<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For fiscal year ended December 31, 1994
-----------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File No. 0-17750
MERCOM, INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-2728175
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 Carnegie Center, P.O. Box 8567, Princeton, NJ 08540-6215
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(Address of principle executive offices) (Zip Code)
Registrant's telephone number including area code: 609-734-3700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K (X).
As of February 28, 1995, 2,393,530 shares of Common Stock were outstanding. The
aggregate market value of the shares held by non-affiliates of the registrant
(based upon the average of the bid and asked prices of these shares on February
28, 1995 of $4 1/8 per share) was approximately $5,566,011.
Documents Incorporated by Reference
-----------------------------------
The registrant's definitive proxy statement for 1995 Annual Meeting of
Stockholders, to be filed pursuant to Regulation 14A of the Securities Exchange
Act of 1934, as amended, is incorporated by reference into Part III of this Form
10-K.
<PAGE>
PART I
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Item 1. Business.
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Mercom, Inc. ("Mercom" or the "Company") is a cable television operator
with three cable systems in southern Michigan serving 36,183 subscribers and one
cable system in Port St. Lucie, Florida serving 1,141 subscribers (the
"Systems"). The Michigan systems are operated through Mercom's wholly-owned
subsidiary, Communications and CableVision, Inc. ("CCV"). The Florida system is
operated through a wholly-owned subsidiary, Mercom of Florida, Inc. ("Mercom of
Florida"). As of December 31, 1994, the Systems had 37,324 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.
The following table indicates the development of the Company by
summarizing, as of December 31 of each of the last five years, the number of
homes passed by cable, the number of homes purchasing basic cable service
("basic subscribers"), the number of basic subscribers as a percentage of homes
passed, the number of homes purchasing basic cable service and tier cable
service ("tier subscribers"), the number of tier subscribers as a percentage of
basic subscribers, the number of premium service units, premium service units as
a percentage of basic subscribers ("pay-to-basic ratio"), and the average
revenue per subscriber for December of each year.
<TABLE>
<CAPTION>
As of December 31
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Homes Passed (1)............. 57,736 58,726 59,988 61,730 63,721
Basic subscribers (2)........ 32,319 33,692 34,118 34,714 37,324
Basic subscribers as a
percentage of homes passed 56.0% 57.3% 56.9% 56.2% 58.6%
Tier subscribers (3)......... 32,299 33,122 32,814 32,945 34,789
Tier subscribers as a
percentage of basic subs.... 99.9% 98.3% 96.2% 94.9% 93.2%
Premium service units (4).... 16,593 15,324 12,762 12,816 14,312
Premium service units as a
percentage of basic subs.... 51.3% 45.5% 37.4% 36.9% 38.3%
Average revenue per sub for
month of December (5)....... $ 27.64 $ 27.60 $ 30.05 $ 29.70 $ 29.36
</TABLE>
(1) 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.
(2) A home with one or more television sets connected to a cable television
system is counted as one basic subscriber.
(3) 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.
(4) A basic subscriber may purchase more than one premium service, each of which
is counted as a separate premium service unit. Hence, the pay-to-basic ratio
can exceed 100%. A premium service unit includes only single channel
services offered for a monthly fee.
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<PAGE>
Item 1. Business, continued
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(5) Calculated by dividing total cable related revenues for the month of
December by the number of basic subscribers at the end of the month.
During 1994 and 1993, 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
"Act").
The future impact of the Act on the Company and the cable television
industry is still unclear. The Company's 1994 operating results were negatively
impacted by the Act.
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 are in the 3 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 a
consumer 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. The Company continues to monitor the progress of regulations affecting
the telecommunications industry and continually reassesses its business plan 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.
Employees
As of December 31, 1994, Mercom had 42 full-time employees, none of whom
were represented by collective bargaining units. Management believes that the
Company's relationship with its employees is satisfactory.
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<PAGE>
Item 2. Properties.
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The principal assets of the Company include head-ends, distribution systems
and subscriber connection equipment. Mercom owns six head-ends, each including a
tower, antennas, earth stations for the reception of satellite signals, and
electronic equipment necessary for the reception, amplification and modulation
of signals. In addition to these head-ends, the Company owns ten microwave
receive sites, each including a tower, microwave dish and electronic equipment
necessary for their reception of microwave signals. The distribution system
consists of approximately 1,380 miles of coaxial cable plus related electronic
equipment. Subscriber connection equipment consists of house or apartment drop
equipment and decoding converters. The physical components of the systems
require regular maintenance and periodic upgrading in order to keep pace with
technological advances and to comply with regulatory standards.
Mercom owns two small parcels of real property used as head-end sites, and
it owns most of the buildings which contain head-end equipment for the systems.
The remainder of Mercom's facilities are leased.
Item 3. Legal Proceedings.
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Mercom, Inc./Lahey Litigation
-----------------------------
CCV, a subsidiary of the Company, is party to a lawsuit commenced in 1988
in the Circuit Court for the County of Ottawa, Michigan, relating to the
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 million. 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 million and awarded pre-judgment interest of approximately $1.2 million.
The Company has filed a Motion for Reconsideration with the Court. On March 27,
1995, the Court issued an Order denying the Company's Motion for
Reconsideration. The Company will appeal the Court's decision with respect to
the $1.2 million pre-judgment interest issue to the fullest extent allowed under
law.
The Company will be materially and adversely affected if the judgment
against the Company is enforced. This would significantly and immediately affect
the liquidity of the Company and require a restructuring of its current capital
structure. However, there are no assurances that such a restructuring can be
accomplished. The Company has accrued an amount which represents management's
best estimate of the Company's potential liability. See Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 7 (Commitments and Contingencies) of Notes to Consolidated Financial
Statements.
Item 4. Submission of Matters to a Vote of Security Holders.
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No matters were submitted to a vote of security holders of the Registrant
during the fourth quarter of the Registrant's 1994 fiscal year.
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<PAGE>
Executive Officers Of The Registrant
------------------------------------
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an un-numbered Item in Part I of this Report in lieu of being
included in the definitive proxy statement relating to the Registrant's Annual
Meeting of Stockholders to be filed by Registrant with the Securities and
Exchange Commission (the "Commission") pursuant to section 14 (A) of the
Securities Exchange Act of 1934 (the "1934 Act"). Information with respect to
Executive Officers who are also Directors is set forth in the definitive proxy
statement relating to Registrant's Annual Meeting of Stockholders, and is hereby
specifically incorporated herein by reference thereto.
<TABLE>
<CAPTION>
Age as of Office and Date Held Since:
Name March 1, 1995 Other Positions Held
---- ------------- ---------------------------
<S> <C> <C>
Stephen J. Rabbitt 46 Executive Vice President (since August 1994);
Executive Vice President - C-TEC Corporation
("C-TEC") Cable Television Group (since August
1994); Senior Vice President - Crown Media, Inc.
(November 1992 - August 1994); Fund Vice President -
Jons Intercable, Inc. (January 1989 - November 1992).
Mark Haverkate 40 Executive Vice President of Development (since
February 1995); Vice President of Development
(December 1993 - February 1995); Executive Vice
President of Development - C-TEC (since February
1995); Vice President of Development - C-TEC
(December 1993 - February 1995); Vice President -
C-TEC Cable Television Group (October 1989 -
December 1993); Director of Acquisitions and
Development (July 1988 - October 1989); Corporate
Marketing Manager - Cable Television Group (May
1981 - July 1988).
John D. Filipowicz 36 Corporate Secretary (since December 1994); Vice
President and Assistant General Counsel - C-TEC
(since February 1995); Assistant Corporate Secretary -
C-TEC (since December 1994); Corporate Counsel -
C-TEC (December 1990 - February 1995); Assistant
Counsl - C-TEC (August 1988 - November 1990).
</TABLE>
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<PAGE>
Part II
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Item 5. Market for the Registrant's Common Stock and Related
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Stockholders
------------
There were approximately 2,093 holders of the Company's Common Stock on
February 28, 1995.
<TABLE>
<CAPTION>
1994 1993
Bid Prices Bid Prices
---------- ----------
High Low High Low
$ $ $ $
<S> <C> <C> <C> <C>
Quarter Ended:
March 31 4 3-3/4 3-1/2 2-3/4
June 30 4 3-1/4 3-1/2 2-3/4
September 30 3 1/2 3 4 2-3/4
December 31 3-3/4 3 4-1/8 3-1/8
</TABLE>
The Company is traded on the over-the-counter market. The bid and ask prices
are quoted by the National Quotation Bureau, Inc. and the OTC Bulletin Board
under the symbol "MEEO". The 1994 and 1993 bid prices listed above represent the
high and low bid prices reported by the National Quotation Bureau, Inc. Prices
listed above represent inter-dealer quotations without adjustment for retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions. Trading in the Company's Common Stock, has been limited and
sporadic and thus do not constitute an established public trading market. See
Note 9 (Stock Exchange Listing) of Notes to Consolidated Financial Statements.
The Company currently is prohibited by its Credit Agreement from paying
dividends. The Company has not paid dividends in recent years. The Company does
not anticipate paying cash dividends on its shares of common stock in the
foreseeable future. See Note 6 (Debt) of Notes to Consolidated Financial
Statements.
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<PAGE>
Item 6. Selected Financial Data.
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The following information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto:
<TABLE>
<CAPTION>
For the Years Ended December 31, 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Thousands of Dollars Except Earnings Per Share)
<S> <C> <C> <C> <C> <C>
Sales $12,927 $12,606 $11,986 $11,041 $ 9,667
Loss before cumulative effect of change
in accounting principle (658) (236) (1,144) (7,784) (2,351)
Loss per average common share before
cumulative effect of change in
accounting principle (0.27) (0.10) (0.48) (3.25) (0.94)
Total assets $19,823 $22,244 $23,873 $26,657 $30,557
Debt $25,926 $28,184 $29,847 $30,200 $29,281
</TABLE>
-6-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
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and Results of Operations
-------------------------
(Dollars in Thousands, except per share data)
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto:
<TABLE>
<CAPTION>
Liquidity and Capital Resources
-------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Investing Activities:
Additions to property, plant and equipment $ 1,238 $ 863 $ 624
Other (12) (3) (18)
------- ------ ------
Total $ 1,226 $ 860 $ 606
======= ====== ======
Net cash provided by
operating activities $ 2,591 $ 3,136 $ 1,109
======= ======= =======
</TABLE>
Net cash provided by operating activities represented 211.3%, 364.7%, and
183.0% of investing activities for capital expenditures for 1994, 1993 and 1992,
respectively. However, based on the Company's latest financial projections, cash
provided by operations will not be sufficient to fund principal payments of debt
due in 1995 as currently structured. The Company's original construction budget
for 1995 is approximately $2,149 in 1995 as compared to actual expenditures of
$1,238, $863 and $624 in 1994, 1993 and 1992, respectively. The original 1995
construction budget includes capital expenditures originally budgeted in
previous years but not expended due to significant uncertainties regarding the
adequacy of cash flows. Based on its latest financial projections the Company
again anticipates deferring a significant portion of its capital expenditures
budgeted for 1995. Continued deferral of capital expenditures will adversely
affect future revenues.
As discussed in Note 6 of Notes to Consolidated Financial Statements, the
Company has a Credit Agreement with a bank. In December 1992 and December 1993,
the bank agreed to allow the Company to restructure principal payments of $1,008
due in December 1992 and $2,016 due in December 1993 into three installments due
in December, March and June of the following respective years. Those principal
payments have been paid in full, as restructured. In December 1994, the bank
again agreed to allow the Company to restructure a principal payment of $3,024
due in December 1994 into three installments of $1,250 due and paid in December
1994 and $887 and $887 due in March and June 1995, respectively. The remaining
scheduled principal payment amounts and due dates were not affected. The
existing debt and equity of the Company is not adequate to provide resources for
the viable operation of the business. Based on the latest financial projections,
the Company will not be able to make the principal payments of long term debt as
scheduled for 1995. C-TEC Corporation, which owns 43.63% of the Company's
outstanding Common Stock, has loaned $887 to the Company to enable it to make
its principal payment of $887 scheduled for March 1995. The loan will bear
interest at the same rate charged by the Company's bank and is payable on
demand. Management and the Company's bank are working toward a mutually
acceptable restructuring of the debt and/or equity of the Company and are
reviewing available options, which include the sale of assets, raising equity,
potentially through the distribution to stockholders of subscription rights to
subscribe for and purchase additional shares of common stock, and the issuance
of subordinated debt, among other things. There are no assurances that the
Company will be able to successfully restructure its debt and equity.
The Company does not have liquid assets to repay all of its other
outstanding obligations at December 31, 1994. Additionally, the Company had no
available lines of credit at December 31, 1994, or other significant sources of
liquidity. Additionally, reductions in capital expenditures previously
-7-
<PAGE>
Liquidity and Capital Resources, continued
-------------------------------
(Dollars in Thousands, except per share data)
discussed along with the impact regulation will have on future rate increases
and operating expenses will adversely affect future operating income. Further,
on December 16, 1994, a panel of three appraisers ("Panel") rendered a decision
in favor of Mr. Lahey, a former officer of the Company, in the amount of $2.949
million. 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 million
and awarded pre-judgment interest of approximately $1.2 million. The Company has
filed a Motion for Reconsideration with the Court. See Note 7 (Commitments and
Contingencies) of Notes to Consolidated Financial Statements. On March 27, 1995,
the Court issued an Order delaying the Company's Motion for Reconsideration. The
Company will appeal the Court's decision with respect to the $1.2 million pre-
judgment interest issue to the fullest extent allowed under law. The liquidity
of the Company will be materially and adversely affected if the judgment against
the Company is enforced.
The Company must be able to continue to manage its costs and increase its
revenues through rate increases, the offering of new products, and the expansion
of its territories. However, revenue growth is uncertain because of the
elimination of certain capital projects due to cash flow concerns discussed
previously and FCC regulations, which took effect September 1, 1993. The
Company's basic rates and equipment charges have decreased during 1994 as a
result of certain provisions of the Act. In addition, the rate freeze imposed
under the Act which began on April 1, 1993 remained in effect until May 15,
1994. Although the rate freeze was lifted on May 15, 1994, the Company was
required in the third quarter to file the appropriate forms justifying its
existing rates under the revised rules issued by the FCC. In addition, the FCC
issued its formal rules and criteria regarding future rate increases in the
latter part of 1994. Also, during the fourth quarter of 1994 the Company entered
into negotiations and settlements with several Michigan communities in an
attempt to resolve regulatory issues and avoid possible extended litigation (See
"Regulatory Matters - Impact to Company"). Although operating costs continued to
rise during the year, the Company was unable to increase its rates to keep up
with these rising costs. See "Regulatory Matters" for a more detailed discussion
of rate regulation. Future revenue growth and operating income will continue to
be adversely affected by various provisions in the Act. In addition, operating
expenses are expected to be negatively impacted by regulation for such items as
retransmission consent fees, customer service and technical standards. It is
impossible to quantify at this time the negative impact of the Act on the
Company.
If the Company is to exist on a long term basis, it must generate
sufficient cash flow from operations to not only service the interest burden
resulting from its debt but also to repay the debt under terms acceptable to its
bank. Operations must also be the source for the capital expenditures which will
be necessary to remain competitive in the markets which the Company now serves
and to enter new markets. In short, in spite of regulation and the Company's
current capital inadequacy, operations must be the source which not only
sustains the Company, but which fuels its growth. Due to these factors there
remains substantial doubt about the Company's ability to continue as a going
concern. See Note 2 (Going Concern Presentation) of Notes to Consolidated
Financial Statements.
While the Company is in compliance with all covenants of its Credit
Agreement at December 31, 1994, and through the date of this filing, the Credit
Agreement contains restrictions on the 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.
As noted earlier, management and the Company's bank are working toward a
mutually acceptable restructuring of the debt and/or equity of the Company and
are reviewing all available options, which include the sale of assets, raising
equity, potentially through the distribution to stockholders of subscription
rights to subscribe for and purchase additional shares of Common Stock, and the
issuance of subordinated debt, among other things. There are no assurances that
the Company will be able to successfully restructure its debt and equity.
-8-
<PAGE>
Management's Discussion and Analysis of Financial Condition
------------------------------------------------------------
and Results of Operations, continued
--------------------------
(Dollars in Thousands, except per share data)
Results of Operations
---------------------
1994 Compared with 1993
The Company's net loss in 1994 increased $422 or $0.17 per average common
share. The Company recorded a net loss in 1994 of $658 or $0.27 per average
common share compared to a net loss of $236 or $0.10 per average common share in
1993. The increase in the 1994 net loss is primarily attributable to a
litigation accrual of $667 for potential liability related to the Lahey lawsuit,
which is more fully described in Note 7 (Commitments and Contingencies) of Notes
to Consolidated Financial Statements.
The Company had operating income before depreciation and amortization of
$5,052 in 1994 compared to $5,116 in 1993. This represents a reduction of $64
(1.3%) from 1993 to 1994. Management believes that operating income before
depreciation and amortization is a useful measure in assessing the degree to
which resources are available to meet scheduled payments of debt, including
interest; to replace and modernize plant; to offer new services to customers;
and to improve the quality of service.
Sales increased $321 (2.5%) in 1994 from the previous year. This is
primarily due to approximately 1,535 additional basic subscribers per month in
1994 compared to the same period in 1993, and increased premium revenue due to
subscriber growth resulting from package restructuring in March of 1994. The
positive sales variance was partially offset by a decrease in basic revenue
of $0.55 (2.1%) per subscriber per month resulting from the Act. See Regulatory
Matters section of Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Programming, franchise and other variable costs increased by $193 (6.6%)
from 1993. This increase is directly related to revenue growth, greater
subscriber levels, additional basic channels and programming rate increases.
Operating, marketing, fixed and other general and administrative costs increased
$192 (4.2%) in 1994. The increase is primarily due to salaries and benefits,
installation costs from the increase in subscribers and legal expenses
associated with FCC related matters.
Depreciation and amortization decreased $209 (6.5%) in 1994. The decrease
was primarily due to the timing of certain plant assets becoming fully
depreciated during 1993 and 1994.
Other expenses, including interest increased $588 (27.8%) in 1994 primarily
due to the litigation accrual discussed above.
Interest expense decreased by $65 (3.0%) in 1994. The reduction in
principal is the primary reason for the decrease in interest expense from the
prior period. The positive effect on interest expense resulting from the
expiration of an interest rate swap agreement was substantially offset by the
increase in the prime rate during the year. See Note 6 (Debt) of Notes to
Consolidated Financial Statements. The Company's future interest expense is
subject to fluctuations in the market rate of interest and therefore there is no
assurance that the Company's current level of interest expense is indicative of
future trends.
-9-
<PAGE>
Results of Operations, continued
---------------------
(Dollars in Thousands, except per share data)
The Company does not expect inflation to have a significant impact on its
future operations.
1993 Compared with 1992
The Company's net loss in 1993 improved $908 or $0.38 per average common
share. The Company recorded a net loss in 1993 of $236 or $0.10 per average
common share compared to a net loss of $1,144 or $0.48 per average common share
in 1992.
The Company had operating income before depreciation and amortization of
$5,116 in 1993 compared to $4,790 in 1992. This represents an improvement of
$326 (6.8%) from 1992 to 1993.
Sales increased $620 (5.2%) in 1993 from the previous year. This is
primarily due to an increase of $1.35 (5.5%) in basic revenue per subscriber
from 1992 to 1993. The increase in basic revenue per subscriber was primarily
due to the effect on the first six months of 1993 of a rate increase instituted
in July 1992. An additional 580 basic subscribers per month in 1993 compared to
1992 contributed to the increase in sales.
Programming, franchise and other variable costs increased by $101 (3.6%)
from 1992. This increase is directly related to increasing cost of satellite
programming rates and subscriber and revenue growth. Operating, marketing, fixed
and other general and administrative costs increased $193 (4.4%) in 1993. The
increase in 1993 is primarily due to additional technical cost for plant
maintenance, salaries and benefits as well as installation expenses associated
with the increase in subscribers.
Depreciation and amortization decreased $180 (5.3%) in 1993. The decrease
was primarily due to the age of certain plant assets which became fully
depreciated in the first quarter of 1993.
Other expenses, including interest decreased $419 (16.5%) in 1993. The 1992
expense includes a $174 credit resulting from resolutions to certain litigation
issues.
Interest expense decreased by $599 (21.9%) in 1993. The principal reasons
for the decrease in interest expense were overall declines in interest rates
during 1993 and the expiration on September 1, 1992, of one of the interest rate
swap agreements on $10,000 of debt. The reduction in principal also contributed
to the decrease in interest expense between periods.
Financial Condition
-------------------
The decrease in cash and temporary cash investments at December 31, 1994,
as compared to December 31, 1993, is attributable to the increase in capital
expenditures and repayment of bank loans during 1994 as compared to 1993. The
Company's scheduled principal payments were $595 higher in 1994 than in 1993.
The increase in accrued litigation costs is primarily due to an additional
accrual for potential liability related to the Lahey lawsuit, as discussed in
Note 7 (Commitments and Contingencies) of Notes to Consolidated Financial
Statements.
-10-
<PAGE>
Management's Discussion and Analysis of Financial Condition
------------------------------------------------------------
and Results of Operations, continued
--------------------------
(Dollars in Thousands, except per share data)
Regulatory Matters
------------------
The Company, like other operators of cable television systems, is subject
to regulation at the federal, state and local levels. Many aspects of such
regulation are currently the subject of judicial proceedings and administrative
or legislative proceedings or proposals. On October 5, 1992, Congress passed the
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 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 Act. Few municipalities served by the Company are subject to effective
competition. The FCC has delegated the responsibility of regulation of the basic
tier to the applicable franchise authority, provided such authority becomes
certified to regulate by the FCC.
The FCC's initial rules regulating cable television rates were effective
September 1, 1993, and the revised rate regulations were effective May 15, 1994.
All cable television rates except pay-per-view and premium channels are subject
to competitive benchmarks established by the FCC. Under the revised regulations,
cable operators' regulated rates generally must be reduced to 83 percent of
their September 30, 1992, levels adjusted forward by inflation and permitted
external costs. The reduction reflects the 17 percent "competitive differential"
between rates of systems that were and systems that were not subject to
effective competition on September 30, 1992, based on the results of the FCC's
statistical analysis of the data it had collected and evaluated in establishing
the initial benchmark rates. Under both the initial and revised scheme of
benchmark/price cap regulation, once the cable operator has reached the
regulated rate level, its rates remain capped at that level. Future rate
adjustments are permitted based on certain external costs incurred by the cable
operator, inflation and the cost of adding channels. External costs include
programming costs, excluding retransmission consent fees prior to October 6,
1994, as well as subscriber related taxes and franchise fees and other franchise
requirements. A system with rates above the benchmarks may utilize a cost-of-
service showing to justify its rates and avoid a rate reduction. Equipment
charges for basic tier services are also subject to roll back to the level
representing the cost of the equipment including a reasonable profit. In cases
where equipment has been included as part of a service tier at no additional
cost, it must be unbundled and a separate charge will be allowed. The FCC in its
revised rate regulation issued additional criteria which addressed whether the
manner in which regulated program services were moved to unregulated a la carte
services enhanced subscriber choice or were an evasion of the FCC's rate
regulation. If the a la carte tier enhanced customer choice and satisfied the
criteria established by the FCC, the tier would be considered unregulated.
Additionally, the FCC issued its going forward rules, effective January 1,
1995. The going forward rules provide an alternative method for adjusting rates
to account for channel additions to regulated tiers of service. Operators may
continue to pass through the cost of new channels plus a 7.5 percent mark-up.
Alternatively, under the new rules, which generally apply only to cable
programming service tiers, operators have the option of imposing a $0.20 per
channel per month mark-up (limited to $1.20 over the next two years and $1.40
over the next three years) for new channels. In addition, under the new
alternative, operators may pass through increases in cable
-11-
<PAGE>
Regulatory Matters, continued
------------------
(Dollars in Thousands, except per share data)
programming service costs (from May 15, 1994, through December 31, 1996) only in
an amount not to exceed $0.30 per subscriber per month. Under the new rules,
operators also may add unregulated "new product tiers," composed of new channels
and/or channels that duplicate existing channels. Operators must choose to make
adjustments based on either the new rules or the old rules for all channel
additions after May 14, 1994. The Company has not had any channel additions
since May 14, 1994, and is in the process of determining which alternative will
be selected for future channel additions.
Impact to Company
In determining the impact of the FCC basic rate benchmark rules on a
company's current system revenues, cable companies were permitted, prior to
September 1, 1993 to restructure their rates and channel offerings as long as
the overall rate per subscriber was not increased. The Company restructured its
rates and channel offerings in 1993 and 1994 to comply with rate regulation and
minimize the negative impact on revenues.
The Company is continuing to evaluate the effect of FCC regulations on its
rates. All existing rates as well as future rate increases for basic cable
service must be approved by the local municipality if it has certified to
regulate basic cable service rates. To date, approximately 34% of the Company's
municipalities have filed to regulate basic cable service rates with 21% of
these municipalities currently certified to regulate basic rates. The FCC
regulates basic cable service rates in noncertified municipalities from which it
receives customer complaints.
With respect to the FCC's initial rules, in November 1993 the FCC issued
letters of inquiry to the Company and other cable operators to investigate the
way in which regulated program services were moved to unregulated a la carte
offerings and whether these and other changes were in compliance with the
original Act. The Company continues to believe it is in full compliance with the
original Act. The two letters of inquiry were terminated during the fourth
quarter of 1994 since these franchises withdrew their complaints and accepted
the Company's settlement offer, discussed below. The Company has been challenged
on its existing regulated rate structure by additional communities in Michigan
which were not a part of the FCC's letters of inquiry and is involved in ongoing
negotiations with these communities and has proposed a settlement. The 1994
financial statements include a charge of approximately $150 which represents the
Company's best estimate of its subscriber refund liability in Michigan. This
amount represents a reduction of the limited basic rate by $0.30 per month for
each subscriber from December 31, 1994 back to the date of initial regulation.
This proposed settlement with Michigan communities is an effort to resolve the
regulatory issues and avoid possible extended litigation. Communities
representing approximately 69% of the Company's Michigan subscriber base have
accepted the proposed settlement offer which precludes challanges for various
periods extending beyond 1995. The Company has either settled challenges or
accrued for anticipated exposures related to initial rate regulation which was
effective September 1993. The FCC issued new rate regulation guidelines which
were effective May 1994.
The Company believes that it is in compliance with the amended rate
regulation provisions; however, there is no assurance that there will not be
challenges to its restructured rates.
The Company in 1994 also reduced rates charged for converters and remotes
due to the provision in the FCC rate regulations which requires cable operators
to charge for equipment at cost plus a reasonable profit.
-12-
<PAGE>
Regulatory Matters, continued
------------------
(Dollars in Thousands, except per share data)
The Company anticipates that certain provisions of the 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.
-13-
<PAGE>
Item 8. Financial Statements and Supplementary Data.
------- --------------------------------------------
The consolidated financial statements and supplementary data required
under Item 8 of Part II are set forth in Part IV Item 14 (a)(1) and (a)(2) of
this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting
------- -----------------------------------------------------------
and Financial Disclosure
------------------------
During the two years preceding December 31, 1994, there has been neither a
change of accountants of the Registrant nor any disagreements on any matter of
accounting principles, practices or financial statement disclosure.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
-------- --------------------------------------------------
The information required under Item 10 of Part III with respect to the
Directors of Registrant is set forth in the definitive proxy statement relating
to Registrant's Annual Meeting of Shareholders to be filed by the Registrant
with the Commission pursuant to Section 14 (A) of the 1934 Act and is hereby
specifically incorporated herein by reference thereto. The proxy statement will
be filed within 120 days.
The information required under Item 10 of Part III with respect to the
executive officers of the Registrant is set forth in Part I of this report.
Item 11. Executive Compensation
-------- ----------------------
The information required under Item 11 of Part III with respect to
Executive Compensation is set forth in the definitive proxy statement relating
to Registrant's Annual Meeting of Shareholders to be filed by the Registrant
with the Commission pursuant to Section 14 (A) of the 1934 Act and is hereby
specifically incorporated by reference thereto. The proxy statement will be
filed within 120 days.
Item 12. Security Ownership of Certain Beneficial Owners and Management
-------- --------------------------------------------------------------
The information required under Item 12 of Part III is included in the
definitive proxy statement relating to Registrant's Annual Meeting of
Shareholders to be filed by the Registrant with the Commission pursuant to
Section 14 (A) of the 1934 Act, and is hereby specifically incorporated herein
by reference thereto. The proxy statement will be filed within 120 days.
Item 13. Certain Relationships and Related Transactions
-------- ----------------------------------------------
The information required under Item 13 of Part III is included in the
definitive proxy statement relating to Registrant's Annual Meeting of
Shareholders to be filed by the Registrant with the Commission pursuant to
Section 14 (A) of the 1934 Act, and is hereby specifically incorporated herein
by reference thereto. The proxy statement will be filed within 120 days.
-14-
<PAGE>
PART IV
-------
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
-------- ---------------------------------------------------------------
Description Page
----------- ----
<S> <C>
(a)(1) Financial Statements:
---------------------
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1993 and 1992 F-1
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992 F-2
Consolidated Balance Sheets -
December 31, 1994 and 1993 F-3
Consolidated Statements of
Shareholders' Capital Deficiency for the Years Ended
December 31, 1994, 1993 and 1992 F-4
Notes to Consolidated Financial Statements F-5
Report of Independent Accountants F-14
<CAPTION>
(a)(2) Financial Statement Schedules:
------------------------------
<S> <C>
Valuation and Qualifying Accounts and Reserves
for the Years Ended December 31, 1994, 1993
and 1992 (Schedule II) F-15
</TABLE>
All other financial statement schedules not listed have been omitted since the
required information is included in the consolidated financial statements or the
notes thereto, or are not applicable or required.
(a)(3) Exhibits
--------
Exhibits marked with an asterisk are filed herewith and are listed in the
index to exhibits on page 20 of this Form 10-K. The remainder of the
exhibits have been filed with the Commission and are incorporated herein
by reference.
Exhibit No.
-----------
2.1 Agreement and Plan of Merger dated as of December 30, 1988, between
UtiliCorp United, Inc. and Michigan Energy Resources Company, and
Amendment No. 1 dated as of March 8, 1989. (Incorporated by reference
to the Form 10 of the Registrant dated May 11, 1989, File No. 0-
17750.)
2.2 Agreement and Plan of Merger dated June 1, 1992, between Mercom, Inc.,
a Michigan corporation, and Mercom, Inc., a Delaware corporation.
(Incorporated by reference to the Form 8-K of the Registrant dated
June 29, 1992, File No. 0-17750.)
3.1 Certificate of Incorporation (Incorporated by reference to Exhibit 3.1
of the Form 10-Q of the Registrant dated June 30, 1992, File
No. 0-17750.)
-15-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K,
-------- ----------------------------------------------------------------
continued
*3.2 By Laws of Registrant, as amended through June 1, 1992.
10.1 Credit Agreement dated as of November 26, 1989, by and between
Registrant and Morgan Guaranty Trust Company of New York.
(Incorporated by reference to Exhibit 10.1 of the Form 10-K of the
Registrant dated March 30, 1990, File No. 0-17750.)
10.2 Amendment dated as of April 5, 1990, to Credit Agreement dated as of
November 26, 1989 by and between Registrant and Morgan Guaranty Trust
Company of New York. (Incorporated by reference to Exhibit 10.2 of the
Form 10-K of the Registrant dated March 30, 1991, File No. 0-17750.)
10.3 Amendment dated as of April 5, 1990, to Credit Agreement dated as of
November 26, 1989 by and between Registrant and Morgan Guaranty Trust
Company of New York. (Incorporated by reference to Exhibit 10.3 of the
Form 10-K of the Registrant dated March 30, 1991, File No. 0-17750.)
10.4 Amendment dated as of December 22, 1992, to Credit Agreement dated as
of November 26, 1989 by and between Registrant and Morgan Guaranty
Trust Company of New York. (Incorporated by reference to Exhibit 10.4
of the Form 10-K of the Registrant for the year ended December 31,
1992, File No. 0-17750.)
10.5 Employment Agreement and Shareholder Agreement both dated December 17,
1984 with Kenneth E. Lahey. (Incorporated by reference to Exhibit 10.2
of Form 10 of the Registrant dated May 11, 1989, File No. 0-17750.)
10.6 Assignment and Agreement dated January 1, 1988, by and between
Registrant and Mercom of Florida, Inc. (Incorporated by reference to
Exhibit 10.5 of the Form 10 of the Registrant dated May 11, 1989, File
No. 0-17750.)
10.7 Form of Indemnification Agreement between Registrant and UtiliCorp
United, Inc. (Incorporated by reference to Exhibit 10.6 of the Form 10
of the Registrant dated May 11, 1989, File No. 0-17750.)
10.8 Asset Purchase Agreement dated August 14, 1989, between Registrant and
C4 Media Cable Investors Limited Partnership and Communications and
CableVision, Inc. (Incorporated by reference to the Form 10-Q of the
Registrant for the quarter ended September 30, 1989, File
No. 0-17750.)
-16-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K,
---------------------------------------------------------------------------
continued
10.9 Management Agreement dated January 1, 1992, by and between Registrant
and C-TEC Cable Systems, Inc. (Incorporated by reference to Exhibit
10.9 of the Form 10-K of the Registrant for the year ended December
31, 1992, File No. 0-17750.)
10.10 Amendment dated as of December 15, 1993, to Credit Agreement dated as
of November 26, 1989 by and between Registrant and Morgan Guaranty
Trust Company of New York. (Incorporated by reference to Exhibit
10.10 of the Form 10-K of the Registrant for the year ended December
31, 1993, File No. 0-17750)
*10.11 Amendment dated as of December 23, 1994, to Credit Agreement dated as
of November 26, 1989 by and between Registrant and Morgan Guaranty
Trust Company of New York.
*22. Subsidiaries of Registrant.
Item 14.(b)Report on Form 8-K:
-------------------
(b) Reports on Form 8-K filed in the fourth quarter of 1994.
No report on Form 8-K has been filed by the Registrant during the
last quarter of the period covered by this report on Form 10-K.
-17-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MERCOM, INC.
Date: March 30, 1995 By /s/ David C. McCourt
----------------------------------
David C. McCourt, Chairman
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ David C. McCourt
--------------------- Chairman March 30, 1995
David C. McCourt Chief Executive Officer
/s/ Michael J. Mahoney
--------------------- President March 30, 1995
Michael J. Mahoney Chief Operating Officer
/s/ Bruce C. Godfrey Executive Vice President and
--------------------- Chief Financial Officer March 30, 1995
Bruce C. Godfrey (Principal Financial Officer)
-18-
<PAGE>
DIRECTORS:
/s/ David C. McCourt
---------------------------------------- March 30, 1995
David C. McCourt
/s/ Michael J. Mahoney
---------------------------------------- March 30, 1995
Michael J. Mahoney
/s/ Bruce C. Godfrey
---------------------------------------- March 30, 1995
Bruce C. Godfrey
/s/ Clifford L. Jones
---------------------------------------- March 30, 1995
Clifford L. Jones
/s/ Harold J. Rose, Jr.
---------------------------------------- March 30, 1995
Harold J. Rose, Jr.
/s/ George C. Stephenson
---------------------------------------- March 30, 1995
George C. Stephenson
/s/ Raymond B. Ostroski
---------------------------------------- March 30, 1995
Raymond B. Ostroski
-19-
<PAGE>
Form 10-K
Index to Exhibits
-----------------
Certain exhibits to this report on Form 10-K have been incorporated by
reference. For a list of these and all exhibits, see Item 14 (a)(3) hereof.
The following exhibits are being filed herewith.
Exhibit No.
-----------
3.2 By-laws of Registrant, as amended through June 1, 1992.
10.11 Amendment dated as of December 23, 1994 to Credit Agreement dated as of
November 26, 1989, by and between Registrant and Morgan Guaranty Trust
Company of New York.
22. Subsidiaries of Registrant.
24. Directors' Powers of Attorney.
-20-
<PAGE>
MERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands, Except Per Share Data)
---------------------------------------------
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
SALES $12,927 $12,606 $11,986
-------- -------- --------
OPERATING EXPENSES:
Programming, franchise and other variable costs 3,104 2,911 2,810
Operating, marketing and other fixed system costs 3,226 3,120 3,042
Other general and administrative expenses 1,545 1,459 1,344
Depreciation and amortization 3,010 3,219 3,399
-------- -------- --------
Total operating expenses 10,885 10,709 10,595
-------- -------- --------
Operating income 2,042 1,897 1,391
-------- -------- --------
OTHER (INCOME) EXPENSES:
Special shareholder meeting costs - - (24)
Litigation costs 643 - (174)
Interest income (30) (26) (14)
Interest expense 2,067 2,132 2,731
Loss from asset disposal 24 10 16
-------- -------- --------
Total other expenses, net 2,704 2,116 2,535
-------- -------- --------
Loss before income taxes (662) (219) (1,144)
-------- -------- --------
INCOME TAX EXPENSE (BENEFITS) (4) 17 -
-------- -------- --------
Net loss ($658) ($236) ($1,144)
======== ======== ========
LOSS PER AVERAGE COMMON SHARE:
Net loss ($0.27) ($0.10) ($0.48)
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (in thousands) 2,393 2,393 2,393
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
MERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
(Dollars in Thousands) 1994 1993 1992
------ ------ --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($658) ($236) ($1,144)
Depreciation 2,697 2,885 3,065
Amortization 313 334 334
Loss from asset disposal 24 10 16
Net change in certain assets and liabilities:
Accounts receivable, trade and other, net (297) (117) 89
Notes and accounts payable, trade and related parties (93) 343 (790)
Other assets and liabilities 605 (83) (461)
------ ------ -------
Net cash provided by operating activities 2,591 3,136 1,109
------ ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expansion, improvements and other (1,238) (863) (624)
Proceeds from asset disposal 12 3 18
------ ------ -------
Net cash used in investing activities (1,226) (860) (606)
------ ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of bank loans (2,258) (1,663) (353)
------ ------ -------
NET INCREASE (DECREASE) IN CASH & TEMPORARY CASH INVESTMENTS (893) 613 150
CASH & TEMPORARY CASH INVESTMENTS, JANUARY 1 989 376 226
------ ------ -------
CASH & TEMPORARY CASH INVESTMENTS, DECEMBER 31 $96 $989 $376
====== ====== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $2,097 $2,156 $2,795
Taxes $14 $13 -
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
MERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
----------------------
<TABLE>
<CAPTION>
ASSETS 1994 1993
-------- --------
<S> <C> <C>
CASH & TEMPORARY CASH INVESTMENTS $96 $989
ACCOUNTS RECEIVABLE:
Trade, net of reserve for doubtful
accounts of $23 in 1994 and $29 in 1993 264 148
Other 187 6
PREPAID EXPENSES AND OTHER 150 167
PROPERTY, PLANT EQUIPMENT:
Cable television distribution plant 36,555 35,718
Buildings and land 525 525
Furniture, fixtures and vehicles 1,503 1,251
-------- --------
Total property, plant and equipment 38,583 37,494
Accumulated depreciation 22,132 19,548
-------- --------
Net property, plant and equipment 16,451 17,946
-------- --------
INTANGIBLE ASSETS, NET 2,675 2,988
-------- --------
TOTAL ASSETS $19,823 $22,244
======== ========
LIABILITIES AND SHAREHOLDERS'
CAPITAL DEFICIENCY
LIABILITIES:
Accounts payable, trade $298 $373
Accounts payable, related parties 534 552
Other liabilities 1,861 1,673
Accrued litigation costs 4,400 4,000
Debt 25,926 28,184
-------- --------
Total liabilities 33,019 34,782
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' CAPITAL DEFICIENCY:
Preferred stock, $100 par value, 150,000 shares authorized,
none issued and outstanding at December 31, 1994 and 1993
Common stock, $1 par value, 5,000,000 shares authorized,
2,393,530, issued and outstanding at December 31, 1994 and 1993 2,393 2,393
Additional paid-in capital 5,512 5,512
Accumulated deficit (21,101) (20,443)
-------- --------
Total shareholders' capital deficiency (13,196) (12,538)
-------- --------
TOTAL LIABILITIES & SHAREHOLDERS' CAPITAL DEFICIENCY $19,823 $22,244
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
MERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' CAPITAL DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
<TABLE>
<CAPTION>
Total
Additional Shareholders'
Common Paid-in Accumulated Capital
Stock Capital Deficit Deficiency
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 $2,393 $5,512 ($19,063) ($11,158)
Net loss - - (1,144) (1,144)
--------------- -------------- -------------- ---------------
BALANCE AT DECEMBER 31, 1992 2,393 5,512 (20,207) (12,302)
Net loss - - (236) (236)
--------------- -------------- -------------- ---------------
BALANCE AT DECEMBER 31, 1993 2,393 5,512 (20,443) (12,538)
Net loss - - (658) (658)
--------------- -------------- -------------- ----------------
BALANCE AT DECEMBER 31, 1994 $2,393 $5,512 ($21,101) ($13,196)
=============== ============== ============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
--------------------------------------------
(Dollars in Thousands)
1. ORGANIZATION
Mercom, Inc. (the "Company"), is a cable television operator with three
cable systems in southern Michigan and one cable system in Port St. Lucie,
Florida. The Michigan systems are operated through Mercom's wholly-owned
subsidiary, Communications and Cablevision, Inc. ("CCV"). The Florida
system is operated through a wholly-owned subsidiary, Mercom of Florida,
Inc. ("Mercom of Florida").
CCV, through its wholly-owned subsidiaries, operates cable television
systems serving approximately 36,200 subscribers in Monroe County, Allegan
County, Coldwater and Sturgis areas of Michigan. CCV and its subsidiaries
have 75 franchise agreements with expiration dates between 1995 and 2015.
Mercom of Florida operates a television system serving approximately 1,100
subscribers in St. Lucie West, a planned community in Southeastern Florida.
2. GOING CONCERN PRESENTATION
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. However, substantial doubt exists
about the Company's ability to continue as a going concern unless the debt
and equity of the Company are restructured.
At December 31, 1994, the Company was in compliance with all covenants
associated with its Credit Agreement. However, the existing equity and debt
structure of the Company is not adequate to provide resources for the
viable operation of the business. Additionally, the provision in the Credit
Agreement which provides for additional borrowings expired on December 31,
1991 (Note 6). The Company has no other available credit at December 31,
1994.
In December 1992 and December 1993, the bank agreed to allow the Company to
restructure principal payments of $1,008 due in December 1992 and $2,016
due in December 1993 into three installments due in December, March and
June of the following respective years. The principal payments have been
paid in full, as restructured. In December 1994, the bank again agreed to
allow the Company to restructure a principal payment of $3,024 due in
December 1994 into three installments of $1,250 due and paid in December
1994 and $887 and $887 due in March and June 1995, respectively. The
existing debt and equity of the Company is not adequate to provide
resources for the viable operation of the business. Based on its latest
financial projections, the Company will not be able to make the principal
payments of long term debt as scheduled for 1995. C-TEC Corporation, which
owns 43.63% of the Company's outstanding Common Stock, has loaned $887 to
the Company to enable it to make its principal payment of $887 scheduled
for March 1995. The loan will bear interest at the same rate charged by the
Company's bank and is payable on demand. Management and the Company's bank
are working toward a mutually acceptable restructuring of the debt and/or
equity of the Company and are reviewing available options, which include
the sale of assets, raising equity, potentially through the distribution to
stockholders of subscription rights to subscribe for and purchase
additional shares of common stock, and the issuance of subordinated debt,
among other things. However, there is no assurance that such alternatives
will be successful. Further, on December 16, 1994, a panel of three
appraisers ("Panel") rendered a decision in favor of Mr. Lahey, a former
officer of the Company, in the amount of $2.949 million. The Company
requested the
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in Thousands)
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 million and awarded pre-
judgment interest of approximately $1.2 million. The Company has filed a
Motion for Reconsideration with the Court (Note 7). On March 27, 1995, the
Court issued an Order denying the Company's Motion for Reconsideration. The
Company will appeal the Court's decision with respect to the $1.2 million
pre-judgment interest issue to the fullest extent allowed under law.
The liquidity of the Company will be materially and adversely affected if
the judgment against the Company is enforced and a suitable restructuring
of the Company's debt and equity structure is not accomplished.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies of the Company and its subsidiaries are
summarized below:
Principles of Consolidation - The consolidated financial statements include
---------------------------
the accounts of the Company and its wholly-owned subsidiaries, CCV and
Mercom of Florida. All significant intercompany accounts and transactions
have been eliminated.
Subscriber Revenue - Revenues from basic and premium programming services
------------------
are recorded in the month the service is provided.
Interest Rate Swap Agreements - The difference to be paid or received on
-----------------------------
such agreements is accrued as interest rates change and is recognized over
the respective payment periods during the lives of the agreements.
Advertising Expense - The Company expenses advertising costs as incurred.
-------------------
Advertising expense charged to operations was $102, $85 and $99 in 1994,
1993 and 1992, respectively.
Loss Per Share - Loss per share amounts are based on the weighted average
--------------
number of common shares outstanding.
Cash and Cash Equivalents - For the purposes of the Statement of Cash
-------------------------
Flows, the Company considers all highly liquid investments purchased with
an original maturity of three months or less to be temporary cash
investments.
Property, Plant and Equipment and Depreciation - Property, plant and
----------------------------------------------
equipment are recorded at cost. Depreciation is provided over the estimated
useful lives of the assets using the straight-line method. The estimated
useful life of the property, plant and equipment is 12 years except for
vehicles, which have an estimated useful life of 5 years. Maintenance and
repair costs are charged to expense as incurred. Major replacements and
betterments are capitalized. Gain or loss is recognized on retirements and
dispositions.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in Thousands)
Intangible Assets - The purchase price in excess of the fair market value
-----------------
of net assets of cable television systems acquired and franchise rights and
costs are being amortized on a straight line basis over the expected period
of benefit ranging from 11 years to 15 years. Management periodically
performs an undiscounted review of all relevant factors to assess the
recoverability of the carrying amount of intangible assets.
Income Taxes - Effective January 1, 1993, the Company adopted Statement of
------------
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Prior years financial statements have not been restated to
apply the provision of SFAS 109. The asset and liability approach of SFAS
109 requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the
financial reporting basis and the income tax basis of assets and
liabilities. SFAS 109 permits current recognition of deferred tax assets
including net operating loss carryforwards. The tax benefits recognized
must be reduced by a valuation allowance when it is more likely than not
the asset will not be realized. Previously, the Company used Statement of
Financial Accounting Standards No. 96, "Accounting for Income Taxes" ("SFAS
96") asset and liability approach that gave no recognition to future events
other than the recovery of assets and settlement of liabilities at their
carrying amounts.
Reporting Format - Certain reclassifications have been made to the 1993
----------------
and 1992 financial statements to conform with the 1994 reporting format.
4. INTANGIBLE ASSETS:
Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Goodwill $1,717 $1,717
Franchise rights and costs 1,949 1,949
Other 1,077 1,077
------ ------
Total 4,743 4,743
Less accumulated amortization 2,068 1,755
------ ------
Total $2,675 $2,988
====== ======
</TABLE>
Amortization expense charged to operations in 1994, 1993 and 1992 was $313,
$334 and $334, respectively.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in Thousands)
5. INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
Prior years financial statements have not been restated to apply the
provision of SFAS 109. There was no cumulative effect on prior year
earnings as a result of the adoption of SFAS 109.
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Current-
Federal $ (4) $ 17 $ -
State - - -
------ ----- -----
Total provision (benefit) for income taxes $ (4) $ 17 $ -
====== ===== =====
</TABLE>
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities at December 31, are as
follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Net operating loss carryforwards $ 3,329 $ 3,445
Alternative minimum tax credits 13 17
Reserves 1,515 1,360
Other, net 311 320
------- -------
Total deferred assets 5,168 5,142
------- -------
Property, plant and equipment (2,971) (3,148)
Intangible assets (161) (145)
------- -------
Total deferred liabilities (3,132) (3,293)
------- -------
Subtotal 2,036 1,849
Valuation allowance (2,036) (1,849)
------- -------
Total deferred taxes $ - $ -
======= =======
</TABLE>
A valuation allowance has been provided for the portion of the deferred tax
assets which, in the opinion of management is not likely to be utilized.
The net change in the valuation allowance was an increase of $187 in 1994.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in Thousands)
The provision (benefit) for income taxes is different from the amounts
computed by applying the U.S. statutory federal tax rate of 34%. The
differences are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Loss before provision
(benefit) for income taxes $ (662) $ (219) $(1,144)
====== ====== =======
Federal tax (benefit) $ (225) $ (74) $ (389)
Reduction due to:
State income taxes, net of
federal benefit (5) - -
Goodwill 37 36 40
Increase in valuation allowance 187 58 -
Other, net 2 (3) -
Net operating loss carryforward
not recognized - - 349
------ ------ -------
Provision (benefit) for income taxes $ (4) $ 17 $ -
====== ====== =======
</TABLE>
The Company has the following federal net operating loss carryforwards
available:
<TABLE>
<CAPTION>
Tax Net
Operating Expiration
Year Losses Date
---- --------- ----------
<S> <C> <C>
1989 $1,079 2004
1990 $3,575 2005
1991 $3,220 2006
1992 $1,628 2007
</TABLE>
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
December, 31
------------
1994 1993
---- ----
<S> <C> <C>
Credit Agreement $20,926 $23,184
Demand note $ 5,000 $ 5,000
------- -------
Total $25,926 $28,184
======= =======
</TABLE>
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in Thousands)
The Company entered into a $25,000 Credit Agreement with a bank in November
1989. The Agreement was amended in April 1990 to provide borrowings up to
$27,000. The Agreement was further amended in December 1992, December 1993
and December 1994 to restructure the mandatory repayments due at December
31, 1992, December 31, 1993, and December 31, 1994, respectively. The
Company had borrowings outstanding under the Credit Agreement of $20,926 as
of December 31, 1994, at a weighted average effective interest rate of
6.65%. Interest is paid based on prime, Libor or CD rates, depending on the
type of loan and terms of the Agreement.
The Credit Agreement is collateralized by a pledge of the stock of the
Company's subsidiaries. The Credit Agreement contained a revolving credit
period which expired on December 31, 1991.
Maturities of the Credit Agreement are as follows:
<TABLE>
<CAPTION>
Aggregate
Year Amounts
---- ---------
<S> <C>
1995 5,806
1996 5,040
1997 5,040
1998 5,040
</TABLE>
As stated above the Credit Agreement was amended in December 1993 to
restructure the mandatory repayment of $2,016 due at December 31, 1993 into
three installments due in December 1993, March and June 1994. Those
principal payments have been paid in full, as restructured. The Credit
Agreement was further amended as stated above in December 1994 to
restructure the mandatory repayment of $3,024 due at December 31, 1994,
with $1,250 due and paid on December 31, 1994 and $887 due on both March 31
and June 30, 1995. As discussed in Note 2, the existing debt and equity of
the Company is not adequate to provide resources for the viable operation
of the business. Based on its latest financial projections, the Company
will not be able to make the principal payments of long term debt as
scheduled for 1995. C-TEC Corporation, which owns 43.63% of the Company's
outstanding Common Stock, has loaned $887 to the Company to enable it to
make its principal payment of $887 scheduled for March 1995. The loan will
bear interest at the same rate charged by the Company's bank and is
payable on demand. Management and the Company's bank are working toward a
mutually acceptable restructuring of the debt and/or equity of the Company.
However, there is no assurance that it will be successful.
The Credit Agreement contains restrictive covenants, including the
maintenance of a specified debt to cash flow ratio and an interest coverage
ratio. At December 31, 1994 the Company was in compliance with all
covenants associated with its Credit Agreement. The Agreement contains
restrictions on the payment of dividends.
The Company had two interest rate swap agreements with the following terms:
<TABLE>
<CAPTION>
Company Company
Principal Pays Receives Expiration
<S> <C> <C> <C>
$10,000 9.29% 6 month USD-LIBOR September 1992
$10,000 9.36% 6 month USD-LIBOR September 1994
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in Thousands)
In April 1990, the Company obtained a credit facility commitment from a
bank providing for borrowings up to $5,000. The outstanding balance is due
upon demand. Interest is paid monthly at the base rate (higher of prime or
federal funds rate plus 1/2%) plus 1-3/4%. As of December 31, 1994, the
weighted average effective interest rate was 10.25%. The agreement is also
collateralized by a pledge of the stock of the Company's subsidiaries.
The weighted average effective interest rates for all debt at December 31,
1994, and 1993, including the effects of the interest rate swap agreement,
were 7.34% and 7.05%, respectively.
7. COMMITMENTS AND CONTINGENCIES
a. Total rental expense, primarily office space and pole rental, was $250,
$235 and $273 for 1994, 1993 and 1992, respectively. At December 31, 1994,
rental commitments under noncancelable leases, excluding annual pole rental
commitments of approximately $153 that are expected to continue
indefinitely, are as follows:
<TABLE>
<S> <C>
1995 99
1996 83
1997 68
1998 65
1999 61
Thereafter 297
</TABLE>
b. CCV, a subsidiary of the Company, is party to a lawsuit commenced in 1988
in the Circuit Court for the County of Ottawa, Michigan, relating to the
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 million. 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 million and awarded pre-judgment interest in the amount of
approximately $1.2 million. The Company filed a Motion for Reconsideration
with the Court. On March 27, 1995, the Court issued an Order denying the
Company Motion for Reconsideration. The Company will appeal the Court's
decision with respect to the $1.2 million pre-judgment interest issue to
the fullest extent allowed under the law.
The Company will be materially and adversely affected if the judgment
against the Company is enforced. This would significantly and immediately
affect the liquidity of the Company and require a restructuring of its
current capital structure. However, there are no assurances that such a
restructuring can be accomplished. The Company has accrued an amount which
represents management's best estimate of the Company's potential liability.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in Thousands)
c. The Company is subject to the provisions of the Cable Television Consumer
Protection and Competition Act of 1992, as amended. The Company has either
settled challenges or accrued for anticipated exposures related to initial
rate regulation which was effective September 1993. The 1994 statement of
operations includes charges aggregating approximately $150 relating to
cable rate regulation liabilities. The FCC issued new rate regulation
guidelines which were effective May 1994. The Company believes that it is
in compliance with the amended rate regulation provisions; however, there
is no assurance that there will not be challenges to its restructured
rates.
8. RELATED PARTY TRANSACTIONS
The Company entered into a management agreement in 1992 with C-TEC
Corporation ("C-TEC"), a stockholder of the Company, pursuant to which
C-TEC will manage the Company's cable television systems' operations. The
Company was charged $1,104, $1,108, and $969 for this management service in
1994, 1993 and 1992, respectively, based on the agreement approved by the
Board of Directors. C-TEC and its subsidiaries also supplied other services
not covered by the management agreement for approximately $54, $61, and
$120 in 1994, 1993 and 1992, respectively. The Company paid interest in
1992 of $48 to C-TEC in connection with a note payable between the Company
and C-TEC for legal and proxy solicitation services incurred by C-TEC
relating to the 1991 special shareholders meeting. These costs incurred by
C-TEC were an obligation of the Company, as approved by the
Audit/Affiliated Transactions Review Committee of the Board of Directors
and also the Board of Directors, and, accordingly, were recorded as a note
payable at December 31, 1991. The note was repaid in 1992. In 1994 and
1993, the company incurred interest of $24 and $9 respectively, on
outstanding management fee obligations owed to C-TEC.
In addition, the Company sold approximately $3, $16 and $6 of inventory to
a C-TEC subsidiary in 1994, 1993 and 1992, respectively.
The Company had amounts due to C-TEC and C-TEC subsidiaries of $534 and
$552 at December 31, 1994 and 1993, respectively.
9. STOCK EXCHANGE LISTING
The Company's Common Stock was quoted through the National Association of
Securities Dealers Automated Quotations System ("NASDAQ") from May 1989
through February 1992. The Company's Common Stock has been delisted from
NASDAQ since February 1992 because the Company does not meet NASDAQ's
minimum capital and surplus requirements.
10. OFF BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK
The Company places its cash and temporary cash investments with high credit
quality financial institutions. The Company does, however, maintain
unsecured cash and temporary cash investment balances in excess of
federally insured limits.
Concentrations of credit risk with respect to receivables are limited due
to a large customer base primarily throughout Michigan.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in Thousands)
11. SUBSEQUENT EVENT
The Company adopted on January 1, 1995, a 401(k) savings plan covering
substantially all employees. Contributions made by the Company to the
401(k) plan will be based on a specified percentage of employee
contributions.
F-13
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Mercom, Inc.
We have audited the consolidated financial statements and the financial
statement schedule of Mercom, Inc. and Subsidiaries listed in Item 14(a) of this
Form 10-K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mercom, Inc. and
Subsidiaries as of December 31, 1994, and 1993, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
The accompanying 1994 consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered recurring losses from operations and has a shareholders' capital
deficiency. The existing debt and equity of the Company is not adequate to
provide resources for the viable operation of the business. Based on its latest
financial projection, the Company will not be able to make the principal
payments of long-term debt as scheduled for 1995. In addition, an adverse
judgment was received in the Company's appeal of the settlement awarded to a
former officer that could significantly affect the liquidity of the Company
which raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to those matters are described in Note 2.
The consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
As discussed in Note 5 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
/s/ Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 10, 1995
F-14
<PAGE>
<TABLE>
<CAPTION>
MERCOM, INC. AND SUBSIDIARIES Schedule II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
---------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING OF TO COSTS TO OTHER END OF
DESCRIPTION PERIOD AND EXPENSE ACCOUNTS DEDUCTIONS PERIOD
----------- ------ ----------- -------- ---------- ------
ALLOWANCE FOR DEFERRED TAX ASSETS -
DEDUCTED FROM DEFERRED TAX ASSETS
IN THE CONSOLIDATED BALANCE SHEETS.
<S> <C> <C> <C> <C> <C>
1994 $1,849 $187 $0 $0 $2,036
1993 $1,791 $58 $0 $0 $1,849
1992 $0 $0 $0 $0 $0
<CAPTION>
RESERVE FOR DOUBTFUL ACCOUNTS
<S> <C> <C> <C> <C> <C>
1994 $29 $64 $0 $70 $23
1993 $46 $34 $0 $51 $29
1992 $38 $95 $0 $87 $46
</TABLE>
* Valuation allowance as of initial adoption of Statement of Financial
Accounting Standards No. 109 on January 1, 1993.
F-15
<PAGE>
MERCOM, INC.
------------
BY-LAWS
-------
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office shall be in
-----------------
the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at
-------------
such other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
STOCKHOLDERS
------------
Section 1. Time and Place of Meetings. All meetings of stockholders
--------------------------
for the election of directors and for any other purpose shall be held at such
time (except as otherwise provided by Section 2 of this Article) and at such
place, either within or without the State of Delaware, as shall be designated
from time to time by the board of directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of stockholders,
---------------
commencing with the 1993 shall be held on the third Tuesday of May if such day
be a legal holiday in the state where the meeting is to be held, and, if a legal
holiday, on the next business day following, at 10:00 A.M., or at such other
date and
<PAGE>
time as shall be designated from time to time by the board of directors and
stated in the notice of the meeting. At each annual meeting, stockholders shall
elect a board of directors, and transact such other business as may properly be
brought before the meeting.
Section 3. Special Meetings. Special meetings of stockholders, for
----------------
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the chairman of the board, the
president or a vice president if there be no president, or by a majority of the
directors constituting the whole board of directors and shall be called by the
chairman of the board, the president or the secretary at the request in writing
of stockholders owning at least fifty percent (50%) in amount of the entire
capital stock of the corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.
Section 4. Notice of Meeting. Written notice of each meeting of
-----------------
stockholders stating the place, date and hour thereof and, in the case of a
special meeting, specifying the purpose or purposes for which the meeting is
called, shall be given to each stockholder entitled to vote at such meeting not
less than ten (10) nor more than sixty (60) days before the date of the meeting,
except that where a matter to be acted on is a merger or consolidation of the
corporation or a sale, lease or exchange of all or substantially all of its
assets, such notice shall be
- 2 -
<PAGE>
given not less than twenty (20) nor more than sixty (60) days prior to such
meeting.
Section 5. Quorum. Except as otherwise provided by statute or by the
------
certificate of incorporation, the holders of record of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
at each meeting of stockholders. If such quorum shall not be present at any
meeting of stockholders, a majority of stockholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than an announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder or record entitled to vote at the
meeting. A quorum, once present to organize a meeting, is not broken by the
subsequent withdrawal of any stockholders.
Section 6. Voting. At any meeting of stockholders at which a quorum
------
is present, all elections of directors shall be determined by a plurality vote
and all other matters shall be determined by the affirmative vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy, except as otherwise provided by statute or by the certificate of
incorporation.
-3-
<PAGE>
Section 7. Voting Rights. Unless otherwise provided by or pursuant
-------------
to the certificate of incorporation and except as otherwise provided by statute,
each stockholder of record shall at every meeting of stockholders be entitled to
one vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder.
Section 8. Proxies. Each stockholder entitled to vote at a meeting
-------
of stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for such
stockholder by proxy, but no proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period.
Section 9. Written Consent. Any action required to be taken at an
---------------
annual or special meeting of stockholders, or any action which may be taken at
any annual or special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders or outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, of an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. Every written consent shall bear the
date of signature of each stockholder who
-4-
<PAGE>
signs the consent, and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the
earliest dated consent delivered in the manner required by this Section to the
corporation, written consents signed by a sufficient number of holders to take
action are delivered in the manner required by this Section. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
Section 10. Record Date. (a) In order that the corporation may
-----------
determine stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the board of directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the board of directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record is fixed by the board of directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders or record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting. (b) In order that the corporation may determine
stockholders entitled to consent to corporate action in writing without a
meeting, the board of directors may fix a record date, which
-5-
<PAGE>
record date shall not precede the date upon which the resolution fixing the
record date is adapted by the board of directors, and which date shall not be
more than ten (10) days after the date upon which the resolution fixing the
record date is adopted by the board of directors. If no record date has been
fixed by the board of directors, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the board of directors is required by this chapter, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by delivery to its
registered office in this State, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the board of directors
and prior action by the board of directors is required by this chapter, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the board of directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine stockholders entitled to
receive payment of any dividend or other distribution of allotment of any rights
or stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the
-6-
<PAGE>
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the board of directors adopts the resolution relating
thereto.
Section 11. Registered Stockholders. The corporation shall be
-----------------------
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
regardless of whether it shall have knowledge or notice of any such claim or
interest, except as otherwise provided by law.
ARTICLE III
DIRECTORS
---------
Section 1. Management. The business and affairs of the corporation
----------
shall be managed by or under the direction of its board of directors, which may
exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the certificate of incorporation or by these
by-laws directed or required to be exercised or done by stockholders.
Section 2. Number. The total number of directors which shall
------
constitute the whole board of directors shall not be less than one (1) nor more
than nine (9). The first board of directors shall consist of seven (7)
directors and shall be
-7-
<PAGE>
elected by the incorporator or incorporators of the corporation. Thereafter,
within the limits above specified, the number of directors shall be determined
by resolution of the board of directors or by stockholders.
Section 3. Election and Tenure. The directors shall be elected at
-------------------
the annual meeting of stockholders, except as provided in Section 4 of this
Article, and each director elected shall hold office until such director's
successor is elected and qualified or until such director's earlier resignation
or removal. Directors need not be stockholders.
Section 4. Vacancies and Newly Created Directorships. Vacancies and
-----------------------------------------
newly created directorships resulting from any increase in the authorized number
of directors elected by all of stockholders having the right to vote as a single
class may be filled by a majority of the directors then in office, although less
than a quorum, or by a sole remaining director. Whenever the holders of any
class or classes of stock or series thereof are entitled to elect one or more
directors by the certificate of incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by a majority of
the directors elected by such class or classes or series thereof then in office,
or by a sole remaining director so elected. Each director so chosen shall hold
office until the next annual election and until such director's successors is
duly elected and shall qualify or until such director's earlier resignation or
removal.
Section 5. Removal and Resignation. Except as otherwise provided by
-----------------------
the certificate of incorporation or by statute, any director or the entire board
of directors may be removed, with or
-8-
<PAGE>
without cause by the holders of a majority of the shares then entitled to vote
at any election of directors. A director may resign at any time by giving
written notice to the board of directors, the chairman of the board, the
president or the secretary of the corporation. Unless otherwise specified in the
notice, the resignation shall take effect upon receipt thereof by the board of
directors or such officer, and acceptance of the resignation shall not be
necessary to make it effective.
Section 6. Place of Meetings. The board of directors may hold
-----------------
meetings, both regular and special, either within or without the State of
Delaware.
Section 7. First Meeting. The first meeting of each newly elected
-------------
board of directors shall be held immediately following the annual meeting at the
same location as that of the annual meeting of stockholders, and no notice of
such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum shall be present. In the event such
meeting is not held at the time and place so fixed above, the meeting may be
held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the board of directors, or as shall
be specified in a written waiver signed by all of the directors.
Section 8. Regular Meetings. Regular meetings of the board of
----------------
directors may be held without notice at such time and at such place as shall
from time to time be determined by the board of directors.
Section 9. Special Meetings. Special meetings of the board of
----------------
directors may be called by the chairman of the board,
- 9 -
<PAGE>
the president or the secretary on at least twenty-four hours notice to each
director, in accordance with Article IV of these by-laws. Special meetings
shall be called by the chairman of the board, the president or the secretary in
like manner and on like notice on the written request of a majority of the
directors constituting the whole board of directors.
Section 10. Quorum and Voting. At all meetings of the board of
-----------------
directors, a majority of the total number of the whole board of directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the
act of the board of directors, except as may be otherwise provided by statute or
by the certificate of incorporation. If a quorum shall not be present at any
meeting of the board of directors, a majority of the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 11. Written Consent. Unless otherwise restricted by the
---------------
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board of directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board of directors or
committee.
Section 12. Telephonic Participation. Unless otherwise restricted by
------------------------
the certificate of incorporation or these by-laws, members of the board of
directors, or any committee designated by the board of directors, may
participate in a
-10-
<PAGE>
meeting of the board of directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 13. Committees of Directors. The board of directors may, by
-----------------------
resolution passed by a majority of the whole board of directors, designate one
or more committees, each committee to consist of one or more of the directors of
the corporation. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members present at any meeting and not
disqualified from voting, whether or not such director or directors constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors,
shall have and may exercise all the powers and authority of the board of
directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to stockholders the sale, lease or exchange of all
or substantially all of the corporation's property and assets, recommending to
stockholders a dissolution of the corporation or
-11-
<PAGE>
a revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution, these by-laws or the certificate of incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the board of directors. Each committee shall keep
regular minutes of its meetings and report the same to the board of directors
when required.
Section 14. Compensation. Unless otherwise restricted by the
------------
certificate of incorporation of these by-laws, the board of directors shall have
the authority to fix the compensation of directors in such one or more forms as
the board of directors may determine.
