As filed with the Securities and Exchange Commission on December 22, 1999
Registration No. 333-90879
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Mediacom Communications Corporation
(Exact name of registrant as specified in its charter)
Delaware 4841
(Primary Standard 06-1566067
Industrial (I.R.S. Employer
(State or other Identification Number)
jurisdiction of Classification Code
incorporation or Number)
organization)
100 Crystal Run Road
Middletown, New York 10941
(914) 695-2600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-----------
Rocco B. Commisso
Chairman and Chief Executive Officer
Mediacom Communications Corporation
100 Crystal Run Road
Middletown, New York 10941
(914) 695-2600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------
Copies to:
Robert L. Winikoff, Esq. James J. Clark, Esq.
Elliot E. Brecher, Esq. Christopher Cox, Esq.
Cooperman Levitt Winikoff Lester & Cahill Gordon & Reindel
Newman, P.C. 80 Pine Street
800 Third Avenue New York, New York 10005
New York, New York 10022 (212) 701-3000
(212) 688-7000 Fax: (212) 269-5420
Fax: (212) 755-2839
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
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(c)
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. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum
Title of Each Class of Maximum Aggregate Amount of
Securities to be Amount to Offering Price Offering Registration
Registered be Registered Per Unit(1) Price Fee(2)
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Class A common stock,
$.01 par value per
share................. 23,000,000 $20.00 $460,000,000 $126,270
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(1) Estimated pursuant to Rule 457(a) under the Securities Act of 1933 solely
for the purpose of calculating the registration fee.
(2) $95,910 previously paid.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
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 or until the registration statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 22, 1999
20,000,000 Shares
Mediacom Communications Corporation
Class A Common Stock
---------
Prior to this offering, there has been no public market for our Class A
common stock. The initial public offering price of the Class A common stock is
expected to be between $15.00 and $20.00 per share. We have made application to
list our Class A common stock on The Nasdaq Stock Market's National Market
under the symbol "MCCC."
The underwriters have an option to purchase a maximum of 3,000,000 additional
shares to cover over-allotments of shares.
Following this offering, we will have two classes of common stock, Class A
common stock and Class B common stock. Holders of each class generally have
identical rights, except for differences in voting. Holders of our Class A
common stock have one vote per share, while holders of our Class B common stock
have ten votes per share. After this offering, the holders of our Class B
common stock will have 82.6% of the combined voting power of our common stock.
Investing in the Class A common stock involves risks. See "Risk Factors" on
page 10.
Underwriting
Price Discounts Proceeds
to and to
Public Commissions Mediacom
------ ------------ --------
Per Share.................................. $ $ $
Total...................................... $ $ $
Delivery of the shares of Class A common stock will be made on or about
.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston Salomon Smith Barney Donaldson, Lufkin & Jenrette
Goldman, Sachs & Co. Merrill Lynch & Co.
Chase Securities Inc. CIBC World Markets First Union Securities, Inc.
The date of this prospectus is .
[Map of the United States marked to indicate location of our cable systems.]
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TABLE OF CONTENTS
Page
----
Prospectus Summary ................. 1
Risk Factors ....................... 10
Forward-Looking Statements ......... 16
Use of Proceeds..................... 17
Dividend Policy..................... 17
Capitalization ..................... 18
Dilution ........................... 20
Completed and Pending Acquisitions.. 21
Unaudited Pro Forma Consolidated
Financial Data..................... 22
Selected Historical Consolidated
Financial and Operating Data....... 34
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 38
Page
----
Industry........................... 47
Business........................... 49
Legislation and Regulation......... 66
Management......................... 75
Certain Relationships and Related
Transactions...................... 83
Principal Stockholders............. 86
Description of Certain
Indebtedness...................... 88
Description of Capital Stock....... 92
Shares Eligible for Future Sale.... 95
Underwriters....................... 97
Legal Matters...................... 100
Experts............................ 100
Available Information.............. 100
Index to Financial Statements...... F-1
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You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Dealer Prospectus Delivery Obligation
Until , 25 days after the commencement of this offering, all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the dealer's obligation to deliver a prospectus when acting as an underwriter
and with respect to unsold allotments or subscriptions.
i
PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. It may
not contain all the information that is important to you. For a more complete
understanding of this offering, you should read the entire prospectus
carefully, including the risk factors and the financial statements. We were
formed as a Delaware corporation on November 8, 1999, and immediately prior to
this offering will issue shares of our common stock in exchange for all
membership interests in Mediacom LLC. Upon completion of the exchange, Mediacom
LLC will become our subsidiary and will continue to serve as the holding
company for our operating subsidiaries. Unless we tell you otherwise, the
information in this prospectus assumes that Mediacom LLC is our subsidiary,
that the underwriters will not exercise their over-allotment option and that
the Class A common stock being offered will be sold at $17.50 per share, which
is the mid-point of the range set forth on the cover page of this prospectus.
Overview
We are the eighth largest cable operator in the United States, based on
customers served by wholly-owned systems after giving effect to our pending
acquisitions and recently announced industry transactions. Our cable systems
pass approximately 1.1 million homes and serve approximately 744,000 basic
subscribers, including our pending acquisitions. We were founded in July 1995
by Rocco B. Commisso, our Chairman and Chief Executive Officer, to acquire and
develop cable television systems serving principally non-metropolitan markets
of the United States.
Since commencement of our operations in March 1996, we have experienced
significant growth in basic subscribers, revenues and cash flows. We have
deployed a disciplined strategy of acquiring underperforming cable systems
primarily in markets with favorable demographic profiles. Through September
1999, we spent approximately $432.4 million to complete nine acquisitions of
cable systems that served 358,000 basic subscribers. In October and November
1999, we acquired for approximately $759.6 million the cable systems of Triax
Midwest Associates, L.P. and Zylstra Communications Corporation that served
358,000 basic subscribers as of September 30, 1999. On a pro forma basis, in
1998 our revenues were $272.3 million, EBITDA was $124.5 million, operating
loss was $50.5 million and net loss was $114.5 million. On the same basis, for
the nine months ended September 30, 1999, our revenues were $218.6 million,
EBITDA was $103.6 million, operating loss was $42.2 million and net loss was
$88.2 million. For purposes of this prospectus, EBITDA is operating income
(loss) before depreciation and amortization.
We also have generated strong internal growth and improved the operating and
financial performance of our systems. These results have been achieved
primarily through the introduction of an expanded array of core cable
television products and services made possible by the rapid upgrade of our
cable network. Assuming all our systems, excluding the Triax and Zylstra
systems, were acquired on January 1, 1997, in 1998 our revenues grew by 13.0%,
EBITDA increased by 31.9% and our internal subscriber growth was 2.5% compared
to the prior year. Based on the same assumptions, for the nine months ended
September 30, 1999, our revenues grew by 11.8%, EBITDA increased by 21.6% and
our internal subscriber growth was 1.8% compared to the corresponding period in
1998.
We believe that advancements in digital technologies, together with the
explosive growth of the Internet, have positioned the cable industry's high-
speed, interactive, broadband network as the primary platform for the delivery
of video, voice and data services to homes and businesses. We believe that
there is considerable demand in the communities we serve for these products and
services. To capitalize on these opportunities, we are rapidly upgrading our
cable network to provide our customers with an expanded array of broadband
products and services. These include digital cable television, two-way, high-
speed Internet access, interactive video and telephony.
1
Approximately 73% of our customers are currently served by systems which
have been upgraded to bandwidth capacities of 550MHz to 750MHz, excluding
customers served by the Triax and Zylstra systems. Upon completion of our
upgrade program in December 2002, we anticipate that 91% of our customers,
including the Triax and Zylstra customers, will be served by upgraded systems.
In addition, as a result of plans to consolidate our headend facilities, we
anticipate that 92% of our customers will be served by 40 headend facilities
allowing us to more economically deliver new broadband products and services.
As part of our upgrade program, we plan to deploy over 10,000 route miles of
fiber optic cable to create high capacity regional networks with the potential
to provide advanced telecommunications services.
Our upgrade program already has enabled us to begin introducing new broadband
products and services. As of December 1999, we offered digital cable services
in systems passing more than 243,000 homes. In addition, through our strategic
relationship with SoftNet Systems, Inc.'s subsidiary, ISP Channel, we have
deployed two-way, high-speed Internet service in systems passing more than
177,000 homes as of December 1999.
Rocco B. Commisso is a highly regarded cable television veteran with over 21
years of industry experience. Our other senior managers have an average of 18
years of industry experience in acquiring, financing and operating cable
systems. Mr. Commisso, through his ownership of our Class B common stock, has
the power to elect all of our directors and control stockholder decisions
immediately following this offering.
Business Strategy
Our objective is to become the leading cable operator focused on providing
entertainment, information and telecommunications services in non-metropolitan
markets of the United States. The key elements of our strategy are to:
. Improve the operating and financial performance of our acquired 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;
. Acquire underperforming cable systems principally in non-metropolitan
markets; and
. Implement a flexible financing structure.
Recent Developments
In October and November 1999, we acquired the Zylstra and Triax cable
systems serving approximately 358,000 basic subscribers in nine states,
principally Illinois, Indiana and Minnesota, as of September 30, 1999.
In November 1999, we finalized an agreement with SoftNet for the provision
of high-speed Internet access and content services in our cable systems. As
consideration for giving SoftNet access to our customers, SoftNet agreed to
issue to us 3.5 million shares of its common stock, representing a market value
of approximately $95 million as of December 14, 1999. We received approximately
628,300 of the shares on November 9, 1999 and expect to receive the remaining
shares by December 31, 1999.
In the second half of 1999, we signed five letters of intent to acquire
cable systems serving approximately 28,000 basic subscribers for an aggregate
purchase price of $47.7 million. We expect to complete the acquisitions of
these systems in the first half of 2000, subject to the completion of
definitive documentation.
2
The Offering
Class A common stock offered.......... 20,000,000 shares
Common stock to be outstanding after
this offering........................ 60,977,562 shares of Class A common stock
29,022,438 shares of Class B common stock
90,000,000 shares
Voting rights......................... Holders of each class of our common stock generally
have identical rights, except for differences in
voting. Holders of our Class A common stock have one
vote per share, while holders of our Class B common
stock have ten votes per share. After this offering,
the holders of our Class B common stock will have
82.6% of the combined voting power of our common
stock.
Proposed Nasdaq National Market
symbol............................... MCCC
The outstanding shares of common stock excludes 2,151,108 shares of Class A
common stock and 7,848,892 shares of Class B common stock issuable upon the
exercise of stock options to be outstanding upon completion of this offering,
none of which will then be exercisable.
Principal Executive Offices
Our principal executive offices are located at 100 Crystal Run Road,
Middletown, New York 10941. Our telephone number is (914) 695-2600, and our
website is located at www.mediacomllc.com. The information on our website is
not part of this prospectus.
3
Summary Unaudited Pro Forma Consolidated Financial and Operating Data
The following summary unaudited pro forma consolidated financial and
operating data has been derived from and should be read in conjunction with
"Unaudited Pro Forma Consolidated Financial Data," "Selected Historical
Consolidated Financial and Operating Data" and the historical financial
statements included elsewhere in this prospectus.
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
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(dollars in thousands, except per
share and per subscriber data)
Statement of Operations Data:
Revenues................................ $ 272,258 $ 218,631
Costs and expenses:
Service costs.......................... 90,928 73,154
Selling, general and administrative
expenses.............................. 51,355 37,504
Corporate expense...................... 5,445 4,373
Depreciation and amortization.......... 175,071 145,796
---------------- ----------------
Operating loss.......................... (50,541) (42,196)
Interest expense, net................... 59,921 45,008
Other expenses.......................... 4,058 979
---------------- ----------------
Loss before income taxes................ (114,520) (88,183)
Provision (benefit) for income taxes.... -- --
---------------- ----------------
Net loss from continuing operations..... $ (114,520) $ (88,183)
================ ================
Pro forma basic and diluted net loss per
share(1)............................... $ (1.27) $ (0.98)
Pro forma weighted average common shares
outstanding............................ 90,000,000 90,000,000
Balance Sheet Data (end of period):
Total assets............................ $ 1,244,567
Total debt.............................. 813,375
Total stockholders' equity.............. 385,101
Other Data:
System cash flow(2)..................... $ 129,975 $ 107,973
System cash flow margin(3).............. 47.7% 49.4%
EBITDA(4)............................... $ 124,530 103,600
EBITDA margin(5)........................ 45.7% 47.4%
Net cash flows from operating
activities............................. $ 90,129 $ 56,412
Net cash flows used in investing
activities............................. (93,091) (98,027)
Net cash flows from financing
activities............................. 8,719 46,347
Operating Data (end of period, except
average):
Homes passed(6)......................... 1,051,000 1,069,000
Basic subscribers(7).................... 707,500 716,000
Basic penetration(8).................... 67.3% 67.0%
Premium service units(9)................ 592,850 567,500
Premium penetration(10)................. 83.8% 79.3%
Average monthly revenues per basic
subscriber(11)......................... $34.00
(notes on following page)
4
Notes to Summary Unaudited Pro Forma Consolidated Financial and Operating Data
(1) Pro forma basic and diluted loss per share is calculated based on
90,000,000 shares of common stock. The number of shares of common stock
reflects the 40,977,562 Class A shares and 29,022,438 Class B shares
issued to effect the exchange of membership interests of Mediacom LLC and
the 20,000,000 Class A shares that will be issued in this offering as if
these shares were outstanding for all periods presented. The shares issued
to effect the exchange for the membership interests are based upon the
relative ownership percentages of membership interests in Mediacom LLC
immediately prior to the completion of this offering and are based on an
initial public offering price of $17.50 per share.
(2) Represents EBITDA, as defined in note 4 below, before corporate 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, 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.
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.
(3) Represents system cash flow as a percentage of revenues. This measurement
is used by us, and is commonly used in the cable television industry, to
analyze and compare cable television companies on the basis of operating
performance, for the reasons discussed in note 2 above.
(4) Represents operating income (loss) before depreciation and amortization.
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.
(5) Represents EBITDA as a percentage of revenues. This measurement is used by
us, and is commonly used in the cable television industry, to analyze and
compare cable television companies on the basis of operating performance,
for the reasons discussed in note 4 above.
(6) Represents the number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
system's service area.
(7) Represents subscribers of a cable system who receive a package of over-
the-air broadcast stations, local access channels and/or certain
satellite-delivered cable television services, and who are usually charged
a flat monthly rate for a number of channels.
5
(8) Represents basic subscribers as a percentage of total number of homes
passed.
(9) 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. For the nine months ended
September 30, 1999, premium service units decreased primarily due to the
Disney Channel being moved from a premium service to the basic programming
packages in several of our cable systems.
(10) Represents premium service units as a percentage of total number of basic
subscribers.
(11) Represents average monthly revenues for the period divided by average
monthly basic subscribers for such period. This measurement is commonly
used in the cable television industry to analyze and compare cable
television companies on the basis of operating performance.
6
Summary Historical Consolidated Financial and Operating Data
The following summary historical consolidated financial and operating data
of Mediacom LLC should be read in conjunction with "Selected Historical
Consolidated Financial and Operating Data," "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" and the historical
consolidated financial statements of Mediacom LLC included elsewhere in this
prospectus.
March 12 Nine Months Ended
Through Year Ended Year Ended September 30,
December 31, December 31, December 31, ---------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ --------- ----------
(Unaudited)
(dollars in thousands, except per share and per subscriber
data)
Statement of Operations
Data:
Revenues............... $ 5,411 $ 17,634 $ 129,297 $ 94,374 $ 113,230
Costs and expenses:
Service costs......... 1,511 5,547 43,849 32,873 36,571
Selling, general and
administrative
expenses............. 931 2,696 25,596 18,101 21,816
Management fee
expense(1)........... 270 882 5,797 4,340 5,150
Depreciation and
amortization......... 2,157 7,636 65,793 44,338 66,154
-------- -------- ---------- --------- ----------
Operating income
(loss)................ 542 873 (11,738) (5,278) (16,461)
Interest expense,
net(2)................ 1,528 4,829 23,994 17,786 20,577
Other expenses......... 967 640 4,058 3,838 979
-------- -------- ---------- --------- ----------
Net loss............... $ (1,953) $ (4,596) $ (39,790) $ (26,902) $ (38,017)
-------- -------- ---------- --------- ----------
Pro forma provision
(benefit) for income
taxes(3).............. -- --
---------- ----------
Pro forma net loss(4).. $ (39,790) $ (38,017)
========== ==========
Pro forma basic and
diluted net loss per
share(5).............. $ (0.57) $ (0.54)
Pro forma weighted
average common shares
outstanding........... 70,000,000 70,000,000
Balance Sheet Data (end
of period):
Total assets........... $ 46,560 $102,791 $ 451,152 $ 447,666 $ 455,155
Total debt............. 40,529 72,768 337,905 317,398 377,500
Total members' equity.. 4,537 24,441 78,651 91,539 40,634
Other Data:
System cash flow(6).... $ 2,969 $ 9,391 $ 59,852 $ 43,400 $ 54,843
System cash flow
margin(7)............. 54.9% 53.3% 46.3% 46.0% 48.4%
EBITDA(8).............. $ 2,699 $ 8,509 $ 54,055 $ 39,060 $ 49,693
EBITDA margin(9)....... 49.9% 48.3% 41.8% 41.4% 43.9%
Net cash flows from
operating activities.. $ 237 $ 7,007 $ 53,556 $ 47,796 $ 29,795
Net cash flows used in
investing activities.. (45,257) (60,008) (397,085) (372,452) (60,632)
Net cash flows from
financing activities.. 45,416 53,632 344,714 324,597 32,325
Operating Data (end of
period, except
average):
Homes passed(10)....... 38,749 87,750 520,000 512,000 525,000
Basic subscribers(11).. 27,153 64,350 354,000 348,000 358,000
Basic penetration(12).. 70.1% 73.3% 68.1% 68.0% 68.2%
Premium service
units(13)............. 11,691 39,288 407,100 387,100 396,500
Premium
penetration(14)....... 43.1% 61.1% 115.0% 111.2% 110.8%
Average monthly
revenues per basic
subscriber(15)........ $32.14 $35.34
(notes on following page)
7
Notes to Summary Historical Consolidated Financial and Operating Data
(1) Represents fees paid to Mediacom Management Corporation for management
services rendered to our operating subsidiaries. Mediacom Management
utilizes 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 Mediacom LLC's operating agreement. The amended agreements provide for
management fees equal to 2% of annual gross revenues. Each of the
management agreements will be terminated upon the completion of this
offering. At that time, Mediacom Management's employees will become our
employees and its corporate overhead will become our corporate overhead.
These expenses will be reflected as our corporate expense, which we
estimate will amount to approximately 2% of our annual gross revenues.
(2) Net of interest income. Interest income for the periods presented was not
material.
(3) Represents an income tax provision (benefit) assuming the exchange of
membership interests in Mediacom LLC for shares of our common stock. We
have operating losses for the periods presented and have not reflected any
tax benefit for such losses.
(4) Pro forma net loss does not include a one-time $12.5 million non-
recurring, non-cash charge associated with the amendments to our
management agreements with Mediacom Management, for which additional
membership interests will be issued to an existing member of Mediacom LLC
and one-time $9.3 million and $12.8 million non-recurring, non-cash
compensation charges associated with grants of equity interests by an
existing member of Mediacom LLC to certain members of our management team
for the year ended December 31, 1998 and the nine months ended September
30, 1999. See note 6 of Mediacom LLC's interim financials for further
discussion.
(5) Pro forma basic and diluted loss per share is calculated based on
70,000,000 shares of common stock. The number of shares of common stock
reflects the 40,977,562 Class A shares and 29,022,438 Class B shares
issued to effect the exchange of membership interests of Mediacom LLC as
if these shares were outstanding for all periods presented and excludes
the shares that will be issued in this offering. The shares issued to
effect the exchange for the membership interests are based upon the
relative ownership percentages of membership interests in Mediacom LLC
immediately prior to the completion of the offering and are based on an
initial public offering price of $17.50 per share.
(6) Represents EBITDA, as defined in note 8 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,
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.
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.
(7) Represents system cash flow as a percentage of revenues. This measurement
is used by us, and is commonly used in the cable television industry, to
analyze and compare cable television companies on the basis of operating
performance, for the reasons discussed in note 6 above.
8
(8) Represents operating income (loss) before depreciation and amortization.
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.
(9) Represents EBITDA as a percentage of revenues. This measurement is used by
us, and is commonly used in the cable television industry, to analyze and
compare cable television companies on the basis of operating performance,
for the reasons discussed in note 8 above.
(10) Represents the number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
system's service area.
(11) Represents subscribers of a cable television system who receive a package
of over-the-air broadcast stations, local access channels and/or certain
satellite-delivered cable television services and who are usually charged
a flat monthly rate for a number of channels.
(12) Represents basic subscribers as a percentage of total number of homes
passed.
(13) 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. For the nine months ended September 30,
1999, premium service units decreased primarily due to the Disney Channel
being moved from a premium service to the basic programming packages in
several of our cable systems.
(14) Represents premium service units as a percentage of 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.
(15) Represents average monthly revenues for the period divided by average
monthly basic subscribers for such period. This measurement is commonly
used in the cable television industry to analyze and compare cable
television companies on the basis of operating performance.
9
RISK FACTORS
An investment in our Class A common stock involves the following risks. You
should consider carefully these risk factors, as well as the other information
in this prospectus, before you decide to purchase shares of our Class A common
stock.
Our Business
We have a history of net losses and may not be profitable in the future.
We have had a history of net losses and expect to continue to report net
losses for the foreseeable future, which could cause our stock price to decline
and adversely affect our ability to finance our business in the future. We
reported net losses of $4.6 million, $39.8 million and $38.0 million for the
years ended December 31, 1997 and 1998 and the nine months ended September 30,
1999. On a pro forma basis, we had net losses of $114.5 million and $88.2
million for the year ended December 31, 1998 and the nine months ended
September 30, 1999. The principal reasons for our prior and anticipated net
losses include the depreciation and amortization expenses associated with our
acquisitions, 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 network
upgrade program and our recent and pending acquisitions, which expenses will
result in continued net losses. For additional information, you should read the
discussion 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 current
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 recent acquisitions of the Triax and
Zylstra systems nearly doubled the number of subscribers served by our systems.
As a result, you have limited information upon which to evaluate our
performance in managing our current systems, and our historical financial
information may not be indicative of the future results we can achieve with our
systems.
If we are unable to successfully integrate our newly acquired cable systems,
our business could be adversely affected.
Since January 1, 1998, we have completed five acquisitions that comprise
approximately 91% of our current basic subscribers. In addition, we expect to
continue to acquire cable systems as an element of our business strategy. The
effective integration and management of acquired cable systems involve the
following principal risks:
. our acquired systems may result in unexpected operating difficulties,
liabilities or contingencies, which could be significant;
. the integration of 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 acquired systems may require significant financial
resources that could otherwise be used for the ongoing development of
our other systems, including our network upgrade program;
. we may be unable to recruit additional qualified personnel which may be
required to integrate and manage acquired systems; and
. our existing operational, financial and management systems may be
incompatible with or inadequate to effectively integrate and manage
acquired systems and any steps taken to implement changes in our systems
may not be sufficient.
10
Our business, financial condition and results of operations could be
materially adversely affected if we fail to successfully integrate and manage
acquired cable systems in a timely manner.
The loss of key personnel could have a material adverse effect on our
business.
Our success is substantially dependent upon the retention and continued
performance of our key personnel, including Rocco B. Commisso, our Chairman
and Chief Executive Officer. We have not entered into an employment agreement
with Mr. Commisso. If Mr. Commisso or any of our other key personnel become
unable or unwilling to participate in our business and operations, our
financial condition and results of operations could be materially adversely
affected. In addition, our subsidiary credit facilities provide that a default
will result if Mr. Commisso ceases to be our Chairman and Chief Executive
Officer. We do not currently maintain key man life insurance on Mr. Commisso.
You should read the discussion under "Management" for information concerning
the experience of Mr. Commisso and our other executive officers.
We have substantial existing debt and may incur substantial additional debt,
which could adversely affect our ability to obtain financing in the future
and require our operating subsidiaries to apply a substantial portion of
their cash flow to debt service.
As of September 30, 1999, we had outstanding total indebtedness of $377.5
million and our net interest expense for the nine months ended September 30,
1999 was $20.6 million. On a pro forma basis, our total indebtedness as of
September 30, 1999 was $813.4 million and our net interest expense for the
nine months ended September 30, 1999 was $45.0 million. This high level of
debt and our debt service obligations could have material consequences,
including:
. we may have limited ability to obtain additional financing for working
capital, capital expenditures, acquisitions and general corporate
purposes in the future;
. our operating subsidiaries will be required to dedicate a substantial
portion of their cash flow from operations to the payment of the
principal of and interest on their debt, thereby reducing funds we have
available for working capital, capital expenditures, acquisitions and
general corporate purposes;
. we may have limited flexibility in planning for, or reacting to, changes
in our business and industry; and
. we may be at a disadvantage when compared to those of our competitors
that have less debt.
We anticipate incurring additional debt in the future to finance
acquisitions and to fund the expansion, maintenance and upgrade of our
systems. If new debt is added to our current debt levels, the related risks
that we now face could intensify. For additional information, you should read
the discussion under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Description of Certain Indebtedness."
The terms of our indebtedness require us to comply with various financial and
operational restrictions, and may adversely affect our ability to obtain
financing in the future and react to changes in our business.
The indentures governing our senior notes and the agreements governing our
subsidiary credit facilities contain numerous operating covenants. The
instruments governing our subsidiary credit facilities also contain a number
of financial covenants that require our operating subsidiaries to meet
specified financial ratios and tests. The breach of any of these covenants
will result in a default under the applicable debt agreement or instrument,
which could result in acceleration of the debt. Any default under our
indentures or our subsidiary credit facilities could materially adversely
affect our growth, financial condition and results of operations.
11
In addition, several of these covenants could materially limit our
financial and operating flexibility by restricting, among other things, our
ability and the ability of our operating subsidiaries to:
. incur additional indebtedness;
. create liens and other encumbrances;
. pay dividends and make other payments, investment, loans and guarantees;
. enter into transactions with related parties;
. sell or otherwise dispose of assets and merge or consolidate with
another entity;
. repurchase or redeem capital stock or debt;
. pledge assets; and
. issue capital stock.
For additional information, you should read the discussion under "Description
of Certain Indebtedness."
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, our growth, financial condition and results of operation
could be materially adversely affected. For additional information, you should
read the discussion under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
If we are unsuccessful in implementing our growth strategy, our financial
condition and results of operations could be adversely affected.
We expect that a substantial portion of our future growth will be achieved
through revenues from new 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 the past year, the cable television industry has undergone
dramatic consolidation, which has reduced the number of future 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.
We may be unable to negotiate construction agreements on favorable terms and
our construction costs may increase significantly, which could adversely
affect our growth, financial condition and results of operations.
The expansion and upgrade of our cable systems will require us to hire and
enter into construction agreements with contractors. We may have difficulty
hiring experienced contractors, and the contractors we hire may encounter cost
overruns or delays in construction. Our construction costs may increase
significantly over the next few years as existing agreements expire and as
demand for cable construction services continues to grow. 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, financial condition and results of operations.
Our programming costs are substantial and may increase, which could result in
a decrease in profitability if we are unable to pass increases on to our
customers.
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
12
may not be able to pass programming cost increases on to our customers. In
addition, as we upgrade the channel capacity of our cable systems 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. Channel capacity refers to the number of traditional video
programming channels that can be carried over a communications system. Our
basic service tier is a package of over-the-air broadcast stations, local
access channels and/or certain satellite delivered cable television services,
other than premium services. Our expanded service tier refers to all other
cable programming services other than those offered in the basic service tier
or on a per-channel or per-program basis. The inability to pass these cost
increases on to our customers could adversely affect our financial condition
and results of operations.
Our Chairman and Chief Executive Officer has the ability to control all major
corporate decisions, which could inhibit or prevent a change of control or
change in management.
Following this offering, Rocco B. Commisso, our Chairman and Chief
Executive Officer, will beneficially own 29,022,438 shares of our Class B
common stock, representing 82.6% of the combined voting power of our 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 our entire board of directors, the approval of any merger or
consolidation involving us and the sale of all or substantially all of our
assets. If a change of control or change in management is delayed or prevented
by Mr. Commisso, the market price of our Class A common stock could be
adversely affected or holders may not receive a change of control premium over
the then-current market price of our Class A common stock. Because of the
voting structure of the Class A and Class B common stock, Mr. Commisso may
continue to be able to control all matters submitted to our stockholders even
if he owns a minority economic interest in Mediacom Communications. The
instruments 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 our common stock
on a fully-diluted basis. In addition, Mr. Commisso's control over our
management and affairs could create conflicts of interest if he is faced with
decisions that could have implications for him, for us and for the other
holders of our Class A common stock.
If our computer systems or those of third parties with whom we do business
are not Year 2000 compliant, our operations could be significantly disrupted.
We are evaluating the impact of the Year 2000 problem on our business
operations, as well as our products and services. Areas that could be
adversely impacted by the Year 2000 problem include the following:
. information process and financial reporting systems;
. customer billing systems;
. customer service systems;
. cable headend equipment and advertising insertion equipment; and
. services from third-party vendors.
System failure or miscalculation could result in an inability to process
transactions, send invoices, accept customer orders or provide customers with
products and services. We presently do not have a formal contingency plan in
place if we or any third parties with which we have material relationships
sustain business interruptions caused by Year 2000 problems.
For a description of our Year 2000 compliance efforts you should read the
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000 Compliance."
We have been threatened with legal action unless we cease using the term
"Mediacom" in our business.
We have received notice from a third party alleging that our use of the
term "Mediacom" in connection with our business infringes their right to use
the mark. A subsequent notice from this third party has threatened legal
action unless we immediately cease using the term "Mediacom." If we are found
to have infringed the
13
proprietary rights of this or other third parties with respect to our use of
the term "Mediacom" or variations thereof, we could be required to pay material
damages, cease further use of the term in our business or take other remedial
action.
Our Industry
We operate in a highly competitive industry, which may adversely affect our
business and operations.
Our industry is highly competitive. The nature and level of the competition
we face affects, among other things, how much we must spend to upgrade our
cable systems, how much we must spend on marketing and promotions and the
prices we can charge our customers. We may not have the resources necessary to
compete effectively. Many of our present and potential competitors may have
fewer regulatory burdens, substantially greater resources, greater brand name
recognition and long-standing relationships with regulatory authorities. We
expect advances in communications technology, as well as changes in the
marketplace, to occur in the future which may compete with services that our
cable systems offer. The success of these ongoing and future developments could
have a negative impact on our business and operations. For example, several
telephone companies are introducing digital subscriber line technology, which
will allow Internet access to subscribers at data transmission speeds equal to
or greater than that of modems over conventional telephone lines. You should
read the discussion under "Business--Competition" for additional information.
Continued growth of direct broadcast satellite operators could adversely
affect our financial condition and results of operations.
Direct broadcast satellite operators have emerged as a significant
competitor to cable operators. Direct broadcast satellite service consists of
television programming transmitted via high-powered satellites to individual
homes, each served by a small satellite dish. Direct broadcast satellite
operators have grown rapidly over the last several years, far exceeding the
growth rate of the cable television industry. Legislation permitting direct
broadcast satellite operators to transmit local broadcast signals was enacted
on November 29, 1999. This eliminates a significant competitive advantage which
cable system operators have had over direct broadcast satellite operators.
Direct broadcast satellite operators have begun delivering local broadcast
signals in several of the largest markets and there are plans to expand such
carriage to more markets over the next year. The continued growth of direct
broadcast satellite operators may adversely affect our growth, financial
condition and results of operations.
Recent changes in the regulatory environment may introduce additional
competitors in our markets.
Recent changes in federal law and recent administrative and judicial
decisions have removed restrictions that have limited entry into the cable
television industry by potential competitors such as telephone companies and
registered utility holding companies. These developments will enable local
telephone and utility companies to provide a wide variety of video services in
their service areas which will be directly competitive with the services
provided by cable television systems in the same area. As a result, competition
may materialize in our franchise areas from other cable television operators,
other video programming distribution systems and other broadband
telecommunications services to the home.
Our business has been and continues to be subject to extensive governmental
legislation and regulation, and changes in this legislation and regulation
could increase our costs of compliance and reduce the profitability of our
business.
The cable television industry is subject to extensive governmental
legislation and regulation and many aspects of this legislation and regulation
are currently the subject of judicial proceedings and administrative or
legislative proposals. Many of our present and future competitors may have
fewer regulatory burdens than we do, which may adversely effect our ability to
compete effectively. In addition, operating in a regulated industry generally
increases the cost of doing business. As we begin to offer telecommunication
services, we may be required to obtain licenses or other authorizations to
offer such services. We may not be able to obtain these licenses or
authorizations in a timely manner, or at all, or conditions could be imposed
upon these licenses and
14
authorizations that may not be favorable to us. Future changes in legislation
or regulations could have an adverse impact on us and our business operations.
You should read the discussion under "Legislation and Regulation" for
additional information.
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 operators of cable
systems and other potential competitors, such as municipal utility providers,
may be granted franchises and may build cable systems in markets where we hold
franchises. Any such competition could materially and adversely affect our
financial condition and results of operations. The existence of multiple cable
systems in the same geographic area is generally referred to as an overbuild.
We currently face overbuilds in a limited number of our markets. You should
read the discussion under "Business--Competition" for additional information.
We may be required to provide access to our networks to other Internet
service providers, which could significantly increase our competition and our
ability to provide new products and services.
The U.S. Congress and the Federal Communications Commission 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 and the Federal Communications Commission have declined to impose
these requirements. This same open access issue is also being considered by
some local franchising authorities and several courts. Franchise renewals and
transfers could become more difficult depending upon the outcome of this
issue.
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
systems.
Cable television companies operate under non-exclusive franchises granted
by local authorities that 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. Our cable systems
may not be able to retain or renew their franchises and any 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 ability to provide service to current or future
customers and on our financial condition and results of operations. You should
read the discussion under "Business--Franchises" and "Legislation and
Regulation--State and Local Regulation" for additional information concerning
our franchises.
This Offering
Existing stockholders may sell their common stock after this offering, which
could adversely affect the market price of the Class A common stock.
Sales of a substantial number of shares of our common stock, or the
perception that sales could occur, could adversely affect the market price for
shares of our Class A common stock by causing the amount of our common stock
available for sale to exceed the demand for our common stock. These sales
could also make it more difficult for us to sell equity securities in the
future at a time and price we deem appropriate. After this offering, we will
have outstanding 60,977,562 shares of Class A common stock and 29,022,438
shares of Class B common stock. Approximately 40,977,562 shares of Class A
common stock and all shares of Class B common stock, in the aggregate
representing 77.8% of our outstanding common stock upon completion of this
offering, will be restricted securities under the Securities Act of 1933.
These securities will be subject to
15
restrictions on the timing, manner and volume of sales of the restricted
shares. However, each of Rocco B. Commisso, our Chairman and Chief Executive
Officer, Morris Communications Corporation, CB Capital Investors, L.P., Chase
Manhattan Capital, L.P., U.S. Investor, Inc., Private Market Fund and our less
than 5% stockholders, will have rights to require us to register their shares
beginning 180 days after the completion of this offering. For additional
information regarding these registration rights, you should read the discussion
under "Shares Eligible for Future Sale--Registration Rights."
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements. You can identify these statements by forward-looking words such as
"may," "will," "expect," "plan," "intend," "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, forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from any results, performance or
achievements expressed or implied by any forward-looking statements. These
factors include, among other things, those listed under "Risk Factors" and
elsewhere in this prospectus. Although we believe that the expectations
reflected in our forward-looking statements are reasonable, we cannot assure
you of future results, performance or achievements.
16
USE OF PROCEEDS
We estimate that the net proceeds from the sale of our Class A common stock
in this offering, after deducting the estimated underwriting discounts,
commissions and offering expenses payable by us, will be approximately $326.4
million, or approximately $375.7 million if the underwriters' over-allotment
option is exercised in full. We intend to use all of the net proceeds of this
offering to repay indebtedness outstanding under our subsidiary credit
facilities.
