Our acquisition of Falcon will constitute an event of default under the
note purchase agreement and will give rise, if written notice is given by
holders of a majority in outstanding amount of notes, to an obligation to repay
all outstanding principal and accrued interest on the Falcon subordinated notes,
plus a specified premium, within 30 days of the receipt of the notice. Absent
receipt of a waiver by the noteholders of the change of control default, which
we do not expect to receive, we expect to repay at the time of the closing of
the Falcon acquisition, the $15 million principal amount of the notes, plus
accrued interest and a specified premium, with available sources of funds.
As of June 30, 1999, $15.0 million principal amount of the Falcon
subordinated notes was outstanding.
THE AVALON 11 7/8% NOTES. On December 3, 1998, Avalon Cable LLC and
Avalon Cable Holdings Finance, Inc. jointly issued $196 million total principal
amount at maturity of 11 7/8% senior discount notes due December 1, 2008. On
July 22, 1999, the issuers exchanged $196 million of the original issued and
outstanding 11 7/8% senior discount notes for an equivalent amount of new
11 7/8% senior discount notes due December 1, 2008. The form and terms of the
new Avalon 11 7/8% notes are substantially identical to the original Avalon
11 7/8% notes except that they will be registered under the Securities Act of
1933 and, therefore, are not subject to the same transfer restrictions. The
issuers received no proceeds from the exchange offer.
The Avalon 11 7/8% notes are guaranteed by Avalon Cable of Michigan, Inc.,
an equity holder in Avalon Cable LLC, and its sole stockholder, Avalon Cable of
Michigan Holdings, Inc.
There will be no current payments of cash interest on the Avalon 11 7/8%
notes before December 1, 2003. The new Avalon 11 7/8% notes accrete in value at
a rate of 11 7/8% per annum, compounded semi-annually, to an aggregate principal
amount of $196 million on December 1, 2003. After December 1, 2003, cash
interest on the Avalon 11 7/8% notes:
- will accrue at the rate of 11 7/8% per year on the principal amount at
maturity of the new notes; and
- will be payable semi-annually in arrears on June 1 and December 1 of each
year, commencing June 1, 2004.
On December 1, 2003, the issuers will be required to redeem an amount equal
to $369.79 per $1,000 in principal amount at maturity of each Avalon 11 7/8%
note, on a pro rata basis at a redemption price of 100% of the principal amount
at maturity of the Avalon 11 7/8% notes so redeemed.
On or after December 1, 2003, the issuers may redeem the Avalon 11 7/8%
notes, in whole or in part. Before December 1, 2001, the issuers may redeem up
to 35% of the total principal amount at maturity of the Avalon 11 7/8% notes
with the proceeds of one or more equity offerings and/or strategic equity
In the event of specified change of control events, holders of the Avalon
11 7/8% notes will have the right to sell their Avalon 11 7/8% notes to the
issuers at 101% of: