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SEC Filings

10-Q
AVALON CABLE OF MICHIGAN INC/ filed this Form 10-Q on 08/16/1999
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                 AVALON CABLE OF MICHIGAN, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (In thousands except per share data)



1.       Description of Business

    Avalon Cable of Michigan, Inc. (the "Company") was formed in June 1998,
pursuant to the laws of the state of Delaware, as a wholly-owned subsidiary of
Avalon Cable of Michigan Holdings, Inc. ("Michigan Holdings"). On June 3, 1998,
the Company entered into an Agreement and Plan of Merger (the "Agreement") among
the Company, Michigan Holdings and Cable Michigan, Inc. ("Cable Michigan"),
pursuant to which the Company will merge into Cable Michigan and Cable Michigan
will become a wholly-owned subsidiary of Michigan Holdings (the "Merger"). As
part of the Merger, the name of Cable Michigan was changed to Avalon Cable of
Michigan, Inc.

    In accordance with the terms of the Agreement, each share of common stock,
par value $1.00 per share ("common stock"), of 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, the Company acquired
Cable Michigan's 62% ownership interest in Mercom, Inc. ("Mercom").

    On November 6, 1998, the Company completed its merger. The total
consideration paid in conjunction with the Merger, including fees and expenses
is $431,629, including repayment of all existing Cable Michigan indebtedness and
accrued interest of $135,205. The Agreement also permitted the Company to agree
to acquire the remaining shares of Mercom that it did not own.

    Michigan Holdings contributed $137,375 in cash to the Company, which was
used to consummate the Merger. On November 5, 1998, Michigan Holdings received
$105,000 in cash in exchange for promissory notes to lenders (the "Bridge
Agreement"). On November 6,1998, Michigan Holdings contributed the proceeds
received from the Bridge Agreement and an additional $35,000 in cash to the
Company in exchange for 100 shares of common stock.

    On November 6, 1998, Avalon Cable of New England Holdings, Inc. contributed
its 100% interest in Avalon Cable of New England LLC ("Avalon New England") to
Avalon Cable LLC in exchange for a membership interest in Avalon Cable LLC. This
contribution was between entities under common control and was accounted for
similar to a pooling-of-interests. Under this pooling-of-interests method, the
results of operations for Avalon Cable LLC include the results of operations
from the date of inception (September 4, 1997) of Avalon New England. On
November 6, 1998, Avalon Cable LLC received $63,000 from affiliated entities,
which was comprised of (i) a $45,000 capital contribution by Avalon Investors,
LLC ("Avalon Investors") and (ii) a $18,000 promissory note from Avalon Cable
Holdings LLC ("Avalon Holdings"), which was used to make a $62,800 cash
contribution to Avalon New England.

    The cash contribution received by Avalon New England was used to (i)
extinguish existing indebtedness of $29,600 and (ii) fund a $33,200 loan to
Avalon Cable Finance, Inc. which matures on December 31, 2001.

    On December 10, 1998, Avalon Cable LLC received a dividend distribution from
Avalon New England in the amount of $18,206, which was used by Avalon Cable LLC
to pay off the promissory note payable to Avalon Holdings, plus accrued
interest.

    On March 26,1999, after the acquisition of Mercom, (as described in Note 3)
the Company completed a series of transactions to facilitate certain aspects of
its financing between affiliated companies under common control. As a result of
these transactions:

     .  The Company contributed its assets and liabilities excluding deferred
        tax liabilities, net to Avalon Cable LLC in exchange for an approximate
        88% voting interest in Avalon Cable LLC. Avalon Cable LLC contributed
        these assets and liabilities to its wholly-owned subsidiary, Avalon
        Cable of Michigan LLC ("Avalon Michigan LLC"); 

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