As of December 15, 1999, we had $817.0 million of indebtedness outstanding
under our subsidiary credit facilities. These facilities, which have final
maturities ranging from March 2008 to December 2008, 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. Weighted interest
rates for loans outstanding under our subsidiary credit facilities was 8.4% as
of December 15, 1999. Borrowings under our subsidiary credit facilities were
used to refinance prior indebtedness and to fund our acquisitions of the Triax
and Zylstra systems. You should read the discussion under "Description of
Certain Indebtedness--Credit Facilities" for additional information about our
subsidiary credit facilities.
DIVIDEND POLICY
We have never paid or declared cash dividends on our common stock and
currently intend to retain any future earnings for the development of our
business. Therefore, we do not currently anticipate paying any cash dividends
in the forseeable future. In addition, our subsidiary credit facilities
restrict the ability of our subsidiaries to pay dividends. Our future dividend
policy is within the discretion of our board of directors and will depend upon
various factors, including our results of operations, financial condition,
capital requirements and investment opportunities.
17
CAPITALIZATION
The following table sets forth as of September 30, 1999, on a consolidated
basis:
. the historical capitalization of Mediacom LLC;
. the pro forma capitalization of Mediacom LLC to reflect:
-- the repayment of an unsecured senior subordinated note in the
original amount of $2.8 million and accrued interest,
-- the $10.5 million equity contribution made by the members of
Mediacom LLC in connection with the acquisition of the Triax systems
in November 1999,
-- borrowings of $762.3 million under our subsidiary credit facilities
to finance the acquisitions of the Triax and Zylstra systems and the
related write-off of unamortized financing fees from our former
subsidiary credit facilities,
-- a one-time $12.5 million non-recurring, non-cash charge associated
with amendments to our management agreements with Mediacom
Management, for which additional membership interests will be issued
to an existing member of Mediacom LLC, and
-- a one-time $12.8 million non-recurring, non-cash compensation charge
and the effect to deferred compensation of $11.8 million associated
with a grant of equity interests, based on an initial public
offering price of $17.50 per share, by an existing member of
Mediacom LLC to certain members of our management team as further
discussed in note 6 of Mediacom LLC's interim financials; and
. our pro forma as adjusted capitalization to reflect:
-- the exchange of membership interests in Mediacom LLC for shares of
our common stock,
-- a one-time $1.9 million non-recurring, non-cash charge to equity to
record a net deferred tax liability as of September 30, 1999 that
will be recognized upon the exchange of membership interests in
Mediacom LLC for shares of our common stock, and
-- the issuance and sale of our Class A common stock in this offering
at an initial public offering price of $17.50 per share and the
application of the net proceeds from the sale to repay $326.4
million of indebtedness outstanding under our subsidiary credit
facilities.
18
The table below should be read in conjunction with the historical
consolidated financial statements of Mediacom LLC included elsewhere in this
prospectus. For additional information, see "Unaudited Pro Forma Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Description of
Certain Indebtedness."
As of September 30, 1999
-----------------------------------
Mediacom
Communications
Mediacom LLC Corporation
-------------------- --------------
Pro Forma
Historical Pro Forma As Adjusted
---------- --------- --------------
(dollars in millions)
Cash and cash equivalents.................. $ 3.7 $ 4.6 $ 4.6
====== ======== ========
Total debt:
7 7/8% senior notes...................... $200.0 $ 200.0 $ 200.0
8 1/2% senior notes...................... 125.0 125.0 125.0
Subsidiary credit facilities(1).......... 52.5 814.8 488.4
------ -------- --------
Total debt............................. 377.5 1,139.8 813.4
Total members' equity...................... 40.6 60.7 --
Stockholders' equity:
Class A common stock, par value $0.01,
300,000,000 shares
authorized, and 60,977,562 shares issued
and outstanding......................... -- -- 0.6
Class B common stock, par value $0.01,
100,000,000 shares
authorized, and 29,022,438 shares issued
and outstanding......................... -- -- 0.3
Additional paid-in capital............... -- -- 498.1
Accumulated deficit...................... -- -- (113.9)
------ -------- --------
Total stockholders' equity............. -- -- 385.1
------ -------- --------
Total capitalization................. $418.1 $1,200.5 $1,198.5
====== ======== ========
- ---------------------
(1) After completion of this offering, we will have approximately $609 million
of unused credit commitments under our subsidiary credit facilities.
19
DILUTION
The difference between the initial public offering price per share of our
Class A common stock and the pro forma net tangible book value per share of our
Class A and Class B common stock after this offering constitutes the dilution
to investors in this offering. Net tangible book value per share is determined
by subtracting our total liabilities from the total book value of our tangible
assets and dividing the difference by the number of shares of Class A and Class
B common stock deemed to be outstanding on the date total book value is
determined.
As of September 30, 1999, our net tangible book value was a deficit of
$(543.0), or $(7.76) per share of common stock, after giving effect to the
transactions described under "Capitalization," excluding this offering. After
giving effect to the sale of 20,000,000 shares of our Class A common stock at
an initial public offering price of $17.50 per share, and the deduction of
estimated underwriting discounts, commissions and offering expenses, our pro
forma net tangible book value as of September 30, 1999 would have been
$(218.5), or $(2.43) per share of common stock. This represents an immediate
decrease in our net negative tangible book value of $5.33 per share to current
stockholders and an immediate dilution of $19.93 per share to new investors
purchasing our Class A common stock. The following table illustrates the
foregoing information as of September 30, 1999 with respect to dilution to new
investors:
Assumed initial public offering price per share.......... $17.50
Pro forma net tangible book deficit per share before
this offering......................................... $(7.76)
Increase per share attributable to this offering....... 5.33
------
Pro forma net tangible book value (deficit) per share
after this offering..................................... (2.43)
------
Dilution per share to new investors...................... $19.93
======
The following table sets forth as of September 30, 1999, information with
respect to our existing stockholders and new investors, after giving effect to
the exchange of membership interests of Mediacom LLC for shares of our common
stock:
Average
Shares Purchased Total Consideration Price
------------------ -------------------- Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- -------
Existing stockholders...... 70,000,000 77.8% $135,490,000 27.9% $1.94
New investors.............. 20,000,000 22.2 350,000,000 72.1 17.50
---------- ----- ------------ -----
Total.................... 90,000,000 100.0% $485,490,000 100.0%
========== ===== ============ =====
To the extent that shares of our common stock are issued in connection with
the stock option arrangements, there will be further dilution to new investors.
20
COMPLETED AND PENDING ACQUISITIONS
Completed Acquisitions
Since commencement of our operations in March 1996, we have completed 11
acquisitions of cable systems. The table below summarizes information related
to our completed acquisitions of cable systems in chronological order. The
systems were purchased from the named party identified in the Predecessor Owner
column or from one or more of its related parties or its controlling or
managing operator. The dollar amount set forth in the Purchase Price column
represents the final purchase price before closing costs and adjustments.
Basic
Subscribers
as of
Location of Acquisition Purchase Price September 30,
Systems Predecessor Owner Date (in millions) 1999
- ------------------ ----------------------------------- -------------- -------------- -------------
Ridgecrest, CA Benchmark Communications March 1996 $ 18.8 9,300
Kern Valley, CA Booth American Company June 1996 11.0 6,000
Nogales, AZ Saguaro Cable TV Investors, L.P. December 1996 11.4 7,900
Valley Center, CA Valley Center Cable Systems, L.P. December 1996 2.5 1,950
Dagsboro, DE American Cable TV Investors 5, Ltd. June 1997 42.6 32,300
Sun City, CA Cox Communications, Inc. September 1997 11.5 9,950
Clearlake, CA Jones Intercable, Inc. January 1998 21.4 18,200
Various States Cablevision Systems Corporation January 1998 308.2 268,350
Caruthersville, MO Cablevision Systems Corporation October 1998 5.0 4,050
Various States Zylstra Communications Corporation October 1999 19.5 14,000
Various States Triax Midwest Associates, L.P. November 1999 740.1 344,000
-------- -------
$1,192.0 716,000
======== =======
Pending Acquisitions
In the second half of 1999, we signed five letters of intent to acquire
cable systems serving approximately 28,000 basic subscribers for an aggregate
purchase price of $47.7 million. These cable systems are in close proximity to
our systems, thereby complementing our operating clusters. We expect to
complete the acquisitions of these systems in the first half of 2000, subject
to the completion of definitive documentation.
21
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data as of and for
the nine months ended September 30, 1999 and for the year ended December 31,
1998 are based on the historical consolidated financial statements of Mediacom
LLC, as adjusted to illustrate the estimated effects of the following
transactions as if each transaction had occurred on January 1, 1998 for the
statement of operations data and on September 30, 1999 for the balance sheet
data:
. our acquisitions of cable systems described under "Completed and Pending
Transactions" that were completed in 1998 and the incurrence of
indebtedness arising from the acquisitions under our former subsidiary
credit facilities;
. the issuance and sale of our 8 1/2% senior notes on April 1, 1998 and
the application of $194.5 million of net proceeds from the sale to repay
outstanding indebtedness under our former subsidiary credit facilities;
. the issuance and sale of our 7 7/8% senior notes on February 26, 1999
and the application of $121.9 million of net proceeds from the sale to
repay outstanding indebtedness under our former subsidiary credit
facilities;
. the repayment of an unsecured senior subordinated note in the original
amount of $2.8 million and accrued interest;
. the establishment of our current subsidiary credit facilities and the
repayment of all outstanding indebtedness under our former subsidiary
credit facilities;
. the $10.5 million equity contribution made by members of Mediacom LLC in
connection with the acquisition of the Triax systems in November 1999;
. our acquisitions of cable systems described under "Completed and Pending
Transactions" that were completed in 1999 and the incurrence of
indebtedness arising from the acquisitions under our current subsidiary
credit facilities;
. a one-time $12.5 million non-recurring, non-cash charge associated with
amendments to our management agreements with Mediacom Management, for
which additional membership interests will be issued to an existing
member of Mediacom LLC;
. a one-time $12.8 million non-recurring, non-cash compensation charge and
the effect to deferred compensation of $11.8 million associated with a
grant of equity interests, based on an initial public offering price of
$17.50 per share, by an existing member of Mediacom LLC to certain
members of our management team as further discussed in note 6 of
Mediacom LLC's interim financials;
. the exchange of membership interests in Mediacom LLC for shares of our
common stock;
. the effect to management fee expense as a result of amending the
management agreements with Mediacom Management;
. a one-time $1.9 million non-recurring, non-cash charge to equity to
record a net deferred tax liability as of September 30, 1999 that will
be recognized upon the exchange of membership interests in Mediacom LLC
for shares of our common stock;
. the reclassification of management fee expense to corporate expense due
to the termination of our management agreements with Mediacom
Management; and
. the issuance and sale of our Class A common stock in this offering at an
initial public offering price of $17.50 per share and the application of
the net proceeds from the sale to repay $326.4 million of outstanding
indebtedness under our subsidiary credit facilities.
The unaudited pro forma consolidated financial data give effect to the
acquisitions of our cable systems under the purchase method of accounting. The
purchase price allocation among property, plant and equipment, intangible
assets, other assets and liabilities of the Triax and Zylstra systems is
preliminary and will be completed upon receipt of appraisal reports. We do not
believe that the adjustment resulting from the final allocation of the purchase
price will be material.
22
The unaudited pro forma consolidated financial data do not purport to
represent what our results of operations or financial condition 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 the historical consolidated financial
statements of Mediacom LLC and U.S. Cable Television Group, L.P. and the
historical financial statements of Triax, appearing elsewhere in this
prospectus.
Unaudited Pro Forma Consolidated Statement of Operations
For the Nine Months Ended September 30, 1999
(dollars in thousands, except per share data)
Mediacom LLC Triax Zylstra Acquisition Other Offering
(historical) (historical) (historical) Adjustments Adjustments Subtotal Adjustments
------------ ----------- ------------ ----------- ----------- --------- -----------
Statement of
Operations Data:
Revenues............ $113,230 $ 101,654 $3,747 $ -- $ -- $ 218,631 $ --
Costs and expenses:
Service costs....... 36,571 34,925 1,658 -- -- 73,154 --
Selling, general
and administrative
expenses........... 21,816 15,038 650 -- -- 37,504 --
Management fee
expense............ 5,150 3,331 452 (4,560)(e) 4,373 (4,373)(f)
Corporate expense... -- -- -- -- -- -- 4,373 (f)
Depreciation and
amortization....... 66,154 54,111 409 25,122 (b) -- 145,796 --
-------- --------- ------ -------- ------ --------- --------
Operating (loss)
income............. (16,461) (5,751) 578 (25,122) 4,560 (42,196) --
Interest expense
(income), net...... 20,577 24,941 (41) 19,513 (c) -- 64,990 (19,982)(g)
Other expenses
(income)........... 979 -- (36) 36 (d) -- 979 --
-------- --------- ------ -------- ------ ---------
Provision (benefit)
for income taxes... -- (h)
--------
Net (loss) income
from continuing
operations......... $(38,017) $ (30,692) $ 655 $(44,671) $4,560 $(108,165) $ 19,982
======== ========= ====== ======== ====== ========= ========
Pro forma basic and
diluted net loss
per share(a).......
Pro forma weighted
average
common shares outstanding..
Total
-----------
Statement of
Operations Data:
Revenues............ $ 218,631
Costs and expenses:
Service costs....... 73,154
Selling, general
and administrative
expenses........... 37,504
Management fee
expense............ --
Corporate expense... 4,373
Depreciation and
amortization....... 145,796
-----------
Operating (loss)
income............. (42,196)
Interest expense
(income), net...... 45,008
Other expenses
(income)........... 979
Provision (benefit)
for income taxes... --
-----------
Net (loss) income
from continuing
operations......... $ (88,183)
===========
Pro forma basic and
diluted net loss
per share(a)....... $ (0.98)
Pro forma weighted
average
common shares outstanding..90,000,000
See accompanying notes to unaudited pro forma consolidated statement of
operations.
23
Notes to Unaudited Pro Forma Consolidated Statement of Operations
For the Nine Months Ended September 30, 1999
(dollars in thousands, except per share data)
For purposes of determining the pro forma effects of the transactions
described above on the historical consolidated statement of operations of
Mediacom LLC for the nine months ended September 30, 1999, the following
adjustments have been made:
(a) Pro forma basic and diluted loss per share is calculated based on
90,000,000 shares of common stock. The number of shares of common
stock reflects the 40,977,562 Class A shares and 29,022,438 Class B
shares issued to effect the exchange of membership interests of
Mediacom LLC and the 20,000,000 Class A shares that will be issued in
this offering. Upon completion of this offering, options to purchase
our common stock will be issued to certain employees with an exercise
price equal to the initial public offering price. Accordingly, these
stock options have no effect on the pro forma loss per share amounts.
No adjustment has been made to the unaudited pro forma consolidated
statement of operations for a one-time $12,837 non-recurring, non-cash
compensation charge associated with a grant of vested and non-
forfeitable equity interests, based on an initial public offering price
of $17.50 per share, by an existing member of Mediacom LLC to certain
members of our management team as further discussed in note 6 of
Mediacom LLC's interim financials.
(b) Represents increase to historical depreciation and amortization
expense as a result of a preliminary allocation of the Triax and
Zylstra purchase price and other costs:
Estimated Asset Pro Forma
Triax and Zylstra Fair Values Life Expense
----------------- ----------- ----- ---------
Property, plant and equipment................ $297,558 7 $ 42,508
Franchise costs.............................. 227,964 15 15,198
Subscriber lists............................. 236,990 5 47,398
Deferred financing costs..................... 7,000 8.5 824
Other acquisition costs...................... 3,900 15 260
--------
Annualized pro forma depreciation and
amortization (A)............................ 106,188
Pro forma depreciation and amortization--
Nine months ended September 30, 1999
(A multiplied by 75%)....................... 79,642
Historical--Triax and Zylstra................ (54,520)
--------
Increase to depreciation and amortization.... $ 25,122
========
(c) Represents increase to interest expense due to incremental
indebtedness arising from our acquisitions of the Triax and Zylstra
systems and our 7 7/8% senior note offering and decrease to interest
expense arising from our repayment of the unsecured senior
subordinated note in the original amount of $2,800 and accrued
interest. An 1/8% change in the interest rates will increase or
decrease the interest expense per annum by $956 after adjusting for
interest rate swap agreements. Historical interest expense of Triax
and Zylstra has been eliminated, as we have not assumed their debt
obligations.
Interest Pro Forma
Principal Rate Expense
--------- -------- ---------
Subsidiary credit facilities............... $814,750 7.34% $59,803
8 1/2% senior notes........................ 200,000 8.50 17,000
7 7/8% senior notes........................ 125,000 7.88 9,850
-------
Pro forma interest expense (A)............. 86,653
Pro forma interest expense--Nine months
ended September 30, 1999 (A multiplied by
75%)...................................... 64,990
Historical interest expense................ (45,477)
-------
Increase to interest expense............... $19,513
=======
24
(d) Represents elimination of other income of Zylstra.
(e) The management agreements with Mediacom Management were amended
effective November 19, 1999 in connection with an amendment to
Mediacom LLC's operating agreement. The amended agreements provide for
management fees equal to 2% of annual gross revenues. No adjustment
has been made to the unaudited pro forma consolidated statement of
operations for a one-time $12,500 non-recurring, non-cash charge
associated with the amendments to the management agreements with
Mediacom Management, for which additional membership interests will be
issued to an existing member of Mediacom LLC. We have adjusted
management fee expense for the Triax and Zylstra systems so that their
historical fee structure is consistent with the management agreements.
Revenues....................................................... $218,631
2% of revenues................................................. 4,373
Historical management fees..................................... (8,933)
--------
Decrease to management fee expense............................. $ (4,560)
========
(f) Represents elimination of management fees paid to Mediacom Management
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 revised effective November 19, 1999 in
connection with an amendment to Mediacom LLC's operating agreement.
The amended agreements provide for management fees equal to 2% of
annual gross revenues. Each of the management agreements will be
terminated upon completion of this offering. At that time, Mediacom
Management's employees will become our employees and its corporate
overhead will become our corporate overhead. These expenses will be
reflected as our corporate expense, which we estimate will amount to
approximately 2% of our annual gross revenues.
(g) Represents decrease to interest expense arising from the repayment of
$326,375 of outstanding indebtedness under our subsidiary credit
facilities with the net proceeds of this offering. An 1/8% change in
the interest rates will increase or decrease the interest expense per
annum by $548 after adjusting for interest rate swap agreements.
Interest Pro Forma
Principal Rate Expense
--------- -------- ---------
Subsidiary credit facilities................ $488,375 6.79% $ 33,161
8 1/2% senior notes......................... 200,000 8.50 17,000
7 7/8% senior notes......................... 125,000 7.88 9,850
--------
Pro forma interest expense after
offering (A)............................... 60,011
Pro forma interest expense after offering--
Nine months ended September 30, 1999 (A
multiplied by 75%)......................... 45,008
Pro forma interest expense prior to
offering................................... (64,990)
--------
Decrease to interest expense................ $(19,982)
========
(h) No provision has been made in the unaudited pro forma consolidated
statement of operations for federal, state or local income taxes
because Mediacom LLC is a limited liability company and its members
are required to report their share of income or loss in their
respective income tax returns. After the completion of this offering
and the exchange of membership interests in Mediacom LLC for shares of
our common stock, our results will be included in our corporate tax
returns. However, due to our pro forma consolidated net loss, no
income tax benefit has been reflected.
25
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1998
(dollars in thousands, except per share data)
Mediacom LLC Triax Zylstra Acquisition Other
(historical) Adjustments Subtotal (historical) (historical) Adjustments Adjustments
------------ ----------- -------- ----------- ----------- ----------- -----------
Statement of
Operations Data:
Revenues........ $129,297 $ 6,888 (b) $136,185 $119,669 $4,970 $ 11,434 (e) $ --
Costs and
expenses:
Service costs... 43,849 2,803 (b) 46,652 38,496 1,883 3,897 (e) --
Selling, general
and
administrative
expenses....... 25,596 2,274 (b) 27,870 20,846 747 1,892 (e) --
Management fee
expense........ 5,797 7 (b) 5,804 4,048 482 -- (4,889)(h)
Corporate
expense........ -- -- -- -- -- -- --
Depreciation and
amortization... 65,793 3,090 (c) 68,883 65,391 279 40,518 (f) --
-------- ------- -------- -------- ------ -------- ------
Operating (loss)
income......... (11,738) (1,286) (13,024) (9,112) 1,579 (34,873) 4,889
Interest expense
(income), net.. 23,994 2,769 (d) 26,763 29,358 (51) 33,005 (g) --
Other expenses.. 4,058 -- 4,058 -- -- -- --
-------- ------- -------- -------- ------ -------- ------
Provision
(benefit)
for income
taxes..........
Net (loss)
income......... $(39,790) $(4,055) $(43,845) $(38,470) $1,630 $(67,878) $4,889
======== ======= ======== ======== ====== ======== ======
Pro forma basic
and diluted net
loss per
share(a).......
Pro forma
weighted
average of
common shares
outstanding....
Offering
Subtotal Adjustments Total
---------- ------------- -----------
Statement of
Operations Data:
Revenues........ $ 272,258 $ -- $ 272,258
Costs and
expenses:
Service costs... 90,928 -- 90,928
Selling, general
and
administrative
expenses....... 51,355 -- 51,355
Management fee
expense........ 5,445 (5,445)(i) --
Corporate
expense........ -- 5,445 (i) 5,445
Depreciation and
amortization... 175,071 -- 175,071
---------- ------------- -----------
Operating (loss)
income......... (50,541) -- (50,541)
Interest expense
(income), net.. 89,075 (29,154)(j) 59,921
Other expenses.. 4,058 -- 4,058
----------
Provision
(benefit)
for income
taxes.......... -- (k) --
------------- -----------
Net (loss)
income......... $(143,674) $29,154 $ (114,520)
========== ============= ===========
Pro forma basic
and diluted net
loss per
share(a)....... $ (1.27)
Pro forma
weighted
average of
common shares
outstanding.... 90,000,000
See accompanying notes to unaudited pro forma consolidated statement of
operations.
26
Notes to Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1998
(dollars in thousands, except per share data)
For purposes of determining the pro forma effects of the transactions
described above on the historical consolidated statement of operations of
Mediacom LLC for the year ended December 31, 1998, the following adjustments
have been made:
(a) Pro forma basic and diluted loss per share is calculated based on
90,000,000 shares of common stock. The number of shares of common
stock reflects the 40,977,562 Class A shares and 29,022,438 Class B
shares issued to effect the exchange of membership interests of
Mediacom LLC and the 20,000,000 Class A shares that will be issued in
this offering. Upon completion of this offering, options to purchase
our common stock will be issued to certain employees with an exercise
price equal to the public offering price. Accordingly, these stock
options have no effect on the pro forma loss per share amounts.
No adjustment has been made to the unaudited pro forma consolidated
statement of operations for a one-time $9,302 non-recurring, non-cash
compensation charge associated with a grant of vested and non-
forfeitable equity interests, based on an initial public offering price
of $17.50 per share, by an existing member of Mediacom LLC to certain
members of our management team as further discussed in note 6 of
Mediacom LLC's interim financials.
(b) The table below represents actual revenues, service costs, and
selling, general and administrative expenses and management fee
expense of certain cable systems owned by:
. Jones Intercable, Inc., referred to as Clearlake, and acquired on
January 9, 1998;
. Cablevision Systems Corporation in various states, referred to as
Cablevision, and acquired on January 23, 1998; and
. Cablevision Systems Corporation, referred to as Caruthersville, and
acquired on October 1, 1998.
These amounts were recognized prior to our acquisition of such cable
systems.
Clearlake Cablevision Caruthersville Total
--------- ----------- -------------- -------
Revenues................... $ 133 $ 5,603 $ 1,152 $ 6,888
Service costs.............. 152 2,272 379 2,803
Selling, general and
administrative expenses... 139 1,839 296 2,274
Management fee expense..... 7 -- -- 7
(c) Represents historical depreciation and amortization of the
Cablevision, Clearlake and Caruthersville systems recognized prior to
the respective dates of acquisition and additional depreciation and
amortization related to the step-up in value of the systems based on
the final allocation of their purchase price. See note 3 of the
historical consolidated financial statements of Mediacom LLC for the
year ended December 31, 1998.
(d) Represents increase to interest expense due to incremental
indebtedness arising from our acquisition of the Clearlake,
Cablevision and Caruthersville systems and our 8 1/2% senior note
offering. An 1/8% change in the interest rates will increase or
decrease the interest expense per annum by $106 after adjusting for
interest rate swap agreements.
27
Interest Pro Forma
Principal Rate Expense
--------- -------- ---------
Subsidiary credit facilities................ $134,425 7.03% $ 9,450
8 1/2% senior notes......................... 200,000 8.50 17,000
Unsecured senior subordinated note.......... 3,480 9.00 313
--------
Pro forma interest expense.................. 26,763
Historical--Mediacom LLC.................... (23,994)
--------
Increase to interest expense................ $ 2,769
========
(e) The table below represents historical revenues, service costs, and
selling, general and administrative expenses of the Jones systems and
the Marcus systems, recognized prior to the respective dates of
acquisition by Triax. These systems were acquired by Triax on June 30,
1998 and September 30, 1998, for $22.8 million and $60.8 million,
respectively. See note 3 to the historical financial statements of
Triax for the year ended December 31, 1998.
Jones Marcus Total
------ ------ -------
Revenues........................................... $2,920 $8,514 $11,434
Service costs...................................... 936 2,961 3,897
Selling, general and administrative expenses....... 702 1,190 1,892
(f) Represents increase to historical depreciation and amortization as a
result of a preliminary allocation of the Triax and Zylstra purchase
price and other costs:
Estimated Asset Pro Forma
Triax and Zylstra Fair Values Life Expense
----------------- ----------- ----- ---------
Property, plant and equipment............... $297,558 7 $ 42,508
Franchise costs............................. 227,964 15 15,198
Subscriber lists............................ 236,990 5 47,398
Deferred financing costs.................... 7,000 8.5 824
Other acquisition costs..................... 3,900 15 260
--------
Pro forma depreciation and amortization..... 106,188
Historical--Triax and Zylstra............... (65,670)
--------
Increase to depreciation and amortization... $ 40,518
========
(g) Represents increase to interest expense due to incremental
indebtedness arising from our acquisitions of the Triax and Zylstra
systems, our 8 1/2% senior note offering and our 7 7/8% senior note
offering and decrease to interest expenses arising from our repayment
of the unsecured senior subordinated note in the original amount of
$2,800 and accrued interest. An 1/8% change in the interest rates will
increase or decrease the interest expense per annum by $911 after
adjusting for interest rate swap agreements. Historical interest
expense of Triax and Zylstra has been eliminated, as we have not
assumed their debt obligations.
Interest Pro Forma
Principal Rate Expense
--------- -------- ---------
Subsidiary credit facilities................ $778,780 7.99% $ 62,225
8 1/2% senior notes......................... 200,000 8.50 17,000
7 7/8% senior notes......................... 125,000 7.88 9,850
--------
Pro forma interest expense.................. 89,075
Pro forma--Mediacom LLC..................... (26,763)
Historical--Triax and Zylstra............... (29,307)
--------
Increase to interest expense................ $ 33,005
========
28
(h) The management agreements with Mediacom Management were amended
effective November 19, 1999 in connection with an amendment to
Mediacom LLC's operating agreement. The amended agreements provide for
management fees equal to 2% of annual gross revenues. No adjustment
has been made to the unaudited pro forma consolidated statement of
operations for a one-time $12,500 non-recurring, non-cash charge
associated with the amendments to the management agreements with
Mediacom Management, for which additional membership interests will be
issued to an existing member of Mediacom LLC. We have adjusted
management fee expense for the Triax and Zylstra systems so that their
historical fee structure is consistent with the management agreements.
Revenues........................................................ $272,258
2% of revenues.................................................. 5,445
Historical management fees...................................... (10,334)
--------
Decrease to management fee expense.............................. $ 4,889
========
(i) Represents elimination of management fees paid to Mediacom Management
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 revised effective November 19, 1999 in
connection with an amendment to Mediacom LLC's operating agreement.
The amended agreements provide for management fees equal to 2% of
annual gross revenues. Each of the management agreements will be
terminated upon completion of this offering. At that time, Mediacom
Management's employees will become our employees and its corporate
overhead will become our corporate overhead. These expenses will be
reflected as our corporate expense, which we estimate will amount to
approximately 2% of our annual gross revenues.
(j) Represents decrease to interest expense arising from the repayment of
$326,375 of outstanding indebtedness under our subsidiary credit
facilities with the net proceeds of this offering. An 1/8% change in
the interest rates will increase or decrease the interest expense per
annum by $503 after adjusting for interest rate swap agreements.
Pro
Interest Forma
Principal Rate Expense
--------- -------- --------
Subsidiary credit facilities............... $452,405 7.31% $ 33,071
8 1/2% senior notes........................ 200,000 8.50 17,000
7 7/8% senior notes........................ 125,000 7.88 9,850
--------
Pro forma interest expense after offering.. 59,921
Pro forma interest expense prior to
offering.................................. (89,075)
--------
Decrease to interest expense............... $(29,154)
========
(k) No provision has been made in the unaudited pro forma consolidated
statement of operations for federal, state or local income taxes
because Mediacom LLC is a limited liability company and its members
are required to report their share of income or loss in their
respective income tax returns. After the completion of this offering
and the exchange of membership interests in Mediacom LLC for shares of
our common stock, our results will be included in our corporate tax
returns. However, due to our pro forma consolidated net loss, no
income tax benefit has been reflected.
29
Unaudited Pro Forma Consolidated Balance Sheet
As of September 30, 1999
(dollars in thousands)
Mediacom LLC Triax Zylstra Other Offering
(historical) (historical) (historical) Adjustments Adjustments Subtotal Adjustments
------------ ------------ ----------- ----------- ----------- ---------- -----------
Assets
Cash and cash
equivalents......... $ 3,700 $ -- $ -- $ 890 (a) $ -- $ 4,590 $ --
Subscriber accounts
receivable, net..... 2,269 2,043 532 696 (a) -- 5,540 --
Prepaid expenses and
other assets........ 2,947 -- 72 238 (a) -- 3,257 --
Inventory........... 11,606 -- -- 2,000 (b) -- 13,606 --
Property, plant and
equipment, net...... 286,900 168,588 4,872 124,098 (b) -- 584,458 --
Intangible assets,
net................. 134,768 153,604 59 315,191 (b) -- 603,622 --
Other assets, net... 12,965 7,450 -- (2,695)(c) 11,774 (g) 29,494 --
-------- -------- ------ -------- ------- ---------- ---------
Total assets....... $455,155 $331,685 $5,535 $440,418 $11,774 $1,244,567 $ --
======== ======== ====== ======== ======= ========== =========
Liabilities and
Members'/Stockholders'
Equity
Debt................ $377,500 $418,810 $ -- $343,440 (d) $ -- $1,139,750 $(326,375)(j)
Accounts payable and
accrued expenses.... 35,164 13,108 618 (9,624)(a) -- 39,266 --
Subscriber advance
payments and
deposits............ 1,857 782 442 1,807 (a) -- 4,888 --
Deferred income tax
liability........... -- -- -- -- -- -- 1,937 (k)
Other liabilities... -- -- -- -- -- -- --
-------- -------- ------ -------- ------- ---------- ---------
Total liabilities.. 414,521 432,700 1,060 335,623 -- 1,183,904 (324,438)
Members' equity
Capital
contributions....... 124,990 -- 1,588 8,912 (e) 37,111 (h) 172,601 (172,601)(l)
Accumulated
deficit............. (84,356) (101,015) 2,887 95,883 (f) (25,337)(i) (111,938) 111,938 (l)
-------- -------- ------ -------- ------- ---------- ---------
Total member's
equity (deficit).. 40,634 (101,015) 4,475 104,795 11,774 60,663 (60,663)
Stockholders' equity
Class A common
stock............... 610 (m)
Class B common
stock.............. 290 (m)
Additional paid-in
capital............. 498,076 (m)
Accumulated
deficit............. (113,875)(n)
---------
Total stockholders'
equity............ 385,101
---------
Total liabilities
and
members'/stockholders'
equity............ $455,155 $331,685 $5,535 $440,418 $11,774 $1,244,567 $ --
======== ======== ====== ======== ======= ========== =========
Total
-----------
Assets
Cash and cash
equivalents......... $ 4,590
Subscriber accounts
receivable, net..... 5,540
Prepaid expenses and
other assets........ 3,257
Inventory........... 13,606
Property, plant and
equipment, net...... 584,458
Intangible assets,
net................. 603,622
Other assets, net... 29,494
-----------
Total assets....... $1,244,567
===========
Liabilities and
Members'/Stockholders'
Equity
Debt................ $ 813,375
Accounts payable and
accrued expenses.... 39,266
Subscriber advance
payments and
deposits............ 4,888
Deferred income tax
liability........... 1,937
Other liabilities... --
-----------
Total liabilities.. 859,466
Members' equity
Capital
contributions....... --
Accumulated
deficit............. --
-----------
Total member's
equity (deficit).. --
Stockholders' equity
Class A common
stock............... 610
Class B common
stock.............. 290
Additional paid-in
capital............. 498,076
Accumulated
deficit............. (113,875)
-----------
Total stockholders'
equity............ 385,101
-----------
Total liabilities
and
members'/stockholders'
equity............ $1,244,567
===========
See accompanying notes to unaudited pro forma consolidated balance sheet.
30
Notes to Unaudited Pro Forma Consolidated Balance Sheet
As of September 30, 1999
(dollars in thousands)
For purposes of determining the pro forma effect of the transactions
described above on the historical consolidated balance sheet of Mediacom LLC as
of September 30, 1999, the following adjustments have been made:
(a) Represents elimination of cash not included in the acquisition of
Triax, which was acquired on November 5, 1999, and Zylstra, which was
acquired on October 15, 1999, and adjustments to working capital due to
timing differences. These adjustments reflect changes in working
capital as of the acquisition date as compared to working capital as of
September 30, 1999 since those acquisitions were completed subsequent
to September 30, 1999. Working capital as of the acquisition date was
prepared jointly by the seller and us based on the most recent
financial information available.
Working Working
Capital as of Capital as of
Acquisition September 30,
Date 1999 Adjustments
------------- ------------- -----------
Assets acquired:
Cash and cash equivalents..... $ 890 $ -- $ 890
Subscriber accounts
receivable, net.............. 3,271 2,575 696
Prepaid expenses and other
assets....................... 310 72 238
Liabilities assumed:
Accounts payable and accrued
expenses..................... 4,102 13,726 (9,624)
Subscriber advance payments
and deposits................. 3,031 1,224 1,807
------- -------- -------
Net working capital............. $(2,662) $(12,303) $ 9,641
======= ======== =======
(b) Represents an increase to property, plant and equipment and intangible
assets as a result of our acquisitions based on a preliminary
allocation of the purchase price assuming estimated fair values.
Preliminary subscriber and purchase price adjustments are estimates
made at the acquisition date to adjust the purchase price based on
various conditions of the contract. These conditions include the
number of subscribers as of the acquisition date and the amount of
capital investment made to property, plant and equipment by the seller
during 1999. These adjustments will be finalized approximately 120
days after the acquisition date and should not be materially different
from the estimates used here. The preliminary subscriber adjustment is
allocated to intangibles as it relates directly to subscriber lists.
The preliminary purchase price adjustment of $4,282 is allocated to
property, plant and equipment, primarily since it relates to the
amount of capital investment not made by the seller. The remaining
preliminary purchase price adjustment of $168 is allocated to
intangibles since it represents direct costs of the acquisition.
Estimated
Fair Values
----------------------
Property,
Purchase Other Net Plant and
Price Assets Equipment Intangibles
-------- --------- --------- -----------
Original Triax purchase
price....................... $740,100 $ -- $ 296,040 $444,060
Original Zylstra purchase
price....................... 19,500 -- 7,800 11,700
Preliminary subscriber
adjustment.................. 9,026 -- -- 9,026
Preliminary purchase price
adjustment.................. (4,114) -- (4,282) 168
Property, plant and equipment
reclassified as inventory... -- 2,000 (2,000) --
Net working capital ......... (2,662) (2,662) -- --
-------- ------ --------- --------
Subtotal..................... 761,850 (662) 297,558 464,954
Closing costs................ 3,900 -- -- 3,900
-------- ------ --------- --------
Total acquisition costs...... $765,750 $ (662) 297,558 468,854
======== ======
Historical amounts........... (173,460) (153,663)
--------- --------
Increase..................... $ 124,098 $315,191
========= ========
31
(c) Represents adjustment to other assets in connection with:
. incurrence of $7,000 in closing costs in connection with our
subsidiary credit facilities;
. elimination of unamortized deferred financing costs of $2,245
related to our former credit facilities; and
. elimination of unamortized deferred loan costs and other costs of
Triax of $7,450.
(d) Represents the following adjustments to debt related to our
acquisitions of the Triax and Zylstra systems:
Proceeds from our subsidiary credit facilities................ $ 814,750
Repayment of our former subsidiary credit facilities.......... (52,500)
Elimination of Triax and Zylstra debt......................... (418,810)
---------
Increase to debt.............................................. $ 343,440
=========
(e) Represents adjustments to capital contributions in connection with:
. the elimination of Triax and Zylstra contributed capital accounts of
$1,588; and
. additional capital contributions to Mediacom LLC by its members of
$10,500.
(f) Represents adjustments to accumulated deficit in connection with:
. the elimination of Triax and Zylstra accumulated deficit of $98,128;
and
. the write-off of unamortized deferred financing costs related to our
former credit facilities of $2,245.
(g) Represents the effect to deferred compensation as a result of a grant
of vested and non-forfeitable equity interests, based on an initial
public offering price of $17.50 per share, by an existing member of
Mediacom LLC to certain members of our management team as further
discussed in note 6 of Mediacom LLC's interim financials.
(h) Represents the following adjustments to capital contributions in
connection with:
. a grant of additional membership interest by an existing member of
$12,500 associated with amendments to the management agreements with
Mediacom Management; and
. a grant of additional membership interests of $24,611 by an existing
member of Mediacom LLC to certain members of our management team.
(i) Represents adjustments to accumulated deficit in connection with:
. a one-time $12,500 non-recurring, non-cash charge associated with
amendments to the management agreements with Mediacom Management,
for which additional membership interests will be issued to an
existing member of Mediacom LLC; and
. a one-time $12,837 non-recurring, non-cash compensation charge
associated with the vested portion of a grant of equity interest by
an existing member of Mediacom LLC to certain members of our
management team as further discussed in note 6 of Mediacom LLC's
interim financials.
(j) Represents the repayment of outstanding indebtedness under subsidiary
credit facilities with the net proceeds of this offering.
(k) Represents the recognition of a one-time $1,937 non-recurring, non-
cash charge to record a net deferred tax liability as of September 30,
1999 that will be recognized upon the exchange of membership interests
in Mediacom LLC for shares of our common stock.
32
(l) Reflects the elimination of members' equity upon the exchange of
membership interests for shares of our common stock.
(m) Represents adjustments to stockholders' equity in connection with:
. the issuance of 40,977,562 shares of Class A common stock, based
upon an initial public offering price of $17.50 per share, and
29,022,438 shares of Class B common stock, based upon an initial
public offering price of $17.50 per share, upon the exchange of
membership interests in Mediacom LLC for shares of our common stock;
and
. the issuance and sale of 20,000,000 shares of Class A common stock
in this offering at an initial public offering price of $17.50 per
share.
(n) Reflects the following assumptions:
. reclassification of accumulated deficit to stockholders' equity from
members' equity; and
. recognition of a one-time $1,937 non-recurring, non-cash charge to
record a net deferred tax liability as of September 30, 1999 that
will be recognized upon the exchange of membership interests in
Mediacom LLC for shares of our common stock.
33
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL AND OPERATING DATA
In the table below, we provide you with:
. selected historical financial data for the years ended December 31, 1994
and 1995 and for the period from January 1, 1996 through March 11, 1996,
and balance sheet data as of December 31, 1994 and 1995, and 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 to
December 31, 1996 and for the years ended December 31, 1997 and 1998,
and balance sheet data as of December 31, 1996, 1997 and 1998, which are
derived from and should be read in conjunction with the audited
consolidated financial statements of Mediacom LLC included elsewhere in
this prospectus; and
. selected historical consolidated financial and operating data for the
nine months ended September 30, 1998 and 1999, and balance sheet data as
of September 30, 1998 and 1999, which are derived from and should be
read in conjunction with the unaudited consolidated financial statements
of Mediacom LLC included elsewhere in this prospectus.
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 eight additional acquisitions as of September 30, 1999. The
historical results of operations of the systems acquired have been included
from their respective dates of acquisition to the end of the period presented.
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 only 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 nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the full year.
We were formed as a limited liability company in July 1995 and commenced our
operations on March 12, 1996. Accordingly, since that time, our taxable income
or loss has been included in the federal and certain state income tax returns
of our members. Upon completion of this offering, we will become subject to the
provisions of Subchapter C of the Internal Revenue Code. As a C corporation, we
will be fully subject to the federal, state and local income taxes.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
34
Selected Historical Consolidated Financial and Operating Data
Predecessor Mediacom LLC
----------------------------------- --------------------------------------------------------------
Nine Months Ended
September 30,
-----------------
Year Year January 1 March 12 Year Year
Ended Ended Through Through Ended Ended
December 31, December 31, March 11, December 31, December 31, December 31,
1994 1995 1996 1996 1997 1998 1998 1999
------------ ------------ --------- ------------ ------------ ------------ --------- -----------
(Unaudited)
(dollars in thousands, except per share and per subscriber data)
Statement of
Operations Data:
Revenues............ $ 5,075 $ 5,171 $1,038 $ 5,411 $ 17,634 $ 129,297 $ 94,374 $ 113,230
Costs and expenses:
Service costs....... 1,322 1,536 297 1,511 5,547 43,849 32,873 36,571
Selling, general and
administrative
expenses............ 1,016 1,059 222 931 2,696 25,596 18,101 21,816
Management fee
expense(1).......... 252 261 52 270 882 5,797 4,340 5,150
Depreciation and
amortization........ 4,092 3,945 527 2,157 7,636 65,793 44,338 66,154
------- ------- ------ -------- -------- ----------- --------- -----------
Operating income
(loss).............. (1,607) (1,630) (60) 542 873 (11,738) (5,278) (16,461)
Interest expense,
net(2).............. 878 935 201 1,528 4,829 23,994 17,786 20,577
Other expenses...... -- -- -- 967 640 4,058 3,838 979
------- ------- ------ -------- -------- ----------- --------- -----------
Net loss............ $(2,485) $(2,565) $ (261) $ (1,953) $ (4,596) $ (39,790) $ (26,902) $ (38,017)
------- ------- ------ -------- -------- ----------- --------- -----------
Pro forma provision
(benefit) for income
taxes(3)............ -- --
----------- -----------
Pro forma net
loss(4)............. $ (39,790) $ (38,017)
=========== ===========
Pro forma basic and
diluted net loss per
share(5)............ $ (0.57) $ (0.54)
Pro forma weighted
average common
shares outstanding.. 70,000,000 70,000,000
Balance Sheet Data
(end of period):
Total assets........ $11,755 $ 8,149 $ 46,560 $102,791 $ 451,152 $ 447,666 $ 455,155
Total debt.......... 13,294 12,217 40,529 72,768 337,905 317,398 377,500
Total members'
equity.............. (2,003) (4,568) 4,537 24,441 78,651 91,539 40,634
Other Data:
System cash
flow(6)............. $ 2,737 $ 2,576 $ 519 $ 2,969 $ 9,391 $ 59,852 $ 43,400 $ 54,843
System cash flow
margin(7)........... 53.9% 49.8% 50.0% 54.9% 53.3% 46.3% 46.0% 48.4%
EBITDA(8)........... $ 2,485 $ 2,315 $ 467 $ 2,699 $ 8,509 $ 54,055 $ 39,060 49,693
EBITDA margin(9).... 49.0% 44.8% 45.0% 49.9% 48.3% 41.8% 41.4% 43.9%
Net cash flows from
operating
activities.......... $ 1,395 $ 1,478 $ 226 $ 237 $ 7,007 $ 53,556 $ 47,796 $ 29,795
Net cash flows used
in investing
activities.......... (552) (261) (86) (45,257) (60,008) (397,085) (372,452) (60,632)
Net cash flows (used
in) from financing
activities.......... (919) (1,077) -- 45,416 53,632 344,714 324,597 32,325
Operating Data (end
of period, except
average):
Homes passed(10).... 38,749 87,750 520,000 512,000 525,000
Basic
subscribers(11)..... 27,153 64,350 354,000 348,000 358,000
Basic
penetration(12)..... 70.1% 73.3% 68.1% 68.0% 68.2%
Premium service
units(13)........... 11,691 39,288 407,100 387,100 396,500
Premium
penetration(14)..... 43.1% 61.1% 115.0% 111.2% 110.8%
Average monthly
revenues per basic
subscriber(15)...... $32.14 $35.34
(notes on following page)
35
Notes to Selected Historical Consolidated Financial and Operating Data
(1) Represents fees paid to Mediacom Management for management services
rendered to our operating subsidiaries. Mediacom Management utilizes 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 Mediacom
LLC's operating agreement. The amended agreements provide for management
fees equal to 2% of annual gross revenues. Each of the management
agreements will be terminated upon the completion of this offering. At
that time, Mediacom Management's employees will become our employees and
its corporate overhead will become our corporate overhead. These expenses
will be reflected as our corporate expense, which we estimate will amount
to approximately 2% of our annual gross revenues.
(2) Net of interest income. Interest income for the periods presented is not
material.
(3) Represents an income tax provision (benefit) assuming the exchange of
membership interests in Mediacom LLC for shares of our common stock. We
have operating losses for the periods presented and have not reflected any
tax benefit for such losses.
(4) Pro forma net loss does not include a one-time $12.5 million non-
recurring, non-cash charge associated with the amendments to our
management agreements with Mediacom Management, for which additional
membership interests will be issued to an existing member of Mediacom LLC
and one-time $9.3 million and $12.8 million non-recurring, non-cash
compensation charges associated with grants of equity interests by an
existing member of Mediacom LLC to certain members of our management team
for the year ended December 31, 1998 and the nine months ended September
30, 1999. See note 6 of Mediacom LLC's interim financials for further
discussion.
(5) Pro forma basic and diluted loss per share is calculated based on
70,000,000 shares of common stock. The number of shares of common stock
reflects the 40,977,562 Class A shares and 29,022,438 Class B shares
issued to effect the exchange of membership interests of Mediacom LLC as
if these shares were outstanding for all periods presented and excludes
the shares that will be issued in this offering. The shares issued to
effect the exchange for the membership interests are based upon the
relative ownership percentages of membership interests in Mediacom LLC
immediately prior to the completion of this offering and are based on an
initial public offering price of $17.50 per share.
(6) Represents EBITDA, as defined in note 8 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,
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.
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.
(7) Represents system cash flow as a percentage of revenues. This measurement
is used by us, and is commonly used in the cable television industry, to
analyze and compare cable television companies on the basis of operating
performance, for the reasons discussed in note 6 above.
(8) Represents operating income (loss) before depreciation and amortization.
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;
36
. 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.
(9) Represents EBITDA as a percentage of revenues. This measurement is used by
us, and is commonly used in the cable industry, to analyze and compare
cable companies on the basis of operating performance, for the reasons
discussed in note 8 above.
(10) Represents the number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
system's service area.
(11) Represents subscribers of a cable television system who receive a package
of over-the-air broadcast stations, local access channels and/or certain
satellite-delivered cable television services, and who are usually charged
a flat monthly rate for a number of channels.
(12) Represents basic subscribers as a percentage of total number of homes
passed.
(13) 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. For the nine months ended September 30,
1999, premium service units reflect the Disney Channel being moved from a
premium service to the basic programming packages in several of our cable
systems.
(14) Represents premium service units as a percentage of 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.
(15) Represents average monthly revenues for the period divided by average
monthly basic subscribers for such period. This measurement is commonly
used in the cable television industry to analyze and compare cable
companies on the basis of operating performance.
37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
We materially expanded our business in 1997 and 1998 through acquisitions.
The acquisitions of the Zylstra and Triax systems in October and November 1999
together doubled the number of our basic subscribers. 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, other than the Zylstra and Triax systems, subsequent to its
respective acquisition date. As such, 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.
General
Our revenues are primarily attributable to monthly subscription fees charged
to basic subscribers for our basic and premium cable television programming
services.
. Basic revenues consist of monthly subscription fees for all services
other than premium programming and also include monthly charges for
customer equipment rental and installation fees.
. Premium revenues consist of monthly subscription fees for
programming provided on a per channel basis or as part of premium
service packages.
. Other revenues represent pay-per-view charges, late payment fees,
advertising revenues and commissions related to the sale of goods by
home shopping services. Pay-per-view is programming offered on a
per-program basis which a subscriber selects and pays a separate
fee.
The following table sets forth for the periods indicated the percentage of
our total revenues attributable to the sources indicated:
Nine Months
Period From Year Ended Ended
March 12, 1996 December 31, September 30,
to December 31, -------------- --------------
1996 1997 1998 1998 1999
--------------- ------ ------ ------ ------
Basic revenues............ 80.0% 81.0% 80.0% 80.0% 81.0%
Premium revenues.......... 8.0 9.0 15.0 15.0 13.0
Other revenues............ 12.0 10.0 5.0 5.0 6.0
----- ------ ------ ------ ------
Total revenues.......... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ====== ====== ====== ======
For the nine months ended September 30, 1999, for each of the past two years
and for the period ended December 31, 1996, we generated significant increases
in revenues as a result of our acquisition activities, increases in monthly
revenues per basic subscriber and internal subscriber growth.
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 fees 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. We believe that under the Federal
Communication Commission's existing cable rate regulations, we will be able to
increase our rates for cable television services to more than cover any
increases in the costs of programming. However, competitive factors may limit
our ability to increase our rates. We benefit from our membership in a
cooperative of cable television companies which serve over twelve million basic
subscribers, which provides its members with significant
38
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.
Mediacom Management provides management services to the operating
subsidiaries of Mediacom LLC and receives annual management fees. Until
November 19, 1999, management fees ranged from 4.0% to 5.0% of our annual gross
revenues. The management agreements with Mediacom Management were amended
effective November 19, 1999 in connection with an amendment to Mediacom LLC's
operating agreement to provide for annual management fees equal to 2.0% of
annual gross revenues. Also, Mediacom Management received an acquisition fee
ranging from 0.5% to 1.0% of the purchase price of acquisitions made by
Mediacom LLC and such fees are included in other expenses. Mediacom Management
utilizes these fees to compensate its employees as well as to fund its
corporate overhead. Mediacom Management has agreed to waive all management fees
accrued from July 1, 1999 through November 19, 1999, and to waive the
acquisition fees related to the acquisitions of the Triax and Zylstra systems.
Each of the management agreements will be terminated upon the completion of
this offering. At that time, Mediacom Management's employees will become our
employees and its corporate overhead will become our corporate overhead. These
expenses will be reflected as our corporate expense, which we estimate will
amount to approximately 2% of our annual gross revenues. Also in accordance
with the amendment to Mediacom LLC's operating agreement, no further
acquisition fees will be payable.
The high level of depreciation and amortization associated with our
acquisition activities 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.
EBITDA represents operating income (loss) before depreciation and
amortization. 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 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.
Results of Operations
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
The following historical information for the nine months ended September 30,
1999 and 1998 includes the results of operations of the Clearlake system, which
was acquired on January 9, 1998, the Cablevision systems, which were acquired
on January 23, 1998, and the Caruthersville system, which was acquired on
October 1, 1998, only for that portion of the respective period that such cable
television systems were owned by us.
Revenues. Revenues increased 20.0% to approximately $113.2 million for the
nine months ended September 30, 1999, as compared to approximately $94.4
million for the nine months ended September 30, 1998, primarily as a result of:
. an increase in the average monthly basic service rate of $3.01 per basic
subscriber;
39
. the inclusion of the results of operations of the cable television
systems acquired by us during the nine months ended September 30, 1998
for the full nine-month period in 1999; and
. internal basic subscriber growth of 1.8%, excluding the acquisition of
the Caruthersville system.
Service costs. Service costs increased 11.2% to approximately $36.6 million
for the nine months ended September 30, 1999, as compared to approximately
$32.9 million for the nine months ended September 30, 1998. Our ownership of
the Clearlake, Cablevision and Caruthersville systems for the full nine-month
period in 1999 accounted for 74.1% of this increase. The remaining 25.9% of
this increase is due principally to higher programming costs. As a percentage
of revenues, service costs were 32.3% for the nine months ended September 30,
1999, as compared to 34.8% for the nine months ended September 30, 1998 due to
revenues increasing at a faster rate than service costs for the period.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 20.5% to approximately $21.8 million for the
nine months ended September 30, 1999, as compared to approximately $18.1
million for the nine months ended September 30, 1998. Our ownership of the
Clearlake, Cablevision and Caruthersville systems for the full nine-month
period in 1999 accounted for 38.2% of this increase in selling, general and
administrative expenses. The remaining 61.8% of this increase is 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 19.3% for the nine months
ended September 30, 1999, as compared to 19.2% for the nine months ended
September 30, 1998.
Management fee expense. Management fee expense increased 18.7% to
approximately $5.2 million for the nine months ended September 30, 1999, as
compared to approximately $4.3 million for the nine months ended September 30,
1998, due to the higher revenues generated in the 1999 period.
Depreciation and amortization. Depreciation and amortization increased 49.2%
to approximately $66.2 million for the nine months ended September 30, 1999, as
compared to approximately $44.3 million for the nine months ended September 30,
1998. This increase was substantially due to our purchase of the Clearlake,
Cablevision and Caruthersville systems in 1998 and additional capital
expenditures associated with the upgrade of our systems.
Operating income (loss). Due to the factors described above, we generated an
operating loss of approximately $16.5 million for the nine months ended
September 30, 1999, as compared to an operating loss of approximately $5.3
million for the nine months ended September 30, 1998.
Interest expense, net. Interest expense, net, increased 15.7% to
approximately $20.6 million for the nine months ended September 30, 1999, as
compared to approximately $17.8 million for the nine months ended September 30,
1998. This increase was substantially due to higher average debt outstanding
during the 1999 period as a result of the debt incurred in connection with the
purchase of the Clearlake, Cablevision and Caruthersville systems.
Other expenses. Other expenses decreased 74.5% to approximately $979,000 for
the nine months ended September 30, 1999, as compared to approximately $3.8
million for the nine months ended September 30, 1998. This decrease was
principally due to acquisition fees paid to Mediacom Management in the 1998
period in connection with the acquisition of the Clearlake and Cablevision
systems.
Net loss. Due to the factors described above, we generated a net loss of
approximately $38.0 million for the nine months ended September 30, 1999, as
compared to a net loss of approximately $26.9 million for the nine months ended
September 30, 1998.
EBITDA. EBITDA increased 27.2% to approximately $49.7 million for the nine
months ended September 30, 1999, as compared to approximately $39.1 million for
the nine months ended September 30, 1998. This increase was substantially due
to the reasons noted above. As a percentage of revenues, EBITDA
40
increased to 43.9% for the nine months ended September 30, 1999, as compared to
41.4% for the nine months ended September 30, 1998. On a pro forma basis,
assuming the Clearlake, Cablevision and Caruthersville systems were owned and
operated by us as of January 1, 1998, EBITDA increased 21.6% for the nine
months ended September 30, 1999 over the comparable period in 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
The following historical information for the years ended December 31, 1998
and 1997 includes the results of operations of the Lower Delaware system, which
was acquired on June 24, 1997, the Sun City system, which was acquired on
September 19, 1997, the Clearlake system, which was acquired on January 9,
1998, the Cablevision systems, which were acquired on January 23, 1998, and the
Caruthersville system, which was acquired on October 1, 1998, only for that
portion of the respective period that such cable television systems were owned
by us.
The Cablevision, Caruthersville, Clearlake, Lower Delaware and Sun City
systems comprise a substantial portion of our basic subscribers. At December
31, 1998, these systems served 328,350 basic subscribers, representing 92.8% of
the 354,000 subscribers served by us as of such date. Accordingly, the
Cablevision, Caruthersville, Clearlake, Lower Delaware and Sun City systems
have had a significant impact on the results of operations for the year ended
December 31, 1998, compared to the prior year. Consequently, we believe that
any comparison of our results of operations between the years ended December
31, 1998 and 1997 are not indicative of our results of operations in the
future.
Revenues. Revenues increased to approximately $129.3 million for the year
ended December 31, 1998, as compared to approximately $17.6 million for the
prior year principally due to:
. the inclusion of the results of operations of the Lower Delaware and Sun
City systems for the full year ended December 31, 1998;
. the inclusion of the results of operations of the Clearlake, Cablevision
and Caruthersville systems from their respective acquisition dates;
. an increase in the average monthly basic service rate of $3.34 per basic
subscriber; and
. internal basic subscriber growth of 2.5%.
Service costs. Service costs increased to approximately $43.8 million for
the year ended December 31, 1998, as compared to approximately $5.5 million for
the prior year. Substantially all of this increase was due to the inclusion of
the results of operations of the Cablevision, Caruthersville, Clearlake, Lower
Delaware and Sun City systems. As a percentage of revenues, service costs were
33.9% in 1998, as compared to 31.5% in 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to approximately $25.6 million for the year
ended December 31, 1998, as compared to approximately $2.7 million for the
prior year. Substantially all of this increase was due to the inclusion of the
results of operations of the Cablevision, Caruthersville, Clearlake, Lower
Delaware and Sun City systems. As a percentage of revenues, selling, general
and administrative expenses were 19.8% in 1998, as compared to 15.3% in 1997.
Management fee expense. Management fee expense increased to approximately
$5.8 million for the year ended December 31, 1998, as compared to approximately
$882,000 for the prior year due to the higher revenues generated in 1998.
Depreciation and amortization. Depreciation and amortization increased to
approximately $65.8 million for the year ended December 31, 1998, as compared
to approximately $7.6 million for the prior year. This increase was
substantially due to our acquisitions described above and additional capital
expenditures associated with the upgrade of our systems.
Operating income (loss). Due to the factors described above, we generated an
operating loss of approximately $11.7 million for the year ended December 31,
1998, as compared to operating income of approximately $873,000 for the prior
year.
41
Interest expense, net. Interest expense, net, increased to approximately
$24.0 million for the year ended December 31, 1998, as compared to
approximately $4.8 million for the prior year. This increase was substantially
due to the additional debt incurred in connection with the acquisitions
described above.
Other expenses. Other expenses increased to approximately $4.1 million for
the year ended December 31, 1998, as compared to approximately $640,000 for the
prior year. This increase was substantially due to acquisition fees paid to
Mediacom Management in connection with the acquisitions described above.
Net loss. Due to the factors described above, we generated a net loss of
approximately $39.8 million for the year ended December 31, 1998, as compared
to a net loss of approximately $4.6 million for the prior year.
EBITDA. EBITDA increased to approximately $54.1 million for the year ended
December 31, 1998, as compared to approximately $8.5 million for the prior
year. This increase was substantially due to the inclusion of the results of
operations from the date of their acquisition by us of the Cablevision,
Caruthersville, Clearlake, Lower Delaware and Sun City systems. As a percentage
of revenues, EBITDA decreased to 41.8% for the year ended December 31, 1998, as
compared to 48.3% for the prior year. This decrease was principally due to the
higher programming costs and selling, general and administrative expenses of
the Cablevision, Caruthersville, Clearlake, Lower Delaware and Sun City systems
in relation to the revenues generated by such cable television systems. On a
pro forma basis, assuming the Cablevision, Caruthersville, Clearlake, Lower
Delaware and Sun City systems were owned and operated by us as of January 1,
1997, EBITDA increased 31.9% for the year ended December 31, 1998 as compared
to the prior year.
Year Ended December 31, 1997 Compared to the Period from March 12, 1996 to
December 31, 1996
The following historical information includes the results of operations of
the Ridgecrest system--acquired on March 12, 1996, which is the date of
commencement of our operations, the Kern Valley system--acquired on June 28,
1996, the Valley Center and Nogales systems--acquired on December 27, 1996, the
Lower Delaware system--acquired on June 24, 1997 and the Sun City system--
acquired on September 19, 1997, only for that portion of the respective period
that such systems were owned by us.
Revenues. Revenues increased to approximately $17.6 million for the year
ended December 31, 1997, as compared to approximately $5.4 million for the
period ended December 31, 1996, principally due to the inclusion of:
. the full year of results of operations of the Ridgecrest, Kern Valley,
Nogales and Valley Center systems;
. the results of operations of the Lower Delaware system from the date of
its acquisition on June 24, 1997; and
. the results of operations of the Sun City system from the date of its
acquisition on September 19, 1997.
Service costs. Service costs increased to approximately $5.5 million for the
year ended December 31, 1997, as compared to approximately $1.5 million for the
period ended December 31, 1996. Substantially all of this increase was due to
the inclusion of the results of operations of Lower Delaware and Sun City
systems and the full year of results of the Ridgecrest, Kern Valley, Nogales
and Valley Center systems. As a percentage of revenues, service costs were
31.5% in 1997, as compared to 27.9% in 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to approximately $2.7 million for the year
ended December 31, 1997, as compared to approximately $931,000 for the period
ended December 31, 1996. Substantially all of this increase was due to the
inclusion of the results of operations of the aforementioned acquisitions in
1997 and the full year of results of operations of the Ridgecrest, Kern Valley,
Nogales and Valley Center systems. As a percentage of revenues, selling,
general and administrative expenses were 15.3% in 1997, as compared to 17.2% in
1996.
42
Management fee expense. Management fee expense increased to approximately
$882,000 for the year ended December 31, 1997, as compared to approximately
$270,000 for the period ended December 31, 1996, due to the higher revenues
generated in 1997.
Depreciation and amortization. Depreciation and amortization increased to
approximately $7.6 million for the year ended December 31, 1997, as compared to
approximately $2.2 million for the period ended December 31, 1996. This
increase was substantially due to our acquisitions described above and
additional capital expenditures associated with the upgrade of our systems.
Operating income. Due to the factors described above, we had operating
income of approximately $873,000 for the year ended December 31, 1997, as
compared to operating income of approximately $542,000 for the period ended
December 31, 1996.
Interest expense, net. Interest expense, net, increased to approximately
$4.8 million for the year ended December 31, 1997, as compared to approximately
$1.5 million for the period ended December 31, 1996. This increase was
principally due to the increased levels of debt incurred in connection with the
Lower Delaware and Sun City systems.
Other expenses. Other expenses decreased to approximately $640,000 for the
year ended December 31, 1997, as compared to approximately $967,000 for the
period ended December 31, 1996. This decrease was principally due to pre-
acquisition expenses recorded in 1996.
Net loss. Due to the factors described above, we generated a net loss of
approximately $4.6 million for the year ended December 31, 1997, as compared to
a net loss of approximately $2.0 million for the period ended December 31,
1996.
EBITDA. EBITDA increased to approximately $8.5 million for the year ended
December 31, 1997, as compared to approximately $2.7 million for the prior
year. This increase was substantially due to the inclusion of the results of
operations from the date of their acquisition by us of the Lower Delaware and
Sun City systems and the results of operations of the Ridgecrest, Kern Valley,
Nogales and Valley Center systems for the full year. As a percentage of
revenues, EBITDA decreased to 48.3% for the year ended December 31, 1997, as
compared to 49.9% for the period ended December 31, 1996. This decrease was
principally due to the higher programming costs of the cable television systems
acquired during 1997 in relation to the revenues generated by such cable
television systems.
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 our working capital requirements, capital expenditures and
acquisitions through a combination of internally generated funds, long-term
borrowings and equity contributions. We intend to continue to finance such
expenditures through internally generated funds, long-term borrowings and
equity financings.
During the third quarter of 1998, we modified our previously disclosed five-
year system upgrade program by accelerating its planned completion date to June
30, 2000. Upon completion, we anticipate that 85% of our customers, excluding
the Triax and Zylstra customers, will be served by systems with 550MHz to
750MHz bandwidth capacity. Bandwidth measures the information-carrying capacity
of a communication channel and indicates the range of usable frequencies that
can be carried by a cable television system.
As a result of our accelerated capital improvement program, total capital
expenditures were $53.7 million for the year ended December 31, 1998 and $60.2
million for the nine months ended September 30, 1999. For the year ended
December 31, 1998, and for the nine months ended September 30, 1999, net cash
flows from operations were $53.6 million and $29.8 million, respectively, which
together with borrowings under our subsidiary credit facilities, funded such
capital expenditures. We anticipate that total capital expenditures will be
approximately $80.0 million during 1999, as compared to our original plans to
spend approximately
43
$66.0 million during this fiscal year. This increase is principally due to
expenditures relating to our launch of digital cable and two-way, high-speed
Internet services in several of our systems and to the Triax and Zylstra
systems. We intend to use net cash flows from operations and borrowings under
our subsidiary credit facilities to fund these capital expenditures.
As a result of our recent acquisitions of the Triax and Zylstra systems, we
have updated our capital improvement program and now expect to spend
approximately $400 million over the three-year period ending December 2002, of
which approximately $240 million will be invested to upgrade our cable network
and approximately $160 million will be used for plant expansion, digital
headends and set-top boxes, cable modems and maintenance. The Triax and Zylstra
systems represent 58.0% of total capital spending in this period, including
approximately $150 million of planned investments to upgrade the cable network
of these systems. We expect to fund these expenditures through net cash flows
from operations and additional borrowings under our subsidiary credit
facilities. By December 2002, including the Triax and Zylstra systems, we
anticipate:
. 91% of our basic subscribers will be served by systems with 550MHz
to 750MHz bandwidth capacity and two-way communications capability,
which provides for upstream and downstream communications; and
. 360 headend facilities will be eliminated, resulting in 90 headend
facilities serving all of our basic subscribers and 40 headend
facilities serving 92% of our basic subscribers.
From commencement of our operations in March 1996 through December 1998, we
acquired nine cable systems for an aggregate purchase price of $432.4 million,
before closing costs and adjustments. In October and November 1999, we spent
$759.6 million, before closing costs and adjustments, to acquire the Triax and
Zylstra systems.
To finance our acquisitions, working capital requirements and capital
expenditures and to provide liquidity for future capital needs, we had
completed the following financing arrangements as of December 1999:
. $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 facility expiring in September
2008;
. $550.0 million subsidiary credit facility expiring in December 2008;
and
. $135.4 million of equity capital contributed by the members of
Mediacom LLC.
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 December 15, 1999, we had entered into interest rate swap agreements,
which expire from 2000 through 2002, to hedge $50.0 million of floating rate
debt under our subsidiary credit facilities. As of such date, the weighted
average interest rate on all indebtedness outstanding under our subsidiary
credit facilities was 8.4%, before giving effect to these interest rate swap
agreements. As of December 15, 1999, we had approximately $282.6 million of
unused credit commitments.
The proceeds from this offering will reduce the indebtedness under our
subsidiary credit facilities. This reduction of indebtedness will increase our
existing borrowing capacity under our subsidiary credit facilities, which will
fund the upgrade of our systems and future acquisitions, including our pending
acquisitions. In addition, borrowings under our subsidiary credit facilities
may be used for general corporate purposes, including working capital
requirements.
We are regularly presented with opportunities to acquire cable systems that
are evaluated on the basis of our acquisition strategy. Although we presently
do not have any definitive agreements or letters of intent to acquire or sell
any of our cable systems, other than the five letters of intent to acquire the
systems serving approximately 28,000 basic subscribers, from time to time we
negotiate with prospective sellers to acquire additional cable systems. These
potential acquisitions are subject to the negotiation and completion of
definitive
44
documentation, which will include customary representations and warranties and
will be subject to a number of closing conditions. No assurance can be given
that such definitive documents will be entered into or that, if entered into,
the acquisitions will be completed.
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 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 Pronouncements
In 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued. SFAS 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. We will adopt SFAS 133 in 2001, but have not
quantified the impact or not yet determined the timing or method of the
adoption.
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.
Year 2000 Compliance
We have formed a Year 2000 program management team responsible for
overseeing, coordinating and reporting on the Year 2000 remediation efforts. We
have implemented a company-wide effort to assess and remediate our computer
systems, related software and equipment to ensure such systems, software and
equipment recognize, process and store information in the year 2000 and
thereafter. Our Year 2000 remediation efforts include an assessment of our most
critical systems, such as customer service and billing systems, headend
facilities, business support operations and other equipment and facilities. We
are also verifying the Year 2000 readiness of our non-information technology
systems and of our significant suppliers and vendors.
Our Year 2000 program management team has defined a four-phase approach to
determining the Year 2000 readiness of our internal systems, software and
equipment. This approach is intended to provide a detailed method for tracking
the evaluation, repair and testing of systems, software and equipment, as
follows:
1. Assessment--involves the inventory of all systems, software and
equipment and the identification of any Year 2000 issues.
2. Remediation--involves repairing, upgrading and/or replacing any non-
compliant equipment and systems.
3. Testing--involves testing systems, software and equipment for Year
2000 readiness, or in certain cases, relying on test results provided to us
by outside vendors.
4. Implementation--involves placing compliant systems, software and
equipment into production or service.
As of December 15, 1999, our assessment and remediation were substantially
complete, other than the Triax and Zylstra systems, and testing and
implementation were substantially complete, with final completion expected by
December 31, 1999.
The completion dates set forth above are based on current expectations.
However, due to the uncertainties inherent in Year 2000 remediation, no
assurances can be given as to whether such projects will be completed on such
dates.
45
We acquired the Zylstra systems in October 1999 and the Triax systems in
November 1999, and we are monitoring the Year 2000 remediation process for such
systems to ensure completion of remediation promptly after acquisition of these
systems. We expect to be complete with testing and implementation of the Triax
and Zylstra systems by December 31, 1999. However, we cannot determine at this
time the materiality of information technology and non-information technology
issues, if any, relating to the Year 2000 problem affecting those cable
systems. We have included these acquisitions in our Year 2000 program, and we
are not currently aware of any likely material system failures relating to the
Year 2000 affecting those systems.
Third Party Systems, Software and Equipment
We purchase most of our technology from third parties. Our Year 2000 program
management team has surveyed the significant third-party vendors and suppliers
whose systems, services or products are important to our operations: for
example, suppliers of addressable controllers and set-top boxes, and the
provider of billing services. The Year 2000 readiness of such providers is
critical to the continued provision of cable television service without
interruption. Our Year 2000 project management team has received information
that the most critical systems, services or products supplied to our cable
television systems by third-parties are either Year 2000 ready or are expected
to be Year 2000 ready by the fourth quarter. Our Year 2000 project management
team is developing contingency plans for systems provided by vendors who have
not responded to its surveys or systems that may not be Year 2000 ready in a
timely fashion. As of September 30, 1999, approximately 20% of our significant
third-party vendors had not responded to the project management team surveys.
In addition to the survey process described above, our Year 2000 project
management team has identified our most critical supplier/vendor relationships
and has instituted a verification process to determine the vendors' Year 2000
readiness. Such verification includes reviewing vendors' test and other data
and engaging in regular communications with vendors' Year 2000 teams. We are
currently testing to validate the Year 2000 compliance of critical products and
services.
Costs
As of September 30, 1999, we have not incurred material Year 2000 costs.
Although no assurances can be given, we currently expect that the total
projected costs associated with the Year 2000 program for our existing
operations will be less than $350,000.
Contingency Plans
The failure to correct a material Year 2000 problem could result in an
interruption or failure of important business operations. We believe that our
Year 2000 program will significantly reduce risks associated with the
changeover to the Year 2000 and are currently developing contingency plans to
minimize the effect of any potential Year 2000 related disruptions which relate
to systems, software, equipment and services that we have deemed critical in
regard to customer service, business operations, financial impact or safety.
Possibilities of our worst-case business disruptions include:
. the failure of addressable controllers contained in some headend
facilities could disrupt the delivery of premium services to customers
and could necessitate crediting customers for failure to receive such
premium services;
. a failure of the services provided by our billing systems service
provider could result in a loss of customer records which could disrupt
the ability to bill customers for a protracted period; and
. advertising revenue could be adversely affected by the failure of
advertising insertion equipment which could impede or prevent the
insertion of advertising spots in cable television programming.
The financial impact of any or all of the above worst-case scenarios has not
been and cannot be estimated by us due to the numerous uncertainties and
variables associated with such scenarios. Our Year 2000 program calls for
appropriate contingency planning for our at-risk business functions. In
addition, as part of our routine operations, contingency plans are in place to
minimize disruption of service to our customers and other critical business
functions.
46
INDUSTRY
Unless otherwise specified, all cable television industry statistical data
in this prospectus are from Paul Kagan Associates, Inc., a leading cable
television industry publisher.
The U.S. cable television industry is projected to pass 96.6 million homes
and serve 67.3 million basic subscribers, representing a penetration of 69.7%,
as of December 31, 1999. Over the past six years, the industry has experienced
a compound annual growth rate of 2.7% in basic subscribers and 8.4% in total
revenues. It is estimated that the annual revenues of the U.S. cable television
industry will be $36.9 billion in 1999 and will grow to $66.4 billion in 2004.
The following table details the projected revenues and growth rates of core
cable services, digital video, high-speed data and telephony from 1999 to 2004:
Compound
Annual
Growth
1999 2004 Rate
---------- ---------- --------
(dollars in millions)
Core cable services(1)..................... $34,384 $45,892 5.9%
Digital video(2)........................... 1,275 8,091 44.7
High-speed data............................ 503 3,805 49.9
Telephony(3)............................... 727 8,602 63.9
---------- ----------
Total revenues ........................ $36,889 $66,390 12.5%
========== ==========
------------
(1) Includes basic cable, premium services, advanced analog,
local advertising, home shopping, equipment rental and
installation.
(2) Includes digital video, pay-per-view, near video-on-
demand, video-on-demand and other interactive services.
Near video-on-demand is a pay-per-view service that
allows customers to select and order a movie of their
choice from a selection of movies being broadcast on
several dedicated channels. Each movie is broadcast on
multiple channels to offer the customer several start
times for the same movie. Video-on-demand is a pay-per-
view service that allows customers to select and order a
movie of their choice on demand from a large library of
movies.
(3) Includes business and residential.
The compound annual growth rate in revenues from core cable services is
projected to slow to 5.9% as a result of increased competition in the
multichannel video marketplace and lower subscriber growth rates. We believe,
however, that the cable industry's higher projected total revenues growth
during the next five years will be fueled by a dramatic increase in consumer
awareness of and demand for new broadband services.
. Digital Video. On an industry-wide basis, 5.1 million customers are
projected to subscribe to a digital cable service as of December 31,
1999. By the end of 2000, the number of digital service customers is
projected to increase to 10.6 million, representing a penetration of
15.6% of basic subscribers, and to 33.6 million by 2004, representing a
penetration of 47.3% of basic subscribers.
. Two-Way, High-Speed Data. Cable companies currently deliver Internet
services to over 200 markets throughout the United States, and over 1.6
million households are projected to receive Internet access from their
cable providers by December 31, 1999. The number of homes passed by
cable systems offering high-speed, residential cable Internet services
is projected to increase from 29.0 million homes in 1999 to 39.0 million
homes by 2000 and to 62.9 million homes by 2004. The number of high-
speed Internet service customers is expected to be 3.3 million by the
end of 2000, representing a penetration of 3.4% of homes passed, and is
further expected to increase to 12.7 million homes by the end of 2004,
representing a penetration of 12.5% of homes passed.
. Telephony. The number of cable telephony customers is expected to be
600,000 by the end of 2000, representing a penetration of 9.0% of the
marketed homes, and 9.8 million customers by 2004, representing a
penetration of 25.0%.
47
We believe that the increase in consumer demand for and availability of new
broadband services will be driven largely by the following developments:
Internet
A significant development for the cable television industry has been the
emergence of the Internet as a mass medium for commerce and communications.
International Data Corporation estimates that there were approximately 142
million worldwide users of the Internet at the end of 1998 and that the number
of users will grow to 502 million by the end of 2003. The growth in the number
of users, together with the wealth of content available on the Internet, have
led to sharp increases in the daily traffic volume on the Internet. The ability
of Internet service providers to attract and retain customers is largely based
on their capacity to deliver content quickly and reliably. The combination of
richer content and rapidly increasing volume of usage on the Internet can
lengthen the time required for a user to download information over traditional
telephone networks. This has caused Internet users to seek alternative
providers, such as cable television operators, that have the technical
infrastructure to deliver higher speeds.
Telecommunications Act of 1996
The Telecommunications Act of 1996, the first comprehensive revision of the
federal telecommunications laws since 1934, has led to a sharp acceleration of
the industry's evolution. Among other things, this new law intended to promote
competition in the local telephone markets for the first time. Today, several
of the nation's largest cable operators offer local phone service. We believe
recent developments, including AT&T's purchase of Tele-Communications, Inc.,
AT&T's proposed purchase of MediaOne, Inc. and AT&T's proposed joint ventures
with six other cable operators, will likely accelerate the pace of development
of the voice telephony business for the cable industry.
Competition
Cable television operators face increasing competition from satellite,
wireless and wireline competitors in the delivery of multichannel video
programming. From 1993 to 1999, these alternative providers increased their
market share from 3.1% to nearly 16.0% of total television households. During
this same period, however, cable television's penetration of homes passed
increased from 63.1% to 69.7% due to the cable industry's introduction of an
array of core cable products and services, greater technical reliability of its
network and the enhanced quality of its customer service which has resulted in
improved customer satisfaction. In response to increasing competition and to
meet the growing needs of their customers, cable operators are rapidly
upgrading their broadband networks with new technologies to provide their
customers with new and enhanced products and services.
Technology
Most cable operators' upgrade programs feature the use of high capacity,
hybrid fiber optic coaxial architecture in their network design. 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 is the most efficient delivery medium for the
connection to the home. As a result, fiber optics and advanced transmission
technology has made it cost-effective for cable operators to consolidate
headends to create large regional networks. This modern network architecture
can provide cable customers with a wide array of enhanced video, voice and
high-speed data communications possibilities. The cable television industry as
a whole invested in excess of $7.7 billion in 1998 to maintain and upgrade
cable networks, creating an enhanced platform for the delivery of digital
television, two-way, high-speed Internet access, interactive services and
telephony.
48
BUSINESS
Introduction
We are the eighth largest cable operator in the United States, based on
customers served by wholly-owned systems after giving effect to our pending
acquisitions and recently announced industry transactions. Our cable systems
pass approximately 1.1 million homes and serve approximately 744,000 basic
subscribers, including our pending acquisitions. We were founded in July 1995
by Rocco B. Commisso, our Chairman and Chief Executive Officer, to acquire and
develop cable television systems serving principally non-metropolitan markets
of the United States.
Since commencement of our operations in March 1996, we have experienced
significant growth in basic subscribers, revenues and cash flows. We have
deployed a disciplined strategy of acquiring underperforming cable systems
primarily in markets with favorable demographic profiles. Through September
1999, we spent approximately $432.4 million to complete nine acquisitions of
cable systems that served 358,000 basic subscribers. In October and November
1999, we acquired for approximately $759.6 million the cable systems of Triax
and Zylstra that served 358,000 basic subscribers as of September 30, 1999. On
a pro forma basis, in 1998 our revenues were $272.3 million, EBITDA was $124.5
million, operating loss was $50.5 million and net loss was $114.5 million. On
the same basis, for the nine months ended September 30, 1999, our revenues were
$218.6 million, EBITDA was $103.6 million, operating loss was $42.2 million and
net loss was $88.2 million.
We also have generated strong internal growth and improved the operating and
financial performance of our systems. These results have been achieved
primarily through the introduction of an expanded array of core cable
television products and services made possible by the rapid upgrade of our
cable network. Assuming all our systems, excluding the Triax and Zylstra
systems, were acquired on January 1, 1997, in 1998 our revenues grew by 13.0%,
EBITDA increased by 31.9%, the EBITDA margin improved from 35.1% to 41.0% and
our internal subscriber growth was 2.5% compared to the prior year. Based on
the same assumptions, for the nine months ended September 30, 1999, our
revenues grew by 11.8%, EBITDA increased by 21.6%, the EBITDA margin improved
from 40.4% to 43.9% and our internal subscriber growth was 1.8% compared to the
corresponding period in 1998.
Business Strategy
Our objective is to become the leading cable operator focused on providing
entertainment, information and telecommunications services in non-metropolitan
markets of the United States. The key elements of our strategy are to:
Improve the Operating and Financial Performance of Our Acquired 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 are managed through six operating clusters, including the Triax
and Zylstra systems, by local management teams that oversee system activities
and operate autonomously within financial and operating guidelines established
by our corporate office. 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.
49
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. As a result of our clustering and upgrade
program, we expect to reduce the number of our headend facilities from 450 as
of September 30, 1999 to 90 by December 2002, so that 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 91% of our basic subscribers
will be served by cable systems with 550MHz to 750MHz 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, two-way, high-speed Internet access and
interactive video;
. 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 360 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 prior to our ownership generally
underserved their customers. 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 December
1999, we offered digital cable services in systems passing 243,000 homes. As a
result of our strategic relationship with SoftNet's ISP Channel, we expect to
accelerate the deployment of two-way, high-speed Internet access throughout our
systems. As of December 1999, we had deployed ISP Channel's two-way, high-speed
Internet access service in systems passing over 177,000 homes. In addition, we
are currently exploring opportunities in interactive video programming and
telecommunications services.
Maximize Customer Satisfaction to Build Customer Loyalty
As a result of our strong regional and local management presence, we are
more 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 87% 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
50
our reputation in the communities we serve, which has increased customer
loyalty and the potential demand for our new and enhanced products and
services.
Acquire Underperforming Cable Systems Principally in Non-Metropolitan Markets
Our disciplined acquisition strategy targets underperforming cable systems
serving primarily non-metropolitan markets with favorable demographic profiles.
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. Our markets
have attractive demographic characteristics, including household growth rates
that on average are higher than the national average. According to National
Decision Systems, the projected household growth in areas served by our systems
is 5.4% for the period ending 2004, exceeding the projected U.S. household
growth of 5.2% for the same period. 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 believe that
we may be able to purchase fill-in acquisitions at favorable prices in
geographic regions where we are the dominant provider of cable television
services. In the second half of 1999, we signed five letters of intent to
acquire cable systems serving approximately 28,000 subscribers located in close
proximity to our systems, thereby complementing our operating clusters.
Implement a Flexible Financing Structure
To support our business strategy and enhance our financial flexibility, we
have developed 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 at the
holding company level, while utilizing our 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 equity and 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. We intend to use the net proceeds of
this offering to repay approximately $326.4 million of outstanding indebtedness
under our subsidiary credit facilities. As a result, on a pro forma basis for
the offering, we will reduce our financial leverage, increase our unused credit
commitments to approximately $609 million and lower our overall cost of debt
capital to 7.4%.
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 have begun
to offer our customers new and enhanced products and services such as digital
cable services and two-way, high-speed Internet access. We also are exploring
opportunities in interactive video programming and telecommunications services.
51
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 offering includes the following:
Limited Basic. Our limited basic service includes, for a monthly fee, local
broadcast channels, network and independent stations, available over-the-air
limited satellite-delivered programming, and local public, government, home-
shopping and leased access channels.
Family Cable. Our Family Cable service includes, for an additional monthly
fee, various satellite-delivered, non-broadcast channels such as CNN, MTV, USA
Network, ESPN, Lifetime, Nickelodeon and TNT.
Premium Channels. These 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. These channels 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 is a computerized method of defining, transmitting
and storing information that makes up a television signal. Digital video
technology allows us to greatly increase our channel offerings through the use
of compressed digital video technology, which converts one analog channel into
eight to 12 digital channels. The digitally compressed signal is uplinked to a
satellite, which sends the signal back down to our cable system's headend to be
distributed, via optical fiber and coaxial cable, to our customer's home. A
digital capable set-top box in the customer's home converts the digital signal
back into an analog format so that it can be viewed on a normal television
screen. We believe the implementation of digital technology has significantly
enhanced and expanded the video and service offerings we provide to our
customers.
We provided our digital video customers with programming packages that
include:
. up to 41 multichannel premium services;
. 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 introduced digital cable services in June 1999. To date, we have achieved
a penetration of 7.4%, representing the number of digital customers as a
percentage of basic subscribers, in the two systems where digital cable
services have been available since June 1999. For the month of November 1999,
per customer revenue was approximately $20.04 for our digital service. As of
December 1999, we offered digital cable services in systems passing
approximately 243,000 homes. We expect to rapidly introduce digital cable
52
television in our remaining systems, including the Triax and Zylstra systems,
as we upgrade our cable network and consolidate our headend facilities.
High-Speed Internet Access
We plan to introduce two-way, high-speed Internet access over our network in
substantially all of our systems. The 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
download 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 two-way communications capability of the cable
Internet connection eliminates the need for a telephone line, is always on and
does not require the customer to dial into the Internet service provider and
await authorization.
To ensure that inter-operable, non-proprietary cable modems are made
available for purchase by customers on a retail basis, the cable industry has
developed general software operating standards, known as data over cable
service interface specifications. As of December 1999, thirteen cable industry
vendors, including equipment manufacturers such as Cisco, General Instrument,
Phillips Electronics, Samsung, Scientific-Atlanta, Sony, Thomson and Toshiba,
received official certification from Cable Television Laboratories. As a
result, standardized cable modems are currently available for purchase through
various distribution channels including retail outlets, bundled with personal
computer purchases, and directly through the cable operator. Such availability
will allow customers to use these modems in different systems similar to the
traditional telephone modem, and should accelerate the deployment of high speed
internet access over cable networks.
We believe that the speed, ease of installation and ubiquity of cable modems
will increase the use and impact of the Internet. Furthermore, we believe that
the cable television network combined with data over cable service interface
specifications is currently the best vehicle to deliver all Internet protocol
services including Internet access, broadband content, streaming media and
Internet protocol telephony to our customers both on the computer and to the
television via a digital set-top box, even though other high-speed alternatives
are being developed.
In November 1999, we completed an agreement with SoftNet to deploy its two-
way, high-speed Internet access services throughout our cable systems. The
service will be marketed under SoftNet's branded name, ISP Channel. ISP Channel
also provides several additional services, such as the ability to dial-up from
the customer's home or business, multiple computer access and Internet fax
services. Through the agreement with SoftNet, we are required to upgrade our
cable network to provide two-way communications capability in systems passing
900,000 homes, including the Triax and Zylstra systems, and make available such
homes to SoftNet by December 2002. As of December 1999, we had deployed ISP
Channel's two-way, high-speed Internet access service in systems passing over
177,000 homes.
We currently provide high-speed Internet access to approximately 300
customers through the use of one-way cable modems, which permit data to be
downstreamed at high-speed while utilizing a telephone line return path. We
also provide dial-up telephone Internet access to approximately 4,500 customers
in two of our markets. The provision of this dial-up service creates a customer
base that can be upgraded to the two-way, high-speed cable modem service in the
future.
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 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.
53
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 and Source Media. TV Guide Interactive provides the most basic
enhanced television service, a navigator that permits customers to customize
television program listings, set reminders and parental controls and order pay-
per-view events. Wink offers viewers the opportunity to interact with the
television during programs or commercials by way of flashing icons, leading
them to program-related information, such as news, sports and weather, or the
ability to purchase merchandise, or request product samples, coupons or
catalogues. Source Media allows viewers to receive local programming and
information services using a local guide and navigator with an Internet style
experience.
Companies providing Internet access over the television include WebTV and
WorldGate Communications. Internet access and e-mail are delivered using a set-
top box with the customer using a wireless keyboard. WebTV customers buy the
set-top device at retail outlets and are able to view enhanced web images on
the television screen. WorldGate Communications allows a viewer watching a
commercial or program on the television to link directly to a related web page
and requires no purchase by the customer of the set-top box. WorldGate
Communications uses the set-top boxes now being deployed by the cable industry.
Companies providing video-on-demand such as DIVA Systems Corporation and
Intertainer Inc. use 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. Using a remote control, customers order programming through
their set-tops that signals the server, enabling hardware and software residing
at the headend facility.
While we have not entered into any agreements with any interactive service
providers, we are in discussions with several such providers and plan to
introduce interactive services to our customers in 2000.
Telecommunications Services
During the last several years, the cable industry has been developing the
capability to provide telephony services. Several of the nation's largest cable
operators now offer residential and/or commercial phone service. We believe
recent developments, including AT&T's purchase of Tele-Communications, Inc.,
its proposed purchase of MediaOne, Inc. and its proposed joint ventures with
six other cable operators, will likely accelerate the pace of development of
the voice telephony business for the cable industry. 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 expect to construct our networks with excess fiber optic capacity,
thereby affording us the flexibility to pursue new data and telecommunications
opportunities such as:
. providing wide-area networks, which extends a local area network outside
one building to other local area networks in other buildings and in
possibly other cities;
. providing point-to-point data services, which is a secure circuit that
directly connects two points;
. offering virtual private networks, which use a shared data network to
transport private data reliably and securely;
. leasing dark fiber capacity to enable carriers to penetrate markets and
bypass incumbent providers; and
. entering into strategic relationships, similar to our relationship with
SoftNet, to leverage our network footprints.
Our Systems
Overview
Prior to the acquisitions of the Triax and Zylstra systems, we managed our
systems through four operating regions: Southern, Mid-Atlantic, Central and
Western. The table below and the discussion that follows provide
54
an overview of selected operating and technical statistics for our four
established regions and the Triax and Zylstra systems as of September 30, 1999,
unless otherwise indicated.
Southern Mid-Atlantic Central Western Triax Zylstra Total
-------- ------------ ------- ------- ------- ------- ---------
Operating Data:
Homes passed............... 191,700 126,000 125,500 81,800 522,500 21,500 1,069,000
Basic subscribers.......... 135,200 88,300 81,200 53,300 344,000 14,000 716,000
Basic penetration.......... 70.5% 70.1% 64.7% 65.2% 65.8% 65.1% 67.0%
Premium service units...... 185,400 80,900 107,100 23,100 167,000 4,000 567,500
Premium penetration........ 137.1% 91.6% 131.9% 43.3% 48.5% 28.6% 79.3%
Average monthly revenues
per basic subscriber(1).. $37.51 $34.89 $35.07 $37.48 $33.16 $29.41 $34.65
Cable Network Data:
Miles of plant............. 4,850 2,980 2,990 1,370 9,800 280 22,270
Density(2)................. 40 42 42 60 53 77 48
Headend facilities......... 53 12 66 9 305 5 450
Headend facilities after
upgrades(3)............... 10 7 18 9 42 4 90
Percentage of basic
subscribers
at 550MHz to 750MHz....... 66.6% 93.9% 65.8% 65.7% 30.3% 31.4% 51.7%
- ---------------------
(1) Represents average monthly revenues for the three months ended September
30, 1999, divided by average basic subscribers for such period.
(2) Represents homes passed divided by miles of plant.
(3) Represents number of headend facilities by December 2002 based on our
current upgrade program.
Southern Region
Over 82% of our basic subscribers in this region are located in the suburbs
and outlying areas of Pensacola, Fort Walton Beach and Panama City, Florida;
Mobile and Huntsville, Alabama and Biloxi, Mississippi. As of September 30,
1999, the region's systems passed approximately 191,700 homes and served
approximately 135,200 basic subscribers. The internal subscriber growth for
this region was 2.7% for the period ending September 30, 1999. We measure
internal subscriber growth as the percentage change in basic subscribers over a
12-month period, excluding the effects of acquisitions. According to National
Decision Systems, the projected household growth in areas served by the
Southern region's systems is 8.8% for the period ending 2004, exceeding the
projected U.S. household growth of 5.2% for the same period. All of the
region's basic subscribers are serviced from a regional customer service center
in Gulf Breeze, Florida, which provides 24 hour, seven day per week service.
We have made and continue to make significant investments to upgrade the
Southern region's cable network. By June 2000, we expect that 85% of this
region's basic subscribers will be served by systems with 550MHz to 750MHz
bandwidth capacity. As of December 1999, we offered digital cable services in
systems passing 73,000 homes and ISP Channel's Internet services in systems
passing 53,000 homes. By December 2002, we anticipate that 95% of the region's
basic subscribers will be served by systems with two-way communications
capability and that the number of headend facilities will be reduced from 53 to
ten. At that time, we expect that 85% of this region's basic subscribers will
be served by five headend facilities.
Mid-Atlantic Region
The Mid-Atlantic region's systems serve communities in lower Delaware,
southeastern Maryland and the northeastern and western areas of North Carolina.
Our two largest systems in this region are Hendersonville, North Carolina, near
Asheville, North Carolina, and Lower Delaware, outside of Ocean City, Maryland.
As of
55
September 30, 1999, the region's systems passed approximately 126,000 homes and
served approximately 88,300 basic subscribers. According to National Decision
Systems, the projected household growth in areas served by the Mid-Atlantic
region's systems is 8.6% for the period ending 2004, exceeding the projected
U.S. household growth of 5.2% for the same period. The internal subscriber
growth for this region was 2.4% for the period ending September 30, 1999.
Approximately 65% of the region's basic subscribers are serviced from our
regional customer service centers, which provide 24 hour, seven day per week
service.
We have significantly upgraded the Mid-Atlantic region's systems with 92% of
basic subscribers served by systems with at least 550MHz bandwidth capacity. As
of December 1999, we offered digital cable services in systems passing 77,000
homes and ISP Channel's Internet services in systems passing 45,000 homes. By
December 2002, we expect that 95% of the region's basic subscribers will be
served by systems with two-way communications capability and that the number of
headend facilities will be reduced from 12 to seven. At that time, we expect
that 94% of the region's basic subscribers will be served by three headend
facilities.
Central Region
The Central region's systems serve the suburbs and outlying areas of Kansas
City and Springfield, Missouri, Topeka, Kansas, and communities in the western
portion of Kentucky. As of September 30, 1999, the region's systems passed
approximately 125,500 homes and served approximately 81,200 basic subscribers.
The internal subscriber growth rate of this region was 0.6% for the period
ending September 30, 1999. According to National Decision Systems, the
projected U.S. household growth in areas served by the Central region's systems
is 4.7% for the period ending 2004, as compared to the projected U.S. household
growth of 5.2% for the same period. Substantially all of the region's basic
subscribers are serviced from our regional customer service centers, which
provide 24 hour, seven day per week service.
As a result of our continuing investments in the cable network, the Central
region has seen significant increases in channel capacity. By June 2000, we
expect that 89% of this region's basic subscribers will be served by one system
with 550MHz to 750MHz bandwidth capacity. As of December 1999, we offered
digital cable services in systems passing 21,000 homes and ISP Channel's
Internet services in systems passing 12,000 homes. By December 2002, we expect
that 90% of the Central region's basic subscribers will be served by systems
with two-way communications capability and that the number of headend
facilities will be reduced from 66 to 18. At that time, we expect that 60% of
the region's basic subscribers will be served by three headend facilities.
Western Region
The Western region's systems serve communities in the following areas:
Clearlake, California; the Indian Wells Valley in central California; portions
of Riverside County and San Diego County, California; and Nogales, Arizona and
outlying areas. As of September 30, 1999, the region's systems passed
approximately 81,800 homes and served approximately 53,300 basic subscribers.
The region's internal basic subscriber growth was flat for the period ending
September 30, 1999. According to National Decision Systems, the projected
household growth in areas served by the Western region's systems is 6.7% for
the period ending 2004, exceeding the projected U.S. household growth of 5.2%
for the same period. The region's basic subscribers are serviced from seven
local offices. In the Western Region, we also provide high-speed Internet
access to approximately 300 customers through the use of one-way cable modems
and dial-up telephone Internet access to approximately 4,500 customers.
We have significantly upgraded the Western region's systems with all basic
subscribers served by systems with a minimum 450MHz bandwidth capacity and over
65% served by systems with 550MHz bandwidth capacity. As of December 1999, we
offered digital cable services in systems passing 46,000 homes and ISP
Channel's Internet services in systems passing over 42,000 homes. Where
possible we plan to offer to all our existing Internet customers ISP Channel's
two-way, high-speed services. By December 2002, we expect that 90% of the
Western region's basic subscribers will be served by systems with at least
550MHz bandwidth capacity and two-way communications capability. The region's
basic subscribers are served by nine headend facilities.
56
Triax Systems
As of September 30, 1999, the Triax systems passed approximately 522,500
homes and served approximately 344,000 basic subscribers. Many of Triax's
systems are located within 30 miles of major or medium-sized markets, including
Minneapolis and Rochester, Minnesota; Bloomington, Champaign, Decatur, Peoria,
and Springfield, Illinois; Elkhart, Fort Wayne, and South Bend, Indiana; and
Cedar Rapids, Iowa. Substantially all of Triax's basic subscribers are serviced
from two regional customer service centers, which provide 24 hour, seven day
per week service. The Triax systems also include two systems serving
approximately 8,000 customers in Arizona, which our Western region will manage
and operate.
The Triax systems consist of two operating regions: the Midwest region and
the North Central region. The Midwest region manages and operates systems
serving approximately 173,500 basic subscribers principally in Illinois and
Indiana. The Midwest region's larger systems serve the communities of
Jacksonville, Ottawa, Pontiac and Streater, Illinois and Angola, Auburn,
Bluffton, Bremen, Kendallville and North Webster, Indiana. According to
National Decision Systems, the projected household growth in areas served by
the Midwest region's systems is 3.5% for the period ending 2004, as compared to
the projected U.S. household growth of 5.2% for the same period.
The North Central region manages and operates systems serving approximately
162,500 basic subscribers principally in Iowa, Minnesota and Wisconsin. The
North Central region's larger systems serve the communities of Lake Minnetonka,
Savage and Prior Lake, Minnesota; Praire du Chien, Mauston, Platteville and
Viroqua, Wisconsin; and Esterville and Spencer, Iowa. According to National
Decision Systems, the projected household growth in areas served by the North
Central region's systems is 3.5% for the period ending 2004, as compared to the
projected U.S. household growth of 5.2% for the same period.
As of September 30, 1999, approximately 62% of Triax's subscribers were
served by systems with at least 400MHz bandwidth capacity. As of December 1999,
we offered digital cable services in systems passing 20,000 homes and ISP
Channel's Internet services in systems passing 25,000 homes. We plan to make
significant capital investments in the Triax systems to increase bandwidth
capacity, activate two-way communications capability and consolidate headend
facilities. By December 2002, as a result of our planned investments to upgrade
Triax's cable network, we expect that 88% of Triax's basic subscribers will be
served by systems with 550MHz to 750MHz bandwidth capacity and two-way
communications capability. At that time, we expect the number of Triax's
headend facilities will be reduced from 305 to 42 and that 60% of Triax's basic
subscribers will be served by five headend facilities.
Zylstra Systems
The Zylstra systems serve communities in Vermillion and Yankton, South
Dakota; Worthington and Luverne, Minnesota; and Orange City and Alton, Iowa. As
of September 30, 1999, these systems passed approximately 21,500 homes and
served approximately 14,000 basic subscribers. We anticipate expanding the
level of customer service that Zylstra's subscribers receive by utilizing our
customer service centers to provide 24 hour, seven day per week service. The
Zylstra systems are now part of our North Central region.
As of September 30, 1999, approximately 66% of Zylstra's subscribers were
served by systems with at least 400MHz bandwidth capacity. As of December 1999,
we offered digital cable services in one system passing over 6,000 homes. By
December 2001, we expect that all of the Zylstra systems will be upgraded to
750MHz bandwidth capacity and that digital cable and ISP Channel's Internet
services will be made available to our customers. Zylstra's basic subscribers
are served by five headend facilities, one of which is scheduled to be
eliminated.
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 plan to make significant investments in
57
our cable network, including the Triax and Zylstra systems, over the three-year
period ending December 2002. During such period, we intend to invest
approximately $400 million, with approximately $240 million used to upgrade our
cable network. The remaining $160 million will be spent on plant expansion,
digital headends and set-top boxes, cable modems and maintenance. The
objectives of our upgrade program are:
. to increase the bandwidth capacity to 750MHz or higher;
. to activate two-way communications capability;
. to consolidate our headend facilities, through the extensive deployment
of fiber optic networks; and
. to allow us to provide digital cable television, two-way, high-speed
Internet access, interactive video and other telecommunications
services.
The following table describes the technological state of our cable network,
including the Triax and Zylstra systems, as of September 30, 1999 and through
December 31, 2002, based on our current upgrade plans:
Percentage of Basic Subscribers
---------------------------------
Less than 400MHz- 550MHz- Two-Way
400MHz 450MHz 750MHz Capable
--------- ------- ------- -------
September 30, 1999....................... 25% 23% 52% 6%
December 31, 1999........................ 19% 23% 58% 11%
December 31, 2000........................ 7% 21% 72% 41%
December 31, 2001........................ 0% 19% 81% 65%
December 31, 2002........................ 0% 9% 91% 91%
By December 2002, we expect that 91% of our basic subscribers will be served
by systems with two-way communications capability. This 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. Two-way
communications 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.
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 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 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. We
believe hybrid fiber optic coaxial architecture provides higher capacity,
superior signal quality, greater network reliability and reduced operating
costs than traditional cable network design. Together with our plans for two-
way communications capability, we believe hybrid fiber optic coaxial
architecture will enhance our cable network's capability to provide advanced
telecommunications services.
As of September 30, 1999, our systems were operated from 450 headend
facilities, including the Triax and Zylstra systems. 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
360 headend facilities so that all of our customers will be served by 90
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
58
services. We expect to construct our regional networks with excess fiber optic
capacity in order 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 counter
effectively 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.
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 approximately 100 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. A multiple
system operator is a cable television operator that owns or operates more than
one cable television system. The consortium helps create efficiencies in the
areas of obtaining and administering programming contracts, as well as secures
more favorable programming rates and contract terms for small to medium-sized
cable operators. We intend to 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 1999 and beyond. 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.
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Currently, there are over 150 cable networks seeking to be carried on our
systems. We leverage our analog and digital channel capacity resulting from our
capital improvement program to negotiate with our programming suppliers more
favorable long-term contracts and 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 September 30, 1999,
excluding the Triax and Zylstra systems, our monthly basic service rates for
residential customers ranged from $4.93 to $35.95; the combined monthly basic
and expanded basic service rates for residential customers ranged from $23.95
to $36.95; and per-channel premium service rates, not including special
promotions, ranged from $1.75 to $12.50 per service for our systems, excluding
the Triax and Zylstra systems. For the three months ended September 30, 1999,
excluding the Triax and Zylstra systems, the weighted average monthly rate for
our combined basic and expanded basic services was approximately $27.35.
Prior to our acquisition of the Triax systems, we were an eligible small
cable company under FCC rules which enabled us to utilize a simplified rate
setting methodology for most of the systems in establishing maximum rates for
basic and expanded basic services. This methodology almost always results in
rates that exceed those produced by the cost-of-service rules applicable to
larger cable operators. The cost-of-service rules refer to the rate setting
methodology prescribed by the FCC. Prior to our acquisition of their systems,
Triax also used the simplified rate setting methodology, although in a small
percentage of their systems. Although we are no longer an eligible small cable
company, in most cases, our systems which utilized this methodology, including
the recently acquired Triax systems, are allowed to maintain the rates set
thereby. For additional information, see "Legislation and Regulation--Federal
Regulation--Rate Regulation." We believe that our rate practices are generally
consistent with the current practices in the industry.
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 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 modest amounts of 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. We expect to increase the sale of
advertising time and the revenues derived from such sales as a result of the
consolidation of our headend facilities. This consolidation will significantly
increase the number of customers we serve from many of our headend facilities
which we expect will result in increased 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 as it will enhance the reliability of
our cable network and allow us to introduce new programming and other 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 87% of our systems' customers. They are staffed with dedicated
personnel who provide service to our customers 24 hours a day,
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seven days a week, on a toll-free basis. We believe our regional calling
centers allow us to coordinate more effectively installation appointments and
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 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 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
programming and the provision of free service to schools and other public
institutions; and the granting of insurance and indemnity bonds by the company.
The provisions of local franchises are subject to federal regulation under the
Cable Communications Policy Act of 1984, as amended by the Cable Television
Consumer Protection and Competition Act of 1992.
As of September 30, 1999, our systems, including the Triax and Zylstra
systems, were subject to 891 franchises. These franchises, which are non-
exclusive, provide for the payment of fees to the issuing authority. In most of
the systems, such franchise fees are passed through directly to the customers.
The 1984 Cable Act prohibits franchising authorities from imposing franchise
fees in excess of 5% of gross revenues and also permits the cable television
system operator to seek renegotiation and modification of franchise
requirements if warranted by changed circumstances.
Substantially all of our systems' basic subscribers are in service areas
that require a franchise. The table below groups the franchises of our systems,
including the Triax and Zylstra systems, by date of expiration and presents the
approximate number and percentage of basic subscribers for each group of
franchises on a pro forma basis as of September 30, 1999.
Percentage of Number of Percentage of
Year of Franchise Number of Total Basic Total Basic
Expiration Franchises Franchises Subscribers Subscribers
----------------- ---------- ------------- ----------- -------------
1999 through 2002....... 214 24.0% 174,100 24.3%
2003 and thereafter..... 677 76.0% 541,900 75.7%
--- ----- ------- -----
Total................. 891 100.0% 716,000 100.0%
=== ===== ======= =====
The 1984 Cable Act provides, among other things, for an orderly franchise
renewal process in which franchise renewal will not be unreasonably withheld
or, if renewal is denied and the franchising authority acquires ownership of
the system or effects a transfer of the system to another person, the operator
generally is entitled to the fair market value for the system covered by such
franchise. In addition, the 1984 Cable Act established comprehensive renewal
procedures which require that an incumbent franchisee's renewal application be
assessed on its own merits and not as part of a comparative process with
competing applications.
We believe that we generally have good relationships with our franchising
communities. We have never had a franchise revoked or failed to have a
franchise renewed. In addition, substantially all of our franchises
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eligible for renewal have been renewed or extended prior to their stated
expirations, and no franchise community has refused to consent to a franchise
transfer to us.
Competition
Providers of Broadcast Television and Other Entertainment
Cable systems compete with other communications and entertainment media,
including over-the-air television broadcast signals that a viewer is able to
receive directly. The extent to which a cable system competes with over-the-air
broadcasting 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 television 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 that formerly
were available only to cable television subscribers. Most satellite-distributed
program signals are electronically scrambled to permit reception only with
authorized decoding equipment for which the consumer must pay a fee. The 1992
Cable Act enhances the right of cable competitors to purchase non-broadcast
satellite-delivered programming. For additional information, see "Legislation
and Regulation--Federal Regulation."
Television programming is now also being delivered to individuals by high-
powered direct broadcast satellites utilizing video compression technology.
This technology can provide more than 150 channels of programming over single
high-powered satellites with significantly higher capacity available if, as is
the case with DIRECTV, multiple satellites are placed in the same orbital
position. Until recently, direct broadcast satellite operators could not
legally deliver local broadcast signals. Legislation permitting direct
broadcast satellite operators to transmit local broadcast signals was enacted
on November 29, 1999. This eliminates a significant competitive advantage which
cable system operators have had over direct broadcast satellite operators.
Direct broadcast satellite operators have begun delivering local broadcast
signals in several of the largest markets and there are plans to expand such
coverage to more markets over the next year. Direct broadcast satellite 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 more
accessible than cable television service where a cable plant has not been
constructed or where it is not cost effective to construct cable television
facilities. Direct broadcast satellite service is being heavily marketed on a
nationwide basis by several service operators.
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, are
not required to obtain local franchises or pay franchise fees, and are subject
to fewer regulatory requirements than cable television systems. 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
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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 systems, 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. 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.
Advertising Sales
The cable television industry competes with radio, broadcast television,
print media, and the Internet for advertising revenues. As the cable television
industry continues to offer more of its own programming channels, such as
Discovery and USA Network, income from advertising revenues can be expected to
increase.
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. These 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 us. 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 20,000
homes passed in the service areas of our franchises.
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 recently completed the process of awarding
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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.
We have begun to accelerate the offering by our cable systems of high-speed
Internet access to our basic subscribers. These cable systems will compete with
a number of other companies, many of which have substantial resources, such as
existing Internet service providers and local and long distance telephone
companies. For example, telephone companies are accelerating the deployment of
asymmetric digital subscriber line technology. These companies report this
technology will allow Internet access to subscribers at peak data transmission
speeds greater than that of modems over conventional telephone lines. Recently,
a number of Internet service providers 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.
Several local franchising authorities have been examining the issue and a few
have required cable operators to provide such access. A U.S. District Court
recently ruled that localities are authorized to require such access. This
decision is being appealed. Some cable companies have initiated litigation
challenging municipal open access requirements. The FCC has thus far declined
to take action on Internet service providers access to broadband cable
facilities. Congress and several state and local jurisdictions are also
reviewing this issue.
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. See the discussion under
"Legislation and Regulation."
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, consisting of
associated electronic equipment necessary for the reception, amplification and
modulation of signals, 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 center in Gulf Breeze,
Florida as well as numerous locations for business offices and warehouses
throughout our operating regions. We lease space for our other regional call
centers in Chillocothe, Illinois; Benton, Kentucky; Waseca, Minnesota; and
Henderson, 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. Our
annual lease payments currently are approximately $2.9 million. 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.
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Employees
As of December 15, 1999, we employed 1,239 full-time employees and 215 part-
time employees. None of our employees are represented by a labor union. We
consider our relations with our employees to be good.
Legal Proceedings
There are no material pending legal proceedings to which we are a party or
to which any of our properties are subject.
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LEGISLATION AND REGULATION
A federal law known as the Communications Act of 1934, as amended,
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 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.
Rate Regulation
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 only in communities that
are subject to effective competition, as defined by federal law. Federal law
also prohibits the regulation of cable operators' rates where comparable video
programming services, other than direct broadcast satellites, are offered by
local telephone companies, or their related parties, or by third parties using
the local telephone company's facilities.
Where there is no effective competition to the cable operator's services,
federal law gives local franchising authorities the responsibility 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; and
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. the installation, 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 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 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.
As a further alternative, in 1995 the FCC adopted a simplified cost-of-
service methodology which can be used by small cable systems owned by small
cable companies. A small cable system is defined as a cable television system
which serves 15,000 or fewer basic customers. A small cable company is defined
as an entity serving a total of 400,000 or fewer basic customers that is not
affiliated with a larger cable television company: i.e., a larger cable
television company does not own more that a 20 percent equity share or exercise
legal control. This small system rate-setting methodology almost always results
in rates which exceed those produced by the cost-of-service rules applicable to
larger cable television operators. Once the initial rates are set they can be
adjusted periodically for inflation and external cost changes as described
above. When an eligible small system grows larger than 15,000 basic customers,
it can maintain its then current rates, but it cannot increase its rates in the
normal course until an increase would be warranted under the rules applicable
to systems that have more than 15,000 customers. When a small cable company
grows larger than 400,000 basic customers, the qualified systems it then owns
will not lose their small system eligibility. If a small cable company sells a
qualified system, or if the company itself is sold, the qualified systems
retain that status even if the acquiring company is not a small cable company.
We were a small cable company, but with the completion of the Triax
acquisition, we no longer enjoy this status. However, as noted above, the
systems with less than 15,000 customers owned by us prior to the completion of
the Triax acquisition remain eligible for small cable system rate regulation.
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.
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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.
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 also initiated an administrative proceeding to consider the
requirements, if any, for mandatory carriage of digital television signals
offered by local television broadcasters. We are unable to predict the ultimate
outcome of this proceeding or the impact of new carriage requirements on the
operations of our cable systems.
The Communications Act requires our cable systems 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 December 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 over the next two to three years in order for
us to meet this requirement. We are unable to predict whether the full
implementation of this statutory provision in December 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. It requires
cable operators to fully block both the video and audio portion of sexually
explicit or indecent programming on channels that are primarily dedicated to
sexually oriented programming or alternatively to carry such programming only
at safe harbor time periods, which are currently defined by the FCC as the
hours between 10 p.m. to 6 a.m. A three-judge federal district court
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recently determined that this provision was unconstitutional. The federal
government appealed the lower court's decision to the United States Supreme
Court which recently agreed to review this case.
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;
. 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 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 and/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
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-- preventing franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area;
. 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 derived 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. A federal
district court has concluded that this subscriber limitation is
unconstitutional and the FCC has stayed its enforcement; an appeal of this
decision is pending in a federal
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appellate court. Pending further action by the federal courts, the FCC recently
reconsidered its cable ownership regulations and:
. reaffirmed its 30% nationwide subscriber ownership limit, 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;
. 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 district court has also
declared this statutory provision unconstitutional. An appeal of the district
court's decision has been consolidated with the appeal challenging the FCC's
subscriber ownership limitation regulations.
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 pending re-examination, 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. A federal appellate court
recently overturned various parts of the FCC's open video rules, including the
FCC's preemption of local franchising requirements for open video operators.
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, which is being reevaluated by the FCC, governs the maximum rate
certain utilities may charge for attachments to their poles and conduit by
cable operators providing only cable services and until
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2001, by certain companies providing telecommunications services. The FCC also
adopted a new rate formula that will be effective in 2001 and will govern 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. Several parties have requested the FCC to reconsider its new
regulations and several parties have challenged the new rules in court. A
federal district court recently upheld the constitutionality of the new
statutory provision which requires that utilities provide cable systems and
telecommunications carriers with nondiscriminatory access to any pole, conduit
or right-of-way controlled by the utility. The lower court's decision was
upheld on appeal. 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 Communications Act also includes provisions, among others, regulating:
. customer service;
. subscriber privacy;
. equal employment opportunity; and
. regulation of technical standards and equipment compatibility.
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 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 and/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 relating to the regulation of cable communications services
will make further attempts.
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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.
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 which negotiate on behalf of
their copyright owners for license fees covering each performance. The cable
industry and the major music performing rights organizations are negotiating a
standard licensing agreement covering the performance of music contained in
advertising and other information inserted by operators into cable programming
and on local access and origination channels carried on cable systems. Rate
courts established by a New York federal court exist to determine appropriate
copyright coverage and royalty fees in the event the parties fail to reach a
settlement or to negotiate renewals of licensing agreements. Although we cannot
predict the ultimate outcome of these industry negotiations or the amount of
any license fees we may be required to pay for past and 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.
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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, 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.
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
Directors and Executive Officers
The table below sets forth our directors and executive officers. As of the
date of this prospectus, we have two directors. Upon completion of this
offering, the director nominees set forth below will be appointed to our board
of directors.
Name Age Position
---- --- --------
Rocco B. Commisso................. 50 Chairman and Chief Executive Officer
Mark E. Stephan................... 43 Senior Vice President, Chief Financial
Officer, Treasurer and Director
James M. Carey.................... 48 Senior Vice President, Operations
Joseph Van Loan................... 57 Senior Vice President, Technology
Italia Commisso Weinand........... 46 Senior Vice President, Programming and
Human Resources and Secretary
William S. Morris III............. 65 Director Nominee
Craig S. Mitchell................. 40 Director Nominee
Thomas V. Reifenheiser............ 64 Director Nominee
Natale S. Ricciardi............... 50 Director Nominee
Robert L. Winikoff................ 53 Director Nominee
Rocco B. Commisso has 21 years of experience with the cable television
industry and has served as our Chairman and Chief Executive Officer since
founding Mediacom LLC in July 1995. 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
television 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 television industry. He serves on the board of directors of SoftNet
Systems, Inc. and the National Cable Television Association. Mr. Commisso holds
a Bachelor of Science in Industrial Engineering and a Master of Business
Administration from Columbia University.
Mark E. Stephan has 12 years of experience with the cable television
industry and has served as our Senior Vice President, Chief Financial Officer
and Treasurer since the commencement of our operations in March 1996. He is a
member of the executive committee of Mediacom LLC. Before joining us, Mr.
Stephan served as Vice President, Finance for Cablevision Industries from July
1993. Prior to that time, Mr. Stephan served as Manager of the
telecommunications and media lending group of Royal Bank of Canada.
James M. Carey has 18 years of experience in the cable television industry.
Before joining us 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.
Joseph Van Loan has 27 years of experience in the cable television industry.
Before joining us 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.
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Italia Commisso Weinand has 23 years of experience in the cable television
industry. Before joining us 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.
William S. Morris III is a nominee to become a member of our board of
directors upon the completion of this offering. He is a member of the executive
committee of Mediacom LLC. Mr. Morris has served as the Chairman and Chief
Executive Officer of Morris Communications for more than the past five years.
He is the Chairman of the board of directors of the Newspapers Association of
America.
Craig S. Mitchell is a nominee to become a member of our board of directors
upon the completion of this offering. He is a member of the executive committee
of Mediacom LLC. Mr. Mitchell has held various management positions with Morris
Communications for more than the past five years. He currently serves as its
Vice President, Finance and Treasurer and is also a member of its board of
directors.
Thomas V. Reifenheiser is a nominee to become a member of our board of
directors upon the completion of this offering. Mr. Reifenheiser has been a
Managing Director and Group Executive for the Global Media and Telecom Group of
Chase Securities Inc. for more than the past five years. He joined Chase in
1963 and has been the Global Media and Telecom Group Executive since 1977.
Natale S. Ricciardi is a nominee to become a member of our board of
directors upon the completion of this offering. Mr. Ricciardi has held various
management positions with Pfizer Inc. for more than the past five years. He
joined Pfizer in 1972 and currently serves as Vice President of Pfizer Global
Manufacturing with responsibility for all of Pfizer's U.S. manufacturing
plants.
Robert L. Winikoff is a nominee to become a member of our board of directors
upon the completion of this offering. He is a member of the executive committee
of Mediacom LLC. Mr. Winikoff has been a partner of the New York City law firm
of Cooperman Levitt Winikoff Lester & Newman, P.C. for more than the past five
years, which has served as our general outside counsel since 1995. He is a
member of the board of directors of Young Broadcasting Inc., an owner and
operator of broadcast television stations.
Key Employees
The table below sets forth our key employees as of the date of this
prospectus.
Name Age Position
---- --- --------
Calvin G. Craib............. 45 Vice President, Business Development
Bruce J. Gluckman........... 46 Vice President, Legal and Regulatory Affairs
Richard L. Hale............. 50 Vice President, Midwest Region
Dale E. Ordoyne............. 49 Vice President, Southern Region
John G. Pascarelli.......... 38 Vice President, Marketing
Brian M. Walsh.............. 33 Vice President and Controller
William D. Wegener.......... 38 Vice President, Network Development
Arnold P. Cool.............. 51 Regional Director, Central Region
Louis Gentile............... 39 Regional Director, Western Region
Richard P. Hanson........... 45 Regional Director, North Central Region
Donald E. Zagorski.......... 40 Regional Director, Mid-Atlantic Region
Calvin G. Craib has 17 years experience in the cable television industry.
Before joining us in April 1999, Mr. Craib served as Vice President, Finance
and Administration for Interactive Marketing Group from June 1997 to December
1998. Mr. Craib served as Senior Vice President, Operations, and Chief
Financial Officer for
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Douglas Communications from January 1990 to May 1997. Prior to that time, Mr.
Craib served in various financial management capacities at Warner Amex Cable
and Tribune Cable.
Bruce J. Gluckman has seven years of experience in the cable television
industry. Before joining us as Director of Legal Affairs in February 1998, Mr.
Gluckman was in private law practice from January 1996 to October 1997. From
June 1993 to January 1996, he served as a Staff Attorney for Cablevision
Industries. Mr. Gluckman has twenty years of experience in the practice of law.
Richard L. Hale has 15 years of experience in the cable television industry.
Before joining us as Regional Manager for the Central Region in January 1998,
Mr. Hale served as Regional Manager of Cablevision Systems' Kentucky/Missouri
region and as Sales and Marketing Director from 1988 to 1998. Mr. Hale began
his career in the cable television industry in 1984 as Regional Sales and
Marketing Director for Adams-Russell Cable.
Dale E. Ordoyne has 17 years of experience in the cable television industry.
Before joining us in October 1999, Mr. Ordoyne served as Vice President,
Marketing for MediaOne Group from 1995, where he was responsible for all
marketing activities for the Atlanta cluster comprised of 500,000 basic
subscribers. Prior to that time, Mr. Ordoyne served in various marketing and
system management capacities for Cablevision Industries and Cox Communications.
John G. Pascarelli has 19 years of experience in the cable television
industry. Before joining us in March 1998, Mr. Pascarelli served as Vice
President, Marketing for Helicon 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, Cablevision Systems and
Storer Communications.
Brian M. Walsh has 11 years of experience in the cable television industry.
Before joining us in April 1996 as Director of Accounting, Mr. Walsh served as
financial analyst for Helicon from January 1996 to March 1996. Prior to that
time, Mr. Walsh served in various financial management capacities for
Cablevision Industries, including Business Manager from January 1992 to
December 1995. Mr. Walsh began his career in the cable television industry in
1988 when he joined Cablevision Industries as a staff accountant.
William D. Wegener has 18 years of experience in the cable television
industry. Before joining us in February 1998, Mr. Wegener served as Senior
Sales Engineer for C-Cor Electronics from October 1995 to October 1997. Prior
to that time, Mr. Wegener served in various engineering capacities for
Cablevision Industries. He is a member of the Society of Cable
Telecommunications Engineers.
Arnold P. Cool has 21 years of experience in the cable television industry.
Before joining us in January 1998, he served in various capacities for
Cablevision Systems' cable television systems in Kentucky and Missouri from
April 1993. Prior to that time, Mr. Cool held various technical and supervisory
responsibilities for Cablevision Systems and for smaller cable television
companies.
Louis Gentile has 10 years of experience in the cable television industry.
Before joining us as Divisional Business Manager in January 1998, Mr. Gentile
served in various financial management capacities for Cablevision Systems from
January 1992. Mr. Gentile began his career in the cable television industry in
1989 when he joined MultiVision Cable as a financial analyst.
Richard P. Hanson has 21 years of experience in the cable television
industry. Mr. Hanson joined us upon the closing of the Triax acquisition on
November 5, 1999. Before joining us, Mr. Hanson served in various capacities
for Triax, most recently as Director of Operations, from March 1988 to October
1999. Prior to joining Triax, he served as Manager for Combined Cable and for
Star Cablevision.
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Donald E. Zagorski has 18 years of experience in the cable television
industry. Before joining us in June 1997, Mr. Zagorski served as System and
Regional Manager for Tele-Media Company from March 1990. Prior to that time,
Mr. Zagorski held various technical and supervisory positions with Outer Banks
Cablevision and Group W Cable.
All directors hold office until the next annual meeting of stockholders and
until their successors have been elected and qualify. All executive officers
and key employees serve at the discretion of the board of directors. Mr.
Commisso has agreed to cause the election of two directors designated by Morris
Communications so long as Morris Communications continues to own at least 20%
of our outstanding common stock, and one such director so long as it continues
to own at least 10% of such common stock. In accordance with this agreement,
Mr. Morris and Mr. Mitchell have been designated as directors by Morris
Communications and will be appointed to our board of directors upon completion
of this offering.
Committees of the Board of Directors
Upon closing of this offering, we will appoint an audit committee, a
compensation committee and a stock option committee.
Audit Committee
The members of the audit committee will be Craig S. Mitchell, Thomas V.
Reifenheiser and Natale S. Ricciardi. The responsibilities of the audit
committee include:
. recommending the appointment of independent accountants;
. reviewing the arrangements for and scope of the audit by independent
accountants;
. reviewing the independence of the independent accountants;
. considering the adequacy of the system of internal accounting controls
and review any proposed corrective actions;
. reviewing and monitoring our policies regarding business ethics and
conflicts of interest;
. discussing with management and the independent accountants our draft
annual financial statements and key accounting and reporting matters;
and
. reviewing the activities and recommendations of our accounting
department.
Compensation Committee
The members of the compensation committee will be Rocco B. Commisso, William
S. Morris III and Robert L. Winikoff. The compensation committee has authority
to review and make recommendations to our board of directors with respect to
the compensation of our executive officers.
Stock Option Committee
The members of the stock option committee will be Thomas V. Reifenheiser,
Natale S. Ricciardi and Robert L. Winikoff. The stock option committee
administers our 1999 stock option plan and determines, among other things, the
time or times at which options will be granted, the recipients of grants,
whether a grant will consist of incentive stock options, nonqualified stock
options or stock appreciation rights, which may be in tandem with an option or
free-standing, or a combination thereof, the option periods, whether an option
is exercisable for Class A common stock or Class B common stock, the
limitations on option exercise and the number of shares to be subject to such
options, taking into account the nature and value of services rendered and
contributions made to our success. The stock option committee also has
authority to interpret the plan and, subject to certain limitations, to amend
provisions of the plan as it deems advisable.
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Director Compensation
Those directors who are not also our employees will receive an annual
retainer as fixed by our board of directors, which may be in the form of cash
or stock options, or a combination of both. Non-employee directors will also
receive reimbursement of out-of-pocket expenses incurred for each board meeting
or committee meeting attended.
Executive Compensation
Prior to the consummation of this offering, excluding James M. Carey, we did
not make any payment in respect of compensation to any of our executive
officers. These executive officers received compensation from Mediacom
Management, which was entitled to receive management fees from our
subsidiaries. Mr. Carey received his compensation from one of our subsidiaries
prior to the completion of this offering. For more information regarding the
management fees paid by our subsidiaries to Mediacom Management, see "Certain
Relationships and Related Transactions--Management Agreements." Following the
consummation of this offering, we will pay compensation to our executive
officers.
Except where otherwise indicated, the following table summarizes the
compensation paid in 1998 by Mediacom Management to our Chief Executive Officer
and our four other most highly compensated executive officers who received
total compensation in excess of $100,000:
Summary Compensation Table
Annual Compensation
----------------------------------
Other Annual
Name and Principal Position Year Salary($) Bonus($) Compensation($)
- --------------------------- ---- --------- -------- ---------------
Rocco B. Commisso ..................... 1998 100,000 -- --
Chairman and Chief Executive Officer
Mark E. Stephan........................ 1998 188,834 132,034 --
Senior Vice President, Chief Financial
Officer, Treasurer and Director
James M. Carey(1)...................... 1998 96,923 15,000 35,500(2)
Senior Vice President, Operations
Joseph Van Loan........................ 1998 188,834 132,034 --
Senior Vice President, Technology
Italia Commisso Weinand................ 1998 129,702 99,026 --
Senior Vice President, Programming and
Human Resources and Secretary
- ------------
(1) Mr. Carey's compensation was paid by one of our operating subsidiaries.
(2) Represents consulting fees from January 1, 1998 to February 2, 1998.
Employment Arrangements
Mark E. Stephan, James M. Carey, Joseph Van Loan, Italia Commisso Weinand
and several of our other employees have entered into employment arrangements
setting forth the terms of their at-will employment with us. Pursuant to the
employment arrangements, Rocco B. Commisso delivered to each of these employees
a specified number of membership units in Mediacom LLC, which were owned by Mr.
Commisso. In connection with this offering, such membership units are being
exchanged for an aggregate of 1,406,346 shares of our Class B common stock and
options to acquire an aggregate of 348,892 shares of our Class B common stock
at an exercise price equal to the initial public offering price set forth on
the cover page of this prospectus. Our common stock and options initially are
subject to vesting in five equal annual installments, which vesting period is
deemed to have commenced for each officer on various dates prior to this
offering. All such common
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stock and options which vest initially are nonetheless subject to potential
forfeiture during the first three years after vesting under the circumstances
described below. If the employee desires to sell the vested common stock and
options, or if the employee's employment with us is terminated for any reason,
Mr. Commisso will have the option to purchase such shares or options at their
fair market value. In the event that Mr. Commisso exercises this purchase
option, a portion of the vested shares or options vested for less than three
years will nonetheless be forfeited to Mr. Commisso if, during such three year
period, such employee voluntarily terminates his employment with us or elects
to sell such shares or exercise such options, or if such employee's employment
with us is terminated for cause. No forfeiture of vested shares or options will
occur if Mr. Commisso elects not to exercise his purchase option, or if the
employee is terminated by us without cause or as a result of death or
disability. Upon a change of control, all such shares will vest and not be
subject to forfeiture. Each of the employees has granted to Mr. Commisso an
irrevocable proxy with respect to all voting rights relating to our common
stock following the exchange. At the request of any of these employees, Mr.
Commisso will make a loan to the employee in the amount of any tax liability
resulting from such employee's receipt of our options in exchange for
membership units in Mediacom LLC. Such loan would be secured by such employee's
common stock and options. Each of the employment arrangements also provides
that if we terminate the employee's employment without cause, the employee is
entitled to a severance payment equal to six months of base salary and
precludes the employee from competing with us for a period of three years
following termination.
1999 Stock Option Plan
Our board of directors adopted our stock option plan effective as of
December 20, 1999. We have reserved 9,000,000 shares of common stock with
respect to which options and stock appreciation rights may be granted under the
plan. The purpose of the plan is to promote our interests and the interests of
our stockholders by strengthening our ability to attract and retain competent
employees, to make service on our board of directors more attractive to present
and prospective non-employee directors and to provide a means to encourage
stock ownership and proprietary interest in Mediacom by officers, non-employee
directors and valued employees and other individuals upon whose judgment,
initiative and efforts our financial success and growth largely depends.
The plan may be administered by either the entire board of directors or a
committee consisting of two or more members of the board of directors, each of
whom is a non-employee director. The plan will be administered by a stock
option committee of the board of directors which will consist of non-employee
directors.
Incentive stock options may be granted only to our officers and employees
and the officers and employees of our subsidiaries. Nonqualified stock options
and stock appreciation rights may be granted to our officers, employees,
directors, agents and consultants and the officers and employees of our
subsidiaries. In determining the eligibility of an individual for grants under
the plan, as well as in determining the number of shares to be optioned to any
individual, the stock option committee takes into account the recommendations
of our Chairman of the Board, Mr. Commisso, the position and responsibilities
of the individual being considered, the nature and value to us or our
subsidiaries of his or her service or accomplishments, his or her present or
potential contribution to the success of us or our subsidiaries and such other
factors as the stock option committee may deem relevant. In making
recommendations to the stock option committee, Mr. Commisso focuses upon
individuals who would be motivated by a direct economic stake in us. Options
may provide for their exercise into shares of any class of our common stock.
The plan provides for the granting of incentive stock options to purchase
our common stock at not less than the fair market value on the date of the
option grant and the granting of nonqualified options with any exercise price.
Stock appreciation rights may be granted with an exercise price equal to the
fair market value of a share of our common stock on the date of grant of the
stock appreciation right. Stock appreciation rights granted in tandem with an
option have the same exercise price as the related option. Upon completion of
this offering, options for an aggregate of 2,800,000 shares of our common
stock, comprised of 2,151,108 shares of
80
Class A common stock and 648,892 shares of Class B common stock, will have been
granted under the 1999 stock option plan to various individuals at an exercise
price equal to the public offering price set forth on the cover page of this
prospectus. Such options will vest in equal annual installments over five
years. Vesting is contingent on continuous employment with us. Options that do
not vest will be forfeited.
The plan also contains limitations applicable only to incentive stock
options granted thereunder. To the extent that the aggregate fair market value,
as of the date of grant, of the shares to which incentive stock options become
exercisable for the first time by an optionee during the calendar year exceeds
$100,000, the option will be treated as a nonqualified option. In addition, if
an optionee owns more than 10% of the total combined voting power of all
classes of our capital stock or that of our parent or any of our subsidiaries
at the time the individual is granted an incentive stock option, the option
price per share of the incentive stock option cannot be less than 110% of the
fair market value per share as of the date of grant and the term of the
incentive stock option cannot exceed five years. No option or stock
appreciation right may be granted under the plan after December 19, 2009, and
no option or stock appreciation right may be outstanding for more than ten
years after its grant.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash, check or, under certain
circumstances, in shares of any class of our common stock having a fair market
value equal to the exercise price of the options, or any combination thereof.
Stock appreciation rights, which give the holder the privilege of surrendering
such rights for the appreciation in the underlying common stock between the
time of the grant and the surrender, may be settled, in the discretion of the
stock option committee in cash, in shares of our common stock valued at their
fair market value on the date of exercise of the stock appreciation right, or
in any combination thereof. The exercise of a stock appreciation right granted
in tandem with an option cancels the option to which it relates with respect to
the same number of shares as to which the stock appreciation right was
exercised. The exercise of a option cancels any related stock appreciation
right with respect to the same number of shares as to which the option was
exercised. Generally, options and stock appreciation rights may be exercised
while the recipient is performing services for us and within three months after
termination of such services.
The plan may be terminated at any time by the board of directors, which may
also amend the plan, except that without stockholder approval, it may not
increase the number of shares subject to the plan or change the class of
persons eligible to receive options under the plan.
1999 Employee Stock Purchase Plan
Our board of directors adopted our 1999 Employee Stock Purchase Plan
effective as of December 20, 1999. Our 1999 Employee Stock Purchase Plan is
intended to qualify under Section 423 of the Internal Revenue Code of 1996, as
amended. We have reserved 1,000,000 shares of our common stock for issuance
under the plan. The plan will be administered by the compensation committee of
our board of directors.
All of our employees are eligible to participate. Eligible employees may
begin participating in the 1999 Employee Stock Purchase Plan at the start of
any offering period. Each offering period lasts six months, commencing on
February 1 and August 1 of each year. However, the first offering period will
start on the effective date of this offering and end on July 31, 2000.
Our 1999 Employee Stock Purchase Plan permits each eligible employee to
purchase common stock through payroll deductions. Each employee's payroll
deductions may not exceed 15% of the employee's cash compensation. Purchases of
our common stock will occur on January 31 and July 31 of each year. Each
participant may purchase up to 5,000 shares on any purchase date, except that
the total value of the shares purchased by a participant in any year, measured
as of the beginning of the offering period, may not exceed $25,000.
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The price of each share of common stock purchased under our 1999 Employee
Stock Purchase Plan will be 85% of the lower of:
. the fair market value per share of common stock on the first day of the
applicable offering period; or
. the fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the plan
will be 85% of the lower of:
. the price per share to the public in this offering; or
. the fair market value per share of common stock on the purchase date.
Employees may end their participation in the 1999 Employee Stock Purchase
Plan at any time. Participation ends automatically upon termination of
employment with us. Our board of directors may amend or terminate the 1999
Employee Stock Purchase Plan at any time. If our board increases the number of
shares of common stock reserved for issuance under the plan, it must seek the
approval of our stockholders.
401(k) Plan
We maintain a retirement plan established in conformity with Section 401(k)
of the Internal Revenue Code of 1986, covering all of our eligible employees.
In accordance with the 401(k) plan, employees may elect to defer up to 15% of
their current pre-tax compensation and have the amount of the deferral
contributed to the 401(k) plan. The maximum elective deferral contribution was
$10,000 in 1998, subject to adjustment for cost-of-living in subsequent years.
Certain highly compensated employees may be subject to a lesser limit on their
maximum elective deferral contribution. The 401(k) plan permits, but does not
require, us to make matching contributions and non-matching, profit sharing,
contributions up to a maximum dollar amount or maximum percentage of
participant or employee contributions. Our contributions under the plan totaled
approximately $10,000, $14,000, $264,000 and $241,000 for the period ended
December 31, 1996, the years ended December 31, 1997 and 1998, and for the
period ended September 30, 1999, respectively.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following discussion sets forth certain relationships and related
transactions of us and our subsidiary, Mediacom LLC, and its operating
subsidiaries.
Management Agreements
Each of our operating subsidiaries is a party to a management agreement with
Mediacom Management, which is owned by Mr. Commisso. Under these agreements,
Mediacom Management provides management services to our operating subsidiaries
and is paid annual management fees. Until November 19, 1999, the management fee
was 5.0% of the first $50.0 million of our annual gross operating revenues,
4.5% of annual gross operating revenues in excess of $50.0 million, up to $75.0
million, and 4.0% of annual gross operating revenues in excess of $75.0
million. For the period ended December 31, 1996, for the years ended
December 31, 1997 and 1998 and for the nine months ended September 30, 1999,
management fees paid to Mediacom Management were $235,000, $812,000, $4.9
million and $4.2 million. The management agreements were amended effective
November 19, 1999 in connection with an amendment to Mediacom LLC's operating
agreement to provide for annual management fees equal to 2% of annual gross
operating revenues. In addition, Mediacom Management agreed to waive all
management fees accrued from July 1, 1999 through November 19, 1999. Each of
the management agreements will be terminated upon completion of this offering,
and employees of Mediacom Management will become our employees.
Transaction Fees and Expense Reimbursement
Mediacom LLC's operating agreement was amended effective November 19, 1999.
Prior to the amendment, the operating agreement provided that Mediacom
Management be paid a fee of 1.0% of the purchase price of acquisitions made by
Mediacom LLC until its pro forma annual consolidated operating revenues equaled
$75.0 million, and thereafter 0.5% of the purchase price. For the period ended
December 31, 1996 and for the years ended December 31, 1997 and 1998,
acquisition fees paid to Mediacom Management were $453,000, $540,000 and $3.3
million. No acquisition fees were required to be paid during the nine months
ended September 30, 1999 because there were no acquisitions completed during
the period. Acquisition fees in the aggregate amount of $3.8 million in
connection with the Triax and Zylstra acquisitions have been waived by Mediacom
Management. In accordance with the amended operating agreement, no further
acquisition fees will be payable after November 19, 1999.
The operating agreement also provides for reimbursement of reasonable out-
of-pocket expenses incurred by Mediacom Management in connection with the
operation of the business of Mediacom LLC and acting on behalf of Mediacom LLC
in connection with any potential acquisition of a cable system. Mediacom LLC
reimbursed Mediacom Management $529,000, $59,000, $53,000 and $0 for the period
ended December 31, 1996, for the years ended December 31, 1997 and 1998 and for
the nine months ended September 30, 1999.
Other Relationships
Prior to the issuance of our common stock in exchange for all membership
interests in Mediacom LLC, Chase Manhattan Capital, L.P. and CB Capital
Investors, L.P. were members of Mediacom LLC. Chase Manhattan Capital, L.P. and
CB Capital Investors, L.P. are parties related to Chase Securities Inc. and The
Chase Manhattan Bank. For the years ended December 31, 1997 and 1998, Chase
Securities Inc. received fees of approximately $1.3 million and $443,750 for
its role as placement agent in connection with the original placement of
membership interests in Mediacom LLC. In addition, for the year ended December
31, 1998, Chase Securities Inc. received a fee of approximately $1.8 million
for its role as advisor in connection with our acquisition of the Cablevision
systems. For the year ended December 31, 1998, The Chase Manhattan Bank
received fees of $200,000 in connection with the provision of a letter of
credit in favor of the sellers of the Cablevision systems to secure our
performance of certain obligations under the acquisition agreement.
83
Chase Securities Inc. was the arranger and The Chase Manhattan Bank served
as the administrative agent and a lender under each of our former subsidiary
credit facilities. For the period ended December 31, 1996, and for the years
ended December 31, 1997 and 1998, Chase Securities Inc. and The Chase Manhattan
Bank received aggregate fees of approximately $600,000, $375,000 and $2.9
million for these services. In addition, Chase Securities Inc. was the arranger
and The Chase Manhattan Bank is the administrative agent and a lender under
each of our subsidiary credit facilities. For these services, Chase Securities
Inc. and The Chase Manhattan Bank received aggregate fees of $1.0 million to
date in 1999. We expect to use the net proceeds from this offering to repay
outstanding indebtedness under our subsidiary credit facilities. The Chase
Manhattan Bank will receive its proportionate share of the repayment. In 1998,
we repaid promissory notes held by The Chase Manhattan Bank in the aggregate
principal amount of $20.0 million, plus accrued interest in the amount of
$300,000.
Chase Securities Inc. acted as an initial purchaser in connection with the
offering of our 8 1/2% senior notes in 1998 and our 7 7/8% senior notes in
1999. Chase Securities Inc. received fees in the amount of approximately $5.5
million in 1998 and $3.1 million in 1999 in connection with the offerings.
Chase Securities Inc. acted as an advisor in connection with our acquisition
of the Triax systems. For these services, Chase Securities Inc. received a fee
in the amount of $3.0 million. Upon completion of this offering, one individual
associated with Chase Securities Inc., Thomas V. Reifenheiser, will become a
member of our board of directors.
Prior to the issuance of our common stock in exchange for all membership
interests in Mediacom LLC, Morris Communications was a member of Mediacom LLC.
Morris Communications received commitment fees of $2.0 million in 1998 and
$268,000 in 1999 in connection with its capital contributions to Mediacom LLC.
Upon completion of this offering, two individuals associated with Morris
Communications, William S. Morris III and Craig S. Mitchell, will become
members of our board of directors.
Prior to the issuance of our common stock in exchange for all membership
interests in Mediacom LLC, U.S. Investor, Inc. was a member of Mediacom LLC. In
connection with its purchase of a cable television system in Kern County,
California from Booth American Company, the parent of U.S. Investor, one of our
subsidiaries issued to Booth American Company an unsecured senior subordinated
note in the original amount of $2.8 million. Interest on the note was deferred
throughout the term and was payable on prepayment or at maturity on June 28,
2006. In 1998, the annual interest rate on the note was 9.0%. The note,
together with all accrued interest, was repaid on September 24, 1999.
Until November 3, 1999, Mediacom LLC's operating agreement obligated its
members to make capital contributions to Mediacom LLC. The following table sets
forth the capital contributions made since January 1, 1997 by those members of
Mediacom LLC who owned more than 5% of its membership interests. The capital
contributions made by those members on November 3, 1999 are part of the $10.5
million equity contribution made by the members of Mediacom LLC in connection
with the acquisition of the Triax systems.
Date of Capital Contribution
----------------------------------------------
June 22, September 18, January 22, November 3,
Member 1997 1997 1998 1999
- ------ -------- ------------- ----------- -----------
(dollars in thousands)
U.S. Investor, Inc. ........... $1,950.0 $ 500.0 $ 2,293.8 $ 256.2
Morris Communications
Corporation................... 9,750.0 2,500.0 79,832.5 8,917.5
CB Capital Investors, L.P. .... 3,900.0 1,000.0 4,587.6 512.4
Robert L. Winikoff, one of our director nominees, is a partner at the law
firm of Cooperman Levitt Winikoff Lester & Newman, P.C., that has served as our
general outside counsel on various matters. Cooperman Levitt Winikoff Lester &
Newman, P.C. received fees from Mediacom LLC in the amount of $409,000 in 1996,
$462,000 in 1997 and $807,000 in 1998.
Changes to Organizational Structure
We are a newly formed Delaware corporation. Immediately prior to this
offering, we will issue 40,977,562 shares of our Class A common stock and
29,022,438 shares of our Class B common stock in exchange for all
84
of the outstanding membership interests of Mediacom LLC, which currently serves
as the holding company for our operating subsidiaries. As a result, we will
become the parent company of Mediacom LLC, which will continue to serve as the
holding company of our subsidiaries.
Mediacom LLC's amended operating agreement provides that upon the occurrence
of certain events, including this offering, the executive committee of Mediacom
LLC will make a determination of the aggregate equity value of Mediacom LLC.
Based on this determination, Mediacom LLC will issue additional membership
interests to its members, each having a value upon issuance of $1,000. Giving
effect to this offering at an initial public offering price of $17.50 per share
and a determination of the aggregate equity value of Mediacom LLC of $1.225
billion, Mediacom LLC will issue additional membership interests to its members
based upon such determination immediately prior to this offering. These newly
issued membership interests will be exchanged for our common stock.
