Mercom, Inc.
105 Carnegie Center
Princeton, NJ 08540
October 20, 1998
Dear Mercom Shareholder:
Accompanying this memorandum is an information statement (the
"Information Statement") furnished to you in connection with the proposed
election of certain new directors to the Board of Directors of Mercom (the
"Board") who will replace and succeed certain current members of the Board who
are, or previously have been, affiliated with Cable Michigan, Inc.
The Information Statement is provided to you pursuant to Section 14(f)
of the Securities Exchange Act of 1934, as amended, and Rule 14f-1 thereunder.
Please note that no vote or other action is required of you in
connection with the Information Statement.
Very truly yours,
Mark Haverkate
President and Chief Operating Officer
<PAGE>
Mercom, Inc.
105 Carnegie Center
Princeton, NJ 08540
--------------------
INFORMATION STATEMENT PURSUANT TO SECTION 14(f) OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND
RULE 14f-1 THEREUNDER
--------------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S
SHAREHOLDERS IS REQUIRED IN CONNECTION WITH THIS
INFORMATION STATEMENT. NO PROXIES ARE BEING SOLICITED
AND YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
This Information Statement, which is being mailed on or about October
20, 1998 in accordance with Section 14(f) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Rule 14f-1 thereunder to the holders
of record on October 15, 1998 (the "Shareholders") of shares of the Common
Stock, par value $1.00 per share (the "Common Stock"), of Mercom, Inc., a
Delaware corporation (the "Company"), is being furnished in connection with the
proposed election of certain new directors (the "Avalon Designees") to the Board
of Directors of the Company (the "Board") who will replace and succeed certain
current members of the Board (the "Cable Michigan Designees") who are, or
previously have been, affiliated with Cable Michigan, Inc., a Pennsylvania
Corporation ("Cable Michigan"). Cable Michigan currently owns approximately 62%
of the Common Stock. Certain information in this Information Statement relating
to the Avalon Designees, Avalon Holdings (as defined below) and their affiliates
has been provided by Avalon Holdings.
The election of the Avalon Designees is to be made in connection with
the transactions contemplated by an Agreement and Plan of Merger dated as of
June 3, 1998, amended and restated on July 15, 1998 and further amended on
August 11, 1998 (as amended from time to time, the "Cable Michigan Merger
Agreement") among Cable Michigan, Avalon Cable of Michigan Holdings, Inc., a
Delaware corporation ("Avalon Holdings") and Avalon Cable of Michigan, Inc., a
Pennsylvania corporation and wholly owned subsidiary of Avalon Holdings ("Avalon
Cable"), pursuant to which Avalon Cable will be merged with and into Cable
Michigan, with Cable Michigan as the surviving corporation and a wholly owned
subsidiary of Avalon Holdings (the "Cable Michigan Merger").
-1-
<PAGE>
As of the effective date of the Cable Michigan Merger (the "Closing
Date"), the Cable Michigan Designees plan to voluntarily resign. It is
anticipated that on the Closing Date the Avalon Designees will be elected to the
Board, pursuant to a unanimous resolution of the Board electing the Avalon
Designees upon the resignation of the Cable Michigan Designees. As a result, the
Avalon Designees will constitute a majority of the Board. The Closing Date is
anticipated to be on or about October 30, 1998. The closing of the transactions
contemplated by the Cable Michigan Merger Agreement is subject to regulatory
approvals and certain other conditions. No assurance can be given that the Cable
Michigan Merger will take place.
On September 10, 1998, the Company, Cable Michigan, and Mercom
Acquisition, Inc. ("Mercom Acquisition"), a wholly owned subsidiary of Cable
Michigan, executed an Agreement and Plan of Merger (the "Mercom Merger
Agreement") pursuant to which Mercom Acquisition, Inc. will be merged with and
into the Company (the "Mercom Merger"). The execution of the Mercom Merger
Agreement by Cable Michigan was authorized by the Cable Michigan Merger
Agreement. Pursuant to the Mercom Merger Agreement and subject to certain of its
provisions, at the effective time of the Mercom Merger, each share of Common
Stock will be converted into the right to receive $12.00 per share in cash,
without interest (the "Merger Consideration"). The closing of the Mercom Merger
is subject to certain conditions set forth in the Mercom Merger Agreement. No
assurance can be given that the Mercom Merger will take place.
Pursuant to the Cable Michigan Merger Agreement, each share (a "Cable
Michigan Share") of common stock, $1.00 par value, of Cable Michigan issued and
outstanding immediately prior to the effective time of the Cable Michigan Merger
(other than Cable Michigan Shares held in treasury, Cable Michigan Shares owned
by Avalon Holdings or any subsidiary of Avalon Holdings, or Cable Michigan
Shares as to which dissenters' rights have been validly exercised) will be
converted into the right to receive $40.50 in cash (the "Cable Michigan Merger
Consideration"), subject to certain possible closing adjustments.
The total amount of funds required to consummate the transactions
contemplated by the Cable Michigan Merger Agreement (the "Cable Michigan Merger
Financing"), including payment of the Cable Michigan Merger Consideration and
the Merger Consideration, is estimated to be approximately $452 million. Cable
Michigan expects that the Cable Michigan Merger Financing will be obtained by
Avalon Holdings and its affiliates through borrowings under senior secured and
unsecured term loan facilities and equity contributions from ABRY Broadcast
Partners III, L.P. ("ABRY") and others.
-2-
<PAGE>
In a financing commitment letter dated June 3, 1998 from Lehman
Commercial Paper, Inc. and Lehman Brothers, Inc. (together "Lehman") to ABRY
Partners Inc., an affiliate of Avalon Holdings (the "Lehman Commitment Letter"),
Lehman has committed, subject to the terms and conditions therein, to provide up
to $360 million of debt financing for purposes of the Cable Michigan Merger
Financing, related transactions, and related fees and expenses. ABRY has also
delivered to Avalon Holdings a letter pursuant to which ABRY committed to make
an equity investment of $105 million in Cable Michigan, on terms mutually
satisfactory to ABRY and Cable Michigan and subject to the satisfaction of the
closing conditions set forth in the Cable Michigan Merger Agreement, to be used
to finance the Cable Michigan Merger and the Mercom Merger.
In accordance with the Lehman Commitment Letter, Avalon Holdings
anticipates that a syndicate of banks, financial institutions and other
entities, including Lehman Commercial Paper, Inc., will provide financing for a
$105,000,000 unsecured bridge facility (the "Bridge Facility") and an
approximately $321,000,000 senior secured credit facility ("the Senior Credit
Facility"). Avalon Holdings anticipates that the Bridge Facility will mature one
year from the date of funding (the "Bridge Facility Maturity Date") and that the
Bridge Facility will automatically convert into senior term loans, due 2007
(which may be exchanged for exchange notes having substantially identical terms
and conditions) unless the Bridge Facility has been repaid in full on or before
the Bridge Facility Maturity Date. Avalon Holdings anticipates that the Bridge
Facility will bear interest at LIBOR plus 600 basis points, subject to certain
(i) periodic increases, (ii) maximums and (iii) fixed rate adjustments at the
Bridge Facility Maturity Date.
Avalon Holdings presently anticipates that the Senior Credit Facility
will consist of (i) a $20.0 million seven-year revolving credit facility (the
"Senior Revolver"), (ii) a $130.9 million seven-year term loan (the "Tranche A
Term Loan"), and (iii) a $170.0 million eight-year term loan (the Tranche B Term
Loan"). It is currently anticipated that the Senior Revolver and the Tranche A
Term Loan will bear interest at LIBOR plus 250 basis points or, if elected by
the borrowers, an ABR rate plus 150 basis points, and that the Tranche B Term
Loan will bear interest at LIBOR plus 300 basis points or, if elected by the
borrowers, an ABR rate plus 200 basis points, in each case subject to certain
step-downs. Avalon Holdings anticipates that the Senior Credit Facility will
contain customary financial and other covenants.
As of the date of this Information Statement, Avalon Holdings is still
negotiating the specific terms of each of the Bridge Facility and the Senior
Credit Facility and expects that such terms will be customary for facilities of
such types.
