Plan of Merger dated November 3, 1999, by and
among Conestoga Enterprises, Inc. ("CEI"), TeleBeam, Incorporated ("TeleBeam")
and the Company, TeleBeam in the near future will be merged with and into the
Company, which will be the surviving corporation. Pursuant to such plan of
merger (the "Plan of Merger"), as of the Effective Date of the merger specified
therein (the "Effective Date"), the corporate name of the Company will become
"TeleBeam, Incorporated". The Employee is currently President and Chief
Executive Officer of TeleBeam and the parties have agreed that he shall be
employed by the Company as of the Effective Date under the terms and provisions
contained in this Agreement.

AGREEMENT

Therefore, each intending to be legally bound hereby, the parties agree as
follows:

1. Employment and Employment Duties. Subject to the consummation of
--------------------------------
the Merger (as defined in the Plan of Merger) and as of the Effective Date,
under the terms and conditions contained in this Agreement, the Company employs
the Employee as President and Chief Executive Officer and the Employee accepts
such employment. The Employee's employment duties shall be those duties,
commensurate with his position, assigned by the Board of Directors of the
Company (the "Board"). The Employee shall report directly to the Board. The
Employee's employment shall be on a full-time basis and he shall not be engaged
or employed in other business activities (whether for pecuniary advantage or
not) during the term of this Agreement, except that the Employee shall be
permitted to serve on the boards of directors of business or charitable
organizations and devote nominal amounts of business time to his relationship
with Sunrise Homes, provided such services do not materially affect the
performance of his duties hereunder. The Employee shall discharge his
employment duties in a diligent and conscientious fashion. The principal
location at which the Employee shall perform his duties hereunder shall be at
<PAGE>

TeleBeam's offices in State College, Pennsylvania. The principal location of
the Employee's duties shall not be transferred without the Employee's consent.

2. Term. The Employee's employment hereunder shall be for a period of
----
three (3) years, commencing upon the Effective Date. Notwithstanding the
foregoing: (i) the Company may terminate the Employee's employment at any time
(A) upon fifteen (15) days prior written notice for any reason or for no reason,
or (B) without prior notice for cause (as defined below); and (ii) the Employee
may terminate the Employee's employment at any time without prior notice for any
reason or for no reason. For purposes of this Agreement, the Employee's
employment shall be deemed to have been terminated for cause in the event the
Company terminates it as a result of:
(a) the Employee's breach of his confidentiality obligations
specified in Section 5;
(b) the willful failure or refusal by the Employee to perform any
of his material employment duties or his material obligations under this
Agreement which shall not have ceased or been corrected within fifteen (15) days
following a written warning from the Company; or
(c) the commission of any act or the failure to act by the Employee
which constitutes a crime or offense involving money or other property of any of
the CEI Companies (as defined in Section 5) or which constitutes a felony in the
jurisdiction involved.

3. Severance Compensation.
----------------------

3.1 General Rule. Unless the provisions of Section 3.2 apply,
------------
in the event of the termination of the Employee's employment by the Company
other than for cause prior to the expiration of the three (3) year term referred
to in Section 2, the Company shall be obligated to pay to the Employee, within
fifteen (15) days after the date of termination, an amount equal to the greater
of: (i) fifty percent (50%) of the Employee's annual salary determined as of
the date of termination of employment, or (ii) the aggregate salary otherwise
payable to the Employee for the balance of the three (3) year term referred to
in Section 2, determined as of the date of termination of employment.

3.2 Change of Control. If, during the term of this Agreement,
-----------------
the Employee's employment with the Company is terminated after a change of
control (as defined below), either by the Employee or by the Company other than
for cause, the Company shall pay to the Employee, within fifteen (15) days of
the date of termination of employment, an amount equal to the greater of: (i)
the amount payable to the Employee as
<PAGE>

determined by the application of the provisions of Section 3.1, or (ii) two (2)
times the amount of the Employee's annual salary, determined as of the date of
termination of employment. The Company shall be obligated to make such payment
in lieu of, and not in addition to, the Company's payment obligations under
Section 3.1. For purposes of this Agreement, a change of control shall be deemed
to have occurred in the event of: (i) the acquisition, directly or indirectly,
by any person or entity, or persons or entities acting in concert, whether by
purchase, merger, consolidation or otherwise, of voting power over that number
of voting shares of the capital stock of either the Company or CEI which, when
combined with the existing voting power of such persons or entities, would
enable them to cast fifty percent (50%) or more of the votes which all
shareholders of the Company or CEI, respectively, would be entitled to cast in
the election of directors of either the Company or CEI, or (ii) the sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company to a
transferee other than CEI or a company or entity of which a controlling interest
is owned by CEI.

3.3 Termination for Cause. In the event of the termination of
---------------------
the Employee's employment at any time by the Company for cause, the Company
shall have no obligation to pay the Employee any sums following the termination
of his employment.

4. Compensation. As compensation for the performance of his
------------
employment duties, during the term hereof the Company shall pay or provide to
the Employee the following:
(a) A salary in the annual amount of One Hundred Thirty
Thousand Dollars ($130,000.00), payable in accordance with the Company's normal
payroll practices in effect from time to time. The Employee's salary shall be
reviewed by the Board at the same time and in the same manner as is customary
for the employees of CEI and its subsidiaries and may be increased, in the sole
discretion of the Board, based upon the Employee's satisfactory performance of
his employment duties.
(b) The provision of those fringe benefits which were provided
to the Employee in his position as President and Chief Executive Officer of
TeleBeam as of the Effective Date under plans or insurance policies maintained
by the Company from time to time. Such fringe benefits include four (4) weeks
paid vacation, personal use of a Company automobile, medical health and
disability insurance coverage, inclusion in the Company's 401(k) profit sharing
plan, and reimbursement of business expenses under policies similar to those in
effect with TeleBeam.
<PAGE>

(c) Maintenance of a life insurance policy insuring the
Employee's life in accordance with CEI's current policies.
(d) Participation in CEI's Executive Incentive Compensation
Plan and Stock Option Plan.

5. Confidentiality. The Employee acknowledges that he has had, and in
---------------
fulfilling his duties under this Agreement he will have, access to confidential
information regarding the business and financial affairs of the Company, CEI,
and/or the other subsidiaries of CEI (collectively, the "CEI Companies"). The
Employee hereby agrees to hold all such information in the strictest confidence,
to discuss such information only with authorized personnel of the CEI Companies,
and, except as required by law or compelled by legal process, to refrain from
disclosing such information to any other party, both during the term of this
Agreement and after the termination hereof. The provisions of this Section 5
shall not apply to information, which is or becomes generally available to or
known by the public other than as a result of disclosure by the Employee.

6. Covenant Not to Compete. The Employee agrees that, in order to
-----------------------
protect the legitimate interests and property rights of the Employer and in
consideration of the payment of Fifty Thousand Dollars ($50,000.00) by the
Company to the Employee on the Effective Date, for a period of one (1) year
after the termination of the Employee's employment with the Company (regardless
of the reason for the termination), the Employee shall not:
(a) Engage, directly or indirectly, either as owner, partner,
agent, employee, consultant, member, or shareholder, or otherwise operate,
control, join or participate in, lend money to, or be connected with any
commercial enterprise or business which is engaged within the Territory (as
defined below) in any facet of the telecommunications business carried on by any
of the CEI Companies as of the date of termination of the Employee's employment;
(b) Approach, solicit, contact, or otherwise establish a
business relationship with any customer of any of the CEI Companies or any
prospective customer of any of the CEI Companies with whom any of such companies
has had significant contact on or before the date of termination of the
Employee's employment, for a purpose related to the business carried on by any
of the CEI Companies as of the date of termination of the Employee's employment;
(c) Assist any other person, partnership, corporation, limited
liability company, or other entity in the pursuit of the activities from which
the Employee is prohibited in engaging under the provisions of Subsections (a)
and (b) above; or
<PAGE>

(d) Induce by active solicitation any present or future
employees or agents of the Company or the other CEI Companies to directly or
indirectly engage in any competitive business or to terminate their employment
with any of the CEI Companies.

For purposes of this Agreement, the term "Territory" shall mean those
geographical areas encompassed by the State College, Reading, Pottsville,
Sunbury, and Williamsport Basic Trading Areas, as defined by the Federal
Communications Commission for the issuance of personal communication services
licenses. Nothing contained in this Section 6 shall prohibit the Employee from:
(i) investing in and owning securities issued by any publicly-held company which
are traded on any recognized securities exchange or in the over-the-counter
market; or (ii) accepting employment, after termination of his employment with
the Company, with a customer of the Company which is not a significant customer.

7. Equitable Relief. The Employee recognizes and agrees that, in the
----------------
event of a breach or threatened breach of his covenants and obligations
contained in Section 5 and/or Section 6 of this Agreement, the Company will
suffer irreparable harm and damage, that such harm and damage may be extremely
difficult or impossible to quantify, and that therefore the Company shall be
entitled to injunctive relief. Nothing contained herein, however, shall be
construed as precluding the Company from pursuing any other remedies available
to it for such breach or threatened breach, including the recovery of damages at
law.

8. Restrictions Excessive. In the event the restrictions imposed by
----------------------
the covenant contained in Section 6 are deemed by any court having jurisdiction
to be unreasonable or otherwise unenforceable by reason of their duration,
territory or the scope of the activities prohibited, it is agreed by the parties
that such court may construe and enforce this Agreement by reducing the time
period, territory, or scope of activities to an extent which such court deems to
be reasonable and enforceable.

9. Arbitration. Except as otherwise provided in Section 7 hereof, any
-----------
claim or controversy between the parties arising out of or relating to this
Agreement shall be settled by a single arbitrator in an arbitration held in
Harrisburg, Pennsylvania in accordance with the then-governing commercial rules
of the American Arbitration Association. The judgment of the arbitrator shall
be final and binding on the parties, and may be entered and enforced in any
court of competent jurisdiction.

10. Severability. If any provision or provisions of this Agreement
------------
shall be deemed to contravene or be invalid under the laws of any jurisdiction
where this Agreement is in force, the parties agree that such contravention
<PAGE>

or invalidity shall not invalidate the entire Agreement, but it shall be
construed as not containing the particular provision or provisions held to be
invalid and the rights and obligations of the parties shall be construed and
enforced accordingly.

11. Notices. All notices, consents, waivers or other communications
-------
which are required or permitted hereunder shall be sufficient if given in
writing and delivered personally, by overnight mail service, by facsimile
transmission (which is confirmed) or by registered or certified mail, return
receipt requested, postage prepaid, as follows (or to such other addressee or
address as shall be set forth in a notice given in the same manner):

If to the Company:

c/o Conestoga Enterprises, Inc.
202 East First Street
Birdsboro, PA 19508
Attention: Albert H. Kramer, President
(610) 582-6475 (Fax)

With a required copy to:

Barley, Snyder, Senft & Cohen, LLC
501 Washington Street, Fifth Floor
P. O. Box 942
Reading, PA 19603-0942
Attention: John S. Hibschman, Esquire
(610) 376-5243 (Fax)

If to the Employee:

Ara M. Kervandjian
467 East Beaver Avenue
State College, PA 16801
(814) 234-4821 (Fax)

With a required copy to:

Saul, Ewing, Remick & Saul
1055 Westlakes Drive, Suite 150
Berwyn, PA 19312
Attention: David S. Antzis, Esquire
(610) 408-4401 (Fax)

12. Miscellaneous.
-------------
(a) This Agreement shall be construed, interpreted and enforced in
accordance with the laws (but not the law of conflict of laws) of the
Commonwealth of Pennsylvania.
(b) This Agreement and its provisions shall be binding upon and
inure to the benefit of the respective legal representatives, successors, heirs,
and permitted assigns of the parties. The Employee shall not assign any of his
rights nor delegate any of his duties under this Agreement without the prior
written consent of the Company.
(c) This Agreement constitutes the entire Agreement between the
parties and supersedes all prior negotiations, understandings and agreements of
any nature whatsoever, whether oral or written, with respect to the subject
matter hereof. No amendment, waiver or discharge of any provision of this
Agreement shall be effective against any party, unless that party shall have
consented thereto in writing.
(d) The headings to the sections of this Agreement are inserted
only for convenience of reference and are not intended, nor shall they be
construed, to modify, define, limit or expand the intent of the parties as
expressed in this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.