Mediacom LLC's amended operating agreement contains provisions relating to a
special allocation of membership interests to Mr. Commisso and related parties
under certain circumstances. In accordance with these special allocation
provisions, Mr. Commisso was issued additional membership interests that had a
value upon issuance of $600,000, $3.7 million and $57.9 million in 1997, 1998
and 1999. Upon completion of this offering, Mediacom LLC's amended operating
agreement will be further amended to remove these special allocation
provisions. In connection with the amendment and the removal of a portion of
the special allocation provisions of the operating agreement, Mr. Commisso and
such related parties will be issued new membership interests representing 16.5%
of the aggregate equity value of Mediacom LLC, which amount is then adjusted to
give effect to the dilution of the equity interests of Mr. Commisso and related
parties resulting from the issuance of such new membership interests. These
newly issued membership interests, as adjusted for such dilution effect, will
be exchanged for 7,295,025 shares of our Class B common stock.
In addition, in connection with the amendment and the removal of the
remainder of the special allocation provisions of the operating agreement,
Rocco Commisso, Mark Stephan, James Carey, Joseph Van Loan, Italia Commisso
Weinand and nine of our non-executive officers will receive options to purchase
6,851,108, 95,014, 53,208, 64,610, 64,610, and an aggregate of 71,451 shares of
our Class B common stock. These options have a term of five years and are
exercisable, commencing six months after the date of this prospectus, at a
price equal to the initial public offering price set forth on the cover page of
this prospectus. Except for shares and options held by Mr. Commisso, the shares
and options initially are subject to vesting in five equal annual installments,
which vesting period is deemed to have commenced for each officer on various
dates prior to this offering. All such shares and options which vest initially
are nonetheless subject to potential forfeiture during the first three years
after vesting under the circumstances described below. If a beneficial owner
other than Mr. Commisso desires to sell such vested shares or exercise such
options, or if such beneficial owner's employment with us is terminated for any
reason, Mr. Commisso will have the option to purchase such shares or options at
their fair market value. In the event that Mr. Commisso exercises this purchase
option, a portion of the shares or options vested for less than three years
will nonetheless be forfeited to Mr. Commisso if, during such three year
period, such owner voluntarily terminates his employment with us or elects to
sell such shares or exercise such options, or if such owner's employment with
us is terminated for cause. No forfeiture of vested shares or options will
occur if Mr. Commisso elects not to exercise his purchase option, or if the
employee is terminated by us without cause or as a result of death or
disability. Upon a change of control, all such shares will vest and not be
subject to forfeiture.
Registration Rights
We and Rocco B. Commisso, Morris Communications, CB Capital Investors, Chase
Manhattan Capital, U.S. Investor, Private Market Fund and our less than 5%
stockholders have entered into a registration rights agreement with respect to
their shares of common stock. For additional information concerning the
registration rights agreement, see "Shares Eligible for Future Sale--
Registration Rights."
85
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock, after giving effect to the issuance
of our common stock in exchange for all membership interests in Mediacom LLC,
by:
. each person known by us to beneficially own more than 5% of any class of
our common stock;
. each of our directors and director nominees;
. our Chief Executive Officer and our four other most highly compensated
executive officers; and
. all of our directors, director nominees and executive officers as a
group.
The amounts and percentages of common stock beneficially owned are reported
on the basis of regulations of the Securities and Exchange Commission governing
the determination of beneficial ownership of securities. Under the rules of the
Securities and Exchange Commission, a person is deemed to be a beneficial owner
of a security if that person has or shares voting power, which includes the
power to vote or to direct the voting of such security, or investment power,
which includes the power to dispose of or to direct the disposition of such
security. Unless otherwise indicated below, each beneficial owner named in the
table below has sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where applicable.
Holders of Class A common stock are entitled to one vote per share, while
holders of Class B common stock are entitled to ten votes per share. Holders of
both classes of common stock will vote together as a single class on all
matters presented for a vote, except as otherwise required by law. The
information set forth in the following table excludes any shares purchased in
this offering by the respective beneficial owner. Percentage of beneficial
ownership of Class A common stock is based on 40,977,562 shares of Class A
common stock outstanding immediately prior to this offering and 60,977,562
shares of Class A common stock outstanding immediately after this offering.
Percentage of beneficial ownership of Class B common stock is based on
29,022,438 shares of Class B common stock outstanding both immediately before
and after this offering. Unless otherwise indicated, the address of each
beneficial owner of more than 5% of Class A or Class B common stock is Mediacom
Communications Corporation, 100 Crystal Run Road, Middletown, New York 10941.
Percent of Vote
as a Single
Class
-----------------
Class A Common Stock
------------------------------------- Class B Before After
Before Offering After Offering Common Stock Offering Offering
------------------ ------------------ ------------------------- -------- --------
Name of Beneficial Owner Number Percent Number Percent Number Percent
- ------------------------ ------ ------- ------ ------- ------ -------
Rocco B. Commisso....... -- -- % -- -- % 29,022,438(7) 100% 87.6% 82.6%
Morris Communications
Corporation(1)......... 28,532,875 69.6 28,532,875 46.8 -- -- 8.6 8.1
CB Capital Investors,
L.P.(2)................ 4,256,834 10.4 4,256,834 7.0 -- -- 1.3 1.2
U.S. Investor, Inc.(3).. 3,075,226 7.5 3,075,226 5.0 -- -- * *
Private Market Fund,
L.P(4)................. 2,385,768 5.8 2,385,768 3.9 -- -- * *
Mark E. Stephan......... -- -- -- -- 382,933(8)(9) 1.3 -- --
William S. Morris
III(1)(5).............. 28,532,875 69.6 28,532,875 46.8 -- -- 8.6 8.1
Craig S.
Mitchell(1)(6)......... 28,622,264 69.9 28,622,264 46.9 -- -- 8.6 8.1
Thomas V. Reifenheiser.. -- -- -- -- -- -- -- --
Natale S. Ricciardi..... -- -- -- -- -- -- -- --
Robert L. Winikoff...... -- -- -- -- -- -- -- --
James M. Carey.......... -- -- -- -- 214,475(9)(10) * -- --
Joseph Van Loan......... -- -- -- -- 260,434(9)(11) * -- --
Italia Commisso
Weinand................ -- -- -- -- 260,434(9)(12) * -- --
All executive officers,
directors and director
nominees as a group (8
persons)............... 28,622,264 69.9 28,622,264 46.9 28,734,428 99.0 96.3 90.8
- -------------------
* Represents beneficial ownership of less than 1%.
(1) The address of the beneficial owner is 725 Broad Street, Augusta, Georgia
30901
(2) Includes approximately 862,950 shares of Class A common stock owned by its
affiliate, Chase Manhattan Capital, L.P. The address of the beneficial
owner is c/o Chase Manhattan Capital Corporation, 380 Madison Avenue, New
York, New York 10017
86
(3) A party related to Booth American Company. The address of the beneficial
owner is 333 West Fort Street, Detroit, Michigan 48226.
(4) The address of the beneficial owner is c/o Pacific Corporate Group, 1200
Prospect Street, Suite 200, La Jolla, California 92037.
(5) Represent shares held by Morris Communications. Mr. Morris is the Chairman
and Chief Executive Officer of Morris Communications and is deemed to be
in control of Morris Communications.
(6) Includes 28,532,875 shares held by Morris Communications. Mr. Mitchell is
a director and the Chief Financial Officer of Morris Communications. Mr.
Mitchell disclaims any beneficial ownership of the shares held by Morris
Communications.
(7) Also includes 1,406,346 shares of Class B common stock owned of record by
other stockholders, representing all remaining shares of Class B common
stock outstanding for which Mr. Commisso holds an irrevocable proxy.
(8) All of these shares are subject to vesting in five equal annual
installments, which vesting period is deemed to have commenced on March
18, 1997. 229,760 of these shares are currently vested.
(9) If such beneficial owner desires to sell vested shares, or if such
beneficial owner's employment with us is terminated for any reason, Mr.
Commisso will have the option to purchase such shares. In the event that
Mr. Commisso exercises this purchase option, a portion of the vested
shares vested for less than three years will nonetheless be forfeited to
Mr. Commisso if, during such three year period, such beneficial owner
voluntarily terminates his employment with us or elects to sell such
shares or if such beneficial owner's employment with us is terminated for
cause. Such forfeiture of vested shares will not occur if Mr. Commisso
does not exercise his purchase option or if the beneficial owner is
terminated by us without cause or as a result of death or disability. Upon
a change of control, all such shares will vest and not be subject to
forfeiture. In addition, such beneficial owner has granted Mr. Commisso an
irrevocable proxy which may be exercised by Mr. Commisso in connection
with any action to be taken by our stockholders.
(10) All of these shares are subject to vesting in five equal annual
installments, which vesting period is deemed to have commenced on
September 15, 1998. 84,790 of these shares are currently vested.
(11) All of these shares are subject to vesting in five equal annual
installments, which vesting period is deemed to have commenced on November
4, 1997. 156,260 of these shares are currently vested.
(12) All of these shares are subject to vesting in five equal annual
installments, which vesting period is deemed to have commenced on April
21, 1997. 156,260 of these shares are currently vested.
87
DESCRIPTION OF CERTAIN INDEBTEDNESS
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 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 credit facilities
restrict the ability of each borrowing group to make distributions to Mediacom
LLC, 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 reducing 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 December 15, 1999, there was $446.5 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 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 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 operating 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 ranging from 2.50% to
2.75% or the base rate plus a floating percentage tied to the leverage
ratio ranging from 1.50% to 1.75%.
The weighted average interest rate at December 15, 1999 on the outstanding
borrowings under the Mediacom USA credit facility was 8.4%. As of December 15,
1999, interest rate swap agreements had been entered into to hedge the
underlying eurodollar rate exposure in the amount of $50.0 million with an
expiration date ranging from 2000 to 2002.
The reducing 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 reducing 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 December 15,
1999, there was $370.5 million of indebtedness outstanding under the Mediacom
Midwest credit facility. The Mediacom Midwest credit facility
88
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 Mediacom Midwest credit
facility depend upon performance measured by the leverage ratio of the Mediacom
Midwest Group. 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 ranging from 2.50% to
2.75% or the base rate plus a floating percentage tied to the leverage
ratio ranging from 1.50% to 1.75%.
The weighted average interest rate at December 15, 1999 on the outstanding
borrowings under the Mediacom Midwest credit facility was 8.4%.
The reducing 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 credit facility 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 facility 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 credit facility is secured by a pledge of Mediacom LLC's ownership
interests in the subsidiaries forming the relevant borrowing group, and is
guaranteed by Mediacom LLC on a limited recourse basis to the extent of such
ownership interests.
Each credit facility 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 credit facility if,
among other things:
. Mr. Commisso ceases to be our Chairman and Chief Executive Officer and,
in the case of the Mediacom Midwest credit facility, the Chairman and
Chief Executive Officer of Zylstra;
. we or Mediacom LLC shall cease to act as manager of our subsidiaries;
. we or Mediacom LLC shall cease to own 50.1% or more of the aggregate
voting rights of the equity interests of our subsidiaries;
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. 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 our common stock on a fully-diluted basis.
Senior Notes
The following is a summary of the 8 1/2% senior notes and the 7 7/8% senior
notes:
. Aggregate Principal Amount
-- 8 1/2% senior notes: $200,000,000
-- 7 7/8% senior notes: $125,000,000
. Maturity
-- 8 1/2% senior notes: April 15, 2008
-- 7 7/8% senior notes: February 15, 2011
. Interest Rate and Payment Dates
-- 8 1/2% senior notes: Bear interest at a rate of 8 1/2% per annum,
payable semi-annually on April 15 and October 15 of each year.
-- 7 7/8% senior notes: Bear interest at the rate of 7 7/8% per annum,
payable semi-annually on February 15 and August 15 of each year.
. Optional Redemption. 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 Corporation 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 LLC and Mediacom Capital 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 proceeds of one or more equity offerings; and
-- only if at least 65% of the aggregate principal amount of the notes
originally issued remains outstanding after each redemption.
. Change of Control. 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 101% of the principal amount of such notes
plus accrued and unpaid interest and liquidated damages, if any, to the
date of purchase.
. Ranking. The 8 1/2% senior notes and the 7 7/8% 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.
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. Covenants. 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;
-- 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 CAPITAL STOCK
General
Our authorized capitalization consists of 300,000,000 shares of Class A
common stock, par value $.01 per share, 100,000,000 shares of Class B common
stock, par value $.01 per share, and 100,000,000 shares of preferred stock, par
value $.01 per share.
Concurrently with the completion of this offering, the holders of the
membership interests of Mediacom LLC will exchange all of their membership
interests for shares of our common stock in accordance with the relative
ownership percentages of membership interests in Mediacom LLC immediately prior
to the completion of this offering. As a result of the exchange, Mediacom LLC
will become our wholly-owned subsidiary and will continue to serve as the
holding company for our operating subsidiaries.
Upon completion of the exchange of membership interests for shares of our
common stock and without giving effect to this offering, 40,977,562 shares of
Class A common stock and 29,022,438 shares of Class B common stock will be
outstanding. No shares of preferred stock will be outstanding.
Common Stock
The rights of the holders of Class A and Class B common stock are
substantially identical in all respects, except for their voting rights. Only
members of our management group and certain permitted transferees, as defined
in our certificate of incorporation, may hold Class B common stock. There is no
limitation on who may hold Class A common stock. Holders of Class A common
stock are entitled to one vote per share. Holders of Class B common stock are
entitled to ten votes per share. Holders of all classes of common stock
entitled to vote will vote together as a single class on all matters presented
to the stockholders for their vote or approval, except as otherwise required by
the Delaware General Corporation Law. Under Delaware law, the holders of each
class of common stock are entitled to vote as a separate class with respect to
any amendment to our certificate of incorporation that would increase or
decrease the aggregate number of authorized shares of such class, increase or
decrease the par value of such class, or modify or change the powers,
preferences or special rights of the shares of such class so as to affect such
class adversely. Our certificate of incorporation does not provide for
cumulative voting for the election of our directors, with the result that
stockholders owning or controlling more than 50% of the total votes cast for
the election of directors can elect all of the directors. See "Risk Factors--
Our Chairman and Chief Executive Officer has the ability to control all major
corporate decisions, which could inhibit or prevent a change of control or a
change in management."
Subject to the dividend rights of holders of preferred stock, holders of
common stock are entitled to receive dividends when, as and if declared by the
board of directors out of funds legally available for this purpose. In the
event of our liquidation, dissolution or winding up, the holders of both
classes of common stock are entitled to receive on a proportional basis any
assets remaining available for distribution after payment of our liabilities
and after provision has been made for payment of liquidation preferences to all
holders of preferred stock. Holders of common stock have no conversion,
redemption or sinking fund provisions or preemptive or other subscription
rights, except that in the event any shares of Class B common stock held by a
member of the management group and certain permitted transferees are
transferred outside the management group, or permitted transferees, such shares
will be converted automatically into shares of Class A common stock on a one-
for-one basis.
Preferred Stock
Our certificate of incorporation authorizes us to issue 100,000,000 shares
of blank check preferred stock having rights senior to our common stock. Our
board of directors is authorized, without further stockholder approval, to
issue preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, redemption terms and liquidation preferences, and to fix
the number of shares constituting any series and the designations of these
series.
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The issuance of preferred stock may have the effect of delaying or
preventing a change of control of us. The issuance of preferred stock could
decrease the amount of earnings and assets available for distribution to the
holders of common stock or could adversely affect the voting power or other
rights of the holders of common stock. We currently have no plans to issue any
shares of preferred stock.
Limitations on Liability
As permitted by Delaware law, our certificate of incorporation provides that
our directors shall not be personally liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, relating to
unlawful payment of dividends or unlawful stock purchases or redemption;
or
. for any transaction from which the director derives an improper personal
benefit.
As a result of this provision, we and our stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Our certificate of incorporation and by-laws provide for the indemnification
of our directors and officers, and, to the extent authorized by the board of
directors in its sole and absolute discretion, employees and agents, to the
fullest extent authorized by, and subject to the conditions set forth in
Delaware law, except that we will indemnify a director or officer in connection
with a proceeding or part thereof, initiated by such person, only if the
proceeding or part thereof was authorized by our board of directors. The
indemnification provided under the certificate of incorporation and by-laws
includes the right to be paid the expenses, including attorneys's fees, in
advance of any proceeding for which indemnification may be had, provided that
the payment of these expenses, including attorneys' fees, incurred by a
director, officer, employee or agent in advance of the final disposition of a
proceeding may be made only upon delivery to us of an undertaking by or on
behalf of the director, officer, employee or agent to repay all amounts so paid
in advance if it is ultimately determined that the director or officer is not
entitled to be indemnified.
Under the by-laws, we have the power to purchase and maintain insurance on
behalf of any person who is or was one of our directors, officers, employees or
agents, against any liability asserted against the person or incurred by the
person in any such capacity, or arising out of the person's status as such, and
related expenses, whether or not we would have the power to indemnify the
person against such liability under the provisions of Delaware law. We
currently have no plans to purchase director and officer liability insurance on
behalf of our directors and officers.
Delaware Anti-Takeover Law
We will be subject to the provisions of Section 203 of Delaware law. Section
203 prohibits publicly held Delaware corporations from engaging in a business
combination with an interested stockholder for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless:
. prior to the business combination our board of directors approved either
the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; or
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, such stockholder owned at least 85%
of our outstanding voting stock at the time such
93
transaction commenced, excluding for the purpose of determining the
number of shares outstanding those shares owned:
-- by our officers and directors and
-- by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer; or
. at or subsequent to such time the business combination is approved by
our board of directors and authorized at an annual or special meeting of
our stockholders, and not by written consent, by the affirmative vote of
at least 66 2/3% of our outstanding voting stock which is not owned by
the interested stockholder.
A business combination includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an interested stockholder is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock. These provisions could have the effect of
delaying, deferring or preventing a change of control of us or reducing the
price that certain investors might be willing to pay in the future for shares
of our Class A common stock.
Transfer Agent and Registrar
The transfer agent for our Class A common stock will be
.
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SHARES ELIGIBLE FOR FUTURE SALE
General
Upon the completion of this offering, we will have 90,000,000 shares of
common stock issued and outstanding, including 60,977,562 shares of Class A
common stock and 29,022,438 shares of Class B common stock. All outstanding
shares of common stock other than those issued in this offering will be
restricted securities as that term is defined in Rule 144 and also subject to
certain restrictions on disposition. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 under the Securities Act. Sales of
restricted securities in the public market, or the availability of such shares
for sale, could have an adverse effect on the price of the Class A common
stock. See "Dilution."
Registration Rights
We and Rocco Commisso, Morris Communications, CB Capital Investors, Chase
Manhattan Capital, U.S. Investor, Private Market Fund and our less than a 5%
stockholders have entered into a registration rights agreement, in accordance
with which we have granted to such persons as long as such persons hold common
stock received in exchange for their membership interests in Mediacom LLC
various demand rights commencing 180 days after the completion of this offering
to cause us to file a registration statement under the Securities Act covering
resales of all shares of common stock held by such persons, and to use our best
efforts to cause such registration statement to become effective. The
registration rights agreement also grants piggyback registration rights which
permit such persons to include their registrable securities in a registration
of securities by us. We are obligated to pay the expenses of such
registrations.
Rule 144
In general, under Rule 144, as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares of our Class A common stock for at least one year would be entitled to
sell within any three month period a number of shares that does not exceed the
greater of either of the following:
. 1% of the number of shares of Class A common stock then outstanding,
which will equal 609,776 shares immediately after this offering; and
. the average weekly trading volume of the Class A common stock on The
Nasdaq Stock Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at the time of or at any time during the three months preceding a
sale, and who has beneficially owned the restricted shares proposed to be sold
for at least two years, including the holding period of any prior owner other
than an affiliate, is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Therefore, unless otherwise restricted, shares covered by Rule 144(k)
may be sold immediately upon the completion of this offering. The sale of such
shares, or the perception that sales will be made, could adversely effect the
price of our Class A common stock after this offering because a greater supply
of shares would be, or would be perceived to be, available for sale in the
public market.
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Further Restrictions on Transfer for Certain Persons
Our officers, directors and stockholders have agreed to enter into lock-up
agreements with the underwriters of this offering generally providing that they
will not offer, sell, contract to sell, pledge or otherwise dispose of any
shares of our Class A common stock or securities convertible into or
exchangeable or exercisable for any of our Class A common stock, or publicly
disclose the intention to make any offer, sale, pledge, disposition or filing,
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this prospectus, subject to certain
exceptions. As a result of these contractual restrictions, notwithstanding the
possible earlier eligibility for sale under the provisions of Rules 144 and
144(k), shares subject to lock-up agreements may not be sold until such
agreements expire or are waived by Credit Suisse First Boston Corporation. In
addition, we have agreed that we will not offer, sell, contract to sell, pledge
or otherwise dispose of or file with the Securities and Exchange Commission a
registration statement under Securities Act relating to any shares of our Class
A common stock or securities convertible into or exchangeable or exercisable
for any of our Class A common stock, or publicly disclose the intention to make
any offer, sale, pledge, disposition or filing, without the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days
after the date of this prospectus, subject to certain exceptions.
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UNDERWRITERS
Credit Suisse First Boston Corporation and Salomon Smith Barney Inc. are
acting as joint book-running managers for this offering. Credit Suisse First
Boston Corporation, Salomon Smith Barney Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation are acting as co-lead managers, and Goldman, Sachs &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase Securities Inc.,
CIBC World Markets Corp. and First Union Securities, Inc. are acting as co-
managers.
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Salomon Smith
Barney Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Goldman,
Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase
Securities Inc., CIBC World Markets Corp. and First Union Securities, Inc. are
acting as representatives, the following respective numbers of shares of our
Class A common stock:
Number of
Underwriters Shares
------------ ----------
Credit Suisse First Boston Corporation............................
Salomon Smith Barney Inc..........................................
Donaldson, Lufkin & Jenrette Securities Corporation...............
Goldman, Sachs & Co...............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................
Chase Securities Inc..............................................
CIBC World Markets Corp...........................................
First Union Securities, Inc.......................................
----------
Total........................................................... 20,000,000
==========
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of our Class A common stock offered in this offering if
any are purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an
underwriter defaults, the purchase commitments of non-defaulting underwriters
may be increased or this offering of Class A common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a
proportional basis up to 3,000,000 additional shares of our Class A common
stock at the initial public offering price less the underwriting discounts and
commissions. This option may be exercised only to cover any over-allotments of
our Class A common stock.
The underwriters propose to offer the shares of our Class A common stock
initially at the public offering price on the cover page of this prospectus and
to selling group members at that price less a concession of $ per share.
The underwriters and selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to broker/dealers may be
changed by the representatives.
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The following table summarizes the compensation and estimated expenses we
will pay. The compensation that we will pay to the underwriters will consist
solely of the underwriting discounts, which are equal to the public offering
price per share of Class A common stock less the amount the underwriters pay to
us per share of Class A common stock, and commissions. The underwriters have
not received and will not receive from us other items of compensation or
expense in connection with this offering considered by the National Association
of Securities Dealers, Inc. to be underwriting compensation under its Conduct
Rules.
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-Allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
Underwriting discounts
and commissions paid by
us..................... $ $ $ $
Expenses payable by us.. $ $ $ $
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
We intend to use more than 10% of the net proceeds from the sale of the
Class A common stock to repay indebtedness owed by us to Credit Suisse First
Boston, New York branch, Citibank, N.A., The Chase Manhattan Bank, CIBC Inc.
and First Union National Bank, each an affiliate of one of the underwriters.
Accordingly, the offering is being made in compliance with the requirements of
Rule 2710(c)(8) of the National Association of Securities Dealers, Inc. Conduct
Rules. This rule provides generally that if more than 10% of the net proceeds
from the sale of stock, not including underwriting compensation, is paid to the
underwriters or their affiliates, the initial public offering price of the
stock may not be higher than that recommended by a qualified independent
underwriter meeting certain standards. Accordingly, Donaldson, Lufkin &
Jenrette Securities Corporation is assuming the responsibilities of acting as
the qualified independent underwriter in pricing the offering and conducting
due diligence. The initial public offering price of the shares of common stock
is no higher than the price recommended by Donaldson, Lufkin & Jenrette
Securities Corporation. We have agreed to pay $5,000 to Donaldson, Lufkin &
Jenrette Securities Corporation as compensation for its services as qualified
independent underwriter in this offering.
We and our officers, directors and stockholders have agreed that we and they
will not offer, sell, contract to sell, pledge or otherwise dispose of or file
with the Securities and Exchange Commission a registration statement under the
Securities Act relating to, any shares of our Class A common stock or
securities convertible into or exchangeable or exercisable for any of our Class
A common stock, or publicly disclose the intention to make any offer, sale,
pledge, disposition or filing, without the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus, except in our case for grants of employee stock options in
accordance with the terms of a plan in effect on the date hereof, issuances of
securities in accordance with the exercise of such options or the exercise of
any other employee stock options outstanding on the date hereof.
At our request, the underwriters will reserve up to 1,000,000 shares of our
Class A common stock to be sold, at the initial public offering price, to our
directors, officers and employees, as well as to some of our business
associates and individuals associated or affiliated with our directors. This
directed share program will be administered by Salomon Smith Barney Inc. The
number of shares of Class A common stock available for sale to the general
public will be reduced to the extent these individuals purchase reserved
shares. Any reserved shares of Class A common stock which are not so purchased
will be offered by the underwriters to the general public on the same basis as
the other shares of Class A common stock offered by this prospectus. We have
agreed to indemnify the underwriters against certain liabilities and expenses,
including liabilities under the Securities Act, in connection with sales of the
directed shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.
We have made application to list the shares of Class A common stock on The
Nasdaq Stock Market's National Market under the symbol "MCCC."
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Prior to this offering, there has been no public market for our Class A
common stock. The initial public offering price will be determined by
negotiation between us and the representatives, and does not reflect the market
price for our Class A common stock following this offering. The principal
factors to be considered in determining the initial public offering price
include:
. the information in this prospectus and otherwise available to the
representatives;
. the history of and prospects for the industry in which we will compete;
. our past and present operations;
. our past and present earnings and current financial position;
. the ability of our management;
. our prospects for future earnings;
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies;
. the general condition of the securities markets at the time of this
offering; and
. other relevant factors.
We can offer no assurance that the initial public offering price will
correspond to the price at which the Class A common stock will trade in the
public market subsequent to this offering or that an active trading market for
the Class A common stock will develop and continue after this offering.
Individuals affiliated with Credit Suisse First Boston Corporation will
beneficially own an aggregate of 0.2% of our Class A common stock after giving
effect to this offering. These individuals purchased an aggregate of 50.2
membership interests in Mediacom LLC for a total purchase price of $50,240 on
November 3, 1999. Chase Manhattan Capital, L.P. and CB Capital Investors, L.P.,
each an affiliate of Chase Securities Inc., will beneficially own an aggregate
of 7.0% of our Class A common stock after giving effect to this offering. CB
Capital Investors, L.P. purchased an aggregate of 512.4 membership interests in
Mediacom LLC for a total purchase price of $512,440 on November 3, 1999.
Entities affiliated with Credit Suisse First Boston Corporation, Salomon Smith
Barney Inc., Chase Securities Inc., CIBC World Markets Corp. and First Union
Securities, Inc. are lenders under our subsidiary credit facilities, a portion
of which will be repaid with the net proceeds of this offering. Chase
Securities Inc. and its affiliates engage from time to time in various general
financing and banking transactions with us and our affiliates. Chase Securities
Inc. was the arranger and The Chase Manhattan Bank is the administrative agent
and a lender under each of our subsidiary credit facilities. Chase Securities
Inc. acted as an advisor to us in connection with the acquisition of the Triax
systems. In addition, certain investment affiliates of Donaldson, Lufkin &
Jenrette Securities Corporation previously owned an interest in the Triax
systems. Upon completion of this offering, Thomas V. Reifenheiser, a Managing
Director and Group Executive for the Global Media and Telecom Group of Chase
Securities Inc., will become a member of our board of directors.
The representatives, on behalf of the underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
. Over-allotment involves syndicate sales in excess of this offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the Class A common
stock in the open market after the distribution has been completed in
order to cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the Class A common stock originally sold by
such syndicate member is purchased in a stabilizing transaction or a
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of our Class A common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
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LEGAL MATTERS
The validity of the shares of Class A common stock offered hereby will be
passed upon for us by Cooperman Levitt Winikoff Lester & Newman, P.C., New
York, New York. Robert L. Winikoff, one of our director nominees, is a partner
of Cooperman Levitt Winikoff Lester & Newman, P.C. Cahill Gordon & Reindel, a
partnership including a professional corporation, will pass upon certain legal
matters in connection with this offering.
EXPERTS
The audited consolidated financial statements of Mediacom LLC and
subsidiaries 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.
The following audited consolidated financial statements of the Cablevision
Systems, appearing elsewhere herein, have been included in this prospectus and
in the registration statement in reliance upon the reports of KPMG LLP,
independent certified public accountants, and upon the authority of said firm
as experts in accounting and auditing:
. the consolidated balance sheets of the Cablevision Systems as of
December 31, 1997 and 1996 and the related consolidated statements of
operations, partners' capital (deficiency) and cash flows for the year
ended December 31, 1997 and for the periods January 1, 1996 to August
12, 1996, and August 13, 1996 to December 31, 1996; and
. the consolidated balance sheets of the Cablevision Systems as of
December 31, 1996 and 1995 and the related consolidated statements of
operations, partners' capital (deficiency) and cash flows for the
periods January 1, 1996 to August 12, 1996, and August 13, 1996 to
December 31, 1996 and for the years ended December 31, 1995 and 1994.
The reports of KPMG LLP include an explanatory paragraph relating to a change
in cost basis of the consolidated financial information as a result of a
redemption of certain limited and general partnership interests effective
August 13, 1996.
The audited financial statements of Triax Midwest Associates, LP 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-1, including all amendments, exhibits, schedules and
supplements thereto, under the Securities Act and the rules and regulations
thereunder, for the registration of the Class A Common Stock offered hereby.
Although this prospectus, which forms a part of the registration statement,
contains all material information included in the registration statement, parts
of the registration statement have been omitted as permitted by the rules and
regulations of the Securities and Exchange Commission. For further information
about us and the Class A common stock 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 Securities and Exchange Commission at the public
reference facilities maintained by the Securities and Exchange Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Securities and Exchange Commission's regional offices at 3475 Lenox Road, N.E.,
Suite 1000, Atlanta, Georgia 30326-1232. Copies of such material may be
obtained from the Public
100
Reference Section of the Securities and Exchange Commission at 450 Fifth
Street, NW, Washington, D.C. 20549, at prescribed rates. The public may obtain
information regarding the Washington, D.C. Public Reference Room by calling the
SEC at 1-800-SEC-0330. You can also review such material by accessing the
Securities and Exchange 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 Securities and
Exchange Commission.
We intend to furnish to each of our stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited
financial information for the first three-quarters of each fiscal year. We will
also furnish to each of our stockholders such other reports as may be required
by law.
101
INDEX TO FINANCIAL STATEMENTS
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Contents Page
-------- ----
Report of Independent Public Accountants.................................. F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997.............. F-4
Consolidated Statements of Operations for the Years Ended December 31,
1998 and 1997, for the Period from Commencement of Operations (March 12,
1996) through December 31, 1996, and for the Period from January 1, 1996
through March 11, 1996................................................... F-5
Consolidated Statements of Changes in Members' Equity for the Years Ended
December 31, 1998 and 1997, and for the Period from Commencement of
Operations (March 12, 1996) through December 31, 1996.................... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998 and 1997, for the Period from Commencement of Operations (March 12,
1996) through December 31, 1996, and for the Period from January 1, 1996
through March 11, 1996................................................... F-7
Notes to Consolidated Financial Statements................................ F-8
Consolidated Balance Sheets as of September 30, 1999 (unaudited) and
December 31, 1998........................................................ F-21
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1999 and 1998 (unaudited).................................. F-22
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 1999 and 1998 (unaudited)............................................ F-23
Notes to Consolidated Financial Statements (unaudited).................... F-24
U.S. CABLE TELEVISION GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Contents Page
-------- ----
Independent Auditors' Report............................................. F-31
Consolidated Balance Sheets as of December 31, 1997 and 1996............. F-32
Consolidated Statements of Operations and Partners' Capital (Deficiency),
Year Ended December 31, 1997, Period from August 13, 1996 to December
31, 1996, and January 1, 1996 to August 12, 1996........................ F-33
Consolidated Statements of Cash Flows, Year Ended December 31, 1997,
Period from August 13, 1996 to December 31, 1996 and January 1, 1996 to
August 12, 1996......................................................... F-34
Notes to Consolidated Financial Statements............................... F-35
Independent Auditors' Report............................................. F-41
Consolidated Balance Sheets as of December 31, 1996 and 1995............. F-42
Consolidated Statements of Operations and Partners' Capital (Deficiency),
Period from January 1, 1996 to August 12, 1996, and August 13, 1996 to
December 31, 1996, and Years Ended December 31, 1995 and 1994........... F-43
Consolidated Statements of Cash Flows, Period from January 1, 1996 to
August 12, 1996, and August 13, 1996 to December 31, 1996, and Years
Ended December 31, 1995 and 1994........................................ F-44
Notes to Consolidated Financial Statements............................... F-45
F-1
TRIAX MIDWEST ASSOCIATES, L.P.
FINANCIAL STATEMENTS
Contents Page
-------- ----
Report of Independent Public Accountants................................. F-51
Balance Sheets as of December 31, 1997 and 1998 and September 30, 1999
(unaudited)............................................................. F-52
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-53
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-54
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-55
Notes to Financial Statements............................................ F-56
Note--Upon completion of this offering and the exchange of membership
interests in Mediacom LLC for our common stock, Mediacom LLC will become our
wholly-owned subsidiary. Prior to such time, Mediacom Communications
Corporation had no assets, liabilities, contingent liabilities or operations.
