As filed with the Securities and Exchange Commission on July 23, 2001
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------------
MEDIACOM LLC
MEDIACOM CAPITAL CORPORATION
(Exact names of registrants as specified in their charters)
New York 4841 06-1433421
New York 4841 06-1513997
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Numbers)
incorporation or Classification Code
organization) Numbers)
100 Crystal Run Road
Middletown, New York 10941
(845) 695-2600
(Address, including zip code, and telephone number, including area
code, of registrants' principal executive offices)
Rocco B. Commisso
Chairman and Chief Executive Officer
Mediacom Communications Corporation
100 Crystal Run Road
Middletown, New York 10941
(845) 695-2600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Robert L. Winikoff, Esq.
Ira I. Roxland, Esq.
Sonnenschein Nath & Rosenthal
1221 Avenue of the Americas
New York, New York 10020
(212) 768-6700
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
----------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| _________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| _________
CALCULATION OF REGISTRATION FEE
===================================================================================================================
Proposed
Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Unit (1) Offering Price Fee
- -------------------------------------------------------------------------------------------------------------------
9 1/2% Senior Notes due 2013................. $500,000,000 100% $500,000,000 $125,000
===================================================================================================================
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933.
The Registrants hereby amend this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrants shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may
not sell these notes until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these notes and it is not soliciting an offer to buy these notes in any state
where the offer or sale is not permitted.
Subject to Completion, dated July 23, 2001
Preliminary Prospectus
Mediacom LLC
Mediacom Capital Corporation
-------------------
Offer to Exchange $500,000,000 of our
9 1/2% Senior Notes due 2013
-------------------
The notes being offered by this prospectus are being issued in exchange
for notes sold by us in a private placement on January 24, 2001. The exchange
notes will be governed by the same indenture governing the initial notes. The
exchange notes will be substantially identical to the initial notes, except the
transfer restrictions and registration rights relating to the initial notes will
not apply to the exchange notes.
. The exchange offer expires at 5:00 p.m., New York City time,
on , 2001, unless extended.
. No public market exists for the initial notes or the exchange
notes. We do not intend to list the exchange notes on any
securities exchange or to seek approval for quotation through any
automated quotation system.
Before you tender your initial notes, you should consider carefully the
section entitled "Risk Factors" beginning on page 15 of this prospectus.
-------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these notes or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
-------------------
The date of this prospectus is , 2001.
Table of Contents
PROSPECTUS SUMMARY ...................................................................................... 1
RISK FACTORS ............................................................................................ 15
FORWARD-LOOKING STATEMENTS .............................................................................. 23
USE OF PROCEEDS ......................................................................................... 23
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS ................................................... 24
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA ............................................... 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................... 35
BUSINESS ................................................................................................ 46
LEGISLATION AND REGULATION .............................................................................. 60
MANAGEMENT .............................................................................................. 69
CERTAIN TRANSACTIONS .................................................................................... 72
PRINCIPAL STOCKHOLDERS .................................................................................. 72
DESCRIPTION OF GOVERNING DOCUMENTS ...................................................................... 73
DESCRIPTION OF CERTAIN INDEBTEDNESS ..................................................................... 74
DESCRIPTION OF NOTES .................................................................................... 78
U.S. FEDERAL TAX CONSIDERATIONS .........................................................................102
EXCHANGE OFFER ..........................................................................................106
BOOK-ENTRY; DELIVERY AND FORM ...........................................................................116
PLAN OF DISTRIBUTION ....................................................................................119
LEGAL MATTERS ...........................................................................................120
EXPERTS .................................................................................................120
AVAILABLE INFORMATION ...................................................................................120
INDEX TO FINANCIAL STATEMENTS ...........................................................................F-1
We have not authorized any dealer, salesperson or other person to give
you written information other than this prospectus or to make representations as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy these securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus or
any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Mediacom LLC
and Mediacom Capital Corporation have not changed since the date hereof.
Industry and Market Data
In this prospectus, we rely on and refer to information regarding the
cable television industry and our market share in the sectors in which we
compete. We obtained this information from various third-party sources and our
own internal estimates. We believe that these sources and estimates are
reliable, but we have not independently verified them and cannot guarantee their
accuracy or completeness.
PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. It
does not contain all the information that may be important to you. For a more
complete understanding of this offering, you should read the entire prospectus,
including the risk factors and financial statements.
Overview
Mediacom Communications Corporation, our parent and manager, is the
eighth largest cable television company in the United States based on customers
served. Mediacom Communications provides its customers with a wide array of
broadband products and services, including traditional video services, digital
television and high-speed Internet access. Mediacom Communications was founded
in July 1995 by Rocco B. Commisso, its Chairman and Chief Executive Officer, to
acquire and operate cable television systems serving principally
non-metropolitan markets in the United States. As of the date of this
prospectus, our manager's cable systems, which are owned and operated through
its operating subsidiaries, passed approximately 2.6 million homes and served
approximately 1.6 million basic subscribers in 23 states. A basic subscriber is
a customer that subscribes to a package of basic cable television services.
Our manager's senior management team has significant cable television
industry expertise in all aspects of acquiring, operating and financing cable
systems. Mr. Commisso has 23 years of experience, and the other senior managers
have an average of 20 years of experience, with the cable television industry.
Our manager's Class A common stock is traded on The Nasdaq National
Market under the symbol "MCCC." As of the date of this prospectus, Mr. Commisso
and the senior management team owned in the aggregate approximately 24.7% of
Mediacom Communications' common stock outstanding.
Mediacom LLC
Mediacom LLC is a wholly-owned subsidiary of our manager. As of March
31, 2001, our cable systems passed approximately 1.2 million homes and served
approximately 777,000 basic subscribers in 22 states. Since commencement of our
operations in March 1996, we have experienced significant growth by deploying a
disciplined strategy of acquiring underperforming cable systems principally in
non-metropolitan markets with favorable demographic profiles. As of March 31,
2001, we had completed 20 acquisitions of cable systems that served as of their
respective dates of acquisition an aggregate of approximately 759,000 basic
subscribers for an aggregate purchase price of approximately $1.3 billion, or an
average price of $1,714 per subscriber. We have also generated strong internal
growth and have improved the operating and financial performance of our cable
systems. These results have been achieved through the implementation of our
operating practices, including the introduction of new and advanced broadband
products and services made possible by the rapid upgrade of our cable network,
and the application of disciplined cost controls.
We believe that advancements in digital technology, together with the
explosive growth of the Internet, have positioned the cable television
industry's high-speed, interactive broadband network as the primary platform for
the delivery of video, voice and data services to homes and businesses. To
capitalize on these opportunities, we have upgraded a substantial portion of our
cable network, allowing us to launch advanced broadband products and services,
including digital cable and high-speed Internet access, or cable modem service.
As of March 31, 2001, our digital cable service was available to approximately
470,000 basic subscribers, with approximately 53,000 digital customers for a
penetration of 11.3%. As of the same date, our cable modem service was launched
in cable systems passing approximately 500,000 homes, with approximately 15,600
cable modem customers for a penetration of 3.1%.
We expect to continue to rapidly upgrade our cable network to enable us
to launch advanced broadband products and services in virtually all the
communities we serve. As of March 31, 2001, approximately 76% of our cable
network was upgraded to 550MHz to 870MHz bandwidth capacity and approximately
55% of our homes passed were activated with two-way communications capability.
By December 2002, we anticipate that 95% of our cable network will be upgraded
to 550MHz to 870MHz bandwidth capacity with two-way communications capability.
- 1 -
As part of our cable network upgrade program, we have been aggressively
consolidating our signal processing and distribution facilities, or headends,
serving our cable systems. Headend consolidation facilitates the launch of new
and advanced broadband products and services by allowing us to spread the
capital and operating costs associated with these services over a larger
subscriber base. As of March 31, 2001, our cable systems were served by a total
of 408 headends, with the 40 largest headends serving approximately 513,000
basic subscribers, or approximately 66% of our total basic subscribers. By
December 2002, we expect that the number of headends serving our cable systems
will be reduced to 100, with the 40 largest headends serving approximately 92%
of our basic subscribers. We expect to spend approximately $190 million, $170
million and $100 million in 2001, 2002 and 2003, respectively, to fund capital
expenditures for our cable systems, including our cable network upgrade program
and network maintenance.
Business Strategy
Our business strategy is to focus on providing entertainment,
information and telecommunications services in non-metropolitan markets of the
United States. The key elements of our business strategy are to:
. Acquire underperforming cable systems principally in non-metropolitan
markets;
. Improve the operating and financial performance of our cable systems;
. Develop efficient operating clusters;
. Rapidly upgrade our cable network;
. Introduce new and enhanced products and services;
. Maximize customer satisfaction to build customer loyalty; and
. Maintain a flexible financing structure.
Recent Developments
AT&T Acquisitions. On June 29, 2001, Mediacom Broadband LLC, a
newly-formed, wholly-owned subsidiary of our manager, acquired cable systems
serving approximately 94,000 basic subscribers in the State of Missouri from
affiliates of AT&T Broadband, LLC, for a purchase price of approximately
$309.0 million.
On July 18, 2001, Mediacom Broadband acquired cable systems serving
approximately 706,000 basic subscribers in the States of Georgia, Illinois and
Iowa from affiliates of AT&T Broadband, for an aggregate purchase price of
approximately $1.79 billion.
Cash Dividend. On July 17, 2001, we paid a $125.0 million cash dividend
to our manager that was funded with borrowings under our subsidiary credit
facilities.
Preferred Equity Investment in Mediacom Broadband. On July 18, 2001, we
made a $150.0 million preferred equity investment in Mediacom Broadband that was
funded with borrowings under our subsidiary credit facilities. The preferred
equity investment has a 12% annual cash dividend, payable quarterly. The
proceeds of the preferred equity investment and, indirectly, the $125.0 million
cash dividend paid to our manager partially funded the purchase price of
Mediacom Broadband's acquisitions of cable systems from affiliates of AT&T
Broadband.
Principal Executive Offices
Our principal executive offices are located at 100 Crystal Run Road,
Middletown, New York 10941. Our telephone number is (845) 695-2600.
- 2 -
Initial Offering
The initial notes were originally issued by Mediacom LLC and Mediacom
Capital Corporation on January 24, 2001 in a private offering. We are parties to
an exchange and registration rights agreement with the initial purchasers of the
initial notes pursuant to which we agreed, among other things, to file a
registration statement with respect to the exchange notes on or before July 23,
2001 and to use our reasonable best efforts to have the registration statement
declared effective by November 20, 2001 and the exchange offer completed by
January 19, 2002. We must pay liquidated damages to the holders of the initial
notes if we do not meet those deadlines.
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Summary of Exchange Offer
We are offering to exchange $500.0 million aggregate principal amount
of our exchange notes for $500.0 million aggregate principal amount of our
initial notes. To exchange your initial notes, you must properly tender them and
we must accept your tender. We will exchange all outstanding initial notes,
subject to certain restrictions, that are validly tendered and not validly
withdrawn.
Expiration Date............................................ The exchange offer will expire at 5:00 p.m.,
New York City time on , 2001, unless we extend it.
Exchange and Registration Rights Agreement ................ You have the right, subject to certain restrictions, to
exchange the initial notes that you hold for exchange
notes with substantially identical terms. This exchange
offer is intended to satisfy these rights. Once the
exchange offer is complete, you will no longer be
entitled to any exchange or registration rights with
respect to your notes.
Accrued Interest on the Exchange Notes
and Initial Notes ......................................... The exchange notes will bear interest from their
issuance date. Holders of initial notes which are
accepted for exchange will receive, in cash, accrued
and unpaid interest on the initial notes to, but not
including, the issuance date of the exchange notes.
Such interest will be paid with the first interest
payment on the exchange notes.
Conditions to the Exchange Offer .......................... The exchange offer is subject to customary conditions,
which we may waive. You should read the discussion under
"Exchange Offer--Conditions to the Exchange Offer" for more
information regarding conditions of the exchange offer.
Procedures for Tendering Initial Notes .................... If you are a holder of initial notes and wish to accept the
exchange offer, you must either:
. complete, sign and date the accompanying
Letter of Transmittal, or a facsimile of the
Letter of Transmittal; or
. arrange for The Depository
Trust Company to transmit required
information to the exchange agent in
connection with a book-entry transfer.
You must mail or otherwise deliver such documentation
together with the initial notes to the exchange agent at
the address set forth in this prospectus under
"Exchange Offer--Exchange Agent."
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Representation Upon Tender................................. By tendering your initial notes in this manner,
you will be representing, among other things, that:
. the exchange notes you acquire in the exchange
offer are being acquired in the ordinary
course of your business;
. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the exchange notes
issued to you in the exchange offer; and
. you are not a party related to us.
Procedures for Beneficial Owners .......................... If you are the beneficial owner of initial notes
registered in the name of a broker, dealer or other
nominee and you wish to tender your notes, you should
contact the person in whose name your notes are
registered and promptly instruct the person to tender
on your behalf.
Material Federal Tax Consequences ......................... The exchange of initial notes for exchange notes will
not result in any gain or loss to you for federal
income tax purposes. Your holding period for the
exchange notes will include the holding period for the
initial notes and your adjusted tax basis of the
exchange notes will be the same as your adjusted tax
basis of the initial notes at the time of the exchange.
For additional information, you should read the
discussion under "U.S. Federal Tax Considerations."
Failure to Exchange Will Affect You Adversely ............. Initial notes that are not tendered, or that are
tendered but not accepted, will be subject to the
existing transfer restrictions on the initial notes
after the exchange offer. We will have no further
obligation to register the initial notes under the
Securities Act of 1933. If you do not participate in
the exchange offer, the liquidity of your notes could
be adversely affected. See "Risk Factors-Your failure
to participate in this exchange offer will have adverse
consequences."
Guaranteed Delivery Procedures ............................ If you wish to tender your initial notes and time will
not permit your required documents to reach the
exchange agent by the expiration date, or the procedure
for book-entry transfer cannot be completed on time,
you may tender your notes according to the guaranteed
delivery procedures. For additional information, you
should read the discussion under "Exchange
Offer--Guaranteed Delivery Procedure."
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Acceptance of Initial Notes; Delivery of
Exchange Notes ............................................ Subject to customary conditions, we will accept initial
notes which are properly tendered in the exchange offer
and not withdrawn, before 5:00 p.m., New York City
time, on the expiration date of the exchange offer. The
exchange notes will be delivered as promptly as
practicable following the expiration date.
Use of Proceeds ........................................... We will not receive any proceeds from the exchange offer.
Exchange Agent ............................................ The Bank of New York is the exchange agent for the
exchange offer.
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Summary of Terms of the Exchange Notes
The exchange notes are substantially identical to the initial notes,
with limited exceptions. The exchange notes will evidence the same debt as the
initial notes and are subject to the same indenture as the initial notes. For
additional information, you should read the discussion under "Description of
Notes."
Issuers ................................................... Mediacom LLC and Mediacom Capital Corporation.
Notes Offered ............................................. $500.0 million in aggregate principal amount of 9 1/2%
senior notes due 2013.
Maturity Date ............................................. January 15, 2013.
Interest Rate and Payment Dates ........................... Interest on the exchange notes will accrue at the rate of
9 1/2% per annum, payable semiannually in cash in arrears
on January 15 and July 15 of each year, which commenced July 15, 2001.
Ranking ................................................... The exchange notes constitute unsecured, senior obligations of
Mediacom LLC and Mediacom Capital Corporation. They will:
. effectively rank behind any of our secured
debt and all existing and future indebtedness
and other liabilities of our subsidiaries;
. rank equally with our 81/2% senior notes due
2008 and our 77/8% senior notes due 2011;
. rank equally with all of our existing and
future unsecured debt that does not expressly
provide that it is subordinated to the
exchange notes; and
. rank ahead of all our future debt that
expressly provides that it is subordinated to
the exchange notes.
As of March 31, 2001, on a pro forma basis after giving
effect to the incurrence of $275.0 million of additional indebtedness
under our subsidiary credit facilities in July 2001 as described in
"Unaudited Pro Forma Consolidated Financial Statements," we had
approximately $1.3 billion of total indebtedness outstanding (including
approximately $475.0 million of indebtedness of our subsidiaries), with
our subsidiaries having the ability to borrow up to an additional
$625.0 million in the aggregate under their revolving credit
facilities (subject to certain borrowing conditions).
Sinking Fund .............................................. None.
Mandatory Redemption ...................................... None.
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Optional Redemption ....................................... On or after January 15, 2006, we may redeem some or all of
the exchange notes at any time at the redemption prices described
in the section "Description of Notes" under the heading
"Optional Redemption."
Prior to January 15, 2004, we may redeem up to 35% of the exchange
notes with the proceeds of certain offerings of equity at the price
listed in the section "Description of Notes" under the heading
"Optional Redemption."
Change of Control ......................................... Upon the occurrence of a change of control, each holder of the
exchange notes will have the right to require us to repurchase all or
any part of that holder's exchange notes at a price equal to 101% of
the principal amount of those notes plus accrued and unpaid interest.
Basic Covenants ........................................... We will issue the exchange notes under an indenture with The Bank of
New York, as trustee. The indenture contains certain covenants that
limit, among other things, our ability and the ability of our
subsidiaries to:
. incur additional debt;
. pay dividends on our equity interests or
repurchase our equity interests;
. make certain investments;
. enter into certain types of transactions with
affiliates;
. limit dividends or other payments by our
restricted subsidiaries to us;
. use assets as security in other transactions; and
. sell certain assets or merge with or into other
companies.
For more details, see the section "Description of Notes" under
the heading "Covenants.
"
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Summary Unaudited Pro Forma Consolidated Financial and Other Data
The following summary unaudited pro forma consolidated financial and
other data have been derived from and should be read in conjunction with
"Unaudited Pro Forma Consolidated Financial Statements," "Selected Historical
Consolidated Financial and Other Data" and our historical consolidated financial
statements appearing elsewhere in this prospectus.
Year Ended December 31, 2000 Three Months Ended March 31, 2001
--------------------------------- ------------------------------------
Mediacom LLC Mediacom LLC Mediacom LLC Mediacom LLC
(historical) Pro Forma (historical) Pro Forma
--------------- --------------- ---------------- -----------------
(dollars in thousands)
Revenues ................................... $ 332,050 $ 348,391 $ 90,334 $ 90,334
Costs and expenses:
Service costs ........................... 114,234 120,578 31,477 31,477
Selling, general and administrative
expenses .............................. 55,820 58,552 15,170 15,170
Management fee expense .................. 6,029 6,029 1,517 1,517
Depreciation and amortization ........... 177,928 186,538 50,783 50,849
Non-cash stock charges relating to
management fee expense ................ 28,254 28,254 1,195 1,195
--------------- --------------- ---------------- -----------------
Operating loss ............................. (50,215) (51,560) (9,808) (9,874)
Interest expense, net ...................... 68,973 106,511 20,734 25,665
Other expenses (income) .................... 30,036 12,504 (27,843) (32,432)
--------------- --------------- ---------------- -----------------
Net loss before cumulative change in
accounting principle .................... $ (149,224) $ (170,575) $ (2,699) $ (3,107)
=============== =============== ================ =================
Balance Sheet Data (end of period):
Total assets ............................... 1,382,507 1,532,507
Debt ....................................... 1,025,000 1,300,000
Total member's equity ...................... 259,165 134,165
Other Data:
System cash flow(a) ........................ 161,996 169,261 43,687 43,687
System cash flow margin(b) ................. 48.8% 48.6% 48.4% 48.4%
EBITDA(c) .................................. 155,967 163,232 42,170 42,170
EBITDA margin(d) ........................... 47.0% 46.9% 46.7% 46.7%
Net cash flow provided by
operating activities .................... 93,218 25,520
Net cash flow used in
investing activities .................... (295,613) (43,151)
Net cash flow provided by
financing activities .................... 202,015 25,335
Deficiency of earnings over fixed
charges(e) .............................. (154,541) (175,892) (5,660) (4,426)
(notes on following page)
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Notes to Summary Unaudited Pro Forma Consolidated Financial and Other Data
(a) Represents EBITDA, as defined in note (c) below, before management fee
expense. System cash flow:
. is not intended to be a performance measure that should be regarded as
an alternative either to operating income or net income as an
indicator of operating performance or to the statement of cash flows
as a measure of liquidity;
. is not intended to represent funds available for debt service,
reinvestment or other discretionary uses; and
. should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with generally accepted
accounting principles.
System cash flow is included in this prospectus because our management
believes that system cash flow is a meaningful measure of performance
commonly used in the cable television industry and by the investment
community to analyze and compare cable television companies. Our definition
of system cash flow may not be identical to similarly titled measures
reported by other companies.
(b) Represents system cash flow as a percentage of revenues.
(c) Represents operating loss before depreciation and amortization and non-cash
stock charges relating to management fee expense. EBITDA:
. is not intended to be a performance measure that should be regarded as
an alternative either to operating income or net income as an
indicator of operating performance or to the statement of cash flows
as a measure of liquidity;
. is not intended to represent funds available for debt service,
dividends, reinvestment or other discretionary uses; and
. should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with generally accepted
accounting principles.
EBITDA is included in this prospectus because our management believes that
EBITDA is a meaningful measure of performance commonly used in the cable
television industry and by the investment community to analyze and compare
cable television companies. Our definition of EBITDA may not be identical
to similarly titled measures reported by other companies.
(d) Represents EBITDA as a percentage of revenues.
(e) For the purpose of this calculation, earnings are defined as net loss
before fixed charges. Fixed charges represents total interest costs.
- 10 -
Summary Historical Operating and Technical Data
The table below sets forth summary historical operating and technical
data as of March 31, 2001, except average monthly revenues per basic subscriber,
which is presented for the three months ended March 31, 2001.
March 31, 2001
--------------
Operating Data:
Homes passed(a)........................................................ 1,178,000
Basic subscribers(b)................................................... 777,000
Basic penetration(c)................................................... 66.0%
Premium service units(d)............................................... 599,500
Premium penetration(e)................................................. 77.2%
Average monthly revenues per basic subscriber(f)....................... $38.70
Digital Cable:
Digital-ready basic subscribers(g)..................................... 470,000
Digital customers...................................................... 53,000
Digital penetration(h)................................................. 11.3%
Data:
Data-ready homes passed(i)............................................. 650,000
Data-ready homes marketed(j)........................................... 500,000
Dial-up customers(k)................................................... 3,400
Cable modem customers.................................................. 15,600
--------------
Total data customers................................................. 19,000
Data penetration(l).................................................... 3.8%
Cable Network Data:
Miles of plant......................................................... 24,650
Density(m)............................................................. 48
Number of headends..................................................... 408
Number of headends upon completion of upgrades(n)...................... 100
Percentage of cable network at 550MHz to 870MHz........................ 76%
(notes on following page)
- 11 -
Notes to Summary Historical Operating and Technical Data
(a) Represents the number of single residence homes, apartments and condominium
units passed by the cable distribution network in a cable system's service
area.
(b) Represents subscribers of a cable television system who generally receive a
package of over-the-air broadcast stations, local access channels and
certain satellite-delivered cable television programming services and who
are usually charged a flat monthly rate for a number of channels.
(c) Represents basic subscribers as a percentage of total number of homes
passed.
(d) Represents the number of subscriptions to premium services, including those
subscriptions by digital customers. A subscriber may purchase more than one
premium service, each of which is counted as a separate premium service
unit.
(e) Represents premium service units as a percentage of the total number of
basic subscribers. This ratio may be greater than 100% if the average basic
subscriber subscribes to more than one premium service unit.
(f) Represents average monthly revenues for the last three months of the period
divided by average basic subscribers for such period.
(g) A subscriber is digital-ready if the subscriber is in a cable system where
digital cable service is available.
(h) Represents digital customers as a percentage of digital-ready basic
subscribers.
(i) A home passed is data-ready if it is in a cable system with two-way
communications capability.
(j) Data-ready homes marketed represents data-ready homes passed where cable
modem service is available.
(k) A customer that accesses the Internet through a conventional modem and
telephone line connection.
(l) Represents the number of total data customers as a percentage of total
data-ready homes marketed.
(m) Represents homes passed divided by miles of plant.
(n) Represents an estimate based on our current headend consolidation plan,
which we expect to substantially complete by December 2002.
- 12 -
Summary Historical Consolidated Financial and Other Data
The following summary historical consolidated financial and operating
data should be read in conjunction with "Selected Historical Consolidated
Financial and Other Data," "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" and our historical consolidated financial
statements appearing elsewhere in this prospectus.
Year Ended December 31, Three Months Ended March 31,
------------------------------------ ----------------------------
1998 1999 2000 2000 2001
-------- -------- -------- -------- ---------
(unaudited)
(dollars in thousands)
Statement of Operations Data:
Revenues .................................. $129,297 $176,052 $ 332,050 $ 77,440 $ 90,334
Costs and expenses:
Service costs ........................... 43,849 58,058 114,234 26,635 31,477
Selling, general and administrative
expenses .............................. 25,596 32,949 55,820 13,389 15,170
Management fee expense(a) ............... 5,797 6,951 6,029 1,420 1,517
Depreciation and amortization ........... 65,793 101,065 177,928 40,680 50,783
Non-cash stock charges relating to
management fee expense(b) ............. -- 15,445 28,254 26,073 1,195
-------- ---------- ---------- ---------- ----------
Operating loss ............................ (11,738) (38,416) (50,215) (30,757) (9,808)
Interest expense, net(c) .................. 23,994 37,817 68,973 18,423 20,734
Other expenses (income)(d) ................ 4,058 5,087 30,036 457 (27,843)
-------- ---------- ---------- ---------- ----------
Net loss before cumulative change in
accounting principle .................... (39,790) (81,320) (149,224) (49,637) (2,699)
Cumulative effect of change in accounting
principle(e) ............................ -- -- -- -- 1,642
-------- ---------- ---------- ---------- ----------
Net loss .................................. $(39,790) $ (81,320) $ (149,224) $ (49,637) $ (4,341)
======== ========== ========== ========== ==========
Balance Sheet Data (end of period):
Total assets .............................. $451,152 $1,272,881 $1,375,772 $1,252,097 $1,382,507
Debt ...................................... 337,905 1,139,000 987,000 800,000 1,025,000
Total member's equity ..................... 78,651 54,615 262,997 362,595 259,165
Other Data:
System cash flow .......................... $ 59,852 $ 85,045 $ 161,996 $ 37,416 $ 43,687
System cash flow margin ................... 46.3% 48.3% 48.8% 48.3% 48.4%
EBITDA .................................... $ 54,055 $ 78,094 $ 155,967 $ 35,996 $ 42,170
EBITDA margin ............................. 41.8% 44.4% 47.0% 46.5% 46.7%
Net cash flows provided by operating
activities .............................. $ 53,556 $ 54,216 $ 93,218 $ 18,532 $ 25,520
Net cash flows used in investing
activities .............................. (397,085) (851,548) (295,613) (36,798) (43,151)
Net cash flows provided by financing
activities .............................. 344,714 799,593 202,015 15,400 25,335
Deficiency of earnings over fixed
charges(f) .............................. (40,804) (83,091) (154,541) (50,775) (5,660)
(notes on following page)
- 13 -
Notes to Summary Historical Consolidated Financial and Other Data for Mediacom
(a) Represents fees paid to Mediacom Management Corporation, a Delaware
corporation, for management services rendered to our operating
subsidiaries. Mediacom Management utilized these fees to compensate its
employees as well as to fund its corporate overhead. The management
agreements with Mediacom Management were amended effective November 19,
1999 in connection with an amendment to our operating agreement. The
amended agreements provided for management fees equal to 2% of annual gross
revenues. Each of the management agreements was terminated upon the
completion of Mediacom Communications' initial public offering and were
replaced with new agreements between Mediacom Communications and our
operating subsidiaries. See Notes 7 and 12 of our historical consolidated
financial statements for the year ended December 31, 2000 appearing
elsewhere in this prospectus.
(b) Represents non-cash stock charges relating to management fee expense for
the year ended December 31, 1999 and the three months ended March 31, 2000
of $0.6 million and $24.5 million resulting from the termination of the
management agreements with Mediacom Management on the date of Mediacom
Communications' initial public offering in February 2000. Additionally, for
the years ended December 31, 1999 and 2000, we incurred non-cash stock
charges relating to management fee expense of $14.8 million and $3.8
million, respectively, and for the three months ended March 31, 2000 and
2001, we incurred non-cash stock charges relating to management fee expense
of $1.6 million and $1.2 million, respectively, resulting from the vesting
of equity grants to certain members of our management team. See Notes 7 and
11 of our historical consolidated financial statements for the year ended
December 31, 2000 appearing elsewhere in this prospectus.
(c) Net of interest income. Interest income for the periods presented was not
material.
(d) Includes a $28.5 million non-cash charge, recorded during the year ended
December 31, 2000, related to our investment in SoftNet Systems, Inc.,
based on a decline in value that was considered other than temporary. Also
includes recognition of $30.0 million in other income for the three months
ended March 31, 2001 related to the elimination of the remainder of the
deferred revenue resulting from the termination of our contract with
SoftNet Systems, Inc. See Note 10 of our historical consolidated financial
statements for the year ended December 31, 2000 and Note 5 of our
historical consolidated financial statements for the three months ended
March 31, 2001 appearing elsewhere in this prospectus.
(e) Relates to our adoption of Statements of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities."
(f) For the purpose of this calculation, earnings are defined as net loss
before fixed charges. Fixed charges represents total interest costs.
- 14 -
RISK FACTORS
You should carefully consider the risk factors set forth below, as well
as the other information appearing elsewhere in this prospectus, before you
decide to tender your initial notes in exchange for exchange notes.
Your failure to participate in this exchange offer will have adverse
consequences.
Holders of initial notes who do not tender their initial notes in
exchange for exchange notes pursuant to this exchange offer will continue to be
subject to the restrictions on transfer of the initial notes as a consequence of
the issuance of the initial notes pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
of 1933. In general, initial notes may not be offered or sold unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. We do not anticipate that we will register the initial notes under the
Securities Act.
Because of the lack of a public market for the exchange notes, you may
not be able to sell your exchange notes at all or at an attractive price.
The exchange notes are a new issue of securities with no existing
trading market. We do not intend to have the exchange notes listed on a national
securities exchange, although we expect that they will be eligible for trading
on the PORTAL system. While several financial companies have advised us that
they currently intend to make a market in the exchange notes, they are not
obligated to do so, and may discontinue market making at any time without
notice. In addition, market-making activity will be subject to the limits
imposed by the Securities Act and the Securities Exchange Act of 1934. As a
result, we cannot assure you that an active trading market will develop for the
exchange notes or, if one does develop, that it will be maintained.
The liquidity of the trading market in the exchange notes, if any
active trading market develops, and the market price quoted for the exchange
notes, may be adversely affect by changes in the overall market for debt
securities generally or the interest of securities dealers in making a market in
the exchange notes and by changes in our financial performance or prospects or
in the prospects for companies in our industry generally. In addition, the
market for non-investment grade debt has historically been subject to
disruptions that have caused volatility in prices. It is possible that the
market for the exchange notes will be subject to disruptions. Any such
disruptions may have a negative effect on you, as a holder of the exchange
notes, regardless of our prospects and financial performance. Accordingly, we
cannot assure you as to the liquidity of the market for the exchange notes or
the prices at which you may be able to sell the exchange notes.
We have substantial debt and have significant interest payment
requirements.
As of March 31, 2001, we had approximately $1.0 billion of total
indebtedness outstanding. As of the same date, on a pro forma basis after giving
effect to the transactions described under "Unaudited Pro Forma Consolidated
Financial Statements," we had approximately $1.3 billion of total indebtedness
outstanding. For the three months ended March 31, 2001 and the year ended
December 31, 2000, our interest expense, net, was $20.7 million and $69.0
million, respectively. For the same periods, on a pro forma basis after giving
effect to the transactions described under "Unaudited Pro Forma Consolidated
Financial Statements," our interest expense, net, was $25.7 million and $106.5
million, respectively. Assuming that this exchange offer had occurred on January
1, 2000, our earnings would have been inadequate to cover our fixed charges by
$4.4 million and $175.9 million for the three months ended March 31, 2001 and
the year ended December 31, 2000, respectively.
Our high level of debt and our debt service obligations could have
material consequences, including:
. we may have difficulty borrowing money for working capital, capital
expenditures, acquisitions or other purposes;
. we may need to use a large portion of our revenues to pay interest on
our existing senior notes and the exchange notes and on borrowings
under our subsidiary credit facilities, which will reduce the amount
of money available to finance our operations, capital expenditures and
other activities;
-15-
. some of our debt has a variable rate of interest, which may expose us
to the risk of increased interest rates;
. borrowings under our subsidiary credit facilities are secured by the
ownership interests in our operating subsidiaries and will mature
prior to the exchange notes;
. we may be more vulnerable to economic downturns and adverse
developments in our business;
. we may be less flexible in responding to changing business and
economic conditions, including increased competition and demand for
new products and services;
. we may be at a disadvantage when compared to those of our competitors
that have less debt; and
. we may not be able to implement our business strategy.
We are a holding company with no operations and we depend on our operating
subsidiaries for cash to fund our obligations.
As a holding company, we do not have any operations or assets other
than our investments in and our advances to our operating subsidiaries.
Consequently, our subsidiaries conduct all of our consolidated operations and
own substantially all of our consolidated assets. Our only source of the cash we
need to pay current interest on the exchange notes and our other obligations and
to repay the principal amount of these obligations, including the exchange
notes, is the cash that our subsidiaries generate from their operations and
their borrowings.
Our subsidiaries are not obligated to make funds available to us. Our
subsidiaries' ability to make payments to us will depend upon their operating
results and will be subject to applicable laws and contractual restrictions,
including the agreements governing the indebtedness of our subsidiaries. Our
subsidiary credit facilities permit our subsidiaries to distribute cash to us to
pay interest on the exchange notes, but only so long as there is no default
under any of such credit facilities. If there is a default under our subsidiary
credit facilities, we would not have any cash to pay interest on our
obligations, including the exchange notes.
The exchange notes will be effectively subordinated to all indebtedness and
other liabilities of our subsidiaries.
Our subsidiaries will not guarantee the exchange notes. Therefore, the
exchange notes will be effectively subordinated to all existing and future
indebtedness and other liabilities of our subsidiaries, including indebtedness
under our subsidiary credit facilities. If the maturity on the loans under our
subsidiary credit facilities were accelerated, our subsidiaries would have to
repay all indebtedness outstanding under our subsidiary credit facilities before
they could distribute any assets or cash to us. In such circumstances, there can
be no assurance that our subsidiaries' assets would be sufficient to repay all
of their debt and then to make distributions to us to enable us to meet our
obligations under the indenture governing the exchange notes. Claims of
creditors of our subsidiaries, including general trade creditors, will generally
have priority over holders of the exchange notes as to the assets of our
subsidiaries. Additionally, any right we may have to receive assets of any of
our subsidiaries upon such subsidiary's liquidation or reorganization will be
effectively subordinated to the claims of the subsidiary's creditors, except to
the extent, if any, that we ourselves are recognized as a creditor of such
subsidiary, in which case our claims would still be subordinate to the claims of
such creditors who hold security in the assets of such subsidiary to the extent
of the value of such assets and to the claims of such creditors who hold
indebtedness of such subsidiary senior to that held by us. As of March 31, 2001,
on a pro forma basis after giving effect to the transactions described under
"Unaudited Pro Forma Consolidated Financial Statements," the aggregate amount of
indebtedness and other liabilities of our subsidiaries as to which holders of
the exchange notes would be effectively subordinated was approximately $573.3
million. Additionally, our subsidiaries may also incur additional debt in the
future and the exchange notes will be effectively subordinated to such debt.
-16-
We and our subsidiaries may still be able to incur substantially more debt
which could exacerbate the risks described above.
Subject to restrictions contained in the agreements governing our
subsidiary credit facilities, the indenture governing the exchange notes and the
indentures governing our 8 1/2% senior notes due 2008 and 7 7/8% senior notes
due 2011, we and our subsidiaries may incur substantial additional debt in the
future, and we may do so in order to finance future acquisitions and
investments. The terms of the indenture governing the exchange notes will not
fully prohibit us or our subsidiaries from doing so. If we or our subsidiaries
do incur additional debt beyond our current debt levels, the risks described
above could intensify. As of March 31, 2001, on a pro forma basis after giving
effect to indebtedness of $275.0 million incurred under our subsidiary credit
facilities in July 2001 as described under "Unaudited Pro Forma Consolidated
Financial Statements," we had $625.0 million available (subject to certain
borrowing conditions) for additional borrowings under our subsidiary credit
facilities. We expect to continue to borrow under these facilities.
We may not be able to generate enough cash to service our debt.
Our ability to make payments on and to refinance our debt, including
the exchange notes, and to fund planned capital expenditures will depend on our
ability to generate cash. This is subject, in part, to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control. Accordingly, we cannot assure you that our business,
operated through our subsidiaries, will generate sufficient cash flows or that
future distributions will be available to us in amounts sufficient to enable us
to pay our indebtedness, including the exchange notes, or to fund our other
liquidity needs.
We may need to refinance all or a portion of our indebtedness,
including the exchange notes, on or before maturity. We cannot assure you that
we will be able to refinance any of our indebtedness on commercially reasonable
terms or at all.
The terms of our indebtedness could materially limit our financial and
operating flexibility.
Several of the covenants contained in the indenture governing the
exchange notes, contained in the indentures governing our existing senior notes
and contained in the agreements governing our subsidiary credit facilities could
materially limit our financial and operating flexibility by restricting, among
other things, our ability and the ability of our operating subsidiaries to:
. distribute funds or pay dividends to us;
. incur additional indebtedness or issue additional equity;
. repurchase or redeem equity interests and indebtedness;
. pledge or sell assets or merge with another entity;
. create liens; and
. make certain capital expenditures, investments or acquisitions.
The ability to comply with these covenants may be affected by events
beyond our control and the control of our operating subsidiaries. If they were
to breach any of these covenants, they would be in default under these credit
facilities and they would be prohibited from making distributions to us.
Under certain circumstances, lenders could elect to declare all amounts
borrowed under these credit facilities, together with accrued interest and other
fees, to be due and payable. If that occurred, our obligations under the
exchange notes could also become payable immediately. Under such circumstances,
we may not be able to repay such amounts or the exchange notes.
-17-
We may not be able to finance a change of control offer required by the
indenture.
If we were to experience a change of control (as defined), the
indenture governing the exchange notes requires us to purchase all of the
exchange notes then outstanding at 101% of their principal amount, plus accrued
interest to the date of repurchase. A change of control under the indenture
governing the exchange notes would also constitute a change of control under the
indentures governing our existing senior notes, pursuant to which we would be
required to offer to repurchase those notes. If a change of control were to
occur, we cannot assure you that we would have sufficient funds to purchase the
exchange notes or our existing senior notes. In fact, we expect that we would
require third-party financing, but we cannot assure you that we would be able to
obtain that financing on favorable terms or at all.
Our subsidiary credit facilities restrict our ability to repurchase the
exchange notes, even when we are required to do so by the indenture in
connection with a change of control. A change of control could therefore result
in a default under such credit facilities and could cause the acceleration of
our debt or any debt of our subsidiaries. The inability to repay such debt, if
accelerated, and to purchase all of the tendered exchange notes, would
constitute an event of default under the indenture.
A default under the indenture governing the exchange notes or under our
subsidiary credit facilities could result in an acceleration of our
indebtedness or a foreclosure on the membership interests of our operating
subsidiaries which would have a material adverse effect on our business,
financial condition and results of operations.
The indentures governing our existing senior notes and the exchange
notes and the agreements governing our subsidiary credit facilities contain
numerous financial and operating covenants. The breach of any of these covenants
will result in a default under the applicable indenture or agreement which
could result in the indebtedness under our indentures or agreements becoming
immediately due and payable. If this were to occur, we would be unable to
adequately finance our operations and we may be unable to pay our debts or
borrow sufficient funds to refinance them. Even if new financing is available,
it may not be on terms that are acceptable to us. The membership interests of
our operating subsidiaries have been pledged as security under our subsidiary
credit facilities. A default under our subsidiary credit facilities could result
in a foreclosure by the lenders on the membership interests pledged under that
facility. Because we are dependent upon our operating subsidiaries for all of
our revenues, a foreclosure by the lenders under the subsidiary credit
facilities would have a material adverse effect on our business, financial
condition and results of operations.
We have a history of net losses and may not be profitable in the future.
We have a history of net losses and expect to continue to report net
losses for the foreseeable future, which could materially adversely affect our
ability to finance our future growth. We reported a net loss of $4.3 million for
the three months ended March 31, 2001 and net losses of $39.8 million, $81.3
million and $149.2 million for the years ended December 31, 1998, 1999 and 2000,
respectively. The principal reasons for our prior and anticipated net losses
include the depreciation and amortization expenses associated with our
acquisitions and the capital expenditures related to expanding and upgrading our
cable systems, and interest costs on borrowed money. We expect that we will
continue to incur these expenses at increased levels as a result of our cable
network upgrade program. These expenses will result in continued net losses for
the foreseeable future. For additional information, you should read the
discussion elsewhere in this prospectus under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
We have grown rapidly and have a limited history of operating our cable
systems, which may make it difficult for you to evaluate our performance.
We commenced operations in 1996 and have grown rapidly since then,
principally through acquisitions. We acquired a substantial portion of our
operations in early 1998. In addition, our acquisitions in 1999 doubled the
number of subscribers then served by our cable systems. As a result, you have
limited information upon which to evaluate our performance in managing our cable
systems, and our historical financial information may not be indicative of the
future results we can achieve with our cable systems.
-18-
If we are unable to successfully integrate the cable systems we acquire,
our growth and profitability could be materially adversely affected.
As of March 31, 2001, we had completed 20 acquisitions of cable systems
that served as of their respective dates of acquisition an aggregate of
approximately 759,000 basic subscribers. In addition, we expect to continue to
acquire cable systems as an element of our business strategy. The successful
integration and management of acquired cable systems involve the following
principal risks which could materially adversely affect our business, financial
condition and results of operations:
. our acquisitions may result in significant unexpected operating
difficulties, liabilities or contingencies;
. the integration of the acquired systems may place significant demands
on our management, diverting their attention from, and making it more
difficult for them to manage, our other systems;
. the integration of the acquired systems may require significant
financial resources that could otherwise be used for the ongoing
development of our cable systems, including our cable network upgrade
program;
. we may be unable to recruit additional qualified personnel which may
be required to integrate and manage the acquired systems; and
. some of our existing operational, financial and management systems may
be incompatible with or inadequate to effectively integrate and manage
the acquired systems and any steps taken to implement changes in our
existing cable systems may not be sufficient.
We depend on our manager for the provision of essential management
functions.
We are dependent on our manager for the operation of our business. If
our manager were to experience any material adverse change in its business, our
business, financial condition and results of operations could be materially
adversely affected.
Our manager also manages the AT&T systems recently acquired by Mediacom
Broadband, which more than doubled the number of customers served by the cable
systems managed by our manager. Our manager will be required to devote a
significant portion of its personnel and other resources to the management of
the AT&T systems. As a result, the attention of our manager's senior executive
officers and key personnel may be diverted from the management of our cable
systems and the allocation of resources between our cable systems and the AT&T
systems could give rise to conflicts of interest.
Although our manager charged management fees to our operating
subsidiaries in amounts equal to 1.8% and 1.7% of our subsidiaries' gross
operating revenues for the year ended December 31, 2000 and the three months
ended March 31, 2001, respectively, we cannot assure you that it will not
exercise its right under its management agreements with our operating
subsidiaries to increase the management fees, which under such agreements may
not exceed 4.5% of each subsidiary's gross operating revenues.
If our manager were to lose key personnel and could not find appropriate
replacements in a timely manner, our business could be adversely affected.
If any of our manager's key personnel ceases to participate in our
business and operations, our profitability could suffer. Our success is
substantially dependent upon the retention of, and the continued performance by,
our manager's key personnel, including Rocco B. Commisso, the Chairman and Chief
Executive Officer of our manager. Our manager has not entered into an employment
agreement with Mr. Commisso. Neither we nor our manager currently maintains key
man life insurance on Mr. Commisso. In addition, our subsidiary credit
facilities provide that a default will result if Mr. Commisso ceases to be the
Chairman and Chief Executive Officer of our manager.
-19-
We may not be able to obtain additional capital to continue the development
of our business.
Our business requires substantial capital for the upgrade, expansion
and maintenance of our cable systems. We may not be able to obtain the funds
necessary to finance our capital improvement program through internally
generated funds, additional borrowings or other sources. If we are unable to
obtain these funds, we would not be able to implement our business strategy and
our growth would be adversely affected.
If we are unsuccessful in implementing our business strategy, our
profitability could be adversely affected.
We expect that a substantial portion of our future growth will be
achieved through revenues from new and advanced broadband products and services
and the acquisition of additional cable systems. We may not be able to offer
these new products and services successfully to our customers and these new
products and services may not generate adequate revenues. In addition, our
acquisition strategy may not be successful. In recent years, the cable
television industry has undergone dramatic consolidation, which has reduced the
number of available acquisition prospects. This consolidation may increase the
purchase price of future acquisitions, and we may not be successful in
identifying attractive acquisition targets or obtaining the financing necessary
to complete acquisitions in the future.
If our current supplier of high-speed Internet service to our customers is
unable or refuses to continue to provide this service, our ability to
obtain additional revenues from offering this service will be impaired.
In December 2000, our manager signed a binding commitment letter with
At Home Network Solutions, Inc., a partially-owned subsidiary of At Home
Corporation, for a new cable affiliate relationship. This new affiliation, which
is subject to the execution of a definitive agreement with At Home Network
Solutions, enables us to offer the Excite@Home high-speed broadband Internet
service to our existing customers. If Excite@Home were unable or refused to
continue to provide this service to our customers, we would be required to
obtain this service from another supplier or to develop the infrastructure and
expertise necessary to provide this service ourselves. There are a limited
number of providers of this service, and demand for skilled employees in this
field is high. We may not be able to obtain this service from another supplier
on acceptable terms, if at all. If we are unable or choose not to obtain this
service from another supplier, we may also not be able to successfully develop
the infrastructure and expertise to offer this service ourselves in an
acceptable period of time or at an acceptable cost. The transition from
Excite@Home to a new provider may result in service interruptions to our
existing high-speed Internet service customers and may delay a roll-out of this
service to new customers, which could have a material adverse effect on our
ability to implement our business strategy and on our business and operations.
Our costs may increase significantly, which could materially adversely
affect our growth and profitability.
The expansion and upgrade of our cable systems require us to hire and
enter into construction agreements with contractors. The growth and
consolidation of the cable television industry has created an increasing demand
for cable construction services, which has increased the costs of these
services. As a result, our construction costs may increase significantly over
the next few years as existing agreements expire and we negotiate new
agreements. In addition, we may not be able to construct new cable systems or
expand or upgrade existing or acquired systems in a timely manner or at a
reasonable cost, which may adversely affect our growth and profitability.
Our programming costs are substantial. In recent years, the cable
television industry has experienced a rapid escalation in the cost of
programming, particularly sports programming. The escalation in programming
costs may continue, and we may be unable to pass programming cost increases on
to our customers. In addition, as we upgrade the number of channels that we
provide to our customers and add programming to our basic and expanded basic
programming tiers, we may face additional market constraints on our ability to
pass programming costs on to our customers. Other costs in operating our cable
systems may also increase significantly. The inability to pass these cost
increases on to our customers could materially adversely affect our
profitability.
-20-
If we are unable to obtain necessary equipment and software from our
suppliers, our ability to offer our products and services and roll out
advanced broadband products and services may be impaired.
We depend on third-party suppliers for the set-top converter boxes,
fiber-optic cable and other equipment and software necessary for us to provide
both analog and digital cable services. This equipment and software is available
from a limited number of suppliers. We typically do not carry significant
inventories of equipment. If there are delays in obtaining software or demand
for equipment exceeds our inventories and we are unable to obtain software and
equipment on a timely basis and at an acceptable cost, our ability to offer our
products and services and roll out advanced broadband products and services may
be impaired. In addition, if there are no suppliers that are able to provide
set-top converter boxes that comply with evolving Internet and
telecommunications standards or that are compatible with other equipment and
software that we use, our business, financial condition and results of
operations could be materially adversely affected.
Our business could be adversely affected by labor disputes.
Although we believe that our relations with our employees are generally
good, we cannot assure you that our employees, who are not currently
represented by any union, will not seek to be represented by unions under
collective bargaining agreements in the future. A prolonged work stoppage,
strike or slowdown at our systems could have a material adverse effect on our
business.
The Chairman and Chief Executive Officer of Mediacom Communications has the
ability to control all major corporate decisions, which could inhibit or
prevent a change of control or change in management.
Rocco B. Commisso, the Chairman and Chief Executive Officer of our
manager, Mediacom Communications, controls approximately 76.4% of the combined
voting power of its common stock. As a result, Mr. Commisso will generally have
the ability to control the outcome of all matters requiring stockholder
approval, including the election of its entire board of directors, the approval
of any merger or consolidation and the sale of all or substantially all of our
assets. The covenants contained in the agreements governing our subsidiary
credit facilities provide that a default will result if Mr. Commisso, together
with one or more of our employees, ceases to own at least 50.1% of the combined
voting power of the common stock of Mediacom Communications on a fully-diluted
basis.
Our cable television business is subject to extensive governmental
legislation and regulation.
The cable television industry is subject to extensive legislation and
regulation at the federal and local levels, and, in some instances, at the state
level, and many aspects of such regulation are currently the subject of judicial
and administrative proceedings and legislative and administrative proposals. We
expect that court actions and regulatory proceedings will continue to refine our
rights and obligations under applicable federal, state and local laws. The
results of these judicial and administrative proceedings and legislative
activities may materially affect our business operations. We cannot predict
whether any of the markets in which we operate will expand the regulation of our
cable systems in the future or the impact that any such expanded regulation may
have upon our business.
We operate in a very competitive business environment.
The communications industry in which we operate is highly competitive
and is often subject to rapid and significant changes and developments in the
marketplace and in the regulatory and legislative environment. In some
instances, we compete against companies with fewer regulatory burdens, easier
access to financing, greater resources and operating capabilities, greater brand
name recognition and long-standing relationships with regulatory authorities.
Our traditional cable television business faces direct competition from other
cable companies, telephone companies, and, most significantly, from direct
broadcast satellite operators. Our Internet business is subject to competition
from telephone companies using digital subscriber line technology, direct
broadcast satellite operators and other Internet service providers. We also face
competition from over-the-air television and radio broadcasters and from other
communications and entertainment media such as movie theaters, live
entertainment and sports events, newspapers and home video products.
We expect that future advances in communications technology could lead
to the introduction of new competitors, products and services that may compete
with our businesses. We cannot assure you that upgrading our cable systems will
allow us to compete effectively. Additionally, if we expand and introduce new
and enhanced telecommunications services, we will be subject to competition from
new and established telecommunications providers. We cannot predict the extent
to which competition may affect our business and operations in the future.
-21-
Our franchises are subject to non-renewal or termination by local
authorities, which could cause us to lose our right to operate some of our
cable systems.
Our franchises are subject to renewal, renegotiation and termination
from time to time. Our cable systems are dependent upon the retention and
renewal of their respective local franchises. We may not be able to retain or
renew our franchises, and any franchise renewals may not be on terms favorable
to us. The non-renewal or termination of franchises with respect to a
significant portion of any of our cable systems would have a material adverse
effect on our business, financial condition and results of operations.
Our franchises are non-exclusive and local franchising authorities may
grant competing franchises in our markets.
Our cable systems are operated under non-exclusive franchises granted
by local franchising authorities. As a result, competing cable operators and
other potential competitors, such as telephone companies and investor-owned
municipal utility providers, may be granted franchises and may build cable
systems in markets served by our cable systems. Any such competition could
adversely affect our business, financial condition and results of operations.
The existence of multiple cable systems in the same geographic area is generally
referred to as an overbuild. As of March 31, 2001, approximately 4.7% of the
homes passed by our cable systems were overbuilt by other cable operators. We
cannot assure you that competition will not develop in other markets that we now
serve or that we will serve after any future acquisitions.
We may be required to provide access to our cable network to other Internet
service providers, which could significantly increase our competition and
adversely affect our ability to provide new products and services.
The U.S. Congress, the Federal Communications Commission and some state
legislatures and local franchising authorities have been asked to require cable
operators to provide access over their cable systems to other Internet service
providers. If we are required to provide open access, it could prohibit us from
entering into or limit our existing agreements with Internet service providers,
adversely impact our anticipated revenues from high-speed Internet access
services and complicate marketing and technical issues associated with the
introduction of these services. To date, the U.S. Congress, the Federal
Communications Commission and various state legislatures considering the issue
have declined to impose these requirements. In addition, several courts have
ruled that local franchising authorities do not have the authority to impose an
open access requirement. Franchise renewals and transfers could become more
difficult depending upon the outcome of this issue.
The cost of attaching our facilities to poles owned by utilities may
increase significantly.
Cable television companies pay fees to electric and telephone utility
companies for the use of space to affix their lines and associated equipment on
the utilities' poles and in their underground conduits. The rates, terms and
conditions of cable operators' attachments are regulated at the federal level
unless state authorities regulate such matters, as is the case in certain states
in which we operate. At the federal level, there is one rate formula for cable
television systems and another formula, which produces somewhat higher rates,
for telecommunication providers and cable systems which offer telecommunication
services. The U.S. Supreme Court will review an adverse federal appellate court
ruling that eliminated federal jurisdiction and oversight of pole and conduit
attachment rates for cable operators that provide commingled cable television
and high-speed Internet access services over their cable facilities. If this
case is affirmed, the rates for thousands of our pole attachments are likely to
significantly increase and the other contractual terms and conditions of our
pole and conduit attachments will likely become more burdensome.
If we offer telecommunications services, we may become subject to
additional regulatory burdens.
If we provide telecommunications services over our communications
facilities, we may be required to obtain additional federal, state and local
permits or other governmental authorizations to offer these services. This
process, together with accompanying regulation of these services, would place
additional costs and regulatory burdens on us.
-22-
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue" or similar words. You should
read statements that contain these words carefully because they:
. discuss our future expectations;
. contain projections of our future results of operations or of our
financial condition; or
. state other "forward-looking" information.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or over which we have no control. The risk factors listed in
this prospectus, as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. You should be aware that the occurrence of the events described in
these risk factors and elsewhere in this prospectus could have a material
adverse effect on our business, operating results and financial condition.
USE OF PROCEEDS
This exchange offer is intended to satisfy our obligations under the
exchange and registration rights agreement. We will not receive any cash
proceeds from the issuance of the exchange notes in this exchange offer.
We received net proceeds of approximately $487.0 million from the
private offering of the initial notes. We used approximately $467.5 million of
the net proceeds on January 24, 2001 to repay a portion of the indebtedness
outstanding and related accrued interest under our subsidiary credit facilities
and approximately $19.5 million for general corporate purposes.
Our operating subsidiaries, through two separate borrowing groups we
refer to as the Mediacom Midwest Group and the Mediacom USA Group, currently
obtain bank financing through two separate credit facilities. Each borrowing
group has a $550.0 million credit facility consisting of a $450.0 million
revolving credit facility and a $100.0 million term loan. Immediately prior to
the repayment of indebtedness as described in the prior paragraph, the
indebtedness outstanding under the Mediacom Midwest and Mediacom USA subsidiary
credit facilities was $302.0 million (including the $100.0 million term loan)
and $364.0 million (including the $100.0 million term loan), respectively. These
credit facilities, which have final maturities ranging from March 2008 to
December 2008, are subject to earlier repayment dates ranging from June 2007 to
December 2007 if we do not refinance our 8 1/2% senior notes prior to March 31,
2007. The weighted average interest rates for indebtedness outstanding under the
Mediacom Midwest Group and the Mediacom USA Group subsidiary credit facilities
were 7.4% and 7.5%, respectively, as of January 24, 2001. Borrowings under our
subsidiary credit facilities were used to refinance prior indebtedness, to fund
certain acquisitions, and for general corporate purposes, including upgrades of
our cable network. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,"
"Description of Certain Indebtedness--Subsidiary Credit Facilities" and our
historical consolidated financial statements appearing elsewhere in this
prospectus.
-23-
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements as
of March 31, 2001 and for the three months then ended and for the year ended
December 31, 2000 are based on our historical consolidated financial statements
and the historical consolidated financial statements of those businesses we
acquired during the year ended December 31, 2000. The unaudited pro forma
consolidated financial statements give effect to the following transactions:
(1) the $354.5 million equity contribution by Mediacom Communications in
February 2000 and the application of $354.1 million of such equity
contribution to repay indebtedness outstanding under our subsidiary credit
facilities;
(2) our acquisition of nine cable systems during the year ended December 31,
2000 for an aggregate purchase price of $109.2 million and the incurrence
of indebtedness under our subsidiary credit facilities to fund the purchase
prices for the acquisitions;
(3) the issuance and sale of $500.0 million in aggregate principal amount of
our 9 1/2% senior notes on January 24, 2001 and the application of $467.5
million of the net proceeds to repay indebtedness outstanding under our
subsidiary credit facilities; and
(4) the incurrence of $275.0 million of additional indebtedness under our
subsidiary credit facilities to fund the $125.0 million cash dividend paid
to our manager on July 17, 2001 and our $150.0 million 12% preferred equity
investment in Mediacom Broadband on July 18, 2001, collectively referred to
herein as the Mediacom Broadband transactions.
The unaudited pro forma consolidated statement of operations for the
three months ended March 31, 2001 gives effect to the transactions described in
clauses (3) and (4) above as if they occurred on January 1, 2001. The unaudited
pro forma consolidated statement of operations for the year ended December 31,
2000 gives effect to each of the transactions described in clauses (1), (2), (3)
and (4) above as if they occurred on January 1, 2000. The unaudited pro forma
consolidated balance sheet as of March 31, 2001 gives effect to the transactions
described in clause (4) above as if they occurred on March 31, 2001.
The Financial Accounting Standards Board has finalized new accounting
standards for the purchase method of accounting which could materially change
the pro forma financial statements as they relate to the accounting for
intangible assets. These new standards are not yet effective and will most
likely be adopted later in 2001, for prospective application.
The unaudited pro forma consolidated financial statements do not
purport to represent what our financial condition or results of operations would
actually have been had the transactions described above occurred on the dates
indicated or to project our results of operations or financial condition for any
future period or date. You should read our historical consolidated financial
statements appearing elsewhere in this prospectus.
-24-
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2001
(in thousands)
Adjustments for
Adjustments the Mediacom
Mediacom LLC for the Initial Broadband Mediacom LLC
(historical) Notes Offering Transactions Pro Forma
---------------- ---------------- ---------------- ----------------
Statement of Operations Data:
Revenues .................................. $ 90,334 $ -- $ -- $ 90,334
Costs and expenses:
Service costs .......................... 31,477 -- -- 31,477
Selling, general and administrative
expenses ............................. 15,170 -- -- 15,170
Management fee expense ................. 1,517 -- -- 1,517
Depreciation and amortization .......... 50,783 66 (a) -- 50,849
Non-cash stock charges relating
to management fee expense ............ 1,195 -- -- 1,195
---------------- ---------------- ---------------- ----------------
Operating loss ............................ (9,808) (66) -- (9,874)
Interest expense, net ..................... 20,734 575 (b) 4,356 (d) 25,665
Other (income) expenses ................... (27,843) 83 (c) (4,672)(e) (32,432)
---------------- ---------------- ---------------- ----------------
Net (loss) income before cumulative change
in accounting principle ................ $ (2,699) $ (724) $ 316 $ (3,107)
================ ================ ================ ================
See accompanying notes to unaudited pro forma consolidated statement
of operations
25
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2001
(a) Represents the amortization of the original issue discount on the sale of
$500.0 million in aggregate principal amount of our 9 1/2% senior notes on
January 24, 2001.
(b) Represents the net effect of an increase to interest expense, net,
resulting from the incurrence of indebtedness from our issuance and sale of
$500.0 million aggregate principal amount of 9 1/2% senior notes on January
24, 2001 and the application of $467.5 million of the net proceeds to repay
indebtedness outstanding under our subsidiary credit facilities, as
follows:
Amount
------
(dollars in
thousands)
Subsidiary credit facilities ....................................... $ 200,000
8 1/2% senior notes ................................................ 200,000
7 7/8% senior notes ................................................ 125,000
9 1/2% senior notes ................................................ 500,000
------------
Total pro forma debt ............................................... 1,025,000
Weighted average interest rate of total pro forma debt ............. 8.3157%
Mediacom LLC pro forma interest expense ....................... 21,309
Historical Mediacom LLC ....................................... (20,734)
------------
Increase to interest expense .................................. $ 575
============
(c) Represents a decrease to other (income) expenses due to increased
commitment fees on the higher unused commitments under our subsidiary
credit facilities following the repayment of indebtedness described in note
(b) above.
(d) Represents an increase to interest expense, net, resulting from the
incurrence of $275.0 million of additional indebtedness under our
subsidiary credit facilities to fund the $125.0 million cash dividend paid
to our manager and our $150.0 million 12% preferred equity investment in
Mediacom Broadband, as follows:
Amount
------
(dollars in
thousands)
Subsidiary credit facilities ....................................... $ 475,000
8 1/2% senior notes ................................................ 200,000
7 7/8% senior notes ................................................ 125,000
9 1/2% senior notes ................................................ 500,000
------------
Total pro forma debt ............................................... 1,300,000
Weighted average interest rate of total pro forma debt ............. 7.8969%
Mediacom LLC pro forma interest expense ....................... 25,665
Pro forma interest expense per note (b) above ................. (21,309)
------------
Increase to interest expense .................................. $ 4,356
============
(e) Represents an increase to other (income) expenses resulting from: (i) our
receipt of a quarterly cash dividend payment on our $150.0 million 12%
preferred equity investment in Mediacom Broadband and (ii) a reduction in
commitment fees on lower unused commitments under our subsidiary credit
facilities resulting from the incurrence of indebtedness described in note
(d) above.
-26-
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2000
(in thousands)
Adjustments for
the 2000
Acquisitions
and Our Adjustments for
Manager's Adjustments for the Mediacom
Mediacom LLC Equity Mediacom LLC the Initial Broadband Mediacom LLC
(historical) Contribution As Adjusted Notes Offering Transactions Pro Forma
------------ --------------- --------------- --------------- ---------------- ------------
Statement of Operations Data:
Revenues ............................... $ 332,050 $ 16,341 (a) $ 348,391 $ -- $ -- $ 348,391
Costs and expenses:
Service costs ....................... 114,234 6,344 (a) 120,578 -- -- 120,578
Selling, general and administrative
expenses .......................... 55,820 2,732 (a) 58,552 -- -- 58,552
Management fee expense .............. 6,029 -- 6,029 -- -- 6,029
Depreciation and amortization ....... 177,928 7,570 (b) 185,498 1,040(e) -- 186,538
Non-cash stock charges relating to
management fee expense ............ 28,254 -- 28,254 -- -- 28,254
------------ --------------- --------------- --------------- ---------------- ------------
Operating loss ......................... (50,215) (305) (50,520) (1,040) -- (51,560)
Interest expense, net .................. 68,973 5,719 (c) 74,692 12,141(f) 19,678 (h) 106,511
Other expenses (income) ................ 30,036 (415)(d) 29,621 1,570(g) (18,687)(i) 12,504
------------ --------------- --------------- --------------- ---------------- ------------
Net loss................................ $ (149,224) $ (5,609) $ (154,833) $ (14,751) $ (991) $ (170,575)
============ =============== =============== =============== ================ ============
See accompanying notes to unaudited pro forma consolidated statement
of operations
-27-
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2000
(a) Represents the combined revenues, service costs and selling, general
and administrative expenses for the nine cable systems we acquired in
2000. These amounts represent the actual historical financial results
of these cable systems for the periods from January 1, 2000 to their
respective dates of acquisition. See Note 3 of our historical
consolidated financial statements for the year ended December 31, 2000
appearing elsewhere in this prospectus.
(b) Represents the actual historical combined depreciation and amortization
for the nine cable systems we acquired in 2000 from January 1, 2000 to
their respective dates of acquisition plus additional depreciation
resulting from the step-up in value of these systems based on the final
allocation of their aggregate purchase price. See Note 3 of our
historical consolidated financial statements for the year ended
December 31, 2000 appearing elsewhere in this prospectus.
(c) Represents the net effect of: (i) an increase to interest expense, net,
resulting from the incurrence of indebtedness under our subsidiary
credit facilities to fund our 2000 acquisitions; and (ii) a decrease to
interest expense, net, resulting from the repayment of $354.1 million
of outstanding indebtedness under our subsidiary credit facilities with
proceeds from our manager's equity contribution in February 2000, as
follows:
Amount
------
(dollars in
thousands)
Subsidiary credit facilities ..................................... $ 662,000
8 1/2% senior notes .............................................. 200,000
7 7/8% senior notes .............................................. 125,000
------------------
Total pro forma debt ............................................. 987,000
Weighted average interest rate of total pro forma debt ........... 7.5676%
Mediacom LLC pro forma interest expense ..................... 74,692
Historical Mediacom LLC ..................................... (68,973)
------------------
Increase to interest expense ................................ $ 5,719
==================
(d) Represents the net effect of: (i) a decrease to other expenses (income)
due to a reduction in commitment fees on the lower unused commitments
under our subsidiary credit facilities resulting from the incurrence of
indebtedness to fund our 2000 acquisitions; and (ii) an increase to
other expenses (income) due to the incremental commitment fees on the
higher unused commitments under our subsidiary credit facilities
resulting from the repayment of $354.1 million of outstanding
indebtedness with proceeds from our manager's equity contribution in
February 2000.
(e) Represents the amortization of the original issue discount on the sale
of $500.0 million in aggregate principal amount of our 9 1/2% senior
notes on January 24, 2001.
- 28 -
(f) Represents the net effect of an increase to interest expense, net,
resulting from the incurrence of indebtedness from our issuance and sale of
$500.0 million aggregate principal amount of 9 1/2% senior notes on January
24, 2001 and the application of $462.0 million of the net proceeds to repay
indebtedness outstanding under our subsidiary credit facilities, as
follows:
Amount
------
(dollars in
thousands)
Subsidiary credit facilities ...................................................... $ 200,000
8 1/2% senior notes ............................................................... 200,000
7 7/8% senior notes ............................................................... 125,000
9 1/2% senior notes ............................................................... 500,000
------------
Total pro forma debt .............................................................. 1,025,000
Weighted average interest rate of total pro forma debt ............................ 8.4715%
Mediacom LLC pro forma interest expense ...................................... 86,833
Pro forma interest expense per note (c) above ................................ (74,692)
------------
Increase to interest expense ................................................. $ 12,141
============
(g) Represents an increase to other expenses (income) due to increased
commitment fees on higher unused commitments under our subsidiary credit
facilities following the repayment of indebtedness described in note (f)
above.
(h) Represents an increase to interest expense, net, resulting from the
incurrence of $275.0 million of additional indebtedness under our
subsidiary credit facilities to fund the $125.0 million cash dividend paid
to our manager and our $150.0 million 12% preferred equity investment in
Mediacom Broadband, as follows:
Amount
------
(dollars in
thousands)
Subsidiary credit facilities ...................................................... $ 475,000
8 1/2% senior notes ............................................................... 200,000
7 7/8% senior notes ............................................................... 125,000
9 1/2% senior notes ............................................................... 500,000
------------
Total pro forma debt .............................................................. 1,300,000
Weighted average interest rate of total pro forma debt ............................ 8.19315%
Mediacom LLC pro forma interest expense ...................................... 106,511
Pro forma interest expense per note (f) above ................................ (86,833)
------------
Increase to interest expense ................................................. $ 19,678
============
(i) Represents a decrease to other expenses (income) resulting from: (i) our
receipt of a quarterly cash dividend payment on our $150.0 million 12%
preferred equity investment in Mediacom Broadband; and (ii) a reduction in
commitment fees on lower unused commitments under our subsidiary credit
facilities resulting from the incurrence of indebtedness described in note
(h) above.
- 29 -
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of March 31, 2001
(dollars in thousands)
Adjustments for the
Mediacom LLC Mediacom Broadband Mediacom LLC
(historical) Transactions Pro Forma
---------------- ------------------- ------------------
Assets:
Cash and cash equivalents .................... $ 11,797 -- $ 11,797
Subscriber accounts receivable, net .......... 13,184 -- 13,184
Prepaid expenses and other assets ............ 8,331 -- 8,331
Investments .................................. 5,187 150,000(a) 155,187
Inventory .................................... 17,253 -- 17,253
Property and equipment, net .................. 635,276 -- 635,276
Intangible assets, net ....................... 662,684 -- 662,684
Other assets, net ............................ 28,795 -- 28,795
---------------- ------------------- ------------------
Total assets .............................. $ 1,382,507 $ 150,000 $ 1,532,507
================ =================== ==================
Liabilities and Member's Equity:
Debt ......................................... $ 1,025,000 $ 275,000(b) $ 1,300,000
Accounts payable and accrued expenses ........ 78,907 -- 78,907
Subscriber advances .......................... 4,267 -- 4,267
Management fees payable ...................... 762 762
Deferred revenue ............................. 9,248 -- 9,248
Other liabilities ............................ 5,158 -- 5,158
---------------- ------------------- ------------------
Total liabilities ......................... 1,123,342 275,000 1,398,342
================ =================== ==================
Member's equity:
Capital contributions ..................... 521,696 -- 521,696
Other equity .............................. 19,793 -- 19,793
Accumulated comprehensive (loss) income ... (1,100) -- (1,100)
Accumulated deficit ....................... (281,224) (125,000)(c) (406,224)
---------------- ------------------- ------------------
Total member's equity ..................... 259,165 (125,000) 134,165
---------------- ------------------- ------------------
Total liabilities and member's equity ..... $ 1,382,507 $ 150,000 $ 1,532,507
================ =================== ==================
See accompanying notes to unaudited pro forma consolidated balance sheet
- 30 -
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of March 31, 2001
(a) Represents our $150.0 million 12% preferred equity investment in Mediacom
Broadband.
(b) Represents additional indebtedness incurred under our subsidiary credit
facilities to fund the $125.0 million cash dividend paid to our manager and
our $150.0 million 12% preferred equity investment in Mediacom Broadband.
(c) Represents the $125.0 million cash dividend paid to our manager.
- 31 -
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL AND OTHER DATA
In the table below, we provide you with:
. selected historical financial data for the period from January 1, 1996
through March 11, 1996, which are derived from the audited financial
statements of Benchmark Acquisition Fund II Limited Partnership, which
is our predecessor company;
. selected historical consolidated financial and operating data for the
period from the commencement of our operations on March 12, 1996
through December 31, 1996 and for the years ended December 31, 1997,
1998, 1999 and 2000 and balance sheet data as of December 31, 1996,
1997, 1998, 1999 and 2000 which are derived from our audited
consolidated financial statements; and
. unaudited selected historical consolidated financial and operating
data for the three months ended March 31, 2000 and 2001 which are
derived from our unaudited consolidated financial statements.
In our opinion, the unaudited interim financial statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, which consist of normal recurring adjustments, necessary to present
fairly the financial position and the results of operations for the interim
periods. Financial and operating results for the three months ended March 31,
2001 are not necessarily indicative of the results that may be expected for the
full year.
We commenced operations on March 12, 1996 with the acquisition of a cable
system from Benchmark Acquisition Fund II Limited Partnership and have since
completed 19 additional acquisitions as of March 31, 2001. The historical
results of operations of the cable systems acquired have been included from
their respective dates of acquisition to the end of the period presented.
We were formed as a limited liability company in July 1995 and our taxable
income or loss was included in the federal and certain state income tax returns
of the Mediacom LLC members.
- 32 -
Selected Historical Consolidated Financial and Other Data
Predecessor Mediacom LLC
----------- -------------------------------------------------------------------
January 1 March 12 Year Ended
Through Through Year Ended Year Ended Year Ended December
March 11, December 31, December 31, December 31, December 31, 31,
--------- ------------ ------------ ------------ ------------ ----------
1996 1996 1997 1998 1999 2000
--------- ------------ ------------ ------------ ------------ ----------
(dollars in thousands)
Statement of Operations Data:
Revenues ................................... $ 1,038 $ 5,411 $ 17,634 $ 129,297 $ 176,052 $ 332,050
Costs and expenses:
Service costs ........................... 297 1,511 5,547 43,849 58,058 114,234
Selling, general and administrative
expenses .............................. 222 931 2,696 25,596 32,949 55,820
Management fee expense(a) ............... 52 270 882 5,797 6,951 6,029
Depreciation and amortization ........... 527 2,157 7,636 65,793 101,065 177,928
Non-cash stock charges relating to
management fee expense(b) ............. -- -- -- -- 15,445 28,254
--------- --------- --------- --------- ---------- ---------
Operating (loss) income .................... (60) 542 873 (11,738) (38,416) (50,215)
Interest expense, net(c) ................... 201 1,528 4,829 23,994 37,817 68,973
Other expenses (income)(d) ................. -- 967 640 4,058 5,087 30,036
--------- --------- --------- --------- ---------- ---------
Net loss before cumulative change in
accounting principle ..................... (261) (1,953) (4,596) (39,790) (81,320) (149,224)
Cumulative effect of change in accounting
principle(e) ............................. -- -- -- -- -- --
--------- --------- --------- --------- ---------- ----------
Net loss ................................... $ (261) $ (1,953) $ (4,596) $ (39,790) $ (81,320) $ (149,224)
========= ========= ========= ========= ========== ==========
Balance Sheet Data (end of period):
Total assets .............................. $ 46,560 $ 102,791 $ 451,152 $1,272,881 $1,375,772
Debt ...................................... 40,529 72,768 337,905 1,139,000 987,000
Total member's equity ..................... 4,537 24,441 78,651 54,615 262,997
Other Data:
System cash flow .......................... $ 519 $ 2,969 $ 9,391 $ 59,852 $ 85,045 $ 161,996
System cash flow margin ................... 50.0% 54.9% 53.3% 46.3% 48.3% 48.8%
EBITDA .................................... $ 467 $ 2,699 $ 8,509 $ 54,055 $ 78,094 $ 155,967
EBITDA margin ............................. 45.0% 49.9% 48.3% 41.8% 44.4% 47.0%
Net cash flows provided by operating
activities .............................. $ 226 $ 237 $ 7,007 $ 53,556 $ 54,216 $ 93,218
Net cash flows used in investing activities (86) (45,257) (60,008) (397,085) (851,548) (295,613)
Net cash flows provided by financing
activities .............................. -- 45,416 53,632 344,714 799,593 202,015
Deficiency of earnings over fixed charges(f) (1,953) (4,596) (40,804) (83,091) (154,541)
Operating Data (end of period, except average):
Homes passed .............................. 38,749 87,750 520,000 1,071,500 1,173,000
Basic subscribers ......................... 27,153 64,350 354,000 719,000 779,000
Basic penetration ......................... 70.1% 73.3% 68.1% 67.1% 66.4%
Premium service units ..................... 11,691 39,288 407,100 587,000 597,000
Premium penetration ....................... 43.1% 61.1% 115.0% 81.6% 76.6%
Average monthly revenues per basic subscriber $32.11 $32.88 $35.52 $38.45
-------------------------
Three Three
Months Months
Ended March Ended March
31, 31,
----------- -----------
2000 2001
----------- -----------
(unaudited)
Statement of Operations Data:
Revenues ...................................................... $ 77,440 $ 90,334
Costs and expenses:
Service costs .............................................. 26,635 31,477
Selling, general and administrative
expenses ................................................. 13,389 15,170
Management fee expense(a) .................................. 1,420 1,517
Depreciation and amortization .............................. 40,680 50,783
Non-cash stock charges relating to
management fee expense(b) ................................ 26,073 1,195
---------- ---------
Operating (loss) income ....................................... (30,757) (9,808)
Interest expense, net(c) ...................................... 18,423 20,734
Other expenses (income)(d) .................................... 457 (27,843)
---------- ---------
Net loss before cumulative change in
accounting principle ......................................... (49,637) (2,699)
Cumulative effect of change in accounting
principle(e) ................................................. -- 1,642
---------- ---------
Net loss ...................................................... $ (49,637) $ (4,341)
========== =========
Balance Sheet Data (end of period):
Total assets .................................................. $1,252,097 $1,382,507
Debt .......................................................... 800,000 1,025,000
Total member's equity ......................................... 362,595 259,165
Other Data:
System cash flow.............................................. $ 37,416 $ 43,687
System cash flow margin ...................................... 48.3% 48.4%
EBITDA ....................................................... $ 35,996 $ 42,170
EBITDA margin ................................................ 46.5% 46.7%
Net cash flows provided by operating
activities ................................................. $ 18,532 $ 25,520
Net cash flows used in investing activities (36,798) (43,151)
Net cash flows provided by financing
activities ................................................. 15,400 25,335
Deficiency of earnings over fixed charges(f) ................. (50,775) (5,660)
Operating Data (end of period, except average):
Homes passed ................................................. 1,073,000 1,178,000
Basic subscribers ............................................ 720,000 777,000
Basic penetration ............................................ 67.1% 66.0%
Premium service units ........................................ 516,700 599,500
Premium penetration .......................................... 71.8% 77.2%
Average monthly revenues per basic subscriber ................ $35.88 $38.70
(notes on following page)
- 33 -
(a) Represents fees paid to Mediacom Management Corporation, a Delaware
corporation, for management services rendered to our operating
subsidiaries. Mediacom Management utilized these fees to compensate its
employees as well as to fund its corporate overhead. The management
agreements with Mediacom Management were amended effective November 19,
1999 in connection with an amendment to our operating agreement. The
amended agreements provided for management fees equal to 2% of annual gross
revenues. Each of the management agreements was terminated upon the
completion of Mediacom Communications' initial public offering and were
replaced with new agreements between Mediacom Communications and our
operating subsidiaries. See Notes 7 and 12 of our historical consolidated
financial statements for the year ended December 31, 2000 appearing
elsewhere in this prospectus.
(b) Represents non-cash stock charges relating to management fee expense for
the year ended December 31, 1999 and the three months ended March 31, 2000
of $0.6 million and $24.5 million resulting from the termination of the
management agreements with Mediacom Management on the date of Mediacom
Communications' initial public offering in February 2000. Additionally, for
the years ended December 31, 1999 and 2000, we incurred non-cash stock
charges relating to management fee expense of $14.8 million and $3.8
million, respectively, and for the three months ended March 31, 2000 and
2001, we incurred non-cash stock charges relating to management fee expense
of $1.6 million and $1.2 million, respectively, resulting from the vesting
of equity grants to certain members of our management team. See Notes 7 and
11 of our historical consolidated financial statements for the year ended
December 31, 2000 appearing elsewhere in this prospectus.
(c) Net of interest income. Interest income for the periods presented was not
material.
(d) Includes a $28.5 million non-cash charge, recorded during the year ended
December 31, 2000, related to our investment in SoftNet Systems, Inc.,
based on a decline in value that was considered other than temporary. Also
includes recognition of $30.0 million in other income for the three months
ended March 31, 2001 related to the elimination of the remainder of the
deferred revenue resulting from the termination of our contract with
SoftNet Systems, Inc. See Note 10 of our historical consolidated financial
statements for the year ended December 31, 2000 and Note 5 of our
historical consolidated financial statements for the three months ended
March 31, 2001 appearing elsewhere in this prospectus.
(e) Relates to our adoption of Statements of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities."
(f) For the purpose of this calculation, earnings are defined as net loss
before fixed charges. Fixed charges represents total interest costs.
- 34 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
We do not believe the discussion and analysis of our historical financial
condition and results of operations set forth below are indicative nor should
they be relied upon as an indicator of our future performance because of certain
significant past events. Those events include numerous acquisitions and several
financing transactions.
Organization
We were organized as a New York limited liability company in July 1995 and
serve as a holding company for our operating subsidiaries. Mediacom Capital
Corporation, our wholly-owned subsidiary, was organized as a New York
corporation in March 1998 for the sole purpose of acting as our co-issuer of
public debt securities and does not conduct operations of its own. Mediacom
Communications was organized as a Delaware corporation in November 1999 and
completed an initial public offering in February 2000. Immediately prior to the
completion of Mediacom Communications' initial public offering, Mediacom
Communications issued shares of its common stock in exchange for all of our
outstanding membership interests and became our sole member and manager.
Until Mediacom Communications' initial public offering in February 2000,
Mediacom Management Corporation, a Delaware corporation, provided management
services to our operating subsidiaries and received annual management fees.
Mediacom Management utilized these fees to compensate its employees as well as
to fund its corporate overhead. Such management fees ranged from 4.0% to 5.0% of
our annual gross revenues until November 19, 1999. On such date, the management
agreements with Mediacom Management were amended in connection with an amendment
to our operating agreement to provide for annual management fees equal to 2.0%
of annual gross revenues. As part of this amendment, Mediacom Management waived
all management fees incurred from July 1, 1999 through November 19, 1999 by our
operating subsidiaries. The management agreements were terminated upon the date
of Mediacom Communications' initial public offering and were replaced with new
management agreements between Mediacom Communications and our operating
subsidiaries. See Notes 7 and 12 to our historical consolidated financial
statements for the year ended December 31, 2000 appearing elsewhere in this
prospectus.
Acquisitions
We have significantly expanded our business since January 1, 1998 through
acquisitions. All acquisitions have been accounted for under the purchase method
of accounting and, therefore, our historical results of operations include the
results of operations for each acquired system subsequent to its respective
acquisition date. In 1998, we completed three acquisitions of cable systems
serving a total of approximately 282,100 basic subscribers as of their
respective acquisition dates (the "1998 Acquisitions"). In 1999, we completed
two acquisitions of cable systems serving a total of approximately 358,000 basic
subscribers as of their respective acquisition dates (the "1999 Acquisitions").
In 2000, we completed nine acquisitions of cable systems serving a total of
approximately 53,000 basic subscribers as of their respective acquisition dates
(the "2000 Acquisitions"). We did not complete any acquisitions during the three
months ended March 31, 2001.
- 35 -
The table below sets forth information on the acquisitions we completed in
1998, 1999 and 2000.
Basic Subscribers
Purchase Price as of
Predecessor Owner Acquisition Date (in millions) Acquisition Date
- ------------------------------------------------ ----------------- -------------- ----------------
Jones Intercable, Inc. January 1998 $ 21.4 17,200
Cablevision Systems Corporation January 1998 308.2 261,100
Cablevision Systems Corporation (Caruthersville) October 1998 5.0 3,800
Zylstra Communications Corporation October 1999 19.5 14,000
Triax Midwest Associates, L.P. November 1999 740.1 344,000
Rapid Communications Partners, L.P. April 2000 8.0 6,000
MidAmerican Cable Systems, L.P. April 2000 8.0 5,000
TriCable, Inc May 2000 1.8 1,000
Spirit Lake Cable TV, Inc. June 2000 10.8 5,000
South Kentucky Services Corporation July 2000 2.1 1,000
Dowden Midwest Cable Partners, L.P. August 2000 1.2 1,000
Illinet Communications of Central Illinois, LLC October 2000 15.8 8,000
Satellite Cable Services, Inc. October 2000 27.5 12,000
AT&T Broadband, LLC December 2000 34.0 14,000
-------------- ----------------
$1,203.4 693,100
============== ================
General
Since January 1, 1998, we have generated significant increases in revenues
principally as a result of our acquisition activities and increases in monthly
revenues per basic subscriber. Approximately 92.5% of our revenues for the three
months ended March 31, 2001 are attributable to monthly subscription fees
charged to customers for our core cable television services, including basic,
expanded basic and premium programming, digital cable television programming
services, cable modem service, wire maintenance, equipment rental and services
to commercial establishments provided by our cable systems. The remaining 7.5%
of revenue represents pay-per-view charges, installation and reconnection fees,
late payment fees, advertising revenues and other ancillary revenues. Franchise
fees charged to customers are also included in their corresponding revenue
category.
Our operating expenses consist of service costs and selling, general and
administrative expenses directly attributable to our cable systems. Service
costs include fees paid to programming suppliers, expenses related to copyright
fees, wages and salaries of technical personnel and plant operating costs.
Programming costs have historically increased at rates in excess of inflation
due to increases in the number of programming services we have offered and
improvements in the quality of programming. Under the Federal Communication
Commission's existing cable rate regulations, we will be able to increase our
rates for cable television services to cover any increases in the programming
costs. However, competitive factors may limit our ability to increase our rates.
We benefit from our membership in a cooperative of cable television companies
which serves over twelve million basic subscribers and which provides its
members with volume discounts from programming suppliers and cable equipment
vendors. Selling, general and administrative expenses directly attributable to
our cable television systems include wages and salaries for customer service and
administrative personnel, franchise fees and expenses related to billing,
marketing, bad debt, advertising sales and office administration. Management fee
expense reflects fees paid to Mediacom Communications for management services
rendered to our operating subsidiaries.
The high level of depreciation and amortization associated with our
acquisition activities and capital investment program, as well as the interest
expense related to our financing activities, have caused us to report net losses
in our limited operating history. We believe that such net losses are common for
cable television companies and anticipate that we will continue to incur net
losses for the foreseeable future.
- 36 -
EBITDA represents operating loss before depreciation and amortization and
non-cash stock charges relating to management fee expense. EBITDA:
. is not intended to be a performance measure that should be regarded as
an alternative either to operating income or net income as an
indicator of operating performance, or to the statement of cash flows
as a measure of liquidity;
. is not intended to represent funds available for debt service,
dividends, reinvestment or other discretionary uses; and
. should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with generally accepted
accounting principles.
EBITDA is included herein because our management believes that EBITDA is a
meaningful measure of performance as it is commonly used by the cable television
industry and by the investment community to analyze and compare cable television
companies. Our definition of EBITDA may not be identical to similarly titled
measures reported by other companies.
Results of Operations
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31,
2000
Actual Results
The following historical information includes the results of operations of
the 2000 Acquisitions, only for that portion of the respective period that such
cable television systems were owned by us.
Revenues. Revenues increased 16.7% to $90.3 million for the three months
ended March 31, 2001 as compared to $77.4 million for the three months ended
March 31, 2000. Of the revenue increase of $12.9 million, approximately $6.0
million was attributable to the 2000 Acquisitions. Excluding the 2000
Acquisitions, revenues increased primarily due to basic rate increases
associated with new programming introductions in our core television services
and to customer growth in our recently launched digital cable and high-speed
Internet access services.
Service costs. Service costs increased 18.2% to $31.5 million for the three
months ended March 31, 2001 as compared to $26.6 million for the three months
ended March 31, 2000. Of the service cost increase of $4.9 million,
approximately $2.6 million was attributable to the 2000 Acquisitions. Excluding
the 2000 Acquisitions, these costs increased primarily as a result of higher
programming expenses, including rate increases by programmers and the costs of
channel additions, and recurring costs associated with our high-speed Internet
access services. As a percentage of revenues, service costs were 34.8% for the
three months ended March 31, 2001, as compared with 34.4% for the three months
ended March 31, 2000.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 13.3% to $15.2 million for the three months
ended March 31, 2001 as compared to $13.4 million for the three months ended
March 31, 2000. Of the selling, general and administrative expenses increase of
$1.8 million, approximately $1.1 million was attributable to the 2000
Acquisitions. Excluding the 2000 Acquisitions, these costs increased primarily
as a result of marketing costs associated with the promotion of our new product
offerings and higher customer service employee expense. As a percentage of
revenues, selling, general and administrative expenses were 16.8% for the three
months ended March 31, 2001 as compared with 17.3% for the three months ended
March 31, 2000.
Management fee expense. Management fee expense increased 6.8% to $1.5
million for the three months ended March 31, 2001 as compared to $1.4 million
for the three months ended March 31, 2000. As a percentage of revenues,
management fee expense was 1.7% for the three months ended March 31, 2001 as
compared with 1.8% for the three months ended March 31, 2000.
Depreciation and amortization. Depreciation and amortization increased
24.8% to $50.8 million for the three months ended March 31, 2001 as compared to
$40.7 million for the three months ended March 31, 2000. This
- 37 -
increase was due to our purchase of the 2000 Acquisitions and capital
expenditures associated with the upgrade of our cable systems.
Non-cash stock charges relating to management fee expense. Non-cash stock
charges relating to management fee expense decreased 95.4% to $1.2 million for
the three months ended March 31, 2001 as compared to $26.1 million for the three
months ended March 31, 2000. This decrease is due to a one-time $24.5 million
charge which occurred in February 2000, resulting from the termination of the
management agreements with Mediacom Management on the date of our manager's
initial public offering.
Interest expense, net. Interest expense, net, increased 12.5% to $20.7
million for the three months ended March 31, 2001 as compared to $18.4 million
for the three months ended March 31, 2000. This increase was primarily due to
higher cost of debt, resulting from the issuance of our 9 1/2% senior notes
issued in January 2001, and higher average debt outstanding for the three months
ended March 31, 2001.
Other (income) expenses. Other income was $27.8 million for the three
months ended March 31, 2001 as compared to $457,000 of other expense for the
three months ended March 31, 2000. This change was principally due to the
elimination of the remainder of the deferred SoftNet revenue resulting from the
termination of the contract with SoftNet Systems, Inc.
Net loss. Due to the factors described above and a one-time charge of $1.6
million resulting from the cumulative effect of change in accounting principle,
we generated a net loss of $4.3 million for the three months ended March 31,
2001 as compared to a net loss of $49.6 million for the three months ended March
31, 2000.
EBITDA. EBITDA increased 17.2% to $42.2 million for the three months ended
March 31, 2001 as compared to $36.0 million for the three months ended March 31,
2000. Of the EBITDA increase of $6.2 million, approximately $2.4 million was
attributable to the 2000 Acquisitions. Excluding the 2000 Acquisitions, EBITDA
increased primarily due to the increase in revenues described above, offset in
part by the increases in service costs, selling, general and administrative
expenses and management fee expense described above. As a percentage of
revenues, EBITDA increased to 46.7% for the three months ended March 31, 2001 as
compared with 46.5% for the three months ended March 31, 2000.
Selected Pro Forma Results
We have reported the results of operations of the 2000 Acquisitions from
the date of their respective acquisition. The financial information below for
the three months ended March 31, 2001 and 2000, presents selected unaudited pro
forma operating results assuming the purchase of the 2000 Acquisitions had been
consummated on January 1, 2000. This financial information is not necessarily
indicative of what results would have been had we operated these cable systems
since the beginning of 2000.
Three Months Ended March 31,
-----------------------------------
2001 2000
----------------- ----------------
(dollars in thousands, except per
subscriber data)
----------------- ----------------
Revenues ................................................................ $ 90,334 $ 82,987
Costs and expenses:
Service costs ........................................................ 31,477 28,989
Selling, general and administrative expenses ......................... 15,170 14,458
Management fee expense ............................................... 1,517 1,420
Depreciation and amortization ........................................ 50,783 43,369
Non-cash stock charges relating to management fee expense ............ 1,195 26,073
----------------- ----------------
Operating loss .......................................................... $ (9,808) $ (31,322)
================= ================
Other Data:
EBITDA .................................................................. $ 42,170 $ 38,120
EBITDA margin(1) ........................................................ 46.7% 45.9%
Basic subscribers(2) .................................................... 777,000 771,600
Average monthly revenue per basic subscriber(3) ......................... $38.70 $35.87
- 38 -
- -----------
(1) Represents EBITDA as a percentage of revenues.
(2) At end of the period.
(3) Represents average monthly revenues for the last three months of the period
divided by average basic subscribers for the period.
Revenues increased 8.9% to $90.3 million for the three months ended March
31, 2001, as compared to $83.0 million for the three months ended March 31,
2000. This increase was attributable principally to basic rate increases
associated with new programming introductions in our core television services,
internal subscriber growth of 0.7% and to customer growth in our recently
launched digital cable and high-speed Internet access services.
Service costs and selling, general and administrative expenses in the
aggregate increased 7.4% to $46.6 million for the three months ended March 31,
2001 from $43.4 million for the three months ended March 31, 2000, principally
due to higher programming costs, costs associated with our high-speed Internet
access services, marketing costs associated with the promotion of our new
product offerings and higher customer service employee expense.
Management fee expense increased 6.8% to $1.5 million for the three months
ended March 31, 2001 from $1.4 million for the three months ended March 31,
2000. As a percentage of revenues, management fee expense was 1.7% for the three
months ended March 31, 2001 and 2000.
Depreciation and amortization increased 17.1% to $50.8 million for the
three months ended March 31, 2001 from $43.4 million for the three months ended
March 31, 2000. This increase was principally due to capital expenditures
associated with the upgrade of our cable systems. Non-cash stock charges
relating to management fee expense were as reported above.
As a result of the above factors, we generated an operating loss of $9.8
million for the three months ended March 31, 2001, compared to $31.3 million for
the three months ended March 31, 2000.
EBITDA increased by 10.6% to $42.2 million for the three months ended March
31, 2001 from $38.1 million for the three months ended March 31, 2000. The
EBITDA margin improved to 46.7% for the three months ended March 31, 2001 from
45.9% for the three months ended March 31, 2000.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Actual Results
The following historical information includes the results of operations of
the 1999 Acquisitions and the 2000 Acquisitions (together, the "1999-2000
Acquisitions"), only for that portion of the respective period that such cable
systems were owned by us.
Revenues. Revenues increased 88.6% to $332.1 million for the year ended
December 31, 2000 as compared to $176.1 million for the prior year. Of the
revenue increase of $156.0 million, $137.8 was attributable to the 1999-2000
Acquisitions. Excluding the 1999-2000 Acquisitions, revenues increased 11.9%
primarily due to basic rate increases associated with new programming
introductions in our core cable television services and to customer growth in
our recently launched digital cable and high-speed Internet access services.
Service costs. Service costs increased 96.8% to $114.2 million for the year
ended December 31, 2000 as compared to $58.1 million for the prior year. The
1999-2000 Acquisitions accounted for $48.2 million of the total increase.
Excluding the 1999-2000 Acquisitions, these costs increased 16.1% primarily as a
result of higher programming expenses, including the cost of additional channel
offerings to our basic subscribers. As a percentage of revenues, service costs
were 34.4% for the year ended December 31, 2000 as compared with 33.0% for the
prior year.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 69.4% to $55.8 million for the year ended
December 31, 2000 as compared to $32.9 million for the prior year. The 1999-2000
Acquisitions accounted for $21.5 million of the total increase. Excluding the
1999-2000 Acquisitions,
- 39 -
these costs increased 4.6%. As a percentage of revenues, selling, general and
administrative expenses were 16.8% for the year ended December 31, 2000 as
compared with 18.7% for the prior year.
Management fee expense. Management fee expense decreased 13.3% to $6.0
million for the year ended December 31, 2000 as compared to $7.0 million for the
prior year. As a percentage of revenues, management fee expense was 1.8% for the
year ended December 31, 2000 as compared with 3.9% for the prior year. The
decrease in management fee expense was primarily due to higher amounts charged
by Mediacom Management during the year ended December 31, 1999 under management
agreements between Mediacom Management and our operating subsidiaries. Such
management agreements were terminated on the date of Mediacom Communications'
initial public offering in February 2000 and were replaced with new agreements
between Mediacom Communications and our operating subsidiaries. See Notes 7 and
12 of our historical consolidated financial statements appearing elsewhere in
this prospectus.
Depreciation and amortization. Depreciation and amortization increased
76.1% to $177.9 million for the year ended December 31, 2000 as compared to
$101.1 million in the prior year. This increase was due to our purchase of the
1999-2000 Acquisitions and additional capital expenditures associated with the
upgrade of our cable systems.
Non-cash stock charges relating to management fee expense. Non-cash stock
charges relating to management fee expense increased 82.9% to $28.3 million for
the year ended December 31, 2000 as compared to $15.4 million in the prior year.
The non-cash charges in 2000 consist of a one-time $24.5 million charge
resulting from the termination of the management agreements with Mediacom
Management on the date of Mediacom Communications' initial public offering and a
$3.8 million charge related to the vesting of equity grants made to certain
members of our management team during 1999. Non-cash stock charges relating to
management fee expense for the year ended December 31, 1999 consist of a
$628,000 charge resulting from amendments to our management agreements with
Mediacom Management and a $14.8 million charge related to the vesting of equity
grants to certain members of our management team. See Notes 7 and 11 of our
historical consolidated financial statements appearing elsewhere in this
prospectus.
Operating loss. Due to the factors described above, we generated an
operating loss of $50.2 million for the year ended December 31, 2000 as compared
to an operating loss of $38.4 million for the year ended December 31, 1999.
Interest expense, net. Interest expense, net, increased 82.4% to $69.0
million for the year ended December 31, 2000 as compared to $37.8 million for
the prior year. This increase was substantially due to higher average debt
outstanding during the year ended December 31, 2000 as a result of the
indebtedness incurred in connection with the purchase of the 1999-2000
Acquisitions and to fund capital expenditures.
Other expenses. Other expenses increased 490.4% to $30.0 million for the
year ended December 31, 2000 as compared to $5.1 million for the prior year.
This change was principally due to a non-cash loss of $28.5 million resulting
from the decline in value of our investment in shares of SoftNet Systems, Inc.
common stock that was deemed other than temporary. See Note 10 of our historical
consolidated financial statements appearing elsewhere in this prospectus.
Net loss. Due to the factors described above, we generated a net loss of
$149.2 million for the year ended December 31, 2000 as compared to a net loss of
$81.3 million for the prior year.
EBITDA. EBITDA increased 99.7% to $156.0 million for the year ended
December 31, 2000 as compared to $78.1 million for the prior year. Of the EBITDA
increase of $77.9 million, approximately $65.8 million was attributable to the
1999-2000 Acquisitions. Excluding the 1999-2000 Acquisitions, EBITDA increased
primarily due to the increase in revenues described above, offset in part by the
increases in service costs, selling, general and administrative expenses and
management fee expense described above. As a percentage of revenues, EBITDA
increased to 47.0% for the year ended December 31, 2000 compared to 44.4% for
the prior year.
- 40 -
Selected Pro Forma Results
We report the results of operations of the 1999-2000 Acquisitions from the
date of their respective acquisition. The financial information below for the
years ended December 31, 2000 and 1999 presents selected unaudited pro forma
operating results assuming the purchase of the Acquired Systems had been
consummated on January 1, 1999. This financial information is not necessarily
indicative of what results would have been had we operated these cable systems
since the beginning of 1999.
Years Ended December 31,
-------------------------------------
2000 1999
------------------- ---------------
(dollars in thousands,
except per subscriber data)
Revenues ............................................................ $ 348,391 $ 318,086
Costs and expenses:
Service costs .................................................... 120,578 108,049
Selling, general and administrative expenses ..................... 58,552 56,718
Management fee expense ........................................... 6,029 11,175
Depreciation and amortization .................................... 185,498 165,712
Non-cash stock charges relating to management fee expense ........ 28,254 15,445
------------------- ---------------
Operating loss ...................................................... $ (50,520) $ (39,013)
=================== ===============
Other Data:
EBITDA ........................................................... 163,232 142,144
EBITDA margin/(1)/ ............................................... 46.9% 44.7%
Basic subscribers/(2)/ ........................................... 779,000 770,600
Average monthly revenue per basic subscriber/(3)/ ................ $38.45 $35.39
- --------------
/(1)/ Represents EBITDA as a percentage of revenues.
/(2)/ At end of the period.
/(3)/ Represents average monthly revenues for the last three months of the
period divided by average basic subscribers for the period.
Revenues increased 9.5% to $348.4 million for the year ended December 31,
2000, as compared to $318.1 million for the prior year. This increase was
attributable principally to internal subscriber growth of 1.1%, basic rate
increases associated with new programming introductions in our core cable
television services and to customer growth in our recently launched digital
cable and high-speed Internet access services.
Service costs and selling, general and administrative expenses in the
aggregate increased 8.7% to $179.1 million for the year ended December 31, 2000
from $164.8 million for the prior year, principally due to higher programming
costs.
Management fee expense decreased 46.0% to $6.0 million for the year ended
December 31, 2000 from $11.2 million for the prior year. This decrease was
primarily attributable to the reduction of the 1999 Acquisitions' management fee
expense subsequent to their acquisition and the termination of management
agreements between Mediacom Management and our operating subsidiaries. Such
management agreements were terminated on the date of Mediacom Communications'
initial public offering in February 2000 and were replaced with new management
agreements between Mediacom Communications and our operating subsidiaries. As a
percentage of revenues, management fee expense was 1.7% for the year ended
December 31, 2000 as compared with 3.5% for the prior year.
Depreciation and amortization increased 11.9% to $185.5 million for the
year ended December 31, 2000 from $165.7 million for the prior year. This
increase was principally due to capital expenditures associated with the upgrade
of our cable systems. Non-cash stock charges relating to management fee expense
were as reported above.
As a result of the above factors, we generated an operating loss of $50.5
million for the year ended December 31, 2000, compared to $39.0 million for the
prior year.
- 41 -
EBITDA increased by 14.8% to $163.2 million for the year ended December 31,
2000 from $142.1 million for the prior year. The EBITDA margin improved to 46.9%
for the year ended December 31, 2000 from 44.7% for the year ended December 31,
1999.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Actual Results
The following historical information includes the results of operations of
the 1998 Acquisitions and the 1999 Acquisitions (together, the "1998-1999
Acquisitions"), only for that portion of the respective period that such cable
systems were owned by us.
Revenues. Revenues increased 36.2% to $176.1 million for the year ended
December 31, 1999 as compared to $129.3 million for the prior year. The
1998-1999 Acquisitions accounted for $43.0 million of the total increase.
Excluding the 1998-1999 Acquisitions, revenues increased 13.9% primarily due to
basic rate increases associated with new programming introductions in our core
cable television services and to internal basic subscriber growth of 1.9%.
Service costs. Service costs increased 32.4% to $58.1 million for the year
ended December 31, 1999 as compared to $43.8 million for the prior year. The
1998-1999 Acquisitions accounted for $12.8 million of the total increase.
Excluding the 1998-1999 Acquisitions, these costs increased 18.8% primarily as a
result of higher programming costs. As a percentage of revenues, service costs
were 33.0% for the year ended December 31, 1999, as compared to 33.9% for the
prior year.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 28.7% to $32.9 million for the year ended
December 31, 1999 as compared to $25.6 million for the prior year. The 1998-1999
Acquisitions accounted for $7.1 million of the total increase. Excluding the
1998-1999 Acquisitions, these costs increased 5.5% primarily due to increased
marketing costs associated with the promotion of new programming services and
increased personnel expenses. As a percentage of revenues, selling, general and
administrative expenses were 18.7% for the year ended December 31, 1999 as
compared to 19.8% for the prior year.
Management fee expense. Management fee expense increased 19.9% to $7.0
million for the year ended December 31, 1999 as compared to $5.8 million for the
prior year, due to the higher revenues generated in the 1999 period. The
management agreements were amended on November 19, 1999 in connection with an
amendment to Mediacom LLC's operating agreement to provide annual management
fees equal to 2.0% of annual gross revenues. See Note 7 of our historical
consolidated financial statements appearing elsewhere in this prospectus.
Depreciation and amortization. Depreciation and amortization increased
53.6% to $101.1 million for the year ended December 31, 1999, as compared to
$65.8 million for the prior year. This increase was substantially due to our
purchase of the 1999 Acquisitions and additional capital expenditures associated
with the upgrade of our cable systems.
Non-cash stock charges relating to management fee expense. Non-cash stock
charges relating to management fee expense were $15.4 million for the year ended
December 31, 1999. These non-cash charges resulted from amendments to our
management agreements with Mediacom Management and a grant of equity interests
to certain members of our management team. See Notes 7 and 11 of our historical
consolidated financial statements appearing elsewhere in this prospectus.
Operating loss. Due to the factors described above, we generated an
operating loss of $38.4 million for the year ended December 31, 1999 as compared
to an operating loss of $11.7 million for the prior year.
Interest expense, net. Interest expense, net, increased 57.6% to $37.8
million for the year ended December 31, 1999 as compared to $24.0 million for
the prior year. This increase was substantially due to higher average debt
outstanding during the 1999 period as a result of the indebtedness incurred in
connection with the purchase of the 1999 Acquisitions and to fund capital
expenditures.
- 42 -
Other expenses. Other expenses increased 25.4% to $5.1 million for the year
ended December 31, 1999 as compared to $4.1 million for the prior year. This
increase was principally due to acquisition fees payable to Mediacom Management
in 1999 relating to the 1999 Acquisitions.
Net loss. Due to the factors described above, we generated a net loss of
$81.3 million for the year ended December 31, 1999 as compared to a net loss of
$39.8 million for the prior year.
EBITDA. EBITDA increased 44.5% to $78.1 million for the year ended December
31, 1999, as compared to $54.1 million for the prior year. Of the EBITDA
increase of $24.0 million, approximately $22.1 million was attributable to the
1998-1999 Acquisitions. Excluding the 1998-1999 Acquisitions, EBITDA increased
primarily due to the increase in revenues described above, offset in part by the
increases in service costs, selling, general and administrative expenses and
management fee expense described above. As a percentage of revenues, EBITDA
increased to 44.4% for the year ended December 31, 1999 as compared to 41.8% for
the prior year.
Liquidity and Capital Resources
Our business requires substantial capital for the upgrade, expansion and
maintenance of our cable network. In addition, we have pursued, and will
continue to pursue, a business strategy that includes selective acquisitions. We
have funded and will continue to fund our working capital requirements, capital
expenditures and acquisitions through a combination of internally generated
funds, long-term borrowings and equity financings.
Investing Activities
Our capital expenditures were $182.6 million, $86.7 million and $53.7
million for the years ended December 31, 2000, 1999 and 1998, respectively. The
higher capital expenditures in 2000 reflect the significant investments we are
making in the 1999-2000 Acquisitions and our accelerated network upgrade
program. We plan to continue our aggressive cable network upgrade program and
expect that 90% of our cable network will be upgraded with 550MHz to 870MHz
bandwidth capacity and 80% of our homes passed will have two-way communications
capability by year-end 2001. To achieve these targets and to fund other
requirements, including new plant construction, headend eliminations, regional
fiber interconnections, digital and high-speed data equipment and network
maintenance, we expect to invest approximately $190.0 million, $170.0 million
and $100.0 million in capital expenditures in 2001, 2002 and 2003, respectively.
For the three months ended March 31, 2001, our capital expenditures were $42.3
million.
In 1998, we completed three acquisitions of cable systems serving a total
of approximately 282,100 basic subscribers, as of their respective acquisition
dates, for an aggregate purchase price of $334.6 million. In 1999, we completed
two acquisitions of cable systems serving a total of approximately 358,000 basic
subscribers, as of their respective acquisition dates, for an aggregate purchase
price of $759.6 million. In 2000, we completed nine acquisitions of cable
systems serving a total of approximately 53,000 basic subscribers, as of their
respective acquisition dates, for an aggregate purchase price of $109.2 million.
We did not complete any acquisitions during the three months ended March 31,
2001.
On July 18, 2001, we made a $150.0 million preferred equity investment in
Mediacom Broadband, LLC, a newly-formed, wholly-owned subsidiary of our manager,
that was funded with borrowings under our subsidiary credit facilities. This
preferred equity investment has a 12% annual cash dividend, payable quarterly.
Mediacom Broadband used these proceeds to fund a portion of the purchase price
of its acquisitions of cable systems serving approximately 800,000 basic
subscribers from affiliates of AT&T Broadband, LLC.
Financing Activities
To finance our prior acquisitions and our network upgrade program and to
provide liquidity for future capital needs, we have completed the following
financing arrangements since January 1, 1998:
. $200.0 million offering of our 8 1/2% senior notes due April 2008;
. $125.0 million offering of our 7 7/8% senior notes due February 2011;
. $550.0 million subsidiary credit facilities expiring in September
2008;
- 43 -
. $550.0 million subsidiary credit facilities expiring in December 2008;
. $104.5 million of equity capital contributed by our members; and
. $354.5 million of equity capital contributed by Mediacom
Communications in February 2000.
The final maturities of our subsidiary credit facilities are subject to
earlier repayment on dates ranging from June 2007 to December 2007 if we do not
refinance our 8 1/2% senior notes prior to March 31, 2007. As of March 31, 2001,
we were in compliance with all of the financial and other covenants in our
subsidiary credit facilities and our public debt indentures.
As of March 31, 2001, we entered into interest rate swap agreements, which
expire from 2002 through 2004, to hedge $170.0 million of floating rate debt
under our subsidiary credit facilities. As a result of these interest rate swap
agreements, 97% of our outstanding indebtedness was at fixed interest rates or
subject to interest rate protection on such date. After giving effect to these
interest rate swap agreements, as of March 31, 2001, our weighted average cost
of indebtedness was approximately 9.0%.
On January 24, 2001, we and Mediacom Capital completed an offering of
$500.0 million of 9 1/2% senior notes due January 2013. Interest on the 9 1/2%
senior notes is payable semi-annually on January 15 and July 15 of each year,
which commenced on July 15, 2001. Approximately $467.5 million of the net
proceeds were used to repay a substantial portion of the indebtedness
outstanding under our subsidiary credit facilities and related accrued interest.
The balance of the net proceeds was used for general corporate purposes.
On February 7, 2001, we and Mediacom Capital, along with our manager, filed
a registration statement with the SEC under which any of us may sell securities
for an aggregate maximum amount of $1.0 billion. The SEC declared this
registration statement effective on February 13, 2001. Our manager has drawn
down approximately $627.6 million under this registration statement.
On July 17, 2001, we paid a $125.0 million cash dividend to our manager
that was funded with borrowings under our subsidiary credit facilities. After
giving effect to the cash dividend paid to our manager and our preferred equity
investment in Mediacom Broadband, as of March 31, 2001, we had approximately
$625.0 million of unused credit commitments under our subsidiary credit
facilities.
Although we have not generated earnings sufficient to cover fixed charges,
we have generated cash and obtained financing sufficient to meet our debt
service, working capital, capital expenditure and acquisition requirements. We
expect that we will continue to be able to generate funds and obtain financing
sufficient to service our obligations and complete our pending and future
acquisitions. There can be no assurance that we will be able to obtain
sufficient financing, or, if we were able to do so, that the terms would be
favorable to us.
Recent Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities," was
issued effective January 1, 2001. This statement establishes the accounting and
reporting standards for derivatives and hedging activity. Upon adoption of SFAS
133, all derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. As a result
of the adoption of SFAS 133, we recorded a charge of approximately $1.6 million
in our consolidated statements of operations during the three months ended March
31, 2001.
In March 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"). SAB 101 summarizes certain areas of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 does not apply to our basic cable television business. We will continue
to account for revenues based upon Statement of Financial Accounting Standards
No. 51, "Financial Reporting by Cable Television Companies." SAB 101 did not
have a material impact on our results of operations and consolidated financial
statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25"
- 44 -
("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 and is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
as if they had occurred after either December 15, 1998 or January 12, 2000. The
application of FIN 44 does not have a material impact on our results of
operations and consolidated financial statements.
Inflation and Changing Prices
Our systems' costs and expenses are subject to inflation and price
fluctuations. Since changes in costs can be passed through to subscribers, such
changes are not expected to have a material effect on our results of operations.
Quantitative and Qualitative Disclosure About Market Risk
In the normal course of business, we use interest rate swap agreements in
order to fix interest rates under debt contracts for the duration of the
contract as a hedge against interest rate volatility. As of March 31, 2001, we
had interest rate exchange agreements with various banks pursuant to which the
interest rate on $170.0 million is fixed at a weighted average swap rate of
approximately 6.7%, plus the average applicable margin over the Eurodollar Rate
option under our bank credit agreement. Under the terms of the interest rate
exchange agreements, which expire from 2002 through 2004, we are exposed to
credit loss in the event of nonperformance by the other parties to the interest
rate exchange agreements. However, we do not anticipate nonperformance by the
counterparties. We would have paid approximately $3.3 million at March 31, 2001
if the interest rate exchange agreements were terminated, inclusive of accrued
interest. The table below provides information on our long-term debt. See Note 4
to our historical consolidated financial statements for the three months ended
March 31, 2001 appearing elsewhere in this prospectus.
Expected Maturity
--------------------------------------------------------------------
(All dollar amounts in thousands) Fair
2002 2003 2004 2005 2006 Thereafter Total Value
------ -------- ------- ------- ------- ---------- ----------- ----------
Fixed rate .............. $ -- $ -- $ -- $ -- $ -- $200,000 $200,000 $190,000
Weighted average
interest rate ........ 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5%
Fixed rate .............. $ -- $ -- $ -- $ -- $ -- $125,000 $125,000 $108,000
Weighted average
interest rate ........ 7.9% 7.9% 7.9% 7.9% 7.9% 7.9% 7.9%
Fixed rate .............. $ -- $ -- $ -- $ -- $ -- $500,000 $500,000 $489,000
Weighted average
interest rate ........ 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5%
Variable rate ........... $750 $2,000 $2,000 $2,000 $2,000 $191,250 $200,000 $200,000
Weighted average
interest rate ........ 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
- 45 -
BUSINESS
Overview
Mediacom Communications Corporation, our parent and manager, is the eighth
largest cable television company in the United States based on customers served.
Mediacom Communications provides its customers with a wide array of broadband
products and services, including traditional video services, digital television
and high-speed Internet access. Mediacom Communications was founded in July 1995
by Rocco B. Commisso, its Chairman and Chief Executive Officer, to acquire and
operate cable television systems serving principally non-metropolitan markets in
the United States. As of the date of this prospectus, our manager's cable
systems, which are owned and operated through its operating subsidiaries, passed
approximately 2.6 million homes and served approximately 1.6 million basic
subscribers in 23 states. A basic subscriber is a customer that subscribes to a
package of basic cable television services.
Our manager's senior management team has significant cable television
industry expertise in all aspects of acquiring, operating and financing cable
systems. Mr. Commisso has 23 years of experience, and the other senior managers
have an average of 20 years of experience, with the cable television industry.
Our manager's Class A common stock is traded on The Nasdaq National Market
under the symbol "MCCC." As of the date of this prospectus, Mr. Commisso and the
senior management team owned in the aggregate approximately 24.7% of Mediacom
Communications' common stock outstanding.
Mediacom LLC
Mediacom LLC is a wholly-owned subsidiary of our manager. As of March 31,
2001, our cable systems passed approximately 1.2 million homes and served
approximately 777,000 basic subscribers in 22 states. Since commencement of our
operations in March 1996, we have experienced significant growth by deploying a
disciplined strategy of acquiring underperforming cable systems principally in
non-metropolitan markets with favorable demographic profiles. As of March 31,
2001, we had completed 20 acquisitions of cable systems that served as of their
respective dates of acquisition an aggregate of approximately 759,000 basic
subscribers for an aggregate purchase price of approximately $1.3 billion, or an
average price of $1,714 per subscriber. We have also generated strong internal
growth and have improved the operating and financial performance of our cable
systems. These results have been achieved through the implementation of our
operating practices, including the introduction of new and advanced broadband
products and services made possible by the rapid upgrade of our cable network,
and the application of disciplined cost controls.
We believe that advancements in digital technology, together with the
explosive growth of the Internet, have positioned the cable television
industry's high-speed, interactive broadband network as the primary platform for
the delivery of video, voice and data services to homes and businesses. To
capitalize on these opportunities, we have upgraded a substantial portion of our
cable network, allowing us to launch advanced broadband products and services,
including digital cable and high-speed Internet access, or cable modem service.
As of March 31, 2001, our digital cable service was available to approximately
470,000 basic subscribers, with approximately 53,000 digital customers for a
penetration of 11.3%. As of the same date, our cable modem service was launched
in cable systems passing approximately 500,000 homes, with approximately 15,600
cable modem customers for a penetration of 3.1%.
We expect to continue to rapidly upgrade our cable network to enable us to
launch advanced broadband products and services in virtually all the communities
we serve. As of March 31, 2001, approximately 76% of our cable network was
upgraded to 550MHz to 870MHz bandwidth capacity and approximately 55% of our
homes passed were activated with two-way communications capability. By December
2002, we anticipate that 95% of our cable network will be upgraded to 550MHz to
870MHz bandwidth capacity with two-way communications capability.
As part of our cable network upgrade program, we have been aggressively
consolidating our signal processing and distribution facilities, or headends,
serving our cable systems. Headend consolidation facilitates the launch of new
and advanced broadband products and services by allowing us to spread the
capital and operating costs associated with these services over a larger
subscriber base. As of March 31, 2001, our cable systems were
- 46 -
served by a total of 408 headends, with the 40 largest headends serving
approximately 513,000 basic subscribers, or approximately 66% of our total basic
subscribers. By December 2002, we expect that the number of headends serving our
cable systems will be reduced to 100, with the 40 largest headends serving
approximately 92% of our basic subscribers. We expect to spend approximately
$190 million, $170 million and $100 million in 2001, 2002 and 2003,
respectively, to fund capital expenditures for our cable systems, including our
cable network upgrade program and network maintenance.
Business Strategy
Our business strategy is to focus on providing entertainment, information
and telecommunications services in non-metropolitan markets of the United
States. The key elements of our business strategy are to:
Acquire Underperforming Cable Systems Principally in Non-Metropolitan
Markets
Our disciplined acquisition strategy targets underperforming cable systems
serving primarily non-metropolitan markets. These systems are typically within
the top 50 to 100 television markets and small and medium-sized communities
where customers generally require cable to clearly receive a full complement of
off-air television signals. We believe that there are advantages in acquiring
and operating cable systems in non-metropolitan markets, including:
. less direct competition given the lower housing densities and the
resulting higher costs per customer of constructing a cable network;
. higher penetration levels of our services and lower customer turnover
as a result of fewer competing entertainment alternatives; and
. generally lower overhead and operating costs than those incurred by
cable operators serving larger markets.
In addition, we seek to acquire or trade for cable systems in close
proximity to our existing operations because it is more cost effective to
provide cable television and advanced telecommunications services over an
expanded subscriber base within a concentrated geographic area. We have been
able to purchase fill-in acquisitions at favorable prices in geographic regions
where we are the dominant provider of cable television services. In 2000, we
completed nine acquisitions of cable systems serving approximately 53,000 basic
subscribers as of their respective acquisition dates for an aggregate purchase
price of $109.2 million. These cable systems serve communities in Alabama,
Illinois, Iowa, Kentucky, Minnesota and South Dakota, which are located within
our regional operating clusters.
Improve the Operating and Financial Performance of Our Cable Systems
We seek to rapidly integrate our acquired cable systems and improve their
operating and financial performance. Prior to completion of an acquisition, we
formulate plans for customer care and billing improvements, network upgrades,
headend consolidation, new product and service launches, competitive positioning
and human resource requirements. After completing an acquisition, we implement
managerial, operating, purchasing, personnel and engineering changes designed to
effect these plans.
Develop Efficient Operating Clusters
Our systems currently are organized into six regional operating clusters.
To enhance these clusters, our acquisition strategy focuses, in part, on
acquiring or trading for systems in close proximity to our own systems. By
further concentrating the geographic clustering of our cable systems, we expect
additional operating efficiencies through the consolidation of many managerial,
customer service, marketing, administrative and technical functions.
The clustering of systems also enables us to consolidate headend
facilities, resulting in lower fixed capital costs on a per home basis as we
introduce new and enhanced products and services because of the larger number of
customers served by a single headend facility. This headend consolidation also
improves our ability to sell advertising on our cable systems. As a result of
our clustering and upgrade program, by December 2002 we plan to
- 47 -
eliminate 308 headend facilities so that all of our customers will be served by
100 headend facilities and 92% of our customers will be served by 40 headend
facilities.
Rapidly Upgrade Our Cable Network
We are rapidly upgrading our cable network to provide new broadband
products and services, improve our competitive position and increase overall
customer satisfaction. By December 2002, we anticipate that 95% of our basic
subscribers will be served by cable systems with 550MHz to 870MHz bandwidth
capacity and two-way communications capability. As part of our upgrade program,
we plan to deploy over 10,000 route miles of fiber optic cable to create large
regional fiber optic networks with the potential to provide advanced
telecommunications services. Our upgrade plans will allow us to:
. offer digital cable television, high-speed Internet access and
interactive video services;
. increase channel capacity to a minimum of 82 channels, and
significantly more with digital video technology;
. activate the two-way communications capability of our systems, which
will give our customers the ability to send and receive signals over
our cable network;
. eliminate 308 headend facilities, lowering our fixed capital costs on
a per home basis as we introduce new products and services; and
. utilize our regional fiber optic networks to offer advanced
telecommunications services.
Introduce New and Enhanced Products and Services
We have acquired cable systems that we believe generally underserved their
customers prior to our ownership. We believe that significant opportunities
exist to increase our revenues by expanding the array of products and services
we offer. We have used and will continue to use the expanded channel capacity of
our upgraded systems to introduce several new basic programming services,
additional premium services and numerous pay-per-view channels.
Utilizing digital video technology, we are offering multiple packages of
premium services, several pay-per-view channels on a near video-on-demand basis,
digital music services and interactive program guides. As of March 31, 2000, our
digital cable service was available to approximately 470,000 basic subscribers.
We also offer high-speed Internet access at speeds up to 100 times faster than a
conventional telephone modem. As of March 31, 2001, we launched cable modem
service in cable systems with approximately 500,000 homes passed. In addition,
we are currently exploring opportunities in interactive video and
telecommunications services.
Maximize Customer Satisfaction to Build Customer Loyalty
As a result of our strong regional and local management presence, we are
responsive to customer needs and preferences and better positioned to strengthen
relations with the local government authorities and the communities we serve. We
seek a high level of customer satisfaction by providing superior customer
service and attractively priced product and service offerings. We believe our
investments in the cable network are increasing customer satisfaction as a
result of a wide array of new product and service introductions, greater
technical reliability and improved quality of service. We have implemented
stringent internal customer service standards, which we believe meet or exceed
those established by the National Cable Television Association. We have regional
calling centers servicing 84% of our customers that are staffed with dedicated
personnel who provide service 24 hours a day, seven days a week. We believe that
our focus on customer service has enhanced our reputation in the communities we
serve, which has increased customer loyalty and the potential demand for our new
and enhanced products and services.
- 48 -
Maintain a Flexible Financing Structure
To support our business strategy and enhance our financial flexibility, we
have deployed a financing strategy utilizing a blend of equity and debt capital
to complement our acquisition and operating activities. We have diversified our
sources of debt capital by raising long-term debt while utilizing our operating
subsidiaries to access debt, principally in the commercial bank market, through
separate borrowing groups.
We believe our financing strategy is beneficial because it broadens our
access to various debt markets, enhances our flexibility in managing our capital
structure, reduces the overall cost of debt capital and permits us to maintain a
substantial liquidity position in the form of unused and available subsidiary
credit facilities. As of March 31, 2001, after giving pro forma effect to the
incurrence of additional bank indebtedness related to the $125.0 million cash
dividend paid to our manager and our $150.0 million preferred equity investment
in Mediacom Broadband, the unused credit commitments under our subsidiary credit
facilities were approximately $625.0 million and our overall cost of debt
capital was approximately 8.4%.
Products and Services
We provide our customers with the ability to tailor their product selection
from a full array of core cable television services. In addition, we offer our
customers advanced broadband products and services such as digital cable
television and high-speed Internet access. These products and services have been
introduced to a significant portion of our customer base. In 2001, we plan to
further introduce digital cable and high-speed Internet access across our cable
systems and to aggressively market these services to our customer base. We also
are exploring opportunities in interactive programming and telecommunications
services.
Core Cable Television Services
We design both our basic channel line-up and our additional channel
offerings for each system according to demographics, programming preferences,
channel capacity, competition, price sensitivity and local regulation. Our core
cable television service offerings include the following in most of our cable
systems:
Limited Basic Service. Our limited basic service includes, for a monthly
fee, local broadcast channels, network and independent stations, limited
satellite-delivered programming, and local public, government, home-shopping and
leased access channels.
Expanded Basic Service. Our expanded basic service includes, for an
additional monthly fee, various satellite-delivered channels such as CNN, MTV,
USA Network, ESPN, Lifetime, Nickelodeon and TNT.
Premium Service. Our premium services are satellite-delivered channels
consisting principally of feature films, original programming, live sports
events, concerts and other special entertainment features, usually presented
without commercial interruption. HBO, Cinemax, Showtime, The Movie Channel and
Starz are typical examples. Such premium programming services are offered by the
systems both on a per-channel basis and as part of premium service packages
designed to enhance customer value and to enable us to take advantage of
programming agreements offering cost incentives based on premium service unit
growth.
The significant expansion of bandwidth capacity resulting from our capital
improvement program will allow us to expand the use of tiered and multichannel
packaging strategies for marketing and promoting premium and niche programming
services. We believe that these packaging strategies will increase basic and
premium penetration as well as revenue per basic subscriber.
Pay-Per-View Service. Our pay-per-view services allow customers to pay to
view a single showing of a feature film, live sporting event, concert and other
special event, on an unedited, commercial-free basis. Such pay-per-view services
are offered by us on a per-viewing basis, with subscribers only paying for
programs which they select for viewing.
Digital Cable Services
Digital video technology offers significant advantages. Most importantly,
this technology allows us to greatly increase our channel offerings through the
use of compression, which converts one analog channel into eight
- 49 -
to 12 digital channels. The implementation of digital technology has
significantly enhanced and expanded the video and other service offerings we
provide to our customers.
We currently offer our customers several digital cable programming packages
that include:
. up to 42 multichannel premium services;
. up to 34 pay-per-view movie and sports channels;
. up to 45 channels of digital music; and
. an interactive on-screen program guide to help them navigate the new
digital choices.
We first introduced digital cable services in our cable systems in June
1999. As of March 31, 2001, our digital service was available to approximately
470,000 basic subscribers and we served approximately 53,000 digital customers.
By year-end 2001, we expect our digital cable service to be available to 550,000
basic subscribers and to serve between 90,000 and 100,000 digital customers.
High-Speed Internet Access
Our broadband cable network enables data to be transmitted up to 100 times
faster than traditional telephone modem technologies. This high-speed capability
allows our cable modem customer to receive and transmit large files from the
Internet in a fraction of the time required when using the traditional telephone
modem. It also allows much quicker response times when surfing the Internet,
providing a richer experience for the customer. In addition, the cable modem
service eliminates the need for a telephone line, is always activated and does
not require the customer to dial into the Internet service provider and await
authorization.
We first introduced two-way, high-speed Internet access service in our
cable systems in November 1999. As of March 31, 2001, we launched cable modem
service in cable systems with approximately 500,000 homes passed and we served
approximately 15,600 cable modem customers. We also provided dial-up telephone
Internet access to 3,400 customers. By year-end 2001, we expect to launch cable
modem service in cable systems with 800,000 homes passed and to serve between
45,000 and 50,000 data customers.
In December 2000, our manager signed a binding commitment letter with At
Home Network Solutions, Inc., a partially-owned subsidiary of At Home
Corporation, for a new cable affiliate relationship. This new affiliation
enables us to offer the Excite@Home high-speed broadband Internet service to our
customers under the name Mediacom@Home. Through January 2001, ISP Channel was
the third party provider of Internet access to our cable modem customers. As of
January 31, 2001, our relationship with ISP Channel was terminated. Mediacom
Communications is completing the documentation of its definitive agreement with
At Home Solutions.
Future Services
Interactive Services. Our upgraded cable network will have the capacity to
deliver various interactive television services. Interactive television can be
divided among three general service categories: enhanced television; Internet
access over the television; and video-on-demand. These new services enable the
customer to interact over the television set, generally by using a conventional
remote television control or a computer keyboard, to either buy a product or
service or request information on a product or service.
Enhanced television includes such services as ancillary programming
information, interactive advertising and impulse sales and purchases. Companies
delivering enhanced television services include TV Guide Interactive, Wink
Communications, Liberate Technologies and OpenTV. Internet access and e-mail
over the television are delivered using a set-top box with the customer using a
wireless keyboard. Companies providing Internet access over the television
include WebTV and WorldGate Communications. The provision of video-on-demand
services requires the use of servers at the headend facility of a cable system
to provide hundreds of movies or special events on demand with video cassette
recorder functionality, or the ability to fast forward, pause and rewind a
program at will. Companies providing video-on-demand services include Concurrent
Computer Corporation, DIVA Systems
- 50 -
Corporation, Intertainer Inc., N-Cube, Sea Change International and others. We
are in discussions with several interactive service providers and expect to
initiate trial launches of interactive services in the second half of 2001.
Telecommunications Services. We are exploring technologies using Internet
protocol telephony as well as traditional switching technologies that are
currently available to transmit telephony signals over our cable network. Our
upgrade plans include the installation of over 10,000 route miles of fiber-optic
cable resulting in the creation of large, high-capacity regional networks. We
are constructing our networks with excess fiber-optic capacity, thereby
affording us the flexibility to pursue new data and telecommunications
opportunities. We are in discussions with several telecommunications service
providers and are developing plans for trial launches of such services.
