AVALON CABLE OF MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 December
31, 1998, $14,151 of principal was outstanding. The borrowings under the term
credit agreement are eliminated in the Company's consolidated balance sheet.
9. Minority interest
The activity in minority interest for the year ended December 31, 1998 is as
Mercom LLC Total
------- ------- -------
<S> <C> <C> <C>
Issuance of Class A units by Avalon Cable LLC........ $ -- $45,000 $45,000
Issuance of Class B-1 units by Avalon Cable LLC...... -- 4,345 4,345
Allocated to minority interest prior to
restructuring....................................... -- 365 365
Purchase of Cable Michigan, Inc. .................... 13,457 -- 13,457
Income (loss) allocated to minority interest......... 398 (1,729) (1,331)
------- ------- -------
Balance at December 31, 1998......................... $13,855 $47,981 $61,836
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10. Employee Benefit Plans
The Company has a qualified savings plan under Section 401(K) of the
Internal Revenue Code. Contributions charged to expense for the period from
November 5, 1998 to December 31, 1998 was $30.
11. Commitments and Contingencies
Avalon New England and Avalon Michigan rent poles from utility companies for
use in their operations. While rental agreements are generally short-term,
Avalon New England and Avalon Michigan anticipate such rentals will continue in
the future. Avalon New England and Avalon Michigan also lease office facilities
and various items of equipment under month-to-month operating leases. Rent
expense was $58 for the year ended December 31, 1998. Rental commitments are
expected to continue at approximately $1 million a year for the foreseeable
future, including pole rental commitments which are cancelable.
The Company and its subsidiaries are subject to regulations by the Federal
Communications Commission ("FCC") and other franchising authorities.
The Company is subject to the provisions of the Cable Television Consumer
Protection and Competition Act of 1992, as amended, and the Telecommunications
Act of 1996. The Company has either settled challenges or accrued for
anticipated exposures related to rate regulation; however, there is no
assurance that there will not be further additional challenges to its rates.