WITNESS: TE MERGER CORPORATION

____________________________________ By:_________________________________
Albert H. Kramer, Chairman of the Board

____________________________________ By:__________________________(SEAL)
Ara M. Kervandjian
<PAGE>

INTENDING TO BE LEGALLY BOUND HEREBY, CONESTOGA ENTERPRISES, INC. hereby
guarantees the performance of all of the obligations of and payment of all sums
due from TE Merger Corporation under the foregoing Employment Agreement.

CONESTOGA ENTERPRISES, INC.

By:_________________________________
President

<PAGE>

EXHIBIT 10.2
<PAGE>

EMPLOYMENT AGREEMENT
--------------------

THIS AGREEMENT is made November 12, 1999, by and between TE MERGER
CORPORATION (the "Company"), a Pennsylvania corporation, and HEIDI A. NICHOLAS
(the "Employee"), of State College, Centre County, Pennsylvania.

BACKGROUND

Pursuant to an Agreement and Plan of Merger dated November 3, 1999, by and
among Conestoga Enterprises, Inc. ("CEI"), TeleBeam, Incorporated ("TeleBeam")
and the Company, TeleBeam in the near future will be merged with and into the
Company, which will be the surviving corporation. Pursuant to such plan of
merger (the "Plan of Merger"), as of the Effective Date of the merger specified
therein (the "Effective Date"), the corporate name of the Company will become
"TeleBeam, Incorporated". The Employee is currently Senior Vice President of
Finance and Chief Financial Officer of TeleBeam and the parties have agreed that
she shall be employed by the Company as of the Effective Date under the terms
and provisions contained in this Agreement.

AGREEMENT

Therefore, each intending to be legally bound hereby, the parties agree as
follows:

1. Employment and Employment Duties. Subject to the consummation of
--------------------------------
the Merger (as defined in the Plan of Merger) and as of the Effective Date,
under the terms and conditions contained in this Agreement, the Company employs
the Employee as Senior Vice President of Finance and Chief Financial Officer and
the Employee accepts such employment. The Employee's employment duties shall be
those commensurate with her position, assigned by the President of the Company.
The Employee shall report directly to the President. The Employee's employment
shall be on a full-time basis and she shall not be engaged or employed in other
business activities (whether for pecuniary advantage or not) during the term of
this Agreement, except that the Employee shall be permitted to serve on the
boards of directors of business or charitable organizations, provided such
services do not materially affect the performance of her duties hereunder. The
Employee shall discharge her employment duties in a diligent and conscientious
fashion. The principal location at which the Employee shall perform her duties
<PAGE>

hereunder shall be at TeleBeam's offices in State College, Pennsylvania. The
principal location of the Employee's duties shall not be transferred without the
Employee's consent.

(a) the Employee's breach of her confidentiality obligations specified in
Section 5;

(b) the willful failure or refusal by the Employee to perform any of her
material employment duties or her material obligations under this Agreement
which shall not have ceased or been corrected within fifteen (15) days following
a written warning from the Company; or

(c) the commission of any act or the failure to act by the Employee which
constitutes a crime or offense involving money or other property of any of the
CEI Companies (as defined in Section 5) or which constitutes a felony in the
jurisdiction involved.

3. Severance Compensation.
----------------------

3.1 General Rule. Unless the provisions of Section 3.2 apply,
------------
in the event of the termination of the Employee's employment by the Company
other than for cause prior to the expiration of the two (2) year term referred
to in Section 2, the Company shall be obligated to pay to the Employee, within
fifteen (15) days after the date of termination, an amount equal to the greater
of: (i) fifty percent (50%) of the Employee's annual salary determined as of
the date of termination of employment, or (ii) the aggregate salary otherwise
payable to the Employee for the balance of the two (2) year term referred to in
Section 2, determined as of the date of termination of employment.

Employee's annual salary, determined as of the date of termination of
employment. The Company shall be obligated to make such payment in lieu of, and
not in addition to, the Company's payment obligations under Section 3.1. For
purposes of this Agreement, a change of control shall be deemed to have occurred
in the event of: (i) the acquisition, directly or indirectly, by any person or
entity, or persons or entities acting in concert, whether by purchase, merger,
consolidation or otherwise, of voting power over that number of voting shares of
the capital stock of either the Company or CEI which, when combined with the
existing voting power of such persons or entities, would enable them to cast
fifty percent (50%) or more of the votes which all shareholders of the Company
or CEI, respectively, would be entitled to cast in the election of directors of
either the Company or CEI, or (ii) the sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company to a transferee other than CEI
or a company or entity of which a controlling interest is owned by CEI.

4. Compensation. As compensation for the performance of her
------------
employment duties, during the term hereof the Company shall pay or provide to
the Employee the following:

(a) A salary in the annual amount of One Hundred Ten Thousand
Dollars ($110,000.00), payable in accordance with the Company's normal payroll
practices in effect from time to time. The Employee's salary shall be reviewed
by the Board at the same time and in the same manner as is customary for the
employees of CEI and its subsidiaries and may be increased, in the sole
discretion of the Board, based upon the Employee's satisfactory performance of
her employment duties.

(b) The provision of those fringe benefits which were provided to
the Employee in her position as Senior Vice President of Finance and Chief
Financial Officer of TeleBeam as of the Effective Date under plans or insurance
policies maintained by the Company from time to time. Such fringe benefits
include three (3) weeks paid vacation, medical health and disability insurance
coverage, inclusion in the Company's 401(k) profit sharing plan, and
reimbursement of business expenses under policies similar to those in effect
with TeleBeam.

(c) Maintenance of a life insurance policy insuring the
Employee's life in accordance with CEI's current policies.
<PAGE>

(d) Participation in CEI's Executive Incentive Compensation Plan
and Stock Option Plan.

5. Confidentiality. The Employee acknowledges that she has had, and
---------------
in fulfilling her duties under this Agreement she will have, access to
confidential information regarding the business and financial affairs of the
Company, CEI, and/or the other subsidiaries of CEI (collectively, the "CEI
Companies"). The Employee hereby agrees to hold all such information in the
strictest confidence, to discuss such information only with authorized personnel
of the CEI Companies, and, except as required by law or compelled by legal
process, to refrain from disclosing such information to any other party, both
during the term of this Agreement and after the termination hereof. The
provisions of this Section 5 shall not apply to information, which is or becomes
generally available to or known by the public other than as a result of
disclosure by the Employee.

(b) Approach, solicit, contact, or otherwise establish a business
relationship with any customer of any of the CEI Companies or any prospective
customer of any of the CEI Companies with whom any of such companies has had
significant contact on or before the date of termination of the Employee's
employment, for a purpose related to the business carried on by any of the CEI
Companies as of the date of termination of the Employee's employment;

(c) Assist any other person, partnership, corporation, limited
liability company, or other entity in the pursuit of the activities from which
the Employee is prohibited in engaging under the provisions of Subsections (a)
and (b) above; or
<PAGE>

(d) Induce by active solicitation any present or future employees
or agents of the Company or the other CEI Companies to directly or indirectly
engage in any competitive business or to terminate their employment with any of
the CEI Companies.

For purposes of this Agreement, the term "Territory" shall mean those
geographical areas encompassed by the State College, Reading, Pottsville,
Sunbury, and Williamsport Basic Trading Areas, as defined by the Federal
Communications Commission for the issuance of personal communication services
licenses. Nothing contained in this Section 6 shall prohibit the Employee from:
(i) investing in and owning securities issued by any publicly-held company which
are traded on any recognized securities exchange or in the over-the-counter
market; or (ii) accepting employment, after termination of her employment with
the Company, with a customer of the Company which is not a significant customer.

7. Equitable Relief. The Employee recognizes and agrees that, in the
----------------
event of a breach or threatened breach of her covenants and obligations
contained in Section 5 and/or Section 6 of this Agreement, the Company will
suffer irreparable harm and damage, that such harm and damage may be extremely
difficult or impossible to quantify, and that therefore the Company shall be
entitled to injunctive relief. Nothing contained herein, however, shall be
construed as precluding the Company from pursuing any other remedies available
to it for such breach or threatened breach, including the recovery of damages at
law.

If to the Company:

c/o Conestoga Enterprises, Inc.
202 East First Street
Birdsboro, PA 19508
Attention: Albert H. Kramer, President
(610) 582-6475 (Fax)

With a required copy to:

Barley, Snyder, Senft & Cohen, LLC
501 Washington Street, Fifth Floor
P. O. Box 942
Reading, PA 19603-0942
Attention: John S. Hibschman, Esquire
(610) 376-5243 (Fax)

If to the Employee:

Heidi A. Nicholas
1003 Greenbriar Drive
State College, PA 16801
(814) 231-0996

With a required copy to:

Saul, Ewing, Remick & Saul
1055 Westlakes Drive, Suite 150
Berwyn, PA 19312
Attention: David S. Antzis, Esquire
(610) 408-4401 (Fax)

12. Miscellaneous.
-------------

(a) This Agreement shall be construed, interpreted and enforced
in accordance with the laws (but not the law of conflict of laws) of the
Commonwealth of Pennsylvania.

(b) This Agreement and its provisions shall be binding upon and
inure to the benefit of the respective legal representatives, successors, heirs,
and permitted assigns of the parties. The Employee shall not assign any of her
rights nor delegate any of her duties under this Agreement without the prior
written consent of the Company.

(c) This Agreement constitutes the entire Agreement between the
parties and supersedes all prior negotiations, understandings and agreements of
any nature whatsoever, whether oral or written, with respect to the subject
matter hereof. No amendment, waiver or discharge of any provision of this
Agreement shall be effective against any party, unless that party shall have
consented thereto in writing.

(d) The headings to the sections of this Agreement are inserted
only for convenience of reference and are not intended, nor shall they be
construed, to modify, define, limit or expand the intent of the parties as
expressed in this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.

WITNESS: TE MERGER CORPORATION

By:
- --------------------------------- -----------------------------------
Ara M. Kervandjian, President

By: (SEAL)
- --------------------------------- -----------------------------------
Heidi A. Nicholas
<PAGE>

CONESTOGA ENTERPRISES, INC.

By:
---------------------------------
President

<PAGE>

EXHIBIT 10.3
<PAGE>

EMPLOYMENT AGREEMENT
--------------------

THIS AGREEMENT is made November 12, 1999, by and between TE MERGER
CORPORATION (the "Company"), a Pennsylvania corporation, and MARK J. FETTEROLF
(the "Employee"), of State College, Centre County, Pennsylvania.

BACKGROUND

Pursuant to an Agreement and Plan of Merger dated November 3, 1999, by and
among Conestoga Enterprises, Inc. ("CEI"), TeleBeam, Incorporated ("TeleBeam")
and the Company, TeleBeam in the near future will be merged with and into the
Company, which will be the surviving corporation. Pursuant to such plan of
merger (the "Plan of Merger"), as of the Effective Date of the merger specified
therein (the "Effective Date"), the corporate name of the Company will become
"TeleBeam, Incorporated". The Employee is currently Senior Vice President of
Operations of TeleBeam and the parties have agreed that he shall be employed by
the Company as of the Effective Date under the terms and provisions contained in
this Agreement.

AGREEMENT

Therefore, each intending to be legally bound hereby, the parties agree as
follows:

1. Employment and Employment Duties. Subject to the consummation of
--------------------------------
the Merger (as defined in the Plan of Merger) and as of the Effective Date,
under the terms and conditions contained in this Agreement, the Company employs
the Employee as Senior Vice President of Operations and the Employee accepts
such employment. The Employee's employment duties shall be those commensurate
with his position, assigned by the President of the Company. The Employee shall
report directly to the President. The Employee's employment shall be on a full-
time basis and he shall not be engaged or employed in other business activities
(whether for pecuniary advantage or not) during the term of this Agreement,
except that the Employee shall be permitted to serve on the boards of directors
of business or charitable organizations, provided such services do not
materially affect the performance of his duties hereunder. The Employee shall
discharge his employment duties in a diligent and conscientious fashion. The
principal location at which the Employee shall perform his duties hereunder
shall be at
<PAGE>

TeleBeam's offices in State College, Pennsylvania. The principal location of the
Employee's duties shall not be transferred without the Employee's consent.

(a) the Employee's breach of his confidentiality obligations
specified in Section 5;

(b) the willful failure or refusal by the Employee to perform
any of his material employment duties or his material obligations under this
Agreement which shall not have ceased or been corrected within fifteen (15) days
following a written warning from the Company; or

(c) the commission of any act or the failure to act by the
Employee which constitutes a crime or offense involving money or other property
of any of the CEI Companies (as defined in Section 5) or which constitutes a
felony in the jurisdiction involved.

3. Severance Compensation.
----------------------

3.1 General Rule. Unless the provisions of Section 3.2 apply,
------------
in the event of the termination of the Employee's employment by the Company
other than for cause prior to the expiration of the two (2) year term referred
to in Section 2, the Company shall be obligated to pay to the Employee, within
fifteen (15) days after the date of termination, an amount equal to the greater
of: (i) fifty percent (50%) of the Employee's annual salary determined as of
the date of termination of employment, or (ii) the aggregate salary otherwise
payable to the Employee for the balance of the two (2) year term referred to in
Section 2, determined as of the date of termination of employment.

4. Compensation. As compensation for the performance of his
------------
employment duties, during the term hereof the Company shall pay or provide to
the Employee the following:

(a) A salary in the annual amount of Ninety Thousand Dollars
($90,000.00), payable in accordance with the Company's normal payroll practices
in effect from time to time. The Employee's salary shall be reviewed by the
Board at the same time and in the same manner as is customary for the employees
of CEI and its subsidiaries and may be increased, in the sole discretion of the
Board, based upon the Employee's satisfactory performance of his employment
duties.

(b) The provision of those fringe benefits which were provided
to the Employee in his position as Senior Vice President of Operations of
TeleBeam as of the Effective Date under plans or insurance policies maintained
by the Company from time to time. Such fringe benefits include three (3) weeks
paid vacation, medical health and disability insurance coverage, inclusion in
the Company's 401(k) profit sharing plan, and reimbursement of business expenses
under policies similar to those in effect with TeleBeam.

(c) Maintenance of a life insurance policy insuring the
Employee's life in accordance with CEI's current policies.
<PAGE>

(d) Participation in CEI's Executive Incentive Compensation
Plan and Stock Option Plan.

(a) Engage, directly or indirectly, either as owner, partner,
agent, employee, consultant, member, or shareholder, or otherwise operate,
control, join or participate in, lend money to, or be connected with any
commercial enterprise or business which is engaged within the Territory (as
defined below) in any facet of the telecommunications business carried on by any
of the CEI Companies as of the date of termination of the Employee's employment;
(b) Approach, solicit, contact, or otherwise establish a
business relationship with any customer of any of the CEI Companies or any
prospective customer of any of the CEI Companies with whom any of such companies
has had significant contact on or before the date of termination of the
Employee's employment, for a purpose related to the business carried on by any
of the CEI Companies as of the date of termination of the Employee's employment;
(c) Assist any other person, partnership, corporation, limited
liability company, or other entity in the pursuit of the activities from which
the Employee is prohibited in engaging under the provisions of Subsections (a)
and (b) above; or
<PAGE>

If to the Company:

c/o Conestoga Enterprises, Inc.
202 East First Street
Birdsboro, PA 19508
Attention: Albert H. Kramer, President
(610) 582-6475 (Fax)

With a required copy to:

Barley, Snyder, Senft & Cohen, LLC
501 Washington Street, Fifth Floor
P. O. Box 942
Reading, PA 19603-0942
Attention: John S. Hibschman, Esquire
(610) 376-5243 (Fax)

If to the Employee:

Mark J. Fetterolf
332 Glengary Lane
State College, PA 16801
(814) 235-3076

With a required copy to:

Saul, Ewing, Remick & Saul
1055 Westlakes Drive, Suite 150
Berwyn, PA 19312
Attention: David S. Antzis, Esquire
(610) 408-4401 (Fax)

12. Miscellaneous.
-------------
(a) This Agreement shall be construed, interpreted and enforced
in accordance with the laws (but not the law of conflict of laws) of the
Commonwealth of Pennsylvania.

(b) This Agreement and its provisions shall be binding upon and
inure to the benefit of the respective legal representatives, successors, heirs,
and permitted assigns of the parties. The Employee shall not assign any of his
rights nor delegate any of his duties under this Agreement without the prior
written consent of the Company.

IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.

WITNESS: TE MERGER CORPORATION

____________________________________ By:_________________________________
Ara M. Kervandjian, President

____________________________________ By:__________________________(SEAL)
Mark J. Fetterolf
<PAGE>

CONESTOGA ENTERPRISES, INC.

By:_________________________________
President

<PAGE>

EXHIBIT 10.4
<PAGE>

EMPLOYMENT AGREEMENT
--------------------

THIS AGREEMENT is made November 12, 1999, by and between TE MERGER
CORPORATION (the "Company"), a Pennsylvania corporation, and JEFFERY C. ALMONEY
(the "Employee"), of State College, Centre County, Pennsylvania.

BACKGROUND

Pursuant to an Agreement and Plan of Merger dated November 3, 1999, by and
among Conestoga Enterprises, Inc. ("CEI"), TeleBeam, Incorporated ("TeleBeam")
and the Company, TeleBeam in the near future will be merged with and into the
Company, which will be the surviving corporation. Pursuant to such plan of
merger (the "Plan of Merger"), as of the Effective Date of the merger specified
therein (the "Effective Date"), the corporate name of the Company will become
"TeleBeam, Incorporated". The Employee is currently Senior Vice President and
Chief Technology and Information Officer of TeleBeam and the parties have agreed
that he shall be employed by the Company as of the Effective Date under the
terms and provisions contained in this Agreement.