Description of Our Cable Systems
Overview
The following table provides an overview of selected operating and
technical statistics for our cable systems for the periods ended:
December 31, March 31,
--------------------------------------------------------------- ---------
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
Operating Data:
Homes passed(1)........... 38,749 87,750 520,000 1,071,500 1,173,000 1,178,000
Basic subscribers(2)...... 27,153 64,350 354,000 719,000 779,000 777,000
Basic penetration(3)...... 70.1% 73.3% 68.1% 67.1% 66.4% 66.0%
Premium service units(4).. 11,691 39,288 407,100 587,000 597,000 599,500
Premium penetration(5).... 43.1% 61.1% 115.0% 81.6% 76.6% 77.2%
Average monthly revenues
per basic subscriber(6). $34.09 $32.11 $32.88 $35.52 $38.45 $38.70
Digital Cable:
Digital-ready basic
subscribers(7).......... - - - 168,000 400,000 470,000
Digital customers......... - - - 5,300 40,000 53,000
Digital penetration(8).... - - - 3.2% 10.0% 11.3%
Data:
Data-ready homes passed(9) - - - 120,000 550,000 650,000
Data-ready homes
marketed(10)............ - - - 105,500 486,000 500,000
Dial-up customers(11)..... 2,225 2,518 4,729 4,600 3,600 3,400
Cable modem customers..... - - - 500 12,000 15,600
------ ------ ------- --------- --------- ---------
Total data customers...... 2,225 2,518 4,729 5,100 15,600 19,000
Data penetration(12)...... - - - 4.8% 3.2% 3.8%
Cable Network Data:
Miles of plant............ 736 1,697 11,950 22,444 24,500 24,650
Density(13)............... 53 52 44 48 48 48
Percentage of basic
subscribers at 550MHz
to 870MHz............... 0% 25% 45% 57% 74% 76%
- 51 -
- ------------------
(1) Represents the number of single residence homes, apartments and condominium
units passed by the cable distribution network in a cable system's service
area.
(2) Represents subscribers of a cable television system who receive a package
of over-the-air broadcast stations, local access channels or certain
satellite-delivered cable television services and who are usually charged a
flat monthly rate for a number of channels.
(3) Represents basic subscribers as a percentage of total number of homes
passed.
(4) Represents the number of subscriptions to premium services. A
subscriber may purchase more than one premium service, each of which is
counted as a separate premium service unit.
(5) Represents premium service units as a percentage of the total number of
basic subscribers. This ratio may be greater than 100% if the average basic
subscriber subscribes to more than one premium service unit.
(6) Represents average monthly revenues for the last three months of the period
divided by average basic subscribers for such period. Includes the revenues
from cable systems acquired during the last three months of the period as
if such acquisitions were completed at the beginning of the three month
period.
(7) A subscriber is digital-ready if the subscriber is in a system where
digital cable services have been launched.
(8) Represents digital customers as a percentage of digital-ready basic
subscribers.
(9) A home passed is data-ready if it is in a system with two-way
communications capability.
(10) Data-ready homes marketed represents data-ready homes passed where cable
modem service has been launched.
(11) A customer that accesses the Internet through a conventional modem and
telephone line connection.
(12) Represents the number of total data customers as a percentage of total
data-ready homes marketed.
(13) Represents homes passed divided by miles of plant.
Selected Operating Region Data
Our cable systems are currently organized into six operating regions. The
following table sets forth the six operating regions, the principal states
served by such regions, and their respective homes passed, basic subscribers and
basic penetration as of March 31, 2001:
Homes Basic Basic
Region States Passed Subscribers Penetration
- -------------------- ----------------------- --------- ----------- -----------
Midwest............. Illinois, Indiana,
Michigan, Ohio 306,100 194,200 63.4%
North Central....... Iowa, Minnesota, South
Dakota, Wisconsin 284,350 193,000 67.9%
Southern............ Alabama, Florida,
Mississippi, Tennessee 215,000 154,000 71.6%
Mid-Atlantic........ Delaware, Maryland,
North Carolina, Virginia 131,000 89,500 68.3%
Central............. Kansas, Kentucky,
Missouri, Oklahoma 137,050 86,000 62.8%
Western............. Arizona, California 104,500 60,300 57.7%
--------- ------- -----
Total 1,178,000 777,000 66.0%
========= ======= =====
Technology Overview
As part of our commitment to maximize customer satisfaction, to improve our
competitive position and to introduce new and enhanced products and services to
our customers, we continue to make significant investments to upgrade our cable
network. The current objectives of our upgrade program are to:
. increase the bandwidth capacity to 870MHz;
. activate two-way communications capability;
. consolidate our headend facilities, through the extensive deployment
of fiber-optic networks; and
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. allow us to provide digital cable television, high-speed Internet
access, interactive video and other telecommunications services.
The following table describes the technological state of our cable network
as of March 31, 2001 and through December 31, 2002, based on our current upgrade
plans:
Percentage of Basic Subscribers
---------------------------------------
Less than 550MHz- Two-Way
550MHz 870MHz Capable
----------------------------------------
March 31, 2001 ................... 24% 76% 55%
December 31, 2001 ................ 10% 90% 80%
December 31, 2002 ................ 5% 95% 95%
By December 2002, we expect that 95% of our basic subscribers will be
served by cable systems that have been upgraded with 550MHz to 870MHz bandwidth
capacity and two-way communications capability. A central feature of our upgrade
program is the deployment of high capacity, hybrid fiber-optic coaxial
architecture. The hybrid fiber-optic coaxial architecture combines the use of
fiber-optic cable, which can carry hundreds of video, data and voice channels
over extended distances, with coaxial cable, which requires a more extensive
signal amplification in order to obtain the desired levels for delivering
channels. In most of our cable systems, we connect fiber-optic cable to
individual nodes serving an average of 350 homes or commercial buildings. A node
is a single connection to a cable system's main, high-capacity fiber-optic cable
that is shared by a number of customers. Coaxial cable is then connected from
each node to the individual homes or buildings. Our network design generally
provides for six strands of fiber to each node, with two strands active and four
strands reserved for future services. We believe hybrid fiber-optic coaxial
architecture provides higher capacity, superior signal quality, greater network
reliability, reduced operating costs and more reserve capacity for the addition
of future services than traditional coaxial network design.
Two-way communications capability will permit our customers to send and
receive signals over the cable network so that interactive services, such as
video-on-demand, will be accessible and high-speed Internet access will not
require a separate telephone line. This capability will also position us to
offer cable telephony, using either Internet protocol telephony as it becomes
commercially feasible, or the traditional switching technologies that are
currently available. We believe our plans for two-way communications capability,
together with hybrid fiber-optic coaxial architecture, will enhance our cable
network's ability to provide advanced telecommunications services.
As of March 31, 2001, our cable systems were operated from 408 headend
facilities. We believe that fiber-optics and advanced transmission technologies
make it cost effective to consolidate our headend facilities, allowing us to
realize operating efficiencies and resulting in lower fixed capital costs on a
per home basis as we introduce new products and services. By December 2002, we
plan to eliminate 308 headend facilities so that all of our customers will be
served by 100 headend facilities and 92% of our customers will be served by 40
headend facilities.
As part of this headend consolidation program, we plan to deploy over
10,000 route miles of fiber-optic cable to create large regional fiber-optic
networks with the potential to provide advanced telecommunications services. We
are constructing our regional networks with excess fiber-optic capacity to
accommodate new and expanded products and services in the future.
Sales and Marketing
We seek to be the premier provider of entertainment, information and
telecommunications services in the markets we serve. Our marketing programs and
campaigns offer a variety of cable services creatively packaged and tailored to
appeal to each of our local markets and to segments within each market. We
routinely survey our customers to ensure that we are meeting their demands and
our customer surveys keep us abreast of our competition so that we can
effectively counter competitors' service offerings and promotional campaigns.
With our strong local presence, we interact with our customers on a more
individualized basis allowing us to better service our customers and enhance
customer loyalty and trust.
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We use a coordinated array of marketing techniques to attract and retain
customers and to increase premium service penetration, including door-to-door
and direct mail solicitation, telemarketing, media advertising, local
promotional events, typically sponsored by programming services and
cross-channel promotion of new services and pay-per-view.
We build awareness of our brand through a variety of promotional campaigns,
particularly in our newly acquired systems. As a result of our branding efforts,
our emphasis on customer service and our investments in the cable network, we
believe we have developed a reputation for quality, reliability and timely
introduction of new products and services.
We invest a significant amount of time, effort and financial resources in
the training and evaluation of our marketing professionals and customer sales
representatives. Our customer sales representatives customize their sales
presentation to fit each of our customers' specific needs by conducting focused
consumer research and are given the incentive to use their frequent contact with
our customers as opportunities to sell our new products and services. As a
result, we believe we can accelerate the introduction of new products and
services to our customers and achieve high success rates in attracting and
retaining customers.
Programming Supply
We have various contracts to obtain basic and premium programming for the
systems from program suppliers whose compensation is typically based on a fixed
fee per customer. Our programming contracts are generally for a fixed period of
time and are subject to negotiated renewal. Some program suppliers provide
volume discount pricing structures or offer marketing support to us. Our
successful marketing of multiple premium service packages emphasizing customer
value enables us to take advantage of such cost incentives. In addition, we are
a member of the National Cable Television Cooperative, Inc., a programming
consortium consisting of small to medium-sized multiple system operators
serving, in the aggregate, over twelve million cable subscribers. The consortium
helps create efficiencies in the areas of obtaining and administering
programming contracts, as well as securing more favorable programming rates and
contract terms for small to medium-sized cable operators. We negotiate
programming contract renewals both directly and through the consortium to obtain
the best available contract terms.
Our programming costs are expected to increase in the future due to
additional programming being provided to our customers, increased costs to
purchase programming, inflationary increases and other factors affecting the
cable television industry. Although we will legally be able to pass through
expected increases in our programming costs to customers, there can be no
assurance that the marketplace will allow us to do so. We also have various
retransmission consent arrangements with commercial broadcast stations, which
generally expire in December 2002. None of these consents require payment of
fees for carriage. However, we have entered into agreements with certain
stations to carry satellite-delivered cable programming, which is affiliated
with the network carried by such stations.
Currently, there are over 200 cable programming networks carried or seeking
to be carried on our cable systems. We use the analog and digital channel
capacity resulting from our capital improvement program to negotiate more
favorable long-term contracts with our programming suppliers and utilize other
financial arrangements to offset programming cost increases.
Customer Rates
Monthly customer rates for services vary from market to market, primarily
according to the amount of programming provided. As of March 31, 2001, our
monthly basic service rates for residential customers ranged from $5.18 to
$38.95; the combined monthly basic and expanded basic service rates for
residential customers ranged from $15.95 to $38.95; and per-channel premium
service rates, not including special promotions, ranged from $0.30 to $13.00 per
service for our cable systems.
A one-time installation fee, which we may wholly or partially waive during
a promotional period, is usually charged to new customers. We charge monthly
fees for converters and remote control tuning devices and also charge
administrative fees for delinquent payments for service. Customers are free to
discontinue service at any time without additional charge in the majority of the
systems and may be charged a reconnection fee to resume
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service. Commercial customers, such as hotels, motels and hospitals,
are charged negotiated monthly fees and a non-recurring fee for the installation
of service. Multiple dwelling units, which include commercial customers as well
as condominiums and apartment complexes, may be offered a bulk rate in exchange
for single-point billing and basic service to all units.
In addition to customer fees, we derive revenues from the sale of local
spot advertising time on locally originated and satellite-delivered programming
and from affiliations with home shopping services, which offer merchandise for
sale to customers and compensate system operators with a percentage of their
sales receipts. Our headend consolidation program will increase the
concentration of customers served by our headend facilities. We believe the
greater concentration of customers served by our remaining headend facilities
will enable us to increase our advertising revenues.
Customer Service and Community Relations
We are dedicated to providing superior customer service. Our emphasis on
system reliability and customer satisfaction is a cornerstone of our business
strategy. We expect that on going investments in our cable network will
significantly strengthen customer service, enhancing the reliability of our
cable network and allowing us to introduce new products and services to our
customers. We have implemented stringent internal customer service standards,
which we believe meet or exceed those established by the National Cable
Television Association. We maintain five regional calling centers, which service
84% of our cable systems' customers. They are staffed with dedicated personnel
who provide service to our customers 24 hours a day, seven days a week, on a
toll-free basis. We believe our regional calling centers allow us to coordinate
more effectively installation appointments and reduce response time to customer
inquiries. We continue to invest in both personnel and equipment of our regional
calling centers to ensure that these operating units are professionally managed
and employ state-of-the-art technology.
In addition, we are dedicated to fostering strong community relations in
the communities served by our cable systems. We support local charities and
community causes in various ways, including staged events and promotional
campaigns to raise funds and supplies for persons in need and in-kind donations
that include production services and free airtime on cable networks. We
participate in the "Cable in the Classroom" program, which is a national effort
by cable companies to provide schools with free cable television service and,
where available, Internet access. We also install and provide free cable
television service to government buildings and not-for-profit hospitals in our
franchise areas. We believe that our relations with the communities in which our
cable systems operate are good.
Franchises
Cable systems are generally operated under non-exclusive franchises granted
by local governmental authorities. These franchises typically contain many
conditions, such as: time limitations on commencement and completion of
construction; conditions of service, including number of channels, types of
services and the provision of free service to schools and other public
institutions; and the granting of insurance and indemnity bonds by the cable
operator. Many of the provisions of local franchises are subject to federal
regulation under the Communications Act of 1934, as amended.
As of March 31, 2001, our cable systems were subject to 1,018 franchises.
These franchises, which are non-exclusive, provide for the payment of fees to
the issuing authority. In most of the cable systems, such franchise fees are
passed through directly to the customers. The Cable Communications Policy Act of
1984 prohibits franchising authorities from imposing franchise fees in excess of
5% of gross revenues and also permits the cable operator to seek renegotiation
and modification of franchise requirements if warranted by changed
circumstances.
Substantially all of our cable systems' basic subscribers are in service
areas that require a franchise. The table below groups the franchises of our
cable systems by year of expiration and presents the approximate number and
percentage of basic subscribers for each group as of March 31, 2001.
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Percentage of Number of Percentage of
Number of Total Basic Total Basic
Year of Franchise Expiration Franchises Franchises Subscribers Subscribers
---------------------------- ---------- ---------- ----------- -----------
2001 through 2004 ........................... 283 27.8% 221,700 28.5%
2005 and thereafter ......................... 735 72.2% 555,300 71.5%
----- ----- ------- -----
Total ....................................... 1,018 100.0% 777,000 100.0%
===== ===== ======= =====
Competition
We, like most cable systems, compete on the basis of several factors,
including price and the quality and variety of services offered. We face
competition from various communications and entertainment providers, the number
and type of which we expect to increase as we expand the products and services
offered over our broadband network. We believe our ability to package multiple
services, such as digital television and high-speed Internet access, is an
advantage in our competitive business environment.
Providers of Broadcast Television and Other Entertainment
The extent to which a cable system competes with over-the-air broadcasting,
which provides signals that a viewer is able to receive directly, depends upon
the quality and quantity of the broadcast signals available by direct antenna
reception compared to the quality and quantity of such signals and alternative
services offered by a cable system. Cable systems also face competition from
alternative methods of distributing and receiving television signals and from
other sources of entertainment such as live sporting events, movie theaters and
home video products, including videotape recorders and videodisc players. In
recent years, the FCC has adopted policies authorizing new technologies and a
more favorable operating environment for certain existing technologies that
provide, or may provide, substantial additional competition for cable systems.
The extent to which a cable television service is competitive depends in
significant part upon the cable system's ability to provide a greater variety of
programming, superior technical performance and superior customer service than
are available over the air or through competitive alternative delivery sources.
Direct Broadcast Satellite Providers
Individuals can purchase home satellite dishes, which allow them to receive
satellite-delivered broadcast and non broadcast program services, commonly known
as DBS, that formerly were available only to cable television subscribers.
According to recent government and industry reports, conventional, medium and
high-power satellites currently provide video programming services to
approximately 15.0 million individual households, condominiums, apartments and
office complexes in the United States.
DBS service can be received virtually anywhere in the continental United
States through the installation of a small roof top or side-mounted antenna, and
it is accessible in areas where a cable plant has not been constructed or where
it is not cost effective to construct cable television facilities. DBS systems
use video compression technology to increase channel capacity and digital
technology to improve the quality of the signals transmitted to their customers.
DBS service is being heavily marketed on a nationwide basis by several service
operators. We believe our digital cable service is competitive with the
programming, channel capacity and the digital quality of signals delivered to
customers by DBS systems.
Two major companies, DirecTV and Echostar, are currently providing
nationwide high-power DBS services, which typically offer to their customers
more than 300 channels of programming, including programming similar to that
provided by cable systems. Pursuant to legislation enacted in November 1999, DBS
operators have begun to deliver local broadcast signals. This change in law
eliminated a significant competitive advantage which cable system operators had
over DBS operators, as previously DBS operators were not permitted to retransmit
local broadcast signals. DirecTV and Echostar now deliver local broadcast
signals in a number of the largest markets and they plan to expand such carriage
to many more markets. The FCC has adopted rules effective January 2002 which
place a must-carry requirement on DBS operators in any market where they
retransmit one or more local signals. The current capacity limitations of
satellite technology may limit the DBS operators' ability to comply with these
must-carry requirements. The DBS industry recently initiated a judicial
challenge to the January 2002 requirement
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on the grounds that it is unconstitutional. These companies and others are also
developing ways to bring advanced communications services to their customers.
They are currently offering satellite-delivered high-speed Internet access
services with a telephone return path and are beginning to provide true two-way
interactivity. We are unable to predict the effects these competitive
developments might have on our business and operations.
Multichannel Multipoint Distribution Systems
Multichannel multipoint distribution systems deliver programming services
over microwave channels licensed by the FCC and received by subscribers with
special antennas. These wireless cable systems are less capital intensive and
subject to fewer regulatory requirements than cable television systems, and are
not required to obtain local franchises or pay franchise fees. To date, the
ability of wireless cable services to compete with cable systems has been
limited by a channel capacity of up to 35 channels and the need for unobstructed
line-of-sight over-the-air transmission. Although relatively few wireless cable
systems in the United States are currently in operation or under construction,
virtually all markets have been licensed or tentatively licensed. The use of
digital compression technology, and the FCC's recent amendment to its rules to
permit reverse path or two-way transmission over wireless facilities, may enable
multichannel multipoint distribution systems to deliver more channels and
additional services, including Internet related services. Digital compression
technology refers to the conversion of the standard video signal into a digital
signal and the compression of that signal to facilitate multiple channel
transmissions through a single channel's signal.
Private Cable Television Systems
Private cable television systems compete with conventional cable television
systems for the right to service condominiums, apartment complexes and other
multiple unit residential developments. The operators of these private systems,
known as satellite master antenna television (SMATV) systems, provide improved
reception of local television stations and several of the same
satellite-delivered programming services offered by franchised cable systems.
SMATV system operators often enter into exclusive agreements with apartment
building owners or homeowners' associations that preclude franchised cable
television operators from serving residents of such private complexes and
typically are not subject to regulation like local franchised cable operators.
However, the 1984 Cable Act gives franchised cable operators the right to use
existing compatible easements within their franchise areas on nondiscriminatory
terms and conditions. Accordingly, where there are preexisting compatible
easements, cable operators may not be unfairly denied access or discriminated
against with respect to access to the premises served by those easements.
Conflicting judicial decisions have been issued interpreting the scope of the
access right granted by the 1984 Cable Act, particularly with respect to
easements located entirely on private property. Under the 1996 Telecom Act,
satellite master antenna television systems can interconnect non-commonly owned
buildings without having to comply with local, state and federal regulatory
requirements that are imposed upon cable systems providing similar services, as
long as they do not use public rights of way. The FCC has held that the latter
provision is not violated so long as interconnection across public rights of way
is provided by a third party.
Traditional Overbuilds
Cable television systems are operated under non-exclusive franchises
granted by local authorities. More than one cable system may legally be built in
the same area. Franchising authorities have from time to time granted additional
franchises to other companies, including other cable operators or telephone
companies, and these additional franchises might contain terms and conditions
more favorable than those afforded to the incumbent cable operator. In addition,
entities willing to establish an open video system, under which they offer
unaffiliated programmers non-discriminatory access to a portion of the system's
cable system, may be able to avoid significant local franchising requirements.
Well financed businesses from outside the cable industry, such as public
utilities which already possess or are developing fiber-optic and other
transmission facilities in the areas they serve, may over time become
competitors. We believe that various entities are currently offering cable
service to an estimated 4.7% of the homes passed in the service areas of our
franchises.
Internet Access
We offer high-speed Internet access in many of our cable systems. These
cable systems will compete with a number of other companies, many of which have
substantial resources, such as existing Internet service providers, commonly
known as ISP's, and local and long distance telephone companies.
- 57 -
Recently, a number of ISP's have asked local authorities and the FCC to
give them rights of access to cable systems' broadband infrastructure so that
they can deliver their services directly to cable systems' customers. Many local
franchising authorities have been examining the issue and a few have required
cable operators to provide such access. Several Federal courts have ruled that
localities are not authorized to require such access. The FCC initiated an
inquiry into the appropriate regulatory treatment of Internet offered on cable
systems.
The deployment of digital subscriber line technology, known as DSL, allows
Internet access to subscribers at data transmission speeds equal to or greater
than that of modems over conventional telephone lines, putting it in direct
competition with cable modem service. Numerous companies, including telephone
companies, have introduced DSL service and certain telephone companies are
seeking to provide high-speed broadband services, including interactive online
services, without regard to present service boundaries and other regulatory
restrictions. We are unable to predict the likelihood of success of competing
online services or what impact these competitive ventures may have on our
business operations.
Other Competition
The FCC has authorized a new interactive television service which permits
non-video transmission of information between an individual's home and
entertainment and information service providers. This service, which can be used
by direct broadcast satellite systems, television stations and other video
programming distributors, including cable television systems, is an alternative
technology for the delivery of interactive video services. It does not appear at
the present time that this service will have a material impact on the operations
of cable television systems.
The FCC has allocated spectrum in the 28GHz range for a new multichannel
wireless service that can be used to provide video and telecommunications
services. The FCC completed the process of awarding licenses to use this
spectrum via a market-by-market auction. We do not know whether such a service
would have a material impact on the operations of cable television systems.
The 1996 Telecom Act directed the FCC to establish, and the FCC has
adopted, regulations and policies for the issuance of licenses for digital
television to incumbent television broadcast licensees. Digital television can
deliver high definition television pictures and multiple digital-quality program
streams, as well as CD-quality audio programming and advanced digital services,
such as data transfer or subscription video. The FCC also has authorized
television broadcast stations to transmit textual and graphic information that
may be useful to both consumers and businesses. The FCC also permits commercial
and noncommercial FM stations to use their subcarrier frequencies to provide
non-broadcast services, including data transmission.
Advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, are constantly
occurring. Thus, it is not possible to predict the competitive effect that
ongoing or future developments might have on the cable industry.
Employees
As of March 31, 2001, we employed 1,468 full-time employees and 173
part-time employees. None of our employees are represented by a labor union. We
consider our relations with our employees to be good.
Properties
Our principal physical assets consist of cable television operating plant
and equipment, including signal receiving, encoding and decoding devices,
headend facilities and distribution systems and equipment at or near customers'
homes for each of the systems. The signal receiving apparatus typically includes
a tower, antenna, ancillary electronic equipment and earth stations for
reception of satellite signals. Headend facilities are located near the
receiving devices. Some basic subscribers of the systems utilize converters that
can be addressed by sending coded signals from the headend facility over the
cable network. Our distribution system consists primarily of coaxial and
fiber-optic cables and related electronic equipment.
We own the real property housing our regional call centers in Gulf Breeze,
Florida; Chillicothe, Illinois; and Waseca, Minnesota as well as numerous
locations for business offices and warehouses throughout our operating
- 58 -
regions. We lease space for our other regional call centers in Benton, Kentucky;
and Hendersonville, North Carolina. We also lease additional locations for
business offices and warehouses throughout our operating regions. Our headend
facilities, signal reception sites and microwave facilities are located on owned
and leased parcels of land, and we generally own the towers on which certain of
our equipment is located. We own most of our service vehicles. We believe that
our properties both owned and leased, are in good condition and are suitable and
adequate for our operations.
Our cable television plant and related equipment generally are attached to
utility poles under pole rental agreements with local public utilities, although
in some areas the distribution cable is buried in underground ducts or trenches.
The physical components of the systems require maintenance and periodic
upgrading to improve system performance and capacity.
Legal Proceedings
On November 3, 2000, Mediacom Communications resolved litigation brought
against it by Grey Advertising, Inc. ("Grey") in January 2000. Mediacom
Communications and Grey entered into a final settlement agreement that involves
no monetary payments by either party and that permits Mediacom Communications
and its subsidiaries to continue to use the name "Mediacom" in accordance with
the terms of their confidential agreement.
There are no other material pending legal proceedings to which we are a
party or to which any of our properties are subject.
- 59 -
LEGISLATION AND REGULATION
General
A federal law known as the Communications Act of 1934, as amended (the
"Communications Act"), establishes a national policy to guide the regulation,
development and operation of cable communications systems. In 1996, a
comprehensive amendment to the Communications Act became effective and is
expected to promote competition and decrease governmental regulation of various
communications industries, including the cable television industry. However,
until the desired competition develops, various federal, state and local
governmental units will have broad regulatory authority and responsibilities
over telecommunications and cable television matters. The courts, especially the
federal courts, will continue to play an important oversight role as the
statutory and regulatory provisions are interpreted and enforced by the various
federal, state and local governmental units.
The Communications Act allocates principal responsibility for enforcing the
federal policies between the Federal Communications Commission (the "FCC"),
state and local governmental authorities. The FCC and state regulatory agencies
regularly conduct administrative proceedings to adopt or amend regulations
implementing the statutory mandate of the Communications Act. At various times,
interested parties to these administrative proceedings challenge the new or
amended regulations and policies in the courts with varying levels of success.
We expect that further court actions and regulatory proceedings will occur and
will refine the rights and obligations of various parties, including the
government, under the Communications Act. The results of these judicial and
administrative proceedings may materially affect the cable industry and our
business and operations. In the following paragraphs, we summarize the federal
laws and regulations materially affecting the growth and operation of the cable
industry. We also provide a brief description of certain state and local laws.
Federal Regulation
The Communications Act and the regulations and policies of the FCC affect
significant aspects of our cable system operations, including:
. subscriber rates;
. the content of the programming we offer to subscribers, as well as the
way we sell our program packages to subscribers;
. the use of our cable systems by the local franchising authorities, the
public and other unrelated companies;
. our franchise agreements with local governmental authorities;
. cable system ownership limitations and prohibitions; and
. our use of utility poles and conduit.
Subscriber Rates
The Communications Act and the FCC's regulations and policies limit the
ability of cable systems to raise rates for basic services and equipment. No
other rates can be regulated. Federal law exempts cable systems from rate
regulation of cable services and customer equipment in communities that are
subject to effective competition, as defined by federal law.
Where there is no effective competition to the cable operator's services,
federal law gives local franchising authorities the right to regulate the rates
charged by the operator for:
. the lowest level of programming service offered by cable operator,
typically called basic service, which includes the local broadcast
channels and any public access or governmental channels that are
required by the operator's franchise;
- 60 -
. the installation of cable service and related service calls; and
. the sale and lease of equipment used by subscribers to receive basic
service, such as converter boxes and remote control units.
Local franchising authorities who wish to regulate basic service rates and
related installation and equipment rates must first obtain FCC certification to
regulate by following a simplified FCC certification process and agreeing to
follow established FCC rules and policies when regulating the operator's rates.
Several years ago, the FCC adopted detailed rate regulations, guidelines
and rate forms that a cable system operator and the local franchising authority
must use in connection with the regulation of basic service and equipment rates.
The FCC adopted a benchmark methodology as the principal method of regulating
rates. However, if this methodology produces unacceptable rates, the operator
may also justify rates using a detailed cost-of-service methodology. The FCC's
rules also require franchising authorities to regulate installation and
equipment rates on the basis of actual cost plus a reasonable profit, as defined
by the FCC.
If the local franchising authority concludes that an operator's rates are
too high under the FCC's rate rules, the local franchising authority may require
the operator to reduce rates and to refund overcharges to subscribers, with
interest. The operator may appeal adverse local rate decisions to the FCC.
The FCC's regulations allow an operator to modify regulated rates on a
quarterly or annual basis to account for changes in:
. the number of regulated channels;
. inflation; and
. certain external costs, such as franchise and other governmental fees,
copyright and retransmission consent fees, taxes, programming fees and
franchise-related obligations.
The FCC's regulations also allow an operator to modify regulated rates to
reflect the costs of a significant system upgrade.
The Communications Act and the FCC's regulations also:
. require operators to charge uniform rates throughout each franchise
area that is not subject to effective competition;
. prohibit regulation of non-predatory bulk discount rates offered by
operators to subscribers in commercial and residential developments;
and
. permit regulated equipment rates to be computed by aggregating costs
of broad categories of equipment at the franchise, system, regional or
company level.
Content Requirements
The Communications Act and the FCC's regulations contain broadcast signal
carriage requirements that allow local commercial television broadcast stations:
. to elect once every three years to require a cable system to carry the
station, subject to certain exceptions; or
. to negotiate with us on the terms by which we carry the station on our
cable system, commonly called retransmission consent.
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The Communications Act requires a cable operator to devote up to one-third
of its activated channel capacity for the mandatory carriage of local commercial
television stations. The Communications Act also gives local non-commercial
television stations mandatory carriage rights; however, such stations are not
given the option to negotiate retransmission consent for the carriage of their
signals by cable systems. Additionally, cable systems must obtain retransmission
consent for:
. all distant commercial television stations, except for commercial
satellite-delivered independent superstations such as WGN;
. commercial radio stations; and
. certain low-power television stations.
The FCC has recently completed an administrative proceeding to consider the
requirements for mandatory carriage of digital television signals offered by
local television broadcasters. Under the new regulations, local television
broadcast stations transmitting solely in a digital format are entitled to
request carriage in their choice of digital or converted analog format. Stations
transmitting in both digital and analog formats, which is permitted during the
current several-year transition period, have no carriage rights for the digital
format during the transition unless and until they turn in their analog channel.
We are unable to predict the impact of these new carriage requirements on the
operations of our cable systems.
The Communications Act requires our cable systems, other than those systems
which are subject to effective competition, to permit subscribers to purchase
video programming we offer on a per channel or a per program basis without the
necessity of subscribing to any tier of service other than the basic cable
service tier. However, we are not required to comply with this requirement until
October 2002 for any of our cable systems that do not have addressable converter
boxes or that have other substantial technological limitations. Many of our
cable systems do not have the technological capability to offer programming in
the manner required by the statute and thus currently are exempt from complying
with the requirement. We anticipate having significant capital expenditures in
order for us to meet this requirement. We are unable to predict whether the full
implementation of this statutory provision in October 2002 will have a material
impact on the operation of our cable systems.
To increase competition between cable operators and other video program
distributors, the Communications Act and the FCC's regulations:
. preclude any satellite video programmer affiliated with a cable
company, or with a common carrier providing video programming directly
to its subscribers, from favoring an affiliated company over
competitors;
. require such programmers to sell their programming to other
unaffiliated video program distributors; and
. limit the ability of such programmers to offer exclusive programming
arrangements to their related parties.
The Communications Act and the FCC's regulations contain restrictions on
the transmission by cable operators of obscene or indecent programming.
Transmission of obscene programming is prohibited. Cable operators must, upon
request, fully block both the video and audio portion of indecent programming.
Rules allowing cable operators, alternatively, to carry such programming
"unblocked" during late-night safe harbor periods were struck down by a
three-judge federal district court as unconstitutional. The United States
Supreme Court recently affirmed the lower court's decision.
The FCC actively regulates other aspects of our programming, involving such
areas as:
. our use of syndicated and network programs and local sports broadcast
programming;
. advertising in children's programming;
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. political advertising;
. origination cablecasting;
. sponsorship identification; and
. closed captioning of video programming.
Use of Our Cable Systems by the Government and Unrelated Third Parties
The Communications Act allows local franchising authorities and unrelated
third parties to have access to our cable systems' channel capacity for their
own use. For example, it:
. permits franchising authorities to require cable operators to set
aside channels for public, educational and governmental access
programming; and
. requires a cable system with 36 or more activated channels to
designate a significant portion of its channel capacity for commercial
leased access by third parties to provide programming that may compete
with services offered by the cable operator.
The FCC regulates various aspects of third party commercial use of channel
capacity on our cable systems, including:
. the maximum reasonable rate a cable operator may charge for third
party commercial use of the designated channel capacity;
. the terms and conditions for commercial use of such channels; and
. the procedures for the expedited resolution of disputes concerning
rates or commercial use of the designated channel capacity.
The FCC has from time to time received petitions from Internet service
providers to require access to our cable systems. We cannot predict if these or
other similar proposals will be adopted, or, if adopted, whether they will have
an adverse impact on our business and operations.
Franchise Matters
We have non-exclusive franchises in virtually every community in which we
operate that authorize us to construct, operate and maintain our cable systems.
Although franchising matters are normally regulated at the local level through a
franchise agreement or a local ordinance, the Communications Act provides
oversight and guidelines to govern our relationship with local franchising
authorities.
For example, the Communications Act:
. affirms the right of franchising authorities, which may be state or
local, depending on the practice in individual states, to award one or
more franchises within their jurisdictions;
. generally prohibits us from operating in communities without a
franchise;
. encourages competition with existing cable systems by:
. allowing municipalities to operate their own cable systems
without franchises, and
. preventing franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area;
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. permits local authorities, when granting or renewing our franchises,
to establish requirements for cable-related facilities and equipment,
but prohibits franchising authorities from establishing requirements
for specific video programming or information services other than in
broad categories;
. permits us to obtain modification of our franchise requirements from
the franchise authority or by judicial action if warranted by
commercial impracticability; and
. generally prohibits franchising authorities from:
. imposing requirements during the initial cable franchising
process or during franchise renewal that require, prohibit or
restrict us from providing telecommunications services,
. imposing franchise fees on revenues we derive from providing
telecommunications services over our cable systems,
. restricting our use of any type of subscriber equipment or
transmission technology, and
. limits our payment of franchise fees to the local franchising
authority to 5.0% of our gross revenues derived from providing
cable services over our cable system.
The Communications Act contains renewal procedures designed to protect us
against arbitrary denials of renewal of our franchises although, under certain
circumstances, the franchising authority could deny us a franchise renewal.
Moreover, even if our franchise is renewed, the franchising authority may seek
to impose upon us new and more onerous requirements, such as significant
upgrades in facilities and services or increased franchise fees as a condition
of renewal. Similarly, if a franchising authority's consent is required for the
purchase or sale of our cable system or franchise, the franchising authority may
attempt to impose more burdensome or onerous franchise requirements on us in
connection with a request for such consent. Historically, cable operators
providing satisfactory services to their subscribers and complying with the
terms of their franchises have almost always obtained franchise renewals. We
believe that we have generally met the terms of our franchises and have provided
quality levels of service. We anticipate that our future franchise renewal
prospects generally will be favorable.
Various courts have considered whether franchising authorities have the
legal right to limit the number of franchises awarded within a community and to
impose substantive franchise requirements. These decisions have been
inconsistent and, until the U.S. Supreme Court rules definitively on the scope
of cable operators' First Amendment protections, the legality of the franchising
process generally and of various specific franchise requirements is likely to be
in a state of flux.
Ownership Limitations
The Communications Act generally prohibits us from owning or operating a
satellite master antenna television system or multichannel multipoint
distribution system in any area where we provide franchised cable service and do
not have effective competition, as defined by federal law. We may, however,
acquire and operate a satellite master antenna television system in our existing
franchise service areas if the programming and other services provided to the
satellite master antenna television system subscribers are offered according to
the terms and conditions of our local franchise agreement.
The Communications Act also authorizes the FCC to adopt nationwide limits
on the number of subscribers under the control of a cable operator. The FCC
recently reconsidered its cable ownership regulations and:
. changed its subscriber ownership limit to 30% of subscribers to
multi-channel video programming distributors nationwide, but
maintained its voluntary stay on enforcement of that limitation
pending further action;
. reaffirmed its subscriber ownership information reporting rules that
require any person holding an attributable interest, as defined by FCC
rules, in cable systems reaching 20% or more of homes passed by cable
plant nationwide to notify the FCC of any incremental change in that
person's cable ownership interests;
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. retained its 5% voting stock attribution benchmark;
. raised the passive investor voting stock benchmark from 10% to 20%;
and
. adopted a new equity/debt rule that will attribute any interest of
over 33% of the total assets, i.e., debt plus equity, voting or
nonvoting, of an entity.
The Communications Act and FCC regulations also impose limits on the number
of channels that can be occupied on a cable system by a video programmer in
which a cable operator has an interest. A federal appellate court affirmed the
statutory ownership restrictions, but overturned the FCC's revised 30%
subscriber ownership limitation and the rule regarding the number of channels on
a cable system which can be occupied by programming affiliated with the cable
operator on the basis that they do not pass constitutional muster. These matters
have been sent back to the FCC for further proceedings.
The 1996 amendments to the Communications Act eliminated the statutory
prohibition on the common ownership, operation or control of a cable system and
a television broadcast station in the same service area. The identical FCC
regulation remains in place although the FCC has eliminated its regulatory
restriction on cross-ownership of cable systems and national broadcasting
networks.
The 1996 amendments to the Communications Act also made far-reaching
changes in the relationship between local telephone companies and cable service
providers. These amendments:
. eliminated federal legal barriers to competition in the local
telephone and cable communications businesses, including allowing
local telephone companies to offer video services in their local
telephone service areas;
. preempted legal barriers to telecommunications competition that
previously existed in state and local laws and regulations;
. set basic standards for relationships between telecommunications
providers; and
. generally limited acquisitions and prohibited joint ventures between
local telephone companies and cable operators in the same market.
Local telephone companies may provide service as traditional cable
operators with local franchises or they may opt to provide their programming
over open video systems, subject to certain conditions, including, but not
limited to, setting aside a portion of their channel capacity for use by
unaffiliated program distributors on a non-discriminatory basis. The decision as
to whether an operator of an open video system must obtain a local franchise is
left to each community.
Pole Attachment Regulation
The Communications Act requires the FCC to regulate the rates, terms and
conditions imposed by public utilities for cable systems' use of utility pole
and conduit space unless state authorities have demonstrated to the FCC that
they adequately regulate pole attachment rates, as is the case in certain states
in which we operate. In the absence of state regulation, the FCC administers
pole attachment rates on a formula basis. The FCC's current rate formula governs
the maximum rate certain utilities may charge for attachments to their poles and
conduit by cable operators providing only cable services. The FCC also adopted a
second rate formula that governs the maximum rate certain utilities may charge
for attachments to their poles and conduit by companies providing
telecommunications services, including cable operators.
Any resulting increase in attachment rates due to the FCC's new rate
formula will be phased in over a five-year period in equal annual increments,
beginning in February 2001. A federal appellate court generally rejected
challenges to these new rules. However, there was one significant exception,
i.e., the court found that the provision of Internet access by a cable system
was neither a cable service or a telecommunications service, thus the FCC lacked
authority to regulate pole attachment rates for cable systems which offer
Internet access. The Supreme Court
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has agreed to hear an appeal from this decision. We are unable to predict the
ultimate impact of any revised FCC rate formula or of any new pole attachment
rate regulations on our business and operations.
Other Regulatory Requirements of the Communications Act and the FCC
The FCC has adopted cable inside wiring rules to provide a more specific
procedure for the disposition of residential home wiring and internal building
wiring that belongs to an incumbent cable operator that is forced by the
building owner to terminate its cable services in a building with multiple
dwelling units. The FCC is also considering additional rules relating to inside
wiring that, if adopted, may disadvantage incumbent cable operators.
The Communications Act includes provisions, among others, regulating and
the FCC actively regulates other parts of our cable operations, involving such
areas as:
. equal employment opportunity;
. consumer protection and customer service;
. technical standards and testing of cable facilities;
. consumer electronics equipment compatibility;
. registration of cable systems;
. maintenance of various records and public inspection files;
. microwave frequency usage; and
. antenna structure notification, marking and lighting.
The FCC may enforce its regulations through the imposition of fines, the
issuance of cease and desist orders or the imposition of other administrative
sanctions, such as the revocation of FCC licenses needed to operate transmission
facilities often used in connection with cable operations. The FCC has ongoing
rulemaking proceedings that may change its existing rules or lead to new
regulations. We are unable to predict the impact that any further FCC rule
changes may have on our business and operations.
Other bills and administrative proposals pertaining to cable communications
have previously been introduced in Congress or considered by other governmental
bodies over the past several years. It is probable that Congress and other
governmental bodies will make further attempts relating to the regulation of
cable communications services.
Copyright
Our cable systems typically include in their channel line-ups local and
distant television and radio broadcast signals, which are protected by the
copyright laws. We generally do not obtain a license to use this programming
directly from the owners of the programming, but instead comply with an
alternative federal compulsory copyright licensing process. In exchange for
filing certain reports and contributing a percentage of our revenues to a
federal copyright royalty pool, we obtain blanket permission to retransmit the
copyrighted material carried on these broadcast signals. The nature and amount
of future copyright payments for broadcast signal carriage cannot be predicted
at this time.
In a report to Congress, the U.S. Copyright Office recommended that
Congress make major revisions to both the cable television and satellite
compulsory licenses. Congress recently modified the satellite compulsory license
in a manner that permits DBS providers to become more competitive with cable
operators like us. The possible simplification, modification or elimination of
the cable communications compulsory copyright license is the subject of
continuing legislative review. The elimination or substantial modification of
the cable compulsory license could adversely affect our ability to obtain
suitable programming and could substantially increase the cost of
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programming that remains available for distribution to our subscribers. We are
unable to predict the outcome of this legislative activity.
Copyrighted music performed in programming supplied to cable television
systems by pay cable networks and basic cable networks is licensed by the
networks through private agreements with the American Society of Composers and
Publishers, commonly referred to as ASCAP, and BMI, Inc., the two major
performing rights organizations in the United States. Both the American Society
of Composers and Publishers and BMI offer through to the viewer licenses to the
cable networks which cover the retransmission of the cable networks' programming
by cable television systems to their customers.
Our cable systems also utilize music in other programming and advertising
that we provide to subscribers. The rights to use this music are controlled by
various music performing rights organizations from which performance licenses
must be obtained. Although we cannot predict the amount of any license fees we
may be required to pay for future use of music, we do not believe such license
fees will be significant to our financial position, results of operations or
liquidity.
State and Local Regulation
Our cable systems use local streets and rights-of-way. Consequently, we
must comply with state and local regulation, which is typically imposed through
the franchising process. Our cable systems generally are operated in accordance
with non-exclusive franchises, permits or licenses granted by a municipality or
other state or local government entity. Our franchises generally are granted for
fixed terms and in many cases are terminable if we fail to comply with material
provisions. The terms and conditions of our franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing:
. franchise fees;
. franchise term;
. system construction and maintenance obligations;
. system channel capacity;
. design and technical performance;
. customer service standards;
. sale or transfer of the franchise;
. territory of the franchise;
. indemnification of the franchising authority;
. use and occupancy of public streets; and
. types of cable services provided.
A number of states subject cable systems to the jurisdiction of centralized
state governmental agencies, some of which impose regulation of a character
similar to that of a public utility. Attempts in other states to regulate cable
systems are continuing and can be expected to increase. To date, other than
Delaware, no state in which we operate has enacted such state-level regulation.
State and local franchising jurisdiction is not unlimited; however, it must be
exercised consistently with federal law. The Communications Act immunizes
franchising authorities from monetary damage awards arising from regulation of
cable systems or decisions made on franchise grants, renewals, transfers and
amendments.
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The foregoing describes all material present and proposed federal, state
and local regulations and legislation affecting the cable industry. Other
existing federal regulations, copyright licensing, and, in many jurisdictions,
state and local franchise requirements, are currently the subject of judicial
proceedings, legislative hearings and administrative proposals which could
change, in varying degrees, the manner in which cable systems operate. Neither
the outcome of these proceedings nor their impact upon the cable industry or our
cable operations can be predicted at this time.
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MANAGEMENT
Mediacom Communications is our sole member. The table below sets forth
certain information with respect to the executive officers of Mediacom
Communications, Mediacom LLC and Mediacom Capital. Mediacom Communications
serves as manager of our operating subsidiaries. The executive officers of
Mediacom LLC and the executive officers and directors of Mediacom Communications
and Mediacom Capital are:
Name Age Position
------------------------- --- -----------------------------------------
Rocco B. Commisso ......... 51 Chairman and Chief Executive Officer of
Mediacom LLC and Mediacom Communications
and President, Chief Executive Officer
and Director of Mediacom Capital
Mark E. Stephan ........... 45 Senior Vice President, Chief Financial
Officer and Treasurer of Mediacom LLC,
Senior Vice President, Chief Financial
Officer, Treasurer and Director of
Mediacom Communications and Treasurer and
Secretary of Mediacom Capital
James M. Carey ............ 50 Senior Vice President, Operations of
Mediacom Communications
Charles J. Bartolotta ..... 46 Senior Vice President, Field Operations
of Mediacom Communications
John G. Pascarelli ........ 40 Senior Vice President, Marketing and
Consumer Services of Mediacom
Communications
Joseph Van Loan ........... 59 Senior Vice President, Technology of
Mediacom Communications
Italia Commisso Weinand ... 47 Senior Vice President, Programming and
Human Resources and Secretary of Mediacom
Communications
Craig S. Mitchell ......... 42 Director of Mediacom Communications
William S. Morris III ..... 66 Director of Mediacom Communications
Thomas V. Reifenheiser .... 65 Director of Mediacom Communications
Natale S. Ricciardi ....... 52 Director of Mediacom Communications
Robert L. Winikoff ........ 55 Director of Mediacom Communications
Rocco B. Commisso has 23 years of experience with the cable television
industry and has served as our and our manager's Chairman and Chief Executive
Officer since founding our predecessor company in July 1995. Mr. Commisso has
served as President, Chief Executive Officer and Director of Mediacom Capital
since its inception in March 1998. From 1986 to 1995, he served as Executive
Vice President, Chief Financial Officer and a director of Cablevision Industries
Corporation. Prior to that time, Mr. Commisso served as Senior Vice President of
Royal Bank of Canada's affiliate in the United States from 1981, where he
founded and directed a specialized lending group to media and communications
companies. Mr. Commisso began his association with the cable industry in 1978 at
The Chase Manhattan Bank, where he was assigned to manage the bank's lending
activities to communications firms including the cable industry. He serves on
the boards of the National Cable Television Association, Cable Television
Laboratories, Inc. and C-SPAN. Mr. Commisso holds a Bachelor of Science in
Industrial Engineering and a Master of Business Administration from Columbia
University.
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Mark E. Stephan has 14 years of experience with the cable television
industry and has served as our and our manager's Senior Vice President, Chief
Financial Officer and Treasurer since the commencement of our operations in
March 1996. Mr. Stephan has served as Director of our manager since its
incorporation in November 1999 and as Treasurer and Secretary of Mediacom
Capital since its inception in March 1998. From 1993 to February 1996, Mr.
Stephan served as Vice President of Finance for Cablevision Industries. Prior to
that time, Mr. Stephan served as Manager of the telecommunications and media
lending group of Royal Bank of Canada from 1987 to 1992.
James M. Carey has 20 years of experience in the cable television
industry. Before joining our manager in September 1997, Mr. Carey was founder
and President of Infinet Results, a telecommunications consulting firm, from
December 1996. Mr. Carey served as Executive Vice President, Operations at
MediaOne Group from August 1995 to November 1996, where he was responsible for
MediaOne's Atlanta cable operations. Prior to that time, he served as Regional
Vice President of Cablevision Industries' Southern region. Mr. Carey is a member
of the board of directors of the American Cable Association.
Charles J. Bartolotta has 19 years of experience in the cable
television industry. Before joining our manager in October 2000, Mr. Bartolotta
served as Division President for AT&T Broadband, LLC from July 1998, where he
was responsible for managing an operating division serving nearly three million
customers. He served as Regional Vice President of Tele-Communications, Inc.
from January 1997 and as Vice President and General Manager for TKR Cable
Company from 1989. Prior to that time, Mr. Bartolotta held various management
positions with Cablevision Systems Corporation.
John G. Pascarelli has 20 years of experience in the cable television
industry. Before joining our manager in March 1998, Mr. Pascarelli served as
Vice President, Marketing for Helicon Communications Corporation from January
1996 to February 1998 and as Corporate Director of Marketing for Cablevision
Industries from 1988 to 1995. Prior to that time, Mr. Pascarelli served in
various marketing and system management capacities for Continental Cablevision,
Inc., Cablevision Systems and Storer Communications. Mr. Pascarelli is a member
of the board of directors of the Cable Television Administration and Marketing
Association.
Joseph Van Loan has 28 years of experience in the cable television
industry. Before joining our manager in November 1996, Mr. Van Loan served as
Senior Vice President, Engineering for Cablevision Industries from 1990. Prior
to that time, he managed a private telecommunications consulting practice
specializing in domestic and international cable television and broadcasting and
served as Vice President, Engineering for Viacom Cable. Mr. Van Loan received
the 1986 Vanguard Award for Science and Technology from the National Cable
Television Association.
Italia Commisso Weinand has 25 years of experience in the cable
television industry. Before joining our manager in April 1996, Ms. Weinand
served as Regional Manager for Comcast Corporation from July 1985. Prior to that
time, Ms. Weinand held various management positions with Tele-Communications,
Times Mirror Cable and Time Warner. She serves on the board of directors of the
National Cable Television Cooperative, Inc., a programming consortium consisting
of small to medium-sized multiple system operators. Ms. Weinand is the sister of
Mr. Commisso.
Craig S. Mitchell has held various management positions with Morris
Communications Corporation for more than the past five years. He currently
serves as its Vice President of Finance and Treasurer and is also a member of
its board of directors.
William S. Morris III has served as the Chairman and Chief Executive
Officer of Morris Communications for more than the past five years. He was the
Chairman of the board of directors of the Newspapers Association of America for
1999-2000.
Thomas V. Reifenheiser served for more than five years as a Managing
Director and Group Executive of the Global Media and Telecom Group of Chase
Securities Inc. until his retirement in September 2000. He joined Chase in 1963
and has been the Global Media and Telecom Group Executive since 1977. He also
had been a director of the Management Committee of The Chase Manhattan Bank. Mr.
Reifenheiser is a member of the board of directors of Lamar Advertising Company,
a leading owner and operator of outdoor advertising and logo sign displays.
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Natale S. Ricciardi has held various management positions with Pfizer
Inc. for more than the past five years. Mr. Ricciardi joined Pfizer in 1972 and
currently serves as its Vice President, U.S. Manufacturing, with responsibility
for all of Pfizer's U.S. manufacturing facilities.
Robert L. Winikoff has been a partner of the law firm of Sonnenschein
Nath & Rosenthal since August 2000. Prior thereto, he was a partner of the law
firm of Cooperman Levitt Winikoff Lester & Newman, P.C. for more than five
years. Sonnenschein Nath & Rosenthal currently serves as our manager's outside
general counsel and prior to such representation Cooperman Levitt Winikoff
Lester & Newman, P.C. served as our manager's outside general counsel since
1995.
Compensation
None of the executive officers of Mediacom LLC and Mediacom Capital are
compensated for their services as such officers. Rather, executive management of
Mediacom LLC and Mediacom Capital receive compensation from Mediacom
Communications.
The executive officers and directors of Mediacom Communications are
compensated exclusively by Mediacom Communications and do not receive any
separate compensation from Mediacom LLC or Mediacom Capital. Mediacom
Communications acts as our manager and in return receives a management fee. See
"Description of Governing Documents--Management Agreements" below.
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CERTAIN TRANSACTIONS
Management Agreements
Pursuant to management agreements between Mediacom Communications and
our operating subsidiaries, Mediacom Communications is entitled to receive
annual management fees in amounts not to exceed 4.5% of our gross operating
revenues. For the three months ended March 31, 2001 and for the year ended
December 31, 2000, Mediacom Communications received $2.3 million and $5.2
million, respectively, of such management fees.
Other Relationships
JP Morgan, Credit Suisse First Boston and Salomon Smith Barney and
their affiliates perform various investment banking and commercial banking
services from time to time for us and our affiliates. As of March 31, 2001, two
affiliates of J.P. Morgan Securities Inc. (formerly known as Chase Securities
Inc.) together held approximately 2.0% of the Class A common stock of Mediacom
Communications and individuals affiliated with Credit Suisse First Boston
Corporation beneficially owned an aggregate of approximately 0.1% of the Class A
common stock of Mediacom Communications. In addition, J.P. Morgan Securities
Inc. is an affiliate of The Chase Manhattan Bank which is agent bank and a
lender under our subsidiary credit facilities. Credit Suisse First Boston
Corporation is an affiliate of Credit Suisse First Boston, New York Branch,
which is a lender under our subsidiary credit facilities. Salomon Smith Barney
Inc. is an affiliate of Citibank, N.A. which is also a lender under our
subsidiary credit facilities. The Chase Manhattan Bank, Credit Suisse First
Boston, New York Branch, and Citibank, N.A. received their proportionate share
of any repayment of amounts outstanding under the revolver portion of our
subsidiary credit facilities from the proceeds of our January 2001 offer and
sale of the initial notes, of which J.P. Morgan, Credit Suisse First Boston and
Salomon Smith Barney were the initial purchasers.
On July 17, 2001, we paid a $125.0 million cash dividend to our manager
that was funded with borrowings under our subsidiary credit facilities. On July
18, 2001, we made a $150.0 million preferred equity investment in Mediacom
Broadband, which has a 12% annual cash dividend, payable quarterly, that was
also funded with borrowings under our subsidiary credit facilities. The proceeds
of the preferred equity investment and, indirectly, the $125.0 million cash
dividend paid to our manager partially funded the purchase price of Mediacom
Broadband's acquisition of cable systems from affiliates of AT&T Broadband.
PRINCIPAL STOCKHOLDERS
Mediacom Capital is a wholly-owned subsidiary of Mediacom LLC. Mediacom
Communications is the sole member of Mediacom LLC. The address of Mediacom
Communications is 100 Crystal Run Road, Middletown, New York 10941.
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DESCRIPTION OF GOVERNING DOCUMENTS
Mediacom LLC Operating Agreement
Mediacom LLC was formed as a limited liability company on July 17,
1995, pursuant to the provisions of the New York Limited Liability Company Law.
The following is a summary of the material provisions of the operating agreement
of Mediacom LLC.
The operating agreement provides that the overall management,
operation, and control of the business, activities, and affairs of Mediacom LLC
be vested exclusively in its managing member, Mediacom Communications. The
managing member serves without compensation, but is entitled to reimbursement
for all costs and expenses incurred by it in performing its duties under the
operating agreement. The managing member may delegate any of the duties, powers,
and authority vested in it under the operating agreement. Anyone to whom it
delegates any duties is subject to removal at any time at the managing member`s
discretion and must report to and consult with the managing member.
As of the date of this prospectus, Mediacom Communications is our sole
member.
No member is obligated to make any contributions to the capital of
Mediacom LLC, or has the right to withdraw its capital contribution or to demand
and receive property of Mediacom LLC or any distribution in return for its
capital, prior to dissolution of Mediacom LLC.
Under the operating agreement, members may not transfer their interests
without the consent of the managing member.
Management Agreements
Mediacom Communications manages each of our operating subsidiaries
pursuant to a management agreement with each operating subsidiary. Pursuant to
the management agreements, Mediacom Communications has the authority to perform,
or cause to be performed, for and on behalf of our operating subsidiaries, such
services as are reasonably required for the management and supervision of the
day-to-day operations of our operating subsidiaries' cable television systems.
Our operating subsidiaries retain ultimate control over their cable television
systems and their assets, including all franchises, FCC licenses and permits,
and remain responsible for all expenses and liabilities relating to the
construction, development, operation, maintenance, repair, and ownership of
their systems.
As compensation for the performance of its services, subject to certain
restrictions contained in our subsidiary credit facilities, Mediacom
Communications is entitled under each management agreement to receive management
fees in an amount not to exceed 4.5% of the annual gross operating revenues of
each of our operating subsidiaries. Mediacom Communications is also entitled to
the reimbursement of all expenses necessarily incurred in its capacity as
manager.
The management agreements will terminate upon the dissolution and
liquidation of the respective operating subsidiary, and are also terminable by
any operating subsidiary as follows:
. if Mediacom Communications materially breaches the management
agreement and fails to cure the breach within 20 days of receipt
of written notice of the breach (or, if the breach is not
susceptible to cure within 20 days, if Mediacom Communications
fails to cure the breach as promptly as possible, but in any
event, within 60 days of the written notice);
. if Mediacom Communications engages in any act of gross negligence,
dishonesty, willful malfeasance or gross misconduct that is
materially injurious to the respective operating subsidiary;
. if any lender consummates foreclosure proceedings following
default under any loan agreement with respect to the equity
interests or assets of the respective operating subsidiary; and
. if Mediacom Communications is unable to pay its debts as such
debts become due.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Subsidiary Credit Facilities
Our operating subsidiaries, through two separate borrowing groups we
refer to as the Mediacom USA Group and the Mediacom Midwest Group, currently
obtain bank financing through two separate credit facilities. The subsidiary
credit facilities for each borrowing group have no cross-default provisions
relating directly to each other, have different revolving credit periods and
contain separately negotiated covenants tailored for each borrowing group. The
subsidiary credit facilities restrict the ability of each borrowing group to
make distributions to us, subject to limited exceptions.
Financing for the operations of the Mediacom USA Group is provided by a
credit agreement among the operating subsidiaries comprising the Mediacom USA
Group, the lenders party thereto and The Chase Manhattan Bank, as administrative
agent. The Mediacom USA credit facility is a $550.0 million credit facility,
consisting of a $450.0 million revolving credit facility and a $100.0 million
term loan. The revolving credit facility expires March 31, 2008, subject to
earlier repayment on June 30, 2007 if we do not refinance our 8 1/2% senior
notes prior to March 31, 2007. Principal on the outstanding term loan is payable
in quarterly installments of $250,000 with the balance due and payable on
September 30, 2008, and is also subject to earlier repayment on September 30,
2007 if we do not refinance our 8 1/2% senior notes prior to March 31, 2007. At
March 31, 2001, there was $100.0 million of indebtedness outstanding under the
Mediacom USA credit facility. The Mediacom USA credit facility provides us with
two interest rate options, at our election, to which a margin is added: a base
rate, the higher of the overnight rate plus one-half of 1% and the prime
commercial lending rate, and a eurodollar rate, based on the interbank
eurodollar interest rate. Interest rate margins for the Mediacom USA credit
facility depend upon the performance of the Mediacom USA Group measured by its
leverage ratio, or the ratio of indebtedness to the immediately preceding
quarter's system cash flow, multiplied by four. The interest rate margins for
the Mediacom USA credit facility are as follows:
. interest on outstanding revolving loans is payable at either the
eurodollar rate plus a floating percentage ranging from 0.75% to
2.25% depending on the leverage ratio or the base rate plus a
floating percentage ranging from 0% to 1.25% depending on the
leverage ratio; and
. interest on term loans is payable at either the eurodollar rate
plus a floating percentage tied to the leverage ratio of either
2.50% or 2.75% or the base rate plus a floating percentage tied to
the leverage ratio of either 1.50% or 1.75%.
The weighted average interest rate at March 31, 2001 on the outstanding
borrowings under the Mediacom USA credit facility was 7.6%. As of March 31,
2001, interest rate swap agreements had been entered into to hedge the
underlying eurodollar rate exposure in the amount of $85.0 million with
expiration dates ranging from 2002 to 2004.
The revolving credit facility is available to the Mediacom USA Group to
fund acquisitions, to make payments to us under limited circumstances, to pay
management fees, to make investments and to finance capital expenditures and
working capital needs. Up to $100.0 million of the revolving credit facility is
available for letters of credit.
Financing for the operations of the Mediacom Midwest Group is provided
by a credit agreement among the operating subsidiaries comprising the Mediacom
Midwest Group, the lenders party thereto and The Chase Manhattan Bank, as
administrative agent. The Mediacom Midwest credit facility is a $550.0 million
credit facility, consisting of a $450.0 million revolving credit facility and a
$100.0 million term loan. The $450.0 million revolving credit facility expires
June 30, 2008, subject to earlier repayment on September 30, 2007 if we do not
refinance our 8 1/2% senior notes prior to March 31, 2007. Principal on the
outstanding term loan is payable in quarterly installments of between $125,000
and $250,000 with the balance due and payable on December 31, 2008, and is also
subject to earlier repayment on December 31, 2007 if we do not refinance our 8
1/2% senior notes prior to March 31, 2007. At March 31, 2001, there was $100.0
million of indebtedness outstanding under the Mediacom Midwest credit facility.
The Mediacom Midwest credit facility provides us with two interest rate options,
at our election, to which a margin is added: a base rate, the higher of the
overnight rate plus 1/2 of 1% and the prime commercial lending rate, and a
eurodollar rate based on the interbank eurodollar interest rate. Interest rate
margins for the
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Mediacom Midwest credit facility depend upon the performance of the
Mediacom Midwest Group as measured by its leverage ratio. The interest rate
margins for the Mediacom Midwest credit facility are as follows:
. interest on outstanding revolving loans is payable at either the
eurodollar rate plus a floating percentage ranging from 0.75% to
2.25% depending on the leverage ratio or the base rate plus a
floating percentage ranging from 0% to 1.25% depending on the
leverage ratio; and
. interest on term loans is payable at either the eurodollar rate
plus a floating percentage tied to the leverage ratio of either
2.50% or 2.75% or the base rate plus a floating percentage tied to
the leverage ratio of either 1.50% or 1.75%.
The weighted average interest rate at March 31, 2001 on the outstanding
borrowings under the Mediacom Midwest credit facility was 7.7%. As of March 31,
2001, interest rate swap agreements had been entered into to hedge the
underlying eurodollar rate exposure in the amount of $85.0 million with
expiration dates ranging from 2003 to 2004.
The revolving credit facility is available to the Mediacom Midwest
Group to make restricted payments to us, to pay management fees, to make
investments and to finance capital expenditures, working capital needs and
acquisitions. Up to $100.0 million of the revolving credit facility is available
for letters of credit.
In general, each of the subsidiary credit facilities requires the
borrowing groups to use the proceeds from specified debt issuances and asset
dispositions to prepay borrowings under the relevant borrowing group's credit
facility and to reduce permanently commitments thereunder. Each of the
subsidiary credit facilities also requires mandatory prepayments of amounts
outstanding and permanent reductions in the commitments thereunder, beginning in
2002, based on a percentage of excess cash flow.
Each of the subsidiary credit facilities is secured by a pledge of our
ownership interests in the subsidiaries forming the relevant borrowing group,
and is guaranteed by us on a limited recourse basis to the extent of such
ownership interests.
Each of the subsidiary credit facilities contains covenants, including:
. limitations on mergers and acquisitions, consolidations and sales of
assets;
. limitations on liens;
. incurrence of additional indebtedness;
. investments;
. restricted payments;
. maintenance of specified financial ratios;
. payment of management fees;
. capital expenditures; and
. restrictions on transactions with related parties.
In addition, an event of default will occur under each of the subsidiary
credit facilities if, among other things:
. Mr. Commisso ceases to be the Chairman and Chief Executive Officer of
Mediacom Communications and, in the case of the Mediacom Midwest credit
facility, the Chairman and Chief Executive Officer of Zylstra;
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. Mediacom LLC or Mediacom Communications shall cease to act as manager
of our subsidiaries;
. Mediacom LLC or Mediacom Communications shall cease to own 50.1% or
more of the aggregate voting rights of the equity interests of our
subsidiaries;
. specified change of control events occur and are continuing; or
. Mr. Commisso, his family members, his affiliates and our officers and
employees collectively cease to own at least 50.1% of the combined
voting power of the common stock of Mediacom Communications on a
fully-diluted basis.
Mediacom LLC Senior Notes
Mediacom LLC and Mediacom Capital, are obligors under the $200.0 million
aggregate principal amount of 8 1/2% senior notes due April 15, 2008 and the
$125.0 million aggregate principal amount of 7 7/8% senior notes due February
15, 2011. For a description of the exchange notes, see "Description of Notes."
These senior notes are general unsecured obligations of Mediacom LLC and
Mediacom Capital, rank on the same level with the existing and future senior
indebtedness of Mediacom LLC and Mediacom Capital and are subordinated to all
indebtedness and other liabilities and commitments of the subsidiaries of
Mediacom LLC and Mediacom Capital, including their credit facilities and trade
payables.