ARTICLE IV
NOTICES
-------
Section 1. Notice. Whenever notice is required by statute, the
------
certificate of incorporation or these by-laws to be given to any director or
stockholder, such notice shall be in writing and may be given personally or by
mail or courier. Notice by mail shall be deemed to be given, in the case of a
director, four days after depositing, and, in the case of stockholder, at the
time when deposited, in the post office or a postal service letter box, enclosed
in a post-paid sealed wrapper, and addressed to such director or stockholder at
such director's or stockholder's address appearing on the books of the
corporation. Notice by courier shall be deemed to be given two days after
-12-
<PAGE>
delivering same to the courier service, if marked for delivery within two days
thereafter. Notice to directors may also be given by telex, facsimile or other
electronic transmission, and shall be deemed given when transmitted. A day, for
purposes of these by-laws, shall be deemed to include Saturday, Sunday and all
legal holidays.
Section 2. Waiver of Notice. Whenever any notice is required to be
----------------
given by statute, the certificate of incorporation or these by-laws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto. Attendance of a person at a meeting of stockholders, directors or any
committee of the board of directors shall constitute a waiver of notice of such
meeting, except where the person is attending for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting was not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice.
ARTICLE V
OFFICERS
--------
Section 1. Officers. The officers of the corporation shall be chosen
--------
by the board of directors and shall be a president and a secretary. The board of
directors may also choose a chairman of the board, one (1) or more vice chairmen
of the board, one (1) or more vice-presidents, one (1) or more
- 13 -
<PAGE>
assistant secretaries and a treasurer and one (1) or more assistant treasurers,
and any other officers and agents as it shall deem necessary. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these by-laws otherwise provide.
Section 2. Tenure; Resignation; Removal; Vacancies. Each officer of
---------------------------------------
the corporation shall hold office until such officer's successor is chosen and
qualified, or until such officer's earlier resignation or removal, or, if the
term of any such officer shall have been fixed by the board of directors or by
the chief executive officer acting under authority delegated to the chief
executive officer by the board of directors, until the date of the expiration of
such term. Any officer elected or appointed by the board of directors may be
removed at any time by the board of directors or the chief executive officer
authorized to appoint such officer; provided that any such removal shall be
without prejudice to the rights, if any, of the officer so removed under any
employment contract or other agreement with the corporation. Any vacancy
occurring in the office of president or secretary of the corporation shall be
filled by the board of directors. Any other vacancy may be filled by the board
of directors.
Section 3. Compensation. The compensation of all officers, employees
------------
and agents of the corporation shall be fixed by the board of directors or by any
committee or officer to whom such authority has been delegated by the board of
directors.
Section 4. Authority and Duties. All officers as between themselves
--------------------
and the corporation shall have such authority and perform such duties in the
management and operation of the
- 14 -
<PAGE>
corporation as may be provided in these by-laws, or, to the extent not so
provided, as may be prescribed by the board of directors. The board of directors
may from time to time delegate the powers or duties of any officer to any other
officers or agents, notwithstanding any provision hereof.
Section 5. The Chairman of the Board. The chairman of the board
-------------------------
shall preside at all meetings of stockholders and the directors, and the
chairman of the board shall have such other powers and duties as the board of
directors may from time to time prescribe.
Section 6. The President. The president shall be the chief executive
-------------
officer of the corporation. The president shall have general and active
management of the business of the corporation, shall see to it that all
resolutions and orders of the board of directors are carried into effect, and in
connection therewith, shall be authorized to delegate to the other executive
officers of the corporation such powers and duties of the president as the
president at such times and in such manner may deem advisable. In the absence or
disability of the chairman of the board, or, if there be no chairman, the
president shall preside at all meetings of stockholders and the directors.
Section 7. The Vice Presidents. The vice president, if any, or if
-------------------
there by more than one, the vice presidents, shall assist the chief executive
officer in the management of the business of the corporation and the
implementation of resolutions and orders of the board of directors at such times
and in such manner as the chief executive officer may deem advisable. If there
be more than one vice president, the board of directors may designate one of
them as executive vice president, in which case
- 15 -
<PAGE>
such vice president shall be first in order of seniority, and may also grant
to others such titles as shall be descriptive of their respective functions or
indicative of their relative seniority. The vice president, or, if there by more
than one, the vice presidents in the order of their seniority as indicated by
their titles or as otherwise determined by the board of directors shall, in the
absence or disability of the chief executive officer, exercise the powers and
perform the duties of such officer; and such vice president or vice presidents
shall have such other powers and duties as the board of directors or the chief
executive officer may from time to time prescribe.
Section 8. The Treasurer. The treasurer shall have the care and
-------------
custody of the corporate funds, and other valuable effects, including
securities, and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors. The treasurer
shall disburse the funds of the corporation as may be ordered by the board of
directors, taking proper vouchers for such disbursements, and shall render to
the chief executive officer and the board of directors, at meetings or whenever
they may require it, an account of all the treasurer's transactions as treasurer
and of the financial condition of the corporation.
Section 9. The Assistant Treasurers. The assistant treasurer, if
------------------------
any, or, if there be more than one, the assistant treasurers, in the order
determined by the board of directors or by the chief executive officer, shall,
in the absence or disability of the treasurer, exercise the powers and duties of
- 16 -
<PAGE>
the treasurer, and such assistant treasurer or treasurers shall perform such
other duties as the board of directors or the chief executive officer may from
time to time prescribe.
Section 10. The Secretary. The secretary shall attend all meetings
-------------
of stockholders and the board of directors and shall record, or cause to be
recorded, the minutes of all proceedings taken at such meetings, and maintain
all documents evidencing corporate actions taken by written consent of
stockholders or of the board of directors, in a book to be kept for that
purpose; and the secretary shall perform like duties for any committees of the
board of directors when required. The secretary shall see to it that all notices
of meetings of stockholders and of special meetings of the board of directors
are duly given in accordance with these by-laws or as required by statute; the
secretary shall be the custodian of the seal of the corporation, and, when
authorized by the board of directors, the secretary shall cause the corporate
seal to be affixed to any document requiring it, and, when so affixed, attested
by the secretary's signature as secretary or by the signature of an assistant
secretary; and the secretary shall perform such other duties as are generally
incident to the office of secretary and as the board of directors or the chief
executive officer may from time to time prescribe.
Section 11. The Assistant Secretaries. The assistant secretary, if
-------------------------
any, or, if there be more than one, the assistant secretaries, in the order
determined by the board of directors or by the chief executive officer, shall,
in the absence or disability of the secretary, exercise the powers and perform
the duties of the secretary; and the assistant secretary or assistant
secretaries shall perform such other duties as the board of
- 17 -
<PAGE>
directors or the chief executive officer may from time to time prescribe.
Section 12. Action with Respect to Securities of Other Corporations.
-------------------------------------------------------
Unless otherwise directed by the board of directors, the chief executive officer
or any officer of the corporation authorized by the chief executive officer
shall have power to vote and otherwise act on behalf of the corporation, in
person or by proxy, at any meeting of stockholders, or with respect to any
action of stockholders, of any other corporation in which this corporation may
hold securities and otherwise to exercise any and all rights and powers which
this corporation may possess by reason of its ownership of securities in such
other corporation.
ARTICLE VI
STOCK CERTIFICATES
------------------
Section 1. Certificates. The shares of the corporation's capital
------------
stock shall be represented by certificates, which shall be in such form as the
board of directors shall determine, provided that the board of directors may
provide by resolution or resolutions that some or all of any or all classes or
series of its stock shall be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate until such certificate is
surrendered to the corporation. Notwithstanding the adoption of such a
resolution by the board of directors, every holder of stock represented by
certificates and, upon request, every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the corporation by
the chairman or vice-chairman of the board of
- 18 -
<PAGE>
directors, or the president or vice-president, and by the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if such officer, transfer agent or
registrar were such officer, transfer agent or registrar at the date of issue.
Section 2. Lost Certificates. The board of directors may issue a new
-----------------
certificate of stock or uncertificated shares in place of any certificate
therefore issued by it, alleged to have been lost, stolen or destroyed, and the
board of directors may require the owner of the lost, stolen, or destroyed
certificate, or such owner's legal representative to give the corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
Section 3. Transfers of Stock. Upon surrender to the corporation or
------------------
the transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
- 19 -
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
---------
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 2. Reserves. Before payment of any dividend, there may be
--------
set aside out of any funds of the corporation available for dividends such sum
or sums as the board of directors from time to time, in its absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the board of directors shall believe conducive to the
interest of the corporation, and the board of directors may modify or abolish
any such reserve in the manner in which it was created.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
-----------
fixed, and may from time to time be changed, by resolution of the board or
directors.
Section 4. Seal. The corporate seal shall have inscribed thereon the
----
name of the corporation, the year of its organization and the words "Corporate
Seal, Delaware". The seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
-20-
<PAGE>
ARTICLE VIII
INDEMNIFICATION
---------------
The corporation shall (i) indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection with the defense or settlement of such action or suit, and
(ii) indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he or she is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding, in each case to the fullest
extent permissible under subsections (a) through (e) of Section 145 of the
Delaware General Corporation Law, as the same exists or may hereafter be amended
(but in the case of any such amendments, only to the extent such amendment
permits the
-21-
<PAGE>
corporation to broader indemnification rights than permitted prior thereto).
The foregoing right of indemnification and advancement of expenses shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may now or hereafter be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding such office.
ARTICLE IX
AMENDMENTS
----------
Except as otherwise provided by statute or the certificate of
incorporation, these by-laws may be amended or repealed or new by-laws may be
adopted by stockholders entitled to vote; provided, however, that, if the
certificate of incorporation confers the power to adopt, amend or repeal by-laws
upon the board of directors, the fact that such power has been so conferred
shall not divest stockholders of the power, nor limit their power to adopt,
amend or repeal any by-law.
-22-
<PAGE>
Exhibit 10.11
AMENDMENT AGREEMENT
-------------------
AMENDMENT AGREEMENT dated as of December 23, 1994 between MERCOM, INC. (the
"Borrower"), a Delaware corporation, and MORGAN GUARANTY TRUST COMPANY OF NEW
YORK (the "Bank"), a New York State banking corporation.
WHEREAS, the Borrower and the Bank entered into a Credit Agreement dated as
of November 26, 1989 (the "Credit Agreement");
WHEREAS, the Credit Agreement has been previously amended by an amendment
agreement dated as of November 26, 1989, two amendment agreements, each dated as
of April 5, 1990, and Amendment Agreements dated as of December 22, 1992 and
December 15, 1993; and
WHEREAS, the Borrower wishes to further amend the Credit Agreement as
provided below and the Bank is willing to so amend the Credit Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Amendment of Credit Agreement.
-----------------------------
1.1 Section 2.9(c) shall be amended in its entirety as follows:
"(c) The Commitment shall be further reduced, on each Commitment
Reduction Date, according to the following table:
<TABLE>
<CAPTION>
COMMITMENT REDUCTION AMOUNT TO BY WHICH
DATE COMMITMENT TO BE REDUCED
-------------------- ------------------------
<S> <C>
December 31, 1994 4.9603175% of the Commitment in
effect on the Termination Date
March 31, 1995 3.5198413% of the Commitment in
effect on the Termination Date
June 30, 1995 3.5198412% of the Commitment in
effect on the Termination Date
December 31, 1995 16% of the Commitment in effect on
the Termination Date
</TABLE>
<PAGE>
-2-
<TABLE>
<S> <C>
December 31, 1996 20% of the Commitment in effect on
the Termination Date
December 31, 1997 20% of the Commitment in effect on
the Termination Date
December 31, 1998 20% of the Commitment in effect on
the Termination Date
</TABLE>
No reduction of the Commitment pursuant to subsection (b) shall reduce the
amount of any subsequent mandatory reduction of the Commitment pursuant to
subsection (c)."
