AVALON CABLE LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
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 Avalon in
exchange for a membership interest in Avalon. 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 Avalon include the results of operations from the date of
inception (September 4, 1997) of Avalon New England. On that same date, Avalon
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 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 Holdings Finance which matures on December 31, 2001.
On December 10, 1998, Avalon received a dividend distribution from Avalon
New England in the amount of $18,206, which was used by Avalon 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 the company
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
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 closing adjustments.
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