AGREEMENT

Therefore, each intending to be legally bound hereby, the parties agree as
follows:

1. Employment and Employment Duties. Subject to the consummation of
--------------------------------
the Merger (as defined in the Plan of Merger) and as of the Effective Date,
under the terms and conditions contained in this Agreement, the Company employs
the Employee as Senior Vice President and Chief Technology and Information
Officer and the Employee accepts such employment. The Employee's employment
duties shall be those assigned by the President of the Company. The Employee
shall report directly to the President. The Employee's employment shall be on a
full-time basis and he shall not be engaged or employed in other business
activities (whether for pecuniary advantage or not) during the term of this
Agreement, except that the Employee shall be permitted to serve on the boards of
directors of business or charitable organizations, provided such services do not
materially affect the performance of his duties hereunder. The Employee shall
discharge his employment duties in a diligent and conscientious fashion. The
principal location at which the Employee shall perform his duties hereunder
shall be at
<PAGE>

TeleBeam's offices in State College, Pennsylvania. The principal location of the
Employee's duties shall not be transferred without the Employee's consent.

2. Term. The Employee's employment hereunder shall be for a period of
----
two (2) years, commencing upon the Effective Date. Notwithstanding the
foregoing: (i) the Company may terminate the Employee's employment at any time
(A) upon fifteen (15) days prior written notice for any reason or for no reason,
or (B) without prior notice for cause (as defined below); and (ii) the Employee
may terminate the Employee's employment at any time without prior notice for any
reason or for no reason. For purposes of this Agreement, the Employee's
employment shall be deemed to have been terminated for cause in the event the
Company terminates it as a result of:
(a) the Employee's breach of his confidentiality obligations
specified in Section 5;
(b) the willful failure or refusal by the Employee to perform
any of his material employment duties or his material obligations under this
Agreement which shall not have ceased or been corrected within fifteen (15) days
following a written warning from the Company; or
(c) the commission of any act or the failure to act by the
Employee which constitutes a crime or offense involving money or other property
of any of the CEI Companies (as defined in Section 5) or which constitutes a
felony in the jurisdiction involved.

3. Severance Compensation.
----------------------

3.1 General Rule. Unless the provisions of Section 3.2 apply,
------------
in the event of the termination of the Employee's employment by the Company
other than for cause prior to the expiration of the two (2) year term referred
to in Section 2, the Company shall be obligated to pay to the Employee, within
fifteen (15) days after the date of termination, an amount equal to the greater
of: (i) fifty percent (50%) of the Employee's annual salary determined as of
the date of termination of employment, or (ii) the aggregate salary otherwise
payable to the Employee for the balance of the two (2) year term referred to in
Section 2, determined as of the date of termination of employment.

4. Compensation. As compensation for the performance of his
------------
employment duties, during the term hereof the Company shall pay or provide to
the Employee the following:
(a) A salary in the annual amount of One Hundred Twenty-five
Thousand Dollars ($125,000.00), payable in accordance with the Company's normal
payroll practices in effect from time to time. The Employee's salary shall be
reviewed by the Board at the same time and in the same manner as is customary
for the employees of CEI and its subsidiaries and may be increased, in the sole
discretion of the Board, based upon the Employee's satisfactory performance of
his employment duties.
(b) The provision of those fringe benefits which were provided
to the Employee in his position as Senior Vice President and Chief Technology
and Information Officer of TeleBeam as of the Effective Date under plans or
insurance policies maintained by the Company from time to time. Such fringe
benefits include three (3) weeks paid vacation, medical health and disability
insurance coverage, inclusion in the Company's 401(k) profit sharing plan, and
reimbursement of business expenses under policies similar to those in effect
with TeleBeam.
(c) Maintenance of a life insurance policy insuring the
Employee's life in accordance with CEI's current policies.
<PAGE>

(d) Participation in CEI's Executive Incentive Compensation Plan
and Stock Option Plan.

6. Covenant Not to Compete. The Employee agrees that, in order to
-----------------------
protect the legitimate interests and property rights of the Employer and in
consideration of the payment of Thirty Thousand Dollars ($30,000.00) by the
Company to the Employee on the Effective Date, for a period of one (1) year
after the termination of the Employee's employment with the Company (regardless
of the reason for the termination), the Employee shall not:
(a) Engage, directly or indirectly, either as owner, partner,
agent, employee, consultant, member, or shareholder, or otherwise operate,
control, join or participate in, lend money to, or be connected with any
commercial enterprise or business which is engaged within the Territory (as
defined below) in any facet of the telecommunications business carried on by any
of the CEI Companies as of the date of termination of the Employee's employment
provided that, the foregoing notwithstanding, Employee may become an employee of
a university or other not-for-profit entity, so long as he is not competing
commercially in any such facet of the telecommunications business;
(b) Approach, solicit, contact, or otherwise establish a
business relationship with any customer of any of the CEI Companies or any
prospective customer of any of the CEI Companies with whom any of such companies
has had significant contact on or before the date of termination of the
Employee's employment, for a purpose related to the business carried on by any
of the CEI Companies as of the date of termination of the Employee's employment;
(c) Assist any other person, partnership, corporation, limited
liability company, or other entity in the pursuit of the activities from which
the Employee is prohibited in engaging under the provisions of Subsections (a)
and (b) above; or
<PAGE>

If to the Company:

c/o Conestoga Enterprises, Inc.
202 East First Street
Birdsboro, PA 19508
Attention: Albert H. Kramer, President
(610) 582-6475 (Fax)

With a required copy to:

Barley, Snyder, Senft & Cohen, LLC
501 Washington Street, Fifth Floor
P. O. Box 942
Reading, PA 19603-0942
Attention: John S. Hibschman, Esquire
(610) 376-5243 (Fax)