Section 2. Miscellaneous.
-------------
2.1 Terms not defined herein are used as defined in the Credit Agreement.
2.2 The provisions of Section 1 of this Amendment Agreement are hereby
incorporated into and made a part of the Credit Agreement as if fully set forth
therein.
2.3 This Amendment Agreement shall be effective as of the date hereof upon
receipt by the Bank of (i) a copy of this Amendment Agreement executed on behalf
of the Borrower and the Bank, (ii) a certificate of a duly authorized officer of
the Borrower dated as of the date of the delivery of this Amendment Agreement to
the Bank to the effect that (a) no Default or Event of Default (as such terms
are defined in the Credit Agreement) has occurred and is continuing and (b) the
representations and warranties contained in the Credit Agreement are true with
the same force and effect as if made on the date of such certificate, (iii)
certified copies of all corporate action taken by the Borrower to authorize the
execution, delivery and performance of this Amendment Agreement and (iv) a
certificate of a duly authorized officer of the Borrower as to the incumbency,
and setting forth a specimen signature, of the person who has signed this
Amendment Agreement on behalf of the Borrower.
2.4 This Amendment Agreement shall be governed by and construed in
accordance with the law of the State of New York.
<PAGE>
- 3 -
IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement
to be duly executed as of the day first above written.
MERCOM, INC.
By: /s/ Bruce Godfrey
-------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
-------------------------------
Title:
<PAGE>
Exhibit 22.
SUBSIDIARIES OF REGISTRANT
The following are the subsidiaries of Mercom, Inc.:
Communications and Cablevision, Inc.
Coldwater Cablevision, Inc.
Allegan County Cablevision, Inc.
Mercom of Florida, Inc.
Mercom Services, Inc.
<PAGE>
Exhibit 24
SPECIFIC POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, George C. Stephenson do make,
constitute and appoint Bruce C. Godfrey, Executive Vice President and Chief
Financial Officer, Mercom, Inc., as my true and lawful attorney for me and in my
name:
1. I authorize said attorney in fact to specfically execute in my name and
in my behalf the Mercom, Inc. Form 10-K for the fiscal year ended December
31, 1994, and to file said form to the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, and relative instruments in writing
which I deem requisite or proper to effectuate specifically the execution and
delivery of the above-mentioned form with the same validity as I could, if
personally present, and I hereby ratify and affirm that my said attorney as I
may deem to act for me, shall do, by virtue of these presents, herein set forth
by me.
2. All rights, powers and authority of said attorney in fact to exercise
any and all of the specific rights and powers herein granted shall commence and
be in full force and effect as of March 29, 1995 and such specific rights,
powers and authority shall remain in full force and effect thereafter until
termination in writing by me.
3. I give to said attorney in fact full power and authority to appoint a
substitute to perform all such of the acts that said attorney in fact is by this
instrument authorized to perform, with the right to revoke such appointment of
substitute at pleasure.
IN WITNESS WHEREOF, I hereunto set my hand and seal this 29th day of
March, 1995.
/s/ George C. Stephenson (SEAL)
------------------------
George C. Stephenson
Witness:
/s/ John D. Filipowicz
-------------------------
John D. Filipowicz
<PAGE>
Exhibit 24
SPECIFIC POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Clifford L. Jones do make,
constitute and appoint Bruce C. Godfrey, Executive Vice President and Chief
Financial Officer, Mercom, Inc., as my true and lawful attorney for me and in my
name:
1. I authorize said attorney in fact to specfically execute in my name and
in my behalf the Mercom, Inc. Form 10-K for the fiscal year ended December
31, 1994, and to file said form to the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, and relative instruments in writing
which I deem requisite or proper to effectuate specifically the execution and
delivery of the above-mentioned form with the same validity as I could, if
personally present, and I hereby ratify and affirm that my said attorney as I
may deem to act for me, shall do, by virtue of these presents, herein set forth
by me.
2. All rights, powers and authority of said attorney in fact to exercise
any and all of the specific rights and powers herein granted shall commence and
be in full force and effect as of March 29, 1995 and such specific rights,
powers and authority shall remain in full force and effect thereafter until
termination in writing by me.
3. I give to said attorney in fact full power and authority to appoint a
substitute to perform all such of the acts that said attorney in fact is by this
instrument authorized to perform, with the right to revoke such appointment of
substitute at pleasure.
IN WITNESS WHEREOF, I hereunto set my hand and seal this 29th day of
March, 1995.
/s/ Clifford L. Jones (SEAL)
------------------------
Clifford L. Jones
Witness:
/s/ John D. Filipowicz
-------------------------
John D. Filipowicz
<PAGE>
Exhibit 24
SPECIFIC POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Michael J. Mahoney do make,
constitute and appoint Bruce C. Godfrey, Executive Vice President and Chief
Financial Officer, Mercom, Inc., as my true and lawful attorney for me and in my
name:
1. I authorize said attorney in fact to specfically execute in my name and
in my behalf the Mercom, Inc. Form 10-K for the fiscal year ended December
31, 1994, and to file said form to the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, and relative instruments in writing
which I deem requisite or proper to effectuate specifically the execution and
delivery of the above-mentioned form with the same validity as I could, if
personally present, and I hereby ratify and affirm that my said attorney as I
may deem to act for me, shall do, by virtue of these presents, herein set forth
by me.
2. All rights, powers and authority of said attorney in fact to exercise
any and all of the specific rights and powers herein granted shall commence and
be in full force and effect as of March 29, 1995 and such specific rights,
powers and authority shall remain in full force and effect thereafter until
termination in writing by me.
3. I give to said attorney in fact full power and authority to appoint a
substitute to perform all such of the acts that said attorney in fact is by this
instrument authorized to perform, with the right to revoke such appointment of
substitute at pleasure.
IN WITNESS WHEREOF, I hereunto set my hand and seal this 29th day of
March, 1995.
/s/ Michael J. Mahoney (SEAL)
------------------------
Michael J. Mahoney
Witness:
/s/ John D. Filipowicz
-------------------------
John D. Filipowicz
<PAGE>
Exhibit 24
SPECIFIC POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Raymond B. Ostroski do make,
constitute and appoint Bruce C. Godfrey, Executive Vice President and Chief
Financial Officer, Mercom, Inc., as my true and lawful attorney for me and in my
name:
1. I authorize said attorney in fact to specfically execute in my name and
in my behalf the Mercom, Inc. Form 10-K for the fiscal year ended December
31, 1994, and to file said form to the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, and relative instruments in writing
which I deem requisite or proper to effectuate specifically the execution and
delivery of the above-mentioned form with the same validity as I could, if
personally present, and I hereby ratify and affirm that my said attorney as I
may deem to act for me, shall do, by virtue of these presents, herein set forth
by me.
2. All rights, powers and authority of said attorney in fact to exercise
any and all of the specific rights and powers herein granted shall commence and
be in full force and effect as of March 29, 1995 and such specific rights,
powers and authority shall remain in full force and effect thereafter until
termination in writing by me.
3. I give to said attorney in fact full power and authority to appoint a
substitute to perform all such of the acts that said attorney in fact is by this
instrument authorized to perform, with the right to revoke such appointment of
substitute at pleasure.
IN WITNESS WHEREOF, I hereunto set my hand and seal this 29th day of
March, 1995.
/s/ Raymond B. Ostroski (SEAL)
------------------------
Raymond B. Ostroski
Witness:
/s/ John D. Filipowicz
-------------------------
John D. Filipowicz
<PAGE>
Exhibit 24
SPECIFIC POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Harold J. Rose, Jr. do make,
constitute and appoint Bruce C. Godfrey, Executive Vice President and Chief
Financial Officer, Mercom, Inc., as my true and lawful attorney for me and in my
name:
1. I authorize said attorney in fact to specfically execute in my name and
in my behalf the Mercom, Inc. Form 10-K for the fiscal year ended December
31, 1994, and to file said form to the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, and relative instruments in writing
which I deem requisite or proper to effectuate specifically the execution and
delivery of the above-mentioned form with the same validity as I could, if
personally present, and I hereby ratify and affirm that my said attorney as I
may deem to act for me, shall do, by virtue of these presents, herein set forth
by me.
2. All rights, powers and authority of said attorney in fact to exercise
any and all of the specific rights and powers herein granted shall commence and
be in full force and effect as of March 29, 1995 and such specific rights,
powers and authority shall remain in full force and effect thereafter until
termination in writing by me.
3. I give to said attorney in fact full power and authority to appoint a
substitute to perform all such of the acts that said attorney in fact is by this
instrument authorized to perform, with the right to revoke such appointment of
substitute at pleasure.
IN WITNESS WHEREOF, I hereunto set my hand and seal this 29th day of
March, 1995.
/s/ Harold J. Rose, Jr. (SEAL)
------------------------
Harold J. Rose, Jr.
Witness:
/s/ John D. Filipowicz
-------------------------
John D. Filipowicz
<PAGE>
Exhibit 24
SPECIFIC POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, David C. McCourt do make,
constitute and appoint Bruce C. Godfrey, Executive Vice President and Chief
Financial Officer, Mercom, Inc., as my true and lawful attorney for me and in my
name:
1. I authorize said attorney in fact to specfically execute in my name and
in my behalf the Mercom, Inc. Form 10-K for the fiscal year ended December
31, 1994, and to file said form to the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, and relative instruments in writing
which I deem requisite or proper to effectuate specifically the execution and
delivery of the above-mentioned form with the same validity as I could, if
personally present, and I hereby ratify and affirm that my said attorney as I
may deem to act for me, shall do, by virtue of these presents, herein set forth
by me.
2. All rights, powers and authority of said attorney in fact to exercise
any and all of the specific rights and powers herein granted shall commence and
be in full force and effect as of March 29, 1995 and such specific rights,
powers and authority shall remain in full force and effect thereafter until
termination in writing by me.
3. I give to said attorney in fact full power and authority to appoint a
substitute to perform all such of the acts that said attorney in fact is by this
instrument authorized to perform, with the right to revoke such appointment of
substitute at pleasure.
IN WITNESS WHEREOF, I hereunto set my hand and seal this 29th day of
March, 1995.
/s/ David C. McCourt (SEAL)
------------------------
David C. McCourt
Witness:
/s/ John D. Filipowicz
-------------------------
John D. Filipowicz
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 96
<SECURITIES> 0
<RECEIVABLES> 287
<ALLOWANCES> 23
<INVENTORY> 0
<CURRENT-ASSETS> 697
<PP&E> 38,583
<DEPRECIATION> 22,132
<TOTAL-ASSETS> 19,823
<CURRENT-LIABILITIES> 12,899
<BONDS> 20,120
<COMMON> 2,393
0
0
<OTHER-SE> (15,589)
<TOTAL-LIABILITY-AND-EQUITY> 19,823
<SALES> 0
<TOTAL-REVENUES> 12,927
<CGS> 0
<TOTAL-COSTS> 7,408
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 64
<INTEREST-EXPENSE> 2,067
<INCOME-PRETAX> (662)
<INCOME-TAX> (4)
<INCOME-CONTINUING> (658)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (658)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
