<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No._________________)*
Cable Michigan, Inc.
----------------------------
(Name of Issuer)
Common Stock, par value $1.00 per share
-----------------------------------------------
(Title of Class of Securities)
12685T103
-------------------------
(CUSIP Number)
<TABLE>
<S> <C>
Copy to:
Peni Garber Jill Sugar Factor
ABRY Partners, Inc. Kirkland & Ellis
18 Newbury Street 200 E. Randolph Drive
Boston, Massachusetts Chicago, Illinois 60601
617/859-2959 312/861-2000
</TABLE>
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
June 3, 1998
------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [_].
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
(Continued on following pages)
Page 1 of 16 Pages
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO.12685T103 PAGE 2 OF 16 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Avalon Cable of Michigan Holdings Inc.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
Not Applicable
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
0 (See Item 5)
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 3,330,121 (See Item 5)
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
0 (See Item 5)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0 (See Item 5)
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
3,330,121 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
48.3% (See Item 5)
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 12685T103 PAGES 3 OF 16 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Avalon Cable Holdings, L.L.C.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
Not Applicable
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
0 (See Item 5)
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 3,330,121 (See Item 5)
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
0 (See Item 5)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0 (See Item 5)
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
3,330,121 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
48.3% (See Item 5)
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
OO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 12685T103 PAGE 4 OF 16 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
ABRY Broadcast Partners III, L.P.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
Not Applicable
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 0 (See Item 5)
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 3,330,121 (See Item 5)
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
0 (See Item 5)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0 (See Item 5)
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
3,330,121 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
48.3% (See Item 5)
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 12685T103 PAGE 5 OF 16 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
ABRY Equity Investors, L.P.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
Not Applicable
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
0 (See Item 5)
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 3,330,121 (See Item 5)
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
0 (See Item 5)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0 (See Item 5)
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
3,330,121 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
48.3% (See Item 5)
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 12685T103 PAGE 6 OF 16 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
ARBY Holdings III, Inc.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
Not Applicable
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
0 (See Item 5)
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 3,330,121 (See Item 5)
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
0 (See Item 5)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0 (See Item 5)
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
3,330,121 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
48.3% (See Item 5)
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 1685T103 PAGE 7 OF 16 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Royce Yudkoff
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
Not Applicable
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Massachusetts
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
0 (See Item 5)
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 3,330,121 (See Item 5)
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
0 (See Item 5)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0 (See Item 5)
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
3,330,121 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
48.3% (See Item 5)
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
ITEM 1. SECURITY AND ISSUER.
-------------------
The name of the issuer is Cable Michigan, Inc. (the "Issuer"). The address
------
of the Issuer's offices is 105 Carnegie Center, Princeton, New Jersey 08540.
This Schedule 13D Statement (this "Statement") relates to the Issuer's common
---------
stock, par value $1.00 per share (the "Common Stock").
------------
ITEM 2. IDENTITY AND BACKGROUND.
-----------------------
This Statement is being filed by each of the following persons pursuant to
Rule 13d-1(f) promulgated by the Securities and Exchange Commission (the
"Commission") pursuant to Section 13 of the Securities Exchange Act of 1934, as
----------
amended (the "Exchange Act"): (i) Avalon Cable of Michigan Holdings Inc., a
------------
Delaware corporation ("Buyer"), by virtue of its indirect beneficial ownership
-----
of the shares of the Common Stock covered by this Statement; (ii) Avalon Cable
Holdings, L.L.C., a Delaware limited liability company ("Avalon LLC"), by virtue
----------
of it being a controlling shareholder of Buyer; (iii) ABRY Broadcast Partners
III, L.P., a Delaware limited partnership (the "Fund"), by virtue of it being
----
the controlling member of Avalon LLC; (iv) ABRY Equity Investors, L.P., a
Delaware limited partnership ("AEI"), by virtue of it being the general partner
---
of the Fund; (v) ABRY Holdings III, Inc., a Delaware corporation ("ABRY Inc."),
---------
by virtue of it being the general partner of AEI; and (vi) Royce Yudkoff, an
individual resident of the State of Massachusetts ("Yudkoff"), by virtue of
-------
being the controlling shareholder of ABRY Inc. Buyer, Avalon LLC, the Fund,
AEI, ABRY Inc. and Yudkoff are sometimes referred to herein individually as a
"Reporting Person" and collectively as the "Reporting Persons." The Fund, AEI
---------------- -----------------
and ABRY Inc. are sometimes referred to herein collectively as the "ABRY
----
Entities."
- --------
Information with respect to each of the Reporting Persons is given solely
by such Reporting Person, and no Reporting Person assumes responsibility for the
accuracy or completeness of information given by another Reporting Person. By
their signature on this Statement, each of the Reporting Persons agrees that
this Statement is filed on behalf of such Reporting Person.
The Reporting Persons may be deemed to constitute a "group" for purposes of
Section 13(d)(3) of the Act. The Reporting Persons and the other party to the
Voting Agreement (as defined in Item 4) may also be deemed to constitute a
"group" for purposes of Section 13(d)(3) of the Exchange Act. The Reporting
Persons expressly disclaim that they have agreed to act as a group other than as
described in this Statement.
Certain information required by this Item 2 concerning the directors,
executive officers and controlling persons of Buyer, Avalon LLC and ABRY Inc. is
set forth on Schedule A attached hereto, which is incorporated herein by
reference.
Buyer is a holding company that was formed to invest in the Issuer and
other cable television businesses that primarily serve residential customers.
The address of the principal business and principal office of Buyer is c/o ABRY
Partners, Inc., 18 Newbury Street, Boston, Massachusetts 02116.
Page 8 of 16 Pages
<PAGE>
Avalon LLC is a holding company that was formed to invest in the Buyer and
other cable television businesses that primarily serve residential customers.
The address of the principal business and principal office of Avalon LLC is 201
East 69th Street, Penthouse G, New York, NY 10021.
The principal business of each of the ABRY Entities is to make investments
in common and preferred stock and other interests in business organizations,
domestic or foreign, with the principal objective of appreciation of capital
invested. The address of the principal business and principal office of each of
the ABRY Entities is c/o ABRY Partners, Inc., 18 Newbury Street, Boston,
Massachusetts 02116.
During the past five years, none of the Reporting Persons nor, to the best
knowledge of the Reporting Persons, any of the persons listed on Schedule A
attached hereto, has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors). During the past five years, none of the
Reporting Persons nor, to the best knowledge of the Reporting Persons, any of
the persons listed on Schedule A attached hereto, was a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction as a
result of which such person was or is subject to a judgment, decree or final
order enjoining future violations of, or prohibiting or mandating activity
subject to, federal or state securities laws or finding any violation with
respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
-------------------------------------------------
On June 3, 1998, Buyer, Avalon Cable of Michigan Inc., a Delaware
corporation and a wholly owned subsidiary of Buyer ("Merger Sub"), and the
----------
Issuer entered into an Agreement and Plan of Merger (the "Merger Agreement")
----------------
pursuant to which Buyer will acquire the Issuer. As a condition to and in
consideration of the promises and covenants set forth in the Merger Agreement,
Buyer and Level 3 Telecom Holdings, Inc., a Delaware corporation ("LTTH"),
----
entered into a Voting Agreement, dated as of June 3, 1998 (the "Voting
------
Agreement"), pursuant to which LTTH has agreed to vote the shares of Common
Stock owned by it (i) in favor of adoption of the Merger Agreement and approval
of the transactions contemplated thereby, (ii) against any proposal for any
recapitalization, merger, sale of assets or other business combinations of or by
the Issuer or any of its subsidiaries other than the transactions in the Merger
Agreement or any other action or agreement that would result in a breach of any
obligation or agreement to the Issuer under the Merger Agreement or that would
result in any of the conditions to the obligations of the Issuer under the
Merger Agreement not being fulfilled, and (iii) in favor of any matter relating
to the consummation of the transactions contemplated in the Merger Agreement.
LTTH has represented and warranted to Buyer that it owns the 3,330,121 shares of
Common Stock which are subject to the Voting Agreement (the "Shares") free and
------
clear of all Liens (as defined in the Voting Agreement). The Voting Agreement
terminates on the earliest to occur of (i) the date of the consummation of the
Merger, (ii) June 3, 1999, and (iii) the date of the termination of the Merger
Agreement.
Copies of the Merger Agreement and the Voting Agreement are attached hereto
as Exhibit A and Exhibit B, respectively, and are incorporated herein by
reference.
Page 9 of 16 Pages
<PAGE>
ITEM 4. PURPOSE OF TRANSACTION.
----------------------
Pursuant to the Merger Agreement, subject to the satisfaction or waiver of
certain conditions, Merger Sub will be merged with and into the Issuer (the
"Merger"), with the Issuer surviving the Merger as a wholly owned subsidiary of
------
Buyer. In the Merger, each issued and outstanding share of Common Stock
(excluding shares of Common Stock held by Buyer or Merger Sub or any direct or
indirect subsidiary of Buyer or Merger Sub and shares of Common Stock owned by
stockholders of the Issuer who properly exercise dissenters' rights) will be
converted into the right to receive $40.50 per share of Common Stock in cash,
subject to certain possible closing adjustments. The Merger is subject to a
number of other conditions, including, but not limited to, regulatory approval
and approval by the stockholders of the Issuer.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
------------------------------------
Buyer may be deemed to be the beneficial owner of the Shares by virtue of
the Voting Agreement. Such beneficial ownership would represent approximately
48.3% of the Common Stock issued and outstanding at June 3, 1998.
As of June 3, 1998, Avalon LLC owns all of the outstanding equity
interests of Buyer and, as such, exercises voting control over Buyer.
Consequently, by virtue of the voting control exercised by Avalon LLC as the
controlling shareholder of Buyer, Avalon LLC may be deemed to beneficially own
the Shares. By virtue of the relationship between Avalon LLC and the Fund
described in Item 2, the Fund may be deemed to possess indirect beneficial
ownership of the Shares beneficially owned by Avalon LLC. By virtue of the
relationship between the Fund and AEI described in Item 2, AEI may be deemed to
possess indirect beneficial ownership of the Shares beneficially owned by the
Fund, and, by virtue of the relationship between the Fund, AEI and ABRY Inc.
described in Item 2, ABRY Inc. may be deemed to possess indirect beneficial
ownership of the Shares beneficially owned by the Fund.
As of June 3, 1998, Yudkoff owns all of the outstanding equity interests of
ABRY Inc. and, as such, exercises voting control over ABRY Inc. By virtue of the
voting control exercised by Yudkoff over ABRY Inc., Yudkoff may be deemed to
possess indirect beneficial ownership of the Shares beneficially owned by ABRY
Inc.
The filing of this Statement shall not be construed as an admission by any
of the Reporting Persons that such person is, for the purpose of Section 13(d)
or 13(g) of the Exchange Act, the beneficial owner of any securities covered by
this Statement.
All such ownership percentages of the Common Stock reported herein are
based on the representation of the Issuer to the Reporting Persons that, as of
May 31, 1998, there were 6,896,342
Page 10 of 16 Pages
<PAGE>
shares of Common Stock issued and outstanding and reported herein to the best
knowledge and belief of the Reporting Persons.
Except as otherwise set forth in this Statement, none of the Reporting
Persons or, to the best knowledge of such persons, the persons named in Schedule
A to this statement has effected any transactions in the Common Stock during the
past 60 days.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
---------------------------------------------------------------------
TO SECURITIES OF THE ISSUER.
---------------------------
Reference is made to the information disclosed under Items 2, 3 and 4 of
this Statement which is incorporated by reference in response to this Item.
ITEM 7. MATERIALS TO BE FILED AS EXHIBITS.
---------------------------------
Exhibit A: Agreement and Plan of Merger, dated as of June 3, 1998,
by and among Issuer, Buyer and Merger Sub.
Exhibit B: Voting Agreement, dated as of June 3, 1998, by and
between Issuer, LTTH and Buyer.
Exhibit C: Agreement of Joint Filing, dated as of June 12, 1998,
among Buyer, Avalon LLC, the Fund, AEI, ABRY Inc and
Yudkoff.
Page 11 of 16 Pages
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: June 12, 1998
AVALON CABLE OF MICHIGAN HOLDINGS INC.
By: /s/ Peggy Koenig
----------------------------------------
Print Name: Peggy Koenig
Its: President
AVALON CABLE HOLDINGS, L.L.C.
By: ABRY BROADCAST PARTNERS III, L.P.,
a Member
By: ABRY EQUITY INVESTORS, L.P.,
its General Partner
By: ABRY HOLDINGS III, INC., its General Partner
By: /s/ Peni Garber
-----------------------------------
Print Name: Peni Garber
Its: Secretary
ABRY BROADCAST PARTNERS III, L.P.
By: ABRY EQUITY INVESTORS, L.P.,
its General Partner
By: ABRY HOLDINGS III, INC., its General Partner
By: /s/ Peni Garber
-----------------------------------
Print Name: Peni Garber
Its: Secretary
Page 12 of 16 Pages
<PAGE>
ABRY EQUITY INVESTORS, L.P.
By: ABRY HOLDINGS III, INC., its General Partner
By: /s/ Peni Garber
-----------------------------------
Print Name: Peni Garber
Its: Secretary
ABRY HOLDINGS III, INC.,
By: /s/ Peni Garber
----------------------------------------
Print Name: Peni Garber
Its: Secretary
/s/ Royce Yudkoff
----------------------------------------
ROYCE YUDKOFF
Page 13 of 16 Pages
<PAGE>
SCHEDULE A
----------
The following table sets forth the names, addresses and principal
occupations of the executive officers, directors and principal stockholders of
Avalon Cable of Michigan Holdings Inc. ("Buyer"). Each such person is a citizen
of the United States.
<TABLE>
<CAPTION>
NAME BUSINESS ADDRESS PRINCIPAL OCCUPATION
- ---- ---------------- --------------------
<S> <C> <C>
Peggy Koenig 18 Newbury Street President, Secretary and Sole
Boston, MA 02116 Director of Buyer and Principal of
ABRY Partners, Inc.
</TABLE>
Page 14 of 16 Pages
<PAGE>
SCHEDULE A (continued)
----------------------
The following table sets forth the names, addresses and principal
occupations of the executive officers of Avalon Cable Holdings, L.L.C. ("Avalon
LLC"). Each such person is a citizen of the United States.
<TABLE>
<CAPTION>
NAME BUSINESS ADDRESS PRINCIPAL OCCUPATION
- ---- ---------------- --------------------
<S> <C> <C>
David Unger 201 East 69th Street Chairman and Chief
Penthouse G Executive Officer of Avalon
New York, NY 10021 LLC
Joel Cohen 201 East 69th Street President, Chief Operating
Penthouse G Officer and Secretary
New York, NY 10021 of Avalon LLC
</TABLE>
Page 15 of 16 Pages
<PAGE>
SCHEDULE A (continued)
----------------------
The following table sets forth the names, addresses and principal
occupations of the executive officers, directors and principal stockholders of
ABRY Holdings III, Inc. ("ABRY Inc."). Each such person is a citizen of the
United States.
<TABLE>
<CAPTION>
NAME BUSINESS ADDRESS PRINCIPAL OCCUPATION
- ---- ---------------- --------------------
<S> <C> <C>
Royce Yudkoff 18 Newbury Street President, Director and Sole
Boston, MA 02116 Shareholder of ABRY Inc.
Peni Garber 18 Newbury Street Secretary and Director of ABRY
Boston, MA 02116 Inc.
</TABLE>
Page 16 of 16 Pages
<PAGE>
AGREEMENT AND PLAN OF MERGER
dated as of
June 3, 1998
among
CABLE MICHIGAN, INC.
AVALON CABLE OF MICHIGAN HOLDINGS INC.
and
AVALON CABLE OF MICHIGAN INC.