If to the Employee:

Jeffrey C. Almoney
1255 Oak Ridge Avenue
State College, PA 16801
(814) 234-4071

With a required copy to:

Saul, Ewing, Remick & Saul
1055 Westlakes Drive, Suite 150
Berwyn, PA 19312
Attention: David S. Antzis, Esquire
(610) 408-4401 (Fax)

12. Miscellaneous.
-------------

(a) This Agreement shall be construed, interpreted and enforced
in accordance with the laws (but not the law of conflict of laws) of the
Commonwealth of Pennsylvania.
(b) This Agreement and its provisions shall be binding upon and
inure to the benefit of the respective legal representatives, successors, heirs,
and permitted assigns of the parties. The Employee shall not assign any of his
rights nor delegate any of his duties under this Agreement without the prior
written consent of the Company.
(c) This Agreement constitutes the entire Agreement between the
parties and supersedes all prior negotiations, understandings and agreements of
any nature whatsoever, whether oral or written, with respect to the subject
matter hereof. No amendment, waiver or discharge of any provision of this
Agreement shall be effective against any party, unless that party shall have
consented thereto in writing.
(d) The headings to the sections of this Agreement are inserted
only for convenience of reference and are not intended, nor shall they be
construed, to modify, define, limit or expand the intent of the parties as
expressed in this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.

WITNESS: TE MERGER CORPORATION

____________________________________ By:_________________________________
Ara M. Kervandjian, President

____________________________________ By:___________________________(SEAL)
Jeffery C. Almoney
<PAGE>

CONESTOGA ENTERPRISES, INC.

By:______________________________
President

<PAGE>

EXHIBIT 10.5
<PAGE>

EMPLOYMENT AGREEMENT
--------------------

THIS AGREEMENT is made November 12, 1999, by and between TE MERGER
CORPORATION (the "Company"), a Pennsylvania corporation, and TROY A. KNECHT (the
"Employee"), of State College, Centre County, Pennsylvania.

BACKGROUND

Pursuant to an Agreement and Plan of Merger dated November 3, 1999, by and
among Conestoga Enterprises, Inc. ("CEI"), TeleBeam, Incorporated ("TeleBeam")
and the Company, TeleBeam in the near future will be merged with and into the
Company, which will be the surviving corporation. Pursuant to such plan of
merger (the "Plan of Merger"), as of the Effective Date of the merger specified
therein (the "Effective Date"), the corporate name of the Company will become
"TeleBeam, Incorporated". The Employee is currently Vice President of Technical
Operations of TeleBeam and the parties have agreed that he shall be employed by
the Company as of the Effective Date under the terms and provisions contained in
this Agreement.

AGREEMENT

Therefore, each intending to be legally bound hereby, the parties agree as
follows:

1. Employment and Employment Duties. Subject to the consummation of
--------------------------------
the Merger (as defined in the Plan of Merger) and as of the Effective Date,
under the terms and conditions contained in this Agreement, the Company employs
the Employee as Vice President of Technical Operations and the Employee accepts
such employment. The Employee's employment duties shall be those commensurate
with his position, assigned by the President of the Company. The Employee shall
report directly to the President. The Employee's employment shall be on a full-
time basis and he shall not be engaged or employed in other business activities
(whether for pecuniary advantage or not) during the term of this Agreement,
except that the Employee shall be permitted to serve on the boards of directors
of business or charitable organizations, provided such services do not
materially affect the performance of his duties hereunder. The Employee shall
discharge his employment duties in a diligent and conscientious fashion. The
principal location at which the Employee shall perform his duties hereunder
shall be at
<PAGE>

TeleBeam's offices in State College, Pennsylvania. The principal location of the
Employee's duties shall not be transferred without the Employee's consent.

3. Severance Compensation.
----------------------

3.1 General Rule. Unless the provisions of Section 3.2 apply,
------------
in the event of the termination of the Employee's employment by the Company
other than for cause prior to the expiration of the two (2) year term referred
to in Section 2, the Company shall be obligated to pay to the Employee, within
fifteen (15) days after the date of termination, an amount equal to the greater
of: (i) fifty percent (50%) of the Employee's annual salary determined as of
the date of termination of employment, or (ii) the aggregate salary otherwise
payable to the Employee for the balance of the two (2) year term referred to in
Section 2, determined as of the date of termination of employment.

<PAGE>

4. Compensation. As compensation for the performance of his
------------
employment duties, during the term hereof the Company shall pay or provide to
the Employee the following:
(a) A salary in the annual amount of Seventy-five Thousand Dollars
($75,000.00), payable in accordance with the Company's normal payroll practices
in effect from time to time. The Employee's salary shall be reviewed by the
Board at the same time and in the same manner as is customary for the employees
of CEI and its subsidiaries and may be increased, in the sole discretion of the
Board, based upon the Employee's satisfactory performance of his employment
duties.
(b) The provision of those fringe benefits which were provided to
the Employee in his position as Vice President of Technical Operations of
TeleBeam as of the Effective Date under plans or insurance policies maintained
by the Company from time to time. Such fringe benefits include three (3) weeks
paid vacation, medical health and disability insurance coverage, inclusion in
the Company's 401(k) profit sharing plan, and reimbursement of business expenses
under policies similar to those in effect with TeleBeam.
(c) Maintenance of a life insurance policy insuring the Employee's
life in accordance with CEI's current policies.
<PAGE>

(d) Participation in CEI's Executive Incentive Compensation Plan
and Stock Option Plan.

