AVALON CABLE, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share data)
1. Description of Business
Avalon Cable LLC ("the Company"), and its wholly-owned subsidiaries Avalon
Cable Holdings Finance, Inc. ("Avalon Holdings Finance") and Avalon Cable of
Michigan LLC ("Avalon Michigan"), were formed in October 1998, pursuant to the
laws of the State of Delaware, as a wholly-owned subsidiary of Avalon Cable of
New England Holdings, Inc. ("Avalon New England Holdings").
On November 6, 1998, Avalon New England Holdings contributed its 100%
interest in Avalon Cable of New England LLC ("Avalon New England") to the
Company in exchange for a membership in the Company. This contribution was
between entities under common control and was accounted for similar to a
pooling-of-interests. Under the pooling-of-interests method, the results of
operations for the Company include the results of operations from the date of
inception (September 4, 1997) of Avalon New England. On November 6, 1998, the
Company received $63,000 from affiliated entities, which was comprised of (i) a
$45,000 capital contribution by Avalon Investors LLC ("Avalon Investors") and
(ii) an $18,000 promissory note from Avalon Cable Holdings LLC ("Avalon
Holdings"), which was used to make a $62,800 cash contribution to Avalon New
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, the Company received a dividend distribution from
Avalon New England in the amount of $18,206, which was used by the Company to
pay off the promissory note payable to Avalon Holdings, plus accrued interest.
Avalon Cable of Michigan, Inc. 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, Avalon Cable of
Michigan, Inc. entered into an Agreement and Plan of Merger (the "Agreement")
among Avalon Cable of Michigan, Inc., Michigan Holdings and Cable Michigan, Inc.
("Cable Michigan"), pursuant to which Avalon Cable of Michigan, Inc. 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 of $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 Michigan Holdings 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
In conjunction with the acquisition of Cable Michigan, Avalon Cable of
Michigan, Inc. acquired Cable Michigan's 62% ownership interest in Mercom, Inc.
On November 6, 1998, Avalon Cable of Michigan, Inc. completed its Merger.
The total consideration payable 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. Subsequent to the Merger, the
arrangements with RCN and CTE for certain support services were terminated. The
Agreement also permitted Avalon Cable of Michigan, Inc. to agree to acquire the
remaining shares of Mercom that it did not own.
Michigan Holdings contributed $137,375 in cash to Avalon Cable of Michigan,
Inc., 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
Avalon Cable of Michigan, Inc. in exchange for 100 shares of common stock.
On March 26, 1999, 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: