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SEC Filings

S-4/A
AVALON CABLE OF MICHIGAN INC/ filed this Form S-4/A on 07/22/1999
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                     CABLE MICHIGAN, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
   In the normal course of business, there are various legal proceedings
outstanding. In the opinion of management, these proceedings will not have a
material adverse effect on the financial condition or results of operations of
the Company.
 
   The Company has agreed to indemnify RCN and C-TEC and their respective
subsidiaries against any and all liabilities which arise primarily from or
relate primarily to the management or conduct of the business of the Company
prior to the effective time of the Distribution. The Company has also agreed to
indemnify RCN and C-TEC and their respective subsidiaries against 20% of any
liability which arises from or relates to the management or conduct prior to
the effective time of the Distribution of the businesses of C-TEC and its
subsidiaries and which is not a true C-TEC liability, a true RCN liability or a
true Company liability.
 
   The Tax Sharing Agreement, by and among the Company, RCN and C-TEC (the "Tax
Sharing Agreement"), governs contingent tax liabilities and benefits, tax
contests and other tax matters with respect to tax returns filed with respect
to tax periods, in the case of the Company, ending or deemed to end on or
before the Distribution date. Under the Tax Sharing Agreement, adjustments to
taxes that are clearly attributable to the Company group, the RCN group, or the
C-TEC group will be borne solely by such group. Adjustments to all other tax
liabilities will be borne 50% by C-TEC, 20% by the Company and 30% by RCN.
 
   Notwithstanding the above, if as a result of the acquisition of all or a
portion of the capital stock or assets of the Company, the Distribution fails
to qualify as a tax-free distribution under Section 355 of the Internal Revenue
Code, then the Company will be liable for any and all increases in tax
attributable thereto.
 
13. Affiliate and Related Party Transactions
 
   The Company has the following transactions with affiliates:
 

<TABLE>
<CAPTION>
                                                 For the Year
                                                     Ended      For the Period
                                                 -------------      Ended
                                                  1996   1997  November 5, 1998
                                                 ------ ------ ----------------
      <S>                                        <C>    <C>    <C>
      Corporate office costs allocated to the
       Company.................................. $3,498 $3,715      $1,866
      Cable staff and customer service costs
       allocated from RCN Cable.................  3,577  3,489       3,640
      Interest expense on affiliate notes....... 13,952  8,447         795
      Royalty fees charged by CTE...............    585    465         --
      Charges for engineering services..........    296    --          --
      Other affiliate expenses..................    189    171         157
</TABLE>

 
   In addition, RCN has agreed to obtain programming from third party suppliers
for Cable Michigan, the costs of which will be reimbursed to RCN by Cable
Michigan. In those circumstances where RCN purchases third party programming on
behalf of both RCN and the Company, such costs will be shared by each company,
on a pro rata basis, based on each company's number of subscribers.
 
   At December 31, 1997 and November 5, 1998, the Company has accounts
receivable from related parties of $166 and $396 respectively, for these
transactions. At December 31, 1997 and November 5, 1998, the Company has
accounts payable to related parties of $1,560 and $343 respectively, for these
transactions.
 
   The Company had a note payable to RCN Corporation of $147,567 at December
31, 1996 primarily related to the acquisition of the Michigan cable operations
and its subsequent operations. The Company repaid approximately $110,000 of
this note payable in 1997. The remaining balance was transferred to
shareholder's net investment in connection with the Distribution.
 
 
                                      F-71