As filed with the Securities and Exchange Commission on June 28, 1995
Registration No. 33-58715
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 2
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MERCOM, INC.
(Exact name of Registrant as specified in its charter)
Delaware 38-2728175
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 Carnegie Center
Princeton, New Jersey 08540
(609) 734-3700
(Address, including zip code, and telephone number,
including area code of Registrant's principal executive offices)
Raymond B. Ostroski
Executive Vice President
and General Counsel
105 Carnegie Center
Princeton, New Jersey 08540
(609) 734-3700
(Name, address, including zip code,
and telephone number,
including area code, of agent for
service)
-------------------------
Copy to:
Peter R. Douglas
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
-------------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
-------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
PROSPECTUS (Subject to Completion)
Issued June 28, 1995
2,393,530 Shares
Mercom, Inc.
Common Stock
----------------
Mercom, Inc., a Delaware corporation (the "Company"), is distributing
to holders of record ("Holders") of shares of its Common Stock, par value
$1.00 per share (the "Common Stock"), non-transferable subscription rights
(the "Rights") to subscribe for and purchase additional shares of the Common
Stock for a price of $[ ] per share (the "Subscription Price"). Such
shareholders will receive one Right for every share of Common Stock held by
them as of the close of business on _________ __, 1995 (the "Record Date").
Rights holders may purchase one share of Common Stock for each whole Right
held upon payment of the Subscription Price (the "Basic Subscription
Privilege"). Each Right also carries the right to subscribe (the
"Oversubscription Privilege") at the Subscription Price for additional shares
of Common Stock that are not otherwise purchased pursuant to the exercise of
Rights. See "The Rights Offering--Subscription Privileges--Oversubscription
Privilege." The Rights will be evidenced by non-transferable certificates.
Once a holder has exercised any Rights, such exercise may not be revoked,
unless (i) a material change in the terms of the Rights Offering adversely
affecting such Rights holder has been made or (ii) C-TEC (as defined below)
does not exercise the Basic Subscription Privilege in respect of the Rights it
receives or does not exercise the Oversubscription Privilege to purchase all
other shares of Common Stock offered hereby.
The Rights will expire at 5:00 p.m., New York City time, on _________
__, 1995, unless extended (as it may be extended, the "Expiration Date"),
provided that the Expiration Date shall in no event be later than ________ __,
1995 [30 days after the original Expiration Date]. Shareholders who do not
exercise their Rights will relinquish the value inherent in the Rights. See
"Risk Factors--Dilution." The Company currently has a negative net worth.
The net tangible book value of the shares of Common Stock as of March 31, 1995
was a deficiency of approximately $(15,900,000), or $(6.63) per share. See
"Dilution."
As of the date hereof, C-TEC Corporation, a Pennsylvania
corporation ("C-TEC"), indirectly owned, through C-TEC Properties, Inc., a
Delaware corporation and wholly owned subsidiary of C-TEC (C-TEC and C-TEC
Properties, Inc. are referred to collectively herein as "C-TEC" except as
the context otherwise requires), 1,044,194 shares of Common Stock,
representing 43.63% of the outstanding Common Stock. C-TEC effectively
controls the Company. C-TEC will receive 1,044,194 Rights in respect of
the shares of Common Stock it owns. C-TEC has agreed with the Company to
exercise the Rights it receives for an aggregate subscription price of $[ ]
and to exercise the Oversubscription Privilege to purchase at the
Subscription Price all other shares of Common Stock being offered for sale
hereby. The opportunity to exercise the Oversubscription Privilege is
available to all holders of Rights on the same terms. It is likely that
the Rights Offering will result in C-TEC owning over 50% of the Common
Stock and having actual control of the Company. If no Rights are exercised
by other stockholders and all shares of Common Stock offered hereby are
purchased by C-TEC, C-TEC will beneficially own 3,437,724 shares of Common
Stock (including shares owned prior to the Rights Offering), representing
approximately 71.81% of the outstanding shares of Common Stock of the
Company.
The Common Stock is traded in the over-the-counter market and is
quoted on the OTC Bulletin Board (with such quotes reported in the pink sheets
of the National Quotations Bureau, Inc.) under the symbol "MEEO." On April
18, 1995, the last day on which bid and ask prices were quoted prior to the
public announcement of the Rights Offering, the closing bid price of the
Common Stock on the OTC Bulletin Board was $3.75 per share and the closing ask
price of the Common Stock on the OTC Bulletin Board was $4.25 per share. On
________ __, 1995, the closing bid price of the Common Stock on the OTC
Bulletin Board was $[ ] per share and the closing ask price of the Common
Stock on the OTC Bulletin Board was $[ ] per share. These are inter-dealer
quotations, which do not reflect mark-up, mark-down or commissions and may not
reflect actual transactions. Trading in the Common Stock has been limited and
sporadic and thus does not constitute an established public trading market.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
SHAREHOLDERS WHO DO NOT EXERCISE THEIR RIGHTS IN FULL WILL EXPERIENCE
DILUTION IN THEIR RELATIVE PERCENTAGE OWNERSHIP IN THE COMPANY UPON
ISSUANCE OF THE COMMON STOCK TO SHAREHOLDERS EXERCISING THEIR RIGHTS.
-------------------------
THE COMMON STOCK AND RIGHTS OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK. BEFORE MAKING AN INVESTMENT DECISION, POTENTIAL INVESTORS SHOULD
CAREFULLY CONSIDER THE FACTORS SET FORTH IN "RISK FACTORS".
Underwriting Discounts Proceeds to the
Price to Public and Commissions Company(1)
--------------- ---------------------- ---------------
Per Share........ $ N/A $
Total............ $ N/A $
(1) Before deduction of estimated expenses of $500,000 payable by the
Company, including registration fees, NASD review fees, financial
advisory, legal and accounting fees, subscription agent fees,
information agent fees, printing expenses and other miscellaneous
fees and expenses.
The date of this Prospectus is _________ __, 1995.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Reports,
proxy statements and other information filed by the Company can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Regional
Offices of the Commission located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained upon
written request addressed to the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates.
The Company has filed with the Commission a Registration Statement on
Form S-3 (together with any amendments thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of Common Stock issuable upon exercise of the Rights.
This Prospectus does not contain all the information set forth in the
Registration Statement. Such additional information may be obtained from the
Commission's principal office in Washington, D.C. Statements contained in
this Prospectus or in any document incorporated in this Prospectus by
reference as to the contents of any contract or other document referred to
herein or therein summarize all material elements of the relevant document but
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company (File No. 0-17750) with
the Commission pursuant to Section 13 of the Exchange Act are incorporated
herein by reference: (i) the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, as amended on June 28, 1995, (ii)
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995, (iii) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed with the Commission on May 22,
1990, (iv) the Company's Current Report on Form 8-K filed with the
Commission on May 4, 1995, (v) the Company's Current Report on Form 8-K
filed with the Commission on June 14, 1995 and (vi) the Company's Proxy
Statement filed with the Commission on May 22, 1995.
All documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Common Stock shall be deemed
to be incorporated by reference into this Prospectus and to be a part hereof
from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which is also deemed to be incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. The Company will provide without
charge to each person, including each beneficial owner, to whom a copy of this
Prospectus has been delivered, on the written or oral request of such person,
a copy of any or all documents referred to above which have been incorporated
by reference into this Prospectus except the exhibits to such documents unless
such exhibits are specifically incorporated by reference into the information
that the Prospectus incorporates. Telephone requests for such copies should
be directed to the Information Agent at (212) 929-5500 or (800) 322-2885, or,
if made in writing, to MacKenzie Partners, Inc., 156 Fifth Avenue, 9th Floor,
New York, NY 10010. Such requests may also be directed to Valerie C. Haertel,
Director, Investor Relations at (609) 734-3816 or, if made in writing, to
Mercom, Inc., 105 Carnegie Center, Princeton, New Jersey 08540, attention:
Valerie C. Haertel, Director, Investor Relations.
The Rights Offering is not being made, and Subscription Certificates
will not be distributed, to residents of the State of California, as the
California Department of Corporations has determined that the Rights
Offering does not meet the requirements of the Code of Regulations
promulgated under the California Corporate Securities Law of 1968, as
amended.
PROSPECTUS SUMMARY
The following material is qualified in its entirety by the
information appearing elsewhere in this Prospectus and in the documents
incorporated in this Prospectus by reference.
RISK FACTORS
There are substantial risks in connection with the Rights
Offering that should be considered by prospective purchasers. The
following is a summary of certain of such risks: (i) the Company has
experienced net losses since 1989 and may incur net losses in the future;
(ii) the Company's independent auditors have expressed substantial doubt
about the Company's ability to continue as a going concern unless the debt
and equity are restructured; (iii) the Company owes significant amounts
under a litigation settlement agreement; (iv) the Company does not expect
to pay dividends in the foreseeable future and is prohibited under a credit
agreement from doing so; (v) the cable television industry is highly
competitive and the Company is subject to certain cable regulations that
may have a material adverse effect; (vi) C-TEC effectively controls the
Company, and its relationship with the Company may result in certain
conflicts of interest; (vii) there is only a limited public market for the
Common Stock and there can be no assurance that the market price of the
Common Stock will not decline; and (viii) purchasers of the Common Stock in
the Rights Offering will experience substantial dilution. See "Risk
Factors."
THE COMPANY
The Company is a cable television operator with three cable systems
in Southern Michigan serving 36,569 subscribers as of March 31, 1995 and one
cable system in Port St. Lucie, Florida serving 1,235 subscribers as of March
31, 1995 (the "Systems"). The Michigan Systems are operated through the
Company's wholly owned subsidiary, Communications and Cablevision, Inc.
("CCV"). The Florida System is operated through a wholly owned subsidiary,
Mercom of Florida, Inc. As of March 31, 1995, the Systems had 37,804
subscribers.
The three Michigan Systems provide cable service to Monroe, Allegan
County and the Coldwater and Sturgis areas. The Florida System serves St.
Lucie West, a planned community in Southeastern Florida, approximately 90
miles north of Palm Beach.
During 1993 and 1994, the Company restructured rates and channel
offerings to comply with the basic rate regulations and to minimize the impact
on revenue of the Cable Television Consumer Protection and Competition Act of
1992 (the "Cable Act"). The future impact of the Cable Act on the Company and
the cable television industry is still unclear. The Company's 1994 and first
quarter 1995 operating results were negatively affected by the Act. See "Risk
Factors--Adverse Effect of Regulation." The Company believes it is in
compliance with applicable rate regulation rules, but there can be no
assurance that the Company's rates will not be challenged.
The Company's performance is dependent to a large extent on its
ability to obtain and renew its franchise agreements from local government
authorities on acceptable terms. To date, all of the Company's franchises
have been renewed or extended, generally at or prior to their stated
expirations and on acceptable terms. During 1994, the Company completed
negotiations with 10 communities resulting in franchise renewals on terms
which are acceptable to the Company. The Company has 76 franchises, 14 of
which were in the three-year Federal Communications Commission (the "FCC")
franchise renewal window at December 31, 1994. No one franchise accounts for
more than 12% of the Company's total revenue.
Competition for the Company's services traditionally has come from a
variety of providers including broadcast television, video cassette recorders
and home satellite dishes. Technological and regulatory changes are expected
to increase competition. Direct broadcast satellite ("DBS"), which allows
consumers to receive cable programming for a fee once they purchase or lease a
receiving dish and a set-top terminal, may increase competition in the future.
Two DBS companies launched their services in 1994. These services are
generally available throughout the country, including areas in which the
Company operates. In addition, recent changes in federal regulation allow
telephone companies to lease their networks to video programmers under the
video dial-tone platform. Also, the current regulatory environment appears to
be fostering competition in cable television directly by telephone companies,
and in telephone by cable companies. Regulation in a competitive environment
is still evolving. The Company continues to monitor the progress of
regulations affecting the telecommunications industry and continually
reassesses its business plans to address future competition. It is impossible
to quantify at this time the negative impact of these technological and
regulatory developments on the cable television industry in general or on the
Company in particular.
As of March 31, 1995, the Company had 42 full-time employees, none of
whom were represented by collective bargaining units.
The Company's independent auditors have expressed substantial doubt about
the Company's ability to continue as a going concern unless the debt and
equity of the Company are restructured. The Company has on a number of
occasions been unable to make scheduled payments under a Credit Agreement (as
defined below) with Morgan Guaranty Trust Company of New York ("Morgan
Guaranty") and has consequently had to reschedule such payments. See "Risk
Factors--Going Concern Risks." On June 13, 1995, the Company and Morgan
Guaranty entered into a Commitment Letter (the "Commitment Letter") pursuant
to which they agreed, subject to certain conditions including the condition
that the gross proceeds to the Company from the Rights Offering must be at
least $8,500,000, to revise the scheduled maturity of the borrowings under the
Credit Agreement. See "Recent Developments--Morgan Guaranty Debt Refinancing."
The Company's principal executive offices are located at 105 Carnegie
Center, Princeton, New Jersey 08540 (telephone: (609) 734-3700).
THE RIGHTS OFFERING
Rights................. Each record holder ("Holder") of Common Stock will
receive one non-transferable Right for every share
of Common Stock held of record on __________ __,
1995 (the "Record Date"). An aggregate of
2,393,530 Rights will be distributed pursuant to
the Rights Offering. Each Right will be
exercisable for one share of Common Stock. An
aggregate of 2,393,530 shares of Common Stock (the
"Underlying Shares") will be sold upon exercise of
the Rights assuming exercise of all Rights. The
distribution of the Rights and sale of Underlying
Shares is referred to herein as the "Rights
Offering." See "The Rights Offering--The Rights."
Basic Subscription
Privilege............ Rights holders are entitled to purchase for the
Subscription Price one share of Common Stock for
each Right held (the "Basic Subscription
Privilege"). See "The Rights
Offering--Subscription Privileges--Basic
Subscription Privilege."
Oversubscription
Privilege............ Each holder of Rights who elects to exercise in full
his or her Basic Subscription Privilege may also
subscribe at the Subscription Price for additional
Underlying Shares available as a result of
unexercised Rights, if any (the "Oversubscription
Privilege"). If an insufficient number of
Underlying Shares is available to satisfy fully all
elections to exercise the Oversubscription
Privilege, the available Underlying Shares will be
prorated among holders who exercise their
Oversubscription Privilege based on the respective
numbers of Rights exercised by such holders
pursuant to the Basic Subscription Privilege. See
"The Rights Offering--Subscription
Privileges--Oversubscription Privilege."
Subscription Price..... $[ ] in cash per share of Common Stock subscribed
for pursuant to the Basic Subscription Privilege or
the Oversubscription Privilege.
Shares of Common Stock
Outstanding after
Rights Offering...... A total of 4,787,060 shares, based on the number of
shares outstanding on __________ __, 1995 and
assuming exercise of all Rights.
C-TEC Rights Exercise
Agreement............ The Company and C-TEC have entered into a Rights
Exercise Agreement dated as of the date hereof
(the "C-TEC Rights Exercise Agreement").
Pursuant to the Rights Exercise Agreement, and
subject to the terms and conditions set forth
therein, C-TEC has agreed to exercise the
1,044,194 Rights it will receive in respect of
the shares of Common Stock currently owned by C-
TEC for an aggregate subscription price of $[ ]
and to exercise the Oversubscription Privilege
to subscribe for all other Underlying Shares.
See "The Rights Offering--C-TEC Rights Exercise
Agreement." The opportunity to exercise the
Oversubscription Privilege is available to all
holders of Rights on the same terms. See "The
Rights Offering--Subscription Privileges--
Oversubscription Privilege." If C-TEC does not
exercise the Basic Subscription Privilege in
respect of the Rights it receives or does not
exercise the Oversubscription Privilege to
subscribe for all other Underlying Shares, each
other Rights holder who has previously exercised
Rights will be provided the opportunity to
revoke such exercise.
Non-Transferability of
Rights............... The Rights are non-transferable. See "The Rights
Offering--Non-Transferability of Rights."
Record Date............ ________ __, 1995.
Expiration Date........ ________ __, 1995, at 5:00 p.m., New York City time,
unless extended (as it may be extended, the
"Expiration Date"), provided that the Expiration
Date shall in no event be later than ________
__, 1995 [30 days after the original Expiration
Date].
Procedure for Exer-
cising Rights........ Basic Subscription Privileges and Oversubscription
Privileges may be exercised by properly
completing and signing the Subscription
Certificate evidencing the Rights (a
"Subscription Certificate") and forwarding such
Subscription Certificate (or following the
Guaranteed Delivery Procedures), with payment of
the Subscription Price for each Underlying Share
subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription
Privilege, to the Subscription Agent on or prior
to the Expiration Date. Any Rights holder
subscribing for an aggregate of more than 25,000
Underlying Shares pursuant to the
Oversubscription Privilege prior to the
Expiration Date shall not be required to deliver
payment for such number of Underlying Shares in
excess of 25,000 until the Expiration Date. The
Company, in its sole discretion, may determine
to waive payment for such number of Underlying
Shares in excess of 25,000 subscribed for
pursuant to the Oversubscription Privilege until
after the Expiration Date and after all
prorations and adjustments contemplated by the
terms of the Rights Offering have been effected.
The Company has agreed pursuant to the C-TEC
Rights Exercise Agreement to grant such a waiver
to C-TEC. If the mail is used to forward
Subscription Certificates, it is recommended
that insured, registered mail be used. No
interest will be paid on funds delivered in
payment of the Subscription Price. See "The
Rights Offering--Exercise of Rights."
Once a holder of Rights has exercised the Basic
Subscription Privilege or the Oversubscription
Privilege, such exercise may not be revoked,
unless (i) a material change in the terms of the
Rights Offering adversely affecting such Rights
holder has been made or (ii) C-TEC does not
exercise the Basic Subscription Privilege in
respect of the Rights it receives or does not
exercise the Oversubscription Privilege to
subscribe for all other Underlying Shares. See
"The Rights Offering--Exercise of Rights" and
"The Rights Offering--No Revocation."
Procedure for Exer-
cising Rights by
Foreign and Certain
Other Shareholders.... Subscription Certificates will not be mailed to
Holders of Common Stock whose addresses are
outside the United States or who have an APO or
FPO address, but will be held by the
Subscription Agent for their account. To
exercise such Rights, such a Holder must notify
the Subscription Agent and must establish to the
satisfaction of the Subscription Agent that such
exercise is permitted under applicable law. If
the procedures set forth in the preceding
sentence are not followed prior to the
Expiration Date, the Rights will expire. See
"The Rights Offering--Foreign and Certain Other
Shareholders."
Persons Holding Shares,
or Wishing to Exer-
cise Rights, Through
Others............... Persons holding shares of Common Stock and receiving
the Rights distributable with respect thereto,
through a broker, dealer, commercial bank, trust
company or other nominee, as well as persons
holding certificates of Common Stock personally
who would prefer to have such institutions
exercise the Rights on their behalf, should
contact the appropriate institution or nominee
and request it to effect the transactions for
them. If a beneficial owner wishes to obtain a
separate Subscription Right Certificate, such
beneficial owner should contact the nominee as
soon as possible and request that a separate
Subscription Right Certificate be issued. A
nominee may request any Subscription Right
Certificate held by it to be split into such
smaller denominations as it wishes, provided
that the Subscription Right Certificate is
received by the Subscription Agent, properly
endorsed, no later than the Expiration Date.
See "The Rights Offering--Exercise of Rights."
Issuance of Common
Stock................ Certificates representing shares of Common Stock
purchased pursuant to the Basic Subscription
Privilege will be delivered to subscribers as soon
as practicable after the corresponding Rights have
been validly exercised and full payment for shares
has been received and cleared. For shares
purchased pursuant to the Oversubscription
Privilege, delivery of certificates will occur as
soon as practicable after the Expiration Date and
after all prorations and adjustments contemplated
by the terms of the Rights Offering have been
effected. See "The Rights Offering--Subscription
Privileges."
Use of Proceeds........ The net cash proceeds to the Company from the sale of
the shares of Common Stock offered hereby, after
payment of fees and expenses, are estimated to
be approximately $8,000,000. Such net
proceeds will be used (i) to repay $5,000,000 of
outstanding indebtedness to Morgan Guaranty
under the Credit Agreement (as defined below)
and (ii) to repay $2,287,000 of outstanding
indebtedness to C-TEC under a demand note issued
to C-TEC in March of 1995 (the "March C-TEC
Demand Note") and a demand note issued to C-TEC
in June of 1995 (the "June C-TEC Demand Note"
and together with the March C-TEC Demand Note,
the "C-TEC Demand Notes"). The remaining proceeds
of approximately $713,000 will be used for
general corporate purposes including capital
expenditures. C-TEC owns 43.63% of the
outstanding Common Stock and effectively
controls the Company. See "Use of Proceeds" and
"Recent Developments."
Subscription Agent..... The First National Bank of Boston. See "Subscription
Agent."
Information Agent...... MacKenzie Partners, Inc. See "Information Agent."
SELECTED FINANCIAL AND OPERATING INFORMATION
The following selected historical financial information as of and for the
three months ended March 31, 1995 and 1994 is unaudited but, in the opinion of
the Company's management, includes all recurring adjustments necessary for a
fair presentation of the results of operations for such periods. Information
as of and for the three months ended March 31, 1995 and 1994 has been derived
from, and should be read in conjunction with, the Company's unaudited
consolidated condensed financial statements for such periods, which are
included in the Company's Quarterly Report on Form 10-Q for the three months
ended March 31, 1995, which report is incorporated by reference in this
Prospectus. The results for such interim periods are not necessarily
indicative of the results for the full fiscal year. The information as of and
for the three fiscal years ended December 31, 1994 has been derived from, and
should be read in conjunction with, the Company's Consolidated Financial
Statements for the three fiscal years ended December 31, 1994, which have been
audited by independent public accountants and are included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as
such Report was amended on June 28, 1995, which report as so amended is
incorporated by reference in this Prospectus, and the Company's Consolidated
Financial Statements for the three fiscal years ended December 31, 1993, which
have been audited by independent public accountants and are included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1993, as previously filed with the Commission. The information with respect
to the fiscal years ended December 31, 1991 and December 31, 1990 has been
derived from, and should be read in conjunction with, the Company's
Consolidated Financial Statements for the three fiscal years ended December
31, 1993, 1992 and 1991, which have been audited by independent public
accountants and are included in the Company's Annual Reports on Form 10-K for
the fiscal years ended December 31, 1993, 1992 and 1991, respectively, as
previously filed with the Commission.
Summary Financial and Operating Data
(dollars in thousands except per share and operating data)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,(1)
------------------------------------------------ -------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Sales........................................ $9,667 $11,041 $11,986 $12,606 $12,927 $3,162 $3,303
Operating income before depreciation
and amortization........................... 3,256 3,588 4,790 5,116 5,052 1,195 1,200
Depreciation and amortization................ 2,977 3,329 3,399 3,219 3,010 768 763
Operating income............................. 279 259 1,391 1,897 2,042 427 437
Interest expense............................. 2,262 3,299 2,731 2,132 2,067 482 494
Total other expenses, net.................... 3,762 9,865 2,535 2,116 2,704 461 532
(Loss) before income taxes................... (3,483) (9,606) (1,144) (219) (662) (34) (95)
Provision (benefit) for income taxes......... (1,132) (1,822) 0 17 (4) 0 0
(Loss) before cumulative effect of
change in accounting principle.............. (2,351) (7,784) (1,144) (236) (658) (34) (95)
Net (loss)................................... (1,103) (7,784) (1,144) (236) (658) (34) (95)
Net (loss) per share......................... (0.94) (3.25) (0.48) (0.10) (0.27) (0.01) (0.04)
Balance Sheet Data:
Cash and temporary cash investments.......... 115 226 376 989 96 819 836
Total assets................................. 30,557 26,657 23,873 22,244 19,823 21,588 19,869
Total debt................................... 29,281 30,200 29,847 28,184 25,926 27,680 25,926
Common shareholders' capital deficiency...... (3,374) (11,158) (12,302) (12,538) (13,196) (12,571) (13,291)
Operating Data:<F1>
Homes passed<F2>............................. 57,736 58,726 59,988 61,730 63,721 61,914 63,882
Basic subscribers<F3>........................ 32,319 33,692 34,118 34,714 37,324 35,431 37,804
Basic subscribers as a
percentage of homes passed.................. 56.0% 57.3% 56.9% 56.2% 58.6% 57.2% 59.2%
Tier subscribers<F4>......................... 32,299 33,122 32,814 32,945 34,789 33,424 35,183
Tier subscribers as a
percentage of basic subscribers............. 99.9% 98.3% 96.2% 94.9% 93.2% 94.3% 93.1%
Premium service units<F5>.................... 16,593 15,324 12,762 12,816 14,312 12,496 14,728
Premium service units as a
percentage of basic subscribers (pay to
basic ratio)................................ 51.3% 45.5% 37.4% 36.9% 38.3% 35.3% 39.0%
Average revenue per subscriber for
the last month of the period<F6>............ $27.64 $27.60 $30.05 $29.70 $29.36 $30.29 $29.26
- ------------------
<FN>
<F1> Unaudited.
<F2> A home is deemed to be "passed" by cable if it can be connected to the
distribution system without any further extension of the distribution
plant.
<F3> A home with one or more television sets connected to a cable television
system is counted as one basic subscriber.
<F4> A home with one or more television sets receiving both basic and tier
service is counted as one tier subscriber. Tier service is not available
in the St. Lucie System.
<F5> A basic subscriber may purchase more than one premium service, each of
which is counted as a separate premium service unit. As a result,
the pay-to-basic ratio can exceed 100%. A premium service unit
includes only single channel services offered for a monthly fee.
<F6> Calculated by dividing total cable related revenues for the relevant
month by the number of basic subscribers at the end of such month.
</FN>
</TABLE>
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk.
Continuing Net Losses
The Company has experienced net losses since 1989 and may incur net
losses in the future. The Company incurred losses of $658,000, $236,000,
$1,144,000, $7,784,000 and $1,103,000 for the years ended December 31, 1994,
1993, 1992, 1991 and 1990, respectively. There can be no assurance as to
when, if ever, the Company will recognize a net profit.
Going Concern Risks
The Company's independent auditors have expressed substantial doubt
about the Company's ability to continue as a going concern unless the debt and
equity of the Company are restructured. The Company has suffered recurring
losses and has a shareholders' capital deficiency. The Company has on a
number of occasions been unable to make scheduled payments under a Credit
Agreement with Morgan Guaranty dated November 26, 1989 as amended on April 5,
1990, December 22, 1992, December 15, 1993, December 23, 1994 and March 31,
1995 (as amended, the "Credit Agreement") and has consequently had to
reschedule such payments. On June 13, 1995, the Company and Morgan Guaranty
entered into a Commitment Letter pursuant to which they agreed, subject to
certain conditions including the condition that the gross proceeds to the
Company from the Rights Offering must be at least $8,500,000, to revise the
scheduled maturity of the borrowings under the Credit Agreement. See "Recent
Developments--Morgan Guaranty Debt Refinancing." If the conditions specified
in the Commitment Letter are not satisfied and the Credit Agreement is not
amended in accordance with the terms of the Commitment Letter, the Company
believes it will be unable to make the payments scheduled under the Credit
Agreement. In such event, the Company would review all available options,
which would include the sale of assets, the raising of equity and the issuance
of subordinated debt, among other things. There can be no assurances under
such circumstances that the Company would be able to pursue any such options
successfully and thereby restructure its debt and equity. See "Recent
Developments--Morgan Guaranty Debt Refinancing."
Further, the Company has substantial liability under the Lahey
Settlement Agreement (as defined below). See "Risk Factors--Substantial
Litigation Liability" and "Recent Developments--Lahey Litigation and
Settlement Agreement." Additionally, previous deferrals of capital
expenditures due to the significant uncertainties regarding adequacy of
working capital, along with the negative effect regulation will have on future
rate increases and operating expenses (see "Risk Factors--Adverse Effect of
Regulation"), will adversely affect future operating income.
Substantial Litigation Liability
CCV, a subsidiary of the Company, was party to a lawsuit commenced in
1988 in the Circuit Court for the County of Ottawa, Michigan, relating to
termination of Kenneth E. Lahey as president of CCV. On April 18, 1995, Mr.
Lahey and the Company entered into a Settlement Agreement and Mutual Release
(the "Lahey Settlement Agreement") pursuant to which the Company has agreed to
cause CCV to make payments totaling $4.3 million in full satisfaction of all
claims Mr. Lahey may have had against the Company or its affiliates. See
"Recent Developments--Lahey Litigation and Settlement Agreement."
Prohibition on Payment of Dividends
The Company has not paid dividends in recent years due to the Company's
financial condition and does not expect to pay dividends in the foreseeable
future. In addition, the Credit Agreement prohibits the payment of dividends
on the Common Stock.
Highly Competitive Industry
The cable television industry is highly competitive. Competition for
the Company's services traditionally has come from a variety of providers
including broadcast television, video cassette recorders and home satellite
dishes. Technological and regulatory changes are expected to increase
competition. Direct broadcast satellite, which allows consumers to receive
cable programming for a fee once they purchase or lease a receiving dish and a
set-top terminal, may increase competition in the future. Two DBS companies
have launched their services in 1994. These services are generally available
throughout the country, including areas in which the Company operates. In
addition, recent changes in federal regulation allow telephone companies to
lease their networks to video programmers under the video dial-tone platform.
Also, the current regulatory environment appears to be fostering competition
in cable television directly by telephone companies, and in telephone by cable
companies. Regulation in a competitive environment is still evolving.
Adverse Effect of Regulation
The Company is subject to regulation at the federal, state and local
levels. Many aspects of such regulations are currently the subject of
judicial proceedings and administrative or legislative proceedings or
proposals. On October 5, 1992, Congress passed the Cable Act, which regulated
certain subscriber rates and a number of other matters in the cable industry,
such as mandatory carriage of local broadcast stations and retransmission
consent, and which will increase the administrative costs of complying with
such regulations. The most significant provision of the Cable Act requires
the FCC to establish rules to ensure that rates for basic services are
reasonable for subscribers in areas without effective competition as defined
in the Cable Act. Few municipalities served by the Company are subject to
effective competition. The FCC has adopted rules regulating cable television
rates and these rules have adversely affected the Company's operating results.
The Company's 1994 statement of operations includes charges aggregating
approximately $150,000 relating to cable rate regulation liabilities.
The Company anticipates that certain provisions of the Cable Act that do
not relate to rate regulation -- such as the provisions relating to
retransmission consent and customer service standards -- will reduce the
operating margins of the Company.
No assurance can be given at this time that the above matters will not
have a material adverse effect on the Company's business and results of
operations in the future. Also, no assurance can be given as to what other
future actions Congress, the FCC or other regulatory authorities may take or
the effects thereof on the cable industry in general or the Company in
particular.
Dependency on Franchise Renewals
The Company's performance is dependent to a large extent on its ability
to obtain and renew its franchise agreements from local government authorities
on acceptable terms.
Effective Control by Principal Shareholder
C-TEC, through its wholly owned subsidiary C-TEC Properties, Inc., a
Delaware corporation, owns approximately 43.63% of the outstanding shares
of Common Stock, and C-TEC nominees constitute a majority of the Board of
Directors of the Company. In addition, the Company has entered into a
Management Agreement dated January 1, 1992 (the "Management Agreement")
with C-TEC Cable Systems, Inc., a Delaware corporation and wholly owned
subsidiary of C-TEC ("CCS"). Through its ownership of Common Stock and its
representation on the Board of Directors of the Company, and as a result of
the existence of the Management Agreement, C-TEC effectively controls the
management and operations of the Company. However, C-TEC disclaims actual
control of the Company due to the fact that 56.37% of the Common Stock of
the Company is owned by other shareholders who have the power to remove the
C-TEC nominees on the Company's Board of Directors. C-TEC's substantial
ownership interest in, and effective control of the Company may tend to deter
nonnegotiated tender offers or other efforts to obtain control of the
Company and thereby preclude shareholders from having the opportunity to
sell shares at prices higher than those otherwise prevailing.
Pursuant to the C-TEC Rights Exercise Agreement, C-TEC has agreed,
subject to the terms and conditions set forth in such Agreement, to
exercise the Rights it receives and oversubscribe for all other Underlying
Shares. It is likely that the Rights Offering will result in C-TEC owning
over 50% of the Common Stock and having actual control of the Company. If
no other Holders exercise their Rights, C-TEC will own 71.81% of the Common
Stock after the Rights Offering. The opportunity to exercise the
Oversubscription Privilege is available to all Holders of Rights on the
same terms. See "The Rights Offering--Subscription Privileges--
Oversubscription Privilege."
The Management Agreement provides that the Company will pay CCS: (a) an
annual fee equal to the greater of (i) $500,000 or (ii) a percentage of the
Company's annual revenues (ranging from 5% of $10,000,000 of revenues, as
defined, to 4% of revenues in excess of $20,000,000); and (b) an annual
incentive bonus equal to 25% of the Company's earnings before interest,
depreciation, amortization and taxes ("EBIDAT") as adjusted, during the
applicable fiscal year less the base year EBIDAT of $3,850,000. During 1994,
CCS earned management and incentive fees of approximately $1,100,000 pursuant
to the Management Agreement.
Relationship with C-TEC; Conflicts of Interest
C-TEC owns and operates cable television systems and is engaged in other
aspects of the telecommunications industry. Certain persons serve as officers
or directors of the Company and as officers or directors of one or more of
C-TEC and its controlling entities. Additionally, the entities that control
C-TEC also control MFS Communications Company, Inc., which provides a variety
of telecommunications services, primarily over its digital fiber optic
telecommunications networks. These relationships may lead to conflicts of
interest. The Company has established an Audit/Affiliated Transactions Review
Committee of the Board of Directors (the "ATR Committee") to evaluate certain
transactions in which a potential conflict of interest may be involved. The
ATR Committee comprises three members, none of whom are affiliated with
C-TEC.
All of the Company's executive officers are officers of C-TEC. The
executive officers of the Company devote a majority of their time and
attention to the business and affairs of C-TEC.
Market Risks Associated with the Common Stock
There can be no assurance that the market price of the Common Stock will
not decline during the period the Rights are outstanding or that, following
the issuance of the Rights and the sale of the Underlying Shares upon exercise
of Rights, a subscribing Rights holder will be able to sell shares purchased
in the Rights Offering at a price equal to or greater than the Subscription
Price. Once a holder of Rights has exercised the Basic Subscription Privilege
or the Oversubscription Privilege, such exercise may not be revoked, absent
certain material changes adversely affecting such holder. See "The Rights
Offering--No Revocation." Moreover, until certificates are delivered,
subscribing Rights holders may not be able to sell the shares of Common Stock
that they have purchased in the Rights Offering.
There is currently only a limited public market for the Common Stock.
The Common Stock is traded in the over-the-counter market and is quoted on the
OTC Bulletin Board (with such quotes reported in the pink sheets of the
National Quotations Bureau, Inc.). Holders who purchase Common Stock pursuant
to the Rights Offering may have difficulty selling their Common Stock due to a
lack of an active trading market.
Dilution
Holders who do not exercise their Rights will experience a decrease in
their proportionate interest in the equity ownership and voting power of the
Company.
The Subscription Price per shares of Common Stock exceeds the net
tangible book value per shares of Common Stock, which is negative.
Accordingly, the purchasers of the Common Stock in the Rights Offering will
experience immediate and substantial dilution. See "Dilution."
Based on the 2,393,530 shares of Common Stock outstanding as of March
31, 1995, the consummation of the Rights Offering would result (on a pro forma
basis as of such date) in an increase of 2,393,530 shares of Common Stock
outstanding.
USE OF PROCEEDS
The net cash proceeds from the Rights Offering after payment of fees and
expenses are estimated to be approximately $8,000,000. Such net proceeds
will be used (i) to repay $5,000,000 of outstanding indebtedness to Morgan
Guaranty under the Credit Agreement and (ii) to repay $2,287,000 of
outstanding indebtedness to C-TEC under the C-TEC Demand Notes. The
remaining proceeds of approximately $713,000 will be used for other
corporate purposes including capital expenditures.
Interest under the Credit Agreement is based on the base rate, Libor or
CD rates depending on the type of loan and terms of the agreement. At March
31, 1995, the weighted average effective interest rate under the Credit
Agreement was 7.69%. Borrowings under the Credit Agreement are currently
scheduled to mature as follows: $346,333 on June 30, 1995, $540,667 on
August 31, 1995, $4,032,000 on December 31, 1995, and $5,040,000 on
December 31, 1996, 1997 and 1998. Pursuant to the Commitment Letter, and
subject to the terms and conditions set forth therein, (i) the indebtedness
of $5,000,000 evidenced by the Morgan Demand Note (as defined below) will
be refinanced by cancelling such Note and increasing by $5,000,000 the
amount outstanding under the Term Loan (as defined below) provided for
under the Credit Agreement and (ii) borrowings under the Term Loan will be
rescheduled to mature as set forth in "Recent Developments--Morgan Guaranty
Debt Refinancing--Commitment Letter." See "Recent Developments--Morgan
Guaranty Debt Refinancing."
The C-TEC Demand Notes have no stated maturity, are payable upon demand
and bear interest at a rate equal to the rate charged under the Credit
Agreement. On June 30, 1995, the effective interest rate under each of the
C-TEC Demand Notes was [7.125%]. C-TEC owns 43.63% of the outstanding Common
Stock and effectively controls the Company.
The C-TEC Rights Exercise Agreement provides, subject to the terms
and conditions set forth therein, that on or before June 30, 1995, C-TEC
will exercise ___ of the Rights it receives for an aggregate subscription
price of approximately $1,400,000. The Company will use the proceeds of
such exercise to make the payment of $1,400,000 to be paid under the Lahey
Settlement Agreement on or before July 1, 1995.
RECENT DEVELOPMENTS
Lahey Litigation and Settlement Agreement
CCV, a subsidiary of the Company, was party to a lawsuit commenced in
1988 in the Circuit Court for the County of Ottawa, Michigan, relating to
termination of Kenneth E. Lahey as president of CCV. Mr. Lahey asserted that
as a result of the termination he is entitled to an amount equal to the fair
market value of 10 percent of the outstanding shares of CCV stock (the "Lahey
Interest"). The trial court determined that Mr. Lahey was entitled to an
amount equal to the fair market value of the Lahey Interest and ordered, among
other things, that an appraisal proceeding be held to determine such fair
market value. The Company appealed such order, but the Michigan Court of
Appeals upheld the trial court's decision on December 27, 1993. On December
16, 1994, a panel of three appraisers ("Panel") rendered a decision in favor
of Mr. Lahey in the amount of $2,949,000. The Company requested the Circuit
Court for the City of Ottawa to remand this proceeding back to the Panel for
further consideration of certain factors which were not included in their
decision on December 16, 1994. A hearing was held on January 16, 1995 before
the Circuit Court for the City of Ottawa. The Court issued an Opinion on
February 14, 1995 denying the Company's motions and sustaining the decision of
the Panel in the amount of $2,949,000 and awarded pre-judgment interest in the
amount of approximately $1,200,000. The Company filed a Motion for
Reconsideration with the Court. On March 27, 1995, the Court issued an Order
denying the Company's Motion for Reconsideration.
On April 18, 1995, Mr. Lahey and the Company entered into the Lahey
Settlement Agreement pursuant to which the Company has agreed to cause CCV to
make payments totaling $4,300,000 in full satisfaction of all claims Mr. Lahey
may have had against the Company or its affiliates. The payment schedule
under the Lahey Settlement Agreement is as follows: (i) $100,000 upon signing
of the Agreement, (ii) $1,400,000 on or before July 1, 1995 and (iii) $700,000
on or before July 1, 1996, 1997, 1998 and 1999. The initial payment of
$100,000 and the payment of $1,400,000 due on or before July 1, 1995 (the
"July 1995 Payment") have been paid. The Company had accrued approximately
$4,400,000 as of December 31, 1994, representing management's best estimate
of the Company's potential liability in respect of the matter.
On June 30, 1995, C-TEC loaned the Company $1,400,000 to enable the
Company to make the July 1995 payment. The loan from C-TEC is evidenced by
the June C-TEC Demand Note.
Morgan Guaranty Debt Refinancing
General
The Company had total outstanding debt of $25,926,000 at March 31, 1995,
consisting of: (i) $5,000,000 of indebtedness to Morgan Guaranty under a
demand note (the "Morgan Demand Note"), (ii) $20,039,000 of indebtedness under
the Credit Agreement and (iii) $887,000 due under the March C-TEC Demand Note.
The Morgan Demand Note has no stated maturity, is payable on demand and
has an interest rate equal to a base rate (higher of (i) Morgan Guaranty's
prime rate or (ii) the federal funds rate plus 1/2%) plus 1-3/4%. As of March
31, 1995, the effective rate of interest on the Morgan Demand Note was 10.75%.
Interest under the Credit Agreement is based on the base rate, Libor or
CD rates depending on the type of loan and terms of the agreement. As of
March 31, 1995, the weighted average effective rate of interest on borrowings
under the Credit Agreement was 7.69%. In December 1992 and December 1993,
Morgan Guaranty agreed to allow the Company to restructure principal payments
of $1,008,000 due in December 1992 and $2,016,000 due in December 1993 into
three installments due in December 1992, March 1993 and June 1993 with respect
to the December 1992 restructuring and December 1993, March 1994 and June 1994
with respect to the December 1993 restructuring. These restructured payments
have been paid in full. In December 1994, Morgan Guaranty again agreed to
allow the Company to restructure a principal payment of $3,024,000 due in
December 1994 into three installments of $1,250,000 due and paid in December
1994, $887,000 due and paid in March and $887,000 due in June 1995,
respectively. The remaining scheduled principal payment amounts and due dates
were not affected. C-TEC loaned $887,000 to the Company on March 31, 1995 to
enable the Company to make the principal payment of $887,000 scheduled for
that date under the Credit Agreement. The loan from C-TEC is evidenced by the
C-TEC Demand Note. Borrowings under the Credit Agreement are currently
scheduled to mature as follows: $346,333 on June 30, 1995, $540,667 on
August 31, 1995, $4,032,000 on December 31, 1995, and $5,040,000 on
December 31, 1996, 1997 and 1998.
Commitment Letter
On June 13, 1995, the Company and Morgan Guaranty entered into the
Commitment Letter pursuant to which they agreed, subject to certain conditions
as described below, to further amend the Credit Agreement and to enter into an
additional 364-day facility as described below. Set forth below is a summary
of the material provisions of the Commitment Letter. Such summary is not
necessarily complete and is qualified in its entirety by reference to the
Commitment Letter, which is included as an exhibit to the Company's Current
Report on Form 8-K dated June 14, 1995.
Subject to the terms and conditions of the Commitment Letter, (i) the
Credit Agreement will be amended to be a 7.5 year amortizing term loan of
approximately $25,039,000 with a final maturity of December 31, 2002 (the
"Term Loan") and (ii) Morgan Guaranty and the Company will enter into a
364-day revolving credit facility of $2,000,000 maturing 364 days from the
date of the facility (the "364-Day Facility"). The indebtedness of
$5,000,000 evidenced by the Morgan Demand Note will be refinanced as
follows: (a) the Morgan Demand Note will be cancelled and (b) the amount
outstanding under the Term Loan will be increased by $5,000,000 from
$20,039,000 to $25,039,000.
The Company will be required to repay the Term Loan in equal quarterly
installments aggregating the following amounts for the following years:
Year Aggregate Amount
----------------------- ------------------
1995(1) $6,039,000
1996 $1,500,000
1997 $1,750,000
1998 $2,100,000
1999 $2,600,000
2000 $3,750,000
2001 $4,300,000
2002 $3,000,000
- ---------------
(1) In 1995, the installment payments will be as follows: (i) $5,000,000
on or before the completion of the Rights Offering, (ii) $346,333 on June 30,
(iii) $346,333 on September 30 and (iv) $346,334 on December 31.
The Company will also be required to make prepayments (first to the Term
Loan) from the following sources: (i) the first $5,000,000 of net proceeds
from the Rights Offering (which amount is included in the $6,039,000 to be
repaid in 1995); (ii) 60% of any gross proceeds of the Rights Offering in
excess of $8,500,000; (iii) 25% of the net proceeds of any future equity
offerings (excluding equity placements, if any, with C-TEC); (iv) 100% of
the net proceeds of any debt offerings; (v) 75% of the net cash proceeds
of any permitted asset sales; and (vi) 75% of Excess Cash generated by the
Company. For any given fiscal year, Excess Cash is generally defined as
cash flow provided by operations less (a) $350,000, (b) capital
expenditures, (c) principal payments and (d) payments under the Lahey
Settlement Agreement. The Company has previously pledged the common stock
of its operating subsidiaries to secure its obligations under the Credit
Agreement. Such pledge will continue and will secure the obligations under
both the Credit Agreement and the 364-Day Facility. The Company will
endeavor to supplement this pledge by granting to Morgan Guaranty a first
lien on certain material assets of the Company and its subsidiaries.
As mentioned above, the obligation of Morgan Guaranty to amend the
Credit Agreement, and to enter into the 364-Day Facility, in accordance with
the Commitment Letter is subject to certain conditions, including the
condition that the gross proceeds to the Company from the Rights Offering must
be at least $8,500,000. Although the Company believes that these conditions
will be satisfied, no assurance can be given in that regard. In the event
that the Credit Agreement is not amended in accordance with the Commitment
Letter, the Company will review all available options, which would include the
sale of assets, the raising of equity and the issuance of subordinated debt,
among other things. There can be no assurances that, in such an event, the
Company would be able to pursue any such options successfully and thereby
restructure its debt and equity.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock trades on the over-the-counter market. From May 1989
until February 1992 the principal market for the Common Stock was The Nasdaq
Stock Market ("Nasdaq"). However, the Common Stock's Nasdaq designation was
terminated on February 6, 1992 because the Company did not meet Nasdaq's
minimum capital and surplus requirements. Since then, the Common Stock has
been, and presently is, quoted on the OTC Bulletin Board (with such quotes
reported in the pink sheets of the National Quotations Bureau, Inc.) under the
symbol "MEEO." The following table indicates the high and low per-share bid
prices for the Common Stock as quoted on the OTC Bulletin Board since February
7, 1992, the first date quotes were available for the Common Stock on the OTC
Bulletin Board following termination of the Nasdaq designation. Prices listed
below represent inter-dealer quotations without adjustment for retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions. Trading of the Common Stock has been limited and sporadic and
thus does not constitute an established public trading market.
High Low
------ ------
1992
First Quarter(1)......... $4.00 $3.50
Second Quarter........... 4.00 3.50
Third Quarter............ 3.50 3.00
Fourth Quarter........... 3.00 2.50
1993
First Quarter............ 3.50 2.75
Second Quarter........... 3.50 2.75
Third Quarter............ 4.00 2.75
Fourth Quarter........... 4.125 3.125
1994
First Quarter............ 4.00 3.75
Second Quarter........... 4.00 3.25
Third Quarter............ 3.50 3.00
Fourth Quarter........... 3.75 3.00
1995
First Quarter............ 3.75 3.75
Second Quarter(2)........ 3.75 3.75
____________________________
(1) From February 7, 1992.
(2) Through the close of business on June 27, 1995.
The Company has not paid dividends in recent years due to the Company's
financial condition and does not expect to pay dividends in the foreseeable
future. In addition, the Credit Agreement prohibits the payment of dividends
on the Company's Common Stock.
DILUTION
The Company currently has a negative net worth. The net tangible book
value of the shares of Common Stock as of March 31, 1995 was a deficiency of
approximately $(15,900,000), or $(6.63) per share. "Net tangible book value"
per share represents the amount of total tangible assets (total assets less
intangible assets) less total liabilities, divided by the number of shares of
Common Stock outstanding. After giving effect to the sale by the Company of
the 2,393,530 shares of Common Stock offered hereby (assuming full exercise
of the Rights) and after deducting the estimated offering expenses, the pro
forma net tangible book value of the Company as of March 31, 1995 would have
been approximately $[ ], or $[ ] per share, representing an immediate and
substantial dilution of $[ ] per share in respect of shares of Common Stock
purchased pursuant to this Rights Offering. The following table illustrates
this per share dilution:
Subscription Price...................................... $[ ]
Net tangible book value per share before offering... $(6.63)
Increase per share attributable to shareholders
exercising Rights................................ [ ]
------
Pro forma net tangible book value per share after offering [ ]
------
Dilution to shareholders exercising Rights(1)........... $ [ ]
======
- ---------------
(1) Dilution is determined by subtracting the net tangible book value per
share from the Subscription Price paid by an investor for a share of
Common Stock in the Rights Offering.
THE RIGHTS OFFERING
The Rights
The Company is distributing non-transferable Rights at no cost to the
record holders ("Holders") of outstanding shares of Common Stock as of
________ __, 1995 (the "Record Date"). The Company will distribute one Right
for every share of Common Stock held on the Record Date. The Rights will be
evidenced by non-transferable subscription certificates (the "Subscription
Certificates") and each such Right entitles the holder thereof to subscribe
for one share of Common Stock.
The Subscription Price of $________ per share of Common Stock represents
a discount of __% from the closing bid price of $______ for the Common
Stock as quoted on the OTC Bulletin Board on ________ __, 1995, the day of
the commencement of the Rights Offering. There can be no assurance that
the Common Stock will trade at prices above the Subscription Price. See
"Risk Factors--Market Risks Associated with the Common Stock."
The issuance by the Company of shares of Common Stock pursuant to the
Rights Offering is not conditioned upon the subscription of any minimum number
of shares of Common Stock by holders of the Rights. Pursuant to the C-TEC
Rights Exercise Agreement, C-TEC has agreed, subject to the terms and
conditions set forth in such Agreement, to exercise the Rights it receives for
an aggregate subscription price of $[ ] and to exercise the
Oversubscription Privilege to subscribe for all other Underlying Shares. See
"The Rights Offering--C-TEC Rights Exercise Agreement." The opportunity to
exercise the Oversubscription Privilege is available to all holders of Rights
on the same terms. See "The Rights Offering--Subscription
Privileges--Oversubscription Privilege." If C-TEC does not exercise the Basic
Subscription Privilege in respect of the Rights it receives or does not
exercise the Oversubscription Privilege to subscribe for all other Underlying
Shares, each other Rights holder who has previously exercised Rights will be
provided the opportunity to revoke such exercise.
BEFORE EXERCISING ANY RIGHTS, POTENTIAL INVESTORS ARE URGED TO READ
CAREFULLY THE INFORMATION SET FORTH UNDER "RISK FACTORS."
Expiration Date
The Rights will expire at 5:00 p.m., New York City time, on ________ __,
1995, unless extended (as it may be extended, the "Expiration Date"), provided
that the Expiration Date shall in no event be later than ________ __, 1995 [30
days after the initial Expiration Date]. After such time, unexercised Rights
will be null and void. The Company will not be obligated to honor any
purported exercise of Rights received by the Subscription Agent after 5:00
p.m., New York City time, on the Expiration Date, regardless of when the
documents relating to such exercise were sent, except pursuant to the
Guaranteed Delivery Procedures described below.
Subscription Privileges
Basic Subscription Privilege. Each Right will entitle the Holder
thereof to receive, upon payment of the Subscription Price, one share of
Common Stock (the "Basic Subscription Privilege"). Certificates representing
shares of Common Stock purchased pursuant to the Basic Subscription Privilege
will be delivered to subscribers as soon as practicable after the
corresponding Rights have been validly exercised and full payment for shares
has been received and cleared.
Oversubscription Privilege. Subject to the allocation described below,
each Right also carries the right to subscribe at the Subscription Price for
additional shares of Common Stock (the "Oversubscription Privilege") up to the
amount offered hereby. All beneficial holders who exercise the Basic
Subscription Privilege in full will be entitled to exercise the
Oversubscription Privilege.
Underlying Shares will be available for purchase pursuant to the
Oversubscription Privilege only to the extent that any Underlying Shares are
not subscribed for through the Basic Subscription Privilege. If the
Underlying Shares not subscribed for through the Basic Subscription Privilege
(the "Excess Shares") are not sufficient to satisfy all subscriptions pursuant
to the Oversubscription Privilege, the Excess Shares will be allocated pro
rata (subject to the elimination of fractional shares) among those holders of
Rights exercising the Oversubscription Privilege, in proportion, not to the
number of shares requested pursuant to the Oversubscription Privilege, but to
the number of shares each beneficial holder exercising the Oversubscription
Privilege has purchased pursuant to the Basic Subscription Privilege;
provided, however, that if such pro rata allocation results in any Rights
holder being allocated a greater number of Excess Shares than such holder
subscribed for pursuant to the exercise of such holder's Oversubscription
Privilege, then such holder will be allocated only such number of Excess
Shares as such holder subscribed for and the remaining Excess Shares will be
allocated among all other holders exercising the Oversubscription Privilege.
Certificates representing shares of Common Stock purchased pursuant to the
Oversubscription Privilege will be delivered to subscribers as soon as
practicable after the Expiration Date and after all prorations and adjustments
contemplated by the terms of the Rights Offering have been effected.
Banks, brokers and other nominee holders of Rights who exercise the
Basic Subscription Privilege and the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and the Company, in connection with the exercise of the Oversubscription
Privilege, as to the aggregate number of Rights that have been exercised and
the number of Underlying Shares that are being subscribed for pursuant to the
Oversubscription Privilege by each beneficial owner of Rights on whose behalf
such nominee holder is acting.
Exercise of Rights
Rights may be exercised by delivering to The First National Bank of
Boston (the "Subscription Agent"), at or prior to 5:00 p.m., New York City
time, on the Expiration Date, the properly completed and executed Subscription
Certificate evidencing such Rights with any signatures required to be
guaranteed so guaranteed, together with payment in full of the Subscription
Price for each Underlying Share subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege. Any Rights holder
subscribing for an aggregate of more than 25,000 Underlying Shares pursuant to
the Oversubscription Privilege prior to the Expiration Date shall not be
required to deliver payment for such number of Underlying Shares in excess of
25,000 until the Expiration Date. As of June 27, 1995, five unaffiliated
holders of record held more than 25,000 shares of Common Stock. The Company,
in its sole discretion, may determine to waive payment for such excess number
of Underlying Shares until after the Expiration Date and after all prorations
and adjustments contemplated by the terms of the Rights Offering have been
effected. The Company has agreed pursuant to the C-TEC Rights Exercise
Agreement to grant such a waiver to C-TEC. All payments must be by (a) check
or bank draft drawn upon a U.S. bank or postal or express money order payable
to The First National Bank of Boston, as Subscription Agent, or (b) by wire
transfer of same-day funds, in which case please contact the Subscription
Agent at (617) 575-2700 for such information. Payments will be deemed to have
been received by the Subscription Agent only upon (i) clearance of any
uncertified check, (ii) receipt by the Subscription Agent of any certified
check or bank draft upon a U.S. bank or of any postal or express money order
or (iii) receipt of good funds in the Subscription Agent's account designated
above. If paying by uncertified personal check, please note that the funds
paid thereby may take at least five business days to clear. Accordingly,
holders of Rights who wish to pay the Subscription Price by means of
uncertified personal check are urged to make payment sufficiently in advance
of the Expiration Date to ensure that such payment is received and clears by
such date and are urged to consider payment by means of certified or cashier's
check, money order or wire transfer of funds.
The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered is:
By Mail:
The First National Bank of Boston
P.O. Box 1872
Mail Stop 45-01-19
Boston, Massachusetts
02105-1872
By Hand:
BancBoston Trust Company of
New York
55 Broadway
3rd Floor
New York, New York
10006
By Overnight Courier:
The First National Bank of Boston
Shareholder Services Division
150 Royall Street
Mail Stop 45-01-19
Canton, Massachusetts
02021
If a Rights holder wishes to exercise Rights, but time will not permit such
holder to cause the Subscription Certificate or Subscription Certificates
evidencing such Rights to reach the Subscription Agent on or prior to the
Expiration Date, such Rights may nevertheless be exercised if all of the
following conditions (the "Guaranteed Delivery Procedures") are met:
(i) such holder has caused payment in full of the Subscription Price
for each Underlying Share being subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege (subject to
the right of the Company to waive advance payment in respect of the
Oversubscription Privilege as described above) to be received (in the
manner set forth above) by the Subscription Agent on or prior to the
Expiration Date;
(ii) the Subscription Agent receives, on or prior to the Expiration
Date, a guarantee notice ("Notice of Guaranteed Delivery"),
substantially in the form provided with the instructions as to use of
Mercom, Inc. Subscription Certificates (the "instructions") distributed
with the Subscription Certificates, from a member firm of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. ("NASD"), or from a commercial bank or trust
company having an office or correspondent in the United States or from a
bank, stockbroker, savings and loan association or credit union with
membership in an approved signature guarantee medallion program,
pursuant to Rule 17Ad-15 of the Exchange Act (each, an "Eligible
Institution"), stating the name of the exercising Rights holder, the
number of Rights represented by the Subscription Certificate or
Subscription Certificates held by such exercising Rights holder, the
number of Underlying Shares being subscribed for pursuant to the Basic
Subscription Privilege and the number of Underlying Shares, if any,
being subscribed for pursuant to the Oversubscription Privilege, and
guaranteeing the delivery to the Subscription Agent of any Subscription
Certificate evidencing such Rights within five business days following
the Expiration Date; and
(iii) the properly completed Subscription Certificate evidencing the
Rights being exercised, with any signatures required to be guaranteed so
guaranteed, is received by the Subscription Agent within five business
days following the Expiration Date. The Notice of Guaranteed Delivery
may be delivered to the Subscription Agent in the same manner as
Subscription Certificates at the address set forth above, or may be
transmitted to the Subscription Agent by facsimile transmission
(telecopy no. (617) 575-2232 or -2233). Additional copies of the form
of Notice of Guaranteed Delivery are available upon request from the
Information Agent, whose address and telephone number are set forth
under "Information Agent."
Funds received in payment of the Subscription Price for Excess Shares
subscribed for pursuant to the Oversubscription Privilege will be held in a
segregated account pending issuance of such Excess Shares. If a Rights holder
exercising the Oversubscription Privilege is allocated less than all of the
shares of Common Stock which such holder subscribed for pursuant to the
Oversubscription Privilege, the excess funds paid by such holder in respect of
the Subscription Price for shares not issued shall be returned by mail without
interest or deduction as soon as practicable after the Expiration Date and
after all prorations and adjustments contemplated by the terms of the Rights
Offering have been effected.
Unless a Subscription Certificate (i) provides that the shares of Common
Stock to be issued pursuant to the exercise of Rights represented thereby are
to be delivered to the record holder of such Rights or (ii) is submitted for
the account of an Eligible Institution, signatures on such Subscription
Certificate must be guaranteed by an Eligible Institution or other eligible
guarantor institution which is a member of or a participant in a medallion
guarantee program acceptable to the Subscription Agent.
Holders who hold shares of Common Stock for the account of others, such
as brokers, trustees or depositories for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the record holder of such
Rights should complete Subscription Certificates and submit them to the
Subscription Agent with the proper payment. In addition, beneficial owners of
Common Stock or Rights held through a record holder should contact the holder
and request the holder to act in accordance with such beneficial owner's
instructions. If a beneficial owner wishes to obtain a separate Subscription
Right Certificate, such beneficial owner should contact the nominee as soon as
possible and request that a separate Subscription Right Certificate be issued.
A nominee may request any Subscription Right Certificate held by it to be
split into such smaller denominations as it wishes, provided that the
Subscription Right Certificate is received by the Subscription Agent, properly
endorsed, no later than the Expiration Date. In no event will a Subscription
Certificate be issued in the name of a resident of the State of California.
The instructions accompanying the Subscription Certificates should be
read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES
TO THE COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK
OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED
PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE
STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR
CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
All questions concerning the timeliness, validity, form and eligibility
of any exercise of Rights will be determined by the Company, whose
determinations will be final and binding. The Company in its sole discretion
may waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported
exercise of any Right. Subscriptions will not be deemed to have been received
or accepted until all irregularities have been waived or cured within such
time as the Company determines in its sole discretion. Neither the Company,
the Subscription Agent, nor the Information Agent will be under any duty to
give notification of any defect or irregularity in connection with the
submission of Subscription Certificates or incur any liability for failure to
give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus, the
Instructions or the Notice of Guaranteed Delivery should be directed to the
Information Agent, MacKenzie Partners, Inc., at its address set forth under
"Information Agent" (telephone: (212) 929-5500 or (800) 322-2885).
No Revocation
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE
AND/OR THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED,
UNLESS (1) A MATERIAL CHANGE TO THE TERMS OF THE RIGHTS OFFERING IS MADE THAT
ADVERSELY AFFECTS THE RIGHTS HOLDER OR (2) C-TEC DOES NOT EXERCISE THE BASIC
SUBSCRIPTION PRIVILEGE IN RESPECT OF THE RIGHTS IT RECEIVES OR DOES NOT
EXERCISE THE OVERSUBSCRIPTION PRIVILEGE TO SUBSCRIBE FOR ALL OTHER UNDERLYING
SHARES.
Non-Transferability of Rights
The Rights are not transferable and will not be traded on any securities
exchange or quoted on any inter-dealer quotation system. Rights may only be
exercised or permitted to expire. Holders of shares of Common Stock who
determine not to exercise their Rights may not transfer their Rights and, at
the Expiration Date, Rights which have not been exercised will expire and be
null and void and have no value, provided that Rights may be transferred by
operation of law in the case of death, dissolution, liquidation or bankruptcy
of the Rights holder, or pursuant to an order of an appropriate court.
Procedures for Book Entry Transfer Facility Participants
The Company anticipates that the exercise of the Basic Subscription
Privilege (but not the Oversubscription Privilege) may be effected through,
the facilities of the Depository Trust Company, Midwest Securities Trust
Company and Philadelphia Depository Trust Company (collectively, the "Book
Entry Facilities"; Rights exercised through any such facility are referred to
as "Book Entry Exercised Rights"). The holder of a Book Entry Exercised Right
may exercise the Oversubscription Privilege in respect of such Book Entry
Exercised Right by properly executing and delivering to the Subscription
Agent, at or prior to 5:00 p.m., New York City time, on the Expiration Date, a
Nominee Holder Oversubscription Form, together with payment of the
Subscription Price for the number of Underlying Shares for which the
Oversubscription Privilege is to be exercised. Any Rights holder subscribing
for an aggregate of more than 25,000 Underlying Shares pursuant to the
Oversubscription Privilege prior to the Expiration Date shall not be required
to deliver payment for such number of Underlying Shares in excess of 25,000
until the Expiration Date. The Company, in its sole discretion, may determine
to waive payment for such excess number of Underlying Shares until after the
Expiration Date and after all prorations and adjustments contemplated by the
terms of the Rights Offering have been effected. The Company has agreed
pursuant to the C-TEC Rights Exercise Agreement to grant such a waiver to
C-TEC. Copies of the Nominee Holder Oversubscription Form may be obtained
from the Subscription Agent.
Determination of Subscription Price
The Subscription Price was determined by the Company and its Board of
Directors. In making this determination, the material factors considered by
the Company were the market price of the Common Stock, the pro rata nature of
the offering and pricing discounts customarily applied in transactions of this
type. The Subscription Price should not be considered an indication of the
actual value of the Company or the Common Stock.
C-TEC Rights Exercise Agreement
C-TEC will receive 1,044,194 Rights in respect of the shares of Common
Stock it owns, and such Rights represent 43.63% of the total Rights to be
distributed. C-TEC and the Company have entered into the C-TEC Rights
Exercise Agreement dated as of the date hereof. Pursuant to the C-TEC Rights
Exercise Agreement, C-TEC has agreed, subject to certain terms and conditions,
to exercise the Rights it receives for an aggregate subscription price of $[
] and to exercise the Oversubscription Privilege to subscribe for all other
Underlying Shares. The opportunity to exercise the Oversubscription Privilege
is available to all holders of Rights on the same terms. See "The Rights
Offering--Subscription Privileges--Oversubscription Privilege."
It is likely that the Rights Offering will result in C-TEC owning
over 50% of the Common Stock and having actual control of the Company. If
no Holders other than C-TEC exercise their Rights, C-TEC will own
approximately 71.81% of the Common Stock after the Rights Offering. If C-
TEC does not exercise the Basic Subscription Privilege in respect of the
Rights it receives or does not exercise the Oversubscription Privilege to
subscribe for all other Underlying Shares, each other Rights holder who has
previously exercised Rights will be provided the opportunity to revoke such
exercise.
C-TEC effectively controls the Company, and its nominees constitute a
majority of the Board of Directors of the Company. The C-TEC Rights
Exercise Agreement was approved by the ATR Committee.
Foreign and Certain Other Shareholders
Subscription Certificates will not be mailed to Holders whose addresses
are outside the United States or who have an APO or FPO address, but will be
held by the Subscription Agent for their account. To exercise such Rights,
such a Holder must notify the Subscription Agent, and must establish to the
satisfaction of the Subscription Agent that such exercise is permitted under
applicable law. If the procedures set forth in the preceding sentence are not
followed prior to the Expiration Date, the Rights will expire.
Other Matters
The Rights Offering is not being made in any state or other jurisdiction
in which it is unlawful to do so, nor is the Company selling or accepting any
offers to purchase any shares of Common Stock from Rights holders who are
residents of any such state or other jurisdiction. The Company may delay the
commencement of the Rights Offering in certain states or other jurisdictions,
or change the terms of the Rights Offering, in order to comply with the
securities law requirements of such states or other jurisdictions. It is not
anticipated that there will be any changes in the terms of the Rights
Offering. If any such change is made that is material and has an adverse
effect on any holder that has previously exercised Rights, such holder will be
provided the opportunity to revoke such exercise. The Company, if it so
determines in its sole discretion, may decline to make modifications to the
terms of the Rights Offering requested by certain states or other
jurisdictions, in which event Rights holders resident in those states or
jurisdictions will not be eligible to participate in the Rights Offering.
The Rights Offering is not being made, and Subscription Certificates
will not be distributed, to residents of the State of California, as the
California Department of Corporations has determined that the Rights Offering
does not meet the requirements of the Code of Regulations promulgated under
the California Corporate Securities Law of 1968, as amended. By executing a
Subscription Certificate, the Holder will be deemed to have represented that
it is not a resident of the State of California.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
considerations applicable to U.S. Holders who hold Common Stock as a
capital asset and who receive Rights in respect of such Common Stock in the
initial issuance of the Rights (the "Issuance"). This summary is based
upon laws, regulations, rulings and decisions currently in effect. This
summary does not discuss all aspects of federal income taxation that may be
relevant to a particular investor or to certain types of investors subject
to special treatment under the federal income tax laws (for example, banks,
dealers in securities, life insurance companies, tax exempt organizations
and foreign taxpayers), nor does it discuss any aspect of state, local or
foreign tax laws.
Issuance of the Rights
Holders of Common Stock will not recognize taxable income in connection
with the receipt or exercise of the Rights.
Basis and Holding Period of the Rights
Except as provided in the following sentence, the basis of the Rights
received by a shareholder as a distribution with respect to such shareholder's
Common Stock will be zero. If either (i) the fair market value of the Rights
on the date of Issuance is 15% or more of the fair market value (on the date
of Issuance) of the Common Stock with respect to which they are received or
(ii) the shareholder elects, in his or her federal income tax return for the
taxable year in which the Rights are received, to allocate part of the basis
of such Common Stock to the Rights, then upon exercise of the Rights, the
shareholder's basis in such Common Stock will be allocated between the Common
Stock and the Rights in proportion to the fair market values of each on the
date of Issuance. The holding period of a shareholder with respect to the
Rights received as a distribution on such shareholder's Common Stock will
include the shareholder's holding period for the Common Stock with respect to
which the Rights were issued.
Lapse of the Rights
Shareholders who allow the Rights received by them at the Issuance to
lapse will not recognize any gain or loss, and no adjustment will be made to
the basis of the Common Stock, if any, owned by such holders of the Rights.
Exercise of the Rights; Basis
and Holding Period of Common Stock
Holders of Rights will not recognize any gain or loss upon the exercise
of such Rights. The basis of the Common Stock acquired through exercise of
the Rights will be equal to the sum of the Subscription Price therefor and the
Rights holder's basis in such Rights (if any) as described above. The holding
period for the Common Stock acquired through exercise of the Rights will begin
on the date the Rights are exercised.
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE RIGHTS OFFERING ON HIS OR
HER OWN PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF
STATE AND LOCAL INCOME AND OTHER TAX LAWS.
DESCRIPTION OF CAPITAL STOCK
The following general summary of the Common Stock summarizes certain
material elements of the Company's Certificate of Incorporation (the
"Certificate of Incorporation"). Such summary is not necessarily complete and
is qualified in its entirety by reference to the Certificate of Incorporation,
a copy of which is on file with the Commission. See "Available Information."
The authorized capital stock of the Company is 5,150,000 shares,
consisting of 5,000,000 shares of Common Stock, par value $1.00 per share, and
150,000 shares of Preferred Stock, par value $100 per share ("Preferred
Stock"). As of March 31, 1995, the Company had outstanding 2,393,530 shares
of Common Stock and no shares of Preferred Stock.
With respect to all matters upon which shareholders are entitled to vote
(including the election of directors), every holder of Common Stock is
entitled to cast one vote for each share of the Common Stock held. Holders of
Common Stock are not permitted to cumulate their votes for the election of
directors. The Certificate of Incorporation does not provide for preemptive
rights for the Common Stock.
The Certificate of Incorporation authorizes the Company Board of
Directors, to the full extent permitted by law, to issue shares of Preferred
Stock and to fix by resolution such voting rights, designations, powers,
preferences, privileges, limitations, options, conversion rights or other
special rights, as it deems fit.
The transfer agent and registrar for the Common Stock is The First
National Bank of Boston.
The number of shares of Common Stock that will be issued in connection
with the Rights Offering is 2,393,530. The issuance of such shares pursuant
to the Rights Offering will result in a 100% increase in the number of
outstanding Common Shares.
The outstanding shares of the Common Stock trade on the over-the-counter
market under the symbol "MEEO."
SUBSCRIPTION AGENT
The Company has appointed The First National Bank of Boston as
Subscription Agent for the Rights Offering. The Subscription Agent's address,
which is the address to which the Subscription Certificates and payment of the
Subscription Price (other than wire transfers) should be delivered, as well as
the address to which any Notice of Guaranteed Delivery must be delivered, is:
By Mail:
The First National Bank of Boston
P.O. Box 1872
Mail Stop 45-01-19
Boston, Massachusetts
02105-1872
By Hand:
BancBoston Trust Company of
New York
55 Broadway
3rd Floor
New York, New York
10006
By Overnight Courier:
The First National Bank of Boston
Shareholder Services Division
150 Royall Street
Mail Stop 45-01-19
Canton, Massachusetts
02021
The Company will pay the fees and expenses of the Subscription Agent, and has
also agreed to indemnify the Subscription Agent from certain liabilities in
connection with the Rights Offering.
INFORMATION AGENT
The Company has appointed MacKenzie Partners, Inc. as Information Agent
for the Rights Offering. Any questions or requests for additional copies of
this Prospectus, the Instructions or the Notice of Guaranteed Delivery may be
directed to the Information Agent at the telephone number and address below.
MacKenzie Partners, Inc.
156 Fifth Avenue
9th Floor
New York, New York
10010
or
Call Toll Free
(800) 322-2885
The Company will pay the fees and expenses of the Information Agent and has
also agreed to indemnify the Information Agent from certain liabilities in
connection with the Rights Offering.
LEGAL MATTERS
The validity of the authorization and issuance of the securities offered
hereby is being passed upon by Raymond B. Ostroski, Executive Vice President
and General Counsel of the Company. Davis Polk & Wardwell, New York, New
York, will advise the Company with respect to certain other matters relating
to the Rights Offering.
EXPERTS
The Company's consolidated balance sheets as of December 31, 1994 and
1993 and the consolidated statements of operations, shareholders' capital
deficiency and cash flows for each of the three years in the period ended
December 31, 1994, incorporated by reference in this Prospectus, have been
incorporated herein in reliance on the report, which includes an explanatory
paragraph expressing substantial doubt about the Company's ability to continue
as a going concern and an explanatory paragraph referring to the Company's
change in method of accounting for income taxes, of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
=================================== ======================================
No dealer, salesperson or any other
person has been authorized to give
any information or to make any
representations other than those
contained or incorporated by MERCOM, INC.
reference in this Prospectus in
connection with the offer made by
this Prospectus, and, if given or
made, such information or represen-
tation must not be relied upon as
having been sanctioned or authorized 2,393,530 Shares
by the Company. Neither the delivery
of this Prospectus nor any sale made
hereunder shall under any circum-
stances create any implication that
there has been no change in the Common Stock
affairs of the Company since the date
hereof. This Prospectus does not
constitute an offer or solicitation by
anyone in any jurisdiction in which ----------
the person making such offer or solici- PROSPECTUS
tation is not qualified to do so or to ----------
any person to whom it is unlawful to
make such offer or solicitation.
TABLE OF CONTENTS
Page
----
Available Information............
Documents Incorporated by
Reference......................
Prospectus Summary...............
Risk Factors.....................
Use of Proceeds..................
Recent Developments..............
Price Range of Common Stock and
Dividend Policy..............
Dilution.........................
The Rights Offering..............
Certain Federal Income Tax
Consequences.................
Description of Capital Stock.....
Subscription Agent............... Dated ________ __, 1995
Information Agent................
Legal Matters....................
Experts..........................
=================================== ======================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth expenses in connection with the
issuance and distribution of the securities being registered. All amounts
shown are estimated, except the SEC registration fee and the NASD review fee.
SEC registration fee................................. $ 3,302
NASD review fee...................................... $ 1,458
Financial Advisor's fees and expenses................ $ 125,000
Subscription Agent's fees and expenses............... $ 20,000
Information Agent's fees and expenses................ $ 20,000
Accounting fees...................................... $ 20,000
Legal fees and expenses (including Blue Sky fees
and expenses)...................................... $ 125,000
Printing and engraving fees.......................... $ 20,000
Miscellaneous........................................ $ 165,240
--------
Total.......................................... $ 500,000
========
Item 15. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") grants each corporation organized thereunder the power to
indemnify its directors and officers against liabilities for certain of
their acts. Article 8 of the Company's Certificate of Incorporation
provides for indemnification of directors, except for liability (i) for
breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for intentional misconduct or knowing violation of law,
(iii) under DGCL Section 174 or (iv) for any transaction from which the
director derived an improper personal benefit. Article VIII of the Company
By-Laws provides that, except as prohibited by law, any director, officer,
employee or agent of the Company is entitled to be indemnified in any
action or proceeding in which he or she may be involved by virtue of
holding such position to the fullest extent permissible under DGCL Section
145.
In addition, the Company maintains a directors' and officers'
liability insurance policy.
For the undertaking with respect to indemnification, see Item 17
herein.
Item 16. Exhibits
1 - Form of C-TEC Rights Exercise Agreement
5 - Opinion of Raymond B. Ostroski*
23(a) - Consent of Coopers & Lybrand L.L.P.
23(b) - Consent of Raymond B. Ostroski (included in Exhibit 5)*
24(a) - Power of attorney (included in the signature page to the
Registration Statement)**
99(a) - Form of Subscription Certificate**
99(b) - Form of Instructions for Subscription Certificates**
99(c) - Form of Notice of Guaranteed Delivery**
99(d) - Form of Subscription Agency Agreement
99(e) - Form of Nominee Holder Oversubscription Exercise Form**
99(f) - Form of Nominee Holder Certification**
99(g) - Important Tax Information**
- ---------------
* To be supplied by amendment.
** Previously filed.
Item 17. Undertakings
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended, that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form
of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers
and controlling persons of the registrant pursuant to the provisions
referred to in Item 15 of this registration statement, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereby, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in such Act and will be governed by the
final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant hereby certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Princeton, State of New
Jersey, on the 28th day of June, 1995.
MERCOM, INC.
By /s/ Bruce C. Godfrey
-------------------------------
Bruce C. Godfrey
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacity and on the dates indicated.
Signature Title Date
Director, Chairman and
* Chief Executive Officer June 28, 1995
- -------------------------
David C. McCourt
Director, President and
* Chief Operating Officer June 28, 1995
- -------------------------
Michael J. Mahoney
Director, Executive Vice
President and Chief Financial
Officer (Principal Financial
* and Accounting Officer) June 28, 1995
- -------------------------
Bruce C. Godfrey
Director, Executive Vice
President and June 28, 1995
* General Counsel
- -------------------------
Raymond B. Ostroski
* Director June 28, 1995
- -------------------------
Clifford L. Jones
* Director June 28, 1995
- -------------------------
Harold J. Rose, Jr.
* Director June 28, 1995
- -------------------------
George C. Stephenson
*By: /s/ Raymond B. Ostroski
------------------------
Raymond B. Ostroski
Attorney-in-Fact
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------- -----------------------
1 Form of C-TEC Rights Exercise Agreement
5 Opinion of Raymond B. Ostroski*
23(a) Consent of Coopers & Lybrand L.L.P.
23(b) Consent of Raymond B. Ostroski (included in Exhibit 5)*
24(a) Power of attorney (included in the signature page to the
Registration Statement)**
99(a) Form of Subscription Certificate**
99(b) Form of Instructions for Subscription Certificates**
99(c) Form of Notice of Guaranteed Delivery**
99(d) Form of Subscription Agency Agreement
99(e) Form of Nominee Holder Oversubscription Exercise Form**
99(f) Form of Nominee Holder Certification**
99(g) Important Tax Information**
____________________________
* To be supplied by amendment.
** Previously filed
Exhibit 1
RIGHTS EXERCISE AGREEMENT
THIS RIGHTS EXERCISE AGREEMENT (this "Agreement") is made and
entered into as of _______ __, 1995, by and between Mercom, Inc., a Delaware
corporation (the "Company"), and C-TEC Corporation, a Pennsylvania corporation
("C-TEC Corporation").
RECITALS:
A. The Company anticipates issuing to the holders of record of
its issued and outstanding shares of Common Stock, par value $1.00 per share
("Common Stock"), non-transferable subscription rights (the "Rights") to
subscribe for and purchase an aggregate of 2,393,530 additional shares of
Common Stock for a price of $[ ] per share (the "Subscription Price")
(such transaction being herein referred to as the "Rights Offering").
B. C-TEC Properties, Inc., a Delaware corporation and a wholly
owned subsidiary of C-TEC Corporation (together with C-TEC Corporation,
"C-TEC"), will receive 1,044,194 Rights (the "C-TEC Rights") in respect of the
shares of Common Stock currently owned by it.
In consideration of the mutual promises contained herein, the
parties agree as follows:
1. Rights Offering; Registration of the Common Stock
A registration statement on Form S-3 (the "Registration
Statement") with respect to the proposed Rights Offering has been filed with
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), and has been
declared effective by the Commission. All expenses relating to the
Registration Statement have been borne by the Company. The shares of Common
Stock to be issued and sold pursuant to the Rights Offering (the "Underlying
Shares") have been registered pursuant to the Registration Statement. A copy
of the final Prospectus which is contained in the Registration Statement (the
"Prospectus") has been furnished to C-TEC. The Company represents and
warrants that (i) each part of the Registration Statement, when such part
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, (ii) the
Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Prospectus.
2. Exercise of Rights
Subject to the terms and conditions herein set forth, C-TEC
hereby agrees (a) to properly exercise the Basic Subscription Privilege in
respect of the all of the C-TEC Rights on or before the Expiration Date and
(b) to properly exercise the Oversubscription Privilege for all other
Underlying Shares on or before the Expiration Date.
3. Payment for Underlying Shares
The Company hereby agrees to waive payment for all Underlying
Shares subscribed for by C-TEC pursuant to the Oversubscription Privilege in
excess of 25,000 until after the Expiration Date and after all prorations and
adjustments contemplated by the Rights Offering have been effected.
4. Exercise Conditions
The obligation of C-TEC to perform its obligations under each
subsection of Section 2 shall in each case be subject to the satisfaction of
the following conditions on the Expiration Date:
(a) No stop order suspending the effectiveness of the
Registration Statement or any amendment or supplement thereto shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission;
(b) Since the date of this Agreement (i) there shall not have
been a decline of 10 percent or more in the NASDAQ Composite Index as reported
in the Wall Street Journal; (ii) there shall not have occurred any general
suspension of, or limitation on times or prices for, trading in securities on
the New York Stock Exchange or the NASDAQ National Market; (iii) there shall
not have been instituted or be pending any action or proceeding before any
court or governmental, administrative or regulatory authority challenging or
seeking to make illegal, materially delay or make materially more costly the
Rights Offering or the transactions contemplated hereby; (iv) there shall not
have occurred any change, condition, event or development that has had, in
C-TEC's judgment, a material adverse affect on the business, operations,
properties, condition (financial or otherwise), prospects, assets or
liabilities of the Company and its subsidiaries taken as a whole; and (v)
there shall not have occurred any material adverse change in the financial
markets in the United States, or the commencement of war or armed hostilities
or other national calamity directly involving the United States; and
(c) The representations and warranties of the Company set
forth in Section 1 shall be true and correct as of the Expiration Date:
5. Termination
Either of the parties hereto may terminate this Agreement if
the transactions contemplated hereby are not consummated by [30 days after
original Expiration Date].
6. Choice of Law
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware governing contracts made
and to be performed in such State.
7. Execution in Counterparts
This Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed to be an
original, but all such respective counterparts shall together constitute but
one and the same instrument.
8. Entire Agreement
Except for the Subscription Certificates which C-TEC shall
execute and deliver to the Subscription Agent pursuant to this Agreement, this
Agreement constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof. Any amendment hereto must be in writing, signed
by each party.
MERCOM, INC.
By:
----------------------------
Name:
Title:
C-TEC CORPORATION
By:
----------------------------
Name:
Title:
Exhibit 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Amendment No. 2 to the
Registration Statement on Form S-3 (file no. 33-58715) of our report, which
includes an explanatory paragraph expressing substantial doubt about the
Company's ability to continue as a going concern and an explanatory
paragraph referring to the Company's change in method of accounting for
income taxes, dated March 10, 1995 on our audits of the financial
statements and the financial statement schedule of Mercom, Inc. We also
consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
June 28, 1995
Exhibit 99(d)
SUBSCRIPTION AGENCY AGREEMENT
This Subscription Agency Agreement (the "Agreement") is made as
of June __, 1995 between Mercom, Inc. (the "Company") and The First National
Bank of Boston, as subscription agent (the "Agent"). All terms not defined
herein shall have the meaning given in the prospectus (the "Prospectus")
included in the Registration Statement on Form S-3 (File No. 33-58715) filed
by the Company with the Securities and Exchange Commission on April 19, 1995,
as amended by any amendment filed with respect thereto (the "Registration
Statement").
WHEREAS, the Company proposes to make a subscription offer by
issuing certificates or other evidences of non-transferable subscription
rights, in the form designated by the Company (the "Subscription
Certificates") to holders of record of shares (each a "Shareholder") of its
Common Stock, par value $1.00 per share (the "Common Stock"), as of a record
date specified by the Company (the "Record Date"), pursuant to which each
shareholder will receive non-transferable subscription rights (the "Rights")
to subscribe for shares of Common Stock, as described in and upon such terms
as are set forth in the Prospectus included as a part of the Registration
Statement; a final copy of the Prospectus has been or, upon availability will
promptly be, delivered to the Agent; and
WHEREAS, the Company wishes the Agent to perform certain acts
on behalf of the Company, and the Agent is willing to so act, in connection
with the distribution of the Subscription Certificates and the issuance and
exercise of the Rights to subscribe for Common Stock as therein set forth, all
upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual agreements set forth herein, the parties agree as follows:
1. Appointment. The Company hereby appoints the Agent to act as
subscription agent for the Company in connection with the distribution of
Subscription Certificates and the issuance and exercise of the Rights in
accordance with the terms set forth in this Agreement and the Prospectus and
the Agent hereby accepts such appointment.
2. Form and Execution of Subscription Certificates. (a)
Each Subscription Certificate shall be irrevocable and non-transferable. The
Agent shall maintain a register of Subscription Certificates and the holders
of record thereof (each of whom shall be deemed a "Shareholder" hereunder for
purposes of determining the rights of holders of Subscription Certificates).
Each Subscription Certificate shall, subject to the provisions thereof,
entitle the Shareholder in whose name it is recorded to the following:
(1) The right to purchase from the Company until the
Expiration Date, at the Subscription Price, a number of shares of Common Stock
equal to one share of Common Stock for each Right evidenced thereby (the
"Basic Subscription Privilege"); and
(2) The right to subscribe for additional shares of Common
Stock, subject to the availability of such shares and to the allotment of such
shares as may be available among Shareholders who exercise the Oversubscription
Privilege on the basis specified in the Prospectus; provided, however, that
such Shareholder has exercised the Basic Subscription Privilege in respect of
all Rights which he or she holds (the "Oversubscription Privilege").
3. Rights and Issuance of Subscription Certificates. (a)
Each Subscription Certificate shall evidence the Rights of the Shareholder
therein named to purchase shares of Common Stock upon the terms and conditions
therein and herein set forth.
(b) Upon the written authorization of the Company, signed by
any of its duly authorized officers, as to the Record Date, the Agent shall,
from a list of the Shareholders of Common Stock as of the Record Date to be
prepared by the Agent in its capacity as Transfer Agent of the Company, (i)
prepare and record Subscription Certificates in the names of the Shareholders
(other than Shareholders with registered addresses in the State of California
("California Holders")), setting forth the number of Rights to subscribe for
shares of the Common Stock calculated on the basis of one Right for each one
share of Common Stock recorded on the books in the name of each such
Shareholder as of the Record Date and (ii) prepare a list of California
Holders as of such Record Date.
(c) Each Subscription Certificate shall be dated as of the
Record Date and shall be executed manually or by facsimile signature of a
duly authorized officer of the Agent. Upon the written advice, signed as
aforesaid, as to the effective date of the Registration Statement, the
Agent shall promptly countersign and deliver the Subscription Certificates,
together with a copy of the Prospectus, instructions as to the use of the
Subscription Certificates and any other document as the Company deems
necessary or appropriate, to all Shareholders with record addresses in the
United States (including its territories and possessions and the District
of Columbia); provided, however, that the Rights Offering is not being
made, and Subscription Certificates shall not be distributed, to residents
of the State of California. No Subscription Certificate shall be valid for
any purpose unless so executed. (The Agent shall deliver to California
Holders such materials as the Company shall provide specifically for that
purpose.) Delivery to Shareholders with record address inside the United
States shall be by first class mail (without registration or insurance).
For those Shareholders having a record address outside the United States or
who have an APO or FPO address ("Foreign Shareholders") (who will not
receive Subscription Certificates and will receive only copies of the
Prospectus, instructions as to the use of the Subscription Certificates and
other documents as the Company deems necessary or appropriate, if any),
delivery shall be by air mail (without registration or insurance) and by
first class mail (without registration or insurance) to those Shareholders
having APO or FPO addresses.
(d) The Rights evidenced by Subscription Certificates issued
to Foreign Shareholders will be held by the Agent for such Foreign
Shareholders' accounts until instructions are received to exercise the Rights.
To exercise such rights, such a Foreign Shareholder must notify the Agent and
must establish to the satisfaction of the Agent that such exercise is
permitted under applicable law. If such a holder does not follow the
procedures set forth in the preceding sentence prior to the Expiration Date,
such Rights represented thereby will expire.
(e) In no event shall a Subscription Certificate be issued by
the Agent in the name of a California Holder.
4. Exercise. (a) Shareholders may acquire shares of Common Stock
pursuant to the Basic Subscription Privilege, and, if available, pursuant to
the Oversubscription Privilege by delivery to the Agent as specified in the
Prospectus of (i) the Subscription Certificate with respect thereto, duly
executed by such Shareholder in accordance with and as provided by the terms
and conditions of the Subscription Certificate, together with (ii) the purchase
price of $[ ] for each share of Common Stock subscribed for by exercise
of such Rights (the "Subscription Price"), in U.S. dollars by wire transfer or
by money order or check drawn on a bank in the United States, in each case
payable to the order of the Agent. In the case of holders of Rights that are
held of record through a Depository (as defined below), exercises of the Basic
Subscription Privilege (but not the Oversubscription Privilege) may be
effected by instructing the Depository to transfer Rights (such Rights
"Depository Rights") from the Depository's account of such holder to the
Depository account of the Agent, together with payment of the Subscription
Price for each Underlying Share subscribed for pursuant to the Basic
Subscription Privilege. The Oversubscription Privilege in respect of
Depository Rights may not be exercised through the Depository. The holder of
a Depository Right may exercise the Oversubscription Privilege in respect of
such Depository Right by properly executing and delivering to the Agent at or
prior to 5:00 p.m., New York City time, on the Expiration Date, a Nominee
Holder Oversubscription Exercise Form or a Notice of Guaranteed Delivery,
together with payment of the appropriate Subscription Price for the number of
Underlying Shares for which the Oversubscription Privilege is to be exercised.
Any Rights holder subscribing for an aggregate of more than 25,000 shares
pursuant to the Oversubscription Privilege prior to the Expiration Date shall
not be required to deliver payment for such number of underlying shares in
excess of 25,000 until the Expiration Date. (The Company, in its sole
discretion, may determine to waive payment for such excess number of
Underlying Shares until after the Expiration Date and after all prorations and
adjustments contemplated by the terms of the Rights Offering have been
effected. The Company has agreed pursuant to a Rights Exercise Agreement to
grant such a waiver to C-TEC Corporation.) Payments will be deemed to have
been received by the Agent only upon (i) clearance on any uncertified check
(for purposes hereof, an uncertified check will be deemed to clear when the
Agent has received good funds therefrom), (ii) receipt by the Agent of any
certified check or money order or (iii) receipt of good funds by wire transfer
to the Agent's account. Nominees, (as defined below) who, on behalf of
beneficial owners, exercise the Basic Subscription Privilege and who wish to
exercise the Oversubscription Privilege, must properly execute and deliver to
the Agent at or prior to 5:00 p.m., New York City time, on the Expiration Date
a Nominee Holder Oversubscription Exercise Form and a Nominee Holder
Certification.
(b) Rights may be exercised at any time after the date of
issuance of the Subscription Certificates with respect thereto but no later
than 5:00 P.M. New York time on the Expiration Date. For the purpose of
determining the time of the exercise of any Rights, delivery of any material
to the Agent shall be deemed to occur when such materials are received at the
Shareholder Services Division of the Agent specified in the Prospectus. Once
a Shareholder has exercised the Basic Subscription Privilege or the
Oversubscription Privilege, such exercise may not be revoked except as
provided in the Prospectus.
(c) Notwithstanding the provisions of Section 4(a) and 4(b)
regarding delivery of an executed Subscription Certificate to the Agent
prior to 5:00 P.M. New York time on the Expiration Date, if prior to such
time the Agent receives a Notice of Guaranteed Delivery by facsimile
(telecopy) or otherwise from a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or from a commercial bank or trust company having an office
or correspondent in the United States (each, an "Eligible Institution")
guaranteeing delivery of a properly completed and executed Subscription
Certificate, then such exercise of the Basic Subscription Privilege and
Oversubscription Privilege shall be regarded as timely, subject, however,
to receipt of (i) the duly executed Subscription Certificate by the Agent
within five business days following the Expiration Date (the "Protect
Period") and (ii) payment in full of the subscription price (subject to the
right of the Company to waive advance payment in respect of the
Oversubscription Privilege as described above) prior to 5:00 p.m. on the
Expiration Date.
(d) As soon as practicable after the valid exercise of Rights
(for purposes hereof an exercise will not be treated as valid until such time
as the Agent receives good funds) the Agent shall send to each exercising
Shareholder (an "Exercising Shareholder") (or, if shares of Common Stock on
the Record Date are held by Depository Trust Company, Midwest Securities Trust
Company, Philadelphia Depository Trust Company (each a "Depository") or any
other depository or nominee (together with the Depositories, "Nominees"), to
such Nominee) the share certificates representing the shares of Common Stock
acquired pursuant to the Basic Subscription Privilege. As soon as practicable
after the Expiration Date and after all pro rations and adjustments
contemplated by the terms of the Rights Offering have been effected, the Agent
shall send to each Exercising Shareholder or Nominee who exercises an
Oversubscription Privilege certificates representing the shares of Common
Stock acquired pursuant to the Oversubscription Privilege, along with a letter
explaining the allocation of shares of Common Stock pursuant to the
Oversubscription Privilege. (Any excess payment to be refunded by the Company
to an Exercising Shareholder who is not allocated the full amount of shares of
Common Stock subscribed for pursuant to the Oversubscription Privilege, shall
be mailed by the Agent to him or her without interest or deduction as soon as
practicable after the Expiration Date and after all prorations and adjustments
contemplated by the terms of the Rights Offering have been effected.)
(e) If an exercising Rights holder has not indicated the
number of Rights being exercised, or if the Subscription Price payment
forwarded by such holder to the Agent is not sufficient (subject to the fifth
sentence of Section 4(a) above) to purchase the number of shares subscribed
for, the Rights holder will be deemed to have exercised the Basic Subscription
Privilege with respect to the maximum number of whole Rights which may be
exercised for the Subscription Price delivered to the Agent and, to the extent
that the Subscription Price payment delivered by such holder exceeds the
Subscription Price multiplied by the number of Rights exercised (such excess
being the "Subscription Excess"), the holder will be deemed to have exercised
its Oversubscription Privilege to purchase, to the extent available, a number
of whole Underlying Shares equal to the quotient obtained by dividing the
Subscription Excess by the Subscription Price.
5. Non-Transferability of Rights. The Rights are not transferable.
Shareholders who determine not to exercise their Rights may not transfer their
Rights and, at the Expiration Date, Rights which have not been exercised will
expire and be null and void and have no value, provided that Rights may be
transferred by operation of law in the case of death, dissolution, liquidation
or bankruptcy of the Rights holder, or pursuant to an order of an appropriate
court. A Shareholder may subdivide a Subscription Certificate into multiple
Subscription Certificates having in the aggregate the same number of Rights,
provided that all such new Subscription Certificates shall be registered in
the same name as the old Subscription Certificate. No Subscription
Certificate shall be delivered to an address in California or issued in the
name of a resident of California.
6. Validity of Subscriptions. Irregular subscriptions not otherwise
covered by specific instructions herein shall be submitted to an appropriate
officer of the Company and handled in accordance with his or her instructions.
Such instructions will be documented by the Agent indicating the instructing
officer and the date thereof.
7. Oversubscription. If, after allocation of shares of Common Stock to
Exercising Shareholders, there remain Underlying Shares not subscribed for
through the Basic Subscription Privilege (the "Excess Shares"), then the Agent
shall allocate such Excess Shares to Shareholders who have exercised all the
Rights initially issued to them and who have exercised the Oversubscription
Privilege to acquire more than the number of shares for which the Rights issued
to them are exercisable. If the number of shares for which the
Oversubscription Privilege has been exercised is greater than the Excess
Shares, the Agent shall allocate pro rata the Excess Shares among the
Shareholders exercising the Oversubscription Privilege based on the number of
shares each Shareholder exercising the Oversubscription Privilege has
purchased pursuant to the Basic Subscription Privilege; provided, however,
that if such pro rata allocation results in any Shareholder being allocated a
greater number of Excess Shares than such Shareholder subscribed for pursuant
to the exercise of such Shareholder's Oversubscription Privilege, then such
Shareholder will be allocated only such number of Excess Shares as such
Shareholder subscribed for and the remaining Excess Shares will be allocated
among all other Shareholders exercising the Oversubscription Privilege. The
percentage of Excess Shares each oversubscribing Shareholder may acquire will
be rounded up or down to result in delivery of whole shares of Common Stock.
The Agent shall advise the Company immediately upon the completion of the
allocation set forth above as to the total number of shares subscribed and
distributable.
8. Delivery of Certificates. The Agent will deliver (i) certificates
representing those shares of Common Stock purchased pursuant to exercise of
the Basic Subscription Privilege as soon as practicable after the
corresponding Rights have been validly exercised and full payment for such
shares has been received and cleared and (ii) certificates representing
those shares purchased pursuant to the exercise of the Oversubscription
Privilege as soon as practicable after the Expiration Date and after all
prorations and adjustments contemplated by the Rights Offering have been
effected, but in no event shall share certificates be delivered after the
time period set forth in Section 4(d) hereof. No certificates will be
delivered to an address in California.
9. Holding Proceeds of Rights Offering in Escrow. (a) All proceeds
received by the Agent from Shareholders in respect of the exercise of
Rights shall be held by the Agent, on behalf of the Company, in a
segregated, interest-bearing escrow account (the "Escrow Account"). As
soon as practicable after the receipt of any proceeds in respect of the
exercise of the Basic Subscription Privilege, the Agent shall deliver all
such proceeds to the Company, together with any interest thereon.
(b) The Agent shall deliver all proceeds received in respect
of the exercise of the Oversubscription Privilege (including interest earned
thereon) to the Company as promptly as practicable, but in no event later than
10 business days after all prorations and adjustments contemplated by the
terms of the Rights Offering have been effected. Pending delivery to the
Company as provided herein or disbursement in the manner described in Section
4(d) above, funds held in the Escrow Account shall be invested by the Agent at
the direction of the Company.
10. Reports. Daily, during the period commencing with the mailing of the
Subscription Certificates and ending on the Expiration Date (and in the case
of guaranteed deliveries pursuant to Section 4(c), the period ending five
business days after the Expiration Date) the Agent will report by telephone or
telecopier (by 12:00 Noon, New York time), confirmed by letter, to an officer
of the Company, data regarding Rights exercised, the total number of shares of
Common Stock subscribed for, and payments received therefor, bringing forward
the figures from the previous day's report in each case so as to show the
cumulative totals and any such other information as may be reasonably
requested by the Company.
11. Loss or Mutilation; Cancellation. (a) If any Subscription
Certificate is lost, stolen, mutilated or destroyed, the Agent may, on such
terms which will indemnify and protect the Company and the Agent as the Agent
and the Company shall agree (which shall, in the case of a mutilated
Subscription Certificate include the surrender and cancellation thereof),
issue a new Subscription Certificate of like denomination in substitution for
the Subscription Certificate so lost, stolen, mutilated or destroyed.
(b) All Subscription Certificates surrendered for the purpose
of exercise or, subject to Section 5, exchange, substitution or transfer shall
be canceled by the Agent, and no Subscription Certificates shall be issued in
lieu thereof except as expressly permitted by provisions of this Agreement.
The Company shall deliver to the Agent for cancellation and retirement, and
the Agent shall so cancel and return, any other Subscription Certificate
purchased or acquired by the Company otherwise than upon the exercise thereof.
The Agent shall deliver all canceled Subscription Certificates to the Company,
or shall, at the written request of the Company, destroy such canceled
Subscription Certificates, and in such case shall deliver a certificate of
destruction thereof to the Company.
12. Compensation for Services. The Company agrees to pay to the Agent
certain fees, as set forth in the schedule hereto, for services performed
hereunder, which services include any other services not described herein but
customarily performed by the Subscription/Escrow Agent in a rights offering.
The Company further agrees that it will reimburse the Agent for its reasonable
out-of-pocket expenses incurred in the performance of its duties as such.
13. Instructions and Indemnification. The Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions:
(a) The Agent shall be entitled to rely upon any instructions
or directions furnished to it by an appropriate officer of the Company,
whether in conformity with the provisions of this Agreement or constituting a
modification hereof or a supplement hereto. Without limiting the generality
of the foregoing or any other provision of this Agreement, the Agent, in
connection with its duties hereunder, shall not be under any duty or
obligation to inquire into the validity or invalidity or authority or lack
thereof of any instruction or direction from an appropriate officer of the
Company which conforms to the applicable requirements of this Agreement and
which the Agent reasonably believes to be genuine and shall not be liable for
any delays, errors or loss of data occurring by reason of circumstances beyond
the Agent's control, including, without limitation, acts of civil or military
authority, national emergencies, labor difficulties, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(b) The Company will indemnify the Agent for, and hold it
harmless against, any liability and expense which may arise out of or in
connection with the services described in this Agreement or the
instructions or directions furnished to the Agent relating to this
Agreement by an appropriate officer of the Company; provided, however, that
such agreement does not extend to, and the Agent shall not be indemnified
or held harmless with respect to any liability or expense which shall arise
out of, or be incurred or suffered as a result of, the Agent's negligence,
bad faith, misconduct or breach of this Agreement. The Company shall not
indemnify the Agent with respect to any claim or action settled without its
consent, which consent shall not be unreasonably withheld.
(c) The Agent will promptly notify the Company of any claim
with respect to which it may seek indemnity hereunder. The Company shall be
entitled to participate at its own expense in the defense of any suit brought
to enforce any such claim, and if the Company so elects, the Company shall
assume the defense of any such suit. In the event that the Company assumes
such defense, the Company shall not thereafter be liable for the fees and
expenses of any additional counsel that the Agent retains, so long as the
Company shall retain counsel reasonably satisfactory to the Agent, to defend
such suit.
14. Changes in Subscription Certificate. The Agent may, without the
consent or concurrence of the Shareholders in whose names Subscription
Certificates are registered, by supplemental agreement or otherwise, concur
with the Company in making any changes or corrections in a Subscription
Certificate that it shall have been advised by counsel (who may be counsel for
the Company) is appropriate to cure any ambiguity or to correct any defective
or inconsistent provision or clerical omission or mistake or manifest error
therein or herein contained, and which shall not be inconsistent with the
provision of the Subscription Certificate except insofar as any such change
may confer additional rights upon the Shareholders.
15. Assignment, Delegation. (a) Neither this Agreement nor any
rights or obligations hereunder may be assigned or delegated by either party
without the written consent of the other party.
(b) This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and
assigns. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim or to impose upon any
other person any duty, liability or obligation.
16. Governing Law. The validity, interpretation and performance of this
Agreement shall be governed by the law of the State of New York.
17. Severability. The parties hereto agree that if any of the provisions
contained in this Agreement shall be determined invalid, unlawful or
unenforceable to any extent, such provisions shall be deemed modified to the
extent necessary to render such provisions enforceable. The parties hereto
further agree that this Agreement shall be deemed severable, and the
invalidity, unlawfulness or enforceability of any term or provision thereof
shall not affect the validity, legality or enforceability of this Agreement or
of any other term or provision hereof.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
19. Captions. The captions and descriptive headings herein are for the
convenience of the parties only. They do not in any way modify, amplify,
alter or give full notice of the provisions hereof.
20. Facsimile Signatures. Any facsimile signature of any party hereto
shall constitute a legal, valid and binding execution hereof by such party.
21. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effect the purposes of this
Agreement.
22. Additional Provisions. Except as specifically modified by this
Agreement, the Agent's rights and responsibilities set forth in the Agreement
for Stock Transfer Services between the Company and the Agent are hereby
ratified and confirmed and continue in effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
THE FIRST NATIONAL BANK OF BOSTON
By: _____________________________
Name:
Title:
MERCOM, INC.
By: _____________________________
Name:
Title:
SCHEDULE OF FEES
FOR SUBSCRIPTION/ESCROW AGENT SERVICES
between
MERCOM, INC.
and
THE FIRST NATIONAL BANK OF BOSTON
A. TERM
The term of this Agreement shall be for a period of six (6) months,
commencing from the effective date of this Agreement, _________ __,
1995.
B. FEE FOR the Company
$16,000 - Administrative fee to include:
o Subscription Certificate issued and mailed (if Machine
Enclosed)
o Subscription Certificates Received and Processed, up to
2,000 items; excess to be billed at $8.00 each
o Defective Subscription Certificates Received and
Processed (Telephone Calls if Necessary), up to 250
Items; excess to be billed at $12.00 each
o Notices of Guaranteed Delivery Received
o Per Withdrawal of Subscription Certificate, if
Applicable, up to 100 withdrawals; excess to be billed at
$10.00 each
o Over Subscription, Proration (if applicable)
o Other services customary for a transaction of this type
____________________
$2,500.00 - Escrow Agent Fee to Handle Daily
Investment of Funds Received