-3-
<PAGE>
Prior to the execution of the Mercom Merger Agreement, the Board, on
the unanimous recommendation of a Special Committee of the Board (the "Special
Committee"), which was composed solely of directors unaffiliated with Cable
Michigan, unanimously determined that the Mercom Merger is fair to and in the
best interests of the stockholders of Mercom other than Cable Michigan and its
subsidiaries (the "Public Shareholders") and approved the Mercom Merger
Agreement by a unanimous vote.
No action is required by the Shareholders in connection with the
election of the Avalon Designees to the Board. However, Section 14(f) of the
Exchange Act requires the mailing to the Shareholders of the information set
forth in this Information Statement prior to a change in a majority of the Board
otherwise than at a meeting of the Shareholders.
OWNERSHIP OF COMMON STOCK
As of October 16, 1998, the outstanding voting securities of the
Company consisted of 4,787,060 shares of the Common Stock, each entitled to one
vote.
Security Ownership of Management
The following table sets forth the beneficial ownership of Common Stock
as of September 1, 1998, by each director, Avalon Designee, each executive
officer listed under "Directors and Executive Officers" below and by all
persons, as a group, who are currently directors or executive officers of the
Company. Each director, Avalon Designee, or executive officer has sole
investment and voting power over the shares listed opposite his name except as
set forth in the footnotes hereto. The information is based on data furnished by
the respective persons named.
<TABLE>
<CAPTION>
Amount of Shares Percentage of Outstanding
Beneficially Common Shares
Name and Address Of Beneficial Owner(1) Owned(1) Beneficially Owned
- --------------------------------------- ---------------- -------------------------
<S> <C> <C>
John J. Gdovin........................... -- --
Bruce C. Godfrey......................... -- --
Mark Haverkate........................... -- --
Clifford L. Jones........................ -- --
Michael J. Mahoney....................... -- --
David C. McCourt......................... --(2) --
Raymond B. Ostroski...................... 4,000 *
Harold J. Rose, Jr....................... -- --
George C. Stephenson..................... 5,000 *
John J. Jones............................ -- --
Timothy J. Stoklosa...................... -- --
All Current Directors and Executive
Officers as a Group (11 persons)...... 9,000(2) *
David W. Unger........................... -- --
-4-
<PAGE>
Joel C. Cohen............................ -- --
Jay M. Grossman.......................... -- --
Peggy J. Koenig.......................... -- --
------------------
* Less than 1% of the outstanding shares.
(1) "Beneficial Ownership" is defined pursuant to regulations promulgated by
the SEC as having or sharing, directly or indirectly, voting power and/or
investment power, which includes the power to dispose or direct the
disposition of the shares of common stock indicated.
(2) Excludes 46,837 shares which are owned by Mr. McCourt's wife. Mr. McCourt
disclaims beneficial ownership of such shares.
</TABLE>
Security Ownership of Certain Beneficial Owners
The following table sets forth the beneficial ownership, as of
September 10, 1998, by any person who is known to the Company to be the
beneficial owner of more than five percent of the Common Stock.
<TABLE>
<CAPTION>
Amount of Shares Percentage of Outstanding
Beneficially Common Shares
Name and Address Of Beneficial Owner Owned Beneficially Owned
- ------------------------------------ ----------------- -------------------------
<S> <C> <C>
Cable Michigan, Inc.(1) 2,964,250 61.92%
105 Carnegie Center
Princeton, New Jersey 08540..............
Mario Gabelli(2) 520,735 10.88%
c/o Gabelli Funds, Inc.
One Corporate Center
Rye, New York 10580......................
Lappin Capital Management, L.P.(3) 313,419 6.54%
767 Third Avenue, 16th Floor
New York, New York 10017.................
- ------------------
(1) Based on information obtained from Amendment No. 3 to Schedule 13D filed
on September 11, 1998 with the SEC by Cable Michigan.
(2) Based on information obtained from Amendment No. 1 to Schedule 13D filed
on September 17, 1998 with the SEC by James E. McKee, Gabelli Funds, Inc.
(3) Based on information obtained from Amendment No. 9 to Schedule 13D filed
on August 28, 1998 with the SEC by Lappin Capital Management, L.P.
</TABLE>
OWNERSHIP OF CABLE MICHIGAN COMMON STOCK
Set forth below is certain information regarding the beneficial
ownership of the Common Stock of Cable Michigan as of September 10, 1998, by
each director, Avalon Designee, each executive officer listed under "Directors
and Executive Officers" below and by all persons, as a group, who are currently
directors and
-5-
<PAGE>
executive officers of the Company. Each director, Avalon Designee, or executive
officer has sole investment and voting power over the shares listed opposite his
or her name except as set forth in the footnotes hereto:
<TABLE>
<CAPTION>
Number of Shares Beneficially Percent of Outstanding
Directors and Named Executive Officers Owned(1) Shares
----------------------------- ----------------------
<S> <C> <C>
John J. Gdovin(2)................... 1,743 *
Bruce C. Godfrey(2)................. 4,741 *
Mark Haverkate(2)................... 4,596 *
Clifford L. Jones................... -- --
Michael J. Mahoney.................. 4,878 *
David C. McCourt(2)(3).............. 12,382 *
Raymond B. Ostroski................. 18,419 *
Harold J. Rose, Jr.................. -- --
George C. Stephenson................ -- --
Timothy J. Stoklosa................. 1,014 *
John J. Jones....................... -- --
All current executive officers and
directors as a group (11 persons)... 47,773 *
David W. Unger...................... 5,000 *
Joel C. Cohen....................... 2,000 *
Jay M. Grossman..................... -- --
Peggy J. Koenig..................... -- --
- ------------------
* Less than 1% of the outstanding shares.
(1) Includes forfeitable Matching Shares (as defined below), and Share Units
(as defined below).
(2) Under the Cable Michigan Executive Stock Purchase Plan ("ESPP"),
participating executive officers who forgo current compensation are
credited with Cable Michigan "Share Units," the value of which is based on
the value of a share of Cable Michigan Common Stock. ESPP participants who
elect to receive Share Units in lieu of current compensation are also
credited with restricted "Matching Shares", which vest over a period of 3
years from the grant date, subject to continued employment. Matching
Shares, unless forfeited, have voting and dividend rights. The holdings
indicated include Share Units and Matching Shares. The table below shows,
in respect of each named executive officer, the number of shares of Cable
Michigan Common Stock purchased outright, Share Units relating to Cable
Michigan Common Stock acquired by each named executive officer in lieu of
current compensation, and the forfeitable Matching Shares of Cable
Michigan Common Stock held by each named executive officer:
</TABLE>
<TABLE>
<CAPTION>
Share Units Total Shares
Acquired under Purchased and
the ESPP in Acquired and
Shares Lieu Total Shares Restricted Restricted
Purchased of Current Purchased and Matching Matching
Outright Compensation Acquired Shares Shares
-------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
John J. Gdovin...... 677 533 1,210 533 1,743
Bruce C. Godfrey.... 1,251 1,745 2,996 1,745 4,741
Mark Haverkate...... 2,392 1,102 3,494 1,102 4,596
David C. McCourt.... 2,894 4,744 7,638 4,744 12,382
-6-
<PAGE>
(3) Includes 56 shares of Cable Michigan Common Stock which are owned by Mr.
McCourt's wife. Mr. McCourt disclaims beneficial ownership of such shares.
Does not include 3,330,121 shares of Cable Michigan Common Stock held by
Level 3 Telecom Holdings Inc. ("LTH"). David C. McCourt owns 10% of the
common stock of LTH. The remaining 90% of the common stock and all of the
preferred stock of LTH is owned by Level 3 Communications, Inc. ("Level
3").
</TABLE>
The information set forth above and in "Director Information" does not
give effect to the ownership of Company securities by LTH. Certain executive
officers or directors of the Company are directly or indirectly affiliated with
LTH. For information with respect to the beneficial ownership of securities by
LTH, see footnote 3 to the Cable Michigan Ownership table.
Except as described herein, the Company is aware of no arrangements,
the operation of which may at a subsequent date result in a change of control of
the Company.
<TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
Current Directors and Executive Officers
<CAPTION>
Director/Executive
Name Age Positions Officer Since
- ---- --- --------- -------------
<S> <C> <C> <C>
John J. Gdovin................ 40 Executive Vice President 1996
Bruce C. Godfrey.............. 42 Director 1994
Mark Haverkate................ 43 President, Chief Operating 1995
Officer
Clifford L. Jones............. 70 Director 1991
Michael J. Mahoney............ 47 Director 1994
David C. McCourt.............. 41 Chairman, Chief Executive 1993
Officer, Director
Raymond B. Ostroski........... 43 Director 1994
Harold J. Rose, Jr............ 62 Director 1991
George C. Stephenson.......... 52 Director 1991
Timothy J. Stoklosa........... 37 Executive Vice President, 1997
Chief Financial Officer
John J. Jones................. 31 Executive Vice President, 1998
General Counsel & Corporate
Secretary
</TABLE>
John J. Gdovin has been Executive Vice President of the Company since
August 1996 and Executive Vice President of Cable Michigan since September 1997.
He has served as Executive Vice President of Commonwealth Telephone Enterprises,
Inc.'s Cable Television Group from August 1996 to September 1997 and as Senior
Vice President of RCN Telecom Services, Inc. since February 1997. Mr. Gdovin.
-7-
<PAGE>
has been Vice President of Commonwealth Telephone Enterprises Inc.'s Cable
Television Group from August 1995 to August 1996 and Director of Operations of
Commonwealth Telephone Enterprises Inc.'s Cable Television Group from February
1992 to August 1995.
Bruce C. Godfrey was Corporate Secretary of the Company from October
1997 to September 1998 and Executive Vice President and Chief Financial Officer
of the Company from April 1994 to October 1997 as well as Director, Executive
Vice President, Chief Financial Officer and Corporate Secretary of RCN
Corporation ("RCN") since September 1997. He has also served as Executive Vice
President and Chief Financial Officer of Commonwealth Telephone Enterprises,
Inc., formerly known as C-TEC Corporation ("CTE"), since April 1994, Director
since 1995 and Corporate Secretary since September 1997. Mr. Godfrey has been
Director and Corporate Secretary of Cable Michigan since September 1997. Mr.
Godfrey was Senior Vice President and Principal of Daniels and Associates from
January 1984 to April 1994.
Clifford L. Jones was President of the Capital Region Economic
Development Corporation from September 1992 to February 1994. He also served as
President of the Pennsylvania Chamber of Business & Industry from April 1983 to
December 1991. Mr. Jones is a Director of Pennsylvania Power & Light, Delta
Development Group, Inc. and Benatec Associates.
Mark Haverkate has been President and Chief Operating Officer of the
Company since October 1997, and President and Chief Operating Officer of Cable
Michigan since September 1997. He has also been Executive Vice President of
Business Development of RCN since September 1997, President of RCN Business
Development from June 1997 to September 1997, Executive Vice President of
Business Development of CTE from May 1997 to September 1997, President for
Business Operations at RCN Telecom Services, Inc. from August 1996 to November
1996, Executive Vice President of CTE's Cable Television Group from July 1995 to
August 1996, Executive Vice President of Development for CTE from February 1995
to July 1995, Executive Vice President of C-TEC International, Inc., now by name
change, RCN International Holdings, Inc. from May 1995 to November 1996,
Executive Vice President for Development of the Company from November 1995 to
February 1996, Vice President of Development for CTE from December 1993 to
February 1995, and Vice President of CTE's Cable Television Group from October
1989 to December 1993.
Michael J. Mahoney has been President and Chief Operating Officer of
the Company from February 1994 to September 1997. He has also been President and
Chief Operating Officer, as well as a Director, of RCN since September 1997 and
Director of CTE since May 1995. Mr. Mahoney was President and Chief Operating
-8-
<PAGE>
Officer from March 1994 to September 1997, Executive Vice President of CTE's
Cable Television Group from June of 1991 to March 1994, and Executive Vice
President of the Company from December 1991 to February 1994.