On or after April 15, 2003 with respect to the 8 1/2% senior notes and on
or after February 15, 2006 with respect to the 7 7/8% senior notes, Mediacom LLC
and Mediacom Capital may redeem the notes. On or before April 15, 2001 with
respect to the 8 1/2% senior notes and on or before February 15, 2002 with
respect to the 7 7/8% senior notes, Mediacom Capital and Mediacom LLC may redeem
up to 35% of the aggregate principal amount of the notes originally issued at
the price specified in the relevant indenture relating to the notes:
. only with the net proceeds of one or more equity offerings; and
. only if at least 65% of the aggregate principal amount of the relevant
senior notes originally issued remains outstanding after each
redemption.
If Mediacom LLC and Mediacom Capital sell specified assets or if Mediacom
LLC and Mediacom Capital experience specific kinds of changes of control,
holders of the 8 1/2% senior notes and the 7 7/8% senior notes will have the
opportunity to sell their notes to Mediacom LLC and Mediacom Capital at 100% or
at 101%, respectively, of the principal amount of such notes plus accrued and
unpaid interest and liquidated damages, if any, to the date of purchase.
The indentures governing the 8 1/2% senior notes and the 7 7/8% senior
notes limit the activities of Mediacom LLC and Mediacom Capital and the
activities of their restricted subsidiaries. The provisions of the indentures
limit their ability, subject to important exceptions:
. to incur additional indebtedness;
. to pay dividends or make other restricted payments;
. to sell assets or subsidiary stock;
. to enter into transactions with related parties;
. to create liens;
. to enter into agreements that restrict dividends or other payments
from restricted subsidiaries;
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. to merge, consolidate or sell all or substantially all of our assets; and
. with respect to restricted subsidiaries, to issue capital stock.
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DESCRIPTION OF NOTES
General
The initial notes were issued and the exchange notes (the "Notes") will
be issued under an Indenture (the "Indenture") dated as of January 24, 2001,
among Mediacom LLC and Mediacom Capital, as joint and several obligors, and The
Bank of New York, as Trustee (the "Trustee"). The Notes initially issued will
not be guaranteed by any Subsidiary of Mediacom LLC, but Mediacom LLC will agree
in the Indenture to cause a Restricted Subsidiary to guarantee payment of the
Notes in certain limited circumstances specified therein. See
"Covenants--Limitation on Guarantees of Certain Indebtedness" below. The Notes
will be issued in fully registered form only, in denominations of $1,000 and
integral multiples thereof. The Notes will be represented by one or more
registered Notes in global form and in certain circumstances may be represented
by Notes in certificated form. See "Book-Entry; Delivery and Form."
The form and terms of the exchange notes are the same in all material
respects as the form and terms of the initial notes, except that the exchange
notes will have been registered under the Securities Act and therefore will not
bear legends restricting their transfer. The initial notes have not been
registered under the Securities Act and are subject to transfer restrictions.
The following is a summary of the material provisions of the Notes and
the Indenture. This summary does not purport to be complete and is subject to
the detailed provisions of the Indenture and is qualified in its entirety by
reference to the Indenture, including the terms made a part thereof by the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). A copy of the
Indenture may be obtained upon request without charge from Mediacom
Communications. Capitalized terms used herein which are not otherwise defined
shall have the meaning assigned to them in the Indenture.
Principal, Maturity and Interest
The Notes initially issued under the Indenture were issued in an aggregate
principal amount of $500.0 million and will mature on January 15, 2013. Interest
on the Notes accrue at the rate of 9 1/2% per annum from January 24, 2001, or
from the most recent date on which interest has been paid or provided for,
payable semi-annually to holders of record at the close of business on the
January 1 or July 1 (whether or not such day is a business day) immediately
preceding the interest payment date on January 15 and July 15 of each year,
which commenced July 15, 2001. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. The Indenture provides for the
issuance thereunder of up to $500.0 million aggregate principal amount of
additional Notes having substantially identical terms and conditions to the
Notes offered hereby (the "Additional Notes"), subject to compliance with the
covenants contained in the Indenture (including "Covenants--Limitation on
Indebtedness" as a new Incurrence of Indebtedness by the Issuers). Any
Additional Notes will be part of the same issue as the Notes offered hereby (and
accordingly will participate in purchase offers and partial redemptions), will
vote on all matters with the Notes offered hereby and will have the same CUSIP
number. Unless the context otherwise requires, for purposes of this "Description
of the Notes," reference to the Notes includes Additional Notes.
Principal of, premium, if any, and interest, including Liquidated
Damages, if any, on the Notes will be payable, and the Notes may be exchanged or
transferred, at the office or agency of the Issuers maintained for such purpose
in the Borough of Manhattan, The City of New York (which initially shall be the
principal corporate trust office of the Trustee at 101 Barclay Street, floor 21
west, New York, New York 10286), except that, at the option of the Issuers,
payment of interest and Liquidated Damages, if any, may be made by check mailed
to the registered holders of the Notes at their registered addresses; provided
that all payments with respect to global Notes and certificated Notes the
holders of which have given written wire transfer instructions to the Trustee by
no later than five business days prior to the relevant payment date will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the holders thereof.
Ranking
The Notes will be unsecured, senior obligations of the Issuers, ranking
pari passu in right of payment with the 8 1/2% Notes, the 7 7/8% Notes and all
other existing and future unsecured Indebtedness of the Issuers, other than any
Subordinated Obligations. The Notes will be effectively subordinated to any
secured Indebtedness of the
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Issuers. Since Mediacom LLC is an intermediate holding company and conducts its
business through its Subsidiaries, the Notes will be effectively subordinated to
all existing and future Indebtedness and other liabilities (including trade
payables) of the Subsidiaries. Mediacom Communications is not and will not be an
obligor or guarantor of the Notes.
As of March 31, 2001, on a pro forma basis after giving effect to the
incurrence of $275.0 million of additional indebtedness under our subsidiary
credit facilities in July 2001 as described in "Unaudited Pro Forma Consolidated
Financial Statements," we had approximately $1.3 billion of total Indebtedness
outstanding (including approximately $475.0 million of Indebtedness of the
Subsidiaries), with the Subsidiaries having the ability to borrow up to an
additional $625.0 million in the aggregate under the Subsidiary Credit
Facilities (subject to certain borrowing conditions).
Optional Redemption
Except as set forth below, the Notes are not redeemable prior to
January 15, 2006. Thereafter, the Notes will be redeemable, in whole or in part,
from time to time at the option of the Issuers, on not less than 30 and not more
than 60 days' notice prior to the redemption date by first class mail to each
holder of Notes to be redeemed at such holder's address appearing in the
register of Notes maintained by the Registrar at the following redemption prices
(expressed as percentages of principal amount) if redeemed during the
twelve-month period beginning with January 15 of the year indicated below, in
each case together with accrued and unpaid interest and Liquidated Damages, if
any, thereon to the date of redemption:
Year Redemption Price
---- ----------------
2006 104.750%
2007 103.167%
2008 101.583%
2009 and thereafter 100.000%
In addition, at any time and from time to time, on or prior to January
15, 2004, the Issuers may redeem up to 35% of the original principal amount of
the Notes (calculated to give effect to any issuance of Additional Notes) with
the Net Cash Proceeds of one or more Equity Offerings, at a redemption price in
cash equal to 109.500% of the principal to be redeemed plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of redemption; provided
that at least 65% of the original principal amount of Notes (as so calculated)
remains outstanding immediately after each such redemption. Any such redemption
will be required to occur within 90 days following the closing of any such
Equity Offering.
If fewer than all the Notes are to be redeemed, the Trustee will select
the Notes to be redeemed, if the Notes are listed on a national securities
exchange, in accordance with the rules of such exchange or, if the Notes are not
so listed, on a pro rata basis or by lot or by such other method that the
Trustee deems to be fair and equitable to holders. If any Note is to be redeemed
in part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed and a new Note or Notes
in principal amount equal to the unredeemed principal portion thereof will be
issued; provided, that no Notes of a principal amount of $1,000 or less shall be
redeemed in part. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the Issuers
have deposited with the Paying Agent for the Notes funds in satisfaction of the
applicable redemption price pursuant to the Indenture.
Repurchase at the Option of Holders
Change of Control
The Indenture will provide that upon the occurrence of a Change of
Control, each holder of Notes shall have the right to require the Issuers to
repurchase all or any part of such holder's Notes pursuant to an offer described
below (the "Change of Control Offer") at a purchase price equal to 101% of the
principal amount thereof plus any accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of repurchase (the "Change of Control
Payment").
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A "Change of Control" means the occurrence of any of the following
events: (i) any Person (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), including any
group acting for the purpose of acquiring, holding or disposing of securities
within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than one
or more Permitted Holders, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all shares that any such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time, upon the happening of an event or otherwise), directly or
indirectly, of more than 50% of the total voting power of the then outstanding
Voting Equity Interests of Mediacom LLC; (ii) Mediacom LLC consolidates with, or
merges with or into, another Person (other than a Wholly Owned Restricted
Subsidiary) or Mediacom LLC or any of its Subsidiaries sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of the
assets of Mediacom LLC and its Subsidiaries (determined on a consolidated basis)
to any Person (other than Mediacom LLC or any Wholly Owned Restricted
Subsidiary), other than any such transaction where immediately after such
transaction the Person or Persons that "beneficially owned" (as defined in Rule
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to
have "beneficial ownership" of all shares that any such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time, upon the happening of an event or otherwise) immediately prior to such
transaction, directly or indirectly, a majority of the total voting power of the
then outstanding Voting Equity Interests of Mediacom LLC, "beneficially own" (as
so determined), directly or indirectly, more than 50% of the total voting power
of the then outstanding Voting Equity Interests of the surviving or transferee
Person; (iii) Mediacom LLC is liquidated or dissolved or adopts a plan of
liquidation or dissolution (whether or not otherwise in compliance with the
provisions of the Indenture); (iv) a majority of the members of the Executive
Committee of Mediacom LLC shall consist of Persons who are not Continuing
Members; or (v) Mediacom LLC ceases to own 100% of the issued and outstanding
Equity Interests of Mediacom Capital, other than by reason of a merger of
Mediacom Capital into and with a corporate successor to Mediacom LLC; provided,
however, that a Change of Control will be deemed not to have occurred in any of
the circumstances described in clauses (i) through (iv) above if after the
occurrence of any such circumstance (A) Rocco B. Commisso continues to be the
manager of Mediacom LLC pursuant to the Operating Agreement and/or the chief
executive officer or chairman of Mediacom LLC (or the surviving or transferee
Person in the case of clause (ii) above), or (B) Rocco B. Commisso and the other
Permitted Holders together with their respective designees constitute the
majority of the members of the Executive Committee.
Within 30 days of the occurrence of a Change of Control, the Issuers
shall send by first-class mail, postage prepaid, to the Trustee and to each
holder of the Notes, at the address appearing in the register of Notes
maintained by the Registrar, a notice stating: (1) that the Change of Control
Offer is being made pursuant to this covenant and that all Notes tendered will
be accepted for payment; (2) the purchase price and the purchase date, which
shall be a business day no earlier than 30 days nor later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date"); (3) that any
Note not tendered will continue to accrue interest; (4) that, unless the Issuers
default in the payment of the Change of Control Payment, any Notes accepted for
payment pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date; (5) that holders accepting the offer
to have their Notes purchased pursuant to a Change of Control Offer will be
required to surrender the Notes to the Paying Agent at the address specified in
the notice prior to the close of business on the business day preceding the
Change of Control Payment Date; (6) that holders will be entitled to withdraw
their acceptance if the Paying Agent receives, not later than the close of
business on the third Business Day preceding the Change of Control Payment Date,
a facsimile transmission or letter setting forth the name of the holder, the
principal amount of the Notes delivered for purchase, and a statement that such
holder is withdrawing its election to have such Notes purchased; (7) that
holders whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion of the Notes surrendered,
provided that each Note purchased and each such new Note issued shall be in an
original principal amount in denominations of $1,000 and integral multiples
thereof; (8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and (9) the name and
address of the Paying Agent.
On the Change of Control Payment Date, the Issuers shall, to the extent
lawful (i) accept for payment Notes or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to
pay the purchase price of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee Notes so accepted together with
an Officers' Certificate stating the Notes or portions thereof tendered to the
Issuers. The Paying Agent shall promptly mail to each holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Issuers shall execute and issue, and the Trustee shall promptly authenticate
and mail to such holder, a new Note equal in principal amount to any unpurchased
portion of
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the Notes surrendered; provided that each such new Note shall be issued in an
original principal amount in denominations of $1,000 and integral multiples
thereof. The Issuers will send to the Trustee and the holders of Notes on or as
soon as practicable after the Change of Control Payment Date a notice setting
forth the results of the Change of Control Offer.
The Issuers will not be required to make a Change of Control Offer if a
third party makes the Change of Control Offer in the manner, at the time and
otherwise in compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer made by the Issuers and purchases all
Notes or portions thereof validly tendered and not withdrawn under such Change
of Control Offer. In addition, the Issuers will not be required to make a Change
of Control Offer in the event of a highly leveraged transaction that does not
constitute a Change of Control.
The Issuers will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant.
The Subsidiary Credit Facilities include "change of control" provisions
that permit the lenders thereunder to accelerate the repayment of Indebtedness
thereunder. The Subsidiary Credit Facilities will not permit the Subsidiaries of
Mediacom LLC to make distributions to the Issuers so as to permit the Issuers to
effect a purchase of the Notes upon the Change of Control without the prior
satisfaction of certain financial tests and other conditions. Any future credit
facilities or other agreements relating to Indebtedness to which the Issuers or
Subsidiaries of Mediacom LLC become a party may contain similar restrictions and
provisions. If a Change of Control were to occur, the Issuers may not have
sufficient available funds to pay the Change of Control Payment for all Notes
that might be delivered by holders of the Notes seeking to accept the Change of
Control Offer after first satisfying its obligations under the Subsidiary Credit
Facilities or other agreements relating to Indebtedness, if accelerated. The
failure of the Issuers to make or consummate the Change of Control Offer or to
pay the Change of Control Payment when due will give the Trustee and the holders
of the Notes the rights described under "Events of Default" below.
The definition of Change of Control includes a phrase relating to the
sale, assignment, conveyance, transfer, lease or other disposition of "all or
substantially all" of the assets of Mediacom LLC and its Subsidiaries. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is not a precise or established definition of the phrase under
applicable law. Accordingly, the ability of a holder of the Notes to require the
Issuers to repurchase such Notes as a result of a sale, assignment, conveyance,
transfer, lease or other disposition of less than all of the assets of Mediacom
LLC and its Subsidiaries to another Person or group may be uncertain.
Asset Sales
The Indenture will provide that Mediacom LLC shall not, and shall not
permit any Restricted Subsidiary to, consummate an Asset Sale unless (i)
Mediacom LLC or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such sale or other disposition at least equal to
the fair market value thereof (as determined in good faith by the Executive
Committee, whose determination shall be conclusive and evidenced by a Committee
Resolution); (ii) not less than 75% of the consideration received by Mediacom
LLC or such Restricted Subsidiary, as the case may be, is in the form of cash or
Cash Equivalents; and (iii) the Asset Sale Proceeds received by Mediacom LLC or
such Restricted Subsidiary are applied (a) first, to the extent Mediacom LLC
elects, or is required, to prepay, repay or purchase debt under any then
existing Indebtedness of Mediacom LLC or any Restricted Subsidiary within 360
days following the receipt of the Asset Sale Proceeds from any Asset Sale or, to
the extent Mediacom LLC elects, to make an investment in assets (including
Equity Interests or other securities purchased in connection with the
acquisition of Equity Interests or property of another Person) used or useful in
a Related Business, provided that such investment occurs and such Asset Sale
Proceeds are so applied within 360 days following the receipt of such Asset Sale
Proceeds (the "Reinvestment Date"), and (b) second, on a pro rata basis (1) to
the repayment of an amount of Other Pari Passu Debt not exceeding the Other Pari
Passu Debt Pro Rata Share (provided that any such repayment shall result in a
permanent reduction of any commitment in respect thereof in an amount equal to
the principal amount so repaid) and (2) if on the Reinvestment Date with respect
to any Asset Sale the Excess Proceeds exceed $10.0 million, the Issuers shall
apply an amount equal to such Excess Proceeds to an offer to repurchase the
Notes, at a purchase price in cash equal to 100% of the principal amount thereof
plus accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase (an "Excess Proceeds Offer"); provided, that so long as any of the 8
1/2% Notes or 7 7/8% Notes are outstanding, the Issuers shall make such an
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Excess Proceeds Offer, together with a similar pro rata offer to the holders of
the 8 1/2% Notes and/or the 7 7/8% Notes, as applicable, and purchase any Notes,
8 1/2% Notes or 7 7/8% Notes tendered in such offers within 359 days following
the receipt of the Asset Sale Proceeds. If an Excess Proceeds Offer is not fully
subscribed, the Issuers may retain the portion of the Excess Proceeds not
required to repurchase Notes. For purposes of determining in clause (ii) above
the percentage of cash consideration received by Mediacom LLC or any Restricted
Subsidiary, the amount of any (x) liabilities (as shown on Mediacom LLC's or
such Restricted Subsidiary's most recent balance sheet) of Mediacom LLC or any
Restricted Subsidiary that are actually assumed by the transferee in such Asset
Sale and from which Mediacom LLC and the Restricted Subsidiaries are fully
released shall be deemed to be cash, and (y) securities, notes or other similar
obligations received by Mediacom LLC or such Restricted Subsidiary from such
transferee that are immediately converted (or are converted within 30 days of
the related Asset Sale) by Mediacom LLC or such Restricted Subsidiary into cash
shall be deemed to be cash in an amount equal to the net cash proceeds realized
upon such conversion.
If the Issuers are required to make an Excess Proceeds Offer, the
Issuers shall mail, within 30 days following the Reinvestment Date, a notice to
the holders of Notes stating, among other things: (1) that such holders have the
right to require the Issuers to apply the Excess Proceeds to repurchase such
Notes at a purchase price in cash equal to 100% of the principal amount thereof
plus accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase; (2) the purchase date, which shall be no earlier than 30 days and not
later than 60 days from the date such notice is mailed; (3) the instructions,
determined by the Issuers, that each holder must follow in order to have such
Notes repurchased; and (4) the calculations used in determining the amount of
Excess Proceeds to be applied to the repurchase of such Notes. If the aggregate
principal amount of Notes surrendered by holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis or by lot or by such other method that the Trustee deems to be fair
and equitable to holders. Upon completion of the Excess Proceeds Offer, the
amount of Excess Proceeds shall be reset to zero.
The Issuers will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant.
Notwithstanding the foregoing, the Indenture will provide that Mediacom
LLC or any Restricted Subsidiary will be permitted to consummate an Asset Swap
if (i) at the time of entering into the related Asset Swap Agreement or
immediately after giving effect to such Asset Swap no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof and (ii) such Asset Swap shall have been approved in good faith by the
Executive Committee, whose approval shall be conclusive and evidenced by a
Committee Resolution, which states that such Asset Swap is fair to Mediacom LLC
or such Restricted Subsidiary, as the case may be, from a financial point of
view.
If a Restricted Subsidiary were to consummate an Asset Sale, the
Subsidiary Credit Facilities would not permit such Restricted Subsidiary to make
a distribution to the Issuers of the related Asset Sale Proceeds so as to permit
the Issuers to effect an Excess Proceeds Offer with such Asset Sale Proceeds
without the prior satisfaction of certain financial tests and other conditions.
Any future credit agreements or other agreements relating to Indebtedness to
which the Issuers or Subsidiaries of Mediacom LLC become a party may contain
similar restrictions or other provisions which would prohibit the Issuers from
purchasing any Notes from Asset Sale Proceeds. In the event an Excess Proceeds
Offer occurs at a time when the Issuers are prohibited from receiving Asset Sale
Proceeds or purchasing the Notes, the Issuers could seek the consent of their
lenders to the distribution of Asset Sales Proceeds or the purchase of Notes or
could attempt to refinance the Indebtedness that contains such prohibition. If
the Issuers do not obtain such a consent or repay such Indebtedness, the Issuers
may remain prohibited from purchasing the Notes. In such case, the Issuers'
failure to purchase tendered Notes when due will give the Trustee and the
holders of the Notes the rights described under "Events of Default" below.
Events of Default
An Event of Default is defined in the Indenture as being: default in
payment of any principal of, or premium, if any, on the Notes when due; default
for 30 days in payment of any interest or Liquidated Damages, if any, on the
Notes when due; default by the Issuers for 60 days after written notice by
holders of not less than 25% in principal amount of the Notes then outstanding
in the observance or performance of any other covenant in the Notes or the
Indenture; default in the payment at maturity (continued for the longer of any
applicable grace period or 30
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days) of any Indebtedness aggregating $15.0 million or more of the Issuers or
any Significant Subsidiary or any group of Restricted Subsidiaries of Mediacom
LLC which, if merged into each other, would constitute a Significant Subsidiary,
or the acceleration of any such Indebtedness which default shall not be cured or
waived, or such acceleration shall not be rescinded or annulled, within 30 days
after written notice by holders of not less than 25% in principal amount of the
Notes then outstanding; any final judgment or judgments for the payment of money
in excess of $15.0 million (net of amounts covered by insurance) shall be
rendered against the Issuers or any Significant Subsidiary or any group of
Restricted Subsidiaries of Mediacom LLC which, if merged into each other, would
constitute a Significant Subsidiary, and shall not be discharged for any period
of 60 consecutive days, during which a stay of enforcement of such judgment
shall not be in effect; certain events involving bankruptcy, insolvency or
reorganization of the Issuers or a Significant Subsidiary or any group of
Restricted Subsidiaries of Mediacom LLC which, if merged into each other, would
constitute a Significant Subsidiary; or any Restricted Subsidiary Guarantee
ceases to be in full force and effect (except as contemplated by the terms of
the Indenture) or any Guarantor shall deny or disaffirm its obligations under
the Indenture or any Restricted Subsidiary Guarantee. The Indenture provides
that the Trustee may withhold notice to the holders of Notes of any default
(except in payment of principal of or premium, if any, or interest on the Notes)
if the Trustee considers it to be in the best interest of the holders of the
Notes to do so.
The Indenture will provide that if an Event of Default (other than an
Event of Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, the Trustee or the
holders of not less than 25% in principal amount of the Notes then outstanding
may declare the principal of all the Notes to be due and payable immediately,
but if the Issuers shall cure (or the holders of a majority in principal amount
of the Notes, if permitted by the Indenture, shall waive) all defaults (except
the nonpayment of principal, interest and premium, if any, on any Notes which
shall have become due by acceleration) and certain other conditions are met,
such declaration may be annulled by the holders of a majority in principal
amount of the Notes then outstanding. In case an Event of Default resulting from
certain events of bankruptcy, insolvency or reorganization shall occur, such
amount with respect to all of the Notes shall be due and payable immediately
without any declaration or other act on the part of the Trustee or the holders
of the Notes.
The holders of a majority in principal amount of the Notes then
outstanding shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee subject to
certain limitations specified in the Indenture. Subject to the provisions of the
Indenture relating to the duties of the Trustee, in case an Event of Default
shall occur and be continuing, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the holders of the Notes, unless such holders have offered
to the Trustee indemnity satisfactory to it.
Covenants
Limitation on Restricted Payments
The Indenture will provide that, so long as any of the Notes remain
outstanding, Mediacom LLC shall not, and shall not permit any Restricted
Subsidiary to, make any Restricted Payment if (i) at the time of such proposed
Restricted Payment, a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence of such Restricted Payment; (ii)
immediately after giving effect to such proposed Restricted Payment, Mediacom
LLC would not be able to Incur $1.00 of additional Indebtedness under the Debt
to Operating Cash Flow Ratio of the first paragraph of "--Limitation on
Indebtedness" below; or (iii) immediately after giving effect to any such
Restricted Payment, the aggregate of all Restricted Payments which shall have
been made on or after April 1, 1998 (the amount of any Restricted Payment, if
other than cash, to be based upon the fair market value thereof on the date of
such Restricted Payment (without giving effect to subsequent changes in value)
as determined in good faith by the Executive Committee, whose determination
shall be conclusive and evidenced by a Committee Resolution) would exceed an
amount equal to the difference between (a) the Cumulative Credit and (b) 1.4
times Cumulative Interest Expense.
"Restricted Payment" means (i) any dividend (whether made in cash,
property or securities) on or with respect to any Equity Interests of Mediacom
LLC or of any Restricted Subsidiary (other than with respect to Disqualified
Equity Interests and other than any dividend made to Mediacom LLC or another
Restricted Subsidiary or any dividend payable in Equity Interests of Mediacom
LLC or any Restricted Subsidiary); or (ii) any distribution (whether made in
cash, property or securities) on or with respect to any Equity Interests of
Mediacom LLC or of any
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Restricted Subsidiary (other than with respect to Disqualified Equity Interests
and other than any distribution made to Mediacom LLC or another Restricted
Subsidiary or any distribution payable in Equity Interests of Mediacom LLC or
any Restricted Subsidiary); or (iii) any redemption, repurchase, retirement or
other direct or indirect acquisition of any Equity Interests of Mediacom LLC
(other than Disqualified Equity Interests), or any warrants, rights or options
to purchase or acquire any such Equity Interests or any securities exchangeable
for or convertible into any such Equity Interests; or (iv) any redemption,
repurchase, retirement or other direct or indirect acquisition for value or
other payment of principal, prior to any scheduled final maturity, scheduled
repayment or scheduled sinking fund payment, of any Subordinated Obligations; or
(v) any Investment (other than a Permitted Investment).
The provisions of the first paragraph of this covenant shall not
prevent (i) the retirement of any of Mediacom LLC's Equity Interests in exchange
for, or out of the proceeds of, the substantially concurrent sale (other than to
a Subsidiary of Mediacom LLC or an employee stock ownership plan or to a trust
established by Mediacom LLC or any Subsidiary of Mediacom LLC for the benefit of
its employees) of Equity Interests of Mediacom LLC; (ii) the payment of any
dividend or distribution on, or redemption of Equity Interests within 60 days
after the date of declaration of such dividend or distribution or the giving of
formal notice of such redemption, if at the date of such declaration or giving
of such formal notice such payment or redemption would comply with the
provisions of the Indenture; (iii) Investments constituting Restricted Payments
made as a result of the receipt of non-cash consideration from any Asset Sale
made pursuant to and in compliance with the provisions described under
"Repurchase at the Option of Holders--Asset Sales" above; (iv) payments of
compensation to officers, directors and employees of Mediacom LLC or any
Restricted Subsidiary so long as the Executive Committee or the manager of
Mediacom LLC in good faith shall have approved the terms thereof; (v) the
payment of dividends on any Equity Interests of any Restricted Subsidiary
following the issuance thereof in an amount per annum of up to 6% of the net
proceeds received by Mediacom LLC or such Restricted Subsidiary from an Equity
Offering of such Equity Interests; (vi) the payment of management, consulting
and advisory fees, and any related reimbursement of expenses or indemnity, to
Mediacom Communications or any Affiliate thereof and other amounts payable
pursuant to the Operating Agreement, other than any dividend or distribution
(whether made in cash, property or securities) on or with respect to any Equity
Interests of Mediacom LLC or any redemption, repurchase, retirement or other
direct or indirect acquisition of any Equity Interests of Mediacom LLC, or any
warrants, rights or options to purchase or acquire any such Equity Interests or
any securities exchangeable for or convertible into any such Equity Interests;
(vii) the payment of amounts in connection with any merger, consolidation, or
sale of assets effected in accordance with the "--Merger or Sales of Assets"
covenant below, provided that no such payment may be made pursuant to this
clause (vii) unless, after giving effect to such transaction (and the Incurrence
of any Indebtedness in connection therewith and the use of the proceeds
thereof), Mediacom LLC would be able to Incur $1.00 of additional Indebtedness
in compliance with the first paragraph of "--Limitation on Indebtedness" below
such that after incurring that $1.00 of additional Indebtedness, the Debt to
Operating Cash Flow Ratio would be less than or equal to 6.0 to 1.0; (viii) the
redemption, repurchase, retirement, defeasance or other acquisition of any
Subordinated Obligations in exchange for, or out of net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of Mediacom LLC or an
employee stock ownership plan or to a trust established by Mediacom LLC or any
Subsidiary of Mediacom LLC (for the benefit of its employees) of Equity
Interests of Mediacom LLC or Subordinated Obligations of Mediacom LLC; (ix) the
payment of any dividend or distribution on or with respect to any Equity
Interests of any Restricted Subsidiary to the holders of its Equity Interests on
a pro rata basis; (x) the making and consummation of (A) an Excess Proceeds
Offer in accordance with the provisions of the Indenture with any Excess
Proceeds or (B) a Change of Control Offer with respect to the Notes in
accordance with the provisions of the Indenture or (C) any offer similar to the
offer described in clause (A) or (B) set forth in any other indenture governing
debt securities; (xi) during the period Mediacom LLC is treated as a partnership
for U.S. federal income tax purposes and after such period to the extent
relating to the liability for such period, the payment of distributions in
respect of members' or partners' income tax liability with respect to Mediacom
LLC in an amount not to exceed the aggregate amount of tax distributions, if
any, permitted to be made by Mediacom LLC to its members under the Operating
Agreement (such amount not to include amounts in respect of taxes resulting from
Mediacom LLC's reorganization as or change in the status to a corporation);
(xii) the payment by any Restricted Subsidiary to Mediacom LLC or another
Restricted Subsidiary of principal and interest due in respect of intercompany
Indebtedness and dividends and other distributions in respect of Preferred
Equity Interests in such Restricted Subsidiary; and (xiii) the distribution of
any Investment originally made by Mediacom LLC or any Restricted Subsidiary
pursuant to the first paragraph of this covenant to holders of Equity Interests
of Mediacom LLC or such Restricted Subsidiary, as the case may be; provided,
however, that in the case of clauses (ii), (v), (vii), (ix), (x) and (xiii) of
this paragraph, no Default or Event of Default shall have occurred and be
continuing at the time of such Restricted Payment or as a result thereof. In
determining the aggregate amount of Restricted Payments made on or
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after the date of the Indenture, Restricted Payments made pursuant to clauses
(ii) and (v) and any Restricted Payment deemed to have been made pursuant to the
"--Limitation on Transactions with Affiliates" covenant below shall be included
in such calculation.
Limitation on Indebtedness
The Indenture will provide that Mediacom LLC shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, Incur any
Indebtedness (including Acquired Indebtedness) or issue any Disqualified Equity
Interests except for Permitted Indebtedness; provided, however, that Mediacom
LLC or any Restricted Subsidiary may Incur Indebtedness or issue Disqualified
Equity Interests if, at the time of and immediately after giving pro forma
effect to such Incurrence of Indebtedness or issuance of Disqualified Equity
Interests and the application of the proceeds therefrom, the Debt to Operating
Cash Flow Ratio would be less than or equal to 7.0 to 1.0.
The foregoing limitations will not apply to the Incurrence of any of
the following (collectively, "Permitted Indebtedness"), each of which shall be
given independent effect:
(a) Indebtedness under the Notes issued on the date of the Indenture, the
Exchange Notes and the Indenture;
(b) Indebtedness and Disqualified Equity Interests of Mediacom LLC and the
Restricted Subsidiaries outstanding on the Issue Date other than
Indebtedness described in clause (a), (c), (d) or (f) of this paragraph;
(c) (i) Indebtedness of the Restricted Subsidiaries under the Subsidiary Credit
Facilities (including any refinancing thereof), and (ii) Indebtedness of
the Restricted Subsidiaries (including any refinancing thereof) if, at the
time of and immediately after giving pro forma effect to the Incurrence of
such Indebtedness and the application of the proceeds therefrom, the Debt
to Operating Cash Flow Ratio would be less than or equal to 6.0 to 1.0;
provided, however, that for purposes of the calculation of such Ratio, the
term "Consolidated Total Indebtedness" shall refer only to the Consolidated
Total Indebtedness of the Restricted Subsidiaries (including Indebtedness
Incurred under the Subsidiary Credit Facilities and the Future Subsidiary
Credit Facilities) outstanding as of the Determination Date (as defined
hereafter in the term "Debt to Operating Cash Flow Ratio") and the term
"Operating Cash Flow" shall refer only to the Subsidiary Operating Cash
Flow of the Restricted Subsidiaries for the related Measurement Period (as
defined hereafter in the term "Debt to Operating Cash Flow Ratio");
(d) Indebtedness and Disqualified Equity Interests of (x) any Restricted
Subsidiary owed to or issued to and held by Mediacom LLC or any Restricted
Subsidiary and (y) Mediacom LLC owed to and held by any Restricted
Subsidiary which is unsecured and subordinated in right of payment to the
payment and performance of the Issuers' obligations under the Indenture and
the Notes; provided, however, that an Incurrence of Indebtedness and
Disqualified Equity Interests that is not permitted by this clause (d)
shall be deemed to have occurred upon (i) any sale or other disposition of
any Indebtedness or Disqualified Equity Interests of Mediacom LLC or a
Restricted Subsidiary referred to in this clause (d) to any Person (other
than Mediacom LLC or a Restricted Subsidiary), (ii) any sale or other
disposition of Equity Interests of a Restricted Subsidiary which holds
Indebtedness or Disqualified Equity Interests of Mediacom LLC or another
Restricted Subsidiary such that such Restricted Subsidiary ceases to be a
Restricted Subsidiary or (iii) any designation of a Restricted Subsidiary
which holds Indebtedness or Disqualified Equity Interests of Mediacom LLC
as an Unrestricted Subsidiary;
(e) guarantees by any Restricted Subsidiary of Indebtedness of Mediacom LLC or
any other Restricted Subsidiary Incurred in accordance with the provisions
of the Indenture;
(f) Hedging Agreements of Mediacom LLC or any Restricted Subsidiary relating to
any Indebtedness of Mediacom LLC or such Restricted Subsidiary, as the case
may be, Incurred in accordance with the provisions of the Indenture;
provided that such Hedging Agreements have been entered into for bona fide
business purposes and not for speculation;
(g) Indebtedness or Disqualified Equity Interests of Mediacom LLC or any
Restricted Subsidiary to the extent representing a replacement, renewal,
refinancing or extension (collectively, a "refinancing") of outstanding
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Indebtedness or Disqualified Equity Interests of Mediacom LLC or any
Restricted Subsidiary, as the case may be, Incurred in compliance with the
Debt to Operating Cash Flow Ratio of the first paragraph of this covenant
or clause (a) or (b) of this paragraph of this covenant; provided, however,
that (i) Indebtedness or Disqualified Equity Interests of Mediacom LLC may
not be refinanced under this clause (g) with Indebtedness or Disqualified
Equity Interests of any Restricted Subsidiary, (ii) any such refinancing
shall not exceed the sum of the principal amount or liquidation preference
or redemption payment value (or, if such Indebtedness or Disqualified
Equity Interests provides for a lesser amount to be due and payable upon a
declaration of acceleration thereof at the time of such refinancing, an
amount no greater than such lesser amount) of the Indebtedness or
Disqualified Equity Interests being refinanced plus the amount of accrued
interest or dividends thereon and the amount of any reasonably determined
prepayment premium necessary to accomplish such refinancing and such
reasonable fees and expenses incurred in connection therewith, (iii)
Indebtedness representing a refinancing of Indebtedness of Mediacom LLC
shall have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refinanced,
(iv) Subordinated Obligations of Mediacom LLC or Disqualified Equity
Interests of Mediacom LLC may only be refinanced with Subordinated
Obligations of Mediacom LLC or Disqualified Equity Interests of Mediacom
LLC, and (v) Other Pari Passu Debt which is unsecured may only be
refinanced with unsecured Indebtedness, which is either Other Pari Passu
Debt or Subordinated Obligations, or with Disqualified Equity Interests;
(h) Indebtedness of Mediacom LLC or a Restricted Subsidiary Incurred as a
result of the pledge by Mediacom LLC or such Restricted Subsidiary of
intercompany Indebtedness or Equity Interests in another Restricted
Subsidiary or Equity Interests in an Unrestricted Subsidiary in the
circumstance where recourse to Mediacom LLC or such Restricted Subsidiary
is limited to the value of the intercompany Indebtedness or the Equity
Interests so pledged;
(i) Indebtedness of Mediacom LLC or a Restricted Subsidiary represented by
Capitalized Lease Obligations, mortgage financings, purchase money
obligations or letters of credit, in each case Incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of
Mediacom LLC or such Restricted Subsidiary or a Related Business in an
aggregate principal amount not to exceed $15.0 million at any time
outstanding;
(j) Indebtedness of Mediacom LLC or a Restricted Subsidiary in an aggregate
amount not to exceed two times the sum of (i) the aggregate Net Cash
Proceeds to Mediacom LLC from (x) the issuance (other than to a Subsidiary
of Mediacom LLC or an employee stock ownership plan or a trust established
by Mediacom LLC or any Subsidiary of Mediacom LLC (for the benefit of its
employees)) of any class of Equity Interests of Mediacom LLC (other than
Disqualified Equity Interests) on or after February 26, 1999 or (y)
contributions to the equity capital of Mediacom LLC on or after February
26, 1999 which do not themselves constitute Disqualified Equity Interests
and (ii) the fair market value, as determined by an independent nationally
recognized accounting, appraisal or investment banking firm experienced in
similar types of transactions, of any assets (other than cash or Cash
Equivalents) that are used or useful in a Related Business or Equity
Interests of a Person engaged in a Related Business that is or becomes a
Restricted Subsidiary of Mediacom LLC, in each case received by Mediacom
LLC after February 26, 1999 in exchange for the issuance (other than to a
Subsidiary of Mediacom LLC) of its Equity Interests (other than
Disqualified Equity Interests); provided, that (A) the amount of such Net
Cash Proceeds with respect to which Indebtedness is incurred pursuant to
this clause (j) shall not be deemed Net Cash Proceeds from the issue or
sale of Equity Interests for purposes of clause (ii) of the definition of
"Cumulative Credit" and (B) the issuance of Equity Interests with respect
to which Indebtedness is incurred pursuant to this clause (j) shall not
also be used to effect a Restricted Payment pursuant to clause (i) or
(viii) of the third paragraph of "--Limitation on Restricted Payments"; and
(k) in addition to any Indebtedness described in clauses (a) through (j) above,
Indebtedness of Mediacom LLC or any of the Restricted Subsidiaries so long
as the aggregate principal amount of all such Indebtedness incurred
pursuant to this clause (k) does not exceed $10.0 million at any one time
outstanding.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (a) through (k) above
or is entitled to be incurred pursuant to the first paragraph of this covenant,
Mediacom LLC shall, in its sole
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discretion, classify such item of Indebtedness in any manner that complies with
this covenant and such item of Indebtedness shall be treated as having been
incurred pursuant to only one of such clauses or pursuant to the first paragraph
hereof.
Limitation on Transactions with Affiliates
The Indenture will provide that Mediacom LLC shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, engage in any
transaction (or series of related transactions) involving in the aggregate $5.0
million or more with any Affiliate unless such transaction (or series of related
transactions) shall have been approved pursuant to a Committee Resolution
rendered in good faith by the Executive Committee or, if applicable, a committee
comprising the independent members of the Executive Committee, which approval in
each case shall be conclusive, to the effect that such transaction (or series of
related transactions) is (a) in the best interest of Mediacom LLC or such
Restricted Subsidiary and (b) upon terms which would be obtainable by Mediacom
LLC or a Restricted Subsidiary in a comparable arm's-length transaction with a
Person which is not an Affiliate, except that the foregoing shall not apply in
the case of any of the following transactions (the "Specified Affiliate
Transactions"): (i) the making of any Restricted Payment (including the making
of any Permitted Investment that is permitted pursuant to "--Limitation on
Restricted Payments"); (ii) any transaction or series of transactions between
Mediacom LLC and one or more Restricted Subsidiaries or between two or more
Restricted Subsidiaries; (iii) the payment of compensation (including, without
limitation, amounts paid pursuant to employee benefit plans) for the personal
services of, and indemnity provided on behalf of, officers, members, directors
and employees of Mediacom LLC or any Restricted Subsidiary, and management,
consulting or advisory fees and reimbursements of expenses and indemnity in each
case so long as the Executive Committee in good faith shall have approved the
terms thereof and deemed the services theretofore or thereafter to be performed
for such compensation or fees to be fair consideration therefor; (iv) any
payments for goods or services purchased in the ordinary course of business,
upon terms which would be obtainable by Mediacom LLC or a Restricted Subsidiary
in a comparable arm's-length transaction with a Person which is not an
Affiliate; and (v) any transaction pursuant to any agreement with any Affiliate
in effect on the date of the Indenture (including, but not limited to, the
Operating Agreement and other agreements relating to the payment of management
fees, acquisition fees and expense reimbursements), including any amendments
thereto entered into after the date of the Indenture, provided, that the terms
of any such amendment are not less favorable to Mediacom LLC than the terms of
the relevant agreement in effect prior to any such amendment, as determined in
good faith by the Executive Committee. The Indenture will further provide that,
except in the case of a Specified Affiliate Transaction, Mediacom LLC shall not,
and shall not permit any Restricted Subsidiary, directly or indirectly, to
engage in any transaction (or series of related transactions) involving in the
aggregate $25.0 million or more with any Affiliate unless (i) such transaction
(or series of related transactions) shall have been approved pursuant to a
Committee Resolution rendered in good faith by the Executive Committee or, if
applicable, a committee comprising the independent members of the Executive
Committee to the effect set forth in clauses (a) and (b) above; and (ii)
Mediacom LLC shall have received an opinion from an independent nationally
recognized accounting, appraisal or investment banking firm experienced in the
review of similar types of transactions stating that the terms of such
transaction (or series of related transactions) are fair to Mediacom LLC or such
Restricted Subsidiary, as the case may be, from a financial point of view.
Notwithstanding the foregoing, any transaction (or series of related
transactions) entered into by Mediacom LLC or any Restricted Subsidiary with any
Affiliate without complying with the foregoing provisions of this covenant shall
not constitute a violation of the provisions of this covenant if Mediacom LLC or
such Restricted Subsidiary would be permitted to make a Restricted Payment
pursuant to the first paragraph of "-Limitation on Restricted Payments" at the
time of the completion of such transaction (or series of related transactions)
in an amount equal to the fair market value of such transaction (or series of
related transactions), as determined in good faith by the Executive Committee,
whose determination shall be conclusive and evidenced by a Committee Resolution.
In such a case, Mediacom LLC or such Restricted Subsidiary, as the case may be,
shall be deemed to have made a Restricted Payment for purposes of the
calculation of Restricted Payments pursuant to clause (iii) of the first
paragraph of "--Limitation on Restricted Payments."
Limitation on Liens
The Indenture will provide that Mediacom LLC shall not Incur any
Indebtedness secured by a Lien against or on any of its property or assets now
owned or hereafter acquired by Mediacom LLC unless contemporaneously therewith
effective provision is made to secure the Notes equally and ratably with such
secured Indebtedness. This restriction does not, however, apply to Indebtedness
secured by (i) Liens, if any, in effect on the date of the Indenture; (ii) Liens
in favor of governmental bodies to secure progress or advance payments; (iii)
Liens on Equity
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Interests or Indebtedness existing at the time of the acquisition thereof
(including acquisition through merger or consolidation), provided that such
Liens were not Incurred in anticipation of such acquisition; (iv) Liens securing
industrial revenue or pollution control bonds; (v) Liens securing the Notes;
(vi) Liens securing Indebtedness of Mediacom LLC in an amount not to exceed
$10.0 million at any time outstanding; (vii) Other Permitted Liens; and (viii)
any extension, renewal or replacement of any Lien referred to in the foregoing
clauses (i) through (vii), inclusive.
Limitation on Business Activities of Mediacom Capital
The Indenture will provide that Mediacom Capital shall not hold any
material assets, become liable for any material obligations, engage in any trade
or business, or conduct any business activity, other than the issuance of Equity
Interests to Mediacom LLC or any Wholly Owned Restricted Subsidiary, the
Incurrence of Indebtedness as a co-obligor or guarantor of Indebtedness Incurred
by Mediacom LLC, including the Notes and the Exchange Notes, if any, that is
permitted to be Incurred by Mediacom LLC under "--Limitation on Indebtedness"
above (provided that the net proceeds of such Indebtedness are retained by
Mediacom LLC or loaned to or contributed as capital to one or more of the
Restricted Subsidiaries other than Mediacom Capital), and activities incidental
thereto. Neither Mediacom LLC nor any Restricted Subsidiary shall engage in any
transactions with Mediacom Capital in violation of the immediately preceding
sentence.
Designation of Unrestricted Subsidiaries
The Indenture will provide that Mediacom LLC may designate any
Subsidiary (including any newly acquired or newly formed Subsidiary or a Person
becoming a Subsidiary through merger or consolidation or Investment therein) as
an "Unrestricted Subsidiary" under the Indenture (a "Designation") only if (a)
no Default or Event of Default shall have occurred and be continuing at the time
of or after giving effect to such Designation; (b) at the time of and after
giving effect to such Designation, Mediacom LLC would be able to Incur $1.00 of
additional Indebtedness under the Debt to Operating Cash Flow Ratio of the first
paragraph of "--Limitation on Indebtedness" above; and (c) Mediacom LLC would be
permitted to make a Restricted Payment at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
"--Limitation on Restricted Payments" above in an amount (the "Designation
Amount") equal to Mediacom LLC's proportionate interest in the fair market value
of such Subsidiary on such date (as determined in good faith by the Executive
Committee, whose determination shall be conclusive and evidenced by a Committee
Resolution). Notwithstanding the foregoing, neither Mediacom Capital nor any of
its Subsidiaries may be designated as Unrestricted Subsidiaries.
The Indenture will further provide that at the time of Designation all
of the Indebtedness of such Unrestricted Subsidiary shall consist of, and will
at all times thereafter consist of, Non-Recourse Indebtedness, and that neither
Mediacom LLC nor any Restricted Subsidiary shall at any time have any direct or
indirect obligation to (x) make additional Investments (other than Permitted
Investments) in any Unrestricted Subsidiary or (y) maintain or preserve the
financial condition of any Unrestricted Subsidiary or cause any Unrestricted
Subsidiary to achieve any specified levels of operating results or (z) be party
to any agreement, contract, arrangement or understanding with any Unrestricted
Subsidiary unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to Mediacom LLC or such Restricted
Subsidiary than those that might be obtained, in light of all the circumstances,
at the time from Persons who are not Affiliates of Mediacom LLC. If, at anytime,
any Unrestricted Subsidiary would violate the foregoing requirements, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of such Subsidiary shall be deemed to be Incurred as of
such date.
Mediacom LLC may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") if (a) no Default or Event of Default
shall have occurred and be continuing at the time of or after giving effect to
such Revocation; (b) at the time of and after giving effect to such Revocation,
Mediacom LLC would be able to Incur $1.00 of additional Indebtedness under the
Debt to Operating Cash Flow Ratio of the first paragraph of "--Limitation on
Indebtedness" above; and (c) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such Revocation would, if Incurred
at such time, have been permitted to be Incurred for all purposes of the
Indenture.
All Designations and Revocations must be evidenced by Committee
Resolutions delivered to the Trustee certifying compliance with the foregoing
provisions.
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Limitation on Guarantees of Certain Indebtedness
The Indenture will provide that Mediacom LLC shall not (a) permit any
Restricted Subsidiary to guarantee any Indebtedness of either Issuer other than
the Notes (the "Other Indebtedness"), or (b) pledge any intercompany
Indebtedness representing obligations of any of its Restricted Subsidiaries to
secure the payment of Other Indebtedness, in each case unless such Restricted
Subsidiary, the Issuers and the Trustee execute and deliver a supplemental
indenture causing such Restricted Subsidiary to guarantee the Issuers'
obligations under the Indenture and the Notes to the same extent that such
Restricted Subsidiary guaranteed the Issuers' obligations under the Other
Indebtedness (including waiver of subrogation, if any). Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of the Indenture.
The guarantee of a Restricted Subsidiary will be released upon (i) the
sale of all of the Equity Interests, or all or substantially all of the assets,
of the applicable Guarantor (in each case other than to Mediacom LLC or a
Subsidiary), (ii) the designation by Mediacom LLC of the applicable Guarantor as
an Unrestricted Subsidiary, or (iii) the release of the guarantee of such
Guarantor with respect to the obligations which caused such Guarantor to deliver
a guarantee of the Notes in accordance with the preceding paragraph, in each
case in compliance with the Indenture (including, in the event of a sale of
Equity Interests or assets described in clause (i) above, that the net cash
proceeds are applied in accordance with the requirements of the applicable
provision of the Indenture described under "Repurchase at the Option of
Holders--Asset Sales" above).
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries
The Indenture will provide that Mediacom LLC shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any Restricted Subsidiary to (a) pay
dividends or make any other distributions to Mediacom LLC or any Restricted
Subsidiary on its Equity Interests; (b) pay any Indebtedness owed to Mediacom
LLC or any Restricted Subsidiary; (c) make loans or advances, or guarantee any
such loans or advances, to Mediacom LLC or any Restricted Subsidiary; (d)
transfer any of its properties or assets to Mediacom LLC or any Restricted
Subsidiary; (e) grant Liens on the assets of Mediacom LLC or any Restricted
Subsidiary in favor of the holders of the Notes; or (f) guarantee the Notes or
any renewals or refinancings thereof (any of the actions described in clauses
(a) through (f) above is referred to herein as a "Specified Action"), except for
(i) such encumbrances or restrictions arising by reason of Acquired Indebtedness
of any Restricted Subsidiary existing at the time such Person became a
Restricted Subsidiary, provided that such encumbrances or restrictions were not
created in anticipation of such Person becoming a Restricted Subsidiary and are
not applicable to Mediacom LLC or any other Restricted Subsidiary, (ii) such
encumbrances or restrictions arising under refinancing Indebtedness permitted by
clause (g) of the second paragraph under "--Limitation on Indebtedness" above;
provided that the terms and conditions of any such restrictions are no less
favorable to the holders of Notes than those under the Indebtedness being
refinanced, (iii) customary provisions restricting the assignment of any
contract or interest of Mediacom LLC or any Restricted Subsidiary, (iv)
restrictions contained in the Indenture or any other indenture governing debt
securities that are no more restrictive than those contained in the Indenture,
and (v) restrictions under the Subsidiary Credit Facilities and under the Future
Subsidiary Credit Facilities, provided that, in the case of any Future
Subsidiary Credit Facility Mediacom LLC shall have used commercially reasonable
efforts to include in the agreements relating to such Future Subsidiary Credit
Facility provisions concerning the encumbrance or restriction on the ability of
any Restricted Subsidiary to take any Specified Action that are no more
restrictive than those in effect in the Subsidiary Credit Facilities on the date
of the creation of the applicable restriction in such Future Subsidiary Credit
Facility ("Comparable Restriction Provisions"), and provided further that if
Mediacom LLC shall conclude in its sole discretion based on then prevailing
market conditions that it is not in the best interest of Mediacom LLC and the
Restricted Subsidiaries to comply with the foregoing proviso, the failure to
include Comparable Restriction Provisions in the agreements relating to such
Future Subsidiary Credit Facility shall not constitute a violation of the
provisions of this covenant.
Reports
The Indenture will provide that, whether or not the Issuers are then
subject to Section 13(a) or 15(d) of the Exchange Act or any successor provision
thereto, the Issuers shall file with the SEC (if permitted by SEC practice and
applicable law and regulations) so long as the Notes are outstanding the annual
reports, quarterly reports and other periodic reports which the Issuers would
have been required to file with the SEC pursuant to Section 13(a) or
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15(d) or any successor provision thereto if the Issuers were so subject on or
prior to the respective dates (the "Required Filing Dates") by which the Issuers
would have been required to file such documents if the Issuers were so subject.
The Issuers shall also in any event (a) within 15 days of each Required Filing
Date (whether or not permitted or required to be filed with the SEC) (i)
transmit or cause to be transmitted by mail to all holders of Notes, at such
holder's address appearing in the register maintained by the Registrar, without
cost to such holders, and (ii) file with the Trustee, copies of the annual
reports, quarterly reports and other documents which the Issuers are required to
file with the SEC pursuant to the preceding sentence, or if such filing is not
so permitted, information and data of a similar nature, and (b) if,
notwithstanding the preceding sentence, filing such documents by the Issuers
with the SEC is not permitted by SEC practice or applicable law or regulations,
promptly upon written request supply copies of such documents to any holder of
Notes. In addition, for so long as any Notes remain outstanding and prior to the
later of the consummation of the Exchange Offer and the effectiveness of the
Shelf Registration Statement, if required, the Issuers shall furnish to holders
and to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Merger or Sales of Assets
The Indenture will provide that neither of the Issuers shall
consolidate or merge with or into, or transfer all or substantially all of its
assets to, another Person unless (i) either (A) such Issuer shall be the
continuing Person, or (B) the Person formed by or surviving any such
consolidation or merger (if other than such Issuer), or to which any such
transfer shall have been made, is a corporation, limited liability company or
limited partnership organized and existing under the laws of the United States,
any State thereof or the District of Columbia; (ii) the surviving Person (if
other than such Issuer) expressly assumes by supplemental indenture all the
obligations of such Issuer under the Notes and the Indenture; (iii) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; (iv) immediately after giving effect to such
transaction, the surviving Person would be able to Incur $1.00 of additional
Indebtedness under the Debt to Operating Cash Flow Ratio of the first paragraph
of "--Limitation on Indebtedness" above; and (v) Mediacom LLC shall have
delivered to the Trustee prior to the proposed transaction an Officers'
Certificate and an Opinion of Counsel, each stating that the proposed
consolidation, merger or transfer and such supplemental indenture will comply
with the Indenture.
The Indenture will provide that no Guarantor shall consolidate or merge
with or into, or transfer all or substantially all of its assets to, another
Person unless (i) either (A) such Guarantor shall be the continuing Person, or
(B) the Person formed by or surviving any such consolidation or merger (if other
than such Guarantor), or to which any such transfer shall have been made, is a
corporation, limited liability company or limited partnership organized and
existing under the laws of the United States, any State thereof or the District
of Columbia; (ii) the surviving Person (if other than such Guarantor) expressly
assumes by supplemental indenture all the obligations of such Guarantor under
its guarantee of the Notes and the Indenture; (iii) immediately after giving
effect to such transaction, no Default or Event of Default shall have occurred
and be continuing; and (iv) Mediacom LLC shall have delivered to the Trustee
prior to the proposed transaction an Officers' Certificate and an Opinion of
Counsel, each stating that the proposed consolidation, merger or transfer and
such supplemental indenture will comply with the Indenture.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in
the covenants contained in the Indenture. Reference is made to the Indenture for
the full definition of all such terms as well as any other capitalized terms
used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or assumed in connection with
an Asset Acquisition from such Person and not Incurred in connection with, or in
anticipation of, such Person becoming a Restricted Subsidiary or such Asset
Acquisition.
"Affiliate" means (i) any Person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, Mediacom LLC; (ii) any spouse, immediate family member or other
relative who has the same principal residence as any Person described in clause
(i) above; (iii) any trust in which any such Persons described in clauses (i)
and (ii) above has a beneficial interest; and (iv) any corporation or other
organization of which any such Persons described above collectively owns 5% or
more of the equity of such entity. For purposes of this definition, "control"
(including, with correlative meaning, the terms "controlling,"
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"controlled by" and "under common control with")when used with respect to any
specified Person includes the direct or indirect beneficial ownership of more
than 5% of the voting securities of such Person or the power to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.
"Asset Acquisition" means (i) an Investment by Mediacom LLC or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be consolidated or merged with or into
Mediacom LLC or any Restricted Subsidiary, or (ii) any acquisition by Mediacom
LLC or any Restricted Subsidiary of the assets of any Person which constitute
substantially all of an operating unit, a division or a line of business of such
Person or which is otherwise outside of the ordinary course of business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer,
lease (that has the effect of a disposition) or other disposition (including,
without limitation, any merger, consolidation or sale-leaseback transaction) to
any Person other than Mediacom LLC or any Wholly Owned Restricted Subsidiary or
any Controlled Subsidiary, in one transaction or a series of related
transactions, of (i) any Equity Interest of any Restricted Subsidiary, (ii) any
material license, franchise or other authorization of Mediacom LLC or any
Restricted Subsidiary, (iii) any assets of Mediacom LLC or any Restricted
Subsidiary which constitute substantially all of an operating unit, a division
or a line of business of Mediacom LLC or any Restricted Subsidiary or (iv) any
other property or asset of Mediacom LLC or any Restricted Subsidiary outside of
the ordinary course of business. For the purposes of this definition, the term
"Asset Sale" shall not include (i) any transaction consummated in compliance
with "Repurchase at the Option of Holders--Change of Control" above and
"Covenants--Merger or Sales of Assets" above, and the creation of any Lien not
prohibited under "Covenants--Limitation on Liens" above, (ii) the sale of
property or equipment that has become worn out, obsolete or damaged or otherwise
unsuitable for use in connection with the business of Mediacom LLC or any
Restricted Subsidiary, as the case may be, (iii) any transaction consummated in
compliance with "Covenants--Limitation on Restricted Payments" above, and (iv)
Asset Swaps permitted pursuant to "Repurchase at the Option of Holders--Asset
Sales." In addition, solely for purposes of "Repurchase at the Option of
Holders--Asset Sales" above, any sale, conveyance, transfer, lease or other
disposition, whether in one transaction or a series of related transactions,
involving assets with a fair market value not in excess of $2.0 million in any
fiscal year shall be deemed not to be an Asset Sale.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by Mediacom LLC or any of its Restricted Subsidiaries from such Asset
Sale (including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or resulting from such Asset
Sale, (b) payment of all brokerage commissions, underwriting, legal, accounting
and other fees and expenses related to such Asset Sale, and any relocation
expenses incurred as a result thereof, (c) provision for minority interest
holders in any Restricted Subsidiary as a result of such Asset Sale by such
Restricted Subsidiary, (d) payment of amounts required to be applied to the
repayment of Indebtedness secured by a Lien on the asset or assets that were the
subject of such Asset Sale (including payments made to obtain or avoid the need
for the consent of any holder of such Indebtedness), and (e) deduction of
appropriate amounts to be provided by Mediacom LLC or such Restricted Subsidiary
as a reserve, in accordance with generally accepted accounting principles
consistently applied, against any liabilities associated with the assets sold or
disposed of in such Asset Sale and retained by Mediacom LLC or such Restricted
Subsidiary after such Asset Sale, including, without limitation, pension and
other post employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
the assets sold or disposed of in such Asset Sale; and (ii) promissory notes and
other non-cash consideration received by Mediacom LLC or any Restricted
Subsidiary from such Asset Sale or other disposition upon the liquidation or
conversion of such notes or non-cash consideration into cash.
"Asset Swap" means the substantially concurrent purchase and sale, or
exchange, of Productive Assets between Mediacom LLC or any of the Restricted
Subsidiaries and another Person or group of affiliated Persons (which Person or
group of affiliated Persons is not affiliated with Mediacom LLC and the
Restricted Subsidiaries) pursuant to an Asset Swap Agreement; it being
understood that an Asset Swap may include a cash equalization payment made in
connection therewith, provided that such cash payment, if received by Mediacom
LLC or any of the Restricted Subsidiaries, shall be deemed to be proceeds
received from an Asset Sale and shall be applied in accordance with "Repurchase
at the Option of Holders--Asset Sales."
"Asset Swap Agreement" means a definitive agreement, subject only to
customary closing conditions that Mediacom LLC in good faith believes will be
satisfied, providing for an Asset Swap; provided, however, that any
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amendment to, or waiver of, any closing condition that individually or in the
aggregate is material to such Asset Swap shall be deemed to be a new Asset Swap.
"Available Asset Sale Proceeds" means, with respect to any Asset Sale,
the aggregate Asset Sale Proceeds from such Asset Sale that have not been
applied in accordance with clause (iii)(a) and that have not yet been the basis
for application in accordance with clause (iii)(b) of the first paragraph of
"Repurchase at the Option of Holders--Asset Sales" above.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with generally accepted accounting principles
and the amount of such Indebtedness shall be the capitalized amount of such
obligations determined in accordance with generally accepted accounting
principles consistently applied.
"Cash Equivalents" means (i) United States dollars; (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than six months from the date of acquisition; (iii) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any lender party to any
Subsidiary Credit Facility or any Future Subsidiary Credit Facility or with any
domestic commercial bank having capital and surplus in excess of $500.0 million;
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above; (v) commercial paper having a rating of at least P-1 from
Moody's or a rating of at least A-1 from S&P; and (vi) money market mutual or
similar funds having assets in excess of $100.0 million, at least 95% of the
assets of which are comprised of assets specified in clauses (i) through (v)
above.
"Committee Resolution" means with respect to Mediacom LLC, a duly
adopted resolution of the Executive Committee of Mediacom LLC.
"Consolidated Income Tax Expense" means, with respect to Mediacom LLC
for any period, the provision for federal, state, local and foreign income taxes
payable by Mediacom LLC and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied.
"Consolidated Interest Expense" means, with respect to Mediacom LLC and
the Restricted Subsidiaries for any period, without duplication, the sum of (i)
the interest expense of Mediacom LLC and the Restricted Subsidiaries for such
period as determined on a consolidated basis in accordance with generally
accepted accounting principles consistently applied, including, without
limitation, amortization of original issued discount on any Indebtedness and the
interest portion of any deferred payment obligation and after taking into
account the effect of elections made under any Hedging Agreements, however
denominated, with respect to such Indebtedness; (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by Mediacom LLC and the Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied; and (iii) dividends and
distributions in respect of Disqualified Equity Interests actually paid in cash
by Mediacom LLC and the Restricted Subsidiaries during such period as determined
on a consolidated basis in accordance with generally accepted accounting
principles consistently applied. For purposes of this definition, interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by Mediacom LLC to be the rate of interest implicit in
such Capitalized Lease Obligation in accordance with generally accepted
accounting principles consistently applied.
"Consolidated Net Income" means, with respect to any period, the net
income (loss) of Mediacom LLC and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied, adjusted, to the extent included in
calculating such net income (loss), by excluding, without duplication, (i) all
extraordinary, unusual or nonrecurring items of income or expense and of gains
or losses and all gains and losses from the sale or other disposition of assets
out of the ordinary course of business (net of taxes, fees and expenses relating
to the transaction giving rise thereto) for such period; (ii) that portion of
such net income (loss) derived from or in respect of Investments in Persons
other than any Restricted Subsidiary, except to the extent actually received in
cash by Mediacom LLC or any Restricted Subsidiary; (iii) the portion of such net
income (loss) allocable to minority interests in unconsolidated Persons for such
period, except to
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the extent actually received in cash by Mediacom LLC or any Restricted
Subsidiary; (iv) net income (loss) of any other Person combined with Mediacom
LLC or any Restricted Subsidiary on a "pooling of interests" basis attributable
to any period prior to the date of combination; (v) net income (loss) of any
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by that Restricted Subsidiary of that net income (loss)
is not at the date of determination permitted without any prior governmental
approval (which has not been obtained) or, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Restricted
Subsidiary or the holders of its Equity Interests; (vi) the cumulative effect of
a change in accounting principles after April 1, 1998; (vii) net income (loss)
attributable to discontinued operations; (viii) management fees payable to the
"manager" as defined in the Operating Agreement and to Mediacom Communications
and its Affiliates pursuant to management agreements with Mediacom LLC or its
Subsidiaries accrued for such period that have not been paid during such period;
and (ix) any other item of expense, other than "interest expense," which appears
on Mediacom LLC's consolidated statement of income (loss) below the line item
"Operating Income," determined on a consolidated basis in accordance with
generally accepted accounting principles consistently applied.
"Consolidated Total Indebtedness" means, as at any date of
determination, an amount equal to the aggregate amount of all outstanding
Indebtedness and the aggregate liquidation preference or redemption payment
value of all Disqualified Equity Interests of Mediacom LLC and the Restricted
Subsidiaries outstanding as of such date of determination, less the obligations
of Mediacom LLC or any Restricted Subsidiary under any Hedging Agreement as of
such date of determination that would appear as a liability on the balance sheet
of such Person, in each case determined on a consolidated basis in accordance
with generally accepted accounting principles consistently applied.
"Continuing Member" means, as of the date of determination, any Person
who (i) was a member of the Executive Committee of Mediacom LLC on the date of
the Indenture, (ii) was nominated for election or elected to the Executive
Committee of Mediacom LLC with the affirmative vote of a majority of the
Continuing Members who were members of the Executive Committee at the time of
such nomination or election or (iii) is a representative of, or was approved by,
a Permitted Holder.
