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SEC Filings

S-4
AVALON CABLE OF MICHIGAN INC/ filed this Form S-4 on 04/01/1999
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            AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (in thousands except per share data)
 
1. Basis of Presentation and Description of Business
 
   Avalon Cable of Michigan Holdings, Inc. ("The Company") was formed in June
1998, pursuant to the laws of the state of Delaware. Avalon Cable of Michigan
Inc. ("Avalon Michigan") was formed in June 1998, pursuant to the laws of the
state of Delaware as a wholly owned subsidiary of the Company. On June 3, 1998,
Avalon Michigan entered into an Agreement and Plan of Merger (the "Agreement")
among the Company, Cable Michigan, Inc. and Avalon Cable of Michigan Inc.
("Avalon Sub"), pursuant to which Avalon Sub will merge into the Company and
the Company will become a wholly owned subsidiary of the Company (the
"Merger").
 
   In accordance with the terms of the Agreement, each share of common stock,
par value $1.00 per share ("common stock"), of Cable Michigan, Inc. ("Cable
Michigan") outstanding prior to the effective time of the Merger (other than
treasury stock, shares owned by the Company or its subsidiaries, or shares as
to which dissenters' rights have been exercised) shall be converted into the
right to receive $40.50 in cash (the "Merger Consideration"), subject to
certain possible closing adjustments.
 
   In conjunction with the acquisition of Cable Michigan, Avalon Michigan
acquired Cable Michigan's 62% ownership interest in Mercom, Inc. ("Mercom").
 
   On November 6, 1998, Avalon Michigan completed its merger into and with
Cable Michigan. The total consideration paid in conjunction with the merger,
including fees and expenses was $431,629, including repayment of all existing
Cable Michigan indebtedness and accrued interest of $135,205. Subsequent to the
merger, the arrangements with RCN and CTE were terminated. The Agreement also
permitted Avalon Michigan to agree to acquire the remaining shares of Mercom
that it did not own.
 
   The Company contributed $137,375 in cash to Avalon Michigan, which was used
to consummate the Merger. On November 5, 1998, the Company received $105,000 in
cash in exchange for promissory notes to lenders (the "Bridge Agreement"). On
November 6, 1998, the Company contributed the proceeds received from the Bridge
Agreement and an additional $35,000 in cash to Avalon Michigan in exchange for
100 shares of common stock.
 
   In March 1999, after the acquisition of Mercom, Inc. Avalon Michigan
completed a series of transactions to facilitate certain aspects of its
financing. As a result of these transactions:
 
  . Avalon Cable of Michigan LLC has become the operator of the Michigan
    cluster replacing Avalon Cable of Michigan, Inc.;
 
  . Avalon Cable of Michigan LLC is an obligor on the Senior Subordinated
    Notes replacing Avalon Cable of Michigan, Inc.; and
 
  . Avalon Cable of Michigan, Inc. is a guarantor of the obligations of
    Avalon Cable of Michigan LLC under the Senior Subordinated Notes. Avalon
    Cable of Michigan, Inc. does not have significant assets, other than its
    investment in Avalon Cable LLC.
 
   Avalon Michigan provides cable services to various areas in the state of
Michigan. Avalon Michigan's cable systems offer customer packages for basic
cable programming services which are offered at a per channel charge or
packaged together to form a tier of services offered at a discount from the
combined channel rate. Avalon Michigan's cable systems also provide premium
cable services to their customers for an extra monthly charge. Customers
generally pay initial connection charges and fixed monthly fees for cable
programming and premium cable services, which constitute the principle sources
of revenue for the Company.
 
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