6. Covenant Not to Compete. The Employee agrees that, in order to
-----------------------
protect the legitimate interests and property rights of the Employer, and in
consideration of the payment of Thirty Thousand Dollars ($30,000.00) by the
Company to the Employee on the Effective Date, for a period of one (1) year
after the termination of the Employee's employment with the Company (regardless
of the reason for the termination), the Employee shall not:
(a) Engage, directly or indirectly, either as owner, partner,
agent, employee, consultant, member, or shareholder, or otherwise operate,
control, join or participate in, lend money to, or be connected with any
commercial enterprise or business which is engaged within the Territory (as
defined below) in any facet of the telecommunications business carried on by any
of the CEI Companies as of the date of termination of the Employee's employment;
(b) Approach, solicit, contact, or otherwise establish a business
relationship with any customer of any of the CEI Companies or any prospective
customer of any of the CEI Companies with whom any of such companies has had
significant contact on or before the date of termination of the Employee's
employment, for a purpose related to the business carried on by any of the CEI
Companies as of the date of termination of the Employee's employment;
(c) Assist any other person, partnership, corporation, limited
liability company, or other entity in the pursuit of the activities from which
the Employee is prohibited in engaging under the provisions of Subsections (a)
and (b) above; or
<PAGE>

(d) Induce by active solicitation any present or future employees
or agents of the Company or the other CEI Companies to directly or indirectly
engage in any competitive business or to terminate their employment with any of
the CEI Companies.

If to the Company:

c/o Conestoga Enterprises, Inc.
202 East First Street
Birdsboro, PA 19508
Attention: Albert H. Kramer, President
(610) 582-6475 (Fax)

With a required copy to:

Barley, Snyder, Senft & Cohen, LLC
501 Washington Street, Fifth Floor
P. O. Box 942
Reading, PA 19603-0942
Attention: John S. Hibschman, Esquire
(610) 376-5243 (Fax)

If to the Employee:

Troy A. Knecht
987 Oakwood Avenue
State College, PA 16801
(814) 238-3426

With a required copy to:

Saul, Ewing, Remick & Saul
1055 Westlakes Drive, Suite 150
Berwyn, PA 19312
Attention: David S. Antzis, Esquire
(610) 408-4401 (Fax)

12. Miscellaneous.
-------------

(a) This Agreement shall be construed, interpreted and enforced in
accordance with the laws (but not the law of conflict of laws) of the
Commonwealth of Pennsylvania.
(b) This Agreement and its provisions shall be binding upon and
inure to the benefit of the respective legal representatives, successors, heirs,
and permitted assigns of the parties. The Employee shall not assign any of his
rights nor delegate any of his duties under this Agreement without the prior
written consent of the Company.
(c) This Agreement constitutes the entire Agreement between the
parties and supersedes all prior negotiations, understandings and agreements of
any nature whatsoever, whether oral or written, with respect to the subject
matter hereof. No amendment, waiver or discharge of any provision of this
Agreement shall be effective against any party, unless that party shall have
consented thereto in writing.
(d) The headings to the sections of this Agreement are inserted
only for convenience of reference and are not intended, nor shall they be
construed, to modify, define, limit or expand the intent of the parties as
expressed in this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.

WITNESS: TE MERGER CORPORATION

____________________________________ By:_________________________________
Ara M. Kervandjian, President

____________________________________ By:___________________________(SEAL)
Troy A. Knecht
<PAGE>

CONESTOGA ENTERPRISES, INC.

By:____________________________
President

<PAGE>

EXHIBIT 23.2
<PAGE>

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and all references to our firm) included in or made a part of this
Registration Statement.

/s/ Arthur Andersen LLP

Pittsburgh, Pennsylvania
December 14, 1999

<PAGE>

EXHIBIT 23.3
<PAGE>

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 28, 1999, with respect to the consolidated
financial statements of TeleBeam, Incorporated included in the Registration
Statement (Form S-4 No. _________) and related Proxy Statement/Prospectus of
Conestoga Enterprises, Inc. for the registration of 900,000 shares of its common
stock.

/s/ Ernst & Young, LLP

December 9, 1999

<PAGE>

EXHIBIT 23.4
<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and the related Proxy Statement/Prospectus of
Conestoga Enterprises, Inc. and to the incorporation therein of our report,
dated January 20, 1999, except for Note 2 as to which the date is January 26,
1999, with respect to the consolidated financial statements of Conestoga
Enterprises, Inc. and subsidiaries included in its Annual Report on Form 10-K
for the year ended December 31, 1998 filed with the Securities and Exchange
Commission.

/s/ Beard and Company, Inc.

Reading, Pennsylvania
December 13, 1999

<PAGE>

EXHIBIT 23.5
<PAGE>

CONSENT OF JSI CAPITAL ADVISORS, LLC

We hereby consent to the reference to our firm under the captions "Merger
Negotiations" and "Conestoga's Reasons for the Merger" in the Registration
Statement (Form S-4) and the related Proxy Statement/Prospectus of Conestoga
Enterprises, Inc. In giving such consent, we do not hereby admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder.

JSI CAPITAL ADVISORS, LLC

William E. King, CPA
Director
December 16, 1999

<PAGE>

EXHIBIT 99.1
<PAGE>

REVOCABLE PROXY
TELEBEAM, INCORPORATED

SPECIAL MEETING OF STOCKHOLDERS
_____, 2000

The undersigned hereby appoints Ara M. Kervandjian and Heidi A.
Nicholas, and each of them with full powers of substitution, to act as attorneys
and proxies for the undersigned, to vote all shares of the common stock of
TeleBeam, Incorporated which the undersigned is entitled to vote at the Special
Meeting of Stockholders, to be held at The Sleep Inn, 111 Village Drive, State
College, Pennsylvania 16801 on Monday, _________________, at 10:00 a.m., local
time, and at any and all adjournments thereof, as follows:

FOR AGAINST ABSTAIN
--- ------- -------

1. The approval of the Amended and Restated Agreement
and Plan of Merger, dated as of November 12, 1999
(the "Merger Agreement") among TeleBeam, Incorporated,
Conestoga Enterprises, Inc. and TE Merger Corporation.

The Board of Directors recommends a vote "FOR" the listed proposition.

THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED "FOR" 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 THE 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 TeleBeam, Incorporated prior
to the execution of this proxy of Notice of the Meeting and a Proxy
Statement/Prospectus dated as of November 12, 1999.

Dated: ______________________

_________________________ _____________________________
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER

_________________________ _____________________________
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER

When signing as attorney, executor, administrator, trustee or guardian, please
give your full title. If shares are held jointly, each holder should sign.

PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.