<PAGE>
TABLE OF CONTENTS/1/
_______________
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
- ---------
The Merger
----------
Section 1.01. The Merger......................................................................... 1
-
Section 1.02. Conversion of Shares............................................................... 2
-
Section 1.03. Surrender and Payment.............................................................. 3
-
Section 1.04. Dissenting Shares.................................................................. 5
-
Section 1.05. Employee Stock Options and Share Units............................................. 6
-
Section 1.06. Letter of Credit................................................................... 6
-
ARTICLE 2
- ---------
The Surviving Corporation
-------------------------
Section 2.01. Certificate of Incorporation....................................................... 7
-
Section 2.02. Bylaws............................................................................. 7
-
Section 2.03. Directors and Officers............................................................. 7
-
ARTICLE 3
- ---------
Representations and Warranties of the Company
---------------------------------------------
Section 3.01. Organization and Authority......................................................... 7
-
Section 3.02. No Breach.......................................................................... 8
-
Section 3.03. Consents and Approvals............................................................. 9
-
Section 3.04. Approval of the Board; Fairness Opinion; Vote
Required............................................................... 9
-
Section 3.05. Capitalization..................................................................... 10
--
Section 3.06. Subsidiaries....................................................................... 10
--
Section 3.07. SEC Filings........................................................................ 11
--
Section 3.08. Mercom SEC Filings................................................................. 12
--
Section 3.09. Financial Statements............................................................... 13
--
Section 3.10. Mercom Financial Statements........................................................ 13
--
Section 3.11. Proxy Statement.................................................................... 13
--
Section 3.12. Absence of Certain Changes......................................................... 13
--
Section 3.13. No Undisclosed Material Liabilities................................................ 15
--
Section 3.14. Litigation......................................................................... 16
--
Section 3.15. Taxes.............................................................................. 16
--
Section 3.16. Employee Benefit Matters........................................................... 18
--
</TABLE>
____________________
/1/ The Table of Contents is not a part of this Agreement
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 3.17. Labor Matters...................................................................... 20
--
Section 3.18. Compliance with Laws............................................................... 20
--
Section 3.19. Finders' Fees...................................................................... 21
--
Section 3.20. Title to Properties; Encumbrances.................................................. 21
--
Section 3.21. Environmental Matters.............................................................. 21
--
Section 3.22. Systems, Franchises and Material Agreements........................................ 22
--
Section 3.23. Transactions with Affiliates....................................................... 27
--
Section 3.24. Tax-free Spin-off of the Company................................................... 27
--
ARTICLE 4
- ---------
Representations and Warranties of Buyer
---------------------------------------
Section 4.01. Organization and Authority......................................................... 27
--
Section 4.02. No Breach.......................................................................... 28
--
Section 4.03. Consents and Approvals............................................................. 28
--
Section 4.04. Proxy Statement Information........................................................ 29
--
Section 4.05. Finders' Fees...................................................................... 29
--
Section 4.06. Financing.......................................................................... 29
--
Section 4.07. No Violation to FCC Cross Ownership Rules.......................................... 30
--
ARTICLE 5
- ---------
Covenants of the Company
------------------------
Section 5.01. Conduct of the Company............................................................. 30
--
Section 5.02. Stockholder Meeting; Proxy Material................................................ 31
--
Section 5.03. Access to Information.............................................................. 32
--
Section 5.04. Other Offers....................................................................... 33
--
Section 5.05. Tax Matters........................................................................ 34
--
Section 5.06. Notices of Certain Events.......................................................... 34
--
Section 5.07. Pending Acquisition................................................................ 35
--
Section 5.08. Cooperation........................................................................ 35
--
ARTICLE 6
- ---------
Covenants of Buyer
------------------
Section 6.01. Obligations of Merger Subsidiary................................................... 35
--
Section 6.02. Voting of Shares................................................................... 36
--
Section 6.03. Director and Officer Liability..................................................... 36
--
Section 6.04. Commitment Letters and Financing Agreements........................................ 36
--
Section 6.05. Cooperation........................................................................ 37
--
Section 6.06. Merger Subsidiary Jurisdiction..................................................... 37
--
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 7
- ---------
Other Agreements of Buyer and the Company
-----------------------------------------
Section 7.01. Reasonable Best Efforts............................................................ 37
--
Section 7.02. Certain Filings.................................................................... 37
--
Section 7.03. Public Announcements............................................................... 39
--
Section 7.04. Notices............................................................................ 39
--
Section 7.05. Employee Benefits.................................................................. 39
--
Section 7.06. Further Assurances................................................................. 40
--
Section 7.07. Mercom Minority Interest........................................................... 40
--
Section 7.08. Termination of Services............................................................ 41
--
ARTICLE 8
- ---------
Closing; Conditions to the Merger
---------------------------------
Section 8.01. Closing............................................................................ 42
--
Section 8.02. Conditions to the Obligations of Each Party........................................ 42
--
Section 8.03. Conditions to the Obligations of Buyer and
Merger Subsidiary...................................................... 42
--
Section 8.04. Conditions to the Obligations of the Company....................................... 43
--
ARTICLE 9
- ---------
Termination
-----------
Section 9.01. Termination........................................................................ 44
--
Section 9.02. Effect of Termination.............................................................. 47
--
ARTICLE 10
- ---------
Miscellaneous
-------------
Section 10.01. Notices........................................................................... 47
--
Section 10.02. Survival of Representations, Warranties and
Covenants.............................................................. 49
--
Section 10.03. Amendments; No Waivers............................................................ 49
--
Section 10.04. Expenses.......................................................................... 49
--
Section 10.05. Successors and Assigns............................................................ 50
--
Section 10.06. Parties in Interest............................................................... 50
--
Section 10.07. No Personal Liability............................................................. 50
--
Section 10.08. Governing Law..................................................................... 50
--
Section 10.09. Jurisdiction...................................................................... 50
--
Section 10.10. Interpretation.................................................................... 51
--
Section 10.11. Specific Performance.............................................................. 51
--
Section 10.12. Entire Agreement; Schedules....................................................... 51
--
Section 10.13. Counterparts; Effectiveness....................................................... 52
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 10.14. Severability...................................................................... 52
--
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of June 3, 1998 among Cable Michigan,
Inc., a Pennsylvania corporation (the "COMPANY"), Avalon Cable of Michigan
Holdings Inc., a Delaware corporation ("BUYER"), and Avalon Cable of Michigan
Inc., a Delaware corporation and a wholly owned subsidiary of Buyer ("MERGER
SUBSIDIARY").
WHEREAS, as a condition to Buyer's and Merger Subsidiary's willingness to
enter into this Agreement, simultaneously with the execution of this Agreement
Buyer is entering into a Voting Agreement (the "VOTING AGREEMENT") with Level 3
Telecom Holdings Inc.("LTTH"), a stockholder of the Company;
In consideration for the various agreements contained herein and in the
Voting Agreement, the parties hereto agree as follows:
ARTICLE 1
The Merger
Section 1.0.1. The Merger. (a) At the Effective Time, Merger Subsidiary
shall be merged (the "MERGER") with and into the Company in accordance with the
Pennsylvania Business Corporation Law (the "PENNSYLVANIA LAW"), whereupon the
separate existence of Merger Subsidiary shall cease, and the Company shall be
the surviving corporation (the "SURVIVING CORPORATION"). If Buyer and the
Company so agree, the Merger may be structured so that the Company shall be
merged with and into Merger Subsidiary with the result that Merger Subsidiary
shall be the Surviving Corporation, provided that the agreement of the Company
shall not be unreasonably withheld.
(b) As soon as practicable (and in any event, no later than ten business
days) after satisfaction or, to the extent permitted hereunder, waiver of all
conditions to the Merger, (i) the Company and Merger Subsidiary will file
articles of merger with the Department of State of the Commonwealth of
Pennsylvania and make all other filings or recordings required by Pennsylvania
Law in connection with the Merger. The Merger shall become effective at such
time as the articles of merger are duly filed as described in this paragraph or
at such later time as is specified in such articles of merger by agreement of
Buyer and the Company (the "EFFECTIVE TIME").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the
<PAGE>
restrictions, disabilities and duties of the Company and Merger Subsidiary, all
as provided under Pennsylvania Law.
Section 1.0.2. Conversion of Shares. At the Effective Time by virtue of
the Merger and without any other action on the part of the Company, Merger
Subsidiary or the holder of any Shares (as defined below):
(a) each outstanding share (each a "SHARE") of common stock, $1.00
par value (the "COMMON STOCK"), of the Company held by the Company as
treasury stock or owned by Buyer or any subsidiary of Buyer immediately
prior to the Effective Time shall be canceled, and no payment shall be made
with respect thereto;
(b) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become
one share of common stock of the Surviving Corporation with the same
rights, powers and privileges as the shares so converted and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation; and
(c) each Share outstanding immediately prior to the Effective Time
shall, except as otherwise provided in Section 1.02(a) or as provided in
----
Section 1.04 with respect to Shares as to which dissenters' rights have
----
been exercised, be converted into the right to receive the Per Share Amount
(as defined below) in cash, without interest (the "MERGER CONSIDERATION");
provided that if the Merger has not been consummated by December 1, 1998,
the Merger Consideration shall be increased at a rate per annum equal to 8%
from and including December 1, 1998 to but excluding the date of the
Effective Time. Such increase shall be calculated on the basis of a year of
365 days and the actual number of days elapsed.
As used herein, the term "Per Share Amount" means (i) if the Closing
Subscriber Number (as defined below) is equal to or less than the Maximum Target
Subscriber Number (as defined below) and equal to or greater than the Minimum
Target Subscriber Number (as defined below), $40.50; (ii if the Closing
Subscriber Number exceeds the Maximum Target Subscriber Number, $40.50 plus the
product (rounded to the nearest whole cent) of (A) the excess of the Closing
Subscriber Number over the Maximum Target Subscriber Number times (B) $.000274;
provided that the Per Share Amount will not exceed $41.00; and (iii) if the
Minimum Target Subscriber Number exceeds the Closing Subscriber Number, $40.50
minus the product (rounded to the nearest whole cent) of (A) the excess of the
Minimum Target Subscriber Number over the Closing
2
<PAGE>
Subscriber Number times (B) $.000274. As used herein, the term "CLOSING
SUBSCRIBER NUMBER" means the number of Basic Subscribers (as defined in Section
3.22) as of the last day of the first full calendar month ending prior to the
- ----
Effective Time; provided that if the Effective Time occurs during the first five
business days of a calendar month, the Closing Subscriber Number will be the
number of Basic Subscribers as of the last day of the second full calendar month
ending prior to the Effective Time; and provided further that if the Effective
Time occurs at any time after December 8, 1998, the Closing Subscriber Number
will be the number of Basic Subscribers as of November 30, 1998. In calculating
the Closing Subscriber Number, Basic Subscribers attributable to Systems
acquired by the Company and its Subsidiaries after the date hereof will be
disregarded. As used herein, the terms "MAXIMUM TARGET SUBSCRIBER NUMBER" and
"MINIMUM TARGET SHARE NUMBER" mean the numbers set forth below (under the
applicable heading) opposite the date as of which the Closing Subscriber Number
is determined:
<TABLE>
<CAPTION>
Date as of Which
Closing Subscriber Maximum Target Minimum Target
Number is Determined Subscriber Number Subscriber Number
-------------------- ----------------- ------------------
<S> <C> <C>
June 30, 1998 216,220 215,220
July 31, 1998 218,225 217,225
August 31, 1998 217,589 216,589
September 30, 1998 216,941 215,941
October 31, 1998 214,880 213,880
November 30, 1998 211,861 210,861
</TABLE>
The Company and Buyer will cooperate to determine the Closing Subscriber
Number as promptly as possible and in any event at least three days in advance
of the Effective Time. In the event of a dispute that is not resolved by three
business days prior to the Effective Time, each of the Company and Buyer will
submit its view as to the proper Closing Subscriber Number to Andersen
Consulting or other person reasonably satisfactory to Buyer and the Company (the
"EXPERT"), who will, at least one business day prior to Closing, select either
the number submitted by the Company or the number submitted by Buyer as the
Closing Subscriber Number, and the determination of the Expert shall be final
and binding on the parties. The parties will cooperate with the Expert and
provide to the Expert all necessary information for purposes hereof.
Section 1.03. Surrender and Payment. (a) Prior to the Effective Time,
Buyer shall appoint an agent reasonably acceptable to the Company (the "EXCHANGE
AGENT") for the purpose of exchanging certificates representing
3
<PAGE>
Shares for the Merger Consideration. Buyer will deliver to the Exchange Agent at
the Effective Time the Merger Consideration to be paid in respect of the Shares.
For purposes of determining the Merger Consideration to be delivered, Buyer
shall assume that no holder of Shares will perfect his right to appraisal of his
Shares. Promptly (and in any event, within three business days) after the
Effective Time, Buyer will send, or will cause the Exchange Agent to send, to
each holder of record of Shares at the Effective Time (and make customary
arrangements for the prompt delivery to each beneficial owner of Shares at the
Effective Time) a letter of transmittal for use in such exchange (which shall
specify that the delivery shall be effected, and risk of loss and title shall
pass, only upon proper delivery of the certificates representing Shares to the
Exchange Agent). The Company shall cooperate, and shall cause its transfer agent
to cooperate, with respect thereto.
(b) Each holder of Shares that have been converted into a right to receive
the Merger Consideration, upon surrender to the Exchange Agent of a certificate
or certificates representing such Shares, together with a properly completed
letter of transmittal covering such Shares and such other customary documents as
may be reasonably requested by the Exchange Agent or Buyer, will be entitled to
receive the Merger Consideration payable in respect of such Shares. Until so
surrendered, each such certificate shall, after the Effective Time, represent
for all purposes, only the right to receive such Merger Consideration. The
Exchange Agent or Buyer, as the case may be, shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement
such amounts as the Exchange Agent or Buyer are required to deduct and withhold
under the Code (as defined below), or any applicable provision of state, local
or foreign tax law, with respect to the making of any payment in respect of the
Merger Consideration hereunder. To the extent such amounts are so withheld,
such amounts shall be treated for all purposes of this Agreement as having been
paid to the Person with respect to whom such deduction and withholding was made
by the Exchange Agent or Buyer. No such deduction or withholding shall be made
if the relevant Person shall provide documentation reasonably satisfactory to
the Exchange Agent and Buyer establishing an exemption from withholding, and
Buyer shall take customary actions to obtain such documentation prior to such
deduction or withholding.
(c) If any portion of the Merger Consideration is to be paid to a Person
other than the registered holder of the Shares represented by the certificate or
certificates surrendered in exchange therefor, it shall be a condition to such
payment that the certificate or certificates so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the Person
requesting such payment shall pay to the Exchange Agent any transfer or other
taxes required as a result of such payment to a Person other than the registered
4
<PAGE>
holder of such Shares or establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not payable. For purposes of this Agreement,
"PERSON" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or any agency or instrumentality
thereof.
(d) After the Effective Time, there shall be no further registration of
transfers of Shares. If, after the Effective Time, certificates representing
Shares are presented to the Surviving Corporation, they shall be canceled and
exchanged for the consideration provided for, and in accordance with the
procedures set forth, in this Article 1.
-
(e) Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to Section 1.03(a) that remains unclaimed by the holders of
-------
Shares three months after the Effective Time shall be returned to Buyer, upon
demand, and any such holder who has not exchanged his Shares for the Merger
Consideration in accordance with this Section prior to that time shall
thereafter look only to Buyer for payment of the Merger Consideration in respect
of his Shares. Notwithstanding the foregoing, Buyer shall not be liable to any
holder of Shares for any amount paid to a public official pursuant to applicable
abandoned property laws. Any amounts remaining unclaimed by holders of Shares
two years after the Effective Time (or such earlier date immediately prior to
such time as such amounts would otherwise escheat to or become property of any
governmental entity) shall, to the extent permitted by applicable law, become
the property of Buyer free and clear of any claims or interest of any Person
previously entitled thereto.
(f) Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to Section 1.03(a) to pay for Shares for which dissenters' rights
-------
have been perfected shall be returned to Buyer, upon demand.
Section 1.04. Dissenting Shares. Notwithstanding Section 1.02, Shares
----
outstanding immediately prior to the Effective Time and held by a holder who has
not voted in favor of the Merger or consented thereto in writing and who has
demanded payment of the fair value of such Shares in accordance with
Pennsylvania Law (and the applicable procedures set forth therein) shall not be
converted into a right to receive the Merger Consideration, unless such holder
fails to perfect or withdraws or otherwise loses his right to demand payment of
the fair value of such Shares. If after the Effective Time such holder fails to
perfect or withdraws or loses his right to demand payment of the fair value of
such Shares, such Shares shall be treated as if they had been converted as of
the Effective Time into a right to receive the Merger Consideration. The Company
shall give Buyer prompt notice of any demands received by the Company for
5
<PAGE>
payment of the fair value of Shares, and Buyer shall have the right to
participate in all negotiations and proceedings with respect to such demands.
The Company shall not, except with the prior written consent of Buyer, make any
payment with respect to, or settle or offer to settle, any such demands.
Section 1.05. Employee Stock Options and Share Units. (a) At or
immediately prior to the Effective Time, (i) each outstanding employee stock
option to purchase Shares granted under any employee stock option or
compensation plan or arrangement of the Company shall be canceled, and each
holder of any such option, whether or not then vested or exercisable, shall be
paid by the Company promptly after the Effective Time for each such option an
amount determined by multiplying (A) the excess, if any, of the Merger
Consideration per Share over the applicable exercise price of such option by (B)
the number of Shares such holder could have purchased (assuming full vesting of
all options) had such holder exercised such option in full immediately prior to
the Effective Time, (ii) each outstanding share unit ("SHARE UNITS") granted or
otherwise issued under the Cable Michigan Executive Stock Purchase Plan (the
"PURCHASE PLAN") shall be canceled, and each holder of such share unit, whether
or not then vested, shall be paid by the Company promptly after the Effective
Time for each such Share Unit an amount, net of applicable withholding taxes
equal to the Merger Consideration per Share and (iii) each restricted Share
under the Purchase Plan shall be vested and converted into the Merger
Consideration in accordance with Section 1.02(c). Each employee stock option or
-------
compensation plan or arrangement of the Company is listed on Schedule 3.16
hereto.
(b) Prior to the Effective Time, the Company shall (i) use its best
efforts to obtain any consents from holders of options to purchase Shares, share
units and restricted Shares granted under the Company's stock option or
compensation plans or arrangements and (ii make any permitted amendments to the
terms of such stock option or compensation plans or arrangements, and take any
other permitted actions thereunder, that, in the case of either clauses
1.05(b)(i) or 1.05(b)(ii), are necessary to give effect to the transactions
- ---------- -----------
contemplated by Section 1.05(a). Notwithstanding any other provision of this
-------
Section, payment may be withheld in respect of any employee stock option or
Share Unit until any necessary consent from the holder thereof is obtained.
Section 1.06. Letter of Credit. Concurrently with the execution hereof,
Buyer has delivered to First Union National Bank (the "ESCROW AGENT") a letter
of credit duly issued by NationsBank, N.A. (the "FIRST LETTER OF CREDIT") in the
amount of $10,000,000 in substantially the form attached hereto as Exhibit A.
On the 60th day after the date hereof, or on the following business day if such
60th day is not a business day, Buyer will, in addition, deliver to the Escrow
Agent a letter of credit duly issued by NationsBank, N.A. (the "SECOND LETTER OF
CREDIT")
6
<PAGE>
in the amount of $5,000,000 in substantially the form attached hereto as Exhibit
A. The First Letter of Credit is being, and the Second Letter of Credit will be,
delivered to the Escrow Agent pursuant to the terms hereof and the terms of the
Escrow Agreement dated the date hereof among Buyer, the Company, and the Escrow
Agent, a copy of which is attached hereto as Exhibit B. As used herein, the term
"LETTERS OF CREDIT" means the First Letter of Credit and the Second Letter of
Credit including in each case any renewal or replacement thereof as contemplated
by the Escrow Agreement, provided that if at the relevant time only the First
Letter of Credit has been delivered to the Escrow Agent, the term "Letters of
Credit" shall mean only the First Letter of Credit.
ARTICLE 2
The Surviving Corporation
Section 2.01. Certificate of Incorporation. The certificate of
incorporation of Merger Subsidiary in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law, except that the name of the Surviving
Corporation shall be changed to "Avalon Cable of Michigan Inc." or as otherwise
specified by Buyer.
Section 2.02. Bylaws. The bylaws of Merger Subsidiary in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
Section 2.03. Directors and Officers. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, (a) the directors of Merger Subsidiary at the Effective Time
shall be the directors of the Surviving Corporation, and (b) the officers of
Merger Subsidiary at the Effective Time shall be the officers of the Surviving
Corporation.
7
<PAGE>
ARTICLE 3
Representations and Warranties of the Company
The Company represents and warrants to Buyer that:
Section 3.01. Organization and Authority. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, and has all requisite corporate power to carry on
its business as now conducted. The Company is duly qualified to do business as
a foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, with such exceptions as would not have a
Material Adverse Effect (as defined below). The execution, delivery and
performance by the Company of this Agreement, the Escrow Agreement, and the
Voting Agreement and the consummation by the Company of the transactions
contemplated hereby and thereby are within the Company's corporate powers and,
except for any required approval by the Company's stockholders in connection
with the consummation of the Merger, have been duly authorized by all necessary
corporate action. Each of this Agreement, the Escrow Agreement, and the Voting
Agreement constitutes a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except (x) as the same may be
limited by applicable bankruptcy, insolvency, moratorium or similar laws of
general application relating to or affecting creditors' rights, and (y) for the
limitations imposed by general principles of equity. The foregoing exceptions
(x) and (y) are hereinafter referred to as the "ENFORCEABILITY EXCEPTIONS." The
Company has heretofore delivered to Buyer true and complete copies of the
Articles of Incorporation and Bylaws of the Company as in effect on the date
hereof. For purposes of this Agreement, "MATERIAL ADVERSE EFFECT" means a
material adverse effect on the business, assets, operations, condition
(financial or otherwise), results of operations or the conduct of the business
of the Company and its Subsidiaries taken as a whole. For purposes of this
Agreement, a "SUBSIDIARY," as to any Person, means any corporation or other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are directly or indirectly owned by such Person.
Section 3.02. No Breach. Except as set forth on Schedule 3.02, the
execution and delivery of this Agreement, the Escrow Agreement, and the Voting
Agreement by the Company do not, and the consummation of the transactions
contemplated hereby or thereby by the Company will not, (i) violate or conflict
with the Articles of Incorporation or Bylaws of the Company, or (ii) constitute
a breach or default of, or give rise to any third-party right of termination,
8
<PAGE>
cancellation, modification or acceleration under, any agreement, understanding
or undertaking to which the Company or any of its Subsidiaries is a party or by
which any of them is bound, or give rise to any Lien (as defined below) on any
of their properties, or (ii subject to obtaining the approvals and making the
filings described in Section 3.03 hereof, constitute a violation of any statute,
----
law, ordinance, rule, regulation, judgment, decree, order or writ of any
judicial, arbitral, public, or governmental authority having jurisdiction over
the Company or any of its Subsidiaries or any of their properties or assets,
with such exceptions in the cases of subsections (ii) and (iii) as would not
have, or reasonably be expected to have, a Material Adverse Effect or materially
interfere with or delay the transactions contemplated hereby. For purposes of
this Agreement, "LIEN" means, with respect to any asset, any lien, claim,
charge, restriction, pledge, mortgage, security interest or other encumbrance in
respect of such asset. Loans outstanding under the Company's credit facilities
may be repaid at any time (subject to customary notice provisions) without
penalty or premium, other than customary funding cost indemnities payable in
connection with payment of LIBOR loans other than on the last day of an interest
period applicable thereto.
Section 3.03. Consents and Approvals. Neither the execution and delivery
of this Agreement, the Escrow Agreement, and the Voting Agreement by the Company
nor the consummation of the transactions contemplated hereby or thereby require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except (i) for
filings required under the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (the "EXCHANGE ACT"), (ii) for notification
pursuant to, and expiration or termination of the waiting period under, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder (the "HSR ACT"), (iii) for the filing of the articles
of merger and related filings as set forth in Section 1.01 hereof, (iv for
----
notices to, or consents or waivers from, the relevant Franchising Authorities in
connection with a change of control of the holder of the Franchises of the
Company and its Subsidiaries, and the Federal Communications Commission ("FCC")
in connection with a change of control of the holder of the FCC licenses of the
Company and its Subsidiaries, (v) for those consents or waivers disclosed on
Schedule 3.03, (vi) corporate and shareholder approvals in connection with the
----
transactions contemplated by Section 7.07 hereof, and (vii) where the failure to
----
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not have, and would not reasonably be expected
to have, a Material Adverse Effect or materially interfere with or delay the
transactions contemplated hereby. For purposes hereof, "FRANCHISING AUTHORITY"
has the meaning that term is given by Section 602(10) of the Cable
Communications Policy Act of 1984 (47 U.S.C. Section 522(10)). For purposes of
this Agreement, "FRANCHISE" means a written
9
<PAGE>
"franchise" within the meaning of Section 602(9) of the Cable Communications
Policy Act of 1984 (47 U.S.C. Section 522(9)).
Section 3.04. Approval of the Board; Fairness Opinion; Vote Required. The
Board of Directors of the Company has, by resolutions duly adopted at meetings
duly called and held, unanimously approved and adopted this Agreement, the
Escrow Agreement, the Voting Agreement, the Merger and the other transactions
contemplated hereby and thereby on the material terms and conditions set forth
herein and therein. The Board of Directors of the Company has received the
opinion as of the date of this Agreement of Merrill Lynch & Co. ("MERRILL
LYNCH"), as financial advisor to the Company, that the consideration to be
received by the Company's stockholders (other than Buyer and its Subsidiaries)
in the Merger taken as a whole is fair to such stockholders from a financial
point of view, and such opinion has been made available to Buyer. The
affirmative vote of a majority of the votes cast by the holders of Shares is the
only vote of the holders of the capital stock of the Company necessary to
approve the Merger under applicable law and the Company's Articles of
Incorporation and Bylaws.
Section 3.05. Capitalization. The authorized capital stock of the Company
consists of 25,000,000 shares of Common Stock, par value $1.00 per share
(defined above as the "SHARES"), 50,000,000 shares of Class B Non-voting Common
Stock, par value $1.00 per share, and 10,000,000 shares of Preferred Stock, par
value $1.00 per share. As of May 31, 1998, there were outstanding (i) 6,896,342
Shares, (ii) employee stock options to purchase an aggregate of 396,513 Shares
with a weighted average exercise price of $11.50 per Share, and (iii) 12,246.5
Share Units (the 6,896,342 Shares referred to in subsection (i) include 12,246.5
Shares held in a grantor trust to offset the Company's obligation with respect
to the Share Units). All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in the first two sentences of this Section
and except for changes since May 31, 1998 resulting from (1) the exercise of
employee stock options outstanding on such date or (2) the item listed on
Schedule 3.05, there are outstanding no (a) shares of capital stock or other
voting securities of the Company, (b) securities of the Company convertible into
or exchangeable for shares of capital stock or voting securities of the Company,
(c) options or other rights to acquire from the Company, and no obligation of
the Company to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company or (d) stock appreciation rights or similar rights with respect to any
securities of the Company (the items in clauses 3.05(a), 3.05(b), 3.05(c) and
------- ------- -------
3.05(d) being referred to collectively as the "COMPANY SECURITIES"). There are
- ------
no outstanding obligations of the Company or any Subsidiary of the Company to
repurchase,
10
<PAGE>
redeem or otherwise acquire any Company Securities. To the best of the Company's
knowledge, as of the date hereof there are no voting agreements, trusts or other
arrangements, agreements or understandings with respect to any Company
Securities, other than the Voting Agreement and as set forth on Schedule 3.16.
----
Section 3.06. Subsidiaries. (a) Each of the Subsidiaries of the Company is
a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation. Each of the Subsidiaries of the Company has
all requisite corporate power to carry on its business as now being conducted.
Each Subsidiary of the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, with such exceptions as would not have a Material
Adverse Effect. All Subsidiaries of the Company and their respective
jurisdictions of incorporation are listed on Schedule 3.06 hereto. Except as
----
set forth on Schedule 3.06 and any marketable securities, the Company and its
----
Subsidiaries do not have any investments in any other Person.
(b) Except as set forth on Schedule 3.06, all of the outstanding capital
stock of, or other ownership interests in, each Subsidiary of the Company, is
owned by the Company, directly or indirectly, free and clear of any Lien except
that the Company owns, directly or indirectly, only 61.92% of the outstanding
shares of Common Stock of Mercom, Inc., a Delaware corporation ("MERCOM"), and
Mercom owns, directly or indirectly, all of the issued and outstanding shares of
the Mercom Subsidiaries (as defined below). Other than as set forth on Schedule
3.06 or in connection with the transactions contemplated by this Agreement,
- ----
there are no outstanding (i) securities of the Company or any Subsidiary of the
Company convertible into or exchangeable for shares of capital stock or voting
securities in any Subsidiary of the Company, (ii) options or other rights to
acquire from the Company or any Subsidiary of the Company, and no other
obligation of the Company or any Subsidiary of the Company to issue, any capital
stock, voting securities or securities convertible into or exchangeable for any
capital stock or voting securities of any Subsidiary of the Company, or (iii)
stock appreciation rights or similar rights with respect to any securities of
any Subsidiary of the Company (the items in clauses 3.06(b)(i), 3.06(b)(ii) and
---------- -----------
3.06(b)(iii) being referred to collectively as the "SUBSIDIARY SECURITIES").
- ------------
There are no outstanding obligations of the Company or any Subsidiary of the
Company to repurchase, redeem or otherwise acquire any outstanding Subsidiary
Securities. For purposes of this Agreement, "MERCOM SUBSIDIARIES" means Mercom
Services, Inc., a Nevada corporation, Communications and Cablevision, Inc., a
Michigan corporation, Coldwater Cablevision, Inc., a Michigan corporation, and
Allegan County Cablevision, Inc., a Michigan corporation. To the best of the
11
<PAGE>
Company's knowledge, as of the date hereof there are no voting agreements,
trusts or other arrangements, agreements or understandings with respect to any
Subsidiary Securities.
Section 3.07. SEC Filings. (a) The Company has made available to Buyer
(i) its annual report on Form 10-K for its fiscal year ended December 31, 1997,
and its amendments to such report on Form 10K/A filed on April 30, 1998 and May
6, 1998 (as so amended, the "FORM 10-K"), (ii) its quarterly report on Form 10-Q
for its fiscal quarter ending March 31, 1998 (the "FORM 10-Q"), and (iii) all of
its other reports, statements, schedules and registration statements filed with
the Securities and Exchange Commission (the "SEC") since September 1, 1997.
(b) As of its filing date (or in the case of the Form 10-K, as of May 6,
1998) each such report or statement filed pursuant to the Exchange Act complied
in all material respects with the applicable requirements of the Exchange Act
and did not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
(c) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the Securities Act of 1933, as amended (the
"SECURITIES ACT"), as of the date such statement or amendment became effective
complied in all material respects with the applicable requirements of the
Securities Act and did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. Except for Mercom, none of the
Company's Subsidiaries is required to file any reports, forms or other documents
with the SEC under the Exchange Act or has made any filings under the Securities
Act.
Section 3.08. Mercom SEC Filings. (a) The Company has made available to
Buyer (i) the annual report of Mercom on Form 10-K for its fiscal year ended
December 31, 1997, and its amendments to such report on Form 10-K/A filed on
April 30, 1998 and May 6, 1998 (as so amended, the "MERCOM FORM 10-K"), (ii) the
quarterly report of Mercom on Form 10-Q for its fiscal quarter ending March 31,
1998 (the "MERCOM FORM 10-Q"), and (iii) all of the other reports, statements,
schedules and registration statements of Mercom filed with the SEC since January
1, 1996.
(b) As of its filing date (or in the case of the Mercom Form 10-K, as of
May 6, 1998), each such report or statement filed pursuant to the Exchange Act
complied in all material respects with the applicable requirements of the
Exchange Act and did not contain any untrue statement of a material fact or omit
12
<PAGE>
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(c) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the Securities Act, as of the date such statement
or amendment became effective complied in all material respects with the
applicable requirements of the Securities Act and did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
Section 3.09. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the Form 10-K and the Form 10-Q fairly present in all
material respects and in conformity with generally accepted accounting
principles applied on a consistent basis (except as may be indicated in the
notes thereto), the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and their consolidated results
of operations and cash flows for the periods then ended (subject to normal year-
end adjustments in the case of any unaudited interim financial statements). For
purposes of this Agreement, "BALANCE SHEET" means the consolidated balance sheet
of the Company and its consolidated Subsidiaries set forth in the Form 10-Q as
of March 31, 1998 and "BALANCE SHEET DATE" means March 31, 1998.
Section 3.10. Mercom Financial Statements. The audited consolidated
financial statements and unaudited consolidated interim financial statements of
Mercom included in the Mercom Form 10-K and the Mercom Form 10-Q fairly present
in all material respects and in conformity with generally accepted accounting
principles applied on a consistent basis (except as may be indicated in the
notes thereto), the consolidated financial position of Mercom and its
consolidated Subsidiaries as of the dates thereof and their consolidated results
of operations and cash flows for the periods then ended (subject to normal year-
end adjustments in the case of any unaudited interim financial statements).
Section 3.11. Proxy Statement. (a) The proxy statement of the Company
(the "COMPANY PROXY STATEMENT") to be filed with the SEC in connection with the
Merger, and any amendments or supplements thereto will, when filed, comply as to
form in all material respects with the applicable requirements of the Exchange
Act. At the time the Company Proxy Statement or any amendment or supplement
thereto is first mailed to stockholders of the Company and at the time such
stockholders vote on adoption of this Agreement, the Company Proxy Statement, as
supplemented or amended, if applicable, will not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which
13
<PAGE>
they were made, not misleading. The representations and warranties contained in
this Section 3.11 will not apply to statements or omissions included in the
----
Company Proxy Statement based upon information furnished to the Company by Buyer
for use therein.
Section 3.12. Absence of Certain Changes. Except as set forth on Schedule
3.12 or as otherwise permitted by this Agreement, since the Balance Sheet Date,
- ----
the Company and its Subsidiaries have conducted their business in the ordinary
course consistent with past practice in all material respects and there has not
been (except as contemplated by this Agreement) without the consent of Buyer
which shall not be unreasonably withheld:
(a) any event or occurrence which has had or reasonably would be
expected to have a Material Adverse Effect (other than those arising from
general economic or industry-wide events or occurrences);
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of the
Company or Mercom or any other Subsidiary that is not wholly owned by the
Company or Mercom, or any repurchase, redemption or other acquisition by
the Company or any of its Subsidiaries of any outstanding shares of capital
stock or other securities of, or other ownership interests in, the Company
or any of its Subsidiaries;
(c) any amendment of any material term of any outstanding security of
the Company or any its Subsidiaries;
(d) any incurrence, assumption or guarantee by the Company or any of
its Subsidiaries of any indebtedness for borrowed money with a principal
amount in excess of $250,000 (other than refinancings of existing
borrowings in the ordinary course of business under existing facilities);
(e) any creation or assumption by the Company or any of its
Subsidiaries of any Lien (other than Permitted Liens (as defined below)) on
any material asset;
(f) any making of any loan, advance or capital contributions to or
investment in any Person other than advances to employees in the ordinary
course of business consistent with past practice and loans, advances or
capital contributions to or investments in wholly owned Subsidiaries made
in the ordinary course of business consistent with past practices;
14
<PAGE>
(g) any damage, destruction or other casualty loss (to the
extent not covered by insurance) affecting the business or assets of
the Company or any of its Subsidiaries in excess of $500,000;
(h) any transaction or commitment made, or any contract or
agreement entered into, by the Company or any of its Subsidiaries
relating to its assets or business (including the acquisition or
disposition of any assets) or any relinquishment by the Company or any
of its Subsidiaries of any contract or other right, in any case,
involving more than $500,000, other than those contemplated by this
Agreement and additions of subscribers to existing programming
agreements;
(i) any material change in any method of accounting or accounting
practice by the Company or any of its Subsidiaries, except for any
such change required by reason of a change in generally accepted
accounting principles; or
(j) any (i) grant of any severance or termination pay to any
director, officer or employee of the Company or any of its
Subsidiaries, (ii) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, officer or employee of the
Company or any of its Subsidiaries, (iii) increase in benefits payable
under any existing severance or termination pay policies or (iv)
increase in compensation, bonus or other benefits payable to directors
or officers (who are not employees) of the Company or any of its
Subsidiaries, or, other than in the ordinary course of business
consistent with past practice, to employees (including officers who
are employees) of the Company or any of its Subsidiaries.
For purposes of this Agreement, "PERMITTED LIENS" means (i) materialmen's,
mechanics', carriers', workmen's, warehousemen's, repairmen's, and other like
Liens arising in the ordinary course of business for payments which are not
material in amount, and deposits to obtain the release of such Liens; (ii) Liens
for current taxes not yet due and payable or which are being contested in good
faith by appropriate proceedings and for which appropriate reserves have been
established and (iii) other Liens or minor imperfections of title that, taken in
the aggregate, do not materially impair the conduct of the Company's and its
Subsidiaries' business or the use of any material assets.
Section 3.13. No Undisclosed Material Liabilities. Neither the Company nor
any of its Subsidiaries has any indebtedness, liability or obligation of any
type, whether or not required by GAAP to be reflected on a balance sheet and
15
<PAGE>
whether or not due, except (i) liabilities reflected or reserved against in the
Balance Sheet, or otherwise disclosed in the Form 10-K, the Form 10-Q, the
Mercom Form 10-K or the Mercom Form 10-Q, (ii) for liabilities incurred in the
ordinary course of business since March 31, 1998, (iii) for other liabilities
which do not and will not have, and would not reasonably be expected to have, a
Material Adverse Effect and (iv) as set forth on any Schedule hereto or any
contract or agreement set forth thereon (other than for breach thereof).
Section 3.14. Litigation. Except as set forth in Schedule 3.14, there is no
----
charge, complaint, suit, action, proceeding or investigation pending against or,
to the knowledge of the Company, threatened against the Company or any of its
Subsidiaries that would reasonably be expected to have a Material Adverse
Effect, nor is there any judgment, decree, inquiry, rule or order outstanding
against the Company or any of its Subsidiaries which would reasonably be
expected to have a Material Adverse Effect. If liability were imposed upon
Commonwealth Telephone Enterprises, Inc, a Pennsylvania corporation ("CTE") for
a fraudulent conveyance, breach of contract or breach of fiduciary duty as
alleged by the plaintiffs in the action captioned The Yee Family Trusts v. C-TEC
--------------------- -----
Corporation, et al., in the Superior Court of New Jersey, Chancery Division,
- ------------------
such liability would not be a Shared Liability (as defined in the Distribution
Agreement dated as of September 5, 1997 (the "DISTRIBUTION AGREEMENT") among the
Company, CTE and RCN Corporation ("RCN")).
Section 3.15. Taxes. Except as set forth in Schedule 3.15: (a) the Company
----
and each of its Subsidiaries has (i) timely filed or obtained extensions for all
material Tax Returns required to be filed by it, all such filed returns have
been completed in all material respects in accordance with applicable law and
all such filed returns are true and accurate in all material respects, (ii) paid
all Taxes that are shown on such Tax Returns as due and payable on or before the
date hereof, and (iii) paid all material Taxes otherwise required to be paid
other than Taxes that are being contested in good faith by appropriate
proceedings and for which adequate reserves have been established; (b) there are
no Liens for Taxes (other than for Taxes not yet due and payable or for Taxes
that are being contested in good faith by appropriate proceedings and for which
adequate reserves have been established) on the assets of the Company or any of
its Subsidiaries; (c) neither the Company nor any Subsidiary has requested or
been granted an extension of the time for filing any Tax Return which has not
yet been filed with respect to an amount of Taxes which is material; (d) neither
the Company nor any of its Subsidiaries has consented to extend to a date later
than the date hereof the time in which any Tax which is material may be assessed
or collected by any taxing authority; (e) no deficiency or proposed adjustment
which has not been settled or otherwise resolved for any amount of Tax which is
material has been proposed, asserted or assessed by any taxing authority against
the Company or any
16
<PAGE>
of its Subsidiaries; (f) there is no action, suit, taxing authority proceeding
or audit now in progress, pending or, to the Company's knowledge, threatened
against or with respect to the Company or any of its Subsidiaries with respect
to an amount of Taxes which is material; (g) no claim has ever been made by a
taxing authority in a jurisdiction where the Company or any of its Subsidiaries
does not file Tax Returns that the Company or any of its Subsidiaries is or may
be subject to Taxes assessed by such jurisdiction which are material in amount;
(h) neither the Company nor any of its Subsidiaries is a party to or bound by
any Tax allocation or Tax sharing agreement with respect to an amount of Taxes
which is material and has no current or potential contractual obligation to
indemnify any other person with respect to Taxes which are material in amount;
and (i) neither the Company nor any of its Subsidiaries has made any payments,
and is not and will not become obligated (under any contract entered into on or
before the Closing Date) to make any payments which are material in amount, that
will be non-deductible under Section 280G of the Code (or any corresponding
provision of state, local or foreign income Tax law). Schedule 3.15 contains a
list of states, territories and jurisdictions (whether foreign or domestic) in
which the Company and or any of its Subsidiaries is required to file Tax Returns
relating to income Taxes of the Company and any of its Subsidiaries which are
material in amount. A certification issued by the Company and each of its
Subsidiaries pursuant to Treasury Regulation Section 1.897-2 to the effect that
the Company and each of its Subsidiaries is not a "United States real property
holding corporation" as defined in Section 897 of the Code shall be delivered to
Buyer prior to the Effective Time.
For purposes of this Agreement, (i) "AFFILIATED GROUP" means an affiliated
group as defined in Section 1504 of the Code (or any analogous combined,
consolidated or unitary group defined under state, local or foreign income Tax
law) of which the Company or any of its Subsidiaries is or has been a member,
(ii) "CODE" means the Internal Revenue Code of 1986, as amended, (iii) "TAX"
means any (A) federal, state, local or foreign income, gross receipts,
franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer,
registration, value added, excise, natural resources, severance, stamp,
occupation, premium, windfall profit, environmental, customs, duties, real
property, personal property, capital stock, social security, medicare,
unemployment, disability, payroll, license, employee or other withholding, or
other tax, of any kind whatsoever, including any interest, penalties or
additions to tax or additional amounts in respect of the foregoing; (B)
liability of the Company or any Subsidiary for the payment of any amounts of the
type described in clause (A) arising as a result of being (or ceasing to be) a
member of any Affiliated Group (or being included (or required to be included)
in any Tax Return relating thereto); and (C) liability of the Company or any of
its Subsidiaries for the payment of any amounts of the type described in clause
(A) as a result of any express or implied
17
<PAGE>
obligation to indemnify or otherwise assume or succeed to the liability of any
other person, and (iv) "TAX RETURNS" means returns, declarations, reports,
claims for refund, information returns or other documents (including any related
or supporting schedules, statements or information) filed or required to be
filed in connection with the determination, assessment or collection of Taxes of
any party or the administration of any laws, regulations or administrative
requirements relating to any Taxes.
Section 3.16. Employee Benefit Matters. (a) Schedule 3.16 identifies each
----
Employee Plan and Benefit Arrangement. The Company has furnished to Buyer copies
of such Employee Plans and Benefit Arrangements (and, if applicable, related
trust agreements) and all amendments thereto and material written
interpretations thereof. No Employee Plan or Benefit Arrangement is and neither
the Company nor any ERISA Affiliate maintains or is obligated to contribute, to
any employee benefit plan (as defined in Section 3(3) of ERISA) that is (i) a
Multiemployer Plan, (ii) a Title IV Plan, (iii) maintained in connection with
any trust described in Section 501(c)(9) of the Code, or (iv) subject to the
minimum funding requirements of Part 3 of Title I of ERISA.
(b) No "prohibited transaction" (within the meaning of Section 4975(c) of
the Code) has occurred with respect to any employee benefit plan or arrangement
which is covered by Title I of ERISA, which transaction has or will cause the
Company to incur any material liability under ERISA, the Code or otherwise,
excluding transactions effected pursuant to and in compliance with a statutory
or administrative exemption.
(c) (i) Each Employee Plan identified on Schedule 3.16 that is intended to
----
be qualified under Section 401(a) of the Code is so qualified and has been so
qualified during the period since its adoption, (ii) each trust created under
any such Plan is exempt from tax under Section 501(a) of the Code and has been
so exempt since its creation (iii) each Employee Plan has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations, including but
not limited to ERISA and the Code and (iv) no Employee Plan or Benefit
Arrangement provides for post-employment or post-retirement health or medical or
life insurance benefits for retired, former or current employees of the Company,
except as required to avoid excise tax under Section 4980B of the Code.
(d) Each Benefit Arrangement has been maintained in substantial compliance
with its terms and with the requirements prescribed by any and all applicable
statutes, orders, rules and regulations and has been maintained in good standing
with applicable regulatory authorities.
18
<PAGE>
(e) Except as set forth on Schedule 3.16, (i) there is not and there has
----
not been at any time within the six years preceding the date hereof any pending
or, to the Company's knowledge, threatened, material litigation or arbitration
concerning or involving any Employee Plan or Benefit Arrangement and (ii) no
claims are pending or, to the Company's knowledge, threatened with respect to
any bond or any fiduciary liability or other similar insurance with regard to
the actions of any Person in connection with any Employee Plan, nor is there
expected to be any notice to any insurer under any such bond or policy with
regard to any Employee Plan.
(f) Except as set forth on Schedule 3.16, the Company has complied in all
----
material respects with all requirements of Section 4980B of the Code and the
Company is not aware of any material obligations or liabilities of the Company
arising under the Employee Matters Agreement which have not been satisfied in
full.
(g) Except as set forth on Schedule 3.16, none of the Employee Plans or
----
Benefit Arrangements has any material unfunded or contingent liability that is
not fully accrued on the Financial Statements of the Company.
(h) For purposes of this Section, the following terms shall have the
meanings set forth below:
"BENEFIT ARRANGEMENT" means any employment, severance or similar contract
or arrangement (whether or not written and whether applicable to one or more
individuals) or any plan, policy, fund, program or contract or arrangement
(whether or not written and whether applicable to one or more individuals)
providing for compensation, bonus, profit-sharing, stock option, or other stock
related rights or other forms of incentive or deferred compensation, vacation
benefits, insurance coverage (including any self-insured arrangements), health
or medical benefits, disability benefits, workers' compensation, supplemental
unemployment benefits, severance benefits and post-employment or retirement
benefits (including compensation, pension, health, medical or life insurance or
other benefits) that (i) is not an Employee Plan, (ii) is entered into,
maintained, administered or contributed to by the Company or any ERISA Affiliate
and (iii) covers any employee or former employee of the Company or any ERISA
Affiliate.
"EMPLOYEE PLAN" means any "employee benefit plan", as defined in Section
3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by the Company or any ERISA Affiliate
and (iii) covers any employee or former employee of the Company or any ERISA
Affiliate.
19
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" of any entity means any other entity which, together with
such entity, would be treated as a single employer under Section 414(b) or (c)
of the Code.
"MULTIEMPLOYER PLAN" means an Employee Plan that is a multiemployer plan,
as defined in Section 3(37) of ERISA.
"TITLE IV PLAN" means an Employee Plan subject to Title IV of ERISA other
than any Multiemployer Plan.
Section 3.17. Labor Matters. Except as set forth on Schedule 3.17, (a)
----
neither the Company nor any of its Subsidiaries is party to any labor union or
collective bargaining agreement, (b) no employees of the Company or any of its
Subsidiaries are represented by any labor organization, (c) as of the date
hereof, no labor organization or group of employees of the Company or any of its
Subsidiaries has made a pending demand for recognition or certification, and
there are no representation or certification proceedings or petitions seeking a
representation proceeding presently pending or, to the knowledge of the Company
threatened to be brought or filed, with the National Labor Relations Board or
any other labor relations tribunal or authority, (d) to the knowledge of the
Company, as of the date hereof there are no formal organizing activities
involving a material number of employees of the Company or any of its
Subsidiaries pending with, or threatened by, any labor organization and (e)
there are no strikes, or material work stoppages, slowdowns, lockouts,
arbitrations or grievances or other labor disputes, pending or, to the knowledge
of the Company, threatened against the Company or any of its Subsidiaries.
Section 3.18. Compliance with Laws. Except as set forth on Schedule 3.18,
----
the Company and its Subsidiaries hold all licenses, franchises, certificates,
consents, permits, qualifications and authorizations from all governmental
authorities necessary for the lawful conduct of their businesses, except where
the failure to hold any of the foregoing would not have, and would not
reasonably be expected to have, a Material Adverse Effect. To the Company's
knowledge, neither the Company nor any of its Subsidiaries has violated, or is
in violation of, any such licenses, franchises, certificates, consents, permits,
qualifications or authorizations or any applicable statutes, laws, ordinances,
rules and regulations (including, without limitation, any of the foregoing
related to occupational safety, storage, disposal, discharge into the
environment of hazardous wastes, environmental protection, conservation, unfair
competition, labor practices or corrupt practices) of any governmental
authorities, except where such violations
20
<PAGE>
do not have, and would not reasonably be expected to have, a Material Adverse
Effect. The Company and its Subsidiaries have made all material submissions
(including, without limitation, registration statements) required under, and the
operation of the Systems has been in compliance in all material respects with,
the Communications Act of 1934, as amended (the "COMMUNICATIONS ACT"), and the
applicable rules and regulations thereunder of the FCC (the "FCC RULES AND
REGULATIONS"), the 1976 Copyright Act, as amended (the "COPYRIGHT ACT") and all
Franchises.
Section 3.19. Finders' Fees. Except for Merrill Lynch, a true and correct
copy of whose engagement agreement has been provided to Buyer, and for any
financial advisor that may be retained by Mercom in connection with the
transactions contemplated by Section 7.07 (which financial advisor, if any, will
----
be retained pursuant to a customary engagement agreement providing for customary
compensation reasonably satisfactory to Buyer), there is no investment banker,
broker, finder or other intermediary which has been retained by or is authorized
to act on behalf, of the Company or any Subsidiary of the Company who might be
entitled to any fee or commission from Buyer or any of its affiliates upon
consummation of the transactions contemplated by this Agreement.
Section 3.20. Title to Properties; Encumbrances. Except as set forth on
Schedule 3.20, the Company and each of its Subsidiaries has good and marketable
----
title to (or in the case of leased assets, valid and existing leasehold
interests in) the material assets set forth on the Balance Sheet (other than
those disposed of in the ordinary course of business since the Balance Sheet
Date), free and clear of all Liens other than Permitted Liens. Except as set
forth on Schedule 3.20, the Company and each of its Subsidiaries owns or has the
----
lawful right to use all assets, properties, operating rights, easements,
contracts, leases, and other instruments necessary to operate its business as
presently conducted in all material respects. Schedule 3.20 sets forth a list of
----
all real property which is owned or leased by the Company or any of its
Subsidiaries. Except as set forth in Item 3 on Schedule 3.20 and with such other
exceptions as would not have a Material Adverse Effect, all buildings,
improvements, central receiving apparatus, distribution equipment, cables,
converters, origination equipment and other operating assets of the Company and
its Subsidiaries are in good working order and condition, normal wear and tear
excepted.
Section 3.21. Environmental Matters. There are no material Environmental
Liabilities (as defined below) of the Company or any of its Subsidiaries. The
Company and its Subsidiaries are in compliance and have been in compliance, in
all material respects, with all Environmental Laws. There has been no report
regarding any material environmental assessment, investigation, study, audit,
test, review or other analysis conducted of which the Company has
21
<PAGE>
knowledge in relation to the current or prior business of the Company or its
Subsidiaries or any property or facility now or previously owned by the Company
or its Subsidiaries which has not been delivered to Buyer. For purposes of this
Agreement, "ENVIRONMENTAL LIABILITIES" means any and all liabilities of the
named entity, which (i) arise under or relate to matters covered by
Environmental Laws and (ii) relate to actions occurring or conditions existing
on or prior to the Effective Time, and includes but is not limited to fines,
penalties, and costs of correcting any compliance deficiencies, and obligations
for site cleanup or investigation or cleanup resulting from the disposal,
release or threatened release of hazardous substances, pollutants, contaminants,
or wastes. "ENVIRONMENTAL LAWS" means any federal, state, and local laws,
judicial decisions, regulations, rules, judgments, orders, decrees, permits,
licenses, agreements and governmental restrictions, relating to human health,
the environment or to emissions, discharges or releases of pollutants,
contaminants or other hazardous substances or wastes into the environment,
including without limitation ambient air, surface water, ground water or land,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants
or other hazardous substances or wastes or the clean-up or other remediation
thereof.
Section 3.2. Systems, Franchises and Material Agreements. (a) As of
March 31, 1998, the cable television systems owned by the Company and its
Subsidiaries (the "SYSTEMS") (i) had approximately 204,000 Basic Subscribers,
(ii) passed approximately 338,800 residential dwelling units and (iii) included
approximately 2,000 underground plant miles and approximately 5,000 aerial plant
miles. For purposes hereof, "BASIC SUBSCRIBER" means a customer of the Company
or any of its Subsidiaries who as of the relevant date satisfies all of the
following requirements:
(i) such customer is connected to and receiving Basic Service from the
Company or any of its Subsidiaries;
(ii) such customer is being charged for the services received at the
rate that the Company or such of its Subsidiaries generally charges to its
customers in that location;
(iii) such customer has paid to the applicable provider the applicable
rate for all services received for one month (or more) of service prior to
the relevant date;
(iv) such customer does not have any outstanding bill or any service
charges more than sixty (60) days delinquent from the due date therefore in
excess of $10.00; and
22
<PAGE>
(v) provided that a hotel, motel or other multiple dwelling unit
customer which pays less per dwelling unit than the rates charged in the
relevant area by the applicable provider for detached single family homes
shall be considered to be that number of Basic Subscribers which is equal
to revenues from Basic Service generated by such hotel, motel or other
customer for the month ending on the relevant date (or if such date is not
the end of a month, the month ending immediately prior to such date)
(without regard to non-recurring revenues from ancillary services such as
installation fees) divided by the full rate charged to detached single
family homes for such service in the relevant area by the applicable
provider.
For purposes hereof, "BASIC SERVICE" means, for any given Franchise area, the
cable television service tier or tiers provided by the Company or any of its
Subsidiaries in such Franchise area which include the retransmission of local
off air television broadcast signals.
(b) Except for (i) contracts, commitments and agreements entered into in
accordance with the terms of this Agreement, (ii) those contracts listed on
Schedule 3.22(b) (the "MATERIAL AGREEMENTS"), and (iii) the Franchises, neither
-------
the Company nor any of its Subsidiaries is a party to or is bound by a contract,
commitment or agreement which is material to the Company and its Subsidiaries
taken as a whole or which involves payments of more than $500,000 in the
aggregate or which restricts the Company and its affiliates from engaging in any
business or which involves the purchase of programming by the Company. Schedule
3.22(b) sets forth a list, complete in all material respects, of the Franchises
- -------
of the Company or any of its Subsidiaries (the "FRANCHISES"). Each Franchise and
each Material Agreement is in all material respects the validly existing,
legally enforceable obligation of the Company or one of its Subsidiaries, as the
case may be, and, to the knowledge of the Company, of the other parties thereto,
subject to the Enforceability Exceptions. The Company and its Subsidiaries are
validly and lawfully operating in all material respects under their respective
Franchises and the Material Agreements to which they are a party. The Company
and its Subsidiaries have duly complied in all material respects with all of the
terms and conditions of each of their respective Franchises and each Material
Agreement to which they are a party. Except as set forth on Schedule 3.22(b),
-------
each System operates pursuant to a Franchise.
(c) Except as set forth on Schedule 3.22(c) and subject to such other
-------
exceptions as would not have a Material Adverse Effect, no Person (including any
governmental authority) has any right to acquire any interest in any System or
any assets of the Company or any of its Subsidiaries (including any right of
first
23
<PAGE>
refusal or similar right) upon an assignment or transfer of control of a
Franchise, other than rights of condemnation or eminent domain afforded by law.
(d) Neither the Company nor any of its Subsidiaries has made or is bound
by any material written commitments to any state, municipal, local or other
governmental commission, agency or body with respect to the operation and
construction of the Systems which are not fully reflected in their Franchises or
any Material Agreement.
(e) With such exceptions as would not have a Material Adverse Effect, no
Franchising Authority has advised the Company or any of its Subsidiaries in
writing, or otherwise formally notified the Company or any of its Subsidiaries
in accordance with the terms of the applicable Franchise, of its intention to
deny renewal of an existing Franchise held by the Company or any of its
Subsidiaries. With such exceptions as would not have a Material Adverse Effect,
neither the Company nor any of its Subsidiaries has received, nor has notice
that it will receive, from any Franchising Authority a preliminary assessment
that a Franchise should not be renewed as provided in Section 626(c)(1) of the
Communications Act, nor has the Company, any of its Subsidiaries, or any
Franchising Authority commenced or requested the commencement of an
administrative proceeding concerning the renewal of a Franchise as provided in
Section 626(c)(1) of the Communications Act. With such exceptions as would not
have a Material Adverse Effect, the Company and its Subsidiaries have timely
filed pursuant to the formal renewal procedures established by Section 626(a) of
the Communications Act notices of renewal in accordance with the Communications
Act with all Franchising Authorities with respect to each Franchise expiring
within 36 months after the date of this Agreement. As of the date hereof, no
Franchising Authority has commenced, or given notice that it intends to
commence, a proceeding to revoke a Franchise held by the Company or any of its
Subsidiaries.
(f) The Company and its Subsidiaries are operating the Systems in
compliance in all material respects with the provisions of the Franchises, the
Copyright Act, the Communications Act and the FCC Rules and Regulations,
including those relating to carriage of signals, syndicated exclusivity,
network non-duplication, and retransmission consent. Without limiting the
foregoing and except as set forth on Schedule 3.22(f) or as would not have a
-------
Material Adverse Effect, (i) each of the communities served by the Systems has
been registered with the FCC, (ii) all of the semi-annual and annual performance
tests on the Systems required to have been performed by the Company and its
Subsidiaries under Section 76.601 of the FCC Rules and Regulations since June 1,
1997 have been performed, (iii) the Systems currently meet the technical
standards set forth in the FCC Rules and Regulations, including the leakage
limits contained in Section
24
<PAGE>
76.605(a)(11) thereof, (iv) the Company has delivered or made available to Buyer
a copy of the most recent FCC Forms 320 filed with the FCC (Basic Signal Leakage
Performance Report) for the Company and its Subsidiaries, (v) copies of the most
recent signal leakage tests conducted under Section 76.611 of the FCC Rules and
Regulations and copies of the most recent "proof of performance" tests on the
Systems have been delivered or made available to the Buyer by the Company, and
(vi) the most recent signal leakage tests and the proof of performance tests for
the Systems were conducted in accordance with the testing procedures set forth
in Sections 76.601 and 76.609 of the FCC Rules and Regulations and such tests
evidence that the Systems meet or exceed the technical standards set forth in
Section 76.605 of the FCC Rules and Regulations.
(g) (i) All television stations carried by the Systems are carried either
pursuant to retransmission consent agreements or must-carry elections (or must-
carry defaults) except as set forth in Schedule 3.22(g) (which Schedule includes
-------
a description of the basis for the exception), (ii) the Company has delivered or
made available to Buyer full and complete copies of all retransmission consent
agreements, and (iii) for each commercial television station carried on a System
that has elected must-carry status, but that is not being carried because of
signal quality problems or potential copyright liability, Schedule 3.22(g) lists
-------
the call sign of the station and the reason for non-carriage. There are no
requests by any television station which asserts that it is entitled to must-
carry status seeking carriage on any System which the Company or any of its
Subsidiaries has denied or refused to honor or which is the subject of a
complaint filed with the FCC, except as listed on Schedule 3.22(g).
-------
(h) The Company has delivered or made available to Buyer true, correct,
and complete specimen copies of (i) all FCC Forms 393, 1200, 1205, 1210, 1215,
1220, 1225, 1230, 1235 and 1240 that have been filed with governmental
authorities with respect to the Systems and that involve rate complaints that
have not been finally resolved, and all material correspondence with
governmental authorities related thereto, (ii) all material correspondence with
any governmental body that relates to rate regulation generally or to specific
rates charged to subscribers of the Systems and that is with respect to rate
complaints that are pending at the FCC or basic rates that are currently under
review by a local governmental entity (including any Franchising Authority) or
the FCC, including, without limitation, any complaints filed with the FCC with
respect to any rates charged to subscribers of the Systems, and (iii) any
material documentation relating to an exemption from the rate regulation
provisions of the Communications Act claimed by the Company or any of its
Subsidiaries with respect to the Systems. With such exceptions as would not have
a Material Adverse Effect, Schedule 3.22(h) sets forth (i) a list of all rate
-------
complaints filed with the FCC of which the Company or any of its Subsidiaries
have any
25
<PAGE>
knowledge and which have not been finally resolved by the FCC, and further sets
forth those Franchising Authorities that have been certified or, to the
Company's knowledge, filed for certification under the Communications Act with
respect to rate regulation and that have not been finally denied certification
or decertified, and (ii) a list of all letters of inquiry from the FCC received
by the Company or any of its Subsidiaries since 1992 with regard to rate
restructuring that have not been finally resolved. For purposes of this
subsection the term "FINALLY" means that there is no pending FCC or court
consideration or request for FCC or court review, reconsideration or appeal, and
the time for seeking any such review, reconsideration or appeal has expired.
(i) Except as set forth on Schedule 3.22(i), the Company and its
Subsidiaries have filed with the Franchising Authorities, the FCC and the
Copyright Office all material forms, reports, statements of accounts and other
material information required to be filed under the Franchises, the
Communications Act, Section 111 of the Copyright Act, the FCC Rules and
Regulations and the rules and regulations of the Copyright Office relating to
Section 111, and all such forms, reports, statements of account, and other
information were correct in all material respects at the time of filing.
(j) With such exceptions as would not have a Material Adverse Effect, (A)
the Company and its Subsidiaries have paid all compulsory copyright and any
other fees required under the Copyright Act for the Systems, and (B) neither the
Company nor any of its Subsidiaries has any knowledge of any deficiency in the
amount of any compulsory copyright fee or other fee payments made and has not
received from the Copyright Office or any other Person any statement or claim
respecting an underpayment or nonpayment of any compulsory copyright fee or
other fee payment for the Systems.
(k) With such exceptions as would not have a Material Adverse Effect, (A)
the Company and its Subsidiaries have paid all franchise and any other fees owed
to all relevant Franchising Authorities or other Persons required for the
Systems, and (B) neither the Company nor any of its Subsidiaries has any
knowledge of any current deficiency in the amount of any franchise or other fee
payment made and has not received from any Franchising Authority or any other
Person any statement or claim respecting an underpayment or nonpayment of any
franchise or other fee for the Systems.
(l) With such exceptions as would not have a Material Adverse Effect, (A)
the Company and its Subsidiaries currently hold all FCC licenses, permits, and
authorizations necessary for the operation of the Systems as currently operated
(hereafter "FCC LICENSES"), (B) all such FCC Licenses are in full force and
effect, (C) except as disclosed in Schedule 3.22(l) there are not pending
-------
26
<PAGE>
before the FCC any requests or applications to modify, extend or renew any of
the FCC Licenses and (D) there are not pending, nor to the knowledge of the
Company and its Subsidiaries threatened, any proceedings that might result in
the revocation, termination or cancellation of any of the FCC Licenses.
Section 3.23. Transactions with Affiliates. Schedule 3.23 sets forth all
----
material arrangements between the Company and its Subsidiaries, on the one hand,
and affiliates of the Company (other than its Subsidiaries), on the other hand,
including, without limitation, all material arrangements with R and C. Schedule
3.23 also sets forth all material arrangements between the Company and its
- ----
Subsidiaries (other than Mercom and its Subsidiaries), on the one hand, and
Mercom and its Subsidiaries, on the other hand. For the period from January 1,
1998 to April 30, 1998, the approximate cost for customer service, billing
service and lockbox service under the Distribution Agreement and as determined
in accordance with the Distribution Agreement was as set forth on Schedule 3.23.
Section 3.24. Tax-free Spin-off of the Company. As of the date on which
all of the stock of the Company was distributed by CTE pro rata to its common
equity holders (the "COMPANY DISTRIBUTION"), there was no plan (or series of
related transactions) pursuant to which one or more persons would acquire
directly or indirectly stock representing a 50% or greater interest in CTE or
the Company within the meaning of Code (S)355(e); provided, however, that Buyer
acknowledges that based on the facts and other information furnished to Buyer as
of the date hereof the representation and warranty set forth in this sentence is
accurate. A true, correct and complete copy of the letter ruling issued by the
Internal Revenue Service to CTE (including any supplements or modifications
thereto) relating to the Company Distribution has been provided to Buyer (the
"SPIN-OFF LETTER RULING"). The transactions proposed in the Spin-Off Letter
Ruling (together with any supplements or modifications thereto) that were to
have occurred prior to the time this representation and warranty is being given
have occurred substantially in the manner set forth in such ruling. The
representations and warranties set forth in the Spin-Off Letter Ruling (together
with any supplements or modifications thereto) were true and correct in all
material respects as of the date of the Spin-Off Letter Ruling (as supplemented
or modified) and as of the date on which the Company Distribution occurred.
27
<PAGE>
ARTICLE 4
Representations and Warranties of Buyer
Buyer represents and warrants to the Company that:
Section 4.01. Organization and Authority. Each of Buyer and Merger
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each of Buyer and
Merger Subsidiary has all requisite corporate and other power to carry on its
business as now being conducted. The execution, delivery and performance by
Buyer and Merger Subsidiary of this Agreement (and, in the case of Buyer, the
Escrow Agreement and the Voting Agreement) and the consummation by Buyer and
Merger Subsidiary of the transactions contemplated hereby and thereby are within
the corporate powers of Buyer and Merger Subsidiary and have been duly
authorized by all necessary corporate action. This Agreement is a valid and
binding agreement of Buyer and Merger Subsidiary, enforceable against each in
accordance with its terms, subject to the Enforceability Exceptions. Each of
the Escrow Agreement and the Voting Agreement is a valid and binding agreement
of Buyer, enforceable in accordance with its terms, subject to the
Enforceability Exceptions. Buyer has delivered to the Company true and complete
copies of its Certificate of Incorporation and Bylaws and of Merger Subsidiary's
Certificate of Incorporation and Bylaws, each as in effect on the date hereof.
Since the date of its incorporation, Merger Subsidiary has not engaged in any
activities other than in connection with or as contemplated by this Agreement or
in connection with arranging any financing required to consummate the
transactions contemplated hereby.
Section 4.02. No Breach. Except as set forth on Schedule 4.02, the
execution and delivery by Buyer and Merger Subsidiary of this Agreement (and, in
the case of Buyer, the Escrow Agreement and the Voting Agreement) do not and the
consummation of the transactions contemplated hereby and thereby by Buyer and
Merger Subsidiary will not (i) violate or conflict with their Articles of
Certificates of Incorporation or Bylaws or (ii) constitute a breach or default
of, or give rise to any third-party right of termination, cancellation,
modification or acceleration under, any agreement, understanding or undertaking
to which Merger Subsidiary or Buyer or any of its Subsidiaries is a party or by
which any of them is bound, or give rise to any Lien on any of their properties,
or (iii) subject to obtaining the approvals and making the filings described in
Section 4.03 hereof, constitute a violation of any statute, law, ordinance,
----
rule, regulation, judgment, decree, order or writ of any judicial, arbitral,
public, or governmental authority having jurisdiction over Buyer or any of its
Subsidiaries or Affiliates or any of their respective properties or assets, with
such exceptions in the case of
28
<PAGE>
subsections (i) and (ii) as would not have, or reasonably be expected to have, a
Buyer MAE or materially interfere with or delay the transactions contemplated
hereby. For purposes of this Agreement, the term "BUYER MAE" means a material
adverse effect on the business, assets, operations, condition (financial or
otherwise) or results of operations of Buyer and its Subsidiaries taken as a
whole.
Section 4.03. Consents and Approvals. Neither the execution and delivery
of this Agreement by Buyer or Merger Subsidiary (or the Voting Agreement or
Escrow Agreement by Buyer) nor the consummation of the transactions contemplated
hereby or thereby by Buyer or Merger Subsidiary will require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, except (i) for filings required under the
Exchange Act, (ii) for notification pursuant to the HSR Act and expiration or
termination of the waiting period thereunder, (iii) for the filing of the
articles of merger and related filings as set forth in Section 1.01 hereof, (iv)
----
for notices to, or consents and waivers from, the relevant Franchising
Authorities in connection with a change of control of the holder of the
Franchises of the Company and its Subsidiaries, and the FCC in connection with a
change of control of the holder of the FCC licenses of the Company and its
Subsidiaries, and (v) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
have, or reasonably be expected to have, a Buyer MAE or materially interfere
with or delay the transactions contemplated hereby.
Section 4.04. Proxy Statement Information. The information with respect to
Buyer and its Subsidiaries that Buyer furnishes to the Company for use in the
Company Proxy Statement or any amendment or supplement thereto will not contain,
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading at the time the Company
Proxy Statement or any amendment or supplement thereto is first mailed to
stockholders of the Company and at the time the stockholders vote on adoption of
this Agreement.
Section 4.05. Finders' Fees. Except for Charles James and Lehman Brothers,
whose fees will be paid by Buyer, there is no investment banker, broker, finder
or other intermediary who might be entitled to any fee or commission from the
Company or any of its affiliates upon consummation of the transactions
contemplated by this Agreement.
Section 4.06. Financing. Buyer has, or will have prior to the Effective
Time, sufficient funds available to pay the Merger Consideration in respect of
all of the Shares and to pay all related fees and expenses pursuant to the
Merger and
29
<PAGE>
this Agreement. Buyer has received and furnished copies to the Company of
commitment letters (the "COMMITMENT LETTERS") from (i) Lehman Commercial Paper
Inc. and Lehman Brothers, Inc. (together, "LENDER") dated as of June 3, 1998
pursuant to which Lender has committed, subject to the terms and conditions
thereof, to provide the financing and enter into the agreements set forth
therein and (ii) ABRY Broadcast Partners III, L.P. dated as of June 3, 1998,
pursuant to which ABRY Broadcast Partners III, L.P. has committed, subject to
the terms and conditions stated therein, to make an equity investment in Buyer.
The bank credit agreement referred to in clause (i) above and the stock
subscription agreement referred to in clause (ii) above are referred to herein
as the "FINANCING AGREEMENTS", and the financing to be provided thereunder or
under any alternative arrangements made by Buyer is referred to herein as the
"FINANCING". As of the date hereof, Buyer knows of no facts or circumstances
that are reasonably likely to result in any of the conditions set forth in the
Commitment Letters not being satisfied in any material respects.
Section 4.07. No Violation to FCC Cross Ownership Rules. Assuming Buyer
were now in control of the Company and its Subsidiaries, Buyer would not be in
violation of any FCC restrictions regarding the ownership of competing media and
related businesses that would materially adversely affect the ability of Buyer
to own the Company and its Subsidiaries or any material part of their business.
ARTICLE 5
Covenants of the Company
The Company agrees that:
Section 5.01. Conduct of the Company. Except as set forth on Schedule 5.01
----
or as otherwise contemplated herein, from the date hereof until the Effective
Time, the Company and its Subsidiaries shall conduct their business in the
ordinary course consistent with past practice in all material respects and shall
use their best efforts to preserve intact their business organizations and
relationships with third parties and to keep available the services of their
present officers and employees in all material respects and shall use reasonable
best efforts to implement in all material respects their 1998 Capital Plan which
is attached hereto as Schedule 5.01 (the "CAPITAL PLAN"). Without limiting the
----
generality of the foregoing, and except as contemplated herein, from the date
hereof until the Effective Time without the consent of Buyer which shall not be
unreasonably withheld:
30
<PAGE>
(a) the Company will not, and will not permit any Subsidiary of the
Company to, adopt or propose any change in its Articles of Incorporation or
Bylaws;
(b) the Company will not, and will not permit any Subsidiary of the
Company to, merge or consolidate with any other Person or acquire assets
from any other Person in excess of $500,000;
(c) the Company will not, and will not permit any Subsidiary of the
Company to, sell, lease, license or otherwise dispose of any material
assets or property except (i) pursuant to existing contracts or commitments
disclosed herein and (ii) in excess of $500,000;
(d) other than as set forth in the Capital Plan, the Company will not,
and will not permit any Subsidiary of the Company to, make any capital
expenditure in excess of $500,000;
(e) the Company will not, and will not permit any Subsidiary of the
Company to, enter into or amend in any material respect any agreement
(other than, in the case of amendments, a Franchise) that would be required
to be disclosed on Schedule 3.22 or Schedule 3.23;
---- ----
(f) the Company will not, and will not permit any Subsidiary of the
Company to, take any action described in subsections (b), (c), (d), (e),
(f), (h), (i), or (j) of Section 3.12;
----
(g) the Company will not, and will not permit any Subsidiary of the
Company to, agree or commit to do any of the foregoing; or
(h) with such exceptions as do not, in the aggregate, have a Material
Adverse Effect, the Company will not, and will not permit any Subsidiary of
the Company, to take or agree or commit to take any action that would
knowingly make any representation and warranty of the Company hereunder
inaccurate (disregarding any qualification therein for materiality or
Material Adverse Effect) at, or as of any time prior to, the Effective
Time.
The Company's obligations under this Section 5.01 and each other covenant in
----
this Agreement are subject, in the case of Mercom and the Mercom Subsidiaries,
to the fiduciary duties of the Company as the controlling shareholder of Mercom.
Section 5.02. Stockholder Meeting; Proxy Material. The Company shall cause
a meeting of its stockholders (the "COMPANY STOCKHOLDER MEETING") to be
31
<PAGE>
duly called and held as soon as reasonably practicable for the purpose of voting
on the approval and adoption of this Agreement and the Merger. The Directors of
the Company shall recommend approval and adoption of this Agreement and the
Merger by the Company's stockholders (the "COMPANY STOCKHOLDER APPROVAL") and
shall include such recommendation in the Company Proxy Statement; provided that
the Board of Directors of the Company shall be permitted to (i) not recommend to
the Company's stockholders that they give the Company Stockholder Approval or
(ii) withdraw or modify in a manner adverse to Buyer its recommendation to the
Company's stockholders that they give the Company Stockholder Approval, but in
each of cases (i) and (ii) only if and to the extent that the Company has
complied with Section 5.04 and this Section 5.02 and a Superior Proposal is
---- ----
pending at the time the Company's Board of Directors determines to take any such
action or inaction. The Company will (i) in connection with the Company
Stockholder Meeting, promptly prepare and file with the SEC, use all reasonable
efforts to have cleared by the SEC as promptly as practicable and thereafter
mail to its stockholders as promptly as practicable the Company Proxy Statement
and all other proxy materials for such meeting and (ii) unless, to the extent
permitted by the first sentence of this Section 5.02, the Board of Directors
----
shall not recommend to the Company's stockholders that they give the Company
Stockholder Approval or shall have withdrawn or modified in a manner adverse to
Buyer its recommendation, use reasonable best efforts to solicit proxies in
favor of the approval of this Agreement and the Merger, provided that the
obligation of the Company to cause the Company Proxy Statement and proxy to be
mailed to the Company's stockholders is subject to the Board of Directors of the
Company having received from Merrill Lynch confirmation of its opinion referred
to in Section 3.04 as of the date scheduled for mailing of the Company Proxy
----
Statement if the Board of Directors requests such a confirmation. For purposes
of this Agreement, "SUPERIOR PROPOSAL" means any bona fide Acquisition Proposal,
on terms that the Board of Directors of the Company determines in its reasonable
good faith judgment are more favorable to the Company's stockholders taken as a
whole than the transactions contemplated by the Agreement and with respect to
which the Company's Board of Directors determines, in its reasonable good faith
judgment, after consultation with its financial advisors, the Person making such
Acquisition Proposal has the financial means to consummate such Acquisition
Proposal. For purposes of this Agreement, "ACQUISITION PROPOSAL" means any offer
or proposal for a merger, consolidation or tender or exchange offer or other
business combination involving the Company or any Subsidiary of the Company or
the acquisition of any substantial equity interest in, or a substantial portion
of the assets of, the Company or any Subsidiary of the Company, other than the
transactions contemplated by this Agreement.
32
<PAGE>
Section 5.03. Access to Information. From the date hereof until the
Effective Time, the Company will give Buyer, its counsel, financial advisors,
auditors, financing sources, and other authorized representatives reasonable
access, during regular business hours and upon reasonable notice, to the
offices, properties, books and records of the Company and its Subsidiaries, will
furnish to Buyer, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as such
Persons may reasonably request and will instruct the Company's employees,
counsel, independent accountants, and financial and other advisors to cooperate
with Buyer in its investigation of the business of the Company and its
Subsidiaries. All such access and information obtained by Buyer and its
authorized representatives shall be subject to the terms and conditions of the
letter agreement between the Company and Buyer dated May 7, 1998 (the
"CONFIDENTIALITY AGREEMENT").
Section 5.04. Other Offers. From the date hereof until the termination
hereof, the Company and its Subsidiaries and the officers, directors, employees
or other agents of the Company and its Subsidiaries will not (i) take any action
to solicit, initiate or knowingly encourage inquiries or proposals that
constitute, or reasonably would be expected to lead to, any Acquisition Proposal
or (ii) engage in discussions or negotiations with, or disclose any nonpublic
information relating to the Company or any Subsidiary of the Company or afford
access to the properties, books or records of the Company or any Subsidiary of
the Company to, any Person (or any of its agents or representatives) that the
Company believes may be considering making, or has made, an Acquisition
Proposal; provided that nothing contained in this Section 5.04 shall (A) prevent
----
the Company from furnishing non-public information to, or entering into
discussions or negotiations with, any Person in connection with an unsolicited
bona fide Acquisition Proposal received from such Person so long as prior to
furnishing non-public information to, or entering into discussions or
negotiations with, such Person, (1) the Company receives from such Person an
executed confidentiality agreement with terms no less favorable to the Company
than those contained in the Confidentiality Agreement, (2) the Board of
Directors has reasonably concluded that such Acquisition Proposal constitutes a
Superior Proposal and (3) the Company has otherwise complied with this Section
5.04 or (B) prevent the Company and its Subsidiaries from taking actions in the
- ----
ordinary course of business consistent with past practice and not in connection
with any Acquisition Proposal. The Company will notify Buyer as soon as
possible, but in any event within 24 hours, after receipt of any Acquisition
Proposal or any request for nonpublic information relating to the Company or any
Subsidiary of the Company or for access to the properties, books or records of
the Company or any Subsidiary of the Company by any Person that the Company
believes may be considering making, or has made, an Acquisition Proposal. Such
notice to Buyer shall
33
<PAGE>
indicate the identity of the Person making the Acquisition Proposal or request
and in reasonable detail the terms thereof. If the financial or other material
terms of such Acquisition Proposal are modified in any material respect, then
the Company shall notify Buyer as soon as possible, and in any event within 24
hours. The Company will immediately cease and cause its advisors and agents to
cease any and all existing activities, discussions or negotiations regarding an
Acquisition Proposal with any parties previously contacted; provided that the
Company may inform such parties that this Agreement has been entered into and
that the previously disclosed exploration of strategic alternatives process has
been terminated. Nothing contained in this Agreement shall prohibit the Board of
Directors of the Company from (i) taking and disclosing to the Company's
shareholders a position with respect to a tender offer for the Shares by a third
party pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act, (ii)
making such disclosure to the Company's shareholders as, in the judgment of the
Board of Directors of the Company, based on the advice of outside counsel, is
required under applicable law or under the rules of the NASDAQ Stock Market, or
(iii) responding to any unsolicited proposal or inquiry solely by advising the
person making such proposal or inquiry of the terms of this Section 5.04. From
-----
the date hereof until the termination hereof, the Company (i) shall not
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement (other than any entered into in the ordinary course of
business not in connection with any Acquisition Proposal and other than as
permitted under the proviso to the first sentence of this Section 5.04) to which
----
it or any of its Subsidiaries is a party and (ii) shall enforce, to the fullest
extent permitted under applicable law, the provisions of any such agreement,
including, without limitation, by seeking to obtain injunctions to prevent
breaches thereof that are known to it and specific performance thereof.
Section 5.05. Tax Matters. Without the prior written consent of Buyer,
which shall not be unreasonably withheld, and except as set forth on Schedule
5.05, at any time from the date hereof to the Effective Time, neither the
Company nor any of its Subsidiaries shall make or change any election, change an
annual accounting period, adopt or change any accounting method, file any
amended Tax Return, enter into any closing agreement, settle any Tax claim or
assessment relating to the Company or any of its Subsidiaries, surrender any
right to claim a refund of Taxes, consent to any extension or waiver of the
limitation period applicable to any Tax claim or assessment relating to the
Company or any of its Subsidiaries, or take any other similar action, or omit to
take any action relating to the filing of any Tax Return or the payment of any
Tax, if such election, adoption, change, amendment, agreement, settlement,
surrender, consent or other action or omission would have the effect of
increasing the present or future Tax liability or decreasing any present or
future Tax asset of the Company, any of its
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Subsidiaries, Buyer or any affiliate of Buyer, in any such case with respect to
an amount of Tax which is material.
Section 5.06. Notices of Certain Events. The Company shall promptly notify
Buyer of (i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement, (ii) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement, and (iii) any notice or other
communication regarding any litigation or potential litigation arising from or
related to the transactions contemplated herein. The Company shall consult with
the Buyer regarding any stockholder litigation arising from or related to the
transactions contemplated herein and shall not settle any such litigation
without the consent of the Buyer, which consent shall not be unreasonably
withheld.
Section 5.07. Pending Acquisition. The Company has notified Buyer of three
potential acquisitions by the Company as set forth on Schedule 5.07. The Company
----
agrees to use its reasonable best efforts to enter into definitive agreements
and consummate the transactions referred to therein as soon as reasonably
practicable. Any such definitive agreement shall be in substantially the terms
set forth in Schedule 5.07 or the related letters of intent referred to therein
and shall be reasonably acceptable to the Buyer. The Company shall not waive any
material term or condition thereunder without the consent of Buyer. The Company
shall be entitled to borrow money under its existing facilities to consummate
such transactions and any matter arising from such transactions that would
result in a breach of any of the representations and warranties in Article 3
-
shall be disregarded for purposes of this Agreement.
Section 5.08. Cooperation. From the date hereof until the termination
hereof, (i) the Company shall confer on a regular and frequent basis with one or
more representatives of Buyer to report operational matters of materiality and
the general status of ongoing operations and with respect to the matters
contemplated by Sections 5.07 and 7.07 and (ii) the Company shall cooperate with
---- ----
Buyer in connection with obtaining the Financing. The Company will cooperate
with Buyer to minimize indemnity payments described in the last sentence of
Section 3.02.
----
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ARTICLE 6
Covenants of Buyer
Buyer agrees that:
Section 6.01. Obligations of Merger Subsidiary. Buyer will take all action
necessary to cause Merger Subsidiary (and any affiliate of Buyer to which an
assignment is made as contemplated in Section 10.04) to perform its obligations
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under this Agreement and to consummate the Merger on the terms and conditions
set forth in this Agreement.
Section 6.02. Voting of Shares. Buyer agrees to vote all Shares
beneficially owned by it in favor of adoption of this Agreement at the Company
Stockholder Meeting.
Section 6.03. Director and Officer Liability. For six years after the
Effective Time, Buyer will, and will cause the Surviving Corporation to, (i)
indemnify and hold harmless the present and former officers, directors and
employees of the Company in respect of acts or omissions occurring prior to the
Effective Time (including, without limitation, in respect of acts or omissions
in connection with this Agreement and the transactions contemplated hereby) to
the fullest extent permitted under the Company's Articles of Incorporation and
Bylaws and (ii) to the fullest extent permitted under applicable law, advance to
such Persons expenses incurred in defending any action or suit with respect to
which indemnity may be available under the Company's Articles of Incorporation
or Bylaws upon receipt from each such Person to whom expenses are advanced of an
undertaking reasonably satisfactory to Buyer to repay such advances if it is
ultimately determined that such Person is not entitled to indemnification. In
the event any claim or claims are asserted or made within such six year period,
all rights to indemnification in respect of any such claim or claims shall
continue until disposition of any and all such claims. Any determination
required to be made with respect to whether any of the foregoing Persons is
entitled to indemnification as set forth above shall be made by independent
legal counsel selected mutually by such Person and Buyer. For six years after
the Effective Time, Buyer will use its reasonable best efforts to provide
officers' and directors' liability insurance and fiduciary liability insurance
in respect of acts or omissions occurring on or prior to the Effective Time
covering each such Person currently covered by the Company's officers' and
directors' liability insurance policy and fiduciary liability insurance policy
on terms with respect to coverage and amount no less favorable in any material
respect than those of such policies in effect on the date hereof; provided that
in satisfying its obligation under this Section, Buyer shall not be obligated to
pay annual premiums in excess of $127,500; provided
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further that if the premiums would exceed such amount in a given year, Buyer
shall use its reasonable best efforts to purchase coverage that in the
reasonable opinion of Buyer is the best available for such amount per year.
Buyer may satisfy such obligation by purchasing officers' and directors'
liability and fiduciary liability run-off coverage for such six-year period
Section 6.04. Commitment Letters and Financing Agreements. Buyer (a) will
not amend or otherwise modify the Commitment Letters in any material respect
adverse to Buyer or the Company without the prior consent of the Company which
will not be unreasonably withheld, (b) will use its reasonable best efforts to
obtain the Financing and (c) will keep the Company timely informed of the status
of the Financing and any material developments with respect thereto, including
without limitation informing it within two business days of its becoming aware
of any facts or circumstances that might reasonably be expected to result in (i)
the Commitment Letters being terminated or any of the material conditions
therein not being satisfied in any material respect with the result that
adequate Financing would not be available to effect the transactions
contemplated hereby, or (ii) the amount of the Financing to be provided pursuant
to the Commitment Letters or the Financing Agreements not being sufficient or
available to complete the transactions contemplated hereby.
Section 6.05. Cooperation. In connection with the opinion referred to in
Section 8.04(c), Buyer will cooperate with, and provide reasonable access to
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information regarding the Financing and Buyer to, the Company and the appraiser
retained by the Company (which, if consented to by the Lender, will be the same
appraiser as the appraiser retained by the Lender; provided that such appraiser
is reasonably satisfactory to Buyer). The terms upon which any appraiser is
obtained shall be reasonably satisfactory to Buyer.
Section 6.06. Merger Subsidiary Jurisdiction. Prior to the Effective Time,
either (i) Merger Subsidiary shall become a Pennsylvania corporation through
merger or otherwise or (ii) Merger Subsidiary shall assign its rights and
obligations hereunder to a Pennsylvania corporation.
ARTICLE 7
Other Agreements of Buyer and the Company
The parties hereto agree that:
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Section 7.01. Reasonable Best Efforts. Each of the parties hereto agrees
to use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement in the most
expeditious manner practicable, including but not limited to the satisfaction of
all conditions to the Merger and seeking to remove promptly any injunction or
other legal barrier that may prevent or delay such consummation. Each of the
parties shall promptly notify the other whenever a consent is obtained and shall
keep the other informed as to the progress in obtaining such consents.
Section 7.02. Certain Filings. (a) The Company and Buyer agree to use
their respective reasonable best efforts to obtain all authorizations, consents,
orders and approvals of federal, state, local and foreign regulatory bodies and
officials and non-governmental third parties that may be or become necessary for
performance of their respective obligations pursuant to this Agreement, and will
cooperate fully with the other parties in promptly seeking to obtain all such
authorizations, consents, orders and approvals; provided that except as set
forth in the Capital Plan or in the 1999-2001 Capital Expenditure Summary set
forth in Schedule 7.02 (a) (the "CAPITAL SUMMARY") and with such other
exceptions as in the aggregate would not, and would not reasonably be expected
to, have a Material Adverse Effect or require in excess of $1,000,000 in capital
expenditures, nothing herein shall require Buyer or Merger Sub to agree to any
change to, or to make any commitments in respect of, any Franchise or License in
connection with obtaining any consent or approval required with respect to the
transactions contemplated hereby. The Buyer shall have primary responsibility,
with the assistance and cooperation of the Company and its Subsidiaries, for
obtaining all authorizations, consents, orders and approvals with respect to the
Company's and its Subsidiaries' Licenses and Franchises; provided, however, that
the Company and Buyer will have joint responsibility with respect to the joint
applications required for the transfers of Licenses under the rules and
regulations of the FCC. Each of Buyer and the Company will use its reasonable
best efforts to ensure that all necessary applications in connection with
transfer of control of the Licenses and the Franchises are filed within twenty
days of the date hereof. Without limitation, the Company and Buyer shall each
use their reasonable best efforts to make an appropriate filing of a
Notification and Report Form pursuant to the HSR Act no later than twenty days
from the date hereof; and each such filing shall request early termination of
the waiting period imposed by the HSR Act. For purposes of this Agreement,
"LICENSES" means approvals, consents, rights, certificates, orders, franchises,
determinations, permissions, licenses, authorities or grants issued, declared,
designated or adopted by any federal, state or municipal government or other
political subdivision or any department,
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commission, board, bureau, agency or instrumentality thereof, excluding,
however, the Franchises.
(b) Any application to any governmental authority for any authorization,
consent, order or approval necessary for the transfer of control of any License
or Franchise shall be reasonably acceptable to the Company and Buyer. Without
limiting the obligations of the Company and Buyer under Section 7.02(a), each of
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the Company and Buyer agrees, upon reasonable prior notice, to make appropriate
representatives available for attendance at meetings and hearings before
applicable governmental authorities in connection with the transfer of control
of any License or Franchise. Except as set forth in the Capital Plan or the
Capital Summary, and with such other exceptions as in the aggregate would not
have, and would not reasonably be expected to have a Material Adverse Effect or
require in excess of $1,000,000 in capital expenditures, neither the Company nor
any Subsidiary will agree to any changes to, or make any commitments in respect
of, any Franchise in connection with obtaining the consent of the Franchising
Authority for the transfer of control thereof.
Section 7.03. Public Announcements. Buyer and the Company will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement and the transactions contemplated hereby and,
except as may be required by applicable law or any listing agreement with any
national securities exchange, will not issue any such press release or make any
such public statement prior to such consultation.
Section 7.04. Notices. Each party hereto shall promptly after obtaining
knowledge of the occurrence or threatened occurrence of, any fact or
circumstance that would cause or constitute, or would be reasonably likely to
cause or constitute, a material breach of any of its representations and
warranties set forth herein, give notice thereof to the other party.
Section 7.05. Employee Benefits. (a) Unless otherwise provided herein,
with respect to the employees and former employees of the Company and its
Subsidiaries, Buyer agrees that the Company shall honor in accordance with their
respective terms and, on and after the Effective Time, Buyer shall cause the
Surviving Corporation and its Subsidiaries to honor, all Employee Plans, Benefit
Arrangements and all other written employment, severance, termination and
retirement agreements to which the Company or any of its Subsidiaries is a party
as of the Effective Time, including those Employee Plans and Benefit
Arrangements set forth in Schedule 3.16 to the extent such plans and
arrangements are maintained and sponsored by the Company or its Subsidiaries.
