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S-4
AVALON CABLE OF MICHIGAN INC/ filed this Form S-4 on 04/01/1999
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                     CABLE MICHIGAN, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
collateralized by a first priority pledge of all shares of Mercom owned by the
Company. The $15 Million Facility has interest rate provisions (6.25% at
November 5, 1998), covenants and events of default substantially the same as
the Credit Facilities.
 
   On November 6, 1998, the long-term debt of the Company was paid off in
conjunction with the closing of the merger.
 
Mercom debt
 
   In August 1997, the Mercom revolving credit agreement for $2,000 expired.
Mercom had no borrowings under the revolving credit agreement in 1996 or 1997.
 
   On September 29, 1997, the Company purchased and assumed all of the bank's
interest in the term credit agreement and the note issued thereunder.
Immediately after the purchase, the term credit agreement was amended in order
to, among other things, provide for less restrictive financial covenants,
eliminate mandatory amortization of principal and provide for a bullet maturity
of principal on December 31, 2002, and remove the change of control event of
default. Mercom's borrowings under the term credit agreement contain pricing
and security provisions substantially the same as those in place prior to the
purchase of the loan. The borrowings are secured by a pledge of the stock of
Mercom's subsidiaries and a first lien on certain of the assets of Mercom and
its subsidiaries, including inventory, equipment and receivables. At November
5, 1998, $14,151 of principal was outstanding. The borrowings under the term
credit agreement are eliminated in the Company's consolidated balance sheet.
 
8. Common Stock and Stock Plans
 
   The Company has authorized 25,000,000 shares of $1 par value common stock,
and 50,000,000 shares of $1 par value Class B common stock. The Company also
has authorized 10,000,000 shares of $1 par value preferred stock. At November
5, 1998, 6,901,432 common shares are issued and outstanding.
 
   In connection with the Distribution, the Company Board of Directors (the
"Board") adopted the Cable Michigan, Inc. 1997 Equity Incentive Plan (the "1997
Plan"), designed to provide equity-based compensation opportunities to key
employees when shareholders of the Company have received a corresponding
benefit through appreciation in the value of Cable Michigan Common Stock.
 
   The 1997 Plan contemplates the issuance of incentive stock options, as well
as stock options that are not designated as incentive stock options,
performance-based stock options, stock appreciation rights, performance share
units, restricted stock, phantom stock units and other stock-based awards
(collectively, "Awards"). Up to 300,000 shares of Common Stock, plus shares of
Common Stock issuable in connection with the Distribution related option
adjustments, may be issued pursuant to Awards granted under the 1997 Plan.
 
   All employees and outside consultants to the Company and any of its
subsidiaries and all Directors of the Company who are not also employees of the
Company are eligible to receive discretionary Awards under the 1997 Plan.
 
   Unless earlier terminated by the Board, the 1997 Plan will expire on the
10th anniversary of the Distribution. The Board or the Compensation Committee
may, at any time, or from time to time, amend or suspend and, if suspended,
reinstate, the 1997 Plan in whole or in part.
 
   Prior to the Distribution, certain employees of the Company were granted
stock option awards under C-TEC's stock option plans. In connection with the
Distribution, 380,013 options covering Common Stock were issued. Each C-Tec
option was adjusted so that each holder would hold options to purchase shares
of Commonwealth Telephone Enterprise Common Stock, RCN Common Stock and Cable
Michigan Common
 
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