"Controlled Subsidiary" means a Restricted Subsidiary which is engaged
in a Related Business (i) 80% or more of the outstanding Equity Interests of
which (other than Equity Interests constituting directors' qualifying shares to
the extent mandated by applicable law) are owned by Mediacom LLC or by one or
more Wholly Owned Restricted Subsidiaries or Controlled Subsidiaries or by
Mediacom LLC and one or more Wholly Owned Restricted Subsidiaries or Controlled
Subsidiaries, (ii) of which Mediacom LLC possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies, whether
through the ownership of Voting Equity Interests, by agreement or otherwise, and
(iii) all of whose Indebtedness is Non-Recourse Indebtedness.
"Cumulative Credit" means the sum of (i) $10.0 million, plus (ii) the
aggregate Net Cash Proceeds received by Mediacom LLC or a Restricted Subsidiary
from the issue or sale (other than to a Restricted Subsidiary) of Equity
Interests of Mediacom LLC or a Restricted Subsidiary (other than Disqualified
Equity Interests) on or after April 1, 1998, plus (iii) the principal amount (or
accreted amount (determined in accordance with generally accepted accounting
principles), if less) of any Indebtedness, or the liquidation preference or
redemption payment value of any Disqualified Equity Interests, of Mediacom LLC
or any Restricted Subsidiary which has been converted into or exchanged for
Equity Interests of Mediacom LLC or a Restricted Subsidiary (other than
Disqualified Equity Interests) on or after April 1, 1998, plus (iv) cumulative
Operating Cash Flow on or after April 1, 1998, to the end of the fiscal quarter
immediately preceding the date of the proposed Restricted Payment, or, if
cumulative Operating Cash Flow for such period is negative, minus the amount by
which cumulative Operating Cash Flow is less than zero, plus (v) to the extent
not already included in Operating Cash Flow, if any Investment constituting a
Restricted Payment that was made after April 1, 1998 is sold or otherwise
liquidated or repaid or any Unrestricted Subsidiary which was designated as an
Unrestricted Subsidiary after April 1, 1998 is sold or otherwise liquidated, the
fair market value of such Restricted Payment (less the cost of disposition, if
any) on the date of such sale, liquidation or repayment, as determined in good
faith by the Executive Committee, whose determination shall be conclusive and
evidenced by a Committee Resolution, plus (vi) if any Unrestricted Subsidiary is
redesignated as a Restricted Subsidiary, the value of the Restricted Payment
that would result if such Subsidiary were redesignated as an Unrestricted
Subsidiary at such time, determined in accordance with the provisions described
under "Covenants--Designation of Unrestricted Subsidiaries" above.
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"Cumulative Interest Expense" means the aggregate amount of
Consolidated Interest Expense paid or accrued of the Issuers and the Restricted
Subsidiaries on or after April 1, 1998, to the end of the fiscal quarter
immediately preceding the proposed Restricted Payment.
"Debt to Operating Cash Flow Ratio" means the ratio of (i) the
Consolidated Total Indebtedness as of the date of calculation (the
"Determination Date") to (ii) four times the Operating Cash Flow for the latest
three months for which financial information is available immediately preceding
such Determination Date (the "Measurement Period"). For purposes of calculating
Operating Cash Flow for the Measurement Period immediately prior to the relevant
Determination Date, (I) any Person that is a Restricted Subsidiary on the
Determination Date (or would become a Restricted Subsidiary on such
Determination Date in connection with the transaction that requires the
determination of such Operating Cash Flow) will be deemed to have been a
Restricted Subsidiary at all times during such Measurement Period; (II) any
Person that is not a Restricted Subsidiary on such Determination Date (or would
cease to be a Restricted Subsidiary on such Determination Date in connection
with the transaction that requires the determination of such Operating Cash
Flow) will be deemed not have been a Restricted Subsidiary at any time during
such Measurement Period; and (III) if Mediacom LLC or any Restricted Subsidiary
shall have in any manner (x) acquired (including through an Asset Acquisition or
the commencement of activities constituting such operating business) or (y)
disposed of (including by way of an Asset Sale or the termination or
discontinuance of activities constituting such operating business) any operating
business during such Measurement Period or after the end of such period and on
or prior to such Determination Date, such calculation will be made on a pro
forma basis in accordance with generally accepted accounting principles
consistently applied, as if, in the case of an Asset Acquisition or the
commencement of activities constituting such operating business, all such
transactions had been consummated on the first day of such Measurement Period,
and, in the case of an Asset Sale or termination or discontinuance of activities
constituting such operating business, all such transactions had been consummated
prior to the first day of such Measurement Period.
"Disqualified Equity Interest" means (i) any Equity Interest issued by
Mediacom LLC which, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof (except, in each such case, upon the
occurrence of a Change of Control or a Regulatory Equity Interest Repurchase),
in whole or in part, or is exchangeable into Indebtedness, on or prior to the
earlier of the maturity date of the Notes or the date on which no Notes remain
outstanding; and (ii) any Equity Interest issued by any Restricted Subsidiary
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, or is exchangeable
into Indebtedness.
"8 1/2% Notes" means the 8 1/2% Senior Notes due 2008 issued by
Mediacom LLC and Mediacom Capital.
"Equity Interest" in any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, and
membership interests in such Person, including any Preferred Equity Interests.
"Equity Offering" means a public or private offering by Mediacom LLC or
a Restricted Subsidiary for cash of its respective Equity Interests (other than
Disqualified Equity Interests) or options, warrants or rights with respect to
such Equity Interests.
"Excess Proceeds" means, with respect to any Asset Sale, the then
Available Asset Sale Proceeds less any such Available Asset Sale Proceeds that
are required to be applied and are applied in accordance with clause (iii)(b)(1)
of the first paragraph of "Repurchase at the Option of Holders--Asset Sales"
above.
"Executive Committee" means (i) so long as Mediacom LLC is a limited
liability company, (x) while the Operating Agreement is in effect, the Executive
Committee authorized thereunder, and (y) at any other time, the manager or board
of managers of Mediacom LLC, or management committee, board of directors or
similar governing body responsible for the management of the business and
affairs of Mediacom LLC or any committee of such governing body; (ii) if
Mediacom LLC were to be reorganized as a corporation, the board of directors of
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Mediacom LLC; and (iii) if Mediacom LLC were to be reorganized as a partnership,
the board of directors of the corporate general partner of such partnership (or
if such general partner is itself a partnership, the board of directors of such
general partner's corporate general partner).
"Future Subsidiary Credit Facilities" means one or more debt facilities
(other than the Subsidiary Credit Facilities) entered into from time to time
after the date of the Indenture by one or more Restricted Subsidiaries or groups
of Restricted Subsidiaries with banks or other institutional lenders, together
with all loan documents and instruments thereunder (including, without
limitation, any guarantee agreements and security documents), including any
amendment (including any amendment and restatement), modification or supplement
thereto or any refinancing, refunding, deferral, renewal, extension or
replacement thereof (including, in any such case and without limitation, adding
or removing Subsidiaries of Mediacom LLC as borrowers or guarantors thereunder),
whether by the same or any other lender or group of lenders.
"Guarantor" means any Subsidiary of Mediacom LLC that guarantees the
Issuers' obligations under the Indenture and the Notes issued after the date of
the Indenture pursuant to "Covenants--Limitation on Guarantees of Certain
Indebtedness" above.
"Hedging Agreement" means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other similar agreement
providing for the transfer or mitigation of interest rate risks either generally
or under specific contingencies.
"Incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to
generally accepted accounting principles or otherwise, of any such Indebtedness
or other obligation on the balance sheet of such Person (and "Incurrence",
"Incurred" and "Incurring" shall have meanings correlative to the foregoing).
Indebtedness of any Person or any of its Subsidiaries existing at the time such
Person becomes a Restricted Subsidiary (or is merged into or consolidates with
Mediacom LLC or any Restricted Subsidiary), whether or not such Indebtedness was
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary (or being merged into or consolidated with Mediacom LLC or
any Restricted Subsidiary), shall be deemed Incurred at the time any such Person
becomes a Restricted Subsidiary or merges into or consolidates with Mediacom LLC
or any Restricted Subsidiary.
"Indebtedness" means, with respect to any Person, without duplication,
any indebtedness, secured or unsecured, contingent or otherwise, in respect of
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments or letters of credit or representing
the deferred and unpaid balance of the purchase price of property or services
(but excluding trade payables incurred in the ordinary course of business and
non-interest bearing installment obligations and other accrued liabilities
arising in the ordinary course of business) if and to the extent any of the
foregoing indebtedness would appear as a liability upon a balance sheet of such
Person prepared in accordance with generally accepted accounting principles, and
shall also include, to the extent not otherwise included (but without
duplication), (i) any Capitalized Lease Obligations, (ii) obligations secured by
a lien to which any property or assets owned or held by such Person is subject,
whether or not the obligation or obligations secured thereby shall have been
assumed, (iii) guarantees of items of other Persons which would be included
within this definition for such other Persons (whether or not such items would
appear upon the balance sheet of the guarantor), and (iv) obligations of
Mediacom LLC or any Restricted Subsidiary under any Hedging Agreement applicable
to any of the foregoing (if and only to the extent any amount due in respect of
such Hedging Agreement would appear as a liability upon a balance sheet of such
Person prepared in accordance with generally accepted accounting principles).
Indebtedness (i) shall not include obligations under performance bonds,
performance guarantees, surety bonds and appeal bonds, letters of credit or
similar obligations, Incurred in the ordinary course of business, including in
connection with pole rental or conduit attachments and the like or the
requirements of cable television franchising authorities, and otherwise
consistent with industry practice; (ii) shall not include obligations of any
Person (x) arising from the honoring by a bank or other financial institution of
a check, draft or other similar instrument inadvertently drawn against
insufficient funds in the ordinary course of business, provided such obligations
are extinguished within five business days of their Incurrence, (y) resulting
from the endorsement of negotiable instruments for collection in the ordinary
course of business and consistent with past practice and (z) under stand-by
letters of credit to the extent collateralized by cash or Cash Equivalents; and
(iii) which provides that
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an amount less than the principal amount thereof shall be due upon any
declaration of acceleration thereof shall be deemed to be Incurred or
outstanding in an amount equal to the accreted value thereof at the date of
determination.
"Investment" means, directly or indirectly, any advance, loan or other
extension of credit (including by means of a guarantee) or capital contribution
to (by means of transfers of property to others, payments for property or
services for the account or use of others or otherwise), the acquisition, by
purchase or otherwise, of any stock, bonds, notes, debentures, partnership,
membership or joint venture interests or other securities or other evidence of
beneficial interest of any Person, provided that the term "Investment" shall not
include any such advance, loan or extension of credit having a term not
exceeding 90 days arising in the ordinary course of business or any pledge of
Equity Interests pursuant to the Subsidiary Credit Facilities or any Future
Subsidiary Credit Facilities. If Mediacom LLC or any Restricted Subsidiary sells
or otherwise disposes of any Voting Equity Interest of any direct or indirect
Restricted Subsidiary such that, after giving effect to such sale or
disposition, Mediacom LLC no longer owns, directly or indirectly, greater than
50% of the outstanding Voting Equity Interests of such Restricted Subsidiary,
Mediacom LLC shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Voting Equity
Interests of such former Restricted Subsidiary not sold or disposed of.
"Lien" means any mortgage, pledge, lien, charge, security interest,
hypothecation, assignment for security or encumbrance of any kind (including any
conditional sale or capital lease or other title retention agreement, any lease
in the nature thereof or any agreement to give a security interest).
"Liquidated Damages" has the meaning specified in the section of this
prospectus entitled "Exchange Offer."
"Mediacom Communications" means Mediacom Communications Corporation, a
Delaware corporation.
"Mediacom Midwest Credit Agreement" means the credit agreement, dated
as of November 5, 1999, by and among Mediacom Illinois LLC, Mediacom Indiana
LLC, Mediacom Iowa LLC, Mediacom Minnesota LLC, Mediacom Wisconsin LLC, Zylstra
Communications Corporation and The Chase Manhattan Bank, as Administrative
Agent, establishing a reducing revolving credit facility and term loan.
"Mediacom USA Credit Agreement" means the credit agreement, dated as of
September 30, 1999, by and among Mediacom Southeast LLC, Mediacom California
LLC, Mediacom Delaware LLC, Mediacom Arizona LLC and The Chase Manhattan Bank,
as Administrative Agent, establishing a reducing revolving credit facility and
term loan.
"Moody's" means Moody's Investors Service, Inc.
"Net Cash Proceeds" means, with respect to any issuance or sale of
Equity Interests, the proceeds in the form of cash or Cash Equivalents received
by Mediacom Communications, Mediacom LLC or any Restricted Subsidiary of such
issuance or sale net of attorneys' fees, accountants fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.
"Non-Recourse Indebtedness" means Indebtedness of a Person (i) as to
which neither of the Issuers nor any of the Restricted Subsidiaries (other than
such Person or any Subsidiaries of such Person) (a) provides any guarantee or
credit support of any kind (including any undertaking, guarantee, indemnity,
agreement or instrument that would constitute Indebtedness) or (b) is directly
or indirectly liable (as a guarantor or otherwise); and (ii) the incurrence of
which will not result in any recourse against any of the assets of either of the
Issuers or the Restricted Subsidiaries (other than to such Person or to any
Subsidiaries of such Person and other than to the Equity Interests in such
Person or in another Restricted Subsidiary or an Unrestricted Subsidiary pledged
by Mediacom LLC, a Restricted Subsidiary or an Unrestricted Subsidiary);
provided, however, that Mediacom LLC or any Restricted Subsidiary may make a
loan to a Controlled Subsidiary or an Unrestricted Subsidiary, or guarantee a
loan made to a Controlled Subsidiary or an Unrestricted Subsidiary, if such loan
or guarantee is permitted by "Covenants--Limitation on Restricted Payments"
above at the time of the making of such loan or guarantee, and such loan or
guarantee shall not constitute Indebtedness which is not Non-Recourse
Indebtedness.
"Notes" means the 9 1/2% Senior Notes due 2013 to be issued by Mediacom
LLC and Mediacom Capital.
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"Operating Agreement" means the Fifth Amended and Restated Operating
Agreement of Mediacom LLC dated as of February 9, 2000, as the same may be
amended, supplemented or modified from time to time.
"Operating Cash Flow" means, with respect to Mediacom LLC and the
Restricted Subsidiaries on a consolidated basis, for any period, an amount equal
to Consolidated Net Income for such period increased (without duplication) by
the sum of (i) Consolidated Income Tax Expense accrued for such period to the
extent deducted in determining Consolidated Net Income for such period; (ii)
Consolidated Interest Expense for such period to the extent deducted in
determining Consolidated Net Income for such period; and (iii) depreciation,
amortization and any other non-cash items for such period to the extent deducted
in determining Consolidated Net Income for such period (other than any non-cash
item (other than the management fees referred to in clause (viii) of the
definition of "Consolidated Net Income") which requires the accrual of, or a
reserve for, cash charges for any future period) of Mediacom LLC and the
Restricted Subsidiaries, including, without limitation, amortization of
capitalized debt issuance costs for such period, all of the foregoing determined
on a consolidated basis in accordance with generally accepted accounting
principles consistently applied, and decreased by non-cash items to the extent
they increase Consolidated Net Income (including the partial or entire reversal
of reserves taken in prior periods) for such period.
"Other Pari Passu Debt" means Indebtedness of Mediacom LLC or any
Restricted Subsidiary that does not constitute Subordinated Obligations and that
is not senior in right of payment to the Notes.
"Other Pari Passu Debt Pro Rata Share" means the amount of the
applicable Available Asset Sale Proceeds obtained by multiplying the amount of
such Available Asset Sale Proceeds by a fraction, (i) the numerator of which is
the aggregate principal amount and/or accreted value, as the case may be, of all
Other Pari Passu Debt outstanding at the time of the applicable Asset Sale with
respect to which Mediacom LLC or any Restricted Subsidiary is required to use
Available Asset Sale Proceeds to repay or make an offer to purchase or repay and
(ii) the denominator of which is the sum of (a) the aggregate principal amount
of all Notes outstanding at the time of the applicable Asset Sale and (b) the
aggregate principal amount and/or accreted value, as the case may be, of all
Other Pari Passu Debt outstanding at the time of the applicable Asset Sale Offer
with respect to which Mediacom LLC or any Restricted Subsidiary is required to
use the applicable Available Asset Sale Proceeds to offer to repay or make an
offer to purchase or repay.
"Other Permitted Liens" means (i) Liens imposed by law, such as
carriers', warehousemen's and mechanics' liens and other similar liens arising
in the ordinary course of business which secure payment of obligations that are
not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and for which an
appropriate reserve or provision shall have been made in accordance with
generally accepted accounting principles consistently applied; (ii) Liens for
taxes, assessments or governmental charges or claims that are not yet delinquent
or that are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and for which an appropriate reserve or
provision shall have been made in accordance with generally accepted accounting
principles consistently applied; (iii) easements, rights of way, and other
restrictions on use of property or minor imperfections of title that in the
aggregate are not material in amount and do not in any case materially detract
from the property subject thereto or interfere with the ordinary conduct of the
business of Mediacom LLC or its Subsidiaries; (iv) Liens related to Capitalized
Lease Obligations, mortgage financings or purchase money obligations (including
refinancings thereof), in each case Incurred for the purpose of financing all or
any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of Mediacom LLC or any
Restricted Subsidiary or a Related Business, provided that any such Lien
encumbers only the asset or assets so financed, purchased, constructed or
improved; (v) Liens resulting from the pledge by Mediacom LLC of Equity
Interests in a Restricted Subsidiary in connection with a Subsidiary Credit
Facility or a Future Subsidiary Credit Facility or in an Unrestricted Subsidiary
in any circumstance, in each such case where recourse to Mediacom LLC is limited
to the value of the Equity Interests so pledged; (vi) Liens resulting from the
pledge by Mediacom LLC of intercompany indebtedness owed to Mediacom LLC in
connection with a Subsidiary Credit Facility or a Future Subsidiary Credit
Facility; (vii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security; (viii) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds, deposits to
secure the performance of bids, trade contracts, government contracts, leases or
licenses or other obligations of a like nature incurred in the ordinary course
of business (including, without limitation, landlord Liens on leased
properties); (ix) leases or subleases granted to third Persons not interfering
with the ordinary course of business of Mediacom LLC; (x) deposits made in the
ordinary course of business to secure liability to insurance carriers; (xi)
Liens securing reimbursement obligations with
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respect to letters of credit which encumber documents and other property
relating to such letters of credit and the products and proceeds thereof; (xii)
Liens on the assets of Mediacom LLC to secure hedging agreements with respect to
Indebtedness permitted by the Indenture to be Incurred; (xiii) attachment or
judgment Liens not giving rise to a Default or an Event of Default; and (xiv)
any interest or title of a lessor under any capital lease or operating lease.
"Permitted Holder" means (i) Rocco B. Commisso or his spouse or
siblings, any of their lineal descendants and their spouses, (ii) any controlled
Affiliate of any individual described in clause (i) above, (iii) in the event of
the death or incompetence of any individual described in clause (i) above, such
Person's estate, executor, administrator, committee or other personal
representative, in each case who at any particular date will beneficially own or
have the right to acquire, directly or indirectly, Equity Interests of Mediacom
LLC, (iv) any trust or trusts created for the benefit of each Person described
in this definition, including any trust for the benefit of the parents or
siblings of any individual described in clause (i) above, (v) any trust for the
benefit of any such trust, (vi) any of the holders of Equity Interests in
Mediacom LLC on February 26, 1999, or (vii) any of the Affiliates of any Person
described in clause (vi) above.
"Permitted Investments" means (i) Cash Equivalents; (ii) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (iii) the
extension of credit to vendors, suppliers and customers in the ordinary course
of business; (iv) Investments existing as of the date of the Indenture, and any
amendment, modification, extension or renewal thereof to the extent such
amendment, modification, extension or renewal does not require Mediacom LLC or
any Restricted Subsidiary to make any additional cash or non-cash payments or
provide additional services in connection therewith; (v) Hedging Agreements;
(vi) any Investment for which the sole consideration provided is Equity
Interests (other than Disqualified Equity Interests) of Mediacom LLC; (vii) any
Investment consisting of a guarantee permitted under clause (e) of the second
paragraph of "Covenants--Limitation on Indebtedness" above; (viii) Investments
in Mediacom LLC, in any Wholly Owned Restricted Subsidiary or in any Controlled
Subsidiary or any Person that, as a result of or in connection with such
Investment, becomes a Wholly Owned Restricted Subsidiary or a Controlled
Subsidiary or is merged with or into or consolidated with Mediacom LLC or a
Wholly Owned Restricted Subsidiary or a Controlled Subsidiary; (ix) loans and
advances to officers, directors and employees of Mediacom Communications,
Mediacom LLC and the Restricted Subsidiaries for business-related travel
expenses, moving expenses and other similar expenses in each case incurred in
the ordinary course of business; (x) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Equity
Interests) of Mediacom LLC; (xi) Related Business Investments; and (xii) other
Investments made pursuant to this clause (xii) at any time, and from time to
time, after the date of the Indenture, in addition to any Permitted Investments
described in clauses (i) through (xi) above, in an aggregate amount at any one
time outstanding not to exceed $10.0 million.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
"Preferred Equity Interest" means, in any Person, an Equity Interest of
any class or classes, however designated, which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"Productive Assets" means assets of a kind used or useable by Mediacom
LLC and the Restricted Subsidiaries in any Related Business and specifically
includes assets acquired through Asset Acquisitions (it being understood that
"assets" may include Equity Interests of a Person that owns such Productive
Assets, provided that after giving effect to such transaction, such Person would
be a Restricted Subsidiary).
"Related Business" means a cable television, media and communications,
telecommunications or data transmission business, and businesses ancillary,
complementary or reasonably related thereto, and reasonable extensions thereof.
"Related Business Investment" means (i) any capital expenditure or
Investment, in each case related to the business of Mediacom LLC and its
Restricted Subsidiaries as conducted on the date of the Indenture and as such
business may thereafter evolve in the fields of Related Businesses, (ii) any
Investment in any other Person primarily
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engaged in a Related Business and (iii) any customary deposits or earnest money
payments made by Mediacom LLC or any Restricted Subsidiary in connection with or
in contemplation of the acquisition of a Related Business.
"Restricted Subsidiary" means any Subsidiary of Mediacom LLC that has
not been designated by the Executive Committee of Mediacom LLC by a Committee
Resolution delivered to the Trustee as an Unrestricted Subsidiary pursuant to
"Covenants--Designation of Unrestricted Subsidiaries" above. Any such
designation may be revoked by a Committee Resolution delivered to the Trustee,
subject to the provisions of such covenant.
"7 7/8% Notes" means the 7 7/8% Senior Notes due 2011 issued by
Mediacom LLC and Mediacom Capital.
"S&P" means Standard & Poor's Ratings Group.
"Significant Subsidiary" means any Restricted Subsidiary which at the
time of determination had (A) total assets which, as of the date of Mediacom
LLC's most recent quarterly consolidated balance sheet, constituted at least 10%
of Mediacom LLC's total assets on a consolidated basis as of such date, or (B)
revenues for the three-month period ending on the date of Mediacom LLC's most
recent quarterly consolidated statement of income which constituted at least 10%
of Mediacom LLC's total revenues on a consolidated basis for such period, or (C)
Subsidiary Operating Cash Flow for the three-month period ending on the date of
Mediacom LLC's most recent quarterly consolidated statement of income which
constituted at least 10% of Mediacom LLC's total Operating Cash Flow on a
consolidated basis for such period.
"Subordinated Obligations" means, with respect to either of the
Issuers, any Indebtedness of either of the Issuers which is expressly
subordinated in right of payment to the Notes.
"Subsidiary" means a Person the majority of whose voting stock,
membership interests or other Voting Equity Interests is or are owned by
Mediacom LLC or a Subsidiary. Voting stock in a corporation is Equity Interests
having voting power under ordinary circumstances to elect directors.
"Subsidiary Credit Facilities" means the Mediacom Midwest Credit
Agreement and the Mediacom USA Credit Agreement, together with all loan
documents and instruments thereunder (including, without limitation, any
guarantee agreements and security documents), including any amendment (including
any amendment and restatement), modification or supplement thereto or any
refinancing, refunding, deferral, renewal, extension or replacement thereof
(including, in any such case and without limitation, adding or removing
Subsidiaries of Mediacom LLC as borrowers or guarantors thereunder), whether by
the same or any other lender or group of lenders, pursuant to which (i) an
aggregate amount of Indebtedness up to $325.0 million may be Incurred pursuant
to clause (c)(i) of the second paragraph of "Covenants--Limitation on
Indebtedness" and (ii) any additional amount of Indebtedness in excess of $325.0
million may be Incurred pursuant to the first paragraph or pursuant to clause
(c)(ii) or any other applicable clause (other than clause (c)(i)) of the second
paragraph of "Covenants--Limitation on Indebtedness."
"Subsidiary Operating Cash Flow" means, with respect to any Subsidiary
for any period, the "Operating Cash Flow" of such Subsidiary and its
Subsidiaries for such period determined by utilizing all of the elements of the
definition of "Operating Cash Flow" in the Indenture, including the defined
terms used in such definition, consistently applied only to such Subsidiary and
its Subsidiaries on a consolidated basis for such period.
"Unrestricted Subsidiary" means any Subsidiary of Mediacom LLC
designated as such pursuant to the provisions of "Covenants-Designation of
Unrestricted Subsidiaries" above, and any Subsidiary of an Unrestricted
Subsidiary. Any such designation may be revoked by a Committee Resolution
delivered to the Trustee, subject to the provisions of such covenant.
"Voting Equity Interests" means Equity Interests in any Person with
voting power under ordinary circumstances entitling the holders thereof to elect
the Executive Committee, the board of managers, board of directors or other
governing body of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including
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payment of final maturity, in respect thereof by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment, by (ii) the then outstanding aggregate principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary 99%
or more of the outstanding Equity Interests of which (other than Equity
Interests constituting directors' qualifying shares to the extent mandated by
applicable law) are owned by Mediacom LLC or by one or more Wholly Owned
Restricted Subsidiaries or by Mediacom LLC and one or more Wholly Owned
Restricted Subsidiaries.
No Liability of Managers, Officers, Employees, or Shareholders
No manager, director, officer, employee, member, shareholder, partner
or incorporator of either Issuer or any Subsidiary, as such, will have any
liability for any obligations of the Issuers under the Notes, the Exchange
Notes, if any, or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each holder of Notes by accepting
a Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may not be effective
to waive liabilities under the Federal securities laws and the SEC is of the
view that such a waiver is against public policy.
Defeasance and Covenant Defeasance
The Indenture will provide that the Issuers may elect either (a) to
defease and be discharged from any and all obligations with respect to the Notes
(except for the obligations to register the transfer or exchange of such Notes,
to replace temporary or mutilated, destroyed, lost or stolen Notes, to maintain
an office or agency in respect of the Notes and to hold moneys for payment in
trust) ("defeasance") or (b) to be released from its obligations with respect to
the Notes under certain covenants (and related Events of Default) contained in
the Indenture, including but not limited to those described above under
"Covenants" ("covenant defeasance"), upon the deposit with the Trustee (or other
qualifying trustee), in trust for such purpose, of money and/or U.S. Government
Obligations which through the payment of principal and interest in accordance
with their terms will provide money, in an amount sufficient to pay the
principal of, premium, if any, and interest and Liquidated Damages, if any, on
the Notes, on the scheduled due dates therefor. Such a trust may only be
established if, among other things, (x) no Default or Event of Default has
occurred and is continuing or would arise therefrom (or, with respect to Events
of Default resulting from certain events of bankruptcy, insolvency or
reorganization, would occur at any time in the period ending on the 91st day
after the date of deposit) and (y) Mediacom LLC has delivered to the Trustee an
opinion of counsel (as specified in the Indenture) to the effect that (i)
defeasance or covenant defeasance, as the case may be, will not require
registration of the Issuers, the Trustee or the trust fund under the Investment
Company Act of 1940, as amended, or the Investment Advisors Act of 1940, as
amended, and (ii) the holders of the Notes will recognize income, gain or loss
for Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance or covenant defeasance had
not occurred. Such opinion, in the case of defeasance under clause (a) above,
must refer to and be based upon a private ruling concerning the Notes of the
Internal Revenue Service or a ruling of general effect published by the Internal
Revenue Service.
Modification of Indenture
From time to time, the Issuers and the Trustee may, without the consent
of holders of the Notes, enter into one or more supplemental indentures for
certain specified purposes, including providing for a successor or successors to
the Issuers, adding guarantees, releasing Guarantors when permitted by the
Indenture, providing for security for the Notes, adding to the covenants of the
Issuers, surrendering any right or power conferred upon the Issuers, providing
for uncertificated Notes in addition to or in place of certificated Notes,
making any change that does not adversely affect the rights of any Noteholder,
complying with any requirement of the Trust Indenture Act or curing certain
ambiguities, defects or inconsistencies. The Indenture contains provisions
permitting the Issuers and the Trustee, with the consent of holders of at least
a majority in aggregate principal amount of the Notes at the time outstanding,
to modify the Indenture or any supplemental indenture or the rights of the
holders of the Notes, except that no such modification shall, without the
consent of each holder affected thereby (i) change or extend the fixed maturity
of any Notes, reduce the rate or extend the time of payment of interest or
Liquidated Damages thereon, reduce the principal amount thereof or premium, if
any, thereon or change the currency in which the Notes are payable; (ii) reduce
the premium payable upon any redemption of Notes in accordance with the optional
redemption provisions of the Notes or change the time before which no such
redemption may be made; (iii) waive a
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default in the payment of principal or interest or Liquidated Damages on the
Notes (except that holders of a majority in aggregate principal amount of the
Notes at the time outstanding may (a) rescind an acceleration of the Notes that
resulted from a non-payment default and (b) waive the payment default that
resulted from such acceleration) or alter the rights of Noteholders to waive
defaults; or (iv) reduce the aforesaid percentage of Notes, the consent of the
holders of which is required for any such modification. Any existing Event of
Default, other than a default in the payment of principal or interest or
Liquidated Damages on the Notes, or compliance with any provision of the Notes
or the Indenture, other than any provision related to the payment of principal
or interest or Liquidated Damages on the Notes, may be waived with the consent
of holders of at least a majority in aggregate principal amount of the Notes at
the time outstanding.
Compliance Certificate
The Indenture will provide that Mediacom LLC will deliver to the
Trustee within 120 days after the end of each fiscal year of Mediacom LLC an
Officers' Certificate stating whether or not the signers know of any Event of
Default that has occurred. If they do, the certificate will describe the Event
of Default and its status.
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U.S. FEDERAL TAX CONSIDERATIONS
In the opinion of Sonnenschein Nath & Rosenthal, the following general
discussion summarizes the material U.S. federal tax aspects of the exchange
offer. This discussion is a summary for general information only and does not
consider all aspects of U.S. federal tax that may be relevant to the purchase,
ownership and disposition of exchange notes by a prospective investor in light
of such investor's personal circumstances. This discussion also does not address
the U.S. federal tax consequences of ownership of notes not held as capital
assets within the meaning of Section 1221 of the Internal Revenue Code of 1986,
as amended (the "Code"), or the U.S. federal tax consequences to investors
subject to special treatment under the U.S. federal income tax laws, such as
dealers in securities, tax-exempt entities, banks, thrifts, insurance companies,
persons that hold the notes as part of a "straddle," a "hedge" against currency
risk or a "conversion transaction," persons that have a "functional currency"
other than the U.S. dollar, and investors in partnerships or other pass-through
entities. In addition, except as otherwise provided, this discussion addresses
only certain U.S. federal income tax consequences and does not describe U.S.
federal estate or gift tax consequences or the tax consequences arising out of
the tax laws of any state, local, or foreign jurisdiction.
As used herein, a "U.S. Holder" is a beneficial owner of a note that is
(1) a citizen or resident of the United States; (2) a corporation or other
entity treated as a corporation for U.S. federal tax purposes that is created or
organized in or under the laws of the United States or any political subdivision
thereof; (3) an estate the income of which is subject to U.S. federal income
taxation regardless of its source; or (4) a trust which is either subject to the
supervision of a court within the United States and the control of one or more
U.S. persons, or has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person. As used herein, a "Non-U.S. Holder"
is a beneficial owner of a note that is not a U.S. Holder.
This discussion is based on the Code, existing and proposed U.S.
Treasury regulations thereunder, Internal Revenue Service ("IRS") rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change, possibly on a retroactive basis. We have not and will not seek any
opinions of counsel or rulings from the IRS with respect to the matters
discussed below. There can be no assurance that the IRS will not take positions
concerning the tax consequences of the purchase, ownership, or disposition of
the notes which are different from those discussed herein.
Investors in notes should consult their tax advisors with regard to the
application of the tax consequences discussed below to their particular
situations, as well as the application of any state, local, foreign or other tax
laws, or subsequent revisions thereof.
Exchange of Notes
The exchange of notes pursuant to the exchange offer will not be treated as
a taxable sale, exchange or other disposition of the corresponding initial notes
because the terms of the exchange notes are not materially different from the
terms of the initial notes. Accordingly,
(1) a holder will not recognize gain or loss upon receipt of an exchange
note;
(2) the holding period of an exchange note will include the holding period
of the initial note exchanged therefor; and
(3) the adjusted tax basis of an exchange note will be the same as the
adjusted tax basis of the initial note exchanged.
The filing of a shelf registration statement will not result in a
taxable exchange to us or to any holder of a note.
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U.S. Federal Income Taxation of U.S. Holders
Payments of Interest
A U.S. Holder of an exchange note generally will be required to report as
ordinary income for U.S. federal income tax purposes interest received or
accrued on the exchange note in accordance with the U.S. Holder's regular method
of accounting.
Bond Premium and Market Discount
A U.S. Holder who purchases an exchange note for an amount in excess of its
stated principal amount will be considered to have purchased the exchange note
at a premium equal to the amount of such excess. A U.S. Holder generally may
elect to amortize the premium on the constant yield method. The amount amortized
in any year under such method will be treated as a reduction of the holder's
interest income from the exchange note during such year and will reduce the
holder's adjusted tax basis in the exchange note by such amount. A holder of an
exchange note that does not make the election to amortize the premium will not
reduce its tax basis in the exchange note and, thus, effectively will realize a
smaller gain or a larger loss on a taxable disposition of the exchange note than
it would have realized had the election been made. The election to amortize the
premium on a constant yield method, once made, applies to all debt obligations
held or acquired by the electing holder on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the IRS.
If a U.S. Holder purchases an exchange note for an amount that is less than
its stated principal amount, the amount of the difference will be treated as
"market discount" for U.S. federal income tax purposes unless such difference is
less than a specified de minimis amount. Under the de minimis exception, an
exchange note is considered to have no market discount if the excess of the
stated redemption price at maturity of the exchange note over the holder's tax
basis in such note immediately after its acquisition is less than 0.25% of the
stated redemption price at maturity of the exchange note multiplied by the
number of complete years to the maturity date of the exchange note after the
acquisition date.
Under the market discount rules, a U.S. Holder is required to treat any
principal payment on, or any gain from the sale, exchange, redemption or other
disposition of, an exchange note as ordinary income to the extent of the accrued
market discount not previously included in income at the time of such payment or
disposition. In addition, such a holder may be required to defer until maturity
of the exchange note, or its earlier disposition in a taxable transaction, the
deduction of all or a portion of the interest on any indebtedness incurred or
continued to purchase or carry such exchange note.
In general, market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the exchange note,
unless the U.S. Holder elects to accrue the market discount on a constant
interest method. A U.S. Holder of an exchange note may elect to include market
discount in income currently as it accrues (on either a ratable or constant
interest method), in which case the rule described above regarding deferral of
interest deductions will not apply. This election to include market discount in
income currently, once made, applies to all market discount obligations acquired
on or after the first taxable year to which the election applies and may not be
revoked without the consent of the IRS.
Sale, Exchange, or Redemption of the Exchange Notes
Upon the sale, exchange, redemption, or other disposition of an exchange
note, a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the disposition (not including amounts
attributable to accrued but unpaid interest which is taxable as ordinary income)
and the U.S. Holder's adjusted tax basis in the exchange note. A U.S. Holder's
adjusted tax basis in an exchange note generally will equal the cost of the
exchange note (or the cost of the initial note exchanged for the exchange note)
to the U.S. Holder, increased by any market discount previously included in
income through the date of disposition and decreased by any amortized bond
premium applied to reduce interest and by any principal payments on the exchange
note. Such gain or loss generally will be capital gain or loss, except to the
extent of any accrued market discount not previously included in income, which
will be taxed as ordinary income.
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U.S. Federal Income Taxation of Non-U.S. Holders
Payments of Interest
The payment to a Non-U.S. Holder of interest on an exchange note generally
will not be subject to a 30% U.S. federal withholding tax provided that the
Non-U.S. Holder (1) does not actually or constructively own 10% or more of the
total combined voting power of all classes of the voting stock of Mediacom
Communications within the meaning of the Code and U.S. Treasury regulations; (2)
is not a controlled foreign corporation that is related to us through stock
ownership as provided in the Code and U.S. Treasury regulations; (3) is not a
bank whose receipt of interest on the exchange notes is in connection with an
extension of credit made pursuant to a loan agreement entered into in the
ordinary course of its trade or business; and (4)(a) provides its name and
address on an IRS Form W-8BEN (or a successor form) and certifies under
penalties of perjury that it is not a U.S. person or (b) a bank, brokerage house
or other financial institution that holds the notes on behalf of the Non-U.S.
Holder in the ordinary course of its trade or business (a "financial
institution") certifies to us, under penalty of perjury, that it has received an
IRS Form W-8BEN (or a successor form) from the beneficial owner and furnishes us
with a copy thereof. In the case of financial institutions that have entered
into a withholding agreement with the IRS to become qualified intermediaries, an
alternative method may be applicable for satisfying the certification
requirement described in (4)(b) above.
If a Non-U.S. Holder cannot satisfy the requirements described in the
immediately preceding paragraph, payments of interest made to the Non-U.S.
Holder will be subject to a 30% U.S. federal withholding tax, unless the
Non-U.S. Holder provides us with a properly executed (1) IRS Form W-8BEN (or a
successor form) claiming an exemption from or reduction in the rate of
withholding under the benefit of an applicable income tax treaty or (2) IRS Form
W-8ECI (or a successor form) stating that the interest paid on the exchange note
is not subject to withholding tax because it is effectively connected with the
Non-U.S. Holder's conduct of a trade or business in the United States. In
addition, the Non-U.S. Holder may, under certain circumstances, be required to
obtain a U.S. taxpayer identification number ("TIN").
If a Non-U.S. Holder of an exchange note is engaged in a trade or business
in the United States and interest on the exchange note is effectively connected
with the conduct of such trade or business, the Non-U.S. Holder will be subject
to U.S. federal income tax on such interest in the same manner as if it were a
U.S. Holder, unless the Non-U.S. Holder can claim an exemption under the benefit
of an applicable income tax treaty. In addition, if such Non-U.S. Holder is a
foreign corporation, it may be subject to a branch profits tax equal to 30% (or
lower applicable treaty rate) of its earnings and profits for the taxable year,
subject to adjustments, that are effectively connected with its conduct of a
trade or business in the United States.
Generally, the payments of interest to a Non-U.S. Holder would be subject
to reporting requirements, even though such payments are not subject to a 30%
U.S. federal withholding tax.
Sale, Exchange, or Redemption of the Exchange Notes
Generally, a Non-U.S. Holder will not be subject to U.S. federal income tax
with respect to gain realized on the sale, exchange, redemption or other
disposition of an exchange note unless (1) the gain is effectively connected
with the conduct by the Non-U.S. Holder of a trade or business in the United
States; (2) in the case of a Non-U.S. Holder who is a nonresident alien
individual, such individual is present in the United States for 183 days or more
in the taxable year of disposition and certain other conditions are met; or (3)
the Non-U.S. Holder is subject to tax pursuant to the provisions of the Code
applicable to certain U.S. expatriates. Notwithstanding (1) and (2), a Non-U.S.
Holder will not be subject to U.S. federal income tax if a treaty exemption
applies and the appropriate documentation is provided.
U.S. Federal Estate Taxation of Non-U.S. Holders
An exchange note that is held by an individual who, at the time of death,
is not a citizen or resident of the United States will generally not be subject
to U.S. federal estate tax if, at the time of the individual's death, interest
on the exchange note would have qualified for the portfolio interest exception.
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Information Reporting and Backup Withholding
U.S. Holders may be subject, under certain circumstances, to
information reporting and backup withholding at a rate equal to the fourth
lowest rate of tax under Section 1(c) of the Code (which is 30.5% for amounts
paid before 2002 and after August 6, 2001) with respect to payments of
principal, interest and the gross proceeds from the sale, exchange, redemption
or other disposition of an exchange note. Backup withholding may apply if the
U.S. Holder (1) fails to furnish its TIN on an IRS Form W-9 (or a suitable
substitute form) within a reasonable time after a request therefor; (2)
furnishes an incorrect TIN; (3) fails to report properly any interest or
dividends; or (4) fails, under certain circumstances, to provide a certified
statement signed under penalty of perjury that the TIN provided is its correct
number and that it is not subject to backup withholding. Certain persons are
exempt from backup withholding, including corporations and financial
institutions. U.S. Holders of the exchange notes should consult their tax
advisors as to their qualification for exemption from backup withholding and the
procedure for obtaining such exemption.
Non-U.S. Holders will generally not be subject to backup withholding at
the rate described in the immediately preceding paragraph (which is 30.5% for
amounts paid before 2002 and after August 6, 2001) with respect to payments of
interest on the exchange notes if we do not have actual knowledge that the
Non-U.S. Holder is a U.S. person and such holder provides the requisite
certification on IRS Form W-8BEN (or a successor form) or otherwise establishes
an exemption from backup withholding. Such payments of interest, however, would
generally be subject to reporting requirements, see "U.S. Federal Income
Taxation of Non-U.S. Holders--Payments of Interest" above.
Payments of the gross proceeds from the sale, exchange, redemption or
other disposition of an exchange note effected by or through a U.S. office of a
broker generally will be subject to backup withholding and information reporting
unless the Non-U.S. Holder certifies as to its non-U.S. status on IRS Form
W-8BEN (or a successor form) or otherwise establishes an exemption. Generally,
information reporting and backup withholding will not apply to a payment of
disposition proceeds where the sale is effected outside the United States
through a non-U.S. office of a non-U.S. broker and payment is not received in
the United States.
However, information reporting will generally apply to a payment of
disposition proceeds where the sale is effected outside the United States by or
through an office outside the United States of a broker which fails to maintain
documentary evidence that the holder is a Non-U.S. Holder or that the holder
otherwise is entitled to an exemption, and the broker is (1) a U.S. person; (2)
a foreign person which derives 50% or more of its gross income for defined
periods from the conduct of a trade or business in the United States; (3) a
controlled foreign corporation for U.S. federal income tax purposes; or (4) a
foreign partnership (a) more than 50% of the capital or profits interest of
which is owned by U.S. persons or (b) which is engaged in a U.S. trade or
business. Backup withholding will apply to a payment of those disposition
proceeds if the broker has actual knowledge that the holder is a U.S. person.
Backup withholding is not an additional tax. The amount of any backup
withholding imposed on a payment to a U.S. or Non-U.S. Holder of the exchange
notes will be allowed as a refund or a credit against such holder's U.S. federal
income tax liability, provided that the required information is furnished to the
IRS.
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EXCHANGE OFFER
Exchange and Registration Rights Agreement
The initial notes were originally issued on January 24, 2001 to J.P.
Morgan Securities Inc., Credit Suisse First Boston Corporation and Salomon Smith
Barney Corporation, pursuant to a purchase agreement dated January 17, 2001. The
initial purchasers subsequently resold the initial notes in the United States to
qualified institutional buyers in reliance on Rule 144A under the Securities
Act, and outside the United States in accordance with Regulation S under the
Securities Act. We are parties to an exchange and registration rights agreement
with the initial purchasers entered into as a condition to the closing of the
offering of the initial notes under the purchase agreement. Pursuant to the
exchange and registration rights agreement, we agreed, for the benefit of the
holders of the initial notes, at our cost to:
. file an exchange offer registration statement on or before July 23,
2001 with the Securities and Exchange Commission with respect to the
exchange offer for the initial notes; and
. use our reasonable best efforts to have the registration statement
declared effective under the Securities Act by November 20, 2001.
Upon the registration statement being declared effective, we will offer
the exchange notes in exchange for surrender of the initial notes. We will keep
the exchange offer open for not less than 30 days, or longer if required by
applicable law, after the date on which notice of the exchange offer is mailed
to the holders of the initial notes. A holder of initial notes that are
surrendered to us pursuant to the exchange offer will receive exchange notes
having an aggregate principal amount equal to that of the surrendered initial
notes. The exchange notes will be identical to the initial notes in all material
respects, except for the transfer restrictions and registration rights relating
to the initial notes will not apply to the exchange notes. Pursuant to the
exchange and registration rights agreement, we have agreed to use our reasonable
best efforts to consummate the registered exchange offer by January 19, 2002.
Under existing interpretations of the staff of the Securities and
Exchange Commission contained in several no-action letters to third parties, we
believe that the exchange notes will in general be freely tradeable after the
exchange offer without further registration under the Securities Act. However,
the initial purchasers holding unsold allotments from the initial distribution
of the initial notes and any purchaser of initial notes who is an "affiliate" of
ours or who intends to participate in the exchange offer for the purpose of
distributing the exchange notes:
. will not be able to rely on these interpretations of the staff of the
Securities and Exchange Commission;
. will not be able to tender their initial notes in the exchange offer;
and
. must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the
initial notes, unless such sale or transfer is made pursuant to an
exemption from such requirements.
If, prior to the consummation of the exchange offer, any holder holds
any initial notes that are reasonably likely to be considered an unsold
allotment in an initial distribution, or any holder of initial notes is not
entitled to participate in this exchange offer, we will issue in a private
exchange offer, upon the request of any such holder, and deliver to such holder,
in exchange for such holder's initial notes, a like aggregate principal amount
of debt securities that are identical in all material respects to the exchange
notes, except that such private exchange notes will contain transfer
restrictions.
As contemplated by these no-action letters and the exchange and
registration rights agreement, each holder accepting the exchange offer is
required to represent to us in the letter of transmittal that at the time of the
consummation of the exchange offer:
. the holder is not an "affiliate" of ours within the meaning of Rule
405 under the Securities Act;
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. the holder is not engaged in, does not intend to engage in, and has no
arrangements or understanding with any person to participate in, a
distribution of the exchange notes; and
. the holder is acquiring the exchange notes in the ordinary course of
its business.
Each holder participating in the exchange offer for the purpose of
distributing the exchange notes must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale of the
exchange notes and cannot rely on those no-action letters.
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer in exchange for initial notes, where the initial
notes were acquired by the broker-dealer as a result of market-making or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This prospectus, as it
may be amended and supplemented from time to time, may be used by a
broker-dealer in connection with any resale of exchange notes received in
exchange for initial notes where such initial notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities. We have agreed that for a period of 180 days after the consummation
of this exchange offer or such time as any such broker-dealer no longer owns any
registrable securities, we will make this prospectus, as it may be amended and
supplemented from time to time, available to any such broker-dealer for use in
connection with any resale of such exchange notes. See "Plan of Distribution."
Shelf Registration Statement
The exchange and registration rights agreement provides that if:
. we are not permitted to consummate this exchange offer because
the exchange offer is not permitted by applicable law or
Commission policy (after we have unsuccessfully sought a
no-action letter from the Commission allowing us to consummate
the exchange offer);
. any notes validly tendered in this exchange offer are not
exchanged for exchange notes by January 19, 2002;
. an initial purchaser of the notes so request with respect to
notes not eligible to be exchanged for exchange notes in this
exchange offer and held by such initial purchaser after the
consummation of the exchange offer;
. any law or Commission policy prohibits a holder of the notes to
participate in the exchange offer;
. any holder of notes that participates in the exchange offer does
not receive freely tradeable exchange notes in exchange for the
tendered notes; or
. we so elect;
then we will file with the Commission a shelf registration statement relating to
all transfer restricted securities. We will use our reasonable best efforts to
file the shelf registration statement within 60 days of the earlier of the date
we determine that we are required to file a shelf registration statement or the
date we receive notice from a holder that it holds transfer restricted
securities. We will use our reasonable best efforts to cause the shelf
registration statement to be declared effective by the Commission. We will use
our reasonable best efforts to keep the shelf registration statement effect for
a period ending on the earlier of two years from the date the initial notes were
issued, when all of the transfer restricted securities covered by the
shelf-registration statement have been sold and the date the initial notes will
be eligible for resale without volume restrictions pursuant to Rule 144 of the
Securities Act.
For purposes of the preceding paragraph, "transfer restricted
securities" means:
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. each initial note until the date on which such initial note has
been exchanged in the exchange offer for an exchange note which
may be resold to the public by the holder thereof without
complying with the prospectus delivery requirements of the
Securities Act;
. each initial note or exchange note exchanged privately that
contains transfer restrictions until the date on which such note
has been effectively registered under the Securities Act and
disposed of in accordance with the shelf registration statement;
. each initial note or exchange note exchanged privately that
contains transfer restrictions until the date on which such note
is distributed to the public pursuant to Rule 144 under the
Securities Act or may be sold pursuant to Rule 144(k) of the
Securities Act; and
. each exchange note held by a broker-dealer until the date on
which such exchange note is disposed of by a broker-dealer
pursuant to the "Plan of Distribution" contained herein
(including the delivery of this prospectus).
The exchange and registration rights agreement provides that if:
. we fail to file the registration statement or shelf registration
statement required by the exchange and registration rights
agreement on or before the date specified for such filing;
. the registration statement or the shelf registration statement is
not declared effective by the Securities and Exchange Commission
on or prior to the date specified in the exchange and
registration rights agreement for such effectiveness;
. we fail to complete the exchange offer within 60 days of the
November 20, 2001 deadline for effectiveness of the registration
statement; or
. the shelf registration statement is filed and declared effective
by the Securities and Exchange Commission on or prior to the date
specified in the exchange and registration rights agreement but
thereafter ceases to be effective at any time that we are
obligated to maintain the effectiveness of the shelf registration
statement without being succeeded within 120 days by an
additional registration statement filed and declared effective
(each such event referred to in this clause and the three
preceding clauses are referred to as a "registration default");
then we will pay liquidated damages to each holder of transfer restricted
securities, during the period of one or more such registration defaults in an
amount equal to $0.192 per week per $1,000 principal amount of notes held by
such holder.
All accrued liquidated damages will be payable to holders of the transfer
restricted securities in cash on the semi-annual interest payment dates on the
transfer restricted securities, commencing with the date such registration
default occurs, until such registration default is cured.
Following the cure of all registration defaults, the accrual of
liquidated damages will cease.
Holders of notes will be required to make certain representations to us
(as described in the exchange and registration rights agreement) in order to
participate in the exchange offer and will be required to deliver certain
information to be used in connection with the shelf registration statement in
order to have their notes included in the shelf registration statement and
benefit from the provisions regarding liquidated damages set forth above. By
acquiring transfer restricted securities, a holder will be deemed to have agreed
to indemnify us against certain losses arising out of information furnished by
such holder in writing for inclusion in any shelf registration statement.
Holders of notes will also be required to suspend their use of the prospectus
included in the shelf registration statement under certain circumstances upon
receipt of written notice to that effect from us.
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Expiration Date; Extensions; Amendments; Termination
The exchange offer will expire at 5:00 p.m., New York City time, on
_____, 2001, unless we extend it in our reasonable discretion. The expiration
date of the exchange offer will be at least 30 days (or longer, if required by
applicable law) after the date on which we mail notice of the exchange offer to
holders as provided in Rule 14e-1(a) under the Securities Exchange Act of 1934
and the exchange and registration rights agreement.
To extend the expiration date, we will need to notify the exchange
agent of any extension by oral, promptly confirmed in writing, or written
notice. We will also need to notify the holders of the initial notes by mailing
an announcement or by means of a press release or other public announcement
communicated, unless otherwise required by applicable law or regulation, before
9:00 A.M., New York City time, on the next business day after the previously
scheduled expiration date.
We expressly reserve the right:
. to delay acceptance of any initial notes, to extend the exchange
offer or to terminate the exchange offer and not permit acceptance
of initial notes not previously accepted if any of the conditions
described below under "--Conditions to the Exchange Offer" have
occurred and have not been waived by us, if permitted to be
waived, by giving oral or written notice of the delay, extension
or termination to the exchange agent; or
. to amend the terms of the exchange offer in any manner.
If we amend the exchange offer in a manner determined by us to
constitute a material change, we will promptly disclose the amendment in a
manner reasonably calculated to inform the holders of the initial notes of the
amendment including providing public announcement, or giving oral or written
notice to the holders of the initial notes. A material change in the terms of
the exchange offer could include a change in the timing of the exchange offer, a
change in the exchange agent and other similar changes in the terms of the
exchange offer. If any material change is made to the terms of the exchange
offer, we will disclose the change by means of a post-effective amendment to the
registration statement of which this prospectus is a part and will distribute an
amended or supplemented prospectus to each registered holder of initial notes.
In addition, we will also extend the exchange offer for an additional five to
ten business days as required by the Securities Exchange Act, depending on the
significance of the amendment, if the exchange offer would otherwise expire
during that period. Any delay in acceptance, extension, termination or amendment
will be followed as promptly as practicable by oral, promptly confirmed in
writing, or written notice to the exchange agent.
Procedures for Tendering Initial Notes
To tender your initial notes in this exchange offer, you must use one
of the three alternative procedures described below:
Regular Delivery Procedure: Complete, sign and date the letter of
transmittal, or a facsimile of the letter of
transmittal. Have the signatures on the letter
of transmittal guaranteed if required by the
letter of transmittal. Mail or otherwise
deliver the completed letter of transmittal or
the facsimile, together with the certificates
representing your initial notes being tendered
and any other required documents, to the
exchange agent so that the exchange agent
receives such documents and initial notes on
or before 5:00 p.m., New York City time, on
the expiration date.
Book-Entry Delivery Procedure: Send a timely confirmation of a book-entry
transfer of your initial notes,
if this procedure is available, into the
exchange agent's account at The Depository
Trust Company ("DTC") as contemplated
by the procedures for book-entry transfer
described under "--Book-Entry Delivery
Procedure" below, for receipt in such account
on or before 5:00 p.m., New York
City time, on the expiration date.
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Guaranteed Delivery Procedure: If time will not permit you to complete
your tender by using the procedures
described above before the expiration date,
comply with the guaranteed delivery
procedures described under "--Guaranteed
Delivery Procedure" below.
The method of delivery of initial notes, the letter of transmittal and
all other required documents is at your election and risk. Instead of delivery
by mail, we recommend that you use an overnight or hand-delivery service. If you
choose the mail, we recommend that you use registered mail, properly insured,
with return receipt requested. In all cases, you should allow sufficient time to
assure timely delivery. You should not send any letters of transmittal or
initial notes to us. You must deliver all documents to the exchange agent at its
address provided below. You may also request your respective brokers, dealers,
commercial banks, trust companies or nominees to tender your initial notes on
your behalf.
Only a holder of initial notes may tender initial notes in this
exchange offer. For purposes of this exchange offer, a holder is any person in
whose name initial notes are registered on our books or any other person who has
obtained a properly completed bond power from the registered holder.
If you are the beneficial owner of initial notes that are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
and you wish to tender your notes, you must contact this registered holder
promptly and instruct this registered holder to tender these notes on your
behalf. If you wish to tender these initial notes on your own behalf, you must,
before completing and executing the letter of transmittal and delivering your
initial notes, either make appropriate arrangements to register the ownership of
these notes in your name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
You must have any signatures on a letter of transmittal or a notice of
withdrawal guaranteed by an eligible institution. An eligible institution is:
. a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc.;
. a commercial bank or trust company having an office or
correspondent in the United States; or
. an eligible guarantor institution within the meaning of Rule
17Ad-15 under the Securities Exchange Act.
However, signatures on a letter of transmittal do not have to be
guaranteed if initial notes are tendered:
. by a registered holder, or by a participant in DTC in the case of
book-entry transfers, whose name appears on a security position
listing as the owner, who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions"
on the letter of transmittal and only if the exchange notes are
being issued directly to this registered holder, or deposited into
this participant's account at DTC in the case of book-entry
transfers; or
. for the account of an eligible institution.
If the letter of transmittal or any bond powers are signed by:
. the recordholder(s) of the initial notes tendered: The signature
must correspond with the name(s) written on the face of the
initial notes without alteration, enlargement or any change
whatsoever;
. a participant in DTC: The signature must correspond with the name
as it appears on the security position listing as the holder of
the initial notes;
. a person other than the registered holder of any initial notes.
These initial notes must be endorsed or accompanied by bond powers
and a proxy that authorize this person to tender the initial notes
on
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behalf of the registered holder, in satisfactory form to us as
determined in our sole discretion, in each case, as the name of
the registered holder or holders appears on the initial notes;
. trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or
representative capacity. These persons should so indicate such
capacities when signing. Unless waived by us, evidence
satisfactory to us of their authority to so act must also be
submitted with the letter of transmittal.
Book-Entry Delivery Procedure
Any financial institution that is a participant in DTC's system may
make book-entry deliveries of initial notes by causing DTC to transfer these
initial notes into the exchange agent's account at DTC according to DTC's
procedures for transfer. To effectively tender notes through DTC, the financial
institution that is a participant in DTC will electronically transmit its
acceptance through the Automatic Tender Offer Program. DTC will then edit and
verify the acceptance and send an agent's message to the exchange agent for its
acceptance. An agent's message is a message transmitted by DTC to the exchange
agent stating that DTC has received an express acknowledgment from the
participant in DTC tendering the initial notes that the participant has received
and agrees to be bound by the terms of the letter of transmittal, and that we
may enforce this agreement against the participant. The exchange agent will make
a request to establish an account for the initial notes at DTC for purposes of
the exchange offer within two business days after the date of this prospectus.
A delivery of initial notes through a book-entry transfer into the
exchange agent's account at DTC will only be effective if an agent's message or
the letter of transmittal or a facsimile of the letter of transmittal with any
required signature guarantees and any other required documents is transmitted to
and received by the exchange agent at the address indicated below under
"--Exchange Agent" on or before the expiration date unless the guaranteed
delivery procedures described below are complied with. Delivery of documents to
DTC does not constitute delivery to the Exchange Agent.
Guaranteed Delivery Procedure
If you are a registered holder of initial notes and desire to tender
your notes, and (1) these notes are not immediately available, (2) time will not
permit your notes, the letter of transmittal or other required documents to
reach the exchange agent before the expiration date, or (3) the procedures for
book-entry transfer cannot be completed, and an agent's message cannot be
delivered, on or prior to the expiration date, you may still tender in this
exchange offer if:
. you tender through an eligible institution;
. on or before the expiration date the exchange agent receives from
the holder and the eligible institution a properly completed and
duly executed notice of guaranteed delivery, substantially in the
form provided by us, with your name and address as holder of the
initial notes and the certificate numbers of the initial notes and
the principal amount of initial notes tendered, stating that the
tender is being made pursuant to the notice of guaranteed delivery
and guaranteeing that within three New York Stock Exchange trading
days after the expiration date the certificates for all the
initial notes tendered, in proper form for transfer, or a book-
entry confirmation with an agent's message, as the case may be,
and the letter of transmittal and any other documents required by
the letter of transmittal will be deposited by the eligible
institution with the exchange agent; and
. the certificates for all your tendered initial notes in proper
form for transfer, or a book-entry confirmation, as the case may
be, and the properly completed and executed letter of transmittal
and all other documents required by the letter of transmittal are
received by the exchange agent within three New York Stock
Exchange trading days after the expiration date.
Acceptance of Initial Notes for Exchange; Delivery of Exchange Notes
Your tender of initial notes will constitute an agreement between you
and us governed by the terms and conditions provided in this prospectus and in
the letter of transmittal.
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We will be deemed to have received your tender as of the date when your
duly signed letter of transmittal accompanied by your initial notes tendered, or
a timely confirmation of a book-entry transfer of these notes into the exchange
agent's account at DTC with an agent's message, or a notice of guaranteed
delivery from an eligible institution is received by the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal tenders will be determined by us in our sole
discretion. Our determination will be final and binding.
We reserve the absolute right to reject any and all initial notes not
properly tendered or any initial notes which, if accepted, would, in our opinion
or our counsel's opinion, be unlawful. We also reserve the absolute right to
waive any conditions of this exchange offer or irregularities or defects in
tender as to particular notes. Our interpretation of the terms and conditions of
this exchange offer, including the instructions in the letter of transmittal,
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of initial notes must be cured within
the time that we shall determine. Neither the exchange agent, any other person
or we will be under any duty to give notification of defects or irregularities
with respect to tenders of initial notes. Neither the exchange agent nor we will
incur any liability for any failure to give notification of these defects or
irregularities. Tenders of initial notes will not be deemed to have been made
until the irregularities have been cured or waived. The exchange agent will
return without cost to their holders any initial notes that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived as promptly as practicable following the expiration date.
If all the conditions to the exchange offer are satisfied or waived on
the expiration date, we will accept all initial notes properly tendered and will
issue the exchange notes promptly thereafter. Please refer to the section of
this prospectus entitled "--Conditions to the Exchange Offer" below. For
purposes of this exchange offer, initial notes will be deemed to have been
accepted as validly tendered for exchange when, as and if, we give oral or
written notice of acceptance to the exchange agent.
We will issue the exchange notes in exchange for the initial notes
tendered by a notice of guaranteed delivery by an eligible institution only
against delivery to the exchange agent of the letter of transmittal, the
tendered initial notes and any other required documents, or the receipt by the
exchange agent of a timely confirmation of a book-entry transfer of initial
notes into the exchange agent's account at DTC with an agent's message, in each
case, in form satisfactory to us and the exchange agent.
If any tendered initial notes are not accepted for any reason or if
initial notes are submitted for a greater principal amount than the holder
desires to exchange, the unaccepted or non-exchanged initial notes will be
returned without expense to the tendering holder, or, in the case of initial
notes tendered by book-entry transfer procedures described above, will be
credited to an account maintained with the book-entry transfer facility, as
promptly as practicable after withdrawal, rejection of tender or the expiration
or termination of the exchange offer.
In addition, we reserve the right in our sole discretion, but in
compliance with the provisions of the indenture, to:
. purchase or make offers for any initial notes that remain outstanding
after the expiration date, or, as described under "Expiration Date;
Extensions; Amendments; Termination," to terminate the exchange offer
as provided by the terms of our exchange and registration rights
agreement, and
. purchase initial notes in the open market, in privately negotiated
transactions or otherwise, to the extent permitted by applicable law.
The terms of any of the purchases or offers described above could differ
from the terms of the exchange offer.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw
tenders of initial notes at any time before 5:00 p.m., New York City time, on
the expiration date.
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For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent before 5:00 p.m., New
York City time, on the expiration date at the address provided below under
"Exchange Agent" and before acceptance of your tendered initial notes for
exchange by us.
Any notice of withdrawal must:
. specify the name of the person having tendered the initial notes to be
withdrawn;
. identify the initial notes to be withdrawn, including, if applicable,
the registration number or numbers and total principal amount of these
notes;
. be signed by the person having tendered the initial notes to be
withdrawn in the same manner as the original signature on the letter
of transmittal by which these initial notes were tendered, including
any required signature guarantees, or be accompanied by documents of
transfer sufficient to permit the trustee for the initial notes to
register the transfer of these notes into the name of the person
having made the original tender and withdrawing the tender; and
. state that you are withdrawing your tender of initial notes.
We will determine all questions as to the validity, form and
eligibility, including time of receipt, of all notices of withdrawal and our
determination will be final and binding on all parties. Initial notes that are
withdrawn will be deemed not to have been validly tendered for exchange in this
exchange offer.
You may retender properly withdrawn initial notes in this exchange
offer by following one of the procedures described under "--Procedures for
Tendering Initial Notes" above at any time before the expiration date.
Conditions to the Exchange Offer
With exceptions, we will not be required to accept initial notes for
exchange, or issue exchange notes in exchange for any initial notes, and we may
terminate or amend the exchange offer as provided in this prospectus before the
acceptance of the initial notes, if:
. the exchange offer violates applicable law or any interpretation of
the staff of the Securities and Exchange Commission;
. any required governmental approval has not been obtained; or
. a court or any governmental authority has issued an injunction, order
or decree that would prevent or impair our ability to proceed with the
exchange offer.
These conditions are for our sole benefit. We may assert any of these
conditions regardless of the circumstances giving rise to any of them. We may
also waive these conditions, in whole or in part, at any time and from time to
time, if we determine in our reasonable discretion, but within the limits of
applicable law, that any of the foregoing events or conditions has occurred or
exists or has not been satisfied. Our failure at any time to exercise any of
rights will not be deemed a waiver of these rights and these rights will be
deemed ongoing rights which we may assert at any time and from time to time.
If we determine that we may terminate the exchange offer, as provided
above, we may:
. refuse to accept any initial notes and return any initial notes that
have been tendered to their holders;
. extend the exchange offer and retain all initial notes tendered before
the expiration date, allowing, however, the holders of tendered
initial notes to exercise their rights to withdraw their tendered
initial notes; or
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. waive any termination event with respect to the exchange offer and
accept all properly tendered initial notes that have not been
withdrawn or otherwise amend the terms of the exchange offer in any
respect as provided under "--Expiration Date; Extensions; Amendments;
Termination."
If we determine that we may terminate the exchange offer, we may be
required to file a shelf registration statement with the Securities and Exchange
Commission as described under "--Shelf Registration Statement." The exchange
offer is not dependent upon any minimum principal amount of initial notes being
tendered for exchange.
Accounting Treatment
We will record the exchange notes at the same carrying value as the
initial notes, as reflected in our accounting records on the date of the
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes. We will amortize the costs of the exchange offer and the unamortized
expenses related to the issuance of the exchange notes over the term of the
exchange notes.
Exchange Agent
We have appointed The Bank of New York as exchange agent for the
exchange offer. You should direct all questions and requests for assistance or
additional copies of this prospectus or the letter of transmittal to the
exchange agent as follows:
The Bank of New York
101 Barclay Street, 7E
New York, New York 10286
Attention: Reorganization Section
Fax number: (212) 815-6339
Fees and Expenses
We will bear the expenses of soliciting tenders under the exchange
offer. The principal solicitation for tenders under the exchange offer is being
made by mail; however, our officers and other employees may make additional
solicitations by telegraph, telephone, telecopy or in person.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection with the
exchange offer. We may also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of the prospectus, letters of transmittal and related
documents to the beneficial owners of the initial notes, and in handling or
forwarding tenders for exchange.
We will pay the expenses incurred in connection with the exchange
offer, including fees and expenses of the exchange agent and trustee and
accounting, legal, printing and related fees and expenses.
We will generally pay all transfer taxes, if any, applicable to the
exchange of initial notes under the exchange offer. However, tendering holders
will pay the amount of any transfer taxes, whether imposed on the registered
holder or any other person, if:
. certificates representing exchange notes or initial notes for
principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the initial notes tendered;
or
. tendered initial notes are registered in the name of any person other
than the person signing the letter of transmittal; or
. a transfer tax is imposed for any reason other than the exchange of
initial notes under the exchange offer.
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If satisfactory evidence of payment of these taxes or exemption
therefrom is not submitted with the letter of transmittal, the amount of the
transfer taxes will be billed directly to the tendering holder.
Your Failure to Participate in the Exchange Offer Will Have Adverse Consequences
If you do not properly tender your initial notes in the exchange offer,
your initial notes will remain outstanding and continue to accrue interest.
However, you will not be able to resell, offer to resell or otherwise transfer
the initial notes unless they are registered under the Securities Act or unless
you resell them, offer to resell or otherwise transfer them under an exemption
from the registration requirements of, or in a transaction not governed by, the
Securities Act. In addition, you will no longer be able to obligate us to
register the initial notes under the Securities Act, except in the limited
circumstances provided under our exchange and registration rights agreement. To
the extent the initial notes are tendered and accepted in the exchange offer,
the trading market, if any, for the initial notes would be adversely affected.
You should refer to "Risk Factors--Your failure to participate in the exchange
offer will have adverse consequences."
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BOOK-ENTRY; DELIVERY AND FORM
Principal and interest payments on global securities registered in the
name of DTC's nominee will be made in immediate available funds to DTC's nominee
as the registered owner of the global securities. We and the trustee will treat
DTC's nominee as the owner of the global securities for all other purposes as
well. Accordingly, we, the trustee, any paying agent and the initial purchaser
will have no direct responsibility or liability for any aspect of the records
relating to payments made on account of beneficial interests in the global
securities or for maintaining, supervising or reviewing any records relating to
these beneficial interests. It is DTC's current practice, upon receipt of any
payment of principal or interest, to credit direct participants' accounts on the
payment date according to their respective holdings of beneficial interests in
the global securities. These payments will be the responsibility of the direct
and indirect participants and not of DTC, the trustee or us.
So long as DTC or its nominee is the registered owner or holder of the
global security, DTC or its nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by the global security for the
purposes of:
. receiving payment on the notes;
. receiving notices; and
. for all other purposes under the Indenture and the notes.
Beneficial interests in the notes will be evidenced only by, and
transfers of the notes will be effected only through, records maintained by DTC
and its participants.
Except as described below, owners of beneficial interests in a global
security will not be entitled to receive physical delivery of certificated notes
in definitive form and will not be considered the holders of the global security
for any purposes under the Indenture. Accordingly, each person owning a
beneficial interest in a global security must rely on the procedures of DTC.
And, if that person is not a participant, the person must rely on the procedures
of the participant through which that person owns its interest, to exercise any
rights of a holder under the Indenture. Under existing industry practices, if we
request any action of holders or an owner of a beneficial interest in a global
security desires to take any action under the Indenture, DTC would authorize the
participants holding the relevant beneficial interest to take that action. The
participants then would authorize beneficial owners owning through the
participants to take the action or would otherwise act upon the instructions of
beneficial owners owning through them.
DTC has advised us that it will take any action permitted to be taken
by a holder of notes only at the direction of one or more participants to whose
account with DTC interests in the global security are credited. Further, DTC
will take action only as to the portion of the aggregate principal amount at
maturity of the notes as to which the participant or participants has or have
given the direction.
Although DTC, the Euroclear System ("Euroclear") and Clearstream
Banking, S.A. of Luxembourg ("Clearstream") have agreed to the procedures
described above in order to facilitate transfers of interests in global
securities among participants in DTC, Euroclear and Clearstream, they are under
no obligation to perform these procedures, and the procedures may be
discontinued at any time. None of us, the trustee, any agent of the initial
purchaser or ours will have any responsibility for the performance by DTC,
Euroclear and Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
DTC has provided the following information to us. DTC is a:
. limited-purpose trust company organized under the New York Banking
Law;
. a banking organization within the meaning of the New York Banking
Law;
. a member of the U.S. Federal Reserve System;
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. a clearing corporation within the meaning of the New York Uniform
Commercial Code; and
. a clearing agency registered under the provisions of Section 17A
of the Securities Exchange Act.
Certificated Notes
Notes represented by a global security are exchangeable for
certificated notes only if:
. DTC notifies us that it is unwilling or unable to continue as
depository or if DTC ceases to be a registered clearing agency,
and a successor depository is not appointed by us within 90 days;
. determine not to require all of the notes to be represented by a
global security and notifies the trustee of their decision; or
. an event of default or an event which, with the giving of notice or
lapse of time, or both, would constitute an Event of Default
relating to the notes represented by the global security has
occurred and is continuing.
Any global security that is exchangeable for certificated notes in
accordance with the preceding sentence will be transferred to, and registered
and exchanged for, certificated notes in authorized denominations and registered
in the names as DTC or its nominee may direct. However, a global security is
only exchangeable for a global security of like denomination to be registered in
the name of DTC or its nominee. If a global security becomes exchangeable for
certificated notes:
. certificated notes will be issued only in fully registered form in
denominations of $1,000 or integral multiples of $1,000;
. payment of principal, premium, if any, and interest on the
certificated notes will be payable, and the transfer of the
certificated notes will be registrable, at the office or agency we
maintain for these purposes; and
. no service charge will be made for any issuance of the certificated
notes, although the issuers may require payment of a sum sufficient
to cover any tax or governmental charge imposed in connection with
the issuance.
Transfers between participants in DTC will be effected in accordance
with DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Clearstream will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the participants in DTC, on the one hand,
and Euroclear or Clearstream participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparts in such system in
accordance with the rules and procedures and within the established deadlines,
Brussels time, of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant global notes in DTC,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly to the
depositories for Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear
or Clearstream participant purchasing an interest in a global note from a
participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day, which must be a business day for Euroclear and
Clearstream, immediately following the settlement date of DTC. Cash received in
Euroclear or Clearstream as a result of sales of interest in a global security
by or through a Euroclear or Clearstream participant to a participant in DTC
will be received with value on the settlement date of DTC but will
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be available in the relevant Euroclear or Clearstream cash account only as of
the business day for Euroclear or Clearstream following DTC's settlement date.
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PLAN OF DISTRIBUTION
A broker-dealer that is the holder of initial notes that were acquired
for the account of such broker-dealer as a result of market-making or other
trading activities, other than initial notes acquired directly from us or any of
our affiliates, may exchange such initial notes for exchange notes pursuant to
the exchange offer; provided, that each broker-dealer that receives exchange
notes for its own account in exchange for initial notes pursuant to this
exchange offer, where such initial notes were acquired by such broker-dealer as
a result of market-making or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such exchange notes.
This prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of exchange notes received in
exchange for initial notes where such initial notes were acquired as a result of
market-making activities or other trading activities. We have agreed that for a
period of 180 days after the consummation of the exchange offer or such time as
any such broker-dealer no longer owns any registrable securities, we will make
this prospectus, as it may be amended or supplemented from time to time,
available to any such broker-dealer for use in connection with any resale of
such exchange notes. All dealers effecting transactions in the exchange notes
may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers or any other holder of exchange notes. Exchange notes received by
broker-dealers for their own account pursuant to the exchange offer as described
above may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the exchange notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer in exchange for initial notes, where such
initial notes were acquired by the broker-dealer as a result of market-making or
other trading activities, and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, any such broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the consummation of the exchange offer
or such time as any broker-dealer no longer owns any registrable securities, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents.
We have agreed to pay all expenses incident to the exchange offer (including
certain expenses of legal counsel for the holders of the initial notes), other
than commissions or concessions of any brokers or dealers, and will indemnify
the holders of the notes, including any broker-dealers, against certain
liabilities, including liabilities under the Securities Act.
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LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon
for us by Sonnenschein Nath & Rosenthal, New York, New York. Robert L. Winikoff,
a member of the board of directors, compensation committee and stock option
committee of Mediacom Communications, is a partner of Sonnenschein Nath &
Rosenthal. Mr. Winikoff beneficially owns 15,000 shares and has options to
purchase 30,000 shares of the Class A common stock of Mediacom Communications.
EXPERTS
The audited financial statements and schedules of Mediacom LLC and
Triax Midwest Associates, L.P. and the audited balance sheet of Mediacom Capital
Corporation included in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form S-4, including all amendments, exhibits,
schedules and supplements, to register the exchange notes. Although this
prospectus, which forms a part of the registration statement, contain all
material information included in the registration statement, parts of the
registration statement have been omitted as permitted by the rules of the
Commission. For further information about us and the exchange notes offered in
this prospectus, you should refer to the registration statement and its
exhibits. You may read and copy any document we file with the Commission at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at 7 World Trade Center, Suite 1300, New York, New York 10048 and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, NW, Washington, D.C. 20549, at prescribed rates. You can also review
such material by accessing the Commission's Internet web site at
http://www.sec.gov. This site contains reports, proxy and information statements
and other information regarding issuers that file electronically with the
Commission.
We are currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act. So long as we are
subject to these periodic reporting requirements, we will continue to furnish
the information required thereby to the Commission. We are required to file
periodic reports with the Commission pursuant to the Securities Exchange Act
during our current fiscal year and thereafter so long as the exchange notes are
held by at least 300 registered holders. We do not anticipate that, for periods
following December 31, 2001, the exchange notes will be held of record by more
than 300 registered holders. Therefore, we do not expect to be required to
comply with the periodic reporting requirements imposed under the Securities
Exchange Act after that date. However, we have agreed that, whether or not we
are required to do so by the rules and regulations of the Commission, for so
long as any of the notes remain outstanding, we will furnish to the holders of
the notes and file with the Commission, unless the Commission will not accept
such a filing:
. all quarterly and annual financial information that would be required
to be contained in such a filing with the Commission on Forms 10-Q and
10-K if we were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and, regarding a discussion of the annual information
only, a report thereon by our certified independent public
accountants; and
. all reports that would be required to be filed with the Commission on
Form 8-K if we were required to file such reports.
In addition, for so long as any of the notes remain outstanding, we
have agreed to make available to any prospective purchaser of the notes or
beneficial owner of the notes in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act.
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INDEX TO FINANCIAL STATEMENTS
MEDIACOM LLC
Report of Independent Public Accountants ................................................................. F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 ............................................. F-3
Consolidated Statements of Operations for the Years Ended December 31, 2000,
1999 and 1998 .......................................................................................... F-4
Consolidated Statements of Changes in Members' Equity for the Years Ended December 31, 2000,
1999 and 1998 .......................................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 ............... F-6
Notes to Consolidated Financial Statements ............................................................... F-7
Consolidated Balance Sheets as of March 31, 2001 (unaudited) and December 31, 2000 ....................... F-19
Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and 2000
(unaudited) ............................................................................................ F-20
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000
(unaudited) ............................................................................................ F-21
Notes to Unaudited Consolidated Financial Statements ..................................................... F-22
MEDIACOM CAPITAL CORPORATION
Report of Independent Public Accountants ................................................................. F-25
Balance Sheets as of December 31, 2000 and December 31, 1999 ............................................. F-26
Notes to Balance Sheets .................................................................................. F-27
Balance Sheets as of March 31, 2001 (unaudited) and December 31, 2000 .................................... F-28
Notes to Unaudited Balance Sheets ........................................................................ F-29
TRIAX MIDWEST ASSOCIATES, L.P.
Report of Independent Public Accountants ................................................................. F-30
Balance Sheets as of December 31, 1997 and 1998 and September 30, 1999
(unaudited) ............................................................................................ F-31
Statements of Operations for the Years Ended December 31, 1996, 1997
and 1998 and for the Nine Months Ended September 30, 1998 and 1999
(unaudited) ............................................................................................ F-32
Statements of Partners' Deficit for the Years Ended December 31, 1996,
1997 and 1998 and for the Nine Months Ended September 30, 1999
(unaudited) ............................................................................................ F-33
Statements of Cash Flows for the Years Ended December 31, 1996, 1997
and 1998 and for the Nine Months Ended September 30, 1998 and 1999
(unaudited) ............................................................................................ F-34
Notes to Financial Statements ............................................................................ F-35
F - 1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mediacom LLC:
We have audited the accompanying consolidated balance sheets of Mediacom LLC (a
New York limited liability company) and subsidiaries as of December 31, 2000 and
1999, and the related consolidated statements of operations, changes in members'
equity and comprehensive loss and cash flows for each of the three years in the
period then ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mediacom LLC and its
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period then
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 16, 2001
F-2
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in 000's)
December 31,
------------
2000 1999
---------- ----------
ASSETS
Cash and cash equivalents................................ $ 4,093 $ 4,473
Subscriber accounts receivable, net of allowance
for doubtful accounts of $932 and $772, respectively.. 13,500 12,149
Prepaid expenses and other assets........................ 7,023 4,376
Investments.............................................. 3,985 8,794
Investment in cable television systems:
Inventory............................................. 14,131 12,384
Property, plant and equipment, at cost................ 840,052 700,696
Less: accumulated depreciation........................ (204,440) (101,693)
---------- ----------
Property, plant and equipment, net.................. 635,612 599,003
Intangible assets, net of accumulated amortization
of $124,955 and $56,171, respectively............... 680,420 588,103
---------- ----------
Total investment in cable television systems........ 1,330,163 1,199,490
Other assets, net of accumulated amortization of
$5,749 and $6,343, respectively....................... 17,008 43,599
---------- ----------
Total assets........................................ $1,375,772 $1,272,881
========== ==========
LIABILITIES AND MEMBERS' EQUITY
LIABILITIES
Debt.................................................. $ 987,000 $1,139,000
Accounts payable and accrued expenses................. 80,143 56,310
Subscriber advances................................... 3,886 3,188
Management fees payable............................... 1,236 873
Deferred revenue...................................... 40,510 18,895
---------- ----------
Total liabilities................................... $1,112,775 $1,218,266
---------- ----------
MEMBERS' EQUITY
Capital contributions................................. 521,696 142,096
Other equity.......................................... 18,598 39,917
Accumulated comprehensive (loss) income............... (414) 261
Accumulated deficit................................... (276,883) (127,659)
---------- ----------
Total members' equity............................... 262,997 54,615
---------- ----------
Total liabilities and members' equity............... $1,375,772 $1,272,881
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-3
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in 000's)
Years Ended December 31,
----------------------------------
2000 1999 1998
--------- -------- --------
Revenues............................................... $ 332,050 $176,052 $129,297
Costs and expenses:
Service costs..................................... 114,234 58,058 43,849
Selling, general and administrative expenses...... 55,820 32,949 25,596
Management fee expense............................ 6,029 6,951 5,797
Depreciation and amortization..................... 177,928 101,065 65,793
Non-cash stock charges relating to management
fee expense..................................... 28,254 15,445 -
--------- -------- --------
Operating loss......................................... (50,215) (38,416) (11,738)
--------- -------- --------
Interest expense, net.................................. 68,973 37,817 23,994
Other expenses......................................... 30,036 5,087 4,058
--------- -------- --------
Net loss............................................... $(149,224) $(81,320) $(39,790)
========== ======== ========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
MEMBERS' EQUITY AND COMPREHENSIVE LOSS
(All dollar amounts in 000's)
Accumulated
Capital Other Comprehensive Accumulated
Contributions Equity (Loss) Income Deficit Total
---------- --------- ---------- ---------- ----------
Balance, December 31, 1997 $ 30,990 $ - $ - $ (6,549) $ 24,441
Comprehensive loss:
Net loss - - - (39,790)
Comprehensive loss (39,790)
Members' contributions 94,000 - - - 94,000
---------- --------- -------- ---------- ----------
Balance, December 31, 1998 $ 124,990 $ - $ - $ (46,339) $ 78,651
Comprehensive loss:
Net loss - - - (81,320)
Unrealized gain on investments - - 261 -
Comprehensive loss (81,059)
Members' contributions 10,500 - - - 10,500
Non-cash contributions 6,606 - - - 6,606
Non-cash contribution for the
reduction of management fees - 25,100 - - 25,100
Equity issued to management - 27,016 - - 27,016
Non-vested portion of equity
granted to management - (12,199) - - (12,199)
---------- --------- -------- ---------- ----------
Balance, December 31, 1999 $ 142,096 $ 39,917 $ 261 $ (127,659) $ 54,615
Comprehensive loss:
Net loss - - - (149,224)
Unrealized loss on investments - - (675) -
Comprehensive loss (149,899)
Equity contribution from MCC 354,500 - - - 354,500
Reclassification of vested equity to
capital contributions 25,100 (25,100) - - -
Vesting of equity granted to
management, net of forfeiture - 3,781 - - 3,781
---------- --------- -------- ---------- ----------
Balance, December 31, 2000 $ 521,696 $ 18,598 $ (414) $ (276,883) $ 262,997
========== ========= ======== ========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in 000's)
Years Ended December 31,
----------------------------------------------
2000 1999 1998
----------- ----------- -------------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net loss............................................................ $ (149,224) $ (81,320) $ (39,790)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Accretion of interest on seller note.............................. - 225 287
Depreciation and amortization..................................... 177,928 101,065 65,793
Impairment of available-for-sale securities....................... 28,488 - -
Vesting of management stock....................................... 3,781 14,817 -
Other non-cash stock charges relating to management fee expense... 24,473 7,234 -
Amortization of SoftNet revenue................................... (2,502) (142) -
Changes in assets and liabilities, net of effects from acquisitions:
Subscriber accounts receivable.................................. (980) 429 (1,437)
Prepaid expenses and other assets............................... (2,276) (2,211) 329
Accounts payable and accrued expenses........................... 13,172 13,120 26,665
Subscriber advances............................................. 320 480 852
Management fees payable......................................... 363 (89) 857
Deferred revenue................................................ (325) 608 -
----------- ----------- -----------
Net cash flows provided by operating activities............... 93,218 54,216 53,556
----------- ----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures................................................ (182,552) (86,669) (53,721)
Acquisitions of cable television systems............................ (112,142) (764,253) (343,330)
Other, net.......................................................... (919) (626) (34)
----------- ----------- -----------
Net cash flows used in investing activities................... (295,613) (851,548) (397,085)
----------- ----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
New borrowings...................................................... 318,000 995,700 488,200
Repayment of debt................................................... (470,000) (194,830) (223,350)
Capital contributions............................................... 354,500 10,500 94,000
Financing costs..................................................... (485) (11,777) (14,136)
----------- ----------- -----------
Net cash flows provided by financing activities............... 202,015 799,593 344,714
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents.......... (380) 2,261 1,185
CASH AND CASH EQUIVALENTS, beginning of year........................... 4,473 2,212 1,027
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year................................. $ 4,093 $ 4,473 $ 2,212
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest.............................. $ 74,811 $ 28,639 $ 21,127
=========== =========== ===========
Cash paid during the year for taxes................................. $ 50 $ - $ -
=========== =========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Limited Liability Company
Organization
Mediacom LLC ("Mediacom," and collectively with its subsidiaries, the
"Company"), a New York limited liability company wholly-owned by Mediacom
Communications Corporation ("MCC"), is involved in the acquisition and
development of cable television systems serving principally non-metropolitan
markets of the United States. Through these cable systems, the Company provides
entertainment, information and telecommunications services to its subscribers.
As of December 31, 2000, the Company had acquired and was operating cable
television systems in 22 states, principally Alabama, California, Florida,
Illinois, Indiana, Iowa, Kentucky, Minnesota, Missouri and North Carolina.
On February 9, 2000, MCC, a Delaware corporation organized in November
1999, completed an initial public offering of its Class A common stock.
Immediately prior to the completion of its initial public offering, MCC issued
shares of its Class A and Class B common stock in exchange for all of the
outstanding membership interests in Mediacom and became the sole member and
manager of Mediacom.
Prior to February 9, 2000, Mediacom conducted its affairs pursuant to an
amended and restated operating agreement among its members. Pursuant to this
amended and restated operating agreement, net losses were generally allocated
first to the Commisso Members (the "Primary Members"), as defined therein,
including the Chairman and Chief Executive Officer of MCC (the "Manager"), and
the balance of the net losses to the other members ratably in accordance with
their respective membership units.
Mediacom serves as a holding company for the Company's operating
subsidiaries. Each operating subsidiary is wholly-owned by Mediacom, except for
a 1.0% ownership interest in a subsidiary, Mediacom California LLC, that is held
by Mediacom Management Corporation ("Mediacom Management"), a Delaware
corporation.
Mediacom Capital Corporation ("Mediacom Capital"), a New York corporation
wholly-owned by Mediacom, was organized in March 1998 for the sole purpose of
acting as co-issuer with Mediacom of public debt securities. Mediacom Capital
has nominal assets and does not conduct operations of its own.
Capitalization
For the years ended December 31, 1999 and 1998, Mediacom received equity
contributions from its members of $10.5 million and $94.0 million respectively.
On February 9, 2000, Mediacom received an equity contribution from MCC of $354.5
million.
(2) Summary of Significant Accounting Policies
Basis of Preparation of Consolidated Financial Statements
The consolidated financial statements include the accounts of Mediacom and
its subsidiaries. All significant intercompany transactions and balances have
been eliminated. The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-7
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Revenues include amounts billed to customers for services provided,
installations, advertising and others. Revenues from basic, premium,
pay-per-view and data services are recognized when the services are provided to
the customers. Installation revenues are recognized to the extent of direct
selling costs incurred. Additional installation revenues collected, if any, are
deferred and amortized to income over the estimated average life of a
subscriber. Advertising sales are recognized in the period that the
advertisements are exhibited. Franchise fees are collected on a monthly basis
and are periodically remitted to local franchise authorities. Franchise fees
collected and paid are reported as revenues and expenses.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
The Company's accounts receivable is comprised of amounts due from
subscribers in varying regions throughout the United States. Concentration of
credit risk with respect to these receivables is limited due to the large number
of customers comprising the Company's customer base and their geographic
dispersion.
Investments
Investments consist of equity securities. Management classifies these
securities as available-for-sale securities under the provisions defined in the
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Available-for-sale securities are
carried at market value, with unrealized gains and losses reported as a
component of accumulated comprehensive income. If a decline in the fair value of
the security is judged to be other than temporary, a realized loss will be
recorded.
Inventory
Inventory consists primarily of fiber-optic cable, coaxial cable,
electronics, hardware and miscellaneous tools and are stated at the lower of
cost or market. Cost is determined using the average cost method.
Property, Plant and Equipment
Property, plant and equipment is recorded at purchased and capitalized
cost. The Company capitalizes a portion of direct and indirect costs related to
the construction, replacement and installation of property, plant and equipment.
The Company capitalized interest of approximately $5.3 million and $1.8 million
for the years ended December 31, 2000 and 1999, respectively. Capitalized costs
are charged to property, plant and equipment and depreciated over the life of
the related assets.
Amounts incurred for repairs and maintenance are charged to operations in
the period incurred.
Depreciation is calculated on a straight-line basis over the following
useful lives:
Buildings...................................... 45 years
Leasehold improvements......................... Life of respective lease
Cable systems and equipment.................... 5 to 10 years
Subscriber devices............................. 5 years
Vehicles....................................... 5 years
Furniture, fixtures and office equipment....... 5 to 10 years
F-8
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets
Intangible assets include franchising costs, goodwill, subscriber lists
and covenants not to compete. Amortization of intangible assets is calculated on
a straight-line basis over the following lives:
Franchising costs..................................... 15 years
Goodwill.............................................. 15 years
Subscriber lists...................................... 5 years
Covenants not to compete.............................. 3 to 7 years
Impairment of Long-Lived Assets
The Company follows the provisions of Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." SFAS 121 requires that
long-lived assets and certain identifiable intangibles to be held and used by
any entity be reviewed for impairment at each year end and whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable. There has been no impairment of long-lived assets of the Company
under SFAS 121.
Other Assets
Other assets include financing costs of approximately $17.0 million and
$19.1 million and a deferred stock expense of approximately $0 and $24.5 as of
December 31, 2000 and 1999, respectively. Financing costs incurred to raise debt
are deferred and amortized over the expected term of such financings. The
deferred stock expense was recognized during 2000 as a non-cash stock charge in
the consolidated statements of operations. (See Note 7).
Comprehensive Loss
During 1999, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," which establishes standards
for reporting and displaying comprehensive income and its components in the
consolidated financial statements. In accordance with SFAS 130, the Company
records temporary unrealized gains and losses on investments as a component of
accumulated comprehensive income.
Segment Reporting
In accordance with SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," segments have been identified based upon
management responsibility. Management has identified one reportable segment,
cable services.
Reclassifications
Certain reclassifications have been made to prior year's amounts to
conform to the current year's presentation.
Recent Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities," was
issued effective January 1, 2001. This statement establishes the accounting and
reporting standards for derivatives and hedging activity. Upon adoption of SFAS
133, all derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. The Company
estimates the impact of the adoption of SFAS 133, as amended, will result in an
after tax charge of approximately $1.6 million which will be reflected as a
change in accounting principle in 2001.
F-9
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas of the
SEC's views in applying generally accepted accounting principles to revenue
recognition in financial statements. SAB 101 does not apply to the Company's
basic cable television business. The Company will continue to account for
revenues based upon Statement of Financial Accounting Standards No. 51,
"Financial Reporting by Cable Television Companies." SAB 101 did not have a
material impact on the Company's results of operations and consolidated
financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and is effective July 1, 2000,
but certain conclusions in FIN 44 cover specific events as if they had occurred
after either December 15, 1998 or January 12, 2000. The application of FIN 44
does not have a material impact on the Company's results of operations and
consolidated financial statements.
(3) Acquisitions
The Company has completed the undernoted acquisitions (the "Acquired
Systems") in 2000 and 1999. These acquisitions were accounted for using the
purchase method of accounting, and accordingly, the purchase price of these
Acquired Systems has been allocated to the assets acquired and liabilities
assumed at their estimated fair values at their respective date of acquisition.
The results of operations of the Acquired Systems have been included with those
of the Company since the dates of acquisition.
2000
During 2000, the Company completed nine acquisitions of cable systems
serving 53,000 basic subscribers for an aggregate purchase price of $109.2
million, including a $2.5 million deferred conditional payment to a seller. The
cable systems serve communities in Alabama, Illinois, Iowa, Kentucky, Minnesota
and South Dakota. The aggregate purchase price has been allocated as follows:
approximately $48.2 million to property, plant and equipment, and approximately
$58.5 million to intangible assets. Additionally, approximately $2.7 million of
direct acquisition costs have been allocated to property, plant and equipment
and intangible assets. These acquisitions were financed with borrowings under
the Company's credit facilities. (See Note 6).
1999
On October 15, 1999, the Company acquired the stock of Zylstra
Communications Corporation (the "Zylstra Systems"), for a purchase price of
approximately $19.5 million. Zylstra owned and operated cable systems serving
approximately 14,000 subscribers in Iowa, Minnesota and South Dakota. The
purchase price has been allocated as follows: $7.8 million to property, plant
and equipment, and $11.7 million to intangible assets. Additionally,
approximately $400,000 of direct acquisition costs has been allocated to
property, plant and equipment and intangible assets. The Zylstra acquisition was
financed with borrowings under the Company's credit facilities. (See Note 6).
On November 5, 1999, the Company acquired the assets of cable systems
owned by Triax Midwest Associates, L.P. (the "Triax Systems"), for a purchase
price of approximately $740.1 million. The Triax Systems served approximately
344,000 subscribers primarily in Illinois, Indiana, and Minnesota. The purchase
price has been allocated based on an independent appraisal as follows: $198.3
million to property, plant and equipment, and $541.8 million to intangible
assets. Additionally, approximately $13.5 million of direct acquisition costs
has been allocated to property, plant and equipment, intangible assets and other
assets. The Triax acquisition was financed with $10.5 million of additional
equity contributions from Mediacom LLC's members and borrowings under the
Company's credit facilities. (See Notes 1 and 6).
F-10
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized below are the pro forma unaudited results of operations for the
years ended December 31, 2000 and 1999, assuming the purchase of the Acquired
Systems had been consummated as of January 1, 1999. Adjustments have been made
to: (i) depreciation and amortization reflecting the fair value of the assets
acquired; and (ii) interest expense reflecting the debt incurred to finance the
acquisitions. The pro forma results may not be indicative of the results that
would have occurred if the acquisitions had been completed on the date indicated
or which may be obtained in the future.
2000 1999
----------- -----------
(dollars in thousands)
(unaudited)
Revenues............................ $ 348,391 $ 318,086
Operating loss...................... (50,520) (39,013)
Net loss............................ (150,483) (139,005)
(4) Property, Plant and Equipment
As of December 31, 2000 and 1999, property, plant and equipment consisted
of:
2000 1999
--------- ---------
(dollars in thousands)
Land and land improvements....................... $ 578 $ 414
Buildings and leasehold improvements............. 11,973 6,171
Cable systems, equipment and subscriber devices.. 801,719 682,305
Vehicles......................................... 17,865 7,211
Furniture, fixtures and office equipment......... 7,917 4,595
--------- ---------
$ 840,052 $ 700,696
Accumulated depreciation......................... (204,440) (101,693)
--------- ---------
$ 635,612 $ 599,003
========= =========
Depreciation expense for the years ended December 31, 2000, 1999 and 1998
was approximately $106.8 million, $59.2 million and $39.7 million, respectively.
(5) Intangible Assets
The following table summarizes the net asset value for each intangible
asset category as of December 31, 2000 and 1999 (dollars in thousands):
F-11
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gross Asset Accumulated Net Asset
2000 Value Amortization Value
---- ---------- ------------ ---------
Franchising costs............ $ 651,952 $ 59,151 $ 592,801
Goodwill 13,699 1,764 11,935
Subscriber lists............. 134,024 60,668 73,356
Covenants not to compete..... 5,700 3,372 2,328
---------- ------------ ---------
$ 805,375 $ 124,955 $ 680,420
========== ============ =========
Gross Asset Accumulated Net Asset
1999 Value Amortization Value
---- ---------- ------------ ---------
Franchising costs............ $ 539,221 $ 18,174 $ 521,047
Goodwill..................... 8,447 1,163 7,284
Subscriber list.............. 91,746 34,552 57,194
Covenants not to compete..... 4,860 2,282 2,578
---------- ------------ ---------
$ 644,274 $ 56,171 $ 588,103
========== ============ =========
Amortization expense for the years ended December 31, 2000, 1999 and 1998
was approximately $71.1 million, $41.9 million and $26.1 million, respectively.
(6) Debt
As of December 31, 2000 and 1999, debt consisted of:
2000 1999
-------- -----------
(dollars in thousands)
8 1/2% Senior Notes(a)................ $200,000 $ 200,000
7 7/8% Senior Notes(b)................ 125,000 125,000
Bank Credit Agreements(c)............. 662,000 814,000
-------- -----------
$987,000 $ 1,139,000
======== ===========
(a) On April 1, 1998, Mediacom and Mediacom Capital, jointly issued
$200.0 million aggregate principal amount of 8 1/2% senior notes due
on April 15, 2008 (the "8 1/2% Senior Notes"). The 8 1/2% Senior
Notes are unsecured obligations of the Company, and the indenture
for the 8 1/2% Senior Notes stipulates, among other things,
restrictions on incurrence of indebtedness, distributions, mergers
and asset sales and has cross-default provisions related to other
debt of the Company. The Company was in compliance with the
indenture governing the 8 1/2% Senior Notes as of December 31, 2000.
(b) On February 26, 1999, Mediacom and Mediacom Capital jointly issued
$125.0 million aggregate principal amount of 7 7/8% senior notes due
on February 15, 2011 (the "7 7/8% Senior Notes"). The 7 7/8% Senior
Notes are unsecured obligations of the Company, and the indenture
for the 7 7/8% Senior Notes stipulates, among other things,
restrictions on incurrence of indebtedness, distributions, mergers
and asset sales and has cross-default provisions related to other
debt of the Company. The Company was in compliance with the
indenture governing the 7 7/8% Senior Notes as of December 31, 2000.
F-12
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) On September 30, 1999, the Company entered into credit facilities in
the aggregate amount of $550.0 million, consisting of a $450.0
million reducing revolving credit facility and a $100.0 million term
loan (the "Mediacom USA Credit Agreement"). The revolving credit
facility expires on March 31, 2008, subject to earlier expiration on
June 30, 2007 if Mediacom does not refinance the 8 1/2% Senior Notes
by March 31, 2007. The term loan is due and payable on September 30,
2008, and is subject to repayment on September 30, 2007 if Mediacom
does not refinance the 8 1/2% Senior Notes by March 31, 2007. The
reducing revolving credit facility makes available a maximum
commitment amount for a period of up to eight and one-half years,
which is subject to quarterly reductions, beginning September 30,
2002, ranging from 1.25% to 17.50% of the original commitment amount
of the reducing revolver. The Mediacom USA Credit Agreement requires
mandatory reductions of the reducing revolver facility from excess
cash flow, as defined therein, beginning December 31, 2002. The
Mediacom USA Credit Agreement provides for interest at varying rates
based upon various borrowing options and the attainment of certain
financial ratios, and for commitment fees of 1/4% to 3/8% per
annum on the unused portion of available credit under the reducing
revolver credit facility.
On November 5, 1999, the Company entered into other credit
facilities in the aggregate amount of $550.0 million, consisting of
a $450.0 million reducing revolving credit facility and a $100.0
million term loan (the "Mediacom Midwest Credit Agreement", together
with the Mediacom USA Credit Agreement, the "Bank Credit
Agreements"). The revolving credit facility expires on June 30,
2008, subject to earlier expiration on September 30, 2007 if
Mediacom does not refinance the 8 1/2% Senior Notes by March 31,
2007. The term loan is due and payable on December 31, 2008, and is
subject to repayment on December 31, 2007 if Mediacom does not
refinance the 8 1/2% Senior Notes by March 31, 2007. The reducing
revolving credit facility makes available a maximum commitment
amount for a period of up to eight and one-half years, which is
subject to quarterly reductions, beginning September 30, 2002,
ranging from 1.25% to 8.75% of the original commitment amount of the
reducing revolver. The Mediacom Midwest Credit Agreement requires
mandatory reductions of the reducing revolver facility from excess
cash flow, as defined therein, beginning December 31, 2002. The
Midwest Credit Agreement provides for interest at varying rates
based upon various borrowing options and the attainment of certain
financial ratios, and for commitment fees of 1/4% to 3/8% per
annum on the unused portion of available credit under the reducing
revolver credit facility.
The Bank Credit Agreements require the Company to maintain
compliance with certain financial covenants including, but not
limited to, leverage, interest coverage and pro forma debt service
coverage ratios, as defined therein. The Bank Credit Agreements also
require the Company to maintain compliance with other covenants
including, but not limited to, limitations on mergers and
acquisitions, consolidations and sales of certain assets, liens, the
incurrence of additional indebtedness, certain restrictive payments,
and certain transactions with affiliates. The Company was in
compliance with all covenants of the Bank Credit Agreements as of
December 31, 2000.
The Bank Credit Agreements are secured by Mediacom's pledge of all
its ownership interests in its operating subsidiaries and is
guaranteed by Mediacom on a limited recourse basis to the extent of
such ownership interests. At December 31, 2000, the Company had
$436.6 million of unused bank commitments under the Bank Credit
Agreements.
The average interest rate on debt outstanding under the Bank Credit
Agreements was 8.3% and 8.0% for the three months December 31, 2000
and December 31, 1999, respectively, before giving effect to the
interest rate swap agreements discussed below.
The Company uses interest rate swap agreements in order to fix the
interest rate for the duration of the contract to hedge against interest rate
volatility. As of December 31, 2000, the Company had interest rate exchange
agreements with various banks pursuant to which the interest rate on $170.0
million is fixed at a weighted average swap rate of
F-13
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
approximately 6.7%, plus the average applicable margin over the Eurodollar Rate
option under our bank credit agreement. Under the terms of the interest rate
exchange agreements, which expire from 2002 through 2004, the Company is exposed
to credit loss in the event of nonperformance by the other parties to the
interest rate exchange agreements. However, the Company does not anticipate
nonperformance by the counterparties.
The fair value of the swaps is the estimated amount that the Company would
receive or pay to terminate the swaps, taking into account current interest
rates and the current creditworthiness of the swap counterparties. At December
31, 2000, the Company would have paid approximately $1.6 million if the swaps
were terminated, inclusive of accrued interest.
The fair value of the Company's debt is estimated based on the current
rates offered to the Company for debt of the same remaining maturities. The fair
value of the senior bank debt approximates the carrying value. The fair value at
December 31, 2000 of the 8 1/2% Senior Notes and the 7 7/8% Senior Notes was
approximately $187.0 million and $107.0 million, respectively.
The stated maturities of all debt outstanding as of December 31, 2000 are
as follows (dollars in thousands):
2001................................... $ -
2002................................... 750
2003................................... 2,000
2004................................... 2,000
2005................................... 2,000
Thereafter ............................ 980,250
-----------
$ 987,000
===========
(7) Related Party Transactions
Prior to MCC's initial public offering in February 2000, separate
management agreements with each of Mediacom's operating subsidiaries provided
for Mediacom Management to be paid compensation for management services
performed for the Company. Until November 19, 1999, under such agreements,
Mediacom Management was entitled to receive annual management fees calculated as
follows: (i) 5.0% of the first $50.0 million of annual gross operating revenues
of the Company; (ii) 4.5% of such revenues in excess thereof up to $75.0
million; and (iii) 4.0% of such revenues in excess of $75.0 million. Effective
November 19, 1999, the management agreements with Mediacom Management were
amended in connection with an amendment to Mediacom's operating agreement to
provide annual management fees equal to 2.0% of annual gross revenues. In
connection with this amendment to Mediacom's operating agreement, Mediacom
Management also agreed to waive all management fees incurred from July 1, 1999
through November 19, 1999 by Mediacom's operating subsidiaries in the amount of
approximately $2.8 million. The amount waived is included in capital
contributions in the consolidated balance sheets. Upon MCC's initial public
offering in February 2000, all management agreements with Mediacom Management
were terminated and replaced with management agreements between MCC and the
Company's operating subsidiaries. (See Note 12). The Company incurred management
fees under the agreements with Mediacom Management of approximately $559,000,
$7.0 million (including the $2.8 million waived) and $5.8 million for the years
ended December 31, 2000, 1999 and 1998, respectively.
F-14
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Also in connection with this amendment to the operating agreement, the
Company recorded a deferred stock expense in 1999 of approximately $25.1 million
for which additional membership units of Mediacom were issued to the Manager.
This deferred expense represented the future benefit of reduced management fees.
During 1999, the Company recorded a non-cash stock charge relating to management
fee expense of approximately $628,000 in its consolidated statements of
operations for the amortization of the future benefit. The remaining balance of
approximately $24.5 million was recognized as a non-cash stock charge relating
to management fee expense during the year ended December 31, 2000 as a result of
MCC's initial public offering and the termination of all management agreements
with Mediacom Management. (See Note 12).
Mediacom Management also agreed to waive its right to all future
acquisition fees, including the $3.8 million fee related to the acquisitions of
the Triax and Zylstra systems during 1999, as part of this amendment to the
operating agreement described above. For the years ended December 31, 1999 and
1998, the Company incurred acquisition fees of approximately $3.8 million and
$3.3 million, respectively. Acquisition fees are included in other expenses in
the consolidated statements of operations. Mediacom Management is a wholly-owned
subsidiary of the Chairman and Chief Executive Officer of MCC.
Certain of the Company's shareholders are financial institutions who
perform various investment banking and commercial banking services. For the
years ended December 31, 2000, 1999 and 1998, the Company paid approximately
$450,000, $8.9 million and $10.2 million for services performed, respectively.
(8) Employee Benefit Plans
Substantially all employees of the Company are eligible to participate in
a deferred arrangement pursuant to the Internal Revenue Code Section 401(k) (the
"Plan"). Under such arrangement, eligible employees may contribute up to 15% of
their current pre-tax compensation to the Plan. The Plan permits, but does not
require, matching contributions and non-matching (profit sharing) contributions
to be made by the Company up to a maximum dollar amount or maximum percentage of
participant contributions, as determined annually by the Company. The Company
presently matches 50% on the first 6% of employee contributions. The Company's
contributions under the Plan totaled approximately $590,000, $302,000 and
$264,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
(9) Commitments and Contingencies
Under various lease and rental agreements for offices, warehouses and
computer terminals, the Company had rental expense of approximately $2.5
million, $1.3 million and $588,000 for the years ended December 31, 2000, 1999
and 1998, respectively. Future minimum annual rental payments are as follows
(dollars in thousands):
2001........................................... $ 1,949
2002........................................... 1,520
2003........................................... 1,120
2004........................................... 902
2005........................................... 752
In addition, the Company rents utility poles in its operations generally
under short-term arrangements, but the Company expects these arrangements to
recur. Total rental expense for utility poles was approximately $3.0 million,
$1.8 million and $1.7 million for the years ended December 31, 2000, 1999 and
1998, respectively.
As of December 31, 2000, approximately $1.4 million of letters of credit
were issued in favor of various parties to secure the Company's performance
relating to insurance and franchise requirements and pole rentals.
F-15
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Legal Proceedings
On November 3, 2000, the Company resolved litigation brought against it by
Grey Advertising, Inc. ("Grey") in January 2000. MCC and Grey entered into a
final settlement agreement that involves no monetary payments by either party
and that permits MCC and its subsidiaries to continue to use the name "Mediacom"
in accordance with the terms of their confidential agreement.
There are no other material pending legal proceedings to which the Company
is a party or to which any of our properties are subject.
Regulation in the Cable Television Industry
The cable television industry is subject to extensive regulation by
federal, local and, in some instances, state government agencies. The Cable
Television Consumer Protection and Competition Act of 1992 and the Cable
Communication Policy Act of 1984 (collectively, the "Cable Acts"), both of which
amended the Communications Act of 1934 (as amended, the "Communications Act"),
established a national policy to guide the development and regulation of cable
television systems. The Communications Act was amended by the Telecommunications
Act of 1996 (the "1996 Telecom Act"). Principal responsibility for implementing
the policies of the Cable Acts and the 1996 Telecom Act has been allocated
between the FCC and state or local regulatory authorities.
Federal Law and Regulation
The Cable Acts and the FCC's rules implementing such acts generally have
increased the administrative and operational expenses of cable television
systems and have resulted in additional regulatory oversight by the FCC and
local or state franchise authorities. The Cable Acts and the corresponding FCC
regulations have established, among other things: (i) rate regulations; (ii)
mandatory carriage and retransmission consent requirements that require a cable
television system under certain circumstances to carry a local broadcast station
or to obtain consent to carry a local or distant broadcast station; (iii) rules
for franchise renewals and transfers; and (iv) other requirements covering a
variety of operational areas such as equal employment opportunity, technical
standards and customer service requirements.
The FCC and Congress continue to be concerned that rates for regulated
programming services are rising at a rate exceeding inflation. It is therefore
possible that the FCC will further restrict the ability of cable television
operators to implement rate increases or Congress will enact legislation to
effect the same outcome.
State and Local Regulation
Cable television systems generally operate pursuant to non-exclusive
franchises, permits or licenses granted by a municipality or other state or
local governmental entity. The terms and conditions of franchises vary
materially from jurisdiction to jurisdiction. A number of states subject cable
television systems to the jurisdiction of centralized state government agencies.
To date, other than Delaware, no state in which the Company currently operates
has enacted state level regulation. The Company cannot predict whether any of
the states in which currently operates will engage in such regulation in the
future.
(10) SoftNet
In November 1999, the Company completed an agreement with SoftNet Systems,
Inc. ("SoftNet") to deploy SoftNet's high-speed Internet access services
throughout the Company's cable television systems. In addition to a revenue
sharing arrangement with SoftNet, the Company received 3.5 million shares of
SoftNet's common stock of which approximately 2.2 million shares were vested and
non-forfeitable as of December 31, 2000. Upon vesting into shares of SoftNet
common stock pursuant to the SoftNet agreement, the Company recorded deferred
revenue. As of December 31, 2000 and 1999, this deferred revenue amounted to
approximately $30.2 million and $8.4 million,
F-16
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
respectively, net of amortization recorded. The Company is recognizing this
deferred revenue over the life of the SoftNet agreement. For the years ended
December 31, 2000 and 1999, the Company recognized such revenue of approximately
$2.5 million and $142,000, respectively.
For the year ended December 31, 2000, relating to the decline in value of
the Company's investment in SoftNet common stock that was deemed other than
temporary, the Company recorded a non-cash charge of approximately $28.5 million
as a realized loss in other expenses in its consolidated statements of
operations. The Company deemed the decline in the value of the SoftNet common
stock to be other than temporary due to the decrease in the fair value of the
investment below the Company's basis for a period greater than six months and
SoftNet's announcement to restructure and downsize its operations.
For the years ended December 31, 2000 and 1999, the Company's realized and
unrealized gains and losses on its investment was as follows (in thousands):
Accumulated comprehensive income, December 31, 1999.......... $ --
Unrealized gain.............................................. 261
--------
Ending balance............................................... 261
Unrealized loss.............................................. (29,175)
Realized loss................................................ 28,500
--------
Accumulated comprehensive income, December 31, 2000.......... $ (414)
========
As of December 31, 2000, the Company carried its investment in SoftNet at a
fair value of approximately $4.0 million.
(11) Employment Arrangements
During 1999, the Company recorded a deferred non-cash stock expense of
approximately $27.0 million relating to the grant of membership units of
Mediacom to certain members of management for past and future services. These
units will vest over five years and are subject to forfeiture penalties during
the three year period between the date the membership units become vested and
the date the employee leaves the Company. Forfeited units will revert to the
Manager. At MCC's initial public offering, all outstanding membership units were
redeemed and converted to common shares of MCC. Future vesting under these
employment arrangements will be in common shares of MCC (See Note 12). For the
years ended December 31, 2000 and 1999, Mediacom recorded a non-cash stock
charge relating to management fee expense of approximately $3.8 million and
$14.8 million, respectively, in its consolidated statements of operations, as a
result of the vested and non-forfeitable membership units. As of December 31,
2000 and 1999, the balance of approximately $8.4 and $12.2 million,
respectively, resulting from the non-vested and forfeitable membership units,
was recorded as additional paid in capital in the consolidated balance sheets
and is being amortized as a non-cash stock charge relating to management fee
expense over a period of five to eight years.
(12) Events Relating to MCC's Initial Public Offering
Prior to MCC's initial public offering on February 9, 2000, additional
membership interests were issued to all members of Mediacom in accordance with a
formula set forth in the amended and restated operating agreement, which was
based upon a valuation of Mediacom established at the time of the initial public
offering. A provision in the operating agreement eliminated a certain portion of
the special allocation of membership interests awarded to Primary Members based
upon a valuation of Mediacom. In connection with the removal of these specified
special allocation provisions and the amendments to Mediacom's management
agreements with Mediacom Management effective November 19, 1999 (See Note 7),
the Primary Members were issued new membership interests in Mediacom immediately
prior to the initial public offering representing 16.5% of the equity in
Mediacom. These newly issued membership interests were exchanged for shares of
MCC Class B common stock immediately prior to the completion of the initial
public offering.
The management agreements between Mediacom Management and each of MCC's
operating subsidiaries were terminated at the time of MCC's initial public
offering and were replaced with new agreements between MCC and the Company's
operating subsidiaries. Under such agreements, MCC is entitled to receive annual
management fees in amounts not to exceed 4.5% of the Company's gross operating
revenues. For the year ended December 31, 2000, the Company incurred management
fees under these agreements of approximately $5.5 million.
As a result of the initial public offering and the termination of the
management agreements with Mediacom Management, a deferred non-cash stock
expense of $24.5 million was recorded, relating to future benefits associated
with the continuation of such management agreements. This charge was recorded
for the year ended December 31, 2000 as a non-cash stock charge relating to
management fee expense in the consolidated statements of operations. Mediacom
Management is wholly-owned by the Chairman and Chief Executive Officer of MCC.
F-17
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Subsequent Events
As of January 31, 2001, the Company and SoftNet mutually agreed to
terminate their affiliate relationship. The Company is in the process of
transitioning its cable modem customers to the Excite@Home service. In the first
quarter of 2001, the Company will recognize the deferred revenue that resulted
from the Company's receipt of SoftNet shares in 1999 and the subsequent vesting
thereof. Such deferred revenue will be recorded as other income in the Company's
consolidated statements of operations.
On January 24, 2001, Mediacom and Mediacom Capital, completed an offering
of $500.0 million of 9 1/2% senior notes due January 2013. Interest on the 9
1/2% senior notes will be payable semi-annually on January 15 and July 15 of
each year, commencing on July 15, 2001. Approximately $467.5 million of the net
proceeds were used to repay a substantial portion of outstanding indebtedness
under the Company's subsidiary credit facilities and related accrued interest.
The balance of the net proceeds is being used for general corporate purposes.
On February 7, 2001, Mediacom and Mediacom Capital filed a registration
statement with the Securities and Exchange Commission under which it may sell
debt securities for a maximum amount of $1.0 billion. The Securities and
Exchange Commission declared this registration statement effective on February
13, 2001.
On February 26, 2001, MCC entered into agreements with AT&T Broadband, LLC
to acquire cable systems serving approximately 840,000 basic subscribers in
Georgia, Illinois, Iowa, and Missouri, for an aggregate purchase price of $2.215
billion in cash, subject to closing adjustments. MCC expects to fund these
acquisitions through a combination of new debt and equity financings and
borrowings under the Company's existing subsidiary credit facilities. These
pending transactions are expected to close in the second or third quarter of
2001, subject to customary closing conditions and the receipt of regulatory and
other approvals.
F-18
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in 000's)
March 31, December 31,
2001 2000
------------ ------------
ASSETS (Unaudited)
Cash and cash equivalents $ 11,797 $ 4,093
Subscriber accounts receivable, net of allowance for doubtful accounts
of $707 and $932, respectively 13,184 13,500
Prepaid expenses and other assets 8,331 7,023
Investments 5,187 3,985
Investment in cable television systems:
Inventory 17,253 14,131
Property, plant and equipment, at cost 871,075 840,052
Less - accumulated depreciation (235,799) (204,440)
------------ ------------
Property, plant and equipment, net 635,276 635,612
Intangible assets, net of accumulated amortization of $143,038 and
$124,955, respectively 662,684 680,420
------------ ------------
Total investment in cable television systems 1,315,213 1,330,163
Other assets, net of accumulated amortization of $6,748 and $5,749,
respectively 28,795 17,008
------------ ------------
Total assets $1,382,507 $1,375,772
============ ============
LIABILITIES AND MEMBER'S EQUITY
LIABILITIES
Debt $1,025,000 $ 987,000
Accounts payable and accrued expenses 78,907 80,143
Subscriber advances 4,267 3,886
Management fees payable 762 1,236
Deferred revenue 9,248 40,510
Other liabilities 5,158 -
------------ ------------
Total liabilities $1,123,342 $1,112,775
------------ ------------
MEMBER'S EQUITY
Capital contributions 521,696 521,696
Other equity 19,793 18,598
Accumulated comprehensive loss (1,100) (414)
Accumulated deficit (281,224) (276,883)
------------ ------------
Total member's equity 259,165 262,997
------------ ------------
Total liabilities and member's equity $1,382,507 $1,375,772
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-19
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(All dollar amounts in 000's)
(Unaudited)
Three Months Ended March 31,
---------------------------------
2001 2000
--------- ---------
Revenues $ 90,334 $ 77,440
Costs and expenses:
Service costs 31,477 26,635
Selling, general and administrative expenses 15,170 13,389
Management fee expense 1,517 1,420
Depreciation and amortization 50,783 40,680
Non-cash stock charges relating to management fee expense 1,195 26,073
--------- --------
Operating loss (9,808) (30,757)
--------- --------
Interest expense, net 20,734 18,423
Other (income) expenses (27,843) 457
--------- --------
Net loss before cumulative change in accounting principle (2,699) (49,637)
Cumulative effect of change in accounting principle 1,642 -
--------- --------
Net loss $ (4,341) $(49,637)
Unrealized (loss) gain on investments (686) 1,517
--------- --------
Comprehensive loss $ (5,027) $(48,120)
========= ========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-20
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in 000's)
(Unaudited)
Three Months Ended March 31,
--------------------------------
2001 2000
---------- ----------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (4,341) $ (49,637)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation and amortization 50,783 40,680
Change in fair value of swaps 3,270 -
Vesting of management stock 1,195 1,600
Other non-cash stock charges relating to management fee expense - 24,473
Elimination and amortization of deferred SoftNet revenue (30,244) (273)
Changes in assets and liabilities:
Subscriber accounts receivable 316 1,236
Prepaid expenses and other assets (1,308) (2,608)
Accounts payable and accrued expenses 6,960 3,616
Subscriber advances 381 (258)
Management fees payable (474) 46
Deferred revenue (1,018) (343)
--------- ---------
Net cash flows provided by operating activities 25,520 18,532
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (42,341) (36,594)
Other, net (810) (204)
--------- ---------
Net cash flows used in investing activities (43,151) (36,798)
--------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
New borrowings 508,000 26,500
Repayment of debt (470,000) (365,500)
Capital contributions - 354,500
Financing costs (12,665) (100)
--------- ---------
Net cash flows provided by financing activities 25,335 15,400
--------- ---------
Net increase (decrease) in cash and cash equivalents 7,704 (2,866)
CASH AND CASH EQUIVALENTS, beginning of period 4,093 (4,473)
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 11,797 $ 1,607
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 17,682 $ 23,001
========= =========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-21
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization
Mediacom LLC ("Mediacom," and collectively with its subsidiaries, the
"Company"), a New York limited liability company, is involved in the acquisition
and development of cable television systems serving principally non-metropolitan
markets of the United States. Through these cable systems, the Company provides
entertainment, information and telecommunications services to its subscribers.
As of March 31, 2001, the Company had acquired and was operating cable
television systems in 22 states, principally Alabama, California, Florida,
Illinois, Indiana, Iowa, Kentucky, Minnesota, Missouri and North Carolina.
Mediacom Capital Corporation ("Mediacom Capital"), a New York corporation
wholly-owned by Mediacom, was organized in March 1998 for the sole purpose of
acting as co-issuer of senior notes with Mediacom. Mediacom Capital has nominal
assets and does not conduct operations of its own.
On February 9, 2000, Mediacom Communications Corporation ("MCC"), a Delaware
corporation organized in November 1999, completed an initial public offering.
Prior to such time, MCC had no assets, liabilities, contingent liabilities or
operations. Immediately prior to the completion of its initial public offering,
MCC issued shares of its Class A and Class B common stock in exchange for all of
the outstanding membership interests in Mediacom. As a result of this exchange,
Mediacom became a wholly-owned subsidiary of MCC and Mediacom's amended and
restated operating agreement was amended to reflect MCC as the sole member and
manager of Mediacom.
(2) Statement of Accounting Presentation and Other Information
Basis of Preparation of Consolidated Financial Statements
The consolidated financial statements as of March 31, 2001 and 2000 are
unaudited. However, in the opinion of management, such statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the periods presented. The accounting
policies followed during such interim periods reported are in conformity with
generally accepted accounting principles and are consistent with those applied
during annual periods. For additional disclosures, including a summary of the
Company's accounting policies, the interim financial statements should be read
in conjunction with the Company's Annual Report on Form 10-K (File Nos. 333-
57285-01 and 333-57285). The results of operations for the interim periods are
not necessarily indicative of the results that might be expected for future
interim periods or for the full year ending December 31, 2001.
Recent Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities," was
issued effective January 1, 2001. This statement establishes the accounting and
reporting standards for derivatives and hedging activity. Upon adoption of SFAS
133, all derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. As a
result of the adoption of SFAS 133, the Company recorded a charge of
approximately $1.6 million in the consolidated statements of operations during
the three months ended March 31, 2001.
In March 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas of
the SEC's views in applying generally accepted accounting principles to revenue
recognition in financial statements. SAB 101 does not apply to the Company's
basic cable television business. The Company will continue to account for
revenues based upon Statement of Financial Accounting Standards No. 51,
"Financial Reporting by Cable Television Companies." SAB 101 did not have a
material impact on the Company's results of operations and consolidated
financial statements.
F-22
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) Acquisitions
During 2000, the Company completed nine acquisitions of cable systems serving
53,000 basic subscribers for an aggregate purchase price of $109.2 million,
including a $2.5 million deferred conditional payment to a seller. The cable
systems serve communities in Alabama, Illinois, Iowa, Kentucky, Minnesota and
South Dakota. The aggregate purchase price has been allocated as follows:
approximately $48.2 million to property, plant and equipment, and approximately
$58.5 million to intangible assets. Additionally, approximately $2.7 million
of direct acquisition costs have been allocated to property, plant and equipment
and intangible assets. These acquisitions were financed with borrowings under
the Company's credit facilities.
These acquisitions were accounted for using the purchase method of accounting,
and accordingly, the purchase price of each of these acquired systems has been
allocated to the assets acquired and liabilities assumed at their estimated fair
values at their respective dates of acquisition.
Unaudited Pro Forma Information
The Company has reported the operating results of the acquired systems from
the dates of their respective acquisition. The unaudited pro forma operating
results presented below give pro forma effect to the acquisitions of the
acquired systems as if such transactions had been consummated on January 1,
2000. This financial information has been prepared for comparative purposes
only and does not purport to be indicative of the operating results which
actually would have resulted had the acquisitions of the acquired systems been
consummated at the beginning of the period presented.
Three Months
Ended
March 31, 2000
------------------------------
(dollars in thousands)
Revenues.................................................................................... $ 82,987
Operating expenses and costs:
Service costs............................................................................. 28,989
SG&A expenses............................................................................. 14,458
Management fee expense.................................................................... 1,420
Depreciation and amortization............................................................. 43,369
Non-cash stock charges relating to management fee expense................................. 26,073
---------
Operating loss.............................................................................. (31,322)
---------
Net loss.................................................................................... $(52,499)
=========
(4) Debt
As of March 31, 2001 and December 31, 2000, debt consisted of:
March 31, December 31,
2001 2000
---------- ------------
(dollars in thousands)
8 1/2% senior notes................................................... $ 200,000 $200,000
7 7/8% senior notes................................................... 125,000 125,000
9 1/2% senior notes................................................... 500,000 -
Bank credit facilities................................................ 200,000 662,000
---------- --------
$1,025,000 $987,000
========== ========
F-23
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The average interest rate on outstanding debt under the bank credit agreements
was 8.0% and 8.3% for the three months ended March 31, 2001 and December 31,
2000, respectively, before giving effect to the interest rate swap agreements
discussed below.
The Company uses interest rate swap agreements in order to fix the interest
rate for the duration of the contract as a hedge against interest rate
volatility. As of March 31, 2001, the Company had entered into interest rate
exchange agreements (the "Swaps") with various banks pursuant to which the
interest rate on $170.0 million is fixed at a weighted average swap rate of
approximately 6.7%, plus the average applicable margin over the Eurodollar Rate
option under the bank credit agreements. Under the terms of the Swaps, which
expire from 2002 through 2004, the Company is exposed to credit loss in the
event of nonperformance by the other parties to the Swaps. However, the Company
does not anticipate nonperformance by the counterparties.
The stated maturities of all debt outstanding as of March 31, 2001 are as
follows (dollars in thousands):
2002....................................................... $ 750
2003....................................................... 2,000
2004....................................................... 2,000
2005....................................................... 2,000
2006....................................................... 2,000
Thereafter................................................. 1,016,250
----------
$1,025,000
==========
(5) SoftNet
As of December 31, 2000, deferred revenue resulting from the Company's receipt
of shares SoftNet Systems, Inc. common stock amounted to approximately $30.2
million, net of amortization taken. As of January 31, 2001, the Company
formally terminated its relationship with SoftNet in all material respects. The
Company recognized revenue of approximately $287,000 and $273,000 for the period
ended January 31, 2001 and the three months ended March 31, 2000, respectively.
As a result of the termination of the SoftNet relationship, the Company
recognized the remaining deferred revenue of approximately $30.0 million as
other income in the consolidated statements of operations during the three
months ended March 31, 2001.
For the year ended December 31, 2000, relating to the decline in value of the
Company's investment in shares of SoftNet common stock that was deemed other
than temporary, the Company recorded a non-cash charge of approximately $28.5
million as a realized loss in other expenses in its consolidated statements of
operations. The Company deemed the decline in the value of the SoftNet common
stock to be other than temporary due to the decrease in the fair value of the
investment below the Company's basis for a period greater than six months and
SoftNet's announcement to restructure and downsize its operations.
(6) Pending Acquisitions
On February 26, 2001, MCC entered into agreements with AT&T Broadband, LLC to
acquire cable systems serving approximately 840,000 basic subscribers in
Georgia, Illinois, Iowa, and Missouri, for an aggregate purchase price of $2.215
billion in cash, subject to closing adjustments. MCC expects to fund these
acquisitions through a combination of new debt and equity financings and
borrowings under the Company's existing subsidiary credit facilities. These
pending transactions are expected to close in the second and third quarter of
2001, subject to customary closing conditions, including the receipt of
regulatory and other approvals.
F-24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of Mediacom Capital Corporation:
We have audited the accompanying balance sheets of Mediacom Capital Corporation
as of December 31, 2000 and 1999. These balance sheets are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
balance sheets based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that out audits provide a reasonable basis for our
opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of Mediacom Capital Corporation as of
December 31, 2000 and 1999, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 16, 2001
F-25
MEDIACOM CAPITAL CORPORATION
BALANCE SHEETS
December 31,
-----------------
2000 1999
------- -------
ASSETS
Note receivable - from affiliate for issuance of common stock....... $ 100 $ 100
------- -------
Total assets............................................... $ 100 $ 100
======= =======
STOCKHOLDER'S EQUITY
Common stock, par value $0.10; 200 shares authorized;
100 shares issued and outstanding............................. $ 10 $ 10
Additional paid-in capital.......................................... $ 90 $ 90
------- -------
Total stockholder's equity................................. $ 100 $ 100
======= =======
The accompanying notes to the balance sheets
are an integral part of these financial statements.