F-2
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,
1998 and 1997, and the related consolidated statements of operations, changes
in members' equity and cash flows for the years ended December 31, 1998 and
1997, and for the period from the commencement of operations (March 12, 1996)
through December 31, 1996 and the statements of operations and cash flows from
the period January 1, 1996 through March 11, 1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial position of Mediacom LLC and
its subsidiaries as of December 31, 1998 and 1997, and the results of their
operations, members' equity and cash flows for the years ended December 31,
1998 and 1997, and for the period from commencement of operations (March 12,
1996) through December 31, 1996 and the statements of operations and cash
flows from the period January 1, 1996 through March 11, 1996 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II--Valuation and
Qualifying Accounts is presented for purposes of complying with the Securities
and Exchange Commissions rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
Arthur Andersen LLP
Stamford, Connecticut
March 5, 1999
(except with respect to the
matter discussed in note 15,
as to which the date
is December 20, 1999)
F-3
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in 000's)
December 31,
------------------
1998 1997
-------- --------
ASSETS
Cash and cash equivalents.................................. $ 2,212 $ 1,027
Subscriber accounts receivable, net of allowance for
doubtful accounts of $298 in
1998 and $56 in 1997...................................... 2,512 618
Prepaid expenses and other assets.......................... 1,712 1,358
Investment in cable television systems:
Inventory................................................ 8,240 1,032
Property, plant and equipment, at cost................... 314,627 51,735
Less--accumulated depreciation........................... (45,423) (5,737)
-------- --------
Property, plant and equipment, net..................... 269,204 45,998
Intangible assets, net of accumulated amortization of
$26,307 in 1998 and $3,478 in 1997...................... 150,928 48,966
-------- --------
Total investment in cable television systems............... 428,372 95,996
Other assets, net of accumulated amortization of $3,854 in
1998 and $526 in 1997..................................... 16,344 3,792
-------- --------
Total assets........................................... $451,152 $102,791
======== ========
LIABILITIES AND MEMBERS' EQUITY
LIABILITIES
Debt....................................................... $337,905 $ 72,768
Accounts payable........................................... 2,678 853
Accrued expenses........................................... 29,446 4,021
Subscriber advances........................................ 1,510 603
Management fees payable.................................... 962 105
-------- --------
Total liabilities...................................... 372,501 78,350
MEMBERS' EQUITY
Capital contributions...................................... 124,990 30,990
Accumulated deficit........................................ (46,339) (6,549)
-------- --------
Total members' equity.................................. 78,651 24,441
-------- --------
Total liabilities and members' equity.................. $451,152 $102,791
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All dollar amounts in 000's)
The Company Predecessor
--------------------------------- ---------------
March 12,
Year Ended 1996
December 31, through January 1, 1996
------------------- December 31, through
1998 1997 1996 March 11, 1996
---------- ------- ------------ ---------------
Revenues..................... $ 129,297 $17,634 $ 5,411 $1,038
Costs and expenses:
Service costs.............. 43,849 5,547 1,511 297
Selling, general and
administrative expenses... 25,596 2,696 931 222
Management fee expense..... 5,797 882 270 52
Depreciation and
amortization.............. 65,793 7,636 2,157 527
---------- ------- ------- ------
Operating income (loss)...... (11,738) 873 542 (60)
---------- ------- ------- ------
Interest expense, net........ 23,994 4,829 1,528 201
Other expenses............... 4,058 640 967 --
---------- ------- ------- ------
Net loss..................... $ (39,790) $(4,596) $(1,953) $ (261)
========== ======= ======= ======
Pro forma net loss and loss
per share:
Historical net loss before
income taxes.............. $ (39,790)
Pro forma income tax
effects (note 15)......... --
----------
Pro forma net loss........... $ (39,790)
==========
Pro forma basic and diluted
loss per share.............. $ (0.57)
Pro forma common shares
outstanding (note 15)....... 70,000,000
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(All dollar amounts in 000's)
Balance, Commencement of Operations (March 12, 1996).................. $ 5,490
Capital contributions............................................... 1,000
Net loss............................................................ (1,953)
--------
Balance, December 31, 1996............................................ 4,537
Capital contributions............................................... 24,500
Net loss............................................................ (4,596)
--------
Balance, December 31, 1997............................................ 24,441
Capital contributions............................................... 94,000
Net loss............................................................ (39,790)
--------
Balance, December 31, 1998............................................ $ 78,651
========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in 000's)
The Company Predecessor
--------------------------------- -----------
March 12, January 1,
Year Ended 1996 1996
December 31, through through
------------------- December 31, March 11,
1998 1997 1996 1996
--------- -------- ------------ -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss........................ $ (39,790) $ (4,596) $ (1,953) $(261)
Adjustments to reconcile net
loss to net cash flows from
operating activities:
Accretion of interest on seller
note........................... 287 264 129 --
Depreciation and amortization... 65,793 7,636 2,157 527
Changes in assets and
liabilities, net of effects
from acquisitions:
Increase in subscriber
accounts receivable........... (1,437) (351) (267) (40)
Decrease (increase) in prepaid
expenses and other assets..... 329 (34) (1,323) --
Increase (decrease) in
accounts payable.............. 1,822 (242) 514 --
Increase in accrued expenses... 24,843 3,762 840 --
Increase in subscriber
advances...................... 852 498 105 --
Increase in management fees
payable....................... 857 70 35 --
--------- -------- -------- -----
Net cash flows from operating
activities................... 53,556 7,007 237 226
--------- -------- -------- -----
CASH FLOWS USED IN INVESTING
ACTIVITIES:
Capital expenditures............ (53,721) (4,699) (671) (86)
Acquisitions of cable television
systems........................ (343,330) (54,842) (44,539) --
Other, net...................... (34) (467) (47) --
--------- -------- -------- -----
Net cash flows used in
investing activities......... (397,085) (60,008) (45,257) (86)
--------- -------- -------- -----
CASH FLOWS FROM FINANCING
ACTIVITIES:
New borrowings.................. 488,200 72,225 39,200 --
Repayment of debt............... (223,350) (40,250) (1,600) --
Increase in seller note......... -- -- 2,800 --
Capital contributions........... 94,000 24,500 6,490 --
Financing costs................. (14,136) (2,843) (1,474) --
--------- -------- -------- -----
Net cash flows from financing
activities................... 344,714 53,632 45,416 --
--------- -------- -------- -----
Net increase in cash and cash
equivalents.................. 1,185 631 396 140
CASH AND CASH EQUIVALENTS,
beginning of period............. 1,027 396 -- 266
--------- -------- -------- -----
CASH AND CASH EQUIVALENTS, end of
period.......................... $ 2,212 $ 1,027 $ 396 $ 406
========= ======== ======== =====
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for
interest....................... $ 21,127 $ 4,485 $ 1,190 $ 201
========= ======== ======== =====
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(1) The Limited Liability Company:
Organization
Mediacom LLC ("Mediacom" and collectively with its subsidiaries, the
"Company"), a New York limited liability company, was formed on July 17, 1995
and initially conducted its affairs pursuant to an operating agreement dated
March 12, 1996 (the "1996 Operating Agreement"). On March 31 and June 16, 1997,
the 1996 Operating Agreement was amended and restated upon the admission of new
members to Mediacom (the "1997 Operating Agreement"). On January 20, 1998, the
1997 Operating Agreement was amended and restated upon the admission of
additional members to Mediacom (the "1998 Operating Agreement"). As of December
31, 1998, the Company had acquired and was operating cable television systems
in fourteen states, principally Alabama, California, Florida, Kentucky,
Missouri and North Carolina. (See Note 3).
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 $200,000 aggregate principal amount of 8
1/2% Senior Notes due 2008 (the "8 1/2% Senior Notes"), which were issued on
April 1, 1998. Mediacom Capital has nominal assets and does not conduct
operations of its own. The 8 1/2% Senior Notes are joint and several
obligations of Mediacom and Mediacom Capital, although Mediacom received all
the net proceeds of the 8 1/2% Senior Notes.
Capitalization
The Company was initially capitalized on March 12, 1996, with equity
contributions of $5,445 from Mediacom's members and $45 from Mediacom
Management Corporation ("Mediacom Management"), a Delaware corporation. On June
28, 1996, Mediacom received additional equity contributions of $1,000 from an
existing member.
On June 22 and September 18, 1997, Mediacom received additional equity
contributions of $19,500 and $5,000, respectively, from its members. On January
22, 1998, Mediacom received additional equity contributions of $94,000 from its
members.
Allocation of Losses, Profits and Distributions
For 1996, pursuant to the 1996 Operating Agreement, net losses were
allocated 98% to the manager as defined in the operating agreements (the
"Manager") and the balance to the other members ratably in accordance with
their respective membership units. For 1997, pursuant to the 1997 Operating
Agreement, net losses were allocated first to the Manager and the balance to
the other members ratably in accordance with their respective membership units.
For 1998, pursuant to the 1998 Operating Agreement, net losses are to be
allocated first to the Manager; second, to the member owning the largest number
of membership units in Mediacom; and third, to the members, other than the
Manager, ratably in accordance with their respective positive capital account
balances and membership units.
Profits are allocated first to the members to the extent of their deficit
capital account; second, to the members to the extent of their preferred
capital; third, to the members (including the Manager) until they receive an 8%
preferred return on their preferred capital (the "Preferred Return"); fourth,
to the Manager until the Manager receives an amount equal to 25% of the amount
provided to deliver the Preferred Return to all members; the balance, 80% to
the members (including the Manager) in proportion to their respective
membership units and 20% to the Manager. The 1997 Operating Agreement increased
the Preferred Return from 8% to 12%.
F-8
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
Distributions are made first to the members (including the Manager) in
proportion to their respective membership units until they receive amounts
equal to their preferred capital; second, to the members (including the
Manager) in proportion to their percentage interests until all members receive
the Preferred Return; third, to the Manager until the Manager receives 25% of
the amount provided to deliver the Preferred Return; the balance, 80% to the
members (including the Manager) in proportion to their percentage interests and
20% to the Manager.
Redemption Rights
Except as set forth below, no member has the right to have its membership
interests redeemed or its capital contributions returned prior to dissolution
of Mediacom. Pursuant to the 1998 Operating Agreement, each member has the
right to require Mediacom to redeem its membership interests at any time if the
holding of such interests exceeds the amount permitted, or is otherwise
prohibited or becomes unduly burdensome, by any law to which such member is
subject, or, in the case of any member which is a Small Business Investment
Company as defined in and subject to regulation under the Small Business
Investment Act of 1958, as amended, upon a change in the Company's principal
business activities to an activity not eligible for investment by a Small
Business Investment Company or a change in the reported use of proceeds of a
member's investment in Mediacom. If Mediacom is unable to redeem for cash any
or all of such membership interests at such time, Mediacom will issue as
payment for such interests a junior subordinated promissory note with a five-
year maturity date and deferred interest which accrues and compounds at an
annual rate of 5% over the prime rate.
In addition, in connection with the Company's acquisition of the
Cablevision Systems on January 23, 1998 (See Note 3), the Federal
Communications Commission (the "FCC") issued a transactional forbearance from
its cross-ownership restrictions, effective for a period of one year,
permitting a certain existing member (the "Transactional Member") to purchase
additional units of membership interest in Mediacom. This temporary waiver was
originally set to expire on January 23, 1999. However, on January 15, 1999, the
FCC granted an extension of such waiver to July 23, 1999. If at the end of this
extension, the Transactional Member's membership interest in Mediacom remains
above the limitations imposed by the FCC's cross-ownership restrictions,
Mediacom will be required to repurchase such number of the Transactional
Member's units of membership interest which exceed the permissible ownership
level. If such repurchase were to occur on July 23, 1999 (i.e., upon expiration
of the transactional forbearance), and assuming no changes in the number of
outstanding membership units of Mediacom and no changes in such cross-ownership
rules, the repurchase price for such excess membership interests would be
approximately $7,500 plus accrued interest.
Duration and Dissolution
Mediacom will be dissolved upon the first to occur of the following: (i)
December 31, 2020; (ii) certain events of bankruptcy involving the Manager or
the occurrence of any other event terminating the continued membership of the
Manager, unless within one hundred eighty days after such event the Company is
continued by the vote or written consent of no less than two-thirds of the
remaining membership interests; or (iii) the entry of a decree of judicial
dissolution.
(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 financial
F-9
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
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.
The financial statements for the period from January 1, 1996, through
March 11, 1996, and reflecting the results of operations and statement of cash
flows, are referred to as the "Predecessor" financial statements. The
Predecessor is Benchmark Acquisition Fund II Limited Partnership which owned
the assets comprising the cable television system serving at the time of its
acquisition by the Company 10,300 subscribers in Ridgecrest, California.
Accordingly, the accompanying financial statements of the Predecessor and the
Company are not comparable in all material respects since those financial
statements report results of operations and cash flows of these two separate
entities.
Revenue Recognition
Revenues include subscriber service revenues and charges for
installations and connections and are recognized in the period in which the
related services are provided to the Company's customers. Other revenues are
recognized as services are provided. Revenues obtained from the connection and
installation of customers are recognized as revenue to the extent of direct
selling costs incurred. The balance, if any, is deferred and amortized to
income over the estimated average period that customers are expected to remain
connected to the systems.
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.
Property, Plant and Equipment
Property, plant and equipment is recorded at purchased and capitalized
cost. Repairs and maintenance are charged to operations, and replacements,
renewals and additions are capitalized. The Company capitalized a portion of
salaries and overhead related to the installation of property, plant and
equipment of approximately $6,548 and $681 in 1998 and 1997, respectively.
The Company capitalizes interest on funds borrowed for projects under
construction. Such interest is charged to property, plant and equipment and
amortized over the approximate life of the related assets. Capitalized interest
was approximately $1,014 in 1998.
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-10
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
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, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires that long-
lived assets and certain identifiable intangibles to be held and used by any
entity, be reviewed for impairment 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 $8,492 and $3,963
as of December 31, 1998 and 1997, respectively. Financing costs incurred to
raise debt and equity capital are deferred and amortized on a straight-line
basis over the expected term of such financings.
Income Taxes
Since Mediacom is a limited liability company and the Predecessor is a
limited partnership, they are not subject to federal or state income taxes, and
no provision for income taxes relating to their statements of operations have
been reflected in the accompanying financial statements. The members of
Mediacom and the limited partners of the Predecessor are required to report
their share of income or loss in their respective income tax returns.
Reclassifications
Certain reclassifications have been made to prior year's amounts to
conform to the current year's presentation.
(3) Acquisitions:
The Company has completed the undernoted acquisitions (the "Acquired
Systems") in 1998 and 1997. These acquisitions were accounted for using the
purchase method of accounting, and accordingly, the purchase price of these
Acquired Systems have 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.
1998
On January 9, 1998, Mediacom California LLC ("Mediacom California"), a
subsidiary of Mediacom, acquired the assets of a cable television system
serving approximately 17,200 subscribers in Clearlake,
F-11
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
California and surrounding communities (the "Clearlake System") for a purchase
price of $21,400. The purchase price has been preliminarily allocated as
follows: $8,560 to property, plant and equipment, and $12,840 to intangible
assets. Such allocations are subject to adjustments based upon the final
appraisal information received by the Company. The final allocations of the
purchase price are not expected to differ materially from the preliminary
allocations. Additionally, approximately $226 of direct acquisition costs has
been allocated to other assets. In the first quarter of 1998, the Company
recorded acquisition reserves related to this acquisition in the amount of
approximately $370, which are included in accrued expenses. The acquisition of
the Clearlake System and related closing costs and adjustments were financed
with borrowings under the Company's bank credit facilities. See Note 8.
On January 23, 1998, Mediacom Southeast LLC, ("Mediacom Southeast"), a
wholly-owned subsidiary of Mediacom, acquired the assets of cable television
systems serving approximately 260,100 subscribers in various regions of the
United States (the "Cablevision Systems") for a purchase price of $308,200. The
purchase price has been allocated based on independent appraisal as follows:
$205,500 to property, plant and equipment, and $102,700 to intangible assets.
Additionally, approximately $3,500 of direct acquisition costs has been
allocated to other assets. In the first quarter of 1998, the Company recorded
acquisition reserves related to this acquisition in the amount of $3,750, which
are included in accrued expenses. The acquisition of the Cablevision Systems
and related closing costs and adjustments were financed with equity
contributions, borrowings under the Company's bank credit facilities, and other
bank debt. See Notes 1 and 8.
On October 1, 1998, Mediacom Southeast acquired the assets of a cable
television system serving approximately 3,800 subscribers in Caruthersville,
Missouri (the "Caruthersville System") for a purchase price of $5,000. The
purchase price has been preliminarily allocated as follows: $2,000 to property,
plant and equipment, and $3,000 to intangible assets. Such allocations are
subject to adjustments based upon the final appraisal information received by
the Company. The final allocations of the purchase price are not expected to
differ materially from the preliminary allocations. The acquisition of the
Caruthersville System and related closing costs and adjustments were financed
with borrowings under the Company's bank credit facilities. See Note 8.
1997
On June 24, 1997, Mediacom Delaware LLC ("Mediacom Delaware"), a wholly-
owned subsidiary of Mediacom, acquired the assets of cable television systems
serving approximately 29,300 subscribers in lower Delaware and southwestern
Maryland (the "Lower Delaware System") for a purchase price of $42,600. The
purchase price has been allocated as follows: $21,300 to property, plant and
equipment, and $21,300 to intangible assets. Additionally, $409 of direct
acquisition costs has been allocated to other assets.
On September 19, 1997, Mediacom California acquired the assets of a cable
television system serving approximately 9,600 subscribers in Sun City,
California (the "Sun City System") for a purchase price of $11,500. The
purchase price has been allocated as follows: $7,150 to property, plant and
equipment, and $4,350 to intangible assets. Additionally, $52 of direct
acquisition costs has been allocated to other assets.
(4) Pro Forma Results:
Summarized below are the pro forma unaudited results of operations for
the years ended December 31, 1998 and 1997, assuming the purchase of the
Acquired Systems had been consummated as of January 1, 1997. Adjustments have
been made to: (i) depreciation and amortization reflecting the fair value of
the assets
F-12
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
acquired; and (ii) interest expense. The pro forma results may not be
indicative of the results that would have occurred if the combination had been
in effect on the dates indicated or which may be obtained in the future.
1998 1997
-------- --------
Revenue................................................ $136,148 $120,511
Operating loss......................................... (11,809) (15,352)
Net loss............................................... $(41,340) $(42,921)
(5) Recent Accounting Pronouncements:
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income," Statement of Financial Accounting Standard No. 131, "Disclosure about
Segments of an Enterprise and Related Information" and Statement of Financial
Accounting Standard No. 132, "Employer's Disclosure about Pension and Other
Post Retirement Benefits" which are effective for the Company's fiscal 1998
financial statements. During the years ended December 31, 1998 and 1997 and the
period ended December 31, 1996, the Company had no items of comprehensive
income. Refer to Note 13 of the consolidated financial statements for
disclosure about segments and other related information. Additionally, the
Company does not have any defined benefit plans, therefore, additional
disclosures are not applicable to the notes of the financial statements.
In 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," ("SFAS 133") and Statement
of Position 98-5, "Reporting on the Costs of Start up Activities" ("SOP 98-5")
were issued. SFAS 133 establishes accounting and reporting standards requiring
that every derivative instrument be recorded in the balance sheet as either an
asset or liability measured at its fair value. The Company will adopt SFAS 133
in fiscal 2001 but has not quantified the impact or not yet determined the
timing or method of the adoption. SOP 98-5 provides guidance on accounting for
the costs of start-up activities, which include preopening costs, preoperating
costs, organization costs, and start-up costs. The Company will adopt SOP 98-5
in fiscal 1999, but does not expect any impact on the financial statements.
(6) Property, Plant and Equipment:
As of December 31, 1998 and 1997, property, plant and equipment consisted
of:
1998 1997
-------- -------
Land and land improvements.............................. $ 341 $ 108
Buildings and leasehold improvements.................... 5,731 337
Cable systems, equipment and subscriber devices......... 300,051 49,071
Vehicles................................................ 5,051 1,135
Furniture, fixtures and office equipment................ 3,453 1,084
-------- -------
$314,627 $51,735
Accumulated depreciation................................ (45,423) (5,737)
-------- -------
$269,204 $45,998
======== =======
F-13
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(7) Intangible Assets:
The following table summarizes the net asset value for each intangible
asset category as of December 31, 1998 and 1997:
Gross Asset Net Asset
1998 Value Amortization Value
---- ----------- ------------ ---------
Franchising costs....................... $ 87,509 $ 7,983 $ 79,526
Goodwill................................ 8,400 1,313 7,087
Subscriber lists........................ 76,484 15,701 60,783
Covenants not to compete................ 4,842 1,310 3,532
-------- ------- --------
$177,235 $26,307 $150,928
======== ======= ========
Gross Asset Net Asset
1997 Value Amortization Value
---- ----------- ------------ ---------
Franchising costs....................... $ 22,181 $ 1,732 $ 20,449
Goodwill................................ 6,848 333 6,515
Subscriber list......................... 18,573 1,085 17,488
Covenants not to compete................ 4,842 328 4,514
-------- ------- --------
$ 52,444 $ 3,478 $ 48,966
======== ======= ========
(8) Debt:
As of December 31, 1998 and 1997, debt consisted of:
1998 1997
-------- -------
Mediacom:
8 1/2% Senior Notes(a)................................. $200,000 $ --
Subsidiaries:
Bank Credit Facilities(b).............................. 134,425 69,575
Seller Note(c)......................................... 3,480 3,193
-------- -------
$337,905 $72,768
======== =======
(a) On April 1, 1998, Mediacom and Mediacom Capital jointly issued $200,000
aggregate principal amount of 8 1/2% Senior Notes due on April 15, 2008.
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. Interest accrues at 8 1/2% per annum, beginning from the date of
issuance and is payable semi-annually on April 15 and October 15 of each
year, commencing on October 15, 1998. The 8 1/2% Senior Notes may be
redeemed at the option of Mediacom, in whole or part, at any time after
April 15, 2003, at redemption prices decreasing from 104.25% of their
principal amount to 100% in 2006, plus accrued and unpaid interest.
(b) On January 23, 1998, Mediacom Southeast entered into an eight and one-half
year, $225,000 reducing revolver and term loan agreement (the "Southeast
Credit Facility"). On June 24, 1997, Mediacom California, Mediacom Delaware
and Mediacom Arizona LLC, a wholly-owned subsidiary of Mediacom
(collectively, the "Western Group"), entered into an eight and one-half
year, $100,000 reducing revolver and term loan agreement (the "Western
Credit Facility" and, together with the Southeast Credit Facility, the
"Bank Credit Facilities"). At December 31, 1998, the aggregate commitments
under the Bank Credit Facilities were $324,400. The Bank Credit Facilities
are non-recourse to Mediacom and have no cross-default provisions relating
directly to each other. The reducing revolving credit lines under the Bank
Credit Facilities make available a maximum commitment amount for a period
of up to eight and one-half years,
F-14
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
which is subject to quarterly reductions, beginning September 30, 1998,
ranging from 0.21% to 12.42% of the original commitment amount of the
reducing revolver. The term loans under the Bank Credit Facilities are
repaid in consecutive installments beginning September 30, 1998, ranging
from 0.42% to 12.92% of the original term loan amount. The Bank Credit
Facilities require mandatory reductions of the reducing revolvers and
mandatory prepayments of the term loans from excess cash flow, as defined,
beginning December 31, 1999. The Bank Credit Facilities provide for interest
at varying rates based upon various borrowing options and the attainment of
certain financial ratios and for commitment fees of 3/8% to 1/2% per annum
on the unused portion of available credit under the reducing revolver credit
lines. The effective interest rates on outstanding debt under the Bank
Credit Facilities were 7.2% and 8.8% for the three months ending December
31, 1998 and December 31, 1997, respectively, after giving effect to the
interest rate swap agreements discussed below.
The applicable margins for the respective borrowing rate options have
the following ranges:
Interest Rate Option Margin Rate
-------------------- ---------------
Base Rate................................................. 0.250% to 1.625%
Eurodollar Rate........................................... 1.250% to 2.625%
The Bank Credit Facilities require Mediacom's subsidiaries to maintain
compliance with certain financial covenants including, but not limited to,
the leverage ratio, the interest coverage ratio, the fixed charge coverage
ratio and the pro forma debt service coverage ratio, as defined in the
respective credit agreements. The Bank Credit Facilities also require
Mediacom's subsidiaries 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 as of December 31, 1998.
The Bank Credit Facilities are secured by Mediacom's pledge of all its
ownership interests in the subsidiaries and a first priority lien on all
the tangible and intangible assets of the operating subsidiaries, other
than real property in the case of the Southeast Credit Facility. The
indebtedness under the Bank Credit Facilities is guaranteed by Mediacom on
a limited recourse basis to the extent of its ownership interests in the
operating subsidiaries. At December 31, 1998, the Company had
approximately $189,900 of unused commitments under the Bank Credit
Facilities, all of which could have been borrowed by the operating
subsidiaries for purposes of distributing such borrowed proceeds to
Mediacom under the most restrictive covenants in the Company's bank credit
agreements.
As of December 31, 1998, the Company had entered into interest rate
exchange agreements (the "Swaps") with various banks pursuant to which the
interest rate on $60,000 is fixed at a weighted average swap rate of
approximately 6.2%, plus the average applicable margin over the Eurodollar
Rate option under the Bank Credit Facilities. Any amounts paid or received
due to swap arrangements are recorded as an adjustment to interest
expense. Under the terms of the Swaps, which expire from 1999 through
2002, 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.
(c) In connection with the acquisition of the Kern Valley System, the Western
Group issued to the seller an unsecured senior subordinated note (the
"Seller Note") in the amount of $2,800, with a final maturity of June 28,
2006. Interest is deferred throughout the term of the note and is payable
at maturity or upon prepayment. For the five-year period ending June 28,
2001, the annual interest rate is 9.0%. After the initial five-year
period, the annual interest rate increases to 15.0%, with an interest
clawback for the first five years. After the initial seven-year period,
the interest rate increases to 18.0%, with an interest clawback for the
first seven years. The Company intends to prepay the Seller Note plus
accrued interest on or before June 28, 2001, subject to prior approval by
the parties to the Western Credit Facilities, which the Company
F-15
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
believes it will obtain. The Company expects to repay the Seller Note with
cash flow generated from operations and future borrowings. There are no
penalties associated with prepayment of this note.
The Seller Note agreement contains a debt incurrence covenant limiting the
ability of the Western Group to incur additional indebtedness. The Seller
Note is subordinated and junior in right of payment to all senior
obligations, as defined in the Western Credit Facility.
The stated maturities of all debt outstanding as of December 31, 1998,
are as follows:
1999.............................................................. $ 2,000
2000.............................................................. 2,300
2001.............................................................. 6,600
2002.............................................................. 9,500
2003.............................................................. 13,600
Thereafter........................................................ 303,905
--------
$337,905
========
(9) Related Party Transactions:
Separate management agreements with each of Mediacom's subsidiaries
provide for Mediacom Management to be paid compensation for management services
performed for the Company. Under such agreements, Mediacom Management, which is
wholly-owned by the Manager, is entitled to receive annual management fees
calculated as follows: (i) 5.0% of the first $50,000 of annual gross operating
revenues of the Company; (ii) 4.5% of such revenues in excess thereof up to
$75,000; and (iii) 4.0% of such revenues in excess of $75,000. The Company
incurred management fees of approximately $5,797, $882, and $270 for the years
ended 1998 and 1997, and for the period ended December 31, 1996, respectively.
The operating agreement of Mediacom provides for Mediacom Management to
be paid a fee of 1.0% of the purchase price of acquisitions made by the Company
until the Company's pro forma consolidated annual operating revenues equal
$75,000 and 0.5% of such purchase price thereafter. The Company incurred
acquisition fees of approximately $3,327, $544, and $441 for the years ended
1998 and 1997, and for the period ended December 31, 1996, respectively. The
acquisition fees are included in other expenses in the statement of operations.
In addition, the operating agreements of the Company provide for the
reimbursement of reasonable out-of-pocket expenses of Mediacom Management
incurred in connection with the operation of the business of the Company and
acting for or on behalf of the Company in connection with any potential
acquisitions. The Company reimbursed Mediacom Management approximately $53,
$59, and $529 for the years ended 1998 and 1997, and for the period ended
December 31, 1996, respectively.
(10) Employee Benefit Plans:
Substantially all employees of the Company are eligible to participate in
a deferred arrangement pursuant to IRC 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 $264, $14, and $10 for the
years ended 1998 and 1997, and for the period ended December 31, 1996,
respectively.
F-16
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(11) Commitments and Contingencies:
Under various lease and rental agreements for offices, warehouses and
computer terminals, the Company had rental expense of approximately $588, $138,
and $22 for the years ended 1998 and 1997, and for the period ended December
31, 1996, respectively. Future minimum annual rental payments are as follows:
1999................................................................ $1,815
2000................................................................ 1,190
2001................................................................ 768
2002................................................................ 379
2003................................................................ 267
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 $1,709, $102,
and $24 for the years ended 1998 and 1997, and for the period ended December
31, 1996, respectively.
Legal Proceedings
Management is not aware of any legal proceedings currently that will have
a material adverse impact on the Company's financial statements.
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 recently 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 1996 Telecom Act deregulates rates for cable programming services
tiers ("CPST") on March 31, 1999 and, for certain small cable operators,
immediately eliminates rate regulation of CPST, and, in certain limited
circumstances, basic services. The FCC is currently developing permanent
regulations to implement the rate deregulation provisions of the 1996 Telecom
Act. The Company is currently unable to predict the ultimate effect of the
Cable Acts or the 1996 Telecom Act on its financial statements.
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 and/or Congress will enact legislation
which would, for example, delay or suspend the scheduled March 1999 termination
of CPST rate regulation.
F-17
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
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.
(12) Disclosures about Fair Value of Financial Instruments:
Debt
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 and the Seller Note approximates the
carrying value. The fair value at December 31, 1998 of the 8 1/2% Senior Notes
was approximately $204,500.
Interest Rate Exchange Agreements
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, 1998, the Company would have paid approximately $1,464 to
terminate the Swaps, inclusive of accrued interest.
(13) FASB 131--Disclosure about Segments of an Enterprise and Related
Information:
During the fourth quarter of fiscal year 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosure about
Segments of an Enterprise and Related Information". This statement requires the
Company to report segment financial information consistent with the
presentations made to the Company's management for decision-making purposes.
All revenues of the Company are derived solely from cable television operations
and related activities. When allocating capital and operational resources to
the cable television systems, the Company's management evaluates such factors
as the bandwidth capacity and other cable plant characteristics, the offered
programming services, and the rate structure. The decision making of the
Company's management is based primarily on the impact of such resource
allocations on the Company's consolidated system cash flow (defined as
operating income before management fee expense, and depreciation and
amortization). For the years ended 1998 and 1997, and for the period ended
December 31, 1996, the Company's consolidated system cash flow was
approximately $59,850, $9,390, and $2,960, respectively.
(14) Recent Events:
On February 26, 1999, Mediacom and Mediacom Capital, a New York
corporation wholly-owned by Mediacom, jointly issued $125,000 aggregate
principal amount of 7 7/8% Senior Notes due on February 15, 2011. The net
proceeds from this offering of approximately $121,900 were used to repay a
substantial portion of outstanding indebtedness under the Company's bank credit
facilities. Interest on the 7 7/8% Senior Notes will be payable semi-annually
on February 15 and August 15 of each year, commencing on August 15, 1999.
The Company is regularly presented with opportunities to acquire cable
television systems that are evaluated on the basis of the Company's acquisition
strategy. Although the Company presently does not have any definitive
agreements to acquire or sell any of its cable television systems, it is
negotiating with prospective sellers to acquire additional cable television
systems. If definitive agreements for all such potential acquisitions are
executed, and if such acquisitions are then consummated, the Company's customer
base would
F-18
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
approximately double in size. These acquisitions are subject to the negotiation
and completion of definitive documentation, which will include customary
representations and warranties and will be subject to a number of closing
conditions. Financing for these potential transactions has not been determined;
however, if such acquisitions are consummated, the Company believes its total
indebtedness would substantially increase. No assurance can be given that such
definitive documents will be entered into or that, if entered into, the
acquisitions will be consummated.
(15) Subsequent events:
The Company has filed a registration statement with the Securities and
Exchange Commission with the intent of having an initial public offering of its
common stock. In connection therewith, the members of the limited liability
company will exchange their membership interests for shares in a C corporation
and will become subject to federal and state income taxes. As of December 31,
1998, had the Company been a C corporation, the Company would have recognized a
non-recurring non-cash benefit to earnings of approximately $900 to record a
net deferred tax asset.
Pro forma earnings per share is calculated in accordance with SFAS No.
128 "Earnings Per Share" and is presented on a pro forma basis as if the shares
issued to effect the exchange of membership interests of Mediacom LLC for
shares in a C corporation were outstanding for all periods presented. The pro
forma common shares outstanding reflect the 40,977,562 Class A shares and
29,022,438 Class B shares issued to effect the exchange of membership interests
of Mediacom LLC as if these shares were outstanding for the period January 1,
1998 through December 31, 1998. These shares are based upon the relative
ownership percentages of membership interests in Mediacom LLC immediately prior
to the completion of this offering and are based on an initial public offering
price of $17.50, the mid-point of the range set forth in the registration
statement. The calculation does not include the effect of any stock or stock
options that may be granted as part of the IPO. The Company has operating
losses for the periods presented and has not reflected any income tax benefit
as part of the pro forma loss.
At the time of the offering, the Company will terminate the management
services agreement with Mediacom Management and all employees of Mediacom
Management will become employees of the new C corporation.
F-19
Schedule II
MEDIACOM LLC AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(All dollar amounts in 000's)
Balance at Additions
beginning of charged to costs Balance at
period and expenses Deductions end of period
------------ ---------------- ---------- -------------
December 31, 1996
Allowance for doubtful
accounts
Current
receivables........ $ -- $ 91 $ 66 $ 25
Acquisition reserves
Accrued expenses.... $ -- $ -- $ -- $ --
December 31, 1997
Allowance for doubtful
accounts
Current
receivables........ $ 25 $ 45 $ 14 $ 56
Acquisition reserves
Accrued expenses.... $ -- $ -- $ -- $ --
December 31, 1998
Allowance for doubtful
accounts
Current
receivables........ $ 56 $1,694 $1,452 $ 298
Acquisition
reserves(1)
Accrued expenses.... $ -- $4,120 $ -- $4,120
- -----------------------------
(/1/) Addition was charged to intangible assets
F-20
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in 000's)
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
ASSETS
Cash and cash equivalents.......................... $ 3,700 $ 2,212
Subscriber accounts receivable, net of allowance
for doubtful accounts of $408 in 1999 and $298 in
1998.............................................. 2,269 2,512
Prepaid expenses and other assets.................. 2,947 1,712
Investment in cable television systems:
Inventory........................................ 11,606 8,240
Property, plant and equipment, at cost........... 369,100 314,627
Less--accumulated depreciation................... (82,200) (45,423)
--------- --------
Property, plant and equipment, net............. 286,900 269,204
Intangible assets, net of accumulated
amortization of $45,103 in 1999 and $26,307 in
1998............................................ 134,768 150,928
--------- --------
Total investment in cable television systems... 433,274 428,372
Other assets, net of accumulated amortization of
$4,773 in 1999 and $3,854 in 1998................. 12,965 16,344
--------- --------
Total assets................................... $ 445,155 $451,152
========= ========
LIABILITIES AND MEMBERS' EQUITY
LIABILITIES
Debt............................................. $ 377,500 $337,905
Accounts payable................................. 1,662 2,678
Accrued expenses................................. 31,621 29,446
Subscriber advances.............................. 1,857 1,510
Management fees payable.......................... 1,881 962
--------- --------
Total liabilities.............................. 414,521 372,501
--------- --------
COMMITMENTS AND CONTINGENCIES...................... -- --
MEMBERS' EQUITY
Capital contributions............................ 124,990 124,990
Accumulated deficit.............................. (84,356) (46,339)
--------- --------
Total members' equity.......................... 40,634 78,651
--------- --------
Total liabilities and members' equity.......... $ 455,155 $451,152
========= ========
See accompanying notes to consolidated financial statements
F-21
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All dollar amounts in 000's)
(Unaudited)
Three Months
Ended Nine Months Ended
September 30, September 30,
----------------- --------------------
1999 1998 1999 1998
-------- ------- ---------- --------
Revenues.............................. $ 39,052 $34,306 $ 113,230 $ 94,374
Costs and expenses:
Service costs....................... 12,396 11,411 36,571 32,873
Selling, general and administrative
expenses........................... 7,314 6,562 21,816 18,101
Management fee expense.............. 1,562 1,557 5,150 4,340
Depreciation and amortization....... 24,723 16,915 66,154 44,338
-------- ------- ---------- --------
Operating loss........................ (6,943) (2,139) (16,461) (5,278)
-------- ------- ---------- --------
Interest expense, net................. 7,185 6,048 20,577 17,786
Other expenses........................ 245 270 979 3,838
-------- ------- ---------- --------
Net loss.............................. $(14,373) $(8,457) $ (38,017) $(26,902)
======== ======= ========== ========
Pro forma net loss and loss per share:
Historical net loss before income
taxes.............................. $ (38,017)
Pro forma income tax effects
(note 6)........................... --
----------
Pro forma net loss.................... $ (38,017)
==========
Pro forma basic and diluted loss per
share................................ $ (0.54)
Pro forma common shares outstanding
(note 6)............................. 70,000,000
See accompanying notes to consolidated financial statements
F-22
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in 000's)
(Unaudited)
Nine Months
Ended September 30,
--------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $ (38,017) $ (26,902)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Accretion of interest on seller note................. 225 205
Depreciation and amortization........................ 66,154 44,338
Decrease (increase) in subscriber accounts
receivable.......................................... 243 (1,389)
Increase in prepaid expenses and other assets........ (1,235) (1,603)
(Decrease) increase in accounts payable.............. (1,016) 4,003
Increase in accrued expenses......................... 2,175 28,694
Increase in subscriber advances...................... 347 40
Increase in management fees payable.................. 919 409
--------- ---------
Net cash flows from operating activities........... 29,795 47,796
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures................................... (60,245) (35,430)
Acquisitions of cable television systems............... -- (336,994)
Other, net............................................. (387) (28)
--------- ---------
Net cash flows used in investing activities........ (60,632) (372,452)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings......................................... 224,700 466,225
Repayment of debt...................................... (185,330) (221,800)
Capital contributions.................................. -- 94,000
Financing costs........................................ (7,045) (13,828)
--------- ---------
Net cash flows from financing activities........... 32,325 324,597
--------- ---------
Net increase (decrease) in cash and cash
equivalents....................................... 1,488 (59)
CASH AND CASH EQUIVALENTS, beginning of period........... 2,212 1,027
--------- ---------
CASH AND CASH EQUIVALENTS, end of period................. $ 3,700 $ 968
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest............... $ 16,438 $ 9,420
========= =========
See accompanying notes to consolidated financial statements
F-23
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
(1) Statement of Accounting Presentation and Other Information
Mediacom LLC ("Mediacom" and collectively with its subsidiaries, the
"Company"), a New York limited liability company, was formed in July 1995
principally to acquire and operate cable television systems. As of September
30, 1999, the Company had acquired and was operating cable television systems
in fourteen states, principally Alabama, California, Florida, Kentucky,
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 with Mediacom of $200,000 aggregate principal amount of 8
1/2% senior notes due 2008 (the "8 1/2% Senior Notes") and of $125,000
aggregate principal amount of 7 7/8% senior notes due 2011 (the "7 7/8% Senior
Notes" and collectively with the 8 1/2% Senior Notes, the "Senior Notes") (see
Note 3). Mediacom Capital has nominal assets and does not conduct operations of
its own. The Senior Notes are joint and several obligations of Mediacom and
Mediacom Capital, although Mediacom received all the net proceeds of the Senior
Notes.