David C. McCourt has been Chairman and Chief Executive Officer of the
Company since October 1993, Chairman, Director and Chief Executive Officer of
RCN and Chairman, Director and Chief Executive Officer of Cable Michigan, since
September 1997, Chairman, Director and Chief Executive Officer of CTE since
October 1993, and President and Director of Level 3 Telecom Holdings, Inc.
("LTH"). Mr. McCourt was Director of MFS Communications Company, Inc. from July
1990 to December 1996. He has also been President and Director of Metropolitan
Fiber Systems/McCourt, Inc., a subsidiary of MFS Telecom, Inc., since 1988,
Director of Cable Satellite Public Affairs Network ("C-SPAN") since June 1995,
Director of WorldCom, Inc. from December 1996 to March 1998, and Director of
Level 3 since January 1998.
Raymond B. Ostroski has been Director of Cable Michigan since September
1997. He was Executive Vice President and General Counsel of CTE from February
1995 to September 1997 and Corporate Secretary of CTE from October 1989 to
September 1997, Executive Vice President and General Counsel of the Company from
February 1995 to September 1997, Vice President and General Counsel of CTE from
December 1990 to February 1995, Vice President and General Counsel of the
Company from December 1991 to February 1995, and Corporate Secretary of Mercom
from December 1991 to December 1994.
Harold J. Rose, Jr. has been Chairman of the Board of Pennsylvania
Millers Mutual Insurance Company and Director of American Millers Insurance
Company. He previously was a partner of RK Associates, a real estate management
consulting firm. In 1990, Mr. Rose retired from Merchants Bancorp. Inc. where he
served as Chairman of the Board of both Merchants Bank, N.A. and Merchants Bank
North, both subsidiaries of Merchants Bancorp. Inc.
George C. Stephenson has been Managing Director of PaineWebber, Inc.
since January 1987.
Timothy J. Stoklosa has been Executive Vice President and Chief
Financial Officer of Cable Michigan since September 1997, Senior Vice President
and Treasurer of RCN since September 1997, Senior Vice President and Treasurer
of RCN since September 1997, Senior Vice President of Finance of CTE since
February 1997, Treasurer of CTE since August 1994, and Executive Vice President
and Chief Financial Officer of Mercom since October 1997. He was Manager of
Mergers and Acquisitions at Peter Kiewit Sons', Inc. from October 1991 to August
1994 and
-9-
<PAGE>
Senior Financial Analyst of Corporate Development at Citizens Utilities Co. from
February 1990 to October 1991.
John J. Jones has been Executive Vice President, General Counsel and
Corporate Secretary of the Company since September 1998. Mr. Jones served as
Vice President, General Counsel and Corporate Secretary of Designer Holdings
Ltd. from January 1996 to December 1997. Prior to that time, Mr. Jones was
engaged in the private practice of law at the law firm of Skadden, Arps, Slate,
Meagher & Flom beginning in September 1991 to August 1995.
Designated Directors and Executive Officers
David W. Unger is the Chairman of the Board of Avalon Cable Holdings
LLC ("Avalon") and co-founded Avalon in 1997. Mr. Unger also serves as chairman
of Suncom Communications, LLC, the largest shareholder of Audio Communications
Network, Inc. ("ACN"). In that capacity, Mr. Unger serves as director and
Executive Vice President of ACN. Since 1995, Mr. Unger worked for Communications
Equity Associates, Teleprompter Corp. TKR Cable Co. and as an investment banker.
Joel C. Cohen is the President and Chief Executive Officer and a
Manager of Avalon. Mr. Cohen co-founded Avalon in 1997. From 1996 to 1997 Mr.
Cohen served as the Chief Financial Officer of Patient Education Media, Inc.
("PEMI") and as a consultant to various cable companies. From 1992 to 1996 Mr.
Cohen served as a director and as both Chief Operating Officer and Chief
Financial Officer for Harron Communications Corp., a cable and broadcast
television operator. Prior to 1992, Mr. Cohen was Senior Vice President of
United Artists Entertainment Company and President of its international
division. Mr. Cohen also served in various executive positions at Group W Cable
and Teleprompter Corp.
As stated above, Mr. Cohen served as the Chief Financial Officer of
PEMI from June 1996 through December 1997. Prior to June 1996, PEMI did not
employ a Chief Financial Officer. PEMI was formed in 1994 to create and market
patient educational videos and other products under the trademark TIME-LIFE
MEDICAL. PEMI ceased producing educational video tapes in September 1996 and
ceased all operations on December 20, 1996. Thereafter, PEMI proceeded to
liquidate the majority of its assets. On March 14, 1997, PEMI filed a petition
under Chapter 11 of the United States Bankruptcy Code. In January 1998, Mr.
Cohen was appointed by the Bankruptcy Court for the Southern District of New
York to act as disbursing agent in relation to the liquidation of PEMI.
Jay M. Grossman is a Manager of Avalon and a partner in ABRY Partners
Inc. ("ABRY"). Prior to joining ABRY in 1996, Mr. Grossman was managing
-10-
<PAGE>
director and co-head of Prudential Securities' media and entertainment
investment banking group. From 1986 to 1994, Mr. Grossman served in various
positions, ultimately as a senior vice president, in the media entertainment
group of the corporate finance department of Kidder, Peabody & Co. Incorporated.
Mr. Grossman is a director (or the equivalent) of various companies including
Nexstar Broadcasting Group, LLC, Network Music Holdings LLC, Connoisseur
Communications Partners, L.P., Weather Services Corporation and DirecTel
International, LLC.
Peggy J. Koenig is a Manager of Avalon and a partner in ABRY. Ms.
Koenig joined ABRY in 1993. From 1988 to 1992, Ms. Koenig was a Vice President,
partner and member of the Board of Directors of Sillerman Communications
Management Corporation, a merchant bank, which made investments principally in
the radio industry. Ms. Koenig was the Director of Finance from 1986 to 1988 for
Magera Management, an independent motion picture financing company. She is
presently a director (or the equivalent) of Connoisseur Communications Partners,
L.P., Pinnacle Holdings Inc., Network Music Holdings LLC and Weather Services
Corporation.
On the Closing Date, the current members of the Board who are, or
previously have been, affiliated with Cable Michigan (Messrs. David C. McCourt,
Michael J. Mahoney, Raymond B. Ostroski, and Bruce C. Godfrey) and all current
executive officers of the Company are expected to resign. Also on the Closing
Date, the following Avalon Designees are expected to be elected to the Board and
to be appointed as Executive Officers of the Company in the capacities
indicated, pursuant to a unanimous resolution of the Board. The business address
of Jay Grossman and Peggy Koenig is 18 Newbury Street, Boston, Massachusetts
02116. The business address of David Unger and Joel Cohen is 201 East 69th
Street, New York, New York 10021. If the following Avalon Designees are
appointed, they will constitute a majority of the directors of the Board:
Name Age Positions
- ---- ---- ---------
David W. Unger..................... 42 Chairman, Director
Joel C. Cohen...................... 53 President, Chief Executive
Officer, Corporate
Secretary, Director
Jay M. Grossman.................... 38 Vice President, Assistant
Secretary, Director
Peggy J. Koenig.................... 41 Vice President, Assistant
Secretary, Director
-11-
<PAGE>
Significant Employees
Mark A. Dineen has been Vice President of Cable Michigan and Mercom
since October 1997. He previously served as Vice President of C-TEC Cable
Systems of Michigan, Inc. from March 1997 until October 1997. From August 1998
until March 1997 Mr. Dineen was Director of Marketing at C-TEC Cable Systems,
Inc. From July 1995 until August 1996 he was Regional System Manager for C-TEC
Cable Systems of Michigan, Inc. From March 1992 until July 1995 Mr. Dineen was
Regional Marketing Manager for C-TEC Cable Systems of Michigan, Inc.
COMMITTEES AND MEETINGS
The Board of Directors of the Company held six meetings in 1997. The
Board has held 3 meetings in 1998.
The Executive Committee of the Company did not meet in 1997. The
committee members include Messrs. David C. McCourt, Chairman, Bruce C.
Godfrey and Michael J. Mahoney.
The Company does not have a nominating or compensation committee or
committees performing similar functions.
The Audit/Affiliated Transactions Review Committee held two (2)
meetings in 1997. This committee supervised, among other things, the continuous
internal audit program of the Company, reviewed and advised the Board with
respect to affiliate transactions and advised and aided the officers of the
Company in administrative matters. The committee members include Messrs. Harold
J. Rose, Jr., Chairman, Clifford L. Jones and George C. Stephenson.
The Board formed the Special Committee to evaluate the fairness of the
Mercom Merger to the Public Shareholders. The Special Committee held 11 (eleven)
meetings in 1998. The members of the Special Committee are Messrs. Clifford L.
Jones, Harold J. Rose, Jr. and George C. Stephenson.
-12-
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Each Director of the Company is paid an annual retainer of $6,000, plus
$500 for each Board meeting attended during 1997. Committee Chairmen are paid
$1,000 for each committee meeting attended while other committee members are
paid $500 for each meeting attended. The Chairman of the Special Committee was
paid $1,000 for each Special Committee meeting attended. The other two members
of the Special Committee were paid $500 per meeting attended. Members of the
Executive Committee are not compensated for participating in the meeting of said
committee. Directors who are also employees of Cable Michigan have authorized
the payment of such fees to their employer, Cable Michigan, consistent with the
terms of their employment with Cable Michigan. The following fees were paid in
1995, 1996 and 1997, respectively: On behalf of Messrs. McCourt, Mahoney,
Godfrey and Ostroski, during fiscal year 1995 the Company paid RCN Services,
Inc. $9,500, $9,500, $9,500 and $9,000, respectively; during fiscal 1996,
$7,875, $7,875, $7,874 and $7,875, respectively; and during fiscal 1997, $9,000,
$9,000, $9,000 and $9,000, respectively.
Except indirectly with respect to the Management Agreement, none of the
executive officers of the Company named under "Directors or Executive Officers"
received, in their capacity as executive officers, any compensation for services
rendered on behalf of the Company during the fiscal years ended December 31,
1997, 1996 and 1995. See "Certain Relationships and Related Transactions."
-13-
<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Common Stock for the last five fiscal years with the cumulative total return on
the NASDAQ Stock Market (U.S.) Index, which is comprised of all United States
common shares traded on the NASDAQ Stock Market, and the NASDAQ
Telecommunications Index, which is comprised of the common shares of telephone,
radio and television broadcasting, cable television and communication services
companies traded on the NASDAQ Stock Market, over the same period. The graph
assumes the investment of $100 in the Company's common stock, the NASDAQ Stock
Market (US) Index and the NASDAQ Telecommunications Index on December 31, 1992,
and the reinvestment of all dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG MERCOM, INC., THE NASDAQ STOCK MARKET-US
INDEX & THE NASDAQ TELECOMMUNICATIONS INDEX
[GRAPHIC OMITTED]
The Common Stock is traded on the over-the-counter market.
- --------
* $100 invested on December 31, 1992 in stock or index including
reinvestment of dividends. Fiscal year ending December 31.
-14-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 29, 1997, Cable Michigan purchased and assumed all of the
interest of a bank under a term credit agreement that the bank had with the
Company. On such date, $14,150,725 of principal was outstanding under such
credit agreement. As of September 30, 1998, $14,150,725 of principal was
outstanding under such credit agreement.
The Company has entered into a Management Agreement with Cable Michigan
dated January 1, 1997 (the "Management Agreement"). Under the terms of the
Management Agreement, Mercom pays a management fee equal to the greater of
$500,000 or an amount equal to a certain percentage of Mercom's annual revenue.
The fee schedule ranges from 5% of revenue up to $10 million to 4% of revenue
over $20 million. In addition to the basic fee, Cable Michigan is also entitled
to an annual incentive fee based on increases in Mercom's operating cash flow.
The total fees paid in respect of 1997 under the Management Agreement were
$1,204,000. The total fees paid or due for the period January 1998 through
September 1998 to Cable Michigan under the Management Agreement were $998,000.
The term of the Management Agreement is three years. The Management Agreement
was approved by a committee of the Board composed of directors unaffiliated with
the Company.
MERCOM, INC.
By: /s/ Mark Haverkate
----------------------
Name: Mark Haverkate
Title: President and
Chief Operating Officer
October 20, 1998
-15-