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<PAGE>
(b) Buyer agrees that, for a period of no less than three months after the
Effective Time, it shall, or shall cause the Surviving Corporation and its
Subsidiaries to, provide employee pension and welfare plans for the benefit of
employees and former employees of the Company and its Subsidiaries, that, in the
aggregate, are not materially less favorable than the Employee Plans and Benefit
Arrangements in effect immediately prior to the Effective Time. To the extent
any benefit plan of Buyer (or any plan of the Surviving Corporation or any of
its Subsidiaries) shall be made applicable to any employee or former employee of
the Company or any of its Subsidiaries, Buyer shall, or shall cause the
Surviving Corporation and its Subsidiaries to, grant to employees and former
employees of the Company and its Subsidiaries credit for service with the
Company or any of its Subsidiaries prior to the Effective Time for the purposes
of determining eligibility to participate and the employee's nonforfeitable
interest in benefits thereunder and, unless a duplication of benefits would
thereby result, for calculating benefits (including benefits the amount or level
of which is determined by reference to an employee's vesting service)
thereunder. In addition, to the extent any Buyer plan (or any plan of the
Surviving Corporation or any of its Subsidiaries) that constitutes an "employee
welfare benefit plan," as defined in Section 3(3) of ERISA, shall be made
applicable to any employee or former employee of the Company or any of its
Subsidiaries, Buyer shall, or shall cause the Surviving Corporation and its
Subsidiaries to, waive all preexisting condition exclusions and waiting periods
otherwise applicable to employees and former employees of the Company and its
Subsidiaries, except to the extent any such limitations or waiting periods in
effect under comparable plans of the Company and its Subsidiaries have not been
satisfied as of the date such plan is made so applicable. Nothing in this
Agreement shall be interpreted as limiting the power of the Surviving
Corporation or any of its Subsidiaries to amend or terminate any Employee Plan,
Benefit Arrangement or any other employee benefit plan, program, agreement or
policy or as requiring the Surviving Corporation or any of its Subsidiaries or
Buyer to offer to continue (other than as required by its terms) any written
employment contract or to continue the employment of any given employee.
Section 7.06. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
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Section 7.07. Mercom Minority Interest. The parties hereto agree that
notwithstanding anything to the contrary set forth in this Agreement, the
Company shall be entitled (i) either (a) to negotiate and enter into an
agreement with Mercom (the "MERCOM AGREEMENT") to purchase the 1,822,810 shares
of Mercom Common Stock, par value $1.00 per share ("MERCOM SHARES") that the
Company does not own for cash consideration of $11.00 per share, or (b) to make
a cash tender offer (the "MERCOM TENDER OFFER") for such Mercom Shares at a
price of $11.00 per share, (ii) to consummate the purchase pursuant to such
Mercom Agreement or such Mercom Tender Offer, (iii) to borrow funds under the
Company's existing credit facilities for such purchase (and to amend such
facilities to permit such borrowings for such purpose) and (iv) to take such
customary actions in connection with the foregoing as the Company shall
reasonably conclude are appropriate. The terms (other than the cash
consideration, which shall be as set forth above except as otherwise agreed by
Buyer and the Company) of any such Mercom Agreement or Mercom Tender Offer shall
be reasonably acceptable to Buyer and the Company will not waive any material
term or condition under such Mercom Agreement or Mercom Tender Offer without the
consent of Buyer. No such transaction will be consummated involving the
acquisition of Mercom Shares without the approval of a committee of the Board of
Directors of Mercom composed solely of independent directors. It is understood
and agreed that the closing of any such purchase may be conditioned upon the
closing of the Merger, that the closing of such purchase may occur before or
after the Effective Time, and that none of the entering into of an Mercom
Agreement, the commencement of an Mercom Tender Offer and the closing of any
such purchase pursuant to a Mercom Agreement or Mercom Tender Offer shall be a
condition to the Merger. The Company shall use all reasonable efforts to ensure
that the fees and expenses incurred in connection with the foregoing
transactions are reasonable.
Section 7.08. Termination of Services. Effective as of the Effective Time,
the Company will terminate all services provided to it by R Corporation ("R")
and CTE under Section 6.01 of the Distribution Agreement among the Company, R
----
and CTE dated as of September 5, 1997, except for (i) customer and billing
services now provided to the Company out of RCN's Dallas, Pennsylvania office,
which services shall continue under the Distribution Agreement for 90 days after
the Effective Time (or such shorter period as elected by Buyer not less than
thirty days prior to the desired termination date) and (ii) the lockbox service
provided by CTE, which service shall continue under the Distribution Agreement
for 60 days after the Effective Time (or such shorter period as elected by Buyer
not less than thirty days prior to the desired termination date). Promptly (and,
in any event, within 30 days after) the receipt of an invoice therefor, the
Company will pay, without setoff or withholding, all amounts properly due to R
and CTE under such Distribution Agreement for services rendered prior to the
Effective
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Time. The 4% management fee charged by RCN to the Company under the
Distribution Agreement will accrue for the period up to the Effective Time but
as of the Effective Time will cease to accrue for future periods. After the
Second Letter of Credit has been delivered to the Escrow Agent, the Company and
Buyer will cooperate to begin establishing a customer service center in a
mutually agreeable location in Michigan. The Company will cooperate with Buyer
to arrange for RCN to continue to provide programming to the Systems for a
reasonable transitional period after the Effective Time. The Company will
cooperate with Buyer in connection with Buyer arranging for the provision after
the Effective Time of the other terminated services.
ARTICLE 8
Closing; Conditions to the Merger
Section 8.01. Closing. The closing of the transactions contemplated
hereby shall take place at the offices of Davis Polk & Wardwell, 450 Lexington
Avenue, New York, New York, or at such other location as the parties may agree
in writing.
Section 8.02. Conditions to the Obligations of Each Party. The obligations
of the Company, Buyer and Merger Subsidiary to consummate the Merger are subject
to the satisfaction of the following conditions:
(a) this Agreement shall have been adopted by the stockholders of the
Company in accordance with Pennsylvania Law;
(b) the applicable waiting period under the HSR Act relating to the
Merger shall have expired or been terminated;
(c) the governmental and third party notices, authorizations,
consents, orders or approvals set forth on Schedule 8.02 shall have been
----
obtained and be in effect; and
(d) (i) no federal, state or foreign court, arbitrator or
governmental body, agency, or official shall have issued any order, and
there shall not have been adopted or promulgated any statute, rule or
regulation, prohibiting the consummation of the Merger, or, except for
orders, statutes, rules and regulations of general effect, limiting or
restricting Buyer's conduct or operation of the business of the Company
after the Merger in a manner that would have a Material Adverse Effect,
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and (ii) no proceeding seeking to prohibit, alter, prevent or materially
delay the Merger shall have been instituted by any governmental agency or
authority before any court, arbitrator or governmental body, agency or
official and be pending.
Section 8.03. Conditions to the Obligations of Buyer and Merger
Subsidiary. The obligations of Buyer and Merger Subsidiary to consummate the
Merger are subject to the satisfaction of the following further conditions:
(a) (i) the Company shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or prior to
the Effective Time and the representations and warranties of the Company
contained in this Agreement shall be true (disregarding all exceptions
therein for materiality and Material Adverse Effect) at and as of the
Effective Time as if made at and as of such time (except for
representations and warranties made as of a specific date, which shall be
true (disregarding all exceptions therein for materiality and Material
Adverse Effect) at and as of such date) with such exceptions as would not,
individually or in the aggregate, have a Material Adverse Effect and (ii)
Buyer shall have received a certificate signed by an executive officer on
behalf of the Company to the foregoing effect;
(b) Buyer shall have received all customary documents it may
reasonably request relating to the existence of the Company and the
authority of the Company for this Agreement, all in form and substance
reasonably satisfactory to Buyer;
(c) all notices to and authorizations, consents, orders and approvals
from applicable Franchise Authorities necessary to transfer control of
Franchises in which in the aggregate at least 90% of the Basic Subscribers
of the Company and its Subsidiaries are located shall have been obtained
and be in effect (the "90% THRESHOLD"); provided that this condition will
be deemed not to have been satisfied until the earliest of (i) the date
upon which this condition would be satisfied if the percentage used for the
90% Threshold was 95% rather than 90%, (ii) 30 days after the date upon
which the 90% Threshold is met and (iii) 20 business days prior to the
first anniversary of the date hereof ; and
(d) Buyer shall have received a certificate signed by an executive
officer on behalf of the Company in the form attached hereto as Exhibit C;
(e) Buyer shall have received a certificate signed by an executive
officer on behalf of LTTH in the form attached hereto as Exhibit D; and
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(f) Either (i) CTE shall have issued approximately $75-100 million of
equity or equity-linked instruments (which may include convertible
debentures) in accordance with the description of proposed transactions set
forth in the Spin-Off Letter Ruling or (ii) the Internal Revenue Service
shall have issued to CTE a letter ruling supplementing the Spin-Off Letter
Ruling which is reasonably satisfactory to Buyer and holds that the Company
Distribution was tax-free under (S)355 of the Code irrespective of the
issuance of such equity or equity-linked instruments.
Section 8.04. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) (i) each of Buyer and Merger Subsidiary shall have performed in
all material respects all of its obligations hereunder required to be
performed by it at or prior to the Effective Time and the representations
and warranties of the Buyer and Merger Subsidiary contained in this
Agreement shall be true (disregarding all exceptions therein for
materiality and Buyer MAE) at and as of the Effective Time as if made at
and as of such time (except for representations and warranties made as of a
specific date, which shall be true (disregarding all exceptions therein for
materiality and Buyer MAE) at and as of such date) with such exceptions as
would not, individually or in the aggregate, have a Buyer MAE and (ii) the
Company shall have received a certificate signed by an executive officer on
behalf of Buyer to the foregoing effect;
(b) the Company shall have received all customary documents that the
Company shall reasonably request relating to the existence of Buyer and
Merger Subsidiary and the authority of Buyer and Merger Subsidiary to enter
into this Agreement, the Commitment Letters and the Financing Agreements,
all in form and substance reasonably satisfactory to the Company; and
(c) the Company shall have received an opinion of a nationally
recognized appraiser retained by the Company regarding the solvency of
Buyer, the Company and its Subsidiaries after giving effect to the
transactions contemplated hereby, including the Financings, and such
opinion shall be in form and substance reasonably satisfactory to the
Company.
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ARTICLE 9
Termination
Section 9.01. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the stockholders of the Company):
(a) by mutual written consent of the Company and Buyer;
(b) by either the Company or Buyer if, at the Company Stockholder
Meeting (including any postponement or adjournment thereof), the Merger and
the other transactions contemplated hereby that require such approval shall
fail to be approved and adopted by the affirmative vote specified herein;
(c) by either the Company or Buyer, if the Merger has not been
consummated by the first anniversary of the date hereof, provided that no
party whose willful breach has resulted in the Merger not being consummated
by such date shall be entitled to terminate this Agreement under this
subsection (c);
(d) by either the Company or Buyer (so long as such party has
complied in all material respects with its obligations under Section 7.01),
-----
if there shall be any law or regulation that makes consummation of the
Merger illegal or if any judgment, injunction, order or decree enjoining
Buyer or the Company from consummating the Merger is entered and such
judgment, injunction, order or decree shall become final and nonappealable;
(e) by the Company (provided that at the time Buyer would not be
entitled to terminate this Agreement under Section 9.01(f) disregarding the
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notice provision therein) if Buyer or Merger Subsidiary is (i) in material
breach of any of its obligations hereunder (it is agreed that the failure
of Buyer to obtain financing sufficient to pay the Merger Consideration in
respect of all of the Shares and to pay all related fees and expenses in
connection with the Merger and this Agreement will be treated as a material
breach by Buyer of its obligations hereunder if all conditions under
Sections 8.02 and 8.03 have been satisfied and the time set for the
---- ----
Effective Time under Section 1.01(b) occurs (treating all of the conditions
-------
under Section 8.04 as having been satisfied)) or (ii) in breach of one or
----
more of its representations and warranties hereunder (disregarding any
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exceptions therein for materiality or Buyer MAE) with such exceptions as
would not individually or in the aggregate have a Buyer MAE, and does not
cure, or proceed in good faith to cure, such breach within ten business
days after the Company delivers written notice thereof;
(f) by Buyer (provided that at the time the Company would not be
entitled to terminate this Agreement under Section 9.01(e) disregarding the
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notice provisions thereof) if the Company is (i) in material breach of any
of its obligations hereunder or (ii) in breach of one or more of its
representations or warranties hereunder (disregarding any exceptions
therein for materiality or Material Adverse Effect) with such exceptions as
would not individually or in the aggregate have a Material Adverse Effect,
and does not cure, or proceed in good faith to cure, such breach within ten
business days after notice by Buyer thereof;
(g) by the Company, if prior to the Company Stockholder Meeting, the
Board of Directors of the Company shall have failed to recommend or shall
have withdrawn or modified or changed in a manner adverse to Buyer its
approval or recommendation of this Agreement or the Merger or shall have
failed to include its recommendation in favor of the Merger in the Company
Proxy Statement or shall have recommended or approved or endorsed a
Superior Proposal (provided that the determination by the Board of
Directors that an Acquisition Proposal constitutes a Superior Proposal for
purposes of the first sentence of Section 5.04 shall not be treated as
----
recommending, approving or endorsing a Superior Proposal), or the Company
shall have entered into a definitive agreement or a letter of intent or
similar agreement (which shall not include a confidentiality/standstill
agreement permitted by Section 5.04) providing for a Superior Proposal with
----
a Person other than Buyer or its Subsidiaries, in each case in accordance
with and to the extent permitted by Section 5.02; provided that the Company
----
shall have made the payment referred to in Section 10.04(b) hereof;
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(h) by Buyer if the Board of Directors of the Company shall have
failed to recommend or shall have withdrawn, or modified or changed in a
manner adverse to Buyer its approval or recommendation of this Agreement or
the Merger or shall have failed to include its recommendation in favor of
the Merger in the Company Proxy Statement or shall have recommended or
approved or endorsed a Superior Proposal (provided that the determination
by the Board of Directors that an Acquisition Proposal constitutes a
Superior Proposal for purposes of the first sentence of Section 5.04 shall
----
not be treated as recommending, approving or endorsing a Superior
Proposal), or the Company shall have
46
<PAGE>
entered into a definitive agreement or a letter of intent or similar
agreement (which shall not include a confidentiality/standstill agreement
permitted by Section 5.04) providing for a Superior Proposal with a Person
----
other than Buyer or its Subsidiaries;
(i) by the Company (provided that at the time the Buyer would not be
entitled to terminate this Agreement under Section 9.01(f) disregarding the
-------
notice provisions thereof) at any time after October 31, 1998 if at such
time the Commitment Letter (including any extension thereof) from the
Lender has terminated or expired and Buyer has not entered into agreements
or received commitments that in the aggregate, together with any funds
(including any escrowed funds) of Buyer, provide for the Financing
sufficient to pay the Merger Consideration in respect of all of the Shares
and to pay all related fees and expenses in connection with the Merger and
this Agreement, all on terms and conditions reasonably satisfactory to the
Company;
(j) by the Buyer (provided that at the time the Company would not be
entitled to terminate this Agreement under Section 9.01(e) disregarding the
-------
notice provisions thereof) at any time after September 30, 1998 if the
Effective Time would have occurred but for the failure of the condition set
forth in Section 8.03(f) to be satisfied and such condition has not been
satisfied prior to the date of termination; or
(k) by the Buyer (provided that at the time the Company would not be
entitled to terminate this Agreement under Section 9.01(e) disregarding the
-------
notice provisions thereof) if the Company elects not to cause the Company's
proxy statement and proxy to be mailed to the Company's stockholders
pursuant to the proviso to the third sentence of Section 5.02.
----
The party desiring to terminate this Agreement pursuant to this Section shall
give written notice of such termination to the other party in accordance with
Section 10.01.
-----
Section 9.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 9.01, this Agreement shall become void and of no effect with
----
no liability on the part of any party hereto, except that the agreements
contained in this Section 9.02, Section 10.04 and the Confidentiality Agreement
---- -----
shall survive the termination hereof. If this Agreement is terminated by the
Company pursuant to Section 9.01(e) or Section 9.01(i) then, as liquidated
------- -------
damages in respect of such breach or action by Buyer or Merger Subsidiary, the
Escrow Agent shall draw the full amount available for drawing under the Letters
of Credit (if they have not
47
<PAGE>
previously been drawn) and pay the proceeds to the Company, pursuant to the
terms of the Escrow Agreement, and neither Buyer nor Merger Subsidiary shall
have any further liability hereunder. If this Agreement is terminated other than
as described in the preceding sentence, then the Escrow Agent shall return to
the Buyer, pursuant to the terms of the Escrow Agreement, the Letters of Credit
(or if the Letters of Credit have previously been drawn, the proceeds
therefrom).
ARTICLE 10
Miscellaneous
Section 10.01. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
in person, by telecopy with answerback, by express or overnight mail delivered
by a nationally recognized air courier (delivery charges prepaid) or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
if to Buyer or Merger Subsidiary, to:
Avalon Cable of Michigan Holdings Inc.
Avalon Cable of Michigan Inc.
c/o ABRY Partners, L.P.
18 Newbury Street
Boston, Massachusetts 02116
Telecopy: (617) 859-2797
Attention: Jay Grossman
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Telecopy: (312) 861-2200
Attention: Jill Sugar Factor
if to the Company, to:
Cable Michigan, Inc.
105 Carnegie Center
48
<PAGE>
Princeton, New Jersey 08540
Telecopy: (609) 734-3830
Attention: General Counsel
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
Attention: William L. Taylor
or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above. Any
notice or communication delivered in person or by telecopy shall be deemed
effective on delivery. Any notice or communication sent by air courier shall be
deemed effective on the first business day at the place at which such notice or
communication is received following the day on which such notice or
communication was sent. Any notice or communication sent by registered or
certified mail shall be deemed effective on the fifth business day at the place
from which such notice or communication was mailed following the day on which
such notice or communication was mailed.
Section 10.02. Survival of Representations, Warranties and Covenants. The
representations and warranties contained herein and in the certificates
delivered pursuant to Sections 8.03(a)(ii), 8.03(d), 8.03(e) and 8.04(a)(ii)
----------- ------- ------- -----------
shall not survive the Effective Time or the termination of this Agreement. All
covenants and agreements contained herein which by their terms are to be
performed in whole or in part after the Effective Time shall survive the
Effective Time and be enforceable in accordance with their terms.
Section 10.03. Amendments; No Waivers. (a) Any provision of this Agreement
may be amended or waived prior to the Effective Time if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company, Buyer and Merger Subsidiary or in the case of a waiver, by the
party against whom the waiver is to be effective; provided that after the
adoption of this Agreement by the stockholders of the Company, no such amendment
or waiver shall, without the further approval of such stockholders, make any
change that would require further stockholder approval under the Pennsylvania
Law.
49
<PAGE>
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 10.04. Expenses. (a) Except as set forth herein, all costs and
expenses incurred in connection with this Agreement shall be paid by the party
incurring such cost or expense.
(b) If (x) the Company shall terminate this Agreement pursuant to Section
9.01(g) hereof, or (y) Buyer shall terminate this Agreement pursuant to Section
- -------
9.01(f), 9.01(h) or 9.01(k), or (z) either party shall terminate this Agreement
- ------- ------- -------
pursuant to Section 9.01(b) in circumstances where the Company Stockholder
-------
Approval has not been obtained and the Company has not complied in all material
respects with its obligations under Sections 5.02 and 5.04, then in any such
---- ----
case as described in clause (x), (y) or (z), the Company shall pay to Buyer (by
wire transfer of immediately available funds not later than the date of
termination of this Agreement) an amount equal to $10,000,000 as liquidated
damages for the damages, costs and expenses incurred by Buyer in connection with
this Agreement, the Merger and the other transactions contemplated hereby. If
the Buyer shall terminate this Agreement pursuant to Section 9.01(i) hereof,
-------
then the Company shall pay to Buyer (by wire transfer of immediately available
funds not later than the date of termination of this Agreement) an amount equal
to $3,000,000 as liquidated damages, costs and expenses incurred in connection
with this Agreement, the Merger and the other transactions contemplated hereby.
Acceptance by Buyer of the payment referred to in either of the foregoing
sentences shall constitute conclusive evidence that this Agreement has been
validly terminated and that the Company have no further liability hereunder.
Section 10.05. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto, except that, without the
consent of the Company, the rights and obligations of Merger Sub hereunder may
be assigned in whole to any affiliate of Buyer so long as such assignment does
not materially delay or interfere with the transactions contemplated herein.
Section 10.06. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement,
50
<PAGE>
except for Sections 1.05, 6.03, 7.08 and 10.07 and the first sentence of Section
---- ---- ---- -----
10.02 (which are also intended to be for the benefit of the persons provided for
- -----
therein and may also be enforced by such persons).
Section 10.07. No Personal Liability. Neither this Agreement nor any
certificate delivered hereunder shall create or be deemed to create or permit
any personal liability or obligation on the part of any direct or indirect
shareholder of any party hereto or any officer, director, employee, agent,
representative or investor of any party hereto.
Section 10.08. Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of New York, except that
the consummation and effectiveness of the Merger shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
Section 10.09. Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated by this Agreement shall be
brought in any federal court in the Borough of Manhattan, New York, New York or
any New York state court in the Borough of Manhattan, New York, New York, and
each of the parties hereto hereby consents to the exclusive jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and waives any objection to venue laid therein. Process in
any such suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the State of New York. Without limiting the
generality of the foregoing, each party hereto agrees that service of process
upon such party at the address referred to in Section 10.01, together with
-----
written notice of such service to such party, shall be deemed effective service
of process upon such party.
Section 10.10. Interpretation. When a reference is made in this Agreement
to a Section or Schedule, such reference shall be to a Section of or a Schedule
to this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include", "includes" or "including" are used in this Agreement they
shall be deemed to be followed by the words "without limitation". The phrases
"the date of this Agreement", "the date hereof", and terms of similar import,
unless the context otherwise requires, shall be deemed to refer to June 3, 1998.
Section 10.11. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
51
<PAGE>
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in any
federal court located in the Borough of Manhattan, New York, New York or any New
York state court in the Borough of Manhattan, New York, New York, in addition to
any other remedy to which they are entitled at law or in equity.
Section 10.12. Entire Agreement; Schedules. This Agreement, the Voting
Agreement and the Confidentiality Agreement constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior written and oral and all contemporaneous oral agreements and
understandings with respect to the subject matter hereof. Each party
acknowledges and agrees that no other party hereto makes any representations or
warranties, whether express or implied, other than the express representations
and warranties contained herein or in the certificates to be delivered at the
Effective Time. The fact that any item of information is disclosed in any
Schedule to this Agreement shall not be construed to mean that such information
is required to be disclosed by this Agreement. Such information and the dollar
thresholds set forth herein shall not be used as a basis for interpreting the
terms "material" or "Material Adverse Effect" or other similar terms in this
Agreement. A matter set forth in one section of the Schedules need not be set
forth in any other section or Schedule so long as its relevance to the latter
section or Schedule is reasonably clear.
Section 10.13. Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
Section 10.14. Severability. If any term or other provision of this
Agreement is determined to be invalid, illegal or incapable of being enforced by
any rule of law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated herein is not
affected in any manner materially adverse to any party hereto. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner.
52
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
CABLE MICHIGAN, INC.
By: ______________________________________
Name:
Title:
AVALON CABLE OF MICHIGAN
HOLDINGS INC.
By: ______________________________________
Name:
Title:
AVALON CABLE OF MICHIGAN INC.
By: ______________________________________
Name:
Title:
<PAGE>
EXHIBIT C
CABLE MICHIGAN, INC.
EXECUTIVE OFFICER'S CERTIFICATE
-------------------------------
The undersigned, being the ____________ of Cable Michigan, Inc., a
Pennsylvania corporation (the "CORPORATION"), does hereby certify on behalf of
the Corporation pursuant to Section 8.03(d) of the Agreement and Plan of Merger
dated as of June 3, 1998 among the Corporation, Avalon Cable of Michigan
Holdings Inc., a Delaware corporation and Avalon Cable of Michigan Inc., a
Delaware corporation that he is familiar with the facts set forth herein and
does hereby further certify on behalf of the Corporation that the following are
true and correct:
1. As of the date on which all of the stock of the Corporation was
distributed by C-TEC Corporation pro rata to its common equity holders
(the "CORPORATION DISTRIBUTION"), there was no plan (or series of
related transactions) pursuant to which one or more persons would
acquire directly or indirectly stock representing a 50% or greater
interest in C-TEC Corporation or the Corporation within the meaning of
Code (S)355(e);
2. A true, correct and complete copy of the letter ruling issued by the
Internal Revenue Service to C-TEC Corporation (including any
supplements or modifications thereto) relating to the Corporation
Distribution is attached hereto as Exhibit A (the "SPIN-OFF LETTER
RULING");
3. The transactions proposed in the Spin-Off Letter Ruling (together with
any supplements or modifications thereto) that were to have occurred
prior to the date of this certificate have occurred substantially in
the manner set forth in such ruling.
4. The representations and warranties set forth in the Spin-Off Letter
Ruling (together with any supplements or modifications thereto) were
true and correct in all material respects as of the date of the Spin-
Off Letter Ruling as supplemented or modified and as of the date on
which the Corporation Distribution occurred.
<PAGE>
IN WITNESS WHEREOF, Cable Michigan, Inc. has caused this Certificate to be
executed by its duly authorized representative this ___ day of _________, 1998.
CABLE MICHIGAN, INC.
By:______________________________________
(signature)
______________________________________
(Printed name and title)
<PAGE>
EXHIBIT D
CERTIFICATE OF LEVEL 3 TELECOM HOLDINGS INC.
This Certificate is executed and delivered pursuant to Section 8.03(e) of
the Agreement and Plan of Merger (the "MERGER AGREEMENT") dated as of June 3,
1998 by and among Cable Michigan, Inc., a Pennsylvania corporation (the
"CORPORATION"), Avalon Cable of Michigan Holdings Inc. a Delaware corporation
and Avalon Cable of Michigan Inc., a Delaware corporation ("MERGER SUBSIDIARY").
Pursuant to the Merger Agreement, Merger Subsidiary will merge with and into the
Corporation, with the Corporation being the surviving corporation.
The undersigned on behalf of the Level 3 Telecom Holdings Inc. ("LTTH")
hereby certifies, represents and warrants to the Buyer and the Merger Subsidiary
that, to LTTH's knowledge, the following facts are true and correct:
1. As of the date on which all of the stock of the Corporation was
distributed by C-TEC Corporation pro rata to its common equity holders
(the "Corporation Distribution"), there was no plan (or series of
related transactions) pursuant to which one or more persons would
acquire directly or indirectly stock representing a 50% or greater
interest in C-TEC Corporation or the Corporation within the meaning of
Code (S) 355(e); and
2. The representations and warranties made by LTTH set forth in the
letter ruling (attached hereto as Exhibit A) issued by the Internal
Revenue Service to C-TEC Corporation (including any supplements or
modifications thereto) relating to the Corporation Distribution (the
"Spin-Off Letter Ruling") were true and correct in all material
respects as of the date of the Spin-Off Letter Ruling (as supplemented
or modified) and as of the date on which the Corporation Distribution
occurred.
<PAGE>
IN WITNESS WHEREOF, Level 3 Telecom Holdings Inc. has caused this
Certificate to be executed by its duly authorized representative this ___ day of
_______, 1998.
LEVEL 3 TELECOM HOLDINGS INC.
By:______________________________________
(signature)
______________________________________
(Printed name and title)
2
<PAGE>
VOTING AGREEMENT
This Voting Agreement dated as of June 3, 1998 (this "AGREEMENT"), is by
and among Avalon Cable of Michigan Holdings Inc., a Delaware corporation
("BUYER"), Cable Michigan, Inc., a Pennsylvania corporation (the "COMPANY"), and
Level 3 Telecom Holdings, Inc., a Delaware corporation ("LTTH").
WHEREAS, LTTH owns 3,330,121 shares of the Company's Common Stock, $1.00
par value per share ("COMMON STOCK") (all shares of Common Stock now owned and
which may hereafter be acquired by LTTH prior to the termination of this
Agreement shall be referred to herein as the "SHARES");
WHEREAS, the Company, Buyer, and Avalon Cable of Michigan Inc., a Delaware
corporation and wholly owned subsidiary of Buyer ("MERGER SUBSIDIARY") propose
to enter into an Agreement and Plan of Merger, dated as of the date hereof (as
amended from time to time, the "MERGER AGREEMENT"), which provides, among other
things, that Merger Subsidiary will merge with the Company (the "MERGER") (this
and other capitalized terms used and not defined herein shall have the meanings
given to such terms in the Merger Agreement);
WHEREAS, it is a condition to the willingness of Buyer to enter into the
Merger Agreement that LTTH agree, and in order to induce Buyer to enter into the
Merger Agreement, LTTH has agreed, to enter into this Agreement; and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE 1
VOTING OF SHARES
SECTION 1.1. Voting Agreement. LTTH hereby agrees that during the time
this Agreement is in effect, at any meeting of the stockholders of the Company,
however called, and in any action by consent of the stockholders of the Company,
LTTH shall vote its Shares: (i) in favor of the Merger, the Merger Agreement
and the other transactions contemplated by the Merger Agreement (collectively,
the "TRANSACTIONS") with respect to which LTTH may be entitled to vote, (ii)
against any proposal for any recapitalization, merger, sale of assets or other
business combinations of or by the Company or any of its Subsidiaries other than
the Transactions, or any other action or agreement, that would in any such case
result in a breach of any covenant, representation or warranty or any other
<PAGE>
obligation or agreement of the Company under the Merger Agreement or that would
result in any of the conditions to the obligations of the Company under the
Merger Agreement not being fulfilled, and (iii) in favor of any other matter
relating to the consummation of the Transactions with respect to which LTTH may
be entitled to vote. LTTH acknowledges receipt and review of a copy of the
Merger Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF LTTH
LTTH hereby represents and warrants to Buyer and the Company as follows:
SECTION 2.1. Authority Relative to this Agreement. LTTH has all necessary
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by LTTH and the consummation by
LTTH of the transactions contemplated hereby have been duly and validly
authorized by LTTH, and no other proceedings on the part of LTTH are necessary
to authorize the execution and delivery of this Agreement or to consummate such
transactions. This Agreement has been duly and validly executed and delivered
by LTTH and constitutes a legal, valid and binding obligation of LTTH,
enforceable against LTTH in accordance with its terms, except (x) as the same
may be limited by applicable bankruptcy, insolvency, moratorium or similar laws
of general application relating to or affecting creditors' rights, including
without limitation, the effect of statutory or other laws regarding fraudulent
conveyance and preferential transfers, and (y) for the limitations imposed by
general principles of equity.
SECTION 2.2. No Conflict.
(a) The execution and delivery of this Agreement by LTTH do not, and the
performance of this Agreement by LTTH will not, (i) conflict with or violate the
Certificate of Incorporation or By-laws of LTTH, (ii) conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to LTTH or by
which LTTH's Shares are bound or (iii) result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the Shares pursuant to, any contract or agreement to which
LTTH is a party or by which LTTH or the Shares are bound, except, in the case of
clauses (ii)
2
<PAGE>
and (iii), for any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or materially delay the performance by LTTH
of its obligations under this Agreement.
(b) The execution and delivery of this Agreement by LTTH do not, and the
performance of this Agreement by LTTH will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any federal,
state, local or foreign regulatory body, except (i) filings with the SEC under
the Exchange Act and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or materially delay the performance by LTTH of its obligations under
this Agreement.
SECTION 2.3. Title to the Shares. LTTH is the owner of the Shares, free
and clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on voting rights, charges and other
encumbrances (collectively, "LIENS") of any nature whatsoever. LTTH has not
appointed or granted any proxy, which appointment or grant is still effective,
with respect to the Shares. LTTH has sole voting power with respect to the
Shares.
ARTICLE 3
COVENANTS OF LTTH
SECTION 3.1. No Inconsistent Agreement. LTTH hereby covenants and agrees
that it shall not enter into any voting agreement or grant a proxy or power of
attorney with respect to the Shares which is inconsistent with this Agreement.
SECTION 3.2. Transfer of Title. LTTH hereby covenants and agrees that,
LTTH will not transfer ownership of any of its Shares except where the
transferee agrees in writing to be bound by the terms and conditions of this
Agreement. Nothing else contained in this Agreement shall be construed to
prohibit any transfer permitted by this Section 3.2.
ARTICLE 4
MISCELLANEOUS
SECTION 4.1. Termination. This Agreement shall terminate on the earliest
to occur of (i) the date of consummation of the Merger, (ii) the first
3
<PAGE>
anniversary of the date hereof, and (iii) the date of the termination of the
Merger Agreement.
SECTION 4.2. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement is
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 4.3. Entire Agreement. This Agreement constitutes the entire
agreement among the parties, and supersedes all prior written and oral and all
contemporaneous oral agreements and understandings, with respect to the subject
matter hereof.
SECTION 4.4. Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 4.5. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 4.6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania,
regardless of the laws that might otherwise govern under principles of conflicts
of law applicable hereto.
SECTION 4.7. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 4.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 4.9. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
in
4
<PAGE>
person, by telecopy with answerback, by express or overnight mail delivered
by a nationally recognized air courier (delivery charges prepaid) or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows: (a) if to LTTH, to it at 3555 Farnam Street,
Omaha, Nebraska 68131, Telecopy: (402) 536-3645, attention: Matthew J. Johnson,
with a copy to Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York,
10017, Telecopy: (212) 450-8000, attention: William L. Taylor, (b) if to the
Company, to it at 105 Carnegie Center, Princeton, New Jersey 08540, Telecopy:
(609) 734-3830, attention: General Counsel, with a copy to Davis Polk &
Wardwell, 450 Lexington Avenue, New York, New York 10017, Telecopy: (212) 450-
4800, attention: William L. Taylor or (c) if to Buyer, to it c/o ABRY Partners,
L.P., 18 Newbury Street, Boston, Massachusetts 02116, Telecopy: (617) 859-2797,
attention: Jay Grossman with a copy to Kirkland & Ellis, 200 East Randolph
Drive, Chicago, Illinois 60601, Telecopy: (312) 861-2200, attention: Jill Sugar
Factor or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Any notice or communication delivered in person or by telecopy shall be deemed
effective on delivery. Any notice or communication sent by air courier shall be
deemed effective on the first business day at the place at which such notice or
communication is received following the day on which such notice or
communication was sent. Any notice or communication sent by registered or
certified mail shall be deemed effective on the fifth business day at the place
from which such notice or communication was mailed following the day on which
such notice or communication was mailed.
SECTION 4.10. Assignments. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 4.11. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any person
any right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
AVALON CABLE OF MICHIGAN HOLDINGS INC.
By: _______________________________
Name:
Title:
CABLE MICHIGAN, INC.
By: ______________________________
Name:
Title:
LEVEL 3 TELECOM HOLDINGS, INC.
By: ______________________________
Name:
Title:
6
<PAGE>
AGREEMENT RE JOINT FILING OF
SCHEDULE 13D
------------
The undersigned hereby agrees as follows:
(i) Each of them is individually eligible to use the Schedule 13D to
which this Exhibit is attached, and such Schedule 13D is filed on behalf of each
of them; and
(ii) Each of them is responsible for the timely filing of such
Schedule 13D and any amendments thereto, and for the completeness and accuracy
of the information concerning such person contained therein; but none of them is
responsible for the completeness or accuracy of the information concerning the
other persons making the filing, unless such person knows or has reason to
believe that such information is inaccurate.
Dated: June 12, 1998
AVALON CABLE OF MICHIGAN HOLDINGS INC.
By: /s/ Peggy Koenig
-------------------------------------
Print Name: Peggy Koenig
Its: President
AVALON CABLE HOLDINGS, L.L.C.
By: ABRY BROADCAST PARTNERS III, L.P.,
a Member
By: ABRY EQUITY INVESTORS, L.P.,
its General Partner
By: ABRY HOLDINGS III, INC., its General Partner
By: /s/ Peni Garber
---------------------------------
Print Name: Peni Garber
Its: Secretary
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ABRY BROADCAST PARTNERS III, L.P.
By: ABRY EQUITY INVESTORS, L.P.,
its General Partner
By: ABRY HOLDINGS III, INC., its General Partner
By: /s/ Peni Garber
---------------------------------
Print Name: Peni Garber
Its: Secretary
ABRY EQUITY INVESTORS, L.P.
By: ABRY HOLDINGS III, INC., its General Partner
By: /s/ Peni Garber
--------------------------------
Print Name: Peni Garber
Its: Secretary
ABRY HOLDINGS III, INC.,
By: /s/ Peni Garber
--------------------------------------
Print Name: Peni Garber
Its: Secretary
/s/ Royce Yudkoff
----------------------------
ROYCE YUDKOFF