F-26
MEDIACOM CAPITAL CORPORATION
NOTES TO THE BALANCE SHEETS
(1) Organization
Mediacom Capital Corporation ("Mediacom Capital"), a New York corporation
wholly-owned by Mediacom LLC ("Mediacom"), was organized on March 9, 1998 for
the sole purpose of acting as co-issuer with Mediacom of $200.0 million
aggregate principal amount of the 8 1/2% senior notes due April 15, 2008.
Interest on the 8 1/2% senior notes is payable semi-annually on April 15 and
October 15 of each year. Mediacom Capital does not conduct operations of its
own.
On February 26, 1999, Mediacom and Mediacom Capital jointly issued $125.0
million aggregate principal amount of 7 7/8% senior notes due on February 15,
2011. The net proceeds from this offering of approximately $121.9 million were
used to repay a substantial portion of outstanding bank debt under the bank
credit facilities of Mediacom's operating subsidiaries. Interest on the 7 7/8%
senior notes is payable semi-annually on February 15 and August 15 of each year.
(2) Subsequent Events
On January 24, 2001, Mediacom and Mediacom Capital completed an offering of
$500.0 million of 9 1/2% senior notes due January 2013. Interest on the 9 1/2%
senior notes will be payable semi-annually on January 15 and July 15 of each
year, commencing on July 15, 2001. Approximately $467.5 million of the net
proceeds were used to repay a substantial portion of outstanding indebtedness
and related accrued interest under the Company's subsidiary credit facilities.
The balance of the net proceeds is being used for general corporate purposes.
On February 7, 2001, Mediacom and Mediacom Capital filed a registration
statement with the Securities and Exchange Commission under which it may sell
debt securities, for a maximum amount of $1.0 billion. The Securities and
Exchange Commission declared this registration statement effective on February
13, 2001.
F-27
MEDIACOM CAPITAL CORPORATION
BALANCE SHEETS
March 31, December 31,
2001 2000
------------ --------------
ASSETS (Unaudited)
Note receivable - from affiliate for issuance of common stock................. $ 100 $ 100
----- -----
Total assets............................................................... $ 100 $ 100
===== =====
STOCKHOLDER'S EQUITY
Common stock, par value $0.10; 200 shares authorized;
100 shares issued and outstanding........................................... $ 10 $ 10
Additional paid-in capital.................................................... $ 90 $ 90
----- -----
Total stockholder's equity................................................. $ 100 $ 100
===== =====
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-28
MEDIACOM CAPITAL CORPORATION
NOTE TO THE BALANCE SHEETS
(Unaudited)
(1) Organization
Mediacom Capital Corporation ("Mediacom Capital"), a New York corporation,
wholly-owned by Mediacom LLC ("Mediacom"), was organized on March 9, 1998 for
the sole purpose of acting as co-issuer with Mediacom of $200.0 million
aggregate principal amount of the 8 1/2% senior notes due April 15, 2008.
Interest on the 8 1/2% senior notes is payable semi-annually on April 15 and
October 15 of each year. Mediacom Capital does not conduct operations of its
own.
On February 26, 1999, Mediacom and Mediacom Capital jointly issued $125.0
million aggregate principal amount of 7 7/8% senior notes due on February 15,
2011. The net proceeds from this offering of approximately $121.9 million were
used to repay a substantial portion of outstanding bank debt under the bank
credit facilities of Mediacom's operating subsidiaries. Interest on the 7 7/8%
senior notes is payable semi-annually on February 15 and August 15 of each year.
On January 24, 2001, Mediacom and Mediacom Capital completed an offering of
$500.0 million of 9 1/2% senior notes due January 2013. Interest on the 9 1/2%
senior notes will be payable semi-annually on January 15 and July 15 of each
year, commencing on July 15, 2001. Approximately $467.5 million of the net
proceeds were used to repay a substantial portion of outstanding indebtedness
and related accrued interest under the Company's subsidiary credit facilities.
The balance of the net proceeds is being used for general corporate purposes.
On February 7, 2001, Mediacom and Mediacom Capital filed a registration
statement with the Securities and Exchange Commission under which it may sell
debt securities, for a maximum amount of $1.0 billion. The Securities and
Exchange Commission declared this registration statement effective on February
13, 2001.
F-29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Triax Midwest Associates, L.P.:
We have audited the accompanying balance sheets of Triax Midwest Associates,
L.P. (a Missouri limited partnership) as of December 31, 1997 and 1998, and the
related statements of operations, partners' deficit and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Triax Midwest Associates,
L.P. as of December 31, 1997 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 26, 1999.
F-30
TRIAX MIDWEST ASSOCIATES, L.P.
BALANCE SHEETS
As of December 31, 1997 and 1998 and September 30, 1999 (Unaudited)
(In Thousands)
September 30,
1997 1998 1999
--------- --------- -----------
(Unaudited)
ASSETS
Cash.............................................................. $ 3,297 $ 2,327 $ --
Receivables, net of allowance of $554, $331 and $353, respectively 2,555 2,303 2,043
Property, plant and equipment, net................................ 124,616 153,224 168,588
Purchased intangibles, net........................................ 157,671 185,268 153,604
Deferred costs, net............................................... 5,980 6,995 5,364
Other assets...................................................... 2,202 2,911 2,086
-------- -------- ---------
$296,321 $353,028 $ 331,685
======== ======== =========
LIABILITIES AND PARTNERS' DEFICIT
Accrued interest expense.......................................... $ 6,057 $ 5,383 $ --
Accounts payable and other accrued expenses....................... 11,582 11,714 12,769
Subscriber prepayments and deposits............................... 695 828 782
Payables to affiliates............................................ 359 348 339
Debt.............................................................. 323,604 404,418 418,810
-------- -------- ---------
342,297 422,691 432,700
Partners' deficit................................................. (45,976) (69,663) (101,015)
-------- -------- ---------
$296,321 $353,028 $ 331,685
======== ======== =========
The accompanying notes to the financial statements are an integral part of
these balance sheets.
F-31
TRIAX MIDWEST ASSOCIATES, L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1997 and 1998
and for the Nine Months Ended September 30, 1998 and 1999 (Unaudited)
(In Thousands)
For the
Nine Months Ended
For the Years Ended December 31, September 30,
-------------------------------- -------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(Unaudited)
Revenues.............................................. $ 60,531 $101,521 $119,669 $ 87,129 $101,654
Operating expenses:
Programming........................................ 12,934 20,066 25,275 18,262 22,990
Operating, selling, general and administrative..... 16,459 26,050 32,241 21,658 25,407
Management fees.................................... 2,667 3,573 4,048 2,944 3,331
Administration fees paid to an affiliate........... 444 1,482 1,826 1,307 1,566
Depreciation and amortization...................... 26,492 48,845 65,391 43,276 54,111
-------- -------- -------- -------- --------
58,996 100,016 128,781 87,447 107,405
-------- -------- -------- -------- --------
Operating income (loss)............................... 1,535 1,505 (9,112) (318) (5,751)
Other expenses:
Interest........................................... 18,311 26,006 29,358 21,358 24,941
-------- -------- -------- -------- --------
Net loss before cumulative effect of accounting change (16,776) (24,501) (38,470) (21,676) (30,692)
Cumulative effect of accounting change................ -- -- -- -- (660)
-------- -------- -------- -------- --------
Net loss.............................................. $(16,776) $(24,501) $(38,470) $(21,676) $(31,352)
======== ======== ======== ======== ========
The accompanying notes in the financial statements are an integral part of
these statements.
F-32
TRIAX MIDWEST ASSOCIATES, L.P.
STATEMENTS OF PARTNERS' DEFICIT
For the Years Ended December 31, 1996, 1997 and 1998
and for the Nine Months Ended September 30, 1999 (Unaudited)
(In Thousands)
Residual
Non- Equity
Managing Managing Interest
General General Held by
Partner Partner TTC
---------- ---------- --------
(Effective (Effective
August 30, August 30,
1996) 1996)
BALANCES, December 31, 1995.................................................... $ (83,549) $ -- $ --
Net loss for the eight month period ended August 30, 1996..................... (9,022) -- --
--------- ------- ------
BALANCES, August 30, 1996 (Unaudited).......................................... (92,571) -- --
Cash redemption of partnership interests...................................... -- -- --
Allocation of partners' capital in connection with recapitalization........... -- -- --
Accretion on residual equity interest held by TTC through a charge to
accumulated deficit........................................................... (62) -- 62
Cash contributions............................................................ 1,100 -- --
Issuance of limited partnership units in connection with acquisition of cable
properties.................................................................... -- -- --
Cash distributions to DD Cable Partners....................................... -- -- --
Syndication costs............................................................. (26) -- --
Net loss for the four month period ending December 31, 1996................... (78) -- --
--------- ------- ------
BALANCES, December 31, 1996.................................................... (91,637) -- 62
Accretion of residual equity interest held by TTC through a charge to
accumulated deficit........................................................... (488) -- 488
Cash contributions............................................................ -- -- --
Syndication costs............................................................. -- -- --
Net loss for the year ended December 31, 1997................................. (245) -- --
--------- ------- ------
BALANCES, December 31, 1997.................................................... (92,370) -- 550
Accretion of residual equity interest held by TTC through a charge to
accumulated deficit........................................................... (738) -- 738
Cash contributions............................................................ -- -- --
Syndication costs............................................................. -- -- --
Net loss for the year ended December 31, 1998................................. (385) -- --
--------- ------- ------
BALANCES, December 31, 1998.................................................... (93,493) -- 1,288
Accretion of residual equity interest held by TTC through a charge to
accumulated deficit (Unaudited)............................................... (735) -- 735
Net loss for the nine months ended September 30, 1999 (Unaudited)............. (8,810) -- --
--------- ------- -------
BALANCES, September 30, 1999 (Unaudited)....................................... $(103,038) $-- $2,023
========= ======= =======
Pre Recapitalization Limited Post
Partners (Note 1)
---------------------------- Recapitalization
Special Cavalier Limited
Limited Cable, All Partners
Partner L.P. Others (Note 1)
-------- --------- --------- ----------------
BALANCES, December 31, 1995.................................................... $ -- $ -- $ -- $ --
Net loss for the eight month period ended August 30, 1996..................... -- -- -- --
------- -------- -------- --------
BALANCES, August 30, 1996 (Unaudited).......................................... -- -- -- --
Cash redemption of partnership interests...................................... (6,680) (12,071) (19,500) --
Allocation of partners' capital in connection with recapitalization........... 6,680 12,071 19,500 (38,251)
Accretion on residual equity interest held by TTC through a charge to
accumulated deficit........................................................... -- -- -- --
Cash contributions............................................................ -- -- -- 50,250
Issuance of limited partnership units in connection with acquisition of cable
properties.................................................................... -- -- -- 59,765
Cash distributions to DD Cable Partners....................................... -- -- -- (4,200)
Syndication costs............................................................. -- -- -- (2,578)
Net loss for the four month period ending December 31, 1996................... -- -- -- (7,676)
------- -------- -------- --------
BALANCES, December 31, 1996.................................................... -- -- -- 57,310
Accretion of residual equity interest held by TTC through a charge to
accumulated deficit........................................................... -- -- -- --
Cash contributions............................................................ -- -- -- 13,043
Syndication costs............................................................. -- -- -- (253)
Net loss for the year ended December 31, 1997................................. -- -- -- (24,256)
------- -------- -------- --------
BALANCES, December 31, 1997.................................................... -- -- -- 45,844
Accretion of residual equity interest held by TTC through a charge to
accumulated deficit........................................................... -- -- -- --
Cash contributions............................................................ -- -- -- 15,000
Syndication costs............................................................. -- -- -- (217)
Net loss for the year ended December 31, 1998................................. -- -- -- (38,085)
------- -------- -------- --------
BALANCES, December 31, 1998.................................................... -- -- -- 22,542
Accretion of residual equity interest held by TTC through a charge to
accumulated deficit (Unaudited)............................................... -- -- -- --
Net loss for the nine months ended September 30, 1999 (Unaudited)............. -- -- -- (22,542)
------- -------- -------- --------
BALANCES, September 30, 1999 (Unaudited)....................................... $ -- $ -- $ -- $ --
======= ======== ======== ========
Total
----------
BALANCES, December 31, 1995.................................................... $ (83,549)
Net loss for the eight month period ended August 30, 1996..................... (9,022)
---------
BALANCES, August 30, 1996 (Unaudited).......................................... (92,571)
Cash redemption of partnership interests...................................... (38,251)
Allocation of partners' capital in connection with recapitalization........... --
Accretion on residual equity interest held by TTC through a charge to
accumulated deficit........................................................... --
Cash contributions............................................................ 51,350
Issuance of limited partnership units in connection with acquisition of cable
properties.................................................................... 59,765
Cash distributions to DD Cable Partners....................................... (4,200)
Syndication costs............................................................. (2,604)
Net loss for the four month period ending December 31, 1996................... (7,754)
---------
BALANCES, December 31, 1996.................................................... (34,265)
Accretion of residual equity interest held by TTC through a charge to
accumulated deficit........................................................... --
Cash contributions............................................................ 13,043
Syndication costs............................................................. (253)
Net loss for the year ended December 31, 1997................................. (24,501)
---------
BALANCES, December 31, 1997.................................................... (45,976)
Accretion of residual equity interest held by TTC through a charge to
accumulated deficit........................................................... --
Cash contributions............................................................ 15,000
Syndication costs............................................................. (217)
Net loss for the year ended December 31, 1998................................. (38,470)
---------
BALANCES, December 31, 1998.................................................... (69,663)
Accretion of residual equity interest held by TTC through a charge to
accumulated deficit (Unaudited)............................................... --
Net loss for the nine months ended September 30, 1999 (Unaudited)............. (31,352)
---------
BALANCES, September 30, 1999 (Unaudited)....................................... $(101,015)
=========
The accompanying notes to the financial statements are an integral part of
these statements.
F-33
TRIAX MIDWEST ASSOCIATES, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
and For the Nine Months Ended September 30, 1998 and 1999 (Unaudited)
(In Thousands)
For the Years Ended For the Nine Months
December 31, Ended September 30,
------------------------------- -----------------------
1996 1997 1998 1998 1999
---------- --------- ---------- ----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................... $ (16,776) $(24,501) $ (38,470) $ (21,676) $(31,352)
Adjustments to reconcile net loss to net cash flows from operating
activities--
Depreciation and amortization........................................ 26,492 48,845 65,391 43,276 54,111
Accretion of interest on preferred stock obligation.................. 90 -- -- -- --
Amortization of deferred loan costs.................................. 370 651 790 567 669
Cumulative effect of accounting change............................... -- -- -- -- 660
Write-off retired plant.............................................. -- -- 1,732 (492) --
Decrease (increase) in subscriber receivables, net................... 1,926 (503) 93 (147) 265
(Increase) decrease in other assets.................................. (7) (556) (623) (1,270) 881
Increase (decrease) in accrued interest expense...................... 181 1,312 (674) (1,299) (5,403)
Increase (decrease) in accounts payable and other accrued expenses... 4,502 525 (452) (1,040) 828
(Decrease) increase in subscriber prepayments and deposits........... (2,684) 13 129 55 (52)
Write-off loan costs................................................... 174 -- -- -- 20
(Decrease) increase in payables to affiliates.......................... (31) 113 (11) (56) (10)
--------- -------- --------- --------- --------
Net cash flows from operating activities........................... 14,237 25,899 27,905 17,918 20,617
--------- -------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment.............................. (10,275) (23,101) (36,122) (25,222) (31,830)
Acquisition of properties, including purchased intangibles............. -- (71,850) (86,255) (83,993) (3,913)
Proceeds from exchange of properties, including intangibles............ -- -- 1,594 1,594 --
Proceeds from sale of properties, including intangibles................ -- -- 1,674 1,674 367
Cash paid for franchise costs.......................................... (582) (776) (2,122) (1,165) (917)
Cash paid for other intangibles........................................ (823) (37) -- -- (19)
--------- -------- --------- --------- --------
Net cash flows from investing activities........................... (11,680) (95,764) (121,231) (107,112) (36,312)
--------- -------- --------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings............................................... 275,000 67,000 399,000 391,000 26,000
Repayment of debt...................................................... (268,477) (14,000) (319,000) (315,000) (12,000)
Contributions from partners............................................ 51,350 13,043 15,000 15,000 --
Cash redemptions of partnership interests.............................. (38,251) -- -- -- --
Cash distributions to DD Cable Partners................................ (4,200) -- -- -- --
Payments on capital leases............................................. (314) (322) (703) (456) (625)
Cash paid for loan costs............................................... (5,683) (80) (1,724) (1,597) (7)
Cash paid for syndication costs........................................ (2,604) (253) (217) -- --
Repayment of preferred stock obligations............................... (2,760) -- -- -- --
--------- -------- --------- --------- --------
Net cash flows from financing activities........................... 4,061 65,388 92,356 88,947 13,368
--------- -------- --------- --------- --------
NET INCREASE (DECREASE) IN CASH......................................... 6,618 (4,477) (970) (247) (2,327)
CASH, beginning of period............................................... 1,156 7,774 3,297 3,297 2,327
--------- -------- --------- --------- --------
CASH, end of period..................................................... $ 7,774 $ 3,297 $ 2,327 $ 3,050 $ --
========= ======== ========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest............................... $ 16,848 $ 24,043 $ 29,209 $ 22,090 $ 29,655
========= ======== ========= ========= ========
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND
FINANCING ACTIVITIES:
Acquisitions with capital leases....................................... $ 391 $ 1,313 $ 1,517 $ 1,054 $ 1,217
========= ======== ========= ========= ========
Net book value of assets divested in exchange.......................... -- -- $ 4,404 $ 4,404 --
========= ======== ========= ========= ========
Net book value of non-monetary assets acquired in exchange............. -- -- $ 2,958 $ 2,958 --
========= ======== ========= ========= ========
The accompanying notes to financial statements are an integral part of these
statements.
F-34
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
(1) The Partnership
Organization and Capitalization
Triax Midwest Associates, L.P. (the "Partnership") is a Missouri limited
partnership originally formed for the purpose of acquiring, constructing and
operating cable television properties, located primarily in Indiana, Illinois,
Iowa, Minnesota and Wisconsin. The Partnership was capitalized and commenced
operations on June 1, 1988. The non-managing general partner is Triax Cable
General Partner, L.P. ("Triax Cable GP"), a Missouri limited partnership. The
general partner of Triax Cable GP is Midwest Partners, L.L.C. The managing
general partner of the Partnership is Triax Midwest General Partner, L.P., a
Delaware limited partnership, and its general partner is Triax Midwest, L.L.C.
Partnership Recapitalization
On August 30, 1996 (the "Contribution Date"), the Partnership completed a
recapitalization of the Partnership in which new credit facilities were put in
place (Note 4), additional partnership interests were issued and selected
partnership interests were redeemed. Under the terms of a partnership amendment
and other related documents, the Partnership received approximately $50.3
million in cash from new limited partners in exchange for limited partnership
interests ("New Cash Partners"). Approximately $38.3 million in cash was then
utilized to redeem the special limited partnership interest and certain other
existing limited partnership interests. For financial reporting purposes, this
portion of the Partnership Recapitalization was accounted for as an equity
transaction with no effect on the carrying value of the Partnership's assets.
However, for tax purposes, even though the New Cash Partners acquiesced to the
redeemed limited partners' tax basis capital accounts, they will be entitled to
additional outside tax basis reflecting the amount invested.
In addition, the Partnership purchased certain net assets of DD Cable
Partners, L.P. and DD Cable Holdings, Inc. ("DD Cable") through the net
issuance of approximately $55.6 million in limited partnership interests. For
financial reporting purposes, the acquisition was accounted for under the
purchase method of accounting at fair market value. For tax purposes, the basis
in the acquired net assets was recorded at DD Cable's historical tax basis.
This results in a built-in gain on these assets based on the difference between
the fair market value and tax basis of the assets at August 30, 1996.
In connection with the Partnership Recapitalization, the general partnership
interest of Triax Cable GP was converted to a non-managing general partnership
interest. Triax Cable GP then contributed an additional $1.1 million to
maintain its approximate 1% proportionate interest in the Partnership. Triax
Midwest General Partner, L.P. ("Midwest GP" or the "Managing General Partner")
was appointed the managing general partner. The general partner of Midwest GP
is Triax Midwest, L.L.C., a wholly-owned subsidiary of Triax Telecommunications
Company, L.L.C. ("TTC"). Midwest GP made no partnership equity contributions to
the Partnership and received only a residual interest in the Partnership, as
discussed below under "Allocations of Profits, Losses, Distributions and
Credits Subsequent to Partnership Recapitalization".
As provided for in the Partnership Agreement, as amended, certain of the New
Cash Partners (the "Committed Partners") committed to fund additional monies
totaling $50.0 million for future acquisitions of the Partnership through
August 1999. In conjunction with the Partnership's acquisitions of the Indiana
and Illinois Acquisitions during 1997 and the Illinois acquisition of September
30, 1998 (Note 3), certain limited partners contributed approximately $13.0
million and $15.0 million, respectively. Of these total contributions,
approximately $27.0 million was contributed by the Committed Partners, which
reduced their total funding commitment to approximately $23.0 million.
F-35
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
During 1997, TTC and certain officers of TTC (the "Officers") purchased
limited partner interests in Triax Investors Midwest, L.P. ("Investors
Midwest"), which holds a limited partner interest in the Partnership.
Subsequent to TTC's and the Officers' purchase of these Investors Midwest
interests, Investors Midwest elected to distribute its interest in the
Partnership to certain of its partners, resulting in TTC owning a direct
limited partner interest in the Partnership.
The Partnership Agreement, as amended, provides that on August 30, 2001 each
limited partner has the option to sell its interest to the Partnership for fair
market value at the time of the sale. The fair market value is to be determined
by appraised value approved by a majority vote of the Advisory Committee. In
accordance with the Partnership Agreement, if the Partnership is unable to
finance the acquisition of such interests, such selling limited partners can
cause the liquidation of the Partnership.
Allocation of Profits, Losses, Distributions and Credits Subsequent to
Partnership Recapitalization
Distributions
Cash distributions are to be made to both the limited partners and Triax
Cable GP equal to their adjusted capital contributions, then to the limited
partners and Triax Cable GP in an amount sufficient to yield a return of 13%
per annum, compounded annually (the "Priority Return"), then varying rates of
distribution to the Managing General Partner (17% to 20%) and to the limited
partners and Triax Cable GP (83% to 80%) based on internal rates of return
earned by the New Cash Partners, as set forth in the Amended and Restated
Partnership Agreement, on their adjusted capital contributions.
Losses from Operations
The Partnership will allocate its losses to the limited partners and Triax
Cable GP according to their proportionate interests in the book value of the
Partnership, except losses will not be allocated to any limited partner which
would cause the limited partner's capital account to become negative by an
amount greater than an amount which the limited partners are obligated to
contribute to the Partnership.
Profits and Gains
Generally, the Partnership will allocate its profits according to the
limited partners' and Triax Cable GP's proportionate interests in the book
value of the Partnership until profits allocated to limited partners equal
losses previously allocated to them. A special allocation of gain equal to the
difference between the fair value and tax basis of contributed property will be
made, with respect to partners contributing property to the Partnership, upon
the sale of the contributed Partnership assets.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-36
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
The financial statements as of September 30, 1999 and 1998 are unaudited;
however, in the opinion of management, the financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the periods presented. The accounting
policies followed during such interim periods reported are in conformity with
generally accepted accounting principles and are consistent with those applied
during annual periods. The results of operations for the interim periods are
not necessarily indicative of the results that might be expected for the full
year ending December 31, 1999.
Revenue Recognition
Revenues are recognized in the period the related services are provided to
the subscribers.
Income Taxes
No provision has been made for federal, state or local income taxes because
they are the responsibility of the individual partners. The principal
difference between tax and financial reporting results from different
depreciable tax basis in various assets acquired (Note 1).
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Replacements, renewals and
improvements are capitalized and costs for repairs and maintenance are charged
directly to expense when incurred. The Partnership capitalized a portion of
technician and installer salaries to property, plant and equipment, which
amounted to $1,134,000 in 1996, $1,196,132 in 1997, $1,333,296 in 1998 and
$980,140 and $994,469 for the nine months ended September 30, 1998 and 1999,
respectively. Depreciation and amortization are computed using the
straight-line method over the following estimated useful lives (amounts in
thousands):
September 30,
1997 1998 1999 Life
--------- ---------- ---------- -------------
Property, plant and equipment........ $217,561 $ 266,965 $ 301,880 Predominantly
10 years
Less--Accumulated depreciation....... (92,945) (113,741) (133,292)
-------- --------- ---------
$124,616 $ 153,224 $ 168,588
======== ========= =========
Purchased Intangibles
Purchased intangibles are being amortized using the straight-line method
over the following estimated useful lives (amounts in thousands):
September 30,
1997 1998 1999 Life
---------- ---------- ---------- ------
Franchises........................... $ 245,028 $ 310,544 $ 312,930 5-11.5 years
Noncompete........................... 400 1,595 1,795 3 years
Goodwill............................. 12,804 12,804 12,804 20 years
--------- --------- ---------
258,232 324,943 327,529
Less--Accumulated amortization....... (100,561) (139,675) (173,925)
--------- --------- ---------
$ 157,671 $ 185,268 $ 153,604
========= ========= =========
F-37
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable from future undiscounted cash flows. Impairment losses are
recorded for the difference between the carrying value and fair value of the
long-lived asset.
Deferred Costs
Deferred costs are being amortized using the straight-line method over the
following estimated useful lives (amounts in thousands):
September 30,
1997 1998 1999 Life
-------- -------- ------------- ---------
Deferred loan costs.................. $ 5,763 $ 7,488 $ 7,494 2-7 years
Organizational costs................. 858 858 -- 5-10 years
Other................................ 500 500 500
Less--Accumulated amortization....... (1,141) (1,851) (2,630)
------- ------- -------
$ 5,980 $ 6,995 $ 5,364
======= ======= =======
Organizational Costs
American Institute of Certified Public Accountants Statement of Position
98-5 ("SOP 98-5") provides guidance on the financial reporting of start-up and
organization costs. SOP 98-5 broadly defines start-up activities and requires
the costs of such start-up activities and organization costs to be expensed as
incurred. SOP 98-5 is effective for fiscal years beginning after December 15,
1998 and the initial application is reported as a cumulative effect of a change
in accounting principle. Effective January 1, 1999, the Partnership recognized
a cumulative effect of an accounting change adjustment related to net deferred
organization costs totaling approximately $660,000 as of December 31, 1998.
Reclassifications
Certain amounts in the accompanying financial statements have been
reclassified to conform to the current year presentation.
(3) Acquisitions / Sales
On August 30, 1996, the Partnership purchased certain cable television
system assets, located in Illinois, Minnesota, Wisconsin and Iowa, from DD
Cable, including the assumption of certain liabilities of the acquired
business. The acquisition was financed by issuing net limited partnership
interests valued at approximately $55.6 million. In addition, the Partnership
utilized a portion of newly executed $375 million credit facility (Note 4) to
repay approximately $116 million of existing indebtedness of DD Cable.
F-38
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
The purchase price was allocated to the acquired assets and liabilities as
follows (amounts in thousands):
Current assets ............................................. $ 3,519
Property, plant and equipment .............................. 59,786
Franchise costs ............................................ 117,007
---------
Subtotal ............................................... 180,312
Less--current liabilities assumed .......................... (4,579)
---------
175,733
Less--cash distributed for:
Payment of existing DD Cable debt ........................ (115,968)
Cash distributions to DD Cable ........................... (4,200)
---------
Total net partnership interest issued .................. $ 55,565
=========
On June 30, 1997, the Partnership acquired certain cable television system
assets, located in Indiana, including certain liabilities of the acquired
business, from Triax Associates I, L.P. (the "Indiana Acquisition"). The
purchase price of $52.0 million was accounted for by the purchase method of
accounting and was allocated to the acquired assets and liabilities as follows
(amounts in thousands):
Current assets ............................................... $ 316
Property, plant and equipment ................................ 18,793
Franchise costs .............................................. 33,007
Non-compete .................................................. 200
--------
Subtotal ................................................... 52,316
Less--current liabilities assumed ............................ (403)
--------
Total cash paid for acquisition............................ $51,913
========
Also on June 30, 1997, the Partnership acquired certain cable television
system assets, located in Illinois, including certain liabilities of the
acquired business, from an unrelated third party (the "Illinois Acquisition".
The purchase price of $20.1 million was accounted for by the purchase method of
accounting.
The Indiana and Illinois Acquisitions were financed by partners'
contributions of approximately $13.0 million and proceeds of $60.0 million on
the revolving credit facility.
On June 30, 1998, the Partnership purchased certain cable television system
assets, located in Illinois, from an unrelated third party ("Marcus"),
including the assumption of certain liabilities of the acquired business. The
acquisition was financed by partners' contributions of $15.0 million and
proceeds of approximately $45.8 million from the revolving credit facility.
F-39
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
The purchase price was allocated to the acquired assets and liabilities as
follows (amounts in thousands):
Current assets ............................................. $ 109
Property, plant and equipment .............................. 10,000
Franchise costs ............................................ 50,555
Non-compete ................................................ 500
--------
Subtotal ................................................ 61,164
Less--current liabilities assumed .......................... (328)
--------
Total cash paid for acquisition .......................... $ 60,836
========
The Partnership has reported the operating results of DD Cable, the Indiana
Acquisition and Marcus from the respective acquisition dates. The following
tables show the unaudited pro forma results of operations for the year of the
acquisitions and their prior year (amounts in thousands):
For the Year Ended
December 31, 1996
-------------------------------
Unaudited
Actual Pro Forma Results(1)
--------- --------------------
REVENUES................................. $ 60,531 $ 99,554
======== ========
NET LOSS................................ $(16,776) $(28,878)
======== ========
(1) Presents pro forma effect of the DD Cable Acquisition and the Indiana
Acquisition.
For the Year Ended
December 31, 1997
-------------------------------
Unaudited
Actual Pro Forma Results(2)
--------- --------------------
REVENUES................................ $101,521 $118,722
======== ========
NET LOSS................................ $(24,501) $(31,001)
======== ========
(2) Presents pro forma effect of the Indiana Acquisition and Marcus.
For the Year Ended
December 31, 1998
-------------------------------
Unaudited
Actual Pro Forma Results(3)
--------- --------------------
REVENUES................................ $119,669 $128,182
======== ========
NET LOSS................................ $(38,470) $(41,754)
======== ========
(3) Presents pro forma effect of Marcus.
F-40
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
On June 30, 1998, the Partnership purchased certain cable television system
assets, located in Indiana, from an unrelated third party, including the
assumption of certain liabilities of the acquired business. The acquisition was
financed by proceeds of approximately $22.8 million from the revolving credit
facility. The purchase price was allocated to the acquired assets and
liabilities as follows (amounts in thousands):
Property, plant and equipment .............................. $ 8,383
Franchise costs ............................................ 14,499
Non-compete ................................................ 200
--------
Subtotal ................................................. 23,082
Less--current liabilities assumed .......................... (270)
--------
Total cash paid for acquisition .......................... $22,812
========
On January 21, 1998, the Partnership acquired certain cable television
system assets located in Gilberts, Illinois, including certain liabilities of
the acquired business, from an unrelated third party (the "Gilberts
Acquisition"). The purchase price of approximately $307,000 was accounted for
by the purchase method of accounting.
On December 31, 1998, the Partnership acquired certain cable television
system assets, located in Kentland, Indiana, including certain liabilities of
the acquired business, from an unrelated third party (the "Kentland
Acquisition"). The purchase price of $2.5 million was accounted for by the
purchase method of accounting, $200,000 of which will be paid during 1999, and
has been recorded as other accrued expenses in the accompanying balance sheet.
On February 27, 1998, the Partnership closed on an Asset Exchange Agreement
with an unrelated third party whereby the Partnership conveyed certain systems
serving approximately 3,700 subscribers in exchange for another system in
Illinois serving approximately 2,400 subscribers and received approximately
$1,600,000 in cash consideration. A gain of approximately $150,000 was
recognized on this transaction, and was recorded against write-off of retired
plant in the accompanying statement of operations.
On June 30, 1998, the Partnership sold certain cable television system
assets located in Central City, Iowa, including certain liabilities of the
system, to an unrelated third party for cash of approximately $367,000.
On September 30, 1998, the Partnership sold certain cable television system
assets related to five systems in Iowa, including certain liabilities of the
systems, to an unrelated third party for cash of approximately $1.3 million.
F-41
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
(4) Debt
Debt consists of the following at December 31, 1997, 1998 and September 30,
1999 (amounts in thousands):
September 30,
1997 1998 1999
-------- -------- --------------
(Unaudited)
Bank Revolving credit loan, due June 30,
2006, interest payable at rates based on
varying interest rate options................................ $ 82,000 $ 97,000 $111,000
Term A Loan, due June 30, 2006, interest
payable at rates based on varying
interest rate options....................................... 180,000 220,000 220,000
Term B Loan, due June 30, 2007, interest
payable at rates based on varying
interest rate options....................................... 35,000 60,000 60,000
Term C Loan, due June 30, 2007, interest
payable at 9.48%............................................ 25,000 25,000 25,000
Various equipment loans and vehicle
leases...................................................... 1,604 2,418 2,810
-------- -------- --------
$323,604 $404,418 $418,810
======== ======== ========
In connection with the Partnership Recapitalization discussed in Note 1, the
Partnership entered into a $375 million credit facility with a group of
lenders, consisting of a Revolving Credit Loan, Term A, Term B and Term C
Loans. A commitment fee is charged on the daily unused portion of the available
commitment. This fee ranges from 1/4% to 3/8% per annum based on the
Partnership's leverage ratio, as defined. The Revolving Credit Loan and each of
the Term A, B, and C Loans are collateralized by all of the property, plant and
equipment of the Partnership, as well as the rights under all present and
future permits, licenses and franchises.
On June 24, 1998, the Partnership completed a restructuring of the Revolving
Credit Loan and the Term A, B and C Loans. Under the terms of the restructuring
agreement, the total availability of this facility increased from $375 million
to $475 million, in order to complete certain planned acquisitions (see Note 3)
and to provide for future growth.
The Partnership entered into LIBOR interest rate agreements with the lenders
related to the Revolving Credit Loan and the Term A and Term B Loans. The
Partnership fixed the interest rate for the Revolving Credit Loan on $104
million at 7.51% for the period from September 30, 1999 to October 29, 1999 and
on $4 million at 7.53% for the period from October 1, 1999 to October 29, 1999.
The Term A Loan and Term B Loans are fixed at 7.51% and 7.88%, respectively,
for the period from September 30, 1999 to October 29, 1999. In addition, the
Partnership has entered into various interest rate swap transactions covering
$195 million in notional amount as of September 30, 1999, which fixes the
weighted average three-month variable rate at 5.6%. These swap transactions
expire at various dates through October 2000.
The Term A Loan requires principal payments to be made quarterly, beginning
in September 2000. The quarterly payments begin at $1,375,000 per quarter and
increase each September 30th thereafter. The Term B and Term C Loans require
total quarterly principal payments of $177,083 for the quarters ending
September 2000 and December 2000. Quarterly principal payments totaling $88,542
are then required through December 31, 2005, at which time the quarterly
payments increase to $3,187,500 through December 31, 2006 and $35,062,500 at
March 31, 2007. The Loans are due in full on June 30, 2007.
F-42
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
The loan agreements contain various covenants, the most restrictive of which
relate to maintenance of certain debt coverage ratios, meeting cash flow goals
and limitations on indebtedness.
Debt maturities required on all debt as of December 31, 1998 are as follows
(amounts in thousands):
Year Amount
---- --------
1999 ....................................................... $ 775
2000 ....................................................... 3,861
2001 ....................................................... 16,375
2002 ....................................................... 31,417
2003 ....................................................... 39,407
Thereafter ................................................. 312,583
--------
$404,418
========
(5) Related Party Transactions
During the eight month period ending August 31, 1996, TCC provided
management services to the Partnership for a fee equal to 5% of gross revenues,
as defined. Charges for such management services amounted to approximately
$1,567,000. TCC also allocated certain overhead expenses to the Partnership
which primarily relate to employment costs. These overhead expenses amounted to
approximately $371,000 for the eight months ended August 31, 1996.
Commencing August 30, 1996, the Partnership entered into an agreement with
TTC to provide management services to the Partnership for a fee equal to 4% of
gross revenues, as defined. The agreement also states the Partnership will only
be required to pay a maximum fixed monthly payment of $275,000, which can be
adjusted for any acquisitions or dispositions by the Partnership at a rate of
$.8333 per acquired/disposed subscriber. Charges for such management services
provided by TTC amounted to approximately $1,100,000, $3,573,000 and $4,048,000
in 1996, 1997 and 1998, respectively, and $2,944,000 and $3,331,000 for the
nine months ended September 30, 1998 and 1999, respectively. The remainder of
the management fees earned but unpaid will be distributable to TTC only after
Triax Cable GP and the limited partners have been distributed their original
capital investments and then the deferred and unpaid portion of the management
fee will be paid pari passu with the first 7.5% of the Priority Return, as
defined. The earned but unpaid fees totaled approximately $62,000, $488,000 and
$738,000 in 1996, 1997 and 1998, respectively, and $541,000 and $735,000 for
the nine months ended September 30, 1998 and 1999, respectively. The cumulative
unpaid fees totaled approximately $62,000, $550,000, 1,288,000 and $2,023,000
as of December 31, 1996, 1997, 1998 and September 30, 1999, respectively. These
amounts have been reflected in the statement of partners' deficit as "residual
equity interest held by TTC through a charge to accumulated deficit", which has
been allocated to the non-managing General Partner.
Commencing August 30, 1996, the Partnership entered into a programming
agreement with InterMedia Capital Management II, L.P. ("InterMedia"), an
affiliate of DD Cable, to purchase programming at InterMedia's cost, which
includes volume discounts InterMedia might earn. Included in this agreement is
a provision that requires the Partnership to remit to InterMedia an
administrative fee, based on a calculation stipulated in the agreement, which
amounted to approximately $444,000, $1,482,000 and $1,826,000 in 1996, 1997 and
1998, respectively, and $1,307,000 and $1,566,000 for the nine months ended
September 30, 1998 and 1999, respectively.
F-43
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
(6) Leases
The Partnership leases office facilities, headend sites and other equipment
under noncancelable operating lease agreements, some of which contain renewal
options. Total rent expense, including month-to-month rental arrangements, was
approximately $364,000, $583,000 and $737,000 in 1996, 1997 and 1998,
respectively, and $523,000 and $724,000 for the nine months ended September 30,
1998 and 1999, respectively. Pole attachment fees totaled approximately
$496,000, $798,000 and $970,000 in 1996, 1997 and 1998, respectively, and
$721,000 and $792,000 for the nine months ended September 30, 1998 and 1999,
respectively.
Future minimum rental commitments under noncancelable operating leases
subsequent to December 31, 1998 are as follows (amounts in thousands):
Year Amount
---- ------
1999 .......................................................... $685
2000 .......................................................... $511
2001 .......................................................... $377
2002 .......................................................... $298
2003 .......................................................... $238
Thereafter .................................................... $757
(7) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents approximates fair value
because of the nature of the investments and the length of maturity of the
investments.
The estimated fair value of the Partnership's debt instruments are based on
borrowing rates that would be substantially equivalent to existing rates,
therefore, there is no material difference in the fair market value and the
current value.
(8) Regulatory Matters
In October 1992, Congress enacted the Cable Television Consumer and
Competition Act of 1992 (the "1992 Cable Act") which greatly expanded federal
and local regulation of the cable television industry. In April 1993, the
Federal Communications Commission ("FCC") adopted comprehensive regulations,
effective September 1, 1993, governing rates charged to subscribers for basic
cable and cable programming services (other than programming offered on a
per-channel or per-program basis). The FCC implemented regulation, which
allowed cable operators to justify regulated rates in excess of the FCC
benchmarks through cost of service showings at both the franchising authority
level for basic service and to the FCC in response to complaints on rates for
cable programming services.
On February 22, 1994, the FCC issued further regulations which modified the
FCC's previous benchmark approach, adopted interim rules to govern cost of
service proceedings initiated by cable operators, and lifted the stay of rate
regulations for small cable systems, which were defined as all systems serving
1,000 or fewer subscribers.
F-44
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
On November 10, 1994, the FCC adopted "going forward" rules that provided
cable operators with the ability to offer new product tiers priced as operators
elect, provided certain limited conditions are met, permit cable operators to
add new channels at reasonable prices to existing cable programming service
tiers, and created an additional option pursuant to which small cable operators
may add channels to cable programming service tiers
In May 1995, the FCC adopted small company rules that provided small systems
regulatory relief by implementing an abbreviated cost of service rate
calculation method. Using this methodology, for small systems seeking to
establish rates no higher than $1.24 per channel, the rates are deemed to be
reasonable.
In February 1996, the Telecommunications Act of 1996 (1996 Act) was enacted
which, among other things, deregulated cable rates for small systems on their
programming tiers.
Federal law is expected to eliminate the regulation of rates for non-basic
cable programming service tiers after March 31, 1999
Management of the Partnership believes they have complied in all material
respects with the provisions of the 1992 Cable Act and the 1996 Act, including
rate setting provisions. To date, the FCC's regulations have not had a material
adverse effect on the Partnership due to the lack of certifications by the
local franchising authorities. Several rate complaints have been filed against
the Partnership with the FCC. However, management does not believe this matter
will have a material adverse impact on the Partnership.
(9) Commitments and Contingencies
The Partnership has been named as a defendant in a class action lawsuit in
the state of Illinois, challenging the Partnership's policy for charging late
payment fees when customers fail to pay for subscriber services in a timely
manner. The Partnership is currently in settlement negotiations with the
plaintiffs and expects the litigation to be settled by the end of the year.
However, management does not believe the ultimate outcome of this matter will
have a material adverse effect on its financial condition.
(10) Events Subsequent to Date of Auditor's Report (Unaudited)
On April 29, 1999, the Partnership entered into a definitive agreement to
sell its cable television system assets to Mediacom LLC for $740 million,
subject to adjustment for subscriber benchmarks and other pro-rations in the
normal course. The sale closed effective November 4, 1999.
On July 31, 1999, the Partnership acquired certain cable television system
assets, located in Genesco, Illinois, including certain liabilities of the
acquired business, from an unrelated third party. The purchase price of
approximately $4.0 million was accounted for by the purchase method of
accounting.
On October 4, 1999, the Partnership acquired certain cable television system
assets, located in Watseka, Illinois, including certain liabilities of the
acquired business, from an unrelated third party. The purchase price of $1.1
million was accounted for by the purchase method of accounting.
These acquisitions were financed by proceeds on the revolving credit
facility.
F-45
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
In September 1999, the Partnership's independent billing company notified
the Partnership of its intent to assess additional charges should the
Partnership terminate the existing contract between the parties prior to the
contractual termination date of June 24, 2004. Management of the Partnership
understands that Mediacom LLC intends to change the billing service provider
for subscribers obtained in connection with its asset purchase
from the Partnership as Mediacom LLC did not assume the contract with the
billing company in conjunction with the asset purchase. The Partnership intends
to vigorously defend against any claims by the billing company, and believes
the ultimate resolution of this matter will not have a material adverse impact
on its financial position or results of operations.
On November 29, 1999, the Partnership received the final approval for
settlement in the class action lawsuit discussed in Note 9. The Partnership has
agreed to adjust its late fee charges in the future. In addition for
restitution for prior late fee payments, the Partnership has agreed to provide
additional programming services at a discount valued at $8 to current eligible
subscribers or a cash refund of $8 to former eligible subscribers. To be
eligible, a subscriber must have had a late fee in the past. Management does
not believe that the ultimate payments related to this matter will have a
material adverse effect on its financial position. The Partnership will also
pay the plaintiffs' attorneys fees.
F-46
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 420 of the New York Limited Liability Company Law (the "New
York Act") empowers a limited liability company to indemnify and hold harmless,
and advance expenses to, any member, manager or other person, or any testator or
intestate of such member, manager or other person, from and against any and all
claims and demands whatsoever; provided, however, that no indemnification maybe
made to or on behalf of any member, manager or other person if a judgment or
other final adjudication adverse to such member, manager or other person
establishes (a) that his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated or (b) that he or she personally gained in fact a
financial profit or other advantage to which he or she was not legally entitled.
Section 8.2 of Mediacom LLC's Fifth Amended and Restated Operating
Agreement (the "Operating Agreement") provides as follows:
The Company shall, to the fullest extent permitted by the New York Act,
indemnify and hold harmless each Indemnified Person (as defined) against all
claims, liabilities and expenses of whatever nature relating to activities
undertaken in connection with the Company, including but not limited to amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
counsel, accountants' an experts' and other fees, costs and expenses reasonably
incurred in connection with the investigation, defense or disposition (including
by settlement) of any action, suit or other proceeding, whether civil or
criminal, before any court or administrative body in which such Indemnified
Person may be or may have been involved, as a party or otherwise, or with which
such Indemnified Person may be or may have been threatened, while acting as such
Indemnified Person, provided that no indemnity shall be payable hereunder
against any liability incurred by such Indemnified Person by reason of such
Indemnified Person's gross negligence, fraud or willful violation of the law or
the Operating Agreement or with respect to any matter as to which such
Indemnified Person shall have been adjudicated not to have acted in good faith.
Article 7, Section 722 of the New York Business Corporation Law (the
"Business Corporation Law") empowers a corporation to indemnify any person made,
or threatened to be made, a party to an action or proceeding (other than one by
or in the right of the corporation to procure a judgment in its favor), whether
civil or criminal, including an action by or in the right of any other
corporation of any type or kind, domestic or foreign, or any partnership, joint
venture, trust, employee benefit plan or other enterprise, which any director or
officer of the corporation served in any capacity at the request of the
corporation, by reason of the fact that he, his testator or intestate, was a
director or officer of the corporation, or served such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity, against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees actually and necessarily incurred
as a result of such action or proceeding, or any appeal therein, if such
director or officer acted, in good faith, for a purpose which he reasonably
believed to be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation and, in criminal actions
or proceedings, in addition, had no reasonable cause to believe that his conduct
was unlawful.
Section 722 also empowers a corporation to indemnify any person made,
or threatened to be made, a party to an action by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he,
his testator or intestate, is or was a director or officer of the corporation,
or is or was serving at the request of the corporation as a director or officer
of any other corporation of any type or kind, domestic or foreign, of any
partnership, joint venture, trust, employee benefit plan or other enterprise,
against amounts paid in settlement and reasonable expenses, including attorneys'
fees, actually and necessarily incurred by him in connection with the defense or
settlement of such action, or in connection with an appeal therein, if such
director or officer acted, in good faith, for a purpose which he reasonably
believed to be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation, except that no
indemnification under this paragraph shall be made in respect of (1) a
threatened
II - 1
action, or a pending action which is settled or otherwise disposed of, or (2)
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation, unless and only to the extent that the court in
which the action was brought, or, if no action was brought, any court of
competent jurisdiction, determines upon application that, in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such portion of the settlement amount and expenses as the court
deems proper.
Section 7 of Mediacom Capital's Certificate of Incorporation provides
as follows:
The corporation shall, to the fullest extent permitted by Article 7 of
the Business Corporation Law, as the same may be amended and supplemented,
indemnify any and all persons whom it shall have power to indemnify under said
Article from and against any and all of the expenses, liabilities, or other
matters referred to in or covered by said Article, and the indemnification
provided for herein shall not be deemed exclusive of any other rights to which
any person may be entitled under any By-Law, resolution of shareholders,
resolution of directors, agreement, or otherwise, as permitted by said Article,
as to action in any capacity in which he served at the request of the
corporation.
Article VII of Mediacom Capital's By-Laws provides as follows:
The Corporation shall indemnify any person to the full extent
permitted, and in the manner provided, by the New York Business Corporation Law,
as the same now exists or may hereafter be amended.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit
Number Exhibit Description
------- -------------------
3.1(a) Articles of Organization of Mediacom LLC filed July 17, 1995(1)
3.1(b) Certificate and Amendment of the Articles of Organization of Mediacom LLC filed December 8,
1995(1)
3.2 Fifth Amended and Restated Operating Agreement of Mediacom LLC(2)
3.3 Certificate of Incorporation of Mediacom Capital Corporation filed March 9, 1998(1)
3.4 By-Laws of Mediacom Capital Corporation(1)
4.1 Indenture relating to 9 1/2% senior notes of Registrants, dated as of January 24, 2001(3)
4.2 Exchange and Registration Rights Agreement, dated as of January 24, 2001, among Registrants and
Chase Securities Inc., Credit Suisse First Boston Corporation and Salomon Smith Barney Inc.,
as the initial purchasers of the initial notes.
5.1 Opinion of Sonnenschein Nath & Rosenthal *
8.1 Opinion of Sonnenschein Nath & Rosenthal regarding federal income tax
matters *
10.1(a) Credit Agreement dated as of September 30, 1999 for the Mediacom USA Credit Facility(4)
10.1(b) Amendment No. 1 dated December 17, 1999 between Mediacom Southeast LLC, Mediacom California LLC,
Mediacom Delaware LLC, Mediacom Arizona LLC and The Chase Manhattan Bank, as administrative
agent for the lenders(5)
10.1(c) Amendment No. 2 dated February 4, 2000 between Mediacom Southeast LLC, Mediacom California LLC,
Mediacom Delaware LLC, Mediacom Arizona LLC and The Chase Manhattan Bank, as administrative
agent for the lenders(5)
10.2(a) Credit Agreement dated as of November 5, 1999 for the Mediacom Midwest Credit Facility(4)
10.2(b) Amendment No. 2 dated December 17, 1999 between Mediacom Illinois LLC, Mediacom Indiana LLC,
Mediacom Iowa LLC, Mediacom Minnesota LLC, Mediacom Wisconsin LLC, Zylstra Communications
Corporation and The Chase Manhattan Bank, as administrative agent for the lenders(5)
10.2(c) Amendment No. 2 dated February 4, 2000 between Mediacom Illinois LLC, Mediacom Indiana LLC,
Mediacom Iowa LLC, Mediacom Minnesota LLC, Mediacom Wisconsin LLC, Zylstra Communications
Corporation and The Chase Manhattan Bank, as administrative agent for the lenders(5)
II - 2
Exhibit
Number Exhibit Description
------ -------------------
21.1 Subsidiaries of Mediacom LLC(3)
23.1 Consents of Arthur Andersen LLP
23.2 Consent of Sonnenschein Nath & Rosenthal (included in
Exhibits 5.1 and 8.1) *
25.1 Form T-1 Statement of Eligibility Of The Bank of New York to
act as Trustee under the Indenture
99.1 Form of Letter of Transmittal with respect to the exchange
offer
99.2 Form of Instruction Letter to Registered Holders
99.3 Form of Notice of Guaranteed Delivery
- ----------------------------------
* To be filed by amendment
(1) Filed as an exhibit to Registrants' Registration Statement on Form S-4
(File No. 333-57285) and incorporated herein by reference.
(2) Filed as an exhibit to Registrants' Current Report on Form 8-K dated
January 18, 2001 and incorporated herein by reference.
(3) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 of the Registrants and incorporated herein by
reference.
(4) Filed as an exhibit to the Registration Statement on Form S-1 (File No.
333-90879) of Mediacom Communications Corporation and incorporated herein
by reference.
(5) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 of Mediacom Communications Corporation and
incorporated herein by reference.
(b) Financial Statement Schedules
None.
Item 22. Undertakings.
Mediacom LLC and Mediacom Capital Corporation (the "Registrants")
hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post- effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement; (iii) to include any material information with respect
to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II - 3
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
The undersigned Registrants hereby undertake as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
Registrants undertake that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
The Registrants undertake that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II - 4
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Middletown, State of New
York, on July 20, 2001
Mediacom LLC
By: Mediacom Communications Corporation
its managing member
By: /s/ Rocco B. Commisso
---------------------
Rocco B. Commisso,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Rocco B. Commisso and Mark E. Stephan as
such person's true and lawful attorney-in-fact and agent, acting alone, with
full powers of substitution and revocation, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement and to file
the same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent, acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- -----
/s/ Rocco B. Commisso Chairman and Chief Executive Officer (Principal July 20, 2001
- ----------------------------------- Executive Officer)
Rocco B. Commisso
/s/ Mark E. Stephan Senior Vice President, Chief Financial Officer, July 20, 2001
- ----------------------------------- Treasurer and Director (Principal Financial and
Mark E. Stephan Accounting Officer)
/s/ William S. Morris III Director July 20, 2001
- -----------------------------------
William S. Morris III
/s/ Craig S. Mitchell Director July 20, 2001
- -----------------------------------
Craig S. Mitchell
/s/ Thomas V. Reifenheiser Director July 20, 2001
- -----------------------------------
Thomas V. Reifenheiser
/s/ Natale S. Ricciardi Director July 20, 2001
- -----------------------------------
Natale S. Ricciardi
/s/ Robert L. Winikoff Director July 20, 2001
- -----------------------------------
Robert L. Winikoff
II - 5
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on July 20, 2001
Mediacom Capital Corporation
By: /s/ Rocco B. Commisso
-----------------------------------------------
Rocco B. Commisso,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Rocco B. Commisso and Mark E. Stephan as
such person's true and lawful attorney-in-fact and agent, acting alone, with
full powers of substitution and revocation, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement and to file
the same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent, acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Rocco B. Commisso Chairman and Chief Executive Officer (Principal July 20, 2001
- -------------------------------- Executive Officer)
Rocco B. Commisso
/s/ Mark E. Stephan Senior Vice President, Chief Financial Officer, July 20, 2001
- ------------------------------------- Treasurer and Director (Principal Financial and
Mark E. Stephan Accounting Officer)
II - 6
EXHIBIT 4.2
MEDIACOM LLC
MEDIACOM CAPITAL CORPORATION
$500,000,000
9.5% Senior Notes due 2013
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
------------------------------------------
January 24, 2001
CHASE SECURITIES INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
SALOMON SMITH BARNEY INC.
c/o Chase Securities Inc.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
Mediacom LLC, a New York limited liability company ("Mediacom" and, together
--------
with its direct and indirect Subsidiaries (as defined herein) and Mediacom
Capital (as defined herein), the "Company"), and Mediacom Capital Corporation, a
-------
New York corporation and a wholly-owned subsidiary of Mediacom ("Mediacom
--------
Capital" and, together with Mediacom, the "Issuers"), propose to issue and sell
- ------- -------
to Chase Securities Inc., Credit Suisse First Boston Corporation and Salomon
Smith Barney Inc. (the "Initial Purchasers"), upon the terms and subject to the
------------------
conditions set forth in a purchase agreement dated January 17, 2001 (the
"Purchase Agreement"), $500,000,000 aggregate principal amount of their 9.5%
- -------------------
Senior Notes due 2013 (the "Notes"). Capitalized terms used but not defined
-----
herein shall have the meanings given to such terms in the Purchase Agreement.
As an inducement to the Initial Purchasers to enter into the Purchase
Agreement and in satisfaction of a condition to the obligations of the Initial
Purchasers thereunder, the Issuers agree with the Initial Purchasers, for the
benefit of the holders (including the Initial Purchasers) of the Notes, the
Exchange Notes (as defined herein) and the Private Exchange Notes (as defined
herein) (collectively, the "Holders"), as follows:
-------
1. Registered Exchange Offer. The Issuers shall (i) prepare and, not later
-------------------------
than 180 days following the date of original issuance of the Notes (the "Issue
-----
Date"), file with the Commission a registration statement on Form S-1 or Form
- ----
S-4, if the use of such form is then available (the "Exchange Offer Registration
---------------------------
Statement"), with respect to a proposed offer to the Holders of the Notes (the
- ---------
"Registered Exchange Offer") to issue and deliver to such Holders, in exchange
- --------------------------
for the Notes, a like aggregate principal amount of debt securities of the
Issuers (the "Exchange Notes") that are identical in all material respects to
--------------
the Notes, except for the transfer restrictions relating to the Notes, (ii) use
their reasonable best efforts to cause the Exchange Offer Registration Statement
to become effective under the Securities Act no later than 300 days after the
Issue Date and the Registered Exchange Offer to be consummated no later than 360
days after the Issue Date and (iii) keep the Exchange Offer Registration
Statement effective for not less than 30 days (or longer, if required by
applicable law) after the date on which notice of the Registered Exchange
Offer is mailed to the Holders (such period being called the "Exchange Offer
--------------
Registration Period"). The Exchange Notes will be issued under the Indenture or
- -------------------
an indenture (the "Exchange Notes Indenture") between the Issuers and the
------------------------
Trustee or such other bank or trust company that is reasonably satisfactory to
the Initial Purchasers, as trustee (the "Exchange Notes Trustee"), such
----------------------
indenture to be identical in all material respects to the Indenture, except for
the transfer restrictions relating to the Notes (as described above).
Upon the effectiveness of the Exchange Offer Registration Statement, the
Issuers shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Notes for Exchange Notes or Private Exchange Notes (assuming that such
Holder (a) is not an affiliate of the Issuers or an Exchanging Dealer (as
defined herein) not complying with the requirements of the next sentence, (b) is
not an Initial Purchaser holding Notes that have, or that are reasonably likely
to have, the status of an unsold allotment in an initial distribution, (c)
acquires the Exchange Notes in the ordinary course of such Holder's business and
(d) has no arrangements or understandings with any person to participate in the
distribution of the Exchange Notes) and to trade such Exchange Notes from and
after their receipt without any limitations or restrictions under the Securities
Act and without material restrictions under the securities laws of the several
states of the United States. The Issuers, the Initial Purchasers and each
Exchanging Dealer acknowledge that, pursuant to current interpretations by the
Commission's staff of Section 5 of the Securities Act, each Holder that is a
broker-dealer electing to exchange Notes, acquired for its own account as a
result of market-making activities or other trading activities, for Exchange
Notes (an "Exchanging Dealer"), is required to deliver a prospectus containing
-----------------
substantially the information set forth in Exhibit A hereto on the cover, in
Exhibit B hereto in the "Exchange Offer Procedures" section and the "Purpose of
the Exchange Offer" section and in Exhibit C hereto in the "Plan of
Distribution" section of such prospectus in connection with a sale of any such
Exchange Notes received by such Exchanging Dealer pursuant to the Registered
Exchange Offer.
If, prior to the consummation of the Registered Exchange Offer, any Holder
holds any Notes acquired by it that have, or that are reasonably likely to be
determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Registered
Exchange Offer, the Issuers shall, upon the request of any such Holder,
simultaneously with the delivery of the Exchange Notes in the Registered
Exchange Offer, issue and deliver to any such Holder, in exchange for the Notes
held by such Holder (the "Private Exchange"), a like aggregate principal amount
----------------
of debt securities of the Issuers (the "Private Exchange Notes") that are
----------------------
identical in all material respects to the Exchange Notes, except for the
transfer restrictions relating to such Private Exchange Notes. The Private
Exchange Notes will be issued under the same indenture as the Exchange Notes,
and the Issuers shall use their reasonable best efforts to cause the Private
Exchange Notes to bear the same CUSIP number as the Exchange Notes.
In connection with the Registered Exchange Offer, the Issuers shall:
(a) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than 30 days
(or longer, if required by applicable law) after the date on which notice
of the Registered Exchange Offer is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
(d) permit Holders to withdraw tendered Notes at any time prior to the
close of business, New York City time, on the last business day on which
the Registered Exchange Offer shall remain open; and
2
(e) otherwise comply in all respects with all laws that are applicable
to the Registered Exchange Offer.
As soon as practicable after the close of the Registered Exchange Offer and
any Private Exchange, as the case may be, the Issuers shall:
(a) accept for exchange all Notes tendered and not validly withdrawn
pursuant to the Registered Exchange Offer and the Private Exchange;
(b) deliver to the Trustee for cancellation all Notes so accepted for
exchange; and
(c) cause the Trustee or the Exchange Notes Trustee, as the case may
be, promptly to authenticate and deliver to each Holder, Exchange Notes or
Private Exchange Notes, as the case may be, equal in principal amount to
the Notes of such Holder so accepted for exchange.
The Issuers shall use their reasonable best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the prospectus
contained therein in order to permit such prospectus to be used by all persons
subject to the prospectus delivery requirements of the Securities Act for such
period of time as such persons must comply with such requirements in order to
resell the Exchange Notes; provided that (i) in the case where such prospectus
--------
and any amendment or supplement thereto must be delivered by an Exchanging
Dealer, such period shall be the lesser of 180 days and the date on which all
Exchanging Dealers have sold all Exchange Notes held by them and (ii) the
Issuers shall make such prospectus and any amendment or supplement thereto
available to any broker-dealer for use in connection with any resale of any
Exchange Notes for a period of not less than 90 days after the consummation of
the Registered Exchange Offer.
The Indenture or the Exchange Notes Indenture, as the case may be, shall
provide that the Notes, the Exchange Notes and the Private Exchange Notes shall
vote and consent together on all matters as one class and that none of the
Notes, the Exchange Notes or the Private Exchange Notes will have the right to
vote or consent as a separate class on any matter.
Interest on each Exchange Note and Private Exchange Note issued pursuant to
the Registered Exchange Offer and in the Private Exchange will accrue from the
last interest payment date on which interest was paid on the Notes surrendered
in exchange therefor or, if no interest has been paid on the Notes, from the
Issue Date.
Each Holder participating in the Registered Exchange Offer shall be required
to represent to the Issuers that at the time of the consummation of the
Registered Exchange Offer, (i) any Exchange Notes received by such Holder will
be acquired in the ordinary course of business, (ii) such Holder will have no
arrangements or understanding with any person to participate in the distribution
of the Notes or the Exchange Notes within the meaning of the Securities Act, and
(iii) such Holder is not an affiliate of the Issuers or, if it is such an
affiliate, such Holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Issuers will ensure that (i)
any Exchange Offer Registration Statement and any amendment thereto and any
prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Exchange Offer Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Exchange Offer Registration Statement,
and any supplement to such prospectus, does not, as of the consummation of the
Registered Exchange Offer, include an untrue statement
3
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
2. Shelf Registration. If (i) because of any change in law or applicable
------------------
interpretations thereof by the Commission's staff the Issuers are not permitted
to effect the Registered Exchange Offer as contemplated by Section 1 hereof, or
(ii) any Notes validly tendered pursuant to the Registered Exchange Offer are
not exchanged for Exchange Notes within 360 days after the Issue Date, or (iii)
the Initial Purchasers so request with respect to Notes or Private Exchange
Notes not eligible to be exchanged for Exchange Notes in the Registered Exchange
Offer and held by it following the consummation of the Registered Exchange
Offer, or (iv) any applicable law or interpretations do not permit any Holder to
participate in the Registered Exchange Offer, or (v) any Holder that
participates in the Registered Exchange Offer does not receive freely
transferable Exchange Notes in exchange for tendered Notes, or (vi) the Issuers
so elect, then the following provisions shall apply:
(a) The Issuers shall use their reasonable best efforts to file as promptly
as practicable (but in no event more than 60 days after so required or requested
pursuant to this Section 2) with the Commission, and thereafter shall use its
reasonable best efforts to cause to be declared effective, a shelf registration
statement on an appropriate form under the Securities Act relating to the offer
and sale of the Transfer Restricted Securities (as defined below) by the Holders
thereof from time to time in accordance with the methods of distribution set
forth in such registration statement (hereafter, a "Shelf Registration
------------------
Statement" and, together with any Exchange Offer Registration Statement,
- ---------
a "Registration Statement").
----------------------
(b) The Issuers shall use their reasonable best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the prospectus
forming part thereof to be used by Holders of Transfer Restricted Securities for
a period ending on the earlier of (i) two years from the Issue Date or such
shorter period that will terminate when all the Transfer Restricted Securities
covered by the Shelf Registration Statement have been sold pursuant thereto and
(ii) the date on which the Notes become eligible for resale without volume
restrictions pursuant to Rule 144 under the Securities Act (in any such case,
such period being called the "Shelf Registration Period"). The Issuers shall be
------------------------
deemed not to have used their reasonable best efforts to keep the Shelf
Registration Statement effective during the requisite period if they voluntarily
take any action that would result in Holders of Transfer Restricted Securities
covered thereby not being able to offer and sell such Transfer Restricted
Securities during that period, unless such action is required by applicable law.
(c) Notwithstanding any other provisions hereof, the Issuers will ensure
that (i) any Shelf Registration Statement and any amendment thereto and any
prospectus forming part thereof and any supplement thereto complies in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Shelf Registration Statement and any amendment
thereto (in either case, other than with respect to information included therein
in reliance upon or in conformity with written information furnished to the
Issuers by or on behalf of any Holder specifically for use therein (the
"Holders' Information")) does not contain an untrue statement of a material fact
--------------------
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (iii) any prospectus forming part
of any Shelf Registration Statement, and any supplement to such prospectus (in
either case, other than with respect to Holders' Information), does not include
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3. Liquidated Damages. (a) The parties hereto agree that the Holders of
------------------
Transfer Restricted Securities will suffer damages if the Issuers fail to
fulfill their obligations under Section 1 or Section 2, as applicable, and that
it would not be feasible to ascertain the extent of such damages. Accordingly,
if (i) the applicable Registration Statement is not filed with the Commission on
or prior to 180 days after the Issue Date, (ii) the Exchange Offer Registration
Statement or the Shelf Registration
4
Statement, as the case may be, is not declared effective within 300 days after
the Issue Date (or in the case of a Shelf Registration Statement required to be
filed in response to a change in law or the applicable interpretations of
Commission's staff, if later, within 90 days after publication of the change in
law or interpretation), (iii) the Registered Exchange Offer is not consummated
on or prior to 360 days after the Issue Date, or (iv) the Shelf Registration
Statement is filed and declared effective within 300 days after the Issue Date
(or in the case of a Shelf Registration Statement required to be filed in
response to a change in law or the applicable interpretations of Commission's
staff, if later, within 90 days after publication of the change in law or
interpretation) but shall thereafter cease to be effective (at any time that the
Issuers are obligated to maintain the effectiveness thereof) without being
succeeded within 120 days by an additional Registration Statement filed and
declared effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), the Issuers will be obligated to pay liquidated damages
--------------------
to each Holder of Transfer Restricted Securities, during the period of one or
more such Registration Defaults, in an amount equal to $0.192 per week per
$1,000 principal amount of Transfer Restricted Securities held by such Holder
until (i) the applicable Registration Statement is filed, (ii) the Exchange
Offer Registration Statement is declared effective and the Registered Exchange
Offer is consummated, (iii) the Shelf Registration Statement is declared
effective or (iv) the Shelf Registration Statement again becomes effective, as
the case may be. Following the cure of all Registration Defaults, the accrual of
liquidated damages will cease. As used herein, the term "Transfer Restricted
-------------------
Securities" means (i) each Note until the date on which such Note has been
- ----------
exchanged for a freely transferable Exchange Note in the Registered Exchange
Offer, (ii) each Note or Private Exchange Note until the date on which it has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iii) each Note or Private
Exchange Note until the date on which it is distributed to the public pursuant
to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k)
under the Securities Act. Notwithstanding anything to the contrary in this
Section 3(a), the Issuers shall not be required to pay liquidated damages to a
Holder of Transfer Restricted Securities if such Holder failed to comply with
its obligations to make the representations set forth in the second to last
paragraph of Section 1 or failed to provide the information required to be
provided by it, if any, pursuant to Section 4(n).
(b) The Issuers shall notify the Trustee and the Paying Agent under the
Indenture immediately upon the happening of each and every Registration Default.
The Issuers shall pay the liquidated damages due on the Transfer Restricted
Securities by depositing with the Paying Agent (which may not be the Issuers for
these purposes), in trust, for the benefit of the Holders thereof, prior to
10:00 a.m., New York City time, on the next interest payment date specified by
the Indenture and the Notes, sums sufficient to pay the liquidated damages then
due. The liquidated damages due shall be payable on each interest payment date
specified by the Indenture and the Notes to the record holder entitled to
receive the interest payment to be made on such date. Each obligation to pay
liquidated damages shall be deemed to accrue from and including the date of the
applicable Registration Default.
(c) The parties hereto agree that the liquidated damages provided for in
this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the failure of (i) the Shelf Registration
Statement or the Exchange Offer Registration Statement to be filed, (ii) the
Shelf Registration Statement to remain effective or (iii) the Exchange Offer
Registration Statement to be declared effective and the Registered Exchange
Offer to be consummated, in each case to the extent required by this Agreement.
4. Registration Procedures. In connection with any Registration Statement, the
-----------------------
following provisions shall apply:
(a) The Issuers shall (i) furnish to the Initial Purchasers, prior to the
filing thereof with the Commission, a copy of the Registration Statement and
each amendment thereof and each supplement, if any, to the prospectus included
therein and shall use its reasonable best efforts to reflect in each such
document, when so filed with the Commission, such comments as the Initial
Purchasers may reasonably
5
propose; (ii) include the information set forth in Exhibit A hereto on the
cover, in Exhibit B hereto in the "Exchange Offer Procedures" section and the
"Purpose of the Exchange Offer" section and in Exhibit C hereto in the "Plan of
Distribution" section of the prospectus forming a part of the Exchange Offer
Registration Statement, and include the information set forth in Exhibit D
hereto in the Letter of Transmittal delivered pursuant to the Registered
Exchange Offer; and (iii) if requested by the Initial Purchasers, include the
information required by Items 507 or 508 of Regulation S-K, as applicable, in
the prospectus forming a part of the Exchange Offer Registration Statement.
(b) The Issuers shall advise the Initial Purchasers, each Exchanging Dealer
and the Holders (if applicable) and, if requested by any such person, confirm
such advice in writing (which advice pursuant to clauses (ii)-(v) hereof shall
be accompanied by an instruction to suspend the use of the prospectus until the
requisite changes have been made):
(i) when any Registration Statement and any amendment thereto has been
filed with the Commission and when such Registration Statement or any post-
effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or supplements to any
Registration Statement or the prospectus included therein or for additional
information;
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any proceedings
for that purpose;
(iv) of the receipt by the Issuers of any notification with respect to the
suspension of the qualification of the Notes, the Exchange Notes or the Private
Exchange Notes for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; and
(v) of the happening of any event that requires the making of any changes
in any Registration Statement or the prospectus included therein in order that
the statements therein are not misleading and do not omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading.
(c) The Issuers will make every reasonable effort to obtain the withdrawal
at the earliest possible time of any order suspending the effectiveness of any
Registration Statement.
(d) The Issuers will furnish to each Holder of Transfer Restricted Notes
included within the coverage of any Shelf Registration Statement, without
charge, at least one conformed copy of such Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
and, if any such Holder so requests in writing, all exhibits thereto (including
those, if any, incorporated by reference).
(e) The Issuers will, during the Shelf Registration Period, promptly
deliver to each Holder of Transfer Restricted Securities included within the
coverage of any Shelf Registration Statement, without charge, as many copies of
the prospectus (including each preliminary prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request; and the Issuers consent to the use of such prospectus or
any amendment or supplement thereto by each of the selling Holders of Transfer
Restricted Securities in connection with the offer and sale of the Transfer
Restricted Securities covered by such prospectus or any amendment or supplement
thereto.
(f) The Issuers will furnish to the Initial Purchasers and each Exchanging
Dealer, and to any other Holder who so requests, without charge, at least one
conformed copy of the Exchange Offer Registration Statement and any
post-effective amendment thereto, including financial statements and
6
schedules and, if the Initial Purchasers or Exchanging Dealer or any such Holder
so requests in writing, all exhibits thereto (including those, if any,
incorporated by reference).
(g) The Issuers will, during the Exchange Offer Registration Period or the
Shelf Registration Period, as applicable, promptly deliver to the Initial
Purchasers, each Exchanging Dealer and such other persons that are required to
deliver a prospectus following the Registered Exchange Offer, without charge, as
many copies of the final prospectus included in the Exchange Offer Registration
Statement or the Shelf Registration Statement and any amendment or supplement
thereto as the Initial Purchasers, Exchanging Dealer or other persons may
reasonably request; and the Issuers consent to the use of such prospectus or any
amendment or supplement thereto by the Initial Purchasers, Exchanging Dealer or
other persons, as applicable, as aforesaid.
(h) Prior to the effective date of any Registration Statement, the Issuers
will use their reasonable best efforts to register or qualify, or cooperate with
the Holders of Notes, Exchange Notes or Private Exchange Notes included therein
and their respective counsel in connection with the registration or
qualification of, such Notes, Exchange Notes or Private Exchange Notes for offer
and sale under the securities or Blue Sky laws of such jurisdictions as any such
Holder reasonably requests in writing and do any and all other acts or things
necessary or advisable to enable the offer and sale in such jurisdictions of the
Notes, Exchange Notes or Private Exchange Notes covered by such Registration
Statement; provided that the Issuers will not -------- be required to qualify
generally to do business in any jurisdiction where they are not then so
qualified or to take any action which would subject them to general service of
process or to taxation in any such jurisdiction where they are not then so
subject.
(i) The Issuers will cooperate with the Holders of Notes, Exchange Notes or
Private Exchange Notes to facilitate the timely preparation and delivery of
certificates representing Notes, Exchange Notes or Private Exchange Notes to be
sold pursuant to any Registration Statement free of any restrictive legends and
in such denominations and registered in such names as the Holders thereof may
request in writing prior to sales of Notes, Exchange Notes or Private Exchange
Notes pursuant to such Registration Statement.
(j) If any event contemplated by Section 4(b)(ii) through (v) occurs during
the period for which the Issuers are required to maintain an effective
Registration Statement, the Issuers will promptly prepare and file with the
Commission a post-effective amendment to the Registration Statement or a
supplement to the related prospectus or file any other required document so
that, as thereafter delivered to purchasers of the Notes, Exchange Notes or
Private Exchange Notes from a Holder, the prospectus will not include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(k) Not later than the effective date of the applicable Registration
Statement, the Issuers will provide a CUSIP number for the Notes, the Exchange
Notes and the Private Exchange Notes, as the case may be, and provide the
applicable trustee with printed certificates for the Notes, the Exchange Notes
or the Private Exchange Notes, as the case may be, in a form eligible for
deposit with The Depository Trust Company.
(l) The Issuers will comply with all applicable rules and regulations of
the Commission and will make generally available to their security holders as
soon as practicable after the effective date of the applicable Registration
Statement an earning statement satisfying the provisions of Section 11(a) of the
Securities Act; provided that in no event shall such earning -------- statement
be delivered later than 45 days after the end of a 12-month period (or 90 days,
if such period is a fiscal year) beginning with the first month of the Issuers'
first fiscal quarter commencing after the effective date of the applicable
Registration Statement, which statement shall cover such 12-month period.
7
(m) The Issuers will cause the Indenture or the Exchange Notes Indenture,
as the case may be, to be qualified under the Trust Indenture Act as required by
applicable law in a timely manner.
(n) The Issuers may require each Holder of Transfer Restricted Securities
to be registered pursuant to any Shelf Registration Statement to furnish to the
Issuers such information concerning the Holder and the distribution of such
Transfer Restricted Notes as the Issuers may from time to time reasonably
require for inclusion in such Shelf Registration Statement, and the Issuers may
exclude from such registration the Transfer Restricted Securities of any Holder
that fails to furnish such information within a reasonable time after receiving
such request.
(o) In the case of a Shelf Registration Statement, each Holder of Transfer
Restricted Securities to be registered pursuant thereto agrees by acquisition of
such Transfer Restricted Securities that, upon receipt of any notice from the
Issuers pursuant to Section 4(b)(ii) through (v), such Holder will discontinue
disposition of such Transfer Restricted Securities until such Holder's receipt
of copies of the supplemental or amended prospectus contemplated by Section 4(j)
or until advised in writing (the "Advice") by the Issuers that the use of the
------
applicable prospectus may be resumed. If the Issuers shall give any notice under
Section 4(b)(ii) through (v) during the period that the Issuers are required to
maintain an effective Registration Statement (the "Effectiveness Period"), such
--------------------
Effectiveness Period shall be extended by the number of days during such period
from and including the date of the giving of such notice to and including the
date when each seller of Transfer Restricted Securities covered by such
Registration Statement shall have received (x) the copies of the supplemental or
amended prospectus contemplated by Section 4(j) (if an amended or supplemental
prospectus is required) or (y) the Advice (if no amended or supplemental
prospectus is required).
(p) In the case of a Shelf Registration Statement, the Issuers shall enter
into such customary agreements (including, if requested, an underwriting
agreement in customary form) and take all such other action, if any, as Holders
of a majority in aggregate principal amount of the Notes, Exchange Notes and
Private Exchange Notes being sold or the managing underwriters (if any) shall
reasonably request in order to facilitate any disposition of Notes, Exchange
Notes or Private Exchange Notes pursuant to such Shelf Registration Statement.
(q) In the case of a Shelf Registration Statement, the Issuers shall (i)
make reasonably available for inspection by a representative of, and Special
Counsel (as defined below) acting for, Holders of a majority in aggregate
principal amount of the Notes, Exchange Notes and Private Exchange Notes being
sold and any underwriter participating in any disposition of Notes, Exchange
Notes or Private Exchange Notes pursuant to such Shelf Registration Statement,
all relevant financial and other records, pertinent corporate documents and
properties of the Issuers and the Subsidiaries and (ii) use their reasonable
best efforts to have its officers, directors, employees, accountants and counsel
supply all relevant information reasonably requested by such representative,
Special Counsel or any such underwriter (an "Inspector") in connection with such
---------
Shelf Registration Statement.
(r) In the case of a Shelf Registration Statement, the Issuers shall, if
requested by Holders of a majority in aggregate principal amount of the Notes,
Exchange Notes and Private Exchange Notes being sold, their Special Counsel or
the managing underwriters (if any) in connection with such Shelf Registration
Statement, use their reasonable best efforts to cause (i) their counsel to
deliver an opinion relating to the Shelf Registration Statement and the Notes,
Exchange Notes or Private Exchange Notes, as applicable, in customary form, (ii)
their officers to execute and deliver all customary documents and certificates
requested by Holders of a majority in aggregate principal amount of the Notes,
Exchange Notes and Private Exchange Notes being sold, their Special Counsel or
the managing underwriters (if any) and (iii) their independent public
accountants to provide a comfort letter or letters in customary form, subject to
receipt of appropriate documentation as contemplated, and only if permitted, by
Statement of Auditing Standards No. 72.
8
5. Registration Expenses. The Issuers will bear all expenses incurred in
---------------------
connection with the performance of their obligations under Sections 1, 2, 3 and
4 and the Issuers will reimburse the Initial Purchasers and the Holders for the
reasonable fees and disbursements of one firm of attorneys (in addition to any
local counsel) chosen by the Holders of a majority in aggregate principal amount
of the Notes, the Exchange Notes and the Private Exchange Notes to be sold
pursuant to each Registration Statement (the "Special Counsel") acting for the
---------------
Initial Purchasers or Holders in connection therewith (other than reimbursement
in connection with the Registered Exchange Offer).
6. Indemnification. (a) In the event of a Shelf Registration Statement or
---------------
in connection with any prospectus delivery pursuant to an Exchange Offer
Registration Statement by the Initial Purchasers or Exchanging Dealer, as
applicable, the Issuers shall indemnify and hold harmless each Holder
(including, without limitation, the Initial Purchasers or Exchanging Dealer),
its affiliates, their respective officers, directors, employees, representatives
and agents, and each person, if any, who controls such Holder within the meaning
of the Securities Act or the Exchange Act (collectively referred to for purposes
of this Section 6 and Section 7 as a Holder) from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, without limitation, any loss, claim, damage, liability or action
relating to purchases and sales of Notes, Exchange Notes or Private Exchange
Notes), to which that Holder may become subject, whether commenced or
threatened, under the Securities Act, the Exchange Act, any other federal or
state statutory law or regulation, at common law or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon, (i)
any untrue statement or alleged untrue statement of a material fact contained in
any such Registration Statement or any prospectus forming part thereof or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, and shall reimburse each Holder promptly
upon demand for any legal or other expenses reasonably incurred by that Holder
in connection with investigating or defending or preparing to defend against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
-------- -------
that the Issuers shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of, or is based upon,
an untrue statement or alleged untrue statement in or omission or alleged
omission from any of such documents in reliance upon and in conformity with any
Holders' Information; and provided, further, that with respect to any such
-------- -------
untrue statement in or omission from any related preliminary prospectus, the
indemnity agreement contained in this Section 6(a) shall not inure to the
benefit of any Holder from whom the person asserting any such loss, claim,
damage, liability or action received Notes, Exchange Notes or Private Exchange
Notes to the extent that such loss, claim, damage, liability or action of or
with respect to such Holder results from the fact that both (A) a copy of the
final prospectus was not sent or given to such person at or prior to the written
confirmation of the sale of such Notes, Exchange Notes or Private Exchange Notes
to such person and (B) the untrue statement in or omission from the related
preliminary prospectus was corrected in the final prospectus unless, in either
case, such failure to deliver the final prospectus was a result of non-
compliance by the Issuers with Section 4(d), 4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration Statement, each Holder shall
indemnify and hold harmless the Issuers, their affiliates, their respective
officers, directors, employees, representatives and agents, and each person, if
any, who controls the Issuers within the meaning of the Securities Act or the
Exchange Act (collectively referred to for purposes of this Section 6(b) and
Section 7 as the Issuers), from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof, to which the
Issuers may become subject, whether commenced or threatened, under the
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any such Registration
Statement or any prospectus forming part thereof or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state therein a
9
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, but in each case only to the extent that the untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with any Holders' Information furnished to
the Issuers by such Holder, and shall reimburse the Issuers for any legal or
other expenses reasonably incurred by the Issuers in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that no such Holder
-------- -------
shall be liable for any indemnity claims hereunder in excess of the amount of
net proceeds received by such Holder from the sale of Notes, Exchange Notes or
Private Exchange Notes pursuant to such Shelf Registration Statement.
(c) Promptly after receipt by an indemnified party under this Section 6 of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party pursuant to Section 6(a) or 6(b), notify the indemnifying party in writing
of the claim or the commencement of that action; provided, however, that the
-------- -------
failure to notify the indemnifying party shall not relieve it from any liability
which it may have under this Section 6 except to the extent that it has been
materially prejudiced (through the forfeiture of substantive rights or defenses)
by such failure; and provided, further, that the failure to notify the
-------- -------
indemnifying party shall not relieve it from any liability which it may have to
an indemnified party otherwise than under this Section 6. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than the reasonable costs of investigation; provided, however,
-------- -------
that an indemnified party shall have the right to employ its own counsel in any
such action, but the fees, expenses and other charges of such counsel for the
indemnified party will be at the expense of such indemnified party unless (1)
the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based upon advice of counsel to the indemnified party) that there may
be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party, (3)
a conflict or potential conflict exists (based upon advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel reasonably satisfactory to the indemnified
party to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which cases the
reasonable fees, disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm of attorneys (in
addition to any local counsel) at any one time for all such indemnified party or
parties. Each indemnified party, as a condition of the indemnity agreements
contained in Sections 6(a) and 6(b), shall use all reasonable efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party (which
consent shall not be unreasonably withheld), effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
10
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
7. Contribution. If the indemnification provided for in Section 6 is
------------
unavailable or insufficient to hold harmless an indemnified party under Section
6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Issuers from the offering and sale of the Notes, on the
one hand, and a Holder with respect to the sale by such Holder of Notes,
Exchange Notes or Private Exchange Notes, on the other, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Issuers on
the one hand and such Holder on the other with respect to the statements or
omissions that resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Issuers on the one hand and a Holder on the
other with respect to such offering and such sale shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Notes (before
deducting expenses) received by or on behalf of the Issuers as set forth in the
table on the cover of the Offering Memorandum, on the one hand, bear to the
total proceeds received by such Holder with respect to its sale of Notes,
Exchange Notes or Private Exchange Notes, on the other. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to the Issuers or information supplied by the Issuers on
the one hand or to any Holders' Information supplied by such Holder on the
other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 7 were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 7 shall be deemed
to include, for purposes of this Section 7, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending or preparing to defend any such action or claim. Notwithstanding
the provisions of this Section 7, an indemnifying party that is a Holder of
Notes, Exchange Notes or Private Exchange Notes shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Notes, Exchange Notes or Private Exchange Notes sold by such indemnifying
party to any purchaser exceeds the amount of any damages which such indemnifying
party has otherwise paid or become liable to pay by reason of any untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
8. Rules 144 and 144A. The Issuers shall use their reasonable best efforts
------------------
to file the reports required to be filed by it under the Securities Act and the
Exchange Act in a timely manner and, if at any time the Issuers are not required
to file such reports, it will, upon the written request of any Holder of
Transfer Restricted Securities, make publicly available other information so
long as necessary to permit sales of such Holder's securities pursuant to Rules
144 and 144A. The Issuers covenant that they will take such further action as
any Holder of Transfer Restricted Securities may reasonably request, all to the
extent required from time to time to enable such Holder to sell Transfer
Restricted Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rules 144 and 144A (including, without
limitation, the requirements of Rule 144A(d)(4)). Upon the written request of
any Holder of Transfer Restricted Securities, the Issuers shall deliver to such
Holder a written statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to
require the Issuers to register any of their securities pursuant to the Exchange
Act.
11
9. Underwritten Registrations. If any of the Transfer Restricted Securities
--------------------------
covered by any Shelf Registration Statement are to be sold in an underwritten
offering, the investment banker or investment bankers and manager or managers
that will administer the offering will be selected by the Holders of a majority
in aggregate principal amount of such Transfer Restricted Securities included in
such offering, subject to the consent of the Issuers (which shall not be
unreasonably withheld or delayed), and such Holders shall be responsible for all
underwriting commissions and discounts in connection therewith.
No person may participate in any underwritten registration hereunder unless
such person (i) agrees to sell such person's Transfer Restricted Securities on
the basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
10. Miscellaneous. (a) Amendments and Waivers. The provisions of this
------------- ----------------------
Agreement may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, unless the Issuers
have obtained the written consent of Holders of a majority in aggregate
principal amount of the Notes, the Exchange Notes and the Private Exchange
Notes, taken as a single class. Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders whose Notes, Exchange Notes or
Private Exchange Notes are being sold pursuant to a Registration Statement and
that does not directly or indirectly affect the rights of other Holders may be
given by Holders of a majority in aggregate principal amount of the Notes, the
Exchange Notes and the Private Exchange Notes being sold by such Holders
pursuant to such Registration Statement.
(b) Notices. All notices and other communications provided for or permitted
-------
hereunder shall be made in writing by hand-delivery, first-class mail,
telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by such Holder to the
Issuers in accordance with the provisions of this Section 10(b), which address
initially is, with respect to each Holder, the address of such Holder maintained
by the Registrar under the Indenture, with a copy in like manner to Chase
Securities Inc.;
(2) if to an Initial Purchaser, initially at its address set forth in the
Purchase Agreement; and
(3) if to the Issuers, initially at the address of the Issuers set forth in
the Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; one business day after
being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.
(c) Successors And Assigns. This Agreement shall be binding upon the
----------------------
Issuers and their successors and assigns.
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts (which may be delivered in original form or by telecopier) and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
12
(e) Definition of Terms. For purposes of this Agreement, (a) the term
-------------------
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405
under the Securities Act and (c) except where otherwise expressly provided, the
term "affiliate" has the meaning set forth in Rule 405 under the Securities Act.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York.
(h) Remedies. In the event of a breach by the Issuers or by any Holder of
--------
any of their obligations under this Agreement, each Holder or the Issuers, as
the case may be, in addition to being entitled to exercise all rights granted by
law, including recovery of damages (other than the recovery of damages for a
breach by the Issuers of their obligations under Sections 1 or 2 hereof for
which liquidated damages have been paid pursuant to Section 3 hereof), will be
entitled to specific performance of its rights under this Agreement. The Issuers
and each Holder agree that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by them of any of the provisions of
this Agreement and hereby further agree that, in the event of any action for
specific performance in respect of such breach, they shall waive the defense
that a remedy at law would be adequate.
(i) No Inconsistent Agreements. The Issuers represent, warrant and agree
--------------------------
that (i) they have not entered into, shall not, on or after the date of this
Agreement, enter into any agreement that is inconsistent with the rights granted
to the Holders in this Agreement or otherwise conflicts with the provisions
hereof, (ii) they have not previously entered into any agreement which remains
in effect granting any registration rights with respect to any of their debt
securities to any person and (iii) without limiting the generality of the
foregoing, without the written consent of the Holders of a majority in aggregate
principal amount of the then outstanding Transfer Restricted Notes, they shall
not grant to any person the right to request the Issuers to register any debt
securities of the Issuers under the Securities Act unless the rights so granted
are not in conflict or inconsistent with the provisions of this Agreement.
(j) No Piggyback on Registrations. Neither the Issuers nor any of their
-----------------------------
security holders (other than the Holders of Transfer Restricted Securities in
such capacity) shall have the right to include any securities of the Issuers in
any Shelf Registration or Registered Exchange Offer other than Transfer
Restricted Notes.
(k) Severability. The remedies provided herein are cumulative and not
------------
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
13
Please confirm that the foregoing correctly sets forth the agreement among
the Issuers and the Initial Purchaser.
Very truly yours,
MEDIACOM LLC
By: Mediacom Communications Corporation,
its Member
By: /s/
_____________________________
Name:
Title:
MEDIACOM CAPITAL CORPORATION
By: /s/
______________________________
Name:
Title:
Accepted:
CHASE SECURITIES INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
SALOMON SMITH BARNEY INC.
By: CHASE SECURITIES INC.
By: /s/
____________________________
Authorized Signatory
14
EXHIBIT A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Notes where such Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Issuers have agreed that, for a period of 180 days
after the Expiration Date (as defined herein), they will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
A1
EXHIBIT B
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution."
B1
EXHIBIT C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired as a result of market-making
activities or other trading activities. The Issuers have agreed that, for a
period of 180 days after the Expiration Date, they will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until _______________, 2001, all dealers
effecting transactions in the Exchange Notes may be required to deliver a
prospectus.
The Issuers will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Registered Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Exchange
Notes. Any broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Registered Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Notes and any commission or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Issuers will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Issuers have agreed to pay all expenses
incident to the Registered Exchange Offer (including the expenses of one counsel
for the Holders of the Notes) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
C1
o CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Notes. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
Stamford, Connecticut
July 18, 2001
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
Denver, Colorado
July 18, 2001
EXHIBIT 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
------------------------
MEDIACOM LLC
(Exact name of obligor as specified in its charter)
New York 06-1433421
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
MEDIACOM CAPITAL CORPORATION
(Exact name of obligor as specified in its charter)
New York 06-1513997
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
100 Crystal Run Road
Middletown, New York 10941
(Address of principal executive offices) (Zip code)
9-1/2% Senior Notes due 2013
(Title of the indenture securities)
================================================================================
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York, N.Y.
New York 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y.
10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-
29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-
44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 12th day of July, 2001.
THE BANK OF NEW YORK
By: /S/ MING SHIANG
--------------------------------------------
Name: MING SHIANG
Title: VICE PRESIDENT
EXHIBIT 7
---------
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business March 31, 2001,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS In Thousands
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin .......... $ 2,811,275
Interest-bearing balances ................................... 3,133,222
Securities:
Held-to-maturity securities ................................. 147,185
Available-for-sale securities ............................... 5,403,923
Federal funds sold and Securities purchased under
agreements to resell ........................................ 3,378,526
Loans and lease financing receivables:
Loans and leases held for sale .............................. 74,702
Loans and leases, net of unearned
income .................................................... 37,471,621
LESS: Allowance for loan and
lease losses............599,061
Loans and leases, net of unearned
income and allowance ...................................... 36,872,560
Trading Assets ................................................. 11,757,036
Premises and fixed assets (including capitalized
leases) ..................................................... 768,795
Other real estate owned ........................................ 1,078
Investments in unconsolidated subsidiaries and
associated companies ........................................ 193,126
Customers' liability to this bank on acceptances
outstanding ................................................. 592,118
Intangible assets
Goodwill .................................................... 1,300,295
Other intangible assets ..................................... 122,143
Other assets ................................................... 3,676,375
-----------
Total assets ................................................... $70,232,359
===========
LIABILITIES
Deposits:
In domestic offices ......................................... $25,962,242
Noninterest-bearing ......................................... 10,586,346
Interest-bearing ............................................ 15,395,896
In foreign offices, Edge and Agreement
subsidiaries, and IBFs .................................... 24,862,377
Noninterest-bearing ......................................... 373,085
Interest-bearing ............................................ 24,489,292
Federal funds purchased and securities sold under
agreements to repurchase .................................... 1,446,874
Trading liabilities ............................................ 2,373,361
Other borrowed money:
(includes mortgage indebtedness and obligations
under capitalized leases) ................................... 1,381,512
Bank's liability on acceptances executed and
outstanding ................................................. 592,804
Subordinated notes and debentures .............................. 1,646,000
Other liabilities .............................................. 5,373,065
-----------
Total liabilities .............................................. $63,658,235
===========
EQUITY CAPITAL
Common stock ................................................... 1,135,284
Surplus ........................................................ 1,008,773
Retained earnings .............................................. 4,426,033
Accumulated other comprehensive income ......................... 4,034
Other equity capital components ................................ 0
- -----------------------------------------------------------------------------
Total equity capital ........................................... 6,574,124
-----------
Total liabilities and equity capital ........................... $70,232,359
===========
I, Thomas J. Mastro, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Thomas J. Mastro,
Senior Vice President and Comptroller
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true and correct.
Thomas A. Renyi |
Gerald L. Hassell | Directors
Alan R. Griffith |
- --------------------------------------------------------------------------------
EXHIBIT 99.1
LETTER OF TRANSMITTAL
of
MEDIACOM LLC
and
MEDIACOM CAPITAL CORPORATION
Offer to Exchange its 9 1/2% Senior Notes due 2013,
which have been registered under the Securities
Act of 1933, as amended (the "Securities
Act"), for any and all of its outstanding
9 1/2% Senior Notes due 2013
that were issued and sold in a transaction exempt from registration under the
Securities Act
Pursuant to the Prospectus dated , 2001
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 2001 (THE "EXPIRATION DATE"), UNLESS THE OFFER IS EXTENDED.
- --------------
TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
- --------------------------------------------------------------------------------
The Exchange Agent for the Offer is:
The Bank of New York
By Registered or Certified Mail: Facsimile Transmissions
The Bank of New York (Eligible Institutions Only):
101 Barclay Street, 7E (212) 815-6339
New York, New York 10286
Attention: Reorganization Section
By Hand or Overnight Delivery To Confirm by Telephone
The Bank of New York or for information call:
101 Barclay Street, Ground Level Mr./Ms.
Corporate Trust Services Window -------------------
New York, New York 10286 (212) 815-2742
Attention: Reorganization Section
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed either if (a) any
certificate(s) representing the Notes (as defined below) are to be forwarded
herewith to the Exchange Agent or (b) tenders of Notes to the Exchange Agent are
to be made pursuant to the procedures for tender by book-entry transfer set
forth under "The Exchange Offer--Book-Entry Delivery Procedure" in the
Prospectus and an Agent's Message (as defined below) is not delivered.
Certificate(s) representing the Notes or book-entry confirmation of a book-entry
transfer of such Notes into the Exchange Agent's account at The Depository Trust
Company ("DTC"), as well as this Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
and any other documents required by this Letter of Transmittal, must be received
by the Exchange Agent at the address set forth above on or prior to the
Expiration Date. Tenders by book-entry transfer may also be made by delivering
an Agent's Message in lieu of this Letter of Transmittal. The term "book-entry
confirmation" means a confirmation of a book-entry transfer of Notes into the
Exchange Agent's account at DTC. The term "Agent's Message" means a message,
transmitted by DTC to and received by the Exchange Agent and forming a part of a
book-entry confirmation, which states that DTC has received an express
acknowledgement from the tendering participant, which acknowledgement states
that such participant has received and agrees to be bound by this Letter of
Transmittal and that Mediacom LLC, a New York limited liability company
("Mediacom") and Mediacom Capital Corporation, a New York corporation and a
wholly-owned subsidiary of Mediacom ("Mediacom Capital," and Mediacom Capital
and Mediacom collectively, the "Issuers"), may enforce this Letter of
Transmittal against such participant.
Holders (as defined below) of Notes whose certificate(s) (the
"Certificate(s)") for such Notes are not immediately available or who cannot
deliver their Certificate(s) and all other required documents to the Exchange
Agent on or prior to the Expiration Date or who cannot complete the procedures
for book-entry transfer on a timely basis, must tender their Notes according to
the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedure" in the Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
- 2 -
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
- --------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF NOTES TENDERED
- --------------------------------------------------------------------------------------------------------------------
If blank, please print name(s) and address(es)
of registered Holder(s), exactly as name(s) appear Notes
on Note Certificate(s) (Attach additional list if necessary)
- ---------------------------------------------------- ---------------------------------------------------------------
Aggregate
Principal Amount of Principal Amount of
Certificate Notes Represented Notes Tendered
Number(s) of Notes* by Certificate(s) (if less than all)**
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Total:
- ---------------------------------------------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer.
** Notes may be tendered in whole or in part in multiples of $1,000. All
Notes held shall be deemed tendered unless a lesser number is specified
in this column. See Instruction 4.
- --------------------------------------------------------------------------------
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution
-------------------------------------------
DTC Account Number Transaction Code Number
----------- -------------------
CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING
(SEE INSTRUCTIONS 1):
Name(s) of Registered Holder(s)
-----------------------------------------
Window Ticket Number (if any)
-------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
----------------------
Name of Institution which Guaranteed Delivery
---------------------------
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution
-------------------------------------------
DTC Account Number _______ Transaction Code Number
------------------------
CHECK HERE IF TENDERED BY BOOK ENTRY TRANSFER AND NON-EXCHANGED NOTES ARE
TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
-------------------------------------------------------------------------
Address:
----------------------------------------------------------------------
- 3 -
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuers the above described
principal amount of the Issuers' 9 1/2% Senior Notes due 2013 (the "Notes") in
exchange for an equivalent amount of the Issuers' 9 1/2% Senior Notes due 2013
(the "Exchange Notes"), which have been registered under the Securities Act upon
the terms and subject to the conditions set forth in the Prospectus dated
, 2001 (as the same may be amended or supplemented from time to
- -------------
time, the "Prospectus"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which, together with the Prospectus, constitute the
"Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Issuers all right, title and interest in and to such Notes as are being tendered
herewith. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as its agent and attorney-in-fact (with full knowledge that the
Exchange Agent is also acting as agent of the Issuers in connection with the
Exchange Offer) with respect to the tendered Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificate(s) for Notes to the Issuers together
with all accompanying evidences of transfer and authenticity to, or upon the
order of, the Issuers, upon receipt by the Exchange Agent, as the undersigned's
agent, of the Exchange Notes to be issued in exchange for such Notes, (ii)
present Certificate(s) for such Notes for transfer, and to transfer the Notes on
the books of the Issuers, and (iii) receive for the account of the Issuers all
benefits and otherwise exercise all rights of beneficial ownership of such
Notes, all in accordance with the terms and conditions of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, sell, assign and transfer the
Notes tendered hereby and that, when the same is accepted for exchange, the
Issuers will acquire good, marketable and unencumbered title thereto, free and
clear of all liens, restrictions, charges and encumbrances, and that the Notes
tendered hereby are not subject to any adverse claims or proxies. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Issuers or the Exchange Agent to be necessary or desirable to
complete the exchange, assignment and transfer of the Notes tendered hereby, and
the undersigned will comply with its obligations under the Exchange and
Registration Rights Agreement. The undersigned has read and agrees to all of the
terms of the Exchange Offer.
The name(s) and address(es) of the registered Holder(s) of the Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificate(s) representing such Notes. The
Certificate number(s) and the Notes that the undersigned wishes to tender should
be indicated in the appropriate boxes above.
If any tendered Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificate(s) are submitted for more Notes than are
tendered or accepted for exchange, Certificate(s) for such nonexchange or
nontendered Notes will be returned (or, in the case of Notes tendered by
book-entry transfer, such Notes will be credited to an account maintained at
DTC), without expense to the tendering Holder, promptly following the expiration
or termination of the Exchange Offer.
The undersigned understands that the tenders of Notes pursuant to any
one of the procedures described in "The Exchange Offer--Procedures for Tendering
Initial Notes" in the Prospectus and in the instructions attached hereto will,
upon the Issuers' acceptance for exchange of such tendered Notes, constitute a
binding agreement between the undersigned and the Issuers upon the terms and
subject to the conditions of the Exchange Offer. The undersigned recognizes
that, under certain circumstances set forth in the Prospectors, the Issuers may
not be required to accept for exchange any of the Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Notes, that such Exchange Notes be credited to the account indicated
above maintained at DTC. If applicable, substitute Certificate(s) representing
Notes not exchanged or not accepted for exchange will be issued to the
undersigned or, in the case of a book-entry transfer of Notes, will be credited
to the account indicated above maintained at DTC. Similarly, unless otherwise
indicated under "Special Delivery Instructions," please deliver Exchange Notes
to the undersigned at the address shown below the undersigned's signature.
By tendering Notes and executing this Letter of Transmittal, or
effecting delivery of an Agent's Message in lieu thereof, the undersigned hereby
represents and agrees that (i) the undersigned's principal residence is in the
state of (fill in state) , (ii) the undersigned is not an
-------------
"affiliate" of the Issuers, (iii) any Exchange Notes to be received by the
undersigned are being acquired in the ordinary course of its business, (iv) the
undersigned has no arrangement or understanding with any person to participate
in a distribution (within the meaning of the Securities Act) of Exchange Notes
to be received in the Exchange Offer, (v) if the undersigned is not a
broker-dealer, the undersigned is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such Exchange
Notes and (vi) the undersigned acknowledges that any person participating in the
Exchange Offer for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the Staff of the Securities
and Exchange Commission set forth in no-action letters that are discussed in the
section of the Prospectus entitled "Exchange Offer--Exchange and Registration
Rights Agreement." The Issuers may require the undersigned, as a condition to
the undersigned's eligibility to participate in the Exchange Offer, to furnish
to the Issuers (or an agent thereof) in writing information as to the number of
"beneficial owners" within the meaning of Rule 13d-3 under the Exchange Act on
behalf of whom the undersigned holds the Notes to be exchanged in the Exchange
Offer. If the undersigned is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Notes, it represents that the Notes to be
exchanged for Exchange Notes were acquired by it as a result of market-making
activities or other trading activities and acknowledges that it will deliver a
Prospectus in connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a Prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The Issuers have agreed that, subject to the provisions of the Exchange
and Registration Rights Agreement, the Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer (as
defined below) in connection with resales of Exchange Notes received in exchange
for Notes, where such Notes were acquired by such Participating Broker-Dealer
for its own account as a result of market-making activities or other trading
activities, for a period ending 180 days after the effective date of the
registration statement relating to the Exchange Notes (the "Effective Date")
(subject to extension under certain limited circumstances described in the
Prospectus) or, if earlier, when all such Exchange Notes has been disposed of by
such Participating Broker-Dealer. In that regard, each broker-dealer who
acquired Notes for its own account as a result of market-making or other trading
activities (a "Participating Broker-Dealer"), by tendering such Notes and
executing this Letter of Transmittal or effecting delivery of an Agent's Message
in lieu thereof, agrees that, upon receipt of notice from the Issuers of the
occurrence of any event or the discover of any fact which makes any statement
contained or incorporated by reference in the Prospectus untrue in any material
respect or which causes the Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
therein, in light of the circumstances under which they were made, not
misleading or of the occurrence of certain other events specified in the
Exchange and Registration Rights Agreement, such Participating Broker-Dealer
will suspend the sale of Exchange Notes pursuant to the Prospectus until the
Issuers have amended or supplemented the Prospectus to correct such misstatement
or omission and have furnished copies of the amended or supplemented Prospectus
to the Participating Broker-Dealer or the Issuers have given notice that the
sale of the Exchange Notes may be resumed, as the case may be. If the Issuers
give such notice to suspend the sale of the Exchange Notes, it shall extend the
180-day period referred to above during which Participating Broker-Dealers are
entitled to use the Prospectus in connection with the resale of Exchange Notes
by the number of days during the period from and including the date of the
giving of such notice to and including the date when Participating
Broker-Dealers shall have received copies of the supplemented or amended
Prospectus necessary to permit resales of the Exchange Notes or to and including
the date on which the Issuers have given notice that the sale of Exchange Notes
may be resumed, as the case may be.
As a result, a Participating Broker-Dealer who intends to use the
Prospectus in connection with resales of Exchange Notes received in exchange for
Notes pursuant to the Exchange Offer must notify the Issuers, or cause the
Issuers to be notified, on or prior to the Expiration Date, that it is a
Participating Broker-Dealer. Such notice may be given in the space provided
above or may be delivered to the Exchange Agent at the address set forth in the
Prospectus under "The Exchange Offer--Exchange Agent."
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Issuers to be necessary or desirable to complete the
sale, assignment and transfer of the Notes tendered hereby. All authority herein
conferred or agreed to be conferred in this Letter of Transmittal shall survive
the death or incapacity of the undersigned and any obligation of the undersigned
hereunder shall be binding upon the heirs, executors, administrators, personal
representatives, trustees in bankruptcy, legal representatives, successors and
assigns of the undersigned. Except as stated in the Prospectus, this tender is
irrevocable.
The undersigned, by completing the box entitled "Description of Notes"
above and signing this letter, will be deemed to have tendered the Notes as set
forth in such box.
- 5 -
- --------------------------------------------------------------------------------
IMPORTANT
HOLDERS: SIGN HERE
(Please Complete Substitute Form W-9 herein)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s) of Holder(s)
Date:
-------------------------------------------------------
(Must be signed by the registered Holder(s) exactly as name(s)
appear(s) on Certificate(s) for the Notes hereby tendered or on a security
position listing or by person(s) authorized to become registered Holder(s) by
certificates and documents transmitted herewith. If signature is by trustee,
executor, administrator, guardian, attorney-in-fact, officer of corporation or
other person acting in a fiduciary or representative capacity, please provide
the following information and see Instruction 2 below.)
Name(s):
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Capacity (full title):
----------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address:
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No.:
--------------------------------------------------
(See Substitute Form W-9 herein)
GUARANTEE OF SIGNATURE(S)
(See Instruction 2 below)
Authorized Signature:
Name:
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Type or Print)
Title:
------------------------------------------------------------------------
Name of Firm:
-----------------------------------------------------------------
Address:
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No.:
--------------------------------------------------
Date:
-------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SIGNATURE GUARANTEE REQUIRED--SEE
INSTRUCTION 2)
TO BE COMPLETED ONLY if Exchange Notes or Notes not tendered are to be issued in
the name of someone other the than the registered Holder of the Notes whose
name(s) appear(s) above.
Notes not tendered to:
Exchange Notes to:
Name
---------------------------------------------------------------------------
(PLEASE PRINT)
Address
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
- --------------------------------------------------------------------------------
(TAX IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SIGNATURE GUARANTEE REQUIRED--SEE
INSTRUCTION 2)
TO BE COMPLETED ONLY if Exchange Notes or Notes not tendered are to be sent to
someone other than registered Holder of the Notes whose name(s) appear(s) above,
or such registered Holder at an address other than shown above
Notes not tendered to:
Exchange Notes to:
Name
---------------------------------------------------------------------------
(PLEASE PRINT)
Address
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
- --------------------------------------------------------------------------------
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Delivery of Letter of Transmittal and Certificates: Guaranteed
Delivery Procedures. This Letter of Transmittal is to be completed either if (a)
Certificate(s) are to be forwarded herewith or (b) tenders are to be made
pursuant to the procedures for tender by book-entry transfer set forth in "The
Exchange Offer--Book-Entry Delivery Procedure" in the Prospectus and an Agent's
Message is not delivered. Certificates, or timely confirmation of a book-entry
transfer of such Notes into the Exchange Agent's account at DTC, as well as this
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein on or prior to the Expiration Date. Tenders by
book-entry transfer may also be made by delivering an Agent's Message in lieu
thereof. Notes may be tendered in whole or in part in integral multiples of
$1,000.
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available or (ii) who cannot deliver their Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent on or prior
to the Expiration Date or (iii) who cannot complete the procedures for delivery
by book-entry transfer on a timely basis, may tender their Notes by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedure" in the Prospectus. Pursuant to such procedures: (i) such
tender must be made by or through an Eligible Institution (as defined below);
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by the Issuers, must be received by the
Exchange Agent on or prior to the Expiration Date; and (iii) the Certificate(s)
(or a book-entry confirmation) representing all tendered Notes, in proper form
for transfer, together with a Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees and
any other documents required by this Letter of Transmittal, must be received by
the Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date, all as provided in "The Exchange Offer--Guaranteed Delivery
Procedure" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by facsimile or mail to the Exchange Agent, and must include a
guarantee by an Eligible Institution in the form set forth in such Notice of
Guaranteed Delivery. For Notes to be properly tendered pursuant to the
guaranteed delivery procedure, the Exchange Agent must receive a Notice of
Guaranteed Delivery on or prior to the Expiration Date. As used herein and in
the Prospectus, "Eligible Institution" means a firm or other entity identified
in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution,"
including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer,
municipal securities broker or dealer or government securities broker or dealer;
(iii) a credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association.
The method of delivery of Certificates, this Letter of Transmittal and
all other required documents is at the option and sole risk of the tendering
Holder, and the delivery will be deemed made only when actually received by the
Exchange Agent. If delivery is by mail, then registered mail with return receipt
requested, properly insured, or overnight delivery service is recommended. In
all cases, sufficient time should be allowed to ensure timely delivery.
The Issuers will not accept any alternative, conditional or contingent
tenders. Each tendering Holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. Guarantee of Signatures. No signature guarantee on this Letter of
Transmittal is required if:
i. this Letter of Transmittal is signed by the registered Holder
(which term, for purposes of this document, shall include any
participant in DTC whose name appears on a security position
listing as the owner of the Notes (the "Holder")) of Notes tendered
herewith, unless such Holder(s) has completed either the box
entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" above, or
ii. such Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee this
signature(s) on this Letter of Transmittal. See Instruction 5.
3. Inadequate Space. If the space provided in the box captioned
"Description of Notes" is inadequate, the Certificate number(s) and/or the
principal amount of Notes and any other required information should be listed on
a separate signed schedule which is attached to this Letter of Transmittal.
4. Partial Tenders and Withdrawal Rights. Tenders of Notes will be
accepted only in integral multiples of $1,000. If less that all the Notes
evidence by any Certificate submitted are to be tendered, fill in the principal
amount of Notes which are to be tendered in the box entitled "Principal Amount
of Notes Tendered." In such case, new Certificate(s) for the remainder of the
Notes that were evidenced by your old Certificate(s) will only be sent to the
Holder of the Notes, promptly after the Expiration Date. All Notes represented
by Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Notes may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to be
effective on or prior to that time, a written notice of withdrawal or facsimile
transmission of such notice of
withdrawal must be timely received by the Exchange Agent at one of its addresses
set forth above or in the Prospectus on or prior to the Expiration Date. Any
such notice of withdrawal must specify the name of the person who tendered the
Notes to be withdrawn, the aggregate principal amount of Notes to be withdrawn,
and (if Certificates for Notes have been tendered) the name of the registered
Holder of the Notes as set forth on the Certificate for the Notes, if different
form that of the person who tendered such Notes. If Certificates for the Notes
have been delivered or otherwise identified to the Exchange Agent, then prior to
the physical release of such Certificates for the Notes, the tendering Holder
must submit the serial numbers shown on the particular Certificates for the
Notes to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of Notes tendered for
the account of a Eligible Institution. If Notes have been tendered pursuant to
the procedures for book-entry transfer set forth in the Prospectus under "The
Exchange Offer--Book-Entry Delivery Procedure," the notice of withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawal of Notes, in which case a notice of withdrawal will be effective if
delivered to the Exchange Agent by written, telegraphic, telex or facsimile
transmission. Withdrawals of tenders of Notes may not be rescinded. Notes
properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described in the Prospectus
under: "The Exchange Offer--Procedure for Tendering Initial Notes."
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Issuers, in
their discretion, whose determination shall be final and binding on all parties.
The Issuers, any affiliates or assigns of the Issuers, the Exchange Agent or any
other person shall not be under any duty to give any notification of any
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. Any Notes which have been tendered but which are
withdrawn will be returned to the Holder thereof without cost to such Holder
promptly after withdrawal.
5. Signatures on Letter of Transmittal, Assignments and Endorsements.
If this Letter of Transmittal is signed by the registered Holder(s) of the Notes
tendered hereby, the signature(s) must correspond exactly with the name(s) as
written on the face of the Certificate(s) without alteration, enlargement or any
change whatsoever.
If any Notes tendered hereby is owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any tendered Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificate(s) or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by the
Issuers, must submit proper evidence satisfactory to the Issuers, in its sole
discretion, of each such person's authority to so act.
When this Letter of Transmittal is signed by the registered owner(s) of
the Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or
separate bond power(s) is required unless Exchange Notes are to be issued in the
name of a person other than the registered Holder(s). Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is singed by a person other than the
registered owner(s) of the Notes listed, the Certificate(s) must be endorsed or
accompanied by appropriate bond powers, signed exactly as the name or names of
the registered owner(s) appear(s) on the Certificate(s), and also must be
accompanied by such opinions of counsel, certifications and other information as
the Issuers of the Trustee for the Notes may require in accordance with the
restrictions of transfer applicable to the Notes. Signatures on such
Certificate(s) or bond powers must be guaranteed by an Eligible Institution.
6. Special Issuance and Delivery Instructions. If Exchange Notes are to
be issued in the name of a person other than the signer of this Letter of
Transmittal, or if Exchange Notes are to be sent to someone other than the
signer of this Letter of Transmittal or to an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Notes not exchanged will be returned by mail or, if tendered by
book-entry transfer, by crediting the account indicated above maintained at DTC.
See Instruction 4.
7. Irregularities. The Issuers will determine, in their discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Notes, which determination
shall be final and binding on all parties. The Issuers reserve the absolute
right to reject any and all tenders determined by it not to be in proper form or
the acceptance of which, or exchange for which, may, in the view of counsel to
the Issuers be unlawful. The Issuers also reserve the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer set forth
in the Prospectus under "The Exchange Offer--Conditions for the Exchange Offer"
or any conditions or irregularities in any tender of Notes of any particular
Holder whether or not similar conditions or irregularities are waived in the
case of other Holders. The Issuers' interpretation of the terms and conditions
of the Exchange Offer (including this Letter of Transmittal and the instructions
hereto) will be final and binding. No tender of Notes will be deemed to have
been validly made until all irregularities with respect to such tender have been
cured or waived. The Issuers, any affiliates or assigns of the Issuers, the
Exchange Agent, or any other person shall not be under any duty to give
notification of any irregularities in tenders or incur any liability for failure
to give such notification.
- 9 -
8. Questions, Requests for Assistance and Additional Copies. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. Backup Withholding; Substitute Form W-9. Under U.S. federal income tax
law, a Holder (including for purposes of this section, beneficial owners of the
Notes) whose tendered Notes is accepted for exchange is required to provide the
Exchange Agent with such Holder's correct taxpayer identification number ("TIN")
on Substitute Form W-9 below. If the Exchange Agent is not provided with the
correct TIN, the Internal Revenue Service (the "IRS") may subject the Holder or
other payee to a $50 penalty. In addition, payments to such Holders or other
payees with respect to Notes exchanged pursuant to the Exchange Offer may be
subject to backup withholding at a rate equal to the fourth lowest tax rate
applicable to unmarried individuals, which decreases several times between 2001
and 2010. For amounts paid after August 6, 2001, the backup withholding rate is
30.5%. For amounts paid during 2002 and 2003, the backup withholding rate
decreases to 30%.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering Holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
Holder or other payee must also complete the box captioned Certificate of
Awaiting Taxpayer Identification Number below in order to avoid backup
withholding. Notwithstanding that the box in Part 2 is checked and the box
captioned Certificate of Awaiting Taxpayer Identification Number is completed,
the Holder will be subject to backup withholding on all payments made prior to
the time a properly certified TIN is provided to the Exchange Agent. The
Exchange Agent will retain such amounts withheld during the 60-day period
following the date of the Substitute Form W-9. If the Holder furnishes the
Exchange Agent with its TIN within 60 days after the date of the Substitute Form
W-9, the amounts retained during the 60-day period will be remitted to the
Holder and no further amounts shall be retained or withheld from payments made
to the Holder thereafter. If, however, the Holder has not provided the Exchange
Agent with its TIN within such 60-day period, amounts withheld will be remitted
to the IRS as backup withholding. In addition, backup withholding will apply to
all payments made thereafter until a correct TIN is provided.
Certain Holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to the backup
withholding and reporting requirements. Such Holders should nevertheless
complete the attached Substitute Form W-9 and write "Exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed and
appropriate IRS Form W-8, signed under penalties of perjury, attesting to that
Holder's exempt status. Please consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which Holders are exempt from backup withholding.
Backup withholding is not an additional U.S. federal income tax. Rather,
the U.S. federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained, provided that the required
information is furnished to the IRS.
10. Waiver of Conditions. The Issuers reserve the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
11. No Conditional Tenders. No alternative, conditional or contingent
tenders will be accepted. All tendering Holders of Notes, by execution of this
Letter of Transmittal, shall waive any right to receive notice of the acceptance
of Notes for exchange.
Neither the Issuers, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Notes nor shall any of them incur any liability for failure to give
any such notice.
12. Lost, Destroyed or Stolen Certificates. If any Certificate(s)
representing Notes have been lost, destroyed or stolen, the Holder should
promptly notify the Exchange Agent. The Holder will then be instructed as to the
steps that must be taken in order to replace the Certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen Certificate(s) have been followed.
13. Security Transfer Taxes. Holders who tender their Notes for exchange
will not be obligated to pay any transfer taxes in connection therewith. If,
however, Exchange Notes are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Notes tendered, or if a
transfer tax is imposed for any reason other than the exchange of Notes in
connection with the Exchange Offer, then the amount of any such transfer tax
(whether imposed on the registered Holder or any other persons) will be payable
by the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering Holder.
- 10 -
PAYER'S NAME: THE BANK OF NEW YORK
- -------------------------------------------------------------------------------------------------------------------------------
Part 1-- PLEASE PROVIDE YOUR TIN TIN:
Substitute IN THE BOX AT RIGHT AND CERTIFY -----------------------------------------
Form W-9 BY SIGNING AND DATING BELOW Social Security Number or Employer
Department of the Treasury Identification Number
Internal Revenue Service
- -------------------------------------------------------------------------------------------------------------------------------
Payer's Request for Taxpayer Part 2-- TIN Applied for
Identification Number ("TIN")
- -------------------------------------------------------------------------------------------------------------------------------
Certification: Under penalties of perjury, I certify that:
(1) the number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me); and
(2) I am not subject to backup withholding either because: (a) I have not been
notified by the Internal Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or (b) the IRS has notified me that I am no longer subject to
backup withholding.
(3) I am a U.S. person (including a U.S. resident alien).
Certification Instructions--You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding, you
received another notification from the IRS that you were no longer subject to
backup withholding, do not cross out item (2). (Also see instructions in the
enclosed Guidelines.)
- --------------------------------------------------------------------------------
Signature Date
------------------------------------ ----------------------------
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
ON ANY PAYMENTS MADE TO YOU IN CONNECTION WITH THE EXCHANGE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING (OR WILL SOON
APPLY FOR) A TAXPAYER IDENTIFICATION NUMBER
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Officer or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, all
reportable payments made to me thereafter will be subject to backup withholding
until I provide such number.
Signature Date
- ------------------------------------------------------ --------------------
- --------------------------------------------------------------------------------
EXHIBIT 99.2
MEDIACOM LLC
and
MEDIACOM CAPITAL CORPORATION
Instruction to Registered Holder and/or
Book-Entry Transfer Facility Participant from Beneficial Owner
for
Offer to Exchange 9 1/2% Senior Notes due 2013,
which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), for any and all outstanding
9 1/2% Senior Notes due 2013
that were issued and sold in a transaction exempt from registration
under the Securities Act
Pursuant to the Prospectus dated , 2001
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
______________, 2001 (THE "EXPIRATION DATE"), UNLESS THE OFFER IS EXTENDED.
TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
- --------------------------------------------------------------------------------
To Registered Holder and/or the Book-Entry Transfer Facility Participant:
The undersigned hereby acknowledges receipt of the Prospectus dated
____________, 2001 (as the same may be amended or supplemented from time to
time, the "Prospectus") of Mediacom LLC, a New York limited liability company
("Mediacom"), and Mediacom Capital Corporation, a New York corporation and a
wholly-owned subsidiary of Mediacom ("Mediacom Capital," and Mediacom Capital
and Mediacom collectively, the "Issuers"), and the accompanying Letter of
Transmittal (the "Letter of Transmittal") that together constitute the Issuers'
offer (the "Exchange Offer") to exchange its 9 1/2% Senior Notes due 2013 (the
"Exchange Notes"), which have been registered under the Securities Act, for all
of its outstanding 9 1/2% Senior Notes due 2013 (the "Notes"). Capitalized terms
used but not defined herein have the meanings ascribed to them in the Prospectus
or the Letter of Transmittal.
This will instruct you, the registered holder and/or book-entry
transfer facility participant, as to the action to be taken by you relating to
the Exchange Offer with respect to the Notes held by you for the account of the
undersigned.
The aggregate face amount of the Notes held by you for the account of
the undersigned is (fill in amount):
$___________________ of the 9 1/2% Senior Notes due 2013
With respect to the Exchange Offer, the undersigned hereby instructs
you (check appropriate box):
[_] To TENDER the following Notes held by you for the amount of the
undersigned (insert principal amount of Notes to be tendered):
$____________________
[_] NOT to TENDER any Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Notes held by you for
the account of the undersigned, it is understood that you are authorized to (a)
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations that (i) the
undersigned's principal residence is in the state of (fill in state) ________,
(ii) the undersigned is not an "affiliate," as defined in Rule 405 of the
Securities Act, of the Issuers, (iii) any Exchange Notes to be received by the
undersigned are being acquired in the ordinary course of its business, (iv) the
undersigned has no arrangement or understanding with any person to participate
in a distribution (within the meaning of the Securities Act) of the Exchange
Notes to be received in the Exchange Offer, (v) the undersigned is not engaged
in, and does not intend to engage in, a distribution (within the meaning of the
Securities Act) of such Exchange Notes and (vi) the undersigned acknowledges
that any person participating in the Exchange Offer for the purpose of
distributing the Exchange
Notes must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot rely on the position of the
Staff of the Securities and Exchange Commission set forth in no-action letters
that are discussed in the section of the Prospectus entitled "Exchange
Offer--Exchange and Registration Rights Agreement;" (b) to tender such Notes and
to agree, on behalf of the undersigned, to accept the Exchange Offer pursuant to
the terms and conditions set forth in the Prospectus and the Letter of
Transmittal; and (c) to take such other action as necessary under the Prospectus
and the Letter of Transmittal, including the delivery of an Agent's Message, to
effect the valid tender of such Notes.
The Issuers may require the undersigned, as a condition to the
undersigned's eligibility to participate in the Exchange Offer, to furnish to
the Issuers (or an agent thereof) in writing information as to the number of
"beneficial owners" within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended, on behalf of whom the undersigned holds the
Notes to be exchanged in the Exchange Offer. If the undersigned is a
broker-dealer that will receive Exchange Notes for its own account in exchange
for Notes, it represents that the Notes to be exchanged for Exchange Notes were
acquired by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus in connection with
any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, such undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
- --------------------------------------------------------------------------------
SIGN HERE
Name of beneficial owner(s):
---------------------------------------------------
Signature(s):
------------------------------------------------------------------
Name (please print):
-----------------------------------------------------------
Address:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Telephone number:
--------------------------------------------------------------
Taxpayer Identification or Social Security Number:
-----------------------------
Date:
--------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- 2 -
EXHIBIT 99.3
NOTICE OF GUARANTEED DELIVERY
of
MEDIACOM LLC
and
MEDIACOM CAPITAL CORPORATION
Offer to Exchange its 9 1/2% Senior Notes due 2013,
which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), for any and all of its outstanding
9 1/2% Senior Notes due 2013 that were issued and sold in a
transaction exempt from registration under the Securities Act
Pursuant to the Prospectus dated , 2001
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
______________, 2001 (THE "EXPIRATION DATE"), UNLESS THE OFFER IS EXTENDED.
TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
- --------------------------------------------------------------------------------
This Notice of Guaranteed Delivery, or one substantially equivalent to
this form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's 9 1/2% Senior Notes due 2013 (the "Notes") are
not immediately available, (ii) the Notes, the Letter(s) of Transmittal and any
other required documents cannot be delivered to The Bank of New York (the
"Exchange Agent") on or prior to the Expiration Date or (iii) the procedures for
delivery by book-entry transfer cannot be completed on a timely basis or an
Agent's Message cannot be delivered to the Exchange Agent on or prior to the
Expiration Date. This notice of Guaranteed Delivery may be delivered to the
Exchange Agent by hand, overnight courier or mail, or transmitted by facsimile
transmission, and must be received by the Exchange Agent on or prior to the
Expiration Date. The Notes, the completed, signed and dated Letter(s) of
Transmittal relating to the Notes (or facsimile(s) thereof) or an Agent's
Message (only in the case of a book-entry transfer), and all other required
documents being tendered pursuant to this Notice of Guaranteed Delivery must be
received by the Exchange Agent within three New York Stock Exchange trading days
after the Expiration Date. See "The Exchange Offer--Guaranteed Delivery
Procedure" in the Prospectus. Capitalized terms used but not defined herein have
the meanings ascribed to them in the Prospectus or the Letter of Transmittal.
The Exchange Agent for the Exchange Offer is:
The Bank of New York
By Registered or Certified Mail: Facsimile Transmissions:
The Bank of New York (Eligible Institutions Only)
101 Barclay Street, 7E (212) 815-6339
New York, New York 10286
Attention: Reorganization Section
By Hand or Overnight Delivery: To Confirm by Telephone or for
The Bank of New York Information Call:
101 Barclay Street, Ground Level Mr./Ms._____________
Corporate Trust Services Window (212) 815-2742
New York, New York 10286
Attention: Reorganization Section
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
Ladies and Gentlemen:
The undersigned hereby tenders to Mediacom LLC, a New York limited
liability company ("Mediacom") and Mediacom Capital Corporation, a New York
corporation and a wholly-owned subsidiary of Mediacom ("Mediacom Capital," and
Mediacom Capital and Mediacom collectively, the "Issuers"), upon the terms and
subject to the conditions set forth in the Prospectus dated __________, 2001 (as
the same may be amended or supplemented from time to time, the "Prospectus"),
and the related Letter of Transmittal (which together with the Prospectus shall
constitute the "Exchange Offer"), receipt of which is hereby acknowledged, the
aggregate principal amount of Notes set forth below pursuant to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedure."
Aggregate Principal Amount of Notes:
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Name(s) of Registered Holder(s):
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Amount Tendered: $ (must be in integral multiples of $1,000)
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Certificate No(s) (if available):
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Total Principal Amount of Notes Represented by Certificate(s): $
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If Notes will be tendered by book-entry transfer, provide the following
information:
DTC Account Number:
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Date:
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ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE
THE DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE
UNDERSIGNED HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES,
SUCCESSORS AND ASSIGNS OF THE UNDERSIGNED.
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PLEASE SIGN HERE
X
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X
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Signature(s) of Owner(s) of Date
Authorized Signatory
Area code and Telephone Number:
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Must be signed by the registered holder(s) of the Notes as their
name(s) appear(s) on the certificates representing the Notes or on a security
position listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title below
and, unless waived by the Issuers, provide proper evidence satisfactory to the
Issuers of such person's authority to so act.
Please print name(s) and address(es)
Name(s):
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Capacity:
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Address(es):
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GUARANTEE OF DELIVERY
(Not to be used for signature guarantee)
The undersigned, a firm or other entity identified in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker or dealer, government securities
broker or government securities dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association, as such term is defined in the Federal Deposit
Insurance Act (each of the foregoing being referred to as an "Eligible
Institution"), hereby guarantees to deliver to the Exchange Agent, at one of its
addresses set forth above, the Notes tendered hereby in proper form for transfer
(or confirmation of the book-entry transfer of such Notes to the Exchange
Agent's account at The Depository Trust Company pursuant to the procedures for
book-entry transfer set forth in the Prospectus), together with one or more
properly completed and duly executed Letter(s) of Transmittal (or facsimile(s)
thereof) with any required signature guarantees, or an Agent's Message (only in
the case of a book-entry transfer), and any other required documents within
three New York Stock Exchange trading days after the Expiration Date.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal (or facsimile(s) thereof) or Agent's Message, as the case may be,
the Notes tendered hereby and all other required documents, if any, to the
Exchange Agent within the time period set forth above and that failure to do so
could result in a financial loss to the undersigned.
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Name of Firm Authorized Signature
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Address Title
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Zip Code (Please Type or Print)
Area Code and Telephone Number: Date:
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NOTE: DO NOT SEND CERTIFICATES REPRESENTING THE NOTES WITH THIS FORM.
CERTIFICATES REPRESENTING THE NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
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