<PAGE>
FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
() TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File No. 0-22821
Cable Michigan, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2566891
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 Carnegie Center, Princeton, New Jersey 08540
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: 609-734-3737
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
Number of shares of the Registrant's Stock ($1.00 par value) outstanding at
February 28, 1998
6,872,040 Common Stock
Aggregate market value of Registrant's voting stock held by non-affiliates at
February 28, 1998 computed by reference to closing price as reported by NASDAQ
for Common Stock ($24.50 per share), is as follows:
$86,777,065 Common Stock
Documents Incorporated by Reference
NONE
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required under Item 10 of Part III with respect to the executive
officers of the Registrant is set forth at the end of Part I hereof.
Information as of April 1, 1998 for the other current Directors is set forth
below:
Raymond B. Ostroski, 43, has been a director of the Company since September
1997. Mr. Ostroski served as Executive Vice President and General Counsel of
Commonwealth Telephone Enterprises from February 1995 to September 1997 and
Corporate Secretary of Commonwealth Telephone Enterprises from October 1989 to
September 1997. Mr. Ostroski has been a Director of Mercom since May 1994 and
was also Executive Vice President and General Counsel of Mercom from February
1995 to September 1997. Mr. Ostroski was Vice President and General Counsel of
Commonwealth Telephone Enterprises from December 1990 to February 1995, Vice
President and General Counsel of Mercom from December 1991 to February 1995 and
Corporate Secretary of Mercom from December 1991 to December 1994.
David C. Mitchell, 56, has been a Director of the Company since September
1997. Mr. Mitchell is a Director of Commonwealth Telephone Enterprises, a
position he has held since 1993. Mr. Mitchell served as President of Rochester
Telephone Corporation's Telephone group as well as Corporate Executive Vice
President and Director of Rochester Telephone Corporation ("RTC"), now Frontier
Corporation. Since 1963, Mr. Mitchell held various positions throughout RTC
encompassing virtually all disciplines of the company. Mr. Mitchell is a
Director of Lynch Corporation and USN Communications.
Daniel E. Knowles, 68, has been a Director of the Company since September
1997. Mr. Knowles is a Director of Commonwealth Telephone Enterprises, a
position he has held since 1995. Mr. Knowles has been President of Cambridge
Human Resources since 1989. He served as Vice President of Personnel and
Administration, Grumman Corporation, from 1963 to 1989.
Frank M. Henry, 64, has been a Director of the Company since September
1997. Mr. Henry is a Director of Commonwealth Telephone Enterprises, a position
he has held since 1980. Mr. Henry has been Chairman, Frank Martz Coach Company
since 1995 and President of Frank Martz Coach Company from 1964 to 1995. He has
also been President, Gold Line, Inc., since 1975 and is a member of the Board of
Directors of First Union Corporation.
Elected to the Board April 14, 1998
R. Douglas Bradbury, 48, is currently Executive Vice President, Chief
Financial Officer of Level 3 Communications, Inc.; Mr. Bradbury has previously
been Chief Financial Officer (1992-1996), Executive Vice President (1995-1996),
Senior Vice President (1992-1995) of MFS Communications Company, Inc.; and
Senior Vice President - Corporate Affairs for MFS Telecom, Inc. (1988-1992).
The Board of Directors is divided into three classes. Raymond B. Ostroski,
Bruce C. Godfrey and Daniel E. Knowles are members of Class I whose term will
expire at the 1998 Annual Meeting of Shareholders. Mark Haverkate, David C.
Mitchell, and R. Douglas Bradbury are members of Class II with terms expiring in
1999. David C. McCourt, Timothy J. Stoklosa and Frank M. Henry are members of
Class III with terms expiring in 2000.
<PAGE>
Item 11. Executive Compensation
Except with respect to the Company's management agreement dated January 1,
1997 (the "Management Agreement"), with Cable Michigan, no executive officer of
the Company received any compensation for services rendered on behalf of the
Company during the fiscal year ended December 31, 1997. See "Certain
Transactions."
In connection with the Distribution, each C-TEC option held by the Named
Executive Officers and all other holders of such options was adjusted so that
following the Distribution each such executive officer and other holder holds
options to purchase shares of C-TEC Common Stock, RCN Common Stock and Cable
Michigan Common Stock, respectively. The number of shares subject to, and the
exercise price of, such options was adjusted to take into account the
Distribution and to ensure that the aggregate intrinsic value of the resulting
RCN, Cable Michigan and C-TEC options immediately after the Distribution was
equal to the aggregate intrinsic value of the C-TEC options immediately prior to
the Distribution. Information relating to Cable Michigan stock options held by
the Named Executive Officers is as follows:
Cable Michigan Fiscal Year-End Option Values (1)
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options at In-The-Money Options
December 31, 1997 (2) at December 31, 1997 (2)(3)
Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($)
--------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C>
Bruce C. Godfrey 10,500 7,000 151,358 100,905
John J. Gdovin 1,500 6,000 21,623 78,730
Mark Haverkate 7,250 10,250 103,109 141,774
David C. McCourt 62,500 62,500 913,838 920,288
Timothy J. Stoklosa 2,000 6,750 28,630 89,241
</TABLE>
(1) No C-TEC stock options were exercised by the Named Executive Officers
during the fiscal year ended December 31, 1997.
(2) Denominated in shares of Cable Michigan Common Stock.
(3) The fair market value of Cable Michigan Common Stock at December 31, 1997,
was $22.875 per share.
Cable Michigan Options/SAR Grants in Fiscal Year 1997
<TABLE>
<CAPTION>
% of Total
Number of Options
Securities Granted to Potential Realizable Value at
Underlying Employees Exercise or Assumed Annual Rates of
Options in Fiscal Base Price Expiration Stock Price Appreciation for
Name Granted (#) Year 1997 ($/sh) Date(1) Option Term (2)
- ------------------- ---------- ----------- ----------- ---------- -----------------------------
5%($) 10%($)
-------- ---------
<S> <C> <C> <C> <C> <C> <C>
John J. Gdovin 5,000 5.68% 10.01 2/12/2007 $31,480 $79,785
Mark Haverkate 2,500 2.84% 10.01 2/12/2007 $15,740 $39,893
Timothy J. Stoklosa 5,000 5.68% 10.01 2/12/2007 $31,480 $79,785
</TABLE>
(1) Options vest ratably five (5) years from the date of grant and expire ten
(10) years from the date of grant.
(2) The assumed rates of growth were selected by the Securities and Exchange
Commission for illustrative purposes only and are not intended to predict
or forecast future stock prices.
Director's Compensation
Each Director of the Company is paid an annual retainer of $6,000, plus $500
for each Board meeting attended. Committee Chairmen are paid $1,000 for each
committee meeting attended while other committee members are paid $500 for each
meeting attended. Members of the Executive Committee are not compensated for
participating in the meetings of said committee. Directors who are also
employees of RCN Services, Inc, a wholly owned subsidiary of RCN Corporation,
have authorized the payment of such fees to their employer consistent with the
terms of their employment. The following fees were payable in 1997: David C.
Mitchell $500; Daniel E. Knowles $500; Frank M. Henry $500; and RCN Services,
Inc, $2,500.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are Daniel E. Knowles, Chairman
Frank M. Henry and David C. Mitchell.
The Compensation Committee does not include employees or former or current
officers of the Company or its subsidiaries and there is no interlocking
membership between the Company's and another company's compensation committee.
Other related information
Level 3, the Company's controlling shareholder, and/or its affiliates has a
substantial stock ownership in LTH and the Company. These companies share
mutual director representation on their respective boards.
<PAGE>
Item 12. Security ownership of certain beneficial owners and management.
The Company
The following table sets forth the beneficial ownership of Common Stock, as of
April 1, 1998, by each director, the named executive officers and by all
persons, as a group, who are currently directors and executive officers of the
Company. Each director or executive officer has sole investment and voting
power over the shares listed opposite his name except as set forth in the
footnotes hereto:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) OUTSTANDING SHARES
- ------------------------ ---------------------- ------------------
<S> <C> <C>
R. Douglas Bradbury -- --
John J. Gdovin (2) 1,743 *
Bruce C. Godfrey (2) 4,741 *
Mark Haverkate (2) 4,596 *
Frank M. Henry 16,140 *
David E. Knowles 234 *
David C. McCourt (2)(3) 12,382 *
David C. Mitchell 681 *
Raymond B. Ostroski 609 *
Timothy J. Stoklosa 1,014 *
All Directors and Executive 42,615 *
Officers as a Group (15 Persons)
</TABLE>
(1) Includes forfeitable Matching Shares (as defined below), and Share Units
(as defined below).
(2) Under the Cable Michigan Executive Stock Purchase Plan ("ESPP"),
participating executive officers who forgo current compensation are
credited with Cable Michigan "Share Units", the value of which is based on
the value of a share of Cable Michigan Common Stock. ESPP participants who
elect to receive Share Units in lieu of current compensation are also
credited with restricted "Matching Shares," which vest over a period of 3
years from the grant date, subject to continued employment. Matching
Shares, unless forfeited, have voting and dividend rights. The holdings
indicated include Share Units and Matching Shares. The table below shows,
in respect of each Named Executive Officer, the number of shares of Cable
Michigan Common Stock purchased outright, Share Units relating to Cable
Michigan Common Stock acquired by each named executive officer in lieu of
current compensation, and the forfeitable Matching Shares of Cable Michigan
Common Stock held by each named executive officer:
<TABLE>
<CAPTION>
SHARE UNITS TOTAL SHARES
ACQUIRED UNDER PURCHASED AND
SHARES THE ESPP IN TOTAL SHARES RESTRICTED ACQUIRED AND
PURCHASED LIEU OF CURRENT PURCHASED AND MATCHING RESTRICTED
OUTRIGHT COMPENSATION ACQUIRED SHARES MATCHING SHARES
--------- --------------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
John J. Gdovin............... 677 533 1,210 533 1,743
Bruce C. Godfrey............. 1,251 1,745 2,996 1,745 4,741
Mark Haverkate............... 2,392 1,102 3,494 1,102 4,596
David C. McCourt............. 2,894 4,744 7,638 4,744 12,382
</TABLE>
<PAGE>
(3) Includes 56 shares of Cable Michigan Common Stock which are owned by
Mr. McCourt's wife. Mr. McCourt disclaims beneficial ownership of such
shares. Does not include 3,330, 121 shares of Cable Michigan common stock
held by LTH
(4) As a result of PKS separating its construction and mining management
business ("Construction Group") from its other businesses on March 31, 1998
(the "Split-Off"), PKS no longer owns an interest in the Construction
Group. In conjunction with the Split-Off, PKS changed its name to "Level 3
Communications, Inc." and the new PKS, the company formed in the Split-Off
to hold the Construction Group's business, changed its name to "Peter
Kiewit Sons', Inc. " Level 3 holds 90% of the common stock of LTH and all
of the preferred stock of LTH. David C. McCourt owns the remaining 10% of
the common stock of LTH. Level 3 has recently been merged into PKS and PKS
has changed its name to Level 3 Communications, Inc. The address for each
of Level 3 and LTH is 1000 Kiewit Plaza, Omaha, Nebraska 68131.
The information set forth above and in "Director Information" does not give
effect to the ownership of Company securities by LTH. Certain executive
officers or directors of the Company are directly or indirectly affiliated with
LTH. For information with respect to the beneficial ownership of securities by
LTH, see "Security of Ownership Certain Beneficial Owners."
Mercom, Inc.
Set forth below is certain information regarding the beneficial ownership of the
Common Stock of Mercom, a 61.92% owned subsidiary of the Company, as of April 1,
1998, by each director, the named executive officers and by all persons, as a
group, who are currently directors and executive officers of the Company. Each
director or executive officer has sole investment and voting power over the
shares listed opposite his name except as set forth in the footnotes hereto:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- ------------------------ ------------------ --------
<S> <C> <C>
R. Douglas Bradbury -- --
John J. Gdovin -- --
Bruce C. Godfrey -- --
Mark Haverkate -- --
Frank M. Henry -- --
Daniel E. Knowles -- --
David C. McCourt --(1) --
David C. Mitchell -- --
Raymond B. Ostroski 4,000 *
Timothy J. Stoklosa -- --
All Directors and Executive
Officers as a Group (15 persons) 4,000 *
</TABLE>
____________________________
* Less than 1% of the outstanding shares.
/(1)/ Excludes 50,000 shares which are owned by Mr. McCourt's wife. Mr. McCourt
disclaims beneficial ownership of such shares.
<PAGE>
LEVEL 3 COMMUNICATIONS, INC.
Set forth below is certain information regarding the beneficial ownership of
equity securities of Common Stock of Level 3 as of April 1, 1998, by each
director, the named executive officers and by all persons, as a group, who are
currently directors and executive officers of the Company.
<TABLE>
<CAPTION>
Number of Percent of
Name Shares Shares(%)
- ---------------------------------------- ---------
<S> <C> <C>
R. Douglas Bradbury 1,277,595 *
John J. Gdovin -- --
Bruce C. Godfrey -- --
Mark Haverkate -- --
Frank M. Henry -- --
Daniel E. Knowles -- --
David C. McCourt 57,500 *
David C. Mitchell -- --
Raymond B. Ostroski -- --
Timothy J. Stoklosa 2,155 --
All Directors and
Executive Officers
as a Group (15 persons) 1,337,650 *
</TABLE>
(*) Less than 1% of the outstanding shares of the class.
<PAGE>
Item 13. Certain relationships and related transactions. Transactions with
management and certain concerns
There were no related party transactions involving amounts greater than $60,000.
Each of CTE, RCN and Cable Michigan are effectively controlled by Level 3. In
addition, the majority of the Company's directors and executive officers also
are directors and/or executive officers of CTE and/or Cable Michigan. Set forth
below is a brief description of certain aspects of the relationship among CTE,
RCN and Cable Michigan.
Relationship Among CTE, RCN and Cable Michigan
The Distribution Agreement dated September 5, 1997, among C-TEC, RCN and Cable
Michigan entered into in connection with the Distribution defines certain
aspects of the relationship among CTE, RCN and Cable Michigan, including the
provision of services described below and provides for the allocation of certain
assets and liabilities among CTE, RCN and Cable Michigan. CTE, RCN and Cable
Michigan have also entered into a Tax Sharing Agreement dated as of September 5,
1997, to define certain aspects of their relationship with respect to taxes and
to provide for the allocation of tax assets and liabilities.
RCN has agreed to provide or cause to be provided to CTE certain specified
services for a transitional period after the Distribution. The transitional
services to be provided include the following: (i) accounting; (ii) payroll;
(iii) management supervision; (iv) cash management; (v) human resources; (vi)
insurance administration; (vii) legal; (viii) tax; (ix) internal audit; and (x)
other miscellaneous administrative services. The fee per year for these
services will be 3.5% of the first $175 million of revenue of CTE and 1.75% of
any additional revenue.
RCN has also agreed to provide or cause to be provided to Cable Michigan certain
specified services for a transitional period after the Distribution. The
transitional services to be provided include the following; (i) customer
service; (ii) marketing; (iii) accounting; (iv) payroll; (v) management
supervision; (vi) cash management; (vii) human resources and benefit plan
administration; (viii) insurance administration; (ix) legal; (x) tax; (xi)
internal audit; (xii) programming administration; (xiii) billing; (xiv) monthly
cable guides; (xv) investor and public relations; (xvi) provision of third party
programming; and (xvii) other miscellaneous administrative services. Subject to
certain limitations, the fee for services listed in items (ii)-(xiii), (xv) and
(xvii) will be 4.0% of the revenues of Cable Michigan plus a direct allocation
of certain consolidated cable administrative functions. The fee for customer
service listed in item (i) along with the billing service listed in item (xiii)
will be a pro rata share (based on the relative number of subscribers) of the
fees and expenses incurred by RCN to provide such customer billing services and
fees to RCN and Cable Michigan. The third party expense incurred by RCN to
obtain third party programming and monthly cable guides for Cable Michigan
referred to in items (xiv) and (xvi) above, are reimbursed to RCN by Cable
Michigan and no additional fee is charged with respect thereto.
CTE has agreed to provide or cause to be provided to RCN and Cable Michigan the
financial data processing applications, lockbox services, storage facilities,
local area network and wide area network
<PAGE>
support services, building maintenance and other miscellaneous administrative
services for a transitional period after the Distribution. The fees for such
services and arrangements are an allocated portion (based on relative usage) of
the cost incurred by the Company to provide such services and arrangements to
all three (3) companies.
Other Matters
Prior to September 30, 1997, the Company was operated as part of C-TEC. On
September 30, 1997, C-TEC distributed 100 percent of the outstanding shares of
common stock of its wholly owned subsidiaries, RCN and Cable Michigan to holders
of record of C-TEC's Common Stock and C-TEC's Class B Common Stock as of the
close of business on September 19, 1997 (the "Distribution"), in accordance with
the terms of a Distribution Agreement dated September 5, 1997, among C-TEC, RCN
and Cable Michigan. In connection with the Distribution, C-TEC changed its name
to Commonwealth Telephone Enterprises, Inc. RCN consists primarily of CTE's
former bundled residential voice, and Internet access operations in the Boston
to Washington, D.C. corridor, its existing New York, New Jersey and Pennsylvania
cable television operations, a portion of its long distance operations and its
international investment in Megacable, S.A. de C.V. and Cable Michigan consists
of CTE's former Michigan Cable operations, including its 62% ownership in
Mercom, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Cable Michigan, Inc.
Date: April 30, 1998 By /s/ David C. McCourt
--------------------
David C. McCourt
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
PRINCIPAL EXECUTIVE AND ACCOUNTING OFFICERS:
/s/ David C. McCourt Chairman and Chief April 30, 1998
- --------------------------- Executive Officer
David C. McCourt
/s/ Mark Haverkate President and Chief April 30, 1998
- --------------------------- Operating Officer
Mark Haverkate
/s/ Timothy J. Stoklosa Executive Vice April 30, 1998
- --------------------------- President and
Timothy J. Stoklosa Chief Financial
Officer
/s/ Ralph S. Hromisin Vice President and April 30, 1998
- --------------------------- Chief Accounting
Ralph S. Hromisin Officer