The consolidated financial statements include the accounts of Mediacom
and its subsidiaries and have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted.
The consolidated financial statements as of September 30, 1999 and 1998
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, as amended (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, 1999.
(2) Acquisitions
The Company completed the undernoted acquisitions in 1998 (the "1998
Acquisitions"). These acquisitions were accounted for using the purchase method
of accounting and accordingly, the purchase price of these acquisitions 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 1998 Acquisitions have been included with those of the
Company since the dates of acquisition.
On January 9, 1998, the Company acquired the assets of a cable television
system serving approximately 17,200 basic subscribers in Clearlake, California
and surrounding communities (the "Clearlake System") for a purchase price of
$21,400. The purchase price has been allocated based on an independent
appraisal as follows: approximately $5,973 to property, plant and equipment,
and approximately $15,427 to intangible assets. Additionally, approximately
$226 of direct acquisition costs has been allocated to other assets. In the
first quarter of 1998, the Company recorded acquisition reserves related to
this acquisition in the amount of approximately $370, which are included in
accrued expenses. The acquisition of the Clearlake System and related closing
costs and adjustments were financed with borrowings under the Company's bank
credit facilities (see Note 3).
On January 23, 1998, the Company acquired the assets of cable television
systems serving approximately 260,100 basic subscribers in various regions of
the United States (the "Cablevision Systems")
F-24
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
for a purchase price of approximately $308,200. The purchase price has been
allocated based on an independent appraisal as follows: approximately $205,500
to property, plant and equipment, and approximately $102,700 to intangible
assets. Additionally, approximately $3,500 of direct acquisition costs has been
allocated to other assets. In the first quarter of 1998, the Company recorded
acquisition reserves related to this acquisition in the amount of approximately
$3,750, which are included in accrued expenses. The acquisition of the
Cablevision Systems and related closing costs and adjustments were financed
with equity contributions and borrowings under the Company's bank credit
facilities (see Note 3).
On October 1, 1998, the Company acquired the assets of a cable television
system serving approximately 3,800 basic subscribers in Caruthersville,
Missouri (the "Caruthersville System") for a purchase price of $5,000. The
purchase price has been allocated as follows: approximately $2,300 to property,
plant and equipment, and approximately $2,700 to intangible assets. The
acquisition of the Caruthersville System and related closing costs and
adjustments were financed with borrowings under the Company's bank credit
facilities (see Note 3).
(3) Debt
As of September 30, 1999 and December 31, 1998, debt consisted of:
September 30, December 31,
1999 1999
------------- ------------
Mediacom:
8 1/2% Senior Notes(a)........................ $200,000 $200,000
7 7/8% Senior Notes(b)........................ 125,000 --
Subsidiaries:
Bank Credit Facilities(c)..................... 52,500 134,425
Seller Note(d)................................ -- 3,480
-------- --------
$377,500 $337,905
======== ========
(a) On April 1, 1998, Mediacom and Mediacom Capital jointly issued
$200,000 aggregate principal amount of 8 1/2% Senior Notes due on
April 15, 2008. 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. Interest
accrues at 8 1/2% per annum, beginning from the date of issuance and
is payable semi-annually on April 15 and October 15 of each year.
The 8 1/2% Senior Notes may be redeemed at the option of Mediacom,
in whole or part, at any time after April 15, 2003, at redemption
prices decreasing from 104.25% of their principal amount to 100% in
2006, plus accrued and unpaid interest.
(b) On February 26, 1999, Mediacom and Mediacom Capital jointly issued
$125,000 aggregate principal amount of 7 7/8% Senior Notes due on
February 15, 2011. 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. Interest
accrues at 7 7/8% per annum, beginning from the date of issuance and
is payable semi-annually on February 15 and August 15 of each year,
commencing on August 15, 1999. The 7 7/8% Senior Notes may be
redeemed at the option of Mediacom, in whole or part, at any time
after February 15, 2006, at redemption prices decreasing from
103.938% of their principal amount to 100% in 2008, plus accrued and
unpaid interest.
F-25
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
(c) On June 24, 1997, the Company entered into an eight and one-half
year $100,000 reducing revolver and term loan agreement (the
"Western Credit Agreement"). On January 23, 1998, the Company
entered into a separate eight and one-half year $225,000 reducing
revolver and term loan agreement (the "Southeast Credit Agreement"
and together with the Western Credit Agreement, the "Bank Credit
Agreements"). By separate amendments dated as of January 26, 1999 to
each of the Bank Credit Agreements, the term loans were converted
into additional revolving credit loans.
On September 30, 1999, the Company refinanced the Bank Credit
Agreements with $550,000 of credit facilities, consisting of a
$450,000 reducing revolving credit facility and a $100,000 term loan
(the "Mediacom USA Credit Agreement"). The revolving credit facility
expires March 31, 2008, subject to repayment on June 30, 2007 if
Mediacom does not refinance the 8 1/2% Senior Notes. The term loan
is due and payable on September 30, 2008, and is also subject to
repayment on September 30, 2007 if Mediacom does not refinance the 8
1/2% Senior Notes. 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, 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. The average interest
rate on outstanding bank debt was 6.7% and 6.9% for the three months
ended September 30, 1999 and December 31, 1998, respectively, before
giving effect to the interest rate swap agreements discussed below.
The Mediacom USA Credit Agreement requires the Company to maintain
compliance with certain financial covenants including, but not
limited to, the leverage ratio, the interest coverage ratio, and the
pro forma debt service coverage ratio, as defined therein. The
Mediacom USA Credit Agreement also requires 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
Mediacom USA Credit Agreement as of September 30, 1999.
The Mediacom USA Credit Agreement is 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 September 30, 1999, the Company had
$497,500 of unused bank commitments under the Mediacom USA Credit
Agreement, of which approximately $384,500 could have been borrowed
by the operating subsidiaries for purposes of distributing such
borrowed proceeds to Mediacom under the most restrictive covenants.
As of September 30, 1999, the Company had entered into interest rate
exchange agreements (the "Swaps") with various banks pursuant to
which the interest rate on $50,000 is fixed at a weighted average
swap rate of approximately 6.2%, plus the average applicable margin
over the Eurodollar Rate option under the Mediacom USA Credit
Agreement. Under the terms of the Swaps, which expire from 2000
through 2002, 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.
F-26
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
(d) In connection with an acquisition completed in 1996, certain
subsidiaries of Mediacom issued to the seller an unsecured senior
subordinated note (the "Seller Note") in the amount of $2,800, with
a final maturity of June 28, 2006. Interest is deferred throughout
the term of the Seller Note and is payable at maturity or upon
prepayment. The Seller Note was prepaid in full on September 24,
1999 with no penalties associated with such prepayment.
The stated maturities of all debt outstanding as of September 30, 1999
are as follows:
2000................................ $ --
2001................................ --
2002................................ 500
2003................................ 1,000
2004................................ 1,000
Thereafter ......................... 375,000
--------
$377,500
========
(4) Commitments and Contingencies
Pursuant to the Cable Television Consumer Protection and Competition Act
of 1992, the Federal Communications Commission (the "FCC") adopted
comprehensive regulations governing rates charged to subscribers for basic
cable and cable programming services. The FCC's authority to regulate the rates
charged for cable programming services expired on March 31, 1999. Basic cable
rates must be set using a benchmark formula. Alternatively, a cable operator
can attempt to establish higher rates through a cost-of-service showing. The
FCC has also adopted regulations that permit qualifying small cable operators
to justify their regulated rates using a simplified rate-setting methodology.
This methodology almost always results in rates which exceed those produced by
the cost-of-service rules applicable to larger cable television operators.
Approximately 70% of the basic subscribers served by the Company's cable
television systems are covered by such FCC rules. Once rates for basic cable
service have been established pursuant to one of these methodologies, the rate
level can subsequently be adjusted only to reflect changes in the number of
regulated channels, inflation, and increases in certain external costs, such as
franchise and other governmental fees, copyright and retransmission consent
fees, taxes, programming costs and franchise-related obligations. FCC
regulations also govern the rates which can be charged for the lease of
customer premises equipment and for installation services.
As a result of such legislation and FCC regulations, the Company's basic
cable service rates and its equipment and installation charges (the "Regulated
Services") are subject to the jurisdiction of local franchising authorities.
The Company believes that it has complied in all material respects with the
rate regulation provisions of the federal law. However, the Company's rates for
Regulated Services are subject to review by the appropriate franchise authority
if it is certified by the FCC to regulate basic cable service rates. If, as a
result of the review process, the Company cannot substantiate the rates charged
by its cable television systems for Regulated Services, the Company could be
required to reduce its rates for Regulated Services to the appropriate level
and refund the excess portion of rates received for up to one year prior to the
implementation of any increase in rates for Regulated Services.
The Company's agreements with franchise authorities require the payment
of fees of up to 5% of annual revenues. Such franchises are generally
nonexclusive and are granted by local governmental authorities for a specified
term of years, generally for periods of up to fifteen years.
F-27
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
On April 29, 1999, a bank issued two irrevocable letters of credit in the
aggregate amount of $30,000 in favor of the seller of the Triax systems
(defined below) to secure the Company's performance under the related
definitive agreement. On November 5, 1999, the Company completed the
acquisition of the Triax systems and accordingly such letters of credit were
cancelled.
(5) FASB 131--Disclosure about Segments of an Enterprise and Related
Information
As of December 31, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 131, "Disclosure about Segments of an
Enterprise and Related Information". This statement requires the Company to
report segment financial information consistent with the presentations made to
the Company's management for decision-making purposes. All revenues of the
Company are derived solely from cable television operations and related
activities. The decision making of the Company's management is based primarily
on the impact of capital and operational resource allocations on the Company's
consolidated system cash flow (defined as operating income (loss) before
management fee expense, and depreciation and amortization). The Company's
management evaluates such factors as the bandwidth capacity and other cable
plant characteristics, the offered programming services, and the customer
rates, when allocating capital and operational resources. The Company's
consolidated system cash flow for the three months ended September 30, 1999 and
1998 was approximately $19,300, and $16,300, respectively, and for the nine
months ended September 30, 1999 and 1998 was approximately $54,800 and $43,400
respectively.
(6) Recent Developments
Acquisitions and Financings
On October 15, 1999, the Company acquired the stock of Zylstra
Communications Corporation ("Zylstra") for a purchase price of approximately
$19,500, subject to certain adjustments. Zylstra owns and operates cable
television systems serving approximately 14,000 subscribers in Iowa, Minnesota
and South Dakota. The Zylstra acquisition was financed with borrowings under
the Mediacom USA Credit Agreement.
On November 5, 1999, the Company entered into credit facilities of
$550,000, consisting of a $450,000 reducing revolver credit facility expiring
on June 2008 and a $100,000 term loan due December 2008 (the "Mediacom Midwest
Credit Agreement"). The terms of the Mediacom Midwest Credit Agreement are
substantially similar to the terms of the Mediacom USA Credit Agreement.
On November 5, 1999, the Company acquired the assets of cable television
systems owned by Triax Midwest Associates, L.P. ("Triax") for a purchase price
of approximately $740,100, subject to certain adjustments. The Triax systems
serve approximately 344,000 subscribers primarily in Illinois, Indiana, and
Minnesota. This acquisition was financed with $10,500 of additional equity
contributions from the Company's members and borrowings under the Mediacom USA
Credit Agreement and Mediacom Midwest Credit Agreement.
SoftNet Agreement
On November 4, 1999, the Company completed an agreement with SoftNet
Systems, Inc. ("SoftNet") a high-speed broadband Internet access and content
services company, to deploy SoftNet Systems' high-speed Internet access
services throughout the Company's cable television systems. In addition to a
revenue sharing arrangement, the Company will receive 3.5 million shares of
SoftNet's common stock, representing a fair value of approximately $95,000 as
of December 14, 1999, in exchange for SoftNet's long-term rights to deliver
F-28
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
high-speed Internet access services to the Company's customers. Under the terms
of this agreement, over a period of three years the Company is required to
upgrade its cable network to provide two-way communications capability in cable
systems passing 900,000 homes, including the Triax and Zylstra systems, and
make available such homes to SoftNet. Of the issued shares, 90% are subject to
forfeiture in the event the Company does not perform subject to the schedule
set forth in this agreement calling for the delivery by the Company of two-way
capable homes.
Management Agreements
Each of the Company's operating subsidiaries is a party to a management
agreement with Mediacom Management Corporation ("Mediacom Management"). Under
these agreements, Mediacom Management provides management services to the
Company's operating subsidiaries and is paid annual management fees of 5.0% of
the first $50,000 of annual gross operating revenues, 4.5% of revenues in
excess of $50,000 up to $75,000 and 4.0% of revenues in excess of $75,000.
Mediacom Management utilized such fees to compensate its employees as well as
fund its corporate overhead. The management agreements were revised effective
November 19, 1999 in connection with an amendment to Mediacom's operating
agreement, to provide for management fees equal to 2.0% of annual gross
revenues. In addition, Mediacom Management has agreed to waive the management
fees accrued from July 1, 1999 through November 19, 1999.
The operating agreement of Mediacom provides that Mediacom Management is
paid an acquisition fee of 1.0% of the purchase price of acquisitions made by
Mediacom until its pro forma consolidated annual revenues equals $75,000, and
thereafter 0.5% of such purchase price. No such fees were paid during the nine
months ended September 30, 1999 since there were no acquisitions completed
during this period. Pursuant to the amendment to Mediacom's operating
agreement, no further acquisition fees will be payable.
During the fourth quarter of fiscal 1999, the Company will record a one-
time, non-recurring, non-cash charge of $12,500 associated with the amendments
to the management agreements of Mediacom Management for which additional
membership interests will be issued to an existing member of Mediacom upon
occurrence of a future valuation of Mediacom including an initial public
offering.
Employment Arrangements
On November 19, 1999, a certain member granted a specified number of
membership units to certain members of management for past and future services.
These units will vest over five years and will be subject to forfeiture
penalties based on a three year period between the date the membership units
become vested and the date the employee leaves Mediacom. Approximately 55% of
membership interests will be fully vested and non-forfeitable on the date of
grant. During the fourth quarter, Mediacom will record a one-time non-cash
compensation charge of $13,483 relating to these vested and non-forfeitable
membership interests based on an initial public offering price of $17.50, the
mid-point of the range set forth in the registration statement as discussed
below. Mediacom will also record deferred compensation for $11,128 relating to
the nonvested and forfeitable membership interests and will record this
compensation in expense over a period of five to eight years.
Initial Public Offering
On November 12, 1999, a registration statement was filed with the
Securities and Exchange Commission for an initial public offering ("IPO") of
shares of Class A common stock. In connection therewith, Mediacom
Communications Corporation ("MCC"), a Delaware Corporation, was formed.
Immediately prior to the IPO, MCC will issue shares of common stock in exchange
for all the outstanding membership interests of Mediacom, which currently
serves as the holding company for the operating
F-29
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
subsidiaries. As a result, MCC will become the parent company of Mediacom,
which will continue to serve as the holding company of the subsidiaries.
Immediately prior to the IPO, additional membership interests will be
issued to all members of Mediacom in accordance with a formula set forth in
Mediacom's amended operating agreement which is based upon a valuation of
Mediacom established at the time of the IPO. Effective upon completion of the
IPO, a provision in the amended operating agreement providing for a special
allocation of membership interests to certain members based upon valuations of
Mediacom performed from time to time shall be removed. In connection with the
removal of a portion of such provision, the amended operating agreement also
provides for the issuance to a certain member, membership interests
representing 16.5% of the equity in Mediacom in accordance with a formula based
upon the valuation established immediately prior to the IPO. These newly issued
membership interests will be exchanged for shares of MCC's common stock in the
IPO.
In addition, certain members of management will receive options to
purchase 7.2 million shares of common stock in exchange for the removal of the
balance of the provision providing for a special allocation of membership
interests. These options are for a term of five years and are exercisable,
commencing six months after the completion of the IPO, at a price equal to the
initial public offering price. With the exception of options to purchase
approximately 6.9 million shares of Class B common stock to be held by a
certain member of management, such options will be subject to forfeiture
penalties based on a three year period between the date the options become
vested and the date the employee leaves Mediacom.
The management agreements between Mediacom Management and each of the
operating subsidiaries will be terminated upon completion of the IPO, and
Mediacom Management's employees will become MCC's employees and its corporate
overhead will become MCC's corporate overhead. These expenses will be reflected
as a corporate expense in the consolidated statement of operations.
As of December 20, 1999, the Board of Directors adopted a stock option
plan for officers and key employees. Upon completion of the IPO, options for an
aggregate of 2.8 million shares of Class A and Class B common stock will have
been granted to employees at an exercise price equal to the initial public
offering price. Such options will vest in equal annual installments over five
years. Vesting is contingent on continuous employment. Options that do not vest
will be forfeited.
The Company is currently a limited liability company and its members are
required to report their share of income or loss in their respective income tax
returns. After the completion of the IPO and the exchange of membership
interests in Mediacom for shares of MCC's common stock, the results of MCC will
be included in MCC's corporate tax returns. MCC will also record a one-time non
recurring charge to earnings to record a net deferred tax liability. If the
Company had been a C corporation as of September 30, 1999, this charge would
have been $1,937.
Pro forma earnings per share is calculated in accordance with SFAS No.
128 "Earnings Per Share" and is presented on a pro forma basis as if the shares
issued to effect the exchange of membership interests of Mediacom LLC for
shares in a C corporation were outstanding for all periods presented. The pro
forma common shares outstanding reflect the 40,977,562 Class A shares and
29,022,438 Class B shares issued to effect the exchange of membership interests
of Mediacom LLC as if these shares were outstanding for the period January 1,
1998 through December 31, 1998. These shares are based upon the relative
ownership percentages of membership interests in Mediacom LLC immediately prior
to the completion of this offering and are based on an initial public offering
price of $17.50, the mid-point of the range set forth in the registration
statement. The calculation does not include the effect of any stock or stock
options that may be granted as part of the IPO. The Company has operating
losses for the periods presented and has not reflected any income tax benefit
as part of the pro forma loss.
F-30
Independent Auditors' Report
The Board of Directors
U.S. Cable Television Group, L.P.
We have audited the accompanying consolidated balance sheets of U.S.
Cable Television Group, L.P. and subsidiaries (a wholly-owned subsidiary of
Cablevision Systems Corporation) as of December 31, 1997 and 1996, and the
related consolidated statements of operations and partners' capital
(deficiency) and cash flows for the year ended December 31, 1997, and for the
periods from January 1, 1996 to August 12, 1996, and August 13, 1996 to
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of U.S. Cable
Television Group, L.P. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for the year ended
December 31, 1997, and the periods from January 1, 1996 to August 12, 1996, and
August 13, 1996 to December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements,
effective August 13, 1996, U.S. Cable Television Group L.P. redeemed certain
limited and general partnership interests in a business combination accounted
for as a purchase. As a result of the redemption, the consolidated financial
information for the period after the redemption is presented on a different
cost basis than that for the period before the redemption and therefore, is not
comparable.
KPMG LLP
Jericho, New York
March 20, 1998
F-31
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(Dollars in thousands)
1997 1996
-------- --------
ASSETS
Cash and cash equivalents................................... $ 281 $ 49
Accounts receivable-subscribers (less allowance for doubtful
accounts of $218 and $122)................................. 1,082 995
Other receivables........................................... 502 383
Prepaid expenses and other assets........................... 632 477
Property, plant and equipment, net.......................... 84,363 93,543
Excess costs over fair value of net assets acquired (less
accumulated amortization of $29,158 and $7,952)............ 119,363 140,487
Deferred financing costs (less accumulated amortization of
$1,062 and $292)........................................... 1,771 1,997
-------- --------
$207,994 $237,931
======== ========
LIABILITIES AND PARTNER'S CAPITAL
Accounts payable............................................ $ 11,605 $ 10,246
Accrued expenses:
Franchise fees............................................ 1,087 1,089
Payroll and related benefits.............................. 4,463 4,728
Interest.................................................. 879 947
Other..................................................... 7,174 3,688
Accounts payable-affiliates................................. 1,367 500
Bank debt................................................... 154,960 159,460
-------- --------
Total liabilities....................................... 181,535 180,658
Partners' capital........................................... 26,459 57,273
-------- --------
$207,994 $237,931
======== ========
See accompanying notes to consolidated financial statements.
F-32
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
PARTNERS' CAPITAL (DEFICIENCY)
(Dollars in thousands)
Period from Period from
Year ended August 13, 1996 to January 1, 1996 to
December 31, 1997 December 31, 1996 August 12, 1996
----------------- -------------------- ------------------
Revenues................ $ 89,016 $ 32,144 $ 49,685
Operating expenses:
Technical expenses.... 38,513 15,111 23,467
Selling, general and
administrative
expenses............. 22,099 6,677 11,021
Depreciation and
amortization......... 46,116 17,842 21,034
-------- -------- ---------
Operating loss...... (17,712) (7,486) (5,837)
Other (expense) income:
Interest expense...... (12,727) (5,136) (10,922)
Interest income....... 25 14 33
Other, net............ (400) (119) (69)
-------- -------- ---------
Net loss................ (30,814) (12,727) (16,795)
Partners' capital (defi-
ciency):
Beginning of period... 57,273 -- (92,795)
Capital contribution.. -- 70,000 --
-------- -------- ---------
End of period......... $ 26,459 $ 57,273 $(109,590)
======== ======== =========
See accompanying notes to consolidated financial statements.
F-33
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Period from Period from
Year ended August 13, 1996 to January 1, 1996 to
December 31, 1997 December 31, 1996 August 12, 1996
----------------- ------------------ ------------------
Cash flows from
operating activities
Net loss.............. $(30,814) $ (12,727) $(16,795)
Adjustments to
reconcile net loss to
net cash provided by
operating activities:
Depreciation and
amortization....... 46,116 17,842 21,034
Amortization of
deferred financing
costs.............. 770 292 477
(Gain) loss on
disposal of
equipment.......... (116) 43 39
Changes in assets and
liabilities, net of
effects of
acquisition:
Accounts receivable,
net................ (87) 634 (625)
Other receivables... (119) 94 (129)
Prepaid expenses and
other assets....... (155) 131 (204)
Accounts payable and
accrued expenses... 4,510 265 (2,318)
Accounts payable to
affiliates......... 867 (576) 1,029
-------- --------- --------
Net cash provided by
operating activities... 20,972 5,998 2,508
-------- --------- --------
Cash flows from
investing activities:
Capital expenditures.. (15,769) (5,317) (11,995)
Proceeds from sale of
equipment............ 155 53 48
-------- --------- --------
Net cash used in
investing
activities........... (15,614) (5,264) (11,947)
-------- --------- --------
Cash flows from
financing activities:
Advance from V Cable.. -- -- 70,000
Cash paid for
redemption of
partners' interests.. -- (4,010) --
Additions to excess
costs................ (82) (98) --
Additions to deferred
financing costs...... (544) (2,289)
Proceeds from bank
debt................. 10,300 159,810 --
Repayment of bank
debt................. (14,800) (350) --
Repayment of senior
debt................. -- (153,538) (60,807)
-------- --------- --------
Net cash (used in)
provided by financing
activities........... (5,126) (475) 9,193
-------- --------- --------
Net increase (decrease)
in cash and cash
equivalents............ 232 259 (246)
Cash and cash
equivalents at
beginning of period.... 49 (210) 36
-------- --------- --------
Cash and cash
equivalents at end of
period................. $ 281 $ 49 $ (210)
======== ========= ========
See accompanying notes to consolidated financial statements.
F-34
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(1) The Company
U.S. Cable Television Group, L.P. (the "Company") was formed for the
purpose of acquiring, owning and operating cable television systems, which are
generally operated pursuant to non-exclusive franchises awarded by states or
local government authorities for specified periods of time. The Company
currently operates cable television systems serving portions of the
southeastern and midwestern United States. The Company's revenues are derived
principally from the provision of cable television services, which include
recurring monthly fees paid by subscribers.
Prior to the Redemption discussed in the next paragraph, the partnership
consisted of V Cable, Inc. ("V Cable"), a wholly-owned subsidiary of
Cablevision Systems Corporation ("CSC"), with an indirect 1% general
partnership interest and a 19% limited partnership interest, General Electric
Capital Corporation ("GECC"), with a 72% limited partnership interest and
various individuals and entities owning the remaining 8% partnership interest,
as general and/or limited partners (the "Predecessor Company"). Profits and
losses were allocated in accordance with the Amended and Restated Agreement of
Limited Partnership.
On March 18, 1996, V Cable advanced $70 million to the Company which was
considered a capital contribution coincident with the Redemption. On August 13,
1996, the Company redeemed the partnership interests not already owned by V
Cable ("the Redemption") for a payment of approximately $4 million to the
holders of 8% of the partnership interests and the repayment of the balance of
the debt owed to General Electric Capital Corporation ("GECC") of approximately
$154 million. The payment of $4 million and repayment of the GECC debt was
financed under a new $175 million credit facility (Note 4). As a result of the
Redemption, which was accounted for as a purchase, the consolidated financial
information for the periods after the Redemption is presented on a different
cost basis than that for the period before the Redemption and, therefore, is
not comparable due to the change in ownership.
Subsequent to the Redemption, V Cable, through wholly-owned subsidiaries,
holds an indirect 1% general partnership interest and a direct 99% limited
partnership interest (the "Successor Company"). The partnership will terminate
December 1, 2030, unless earlier termination occurs as provided in the Amended
and Restated Agreement of Limited Partnership.
As a result of the capital contribution of $70,000 (discussed above), the
$4,010 Redemption price and $98 of miscellaneous transaction costs, the
Successor Company effectively paid $74,108 to acquire net liabilities of
$74,331, which resulted in excess costs over fair value of $148,439, as
follows:
Purchase price and transaction costs............................ $ 74,108
---------
Net liabilities acquired:
Cash, receivables and prepaids................................ 2,504
Property, plant and equipment................................. 98,212
Accounts payables and accrued expenses........................ (20,433)
Accounts payable-affiliate.................................... (1,076)
Senior debt................................................... (153,538)
---------
(74,331)
---------
Excess costs over fair value of net liabilities acquired...... $ 148,439
=========
F-35
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
For purposes of the consolidated financial statements for the year ended
December 31, 1997, and for the period from August 13, 1996 to December 31,
1996, this excess cost is being amortized over a 7 year period.
On August 29, 1997, the Company and CSC entered into an agreement with
Mediacom LLC ("Mediacom") to sell to Mediacom substantially all of the assets
and cable systems owned by the Company. The transaction was consummated on
January 23, 1998, for a sales price of approximately $311 million (the
"Mediacom Sale").
(2) Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenues as cable television services are provided
to subscribers.
Long-Lived Assets
Property, plant and equipment, including construction materials, are
recorded at cost, which includes all direct costs and certain indirect costs
associated with the construction of cable television transmission and
distribution systems and the costs of new subscriber installations. Property,
plant and equipment are being depreciated over their estimated useful lives
using the straight-line method. Leasehold improvements are amortized over the
shorter of their useful lives or the terms of the related leases.
With respect to the Predecessor Company, franchise costs were amortized
on the straight-line basis over the average term of the franchises
(approximately 4-12 years) and excess costs over fair value of net assets
acquired were amortized over a 15 year period on the straight-line basis. As
mentioned in note 1, the Successor Company is amortizing excess costs over fair
value of net assets acquired over 7 years.
The Company implemented the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," effective January 1, 1996.
The Company reviews its long-lived assets (property, plant and equipment, and
related intangible assets that arose from business combinations accounted for
under the purchase method) for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable. If the
sum of the expected cash flows, undiscounted and without interest, is less than
the carrying amount of the asset, an impairment loss is recognized as the
amount by which the carrying amount of the asset exceeds its fair value. The
adoption of Statement No. 121 had no impact on the Company's financial position
or results of operations.
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized on the straight-
line basis over the term of the related debt.
F-36
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Income Taxes
The Company operates as a limited partnership; accordingly, its taxable
income or loss is includable in the tax returns of the partners, and therefore,
no provision for income taxes has been made on the books of the Company. ECC
Holding Corporation ("ECC"), one of the Company's subsidiaries, is a corporate
entity and as such is subject to federal and state income taxes. Income tax
amounts in these consolidated financial statements pertain to ECC.
ECC accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires the liability method of accounting for deferred income taxes and
permits the recognition of deferred tax assets, subject to an ongoing
assessment of realizability.
Cash Flows
For purposes of the statement of cash flows, the Company considers short-
term investments with a maturity at date of purchase of three months or less to
be cash equivalents. The Company paid cash interest of approximately $12,026
for the year ended December 31, 1997, $13,610 for the period from January 1,
1996 to August 12, 1996, and $4,189 for the period from August 13, 1996 to
December 31, 1996, respectively.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent 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-37
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
(3) Property, Plant and Equipment
Property, plant and equipment and estimated useful lives at December 31,
1997 and 1996, are as follows:
Estimated
1997 1996 Useful lives
-------- -------- -------------
Cable television transmission and
distribution systems:
Customer equipment......................... $ 5,175 $ 6,810 5 years
Headends................................... 7,539 6,338 9 years
Infrastructure............................. 94,920 81,502 10 years
Program, service and test equipment........ 2,824 2,141 4-7 years
Microwave equipment........................ 95 78 4-7 years
Construction in progress (including
materials and supplies)................... 699 521
-------- --------
111,252 97,390
Furniture and fixtures....................... 722 591 5 years
Transportation............................... 3,782 2,886 4 years
Land and land improvements................... 863 1,074 30 years
Leasehold improvements....................... 1,612 1,305 Term of Lease
-------- --------
118,231 103,246
Less accumulated depreciation................ (33,868) (9,703)
-------- --------
$ 84,363 $ 93,543
======== ========
(4) Debt
Bank Debt
In August 1996, the Successor Company repaid the balance of the debt owed
to GECC of approximately $154,000. The repayment of the GECC debt was financed
under a new $175,000 credit facility. The credit facility is with a group of
banks led by the Bank of New York, as agent, and consists of a three year
$175,000 revolving credit facility maturing on August 13, 1999. The revolving
credit facility is payable in full upon maturity. As of December 31, 1997 and
1996, the Company had outstanding borrowings under its revolving credit
facility of $154,960 and $159,460, inclusive of overdraft amounts of $1,900 and
$0, respectively, leaving unrestricted and undrawn funds available amounting to
$21,940 and $15,540. Amounts outstanding under the facility bear interest at
varying rates based upon the bank's LIBOR rate, as defined in the loan
agreement. The weighted average interest rate was 7.1% and 7.6% on December 31,
1997 and 1996, respectively. The Company is also obligated to pay fees of .375%
per annum on the unused loan commitment. Substantially all of the general and
limited partnership interests in the Company have been pledged in support of
the borrowings under the credit agreement. The credit facility contains various
restrictive covenants, with which the Company was in compliance at December 31,
1997.
In January 1998, all amounts outstanding under the bank debt were repaid
from the proceeds from the Mediacom Sale.
F-38
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Junior Subordinated Note
In August 1996, the Predecessor Company's Junior Term Loan and related
accrued interest was forgiven by GECC in the amount of $35,560.
(5) Income Taxes
ECC has a net operating loss carryforward for federal income tax purposes
of approximately $65,500 expiring in varying amounts through 2012.
The tax effects of temporary differences which give rise to significant
deferred tax assets or liabilities and the corresponding valuation allowance at
December 31, 1997 and 1996, are as follows:
Deferred Assets 1997 1996
--------------- ------- -------
Depreciation and amortization............................ $ 7,132 $ 7,132
Allowance for doubtful accounts.......................... 51 51
Benefits of tax loss carry forward....................... 27,510 26,166
------- -------
Net deferred tax assets.................................. 34,693 33,349
Valuation allowance...................................... (34,693) (33,349)
------- -------
-- --
======= =======
ECC has provided a valuation allowance for the total amount of the net
deferred tax assets since realization of these assets is not assured.
(6) Operating Leases
The Company leases certain office and transmission facilities under terms
of operating leases expiring at various dates through 2008. The leases
generally provide for fixed annual rental payments plus real estate taxes and
certain other costs. Rent expense for the year ended December 31, 1997, and the
periods from January 1, 1996 to August 12, 1996, and from August 13, 1996 to
December 31, 1996, amounted to approximately $778, $505, and $303,
respectively.
The Company rents space on utility poles for its operations. Pole rental
expense for the year ended December 31, 1997, and for the periods from January
1, 1996 to August 12, 1996, and from August 13, 1996 to December 31, 1996,
amounted to approximately $1,440, $912, and $547, respectively.
In connection with the Mediacom sale, the Company was relieved of all of
its future obligations under its operating leases.
(7) Related Party Transactions
CSC has interests in several entities engaged in providing cable
television programming and other services to the cable television industry.
During the year ended December 31, 1997 and for the periods from January 1,
1996 to August 12, 1996, and from August 13, 1996 to December 31, 1996, the
Company was charged approximately $742, $510 and $268, respectively, by these
entities for such services. At December 31, 1997 and 1996, the Company owed
approximately $65 and $60, respectively, to these companies for such
programming services which is included in accounts payable-affiliates in the
accompanying consolidated balance sheet.
F-39
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
CSC provides the Company with general and administrative services. For
the year ended December 31, 1997 and for the periods from January 1, 1996 to
August 12, 1996, and from August 13, 1996 to December 31, 1996, these charges
totaled approximately $3,059, $2,274 and $1,712, respectively. Amounts owed to
CSC at December 31, 1997 and 1996, for such expenses were approximately $1,109
and $408, respectively, and is included in accounts payable-affiliates in the
accompanying consolidated balance sheet.
(8) Benefit Plan
During 1989, the Company adopted a 401 (k) savings plan (the "Plan").
Employee participation is voluntary. Under the provisions of the Plan,
employees may defer up to 15% of their annual compensation (as defined). The
Company currently contributes 50% of the contributions made by participating
employees subject to a limit of 6% of the employee's compensation. The Company
may make additional contributions at its discretion. For the year ended
December 31, 1997, and for the periods from January 1, 1996 to August 12,
1996, and from August 13, 1996 to December 31, 1996, expense relating to this
Plan amounted to $165, $189 and $138, respectively.
The Company does not provide postretirement benefits for any of its
employees.
(9) Disclosures About The Fair Value Of Financial Instruments
Cash and Cash Equivalents, Accounts Receivable-Subscribers, Other
Receivables, Accounts Payable, Accrued Expenses, and Accounts Payable-
Affiliates
Carrying amounts approximate fair value due to the short maturity of
these instruments.
Bank Debt
The carrying amounts of the Company's long term debt instruments
approximate fair value as the underlying variable interest rates are adjusted
for market rate fluctuations.
F-40
Independent Auditor's Report
The Board of Directors
U.S. Cable Television Group, L.P.
We have audited the accompanying consolidated balance sheets of U.S.
Cable Television Group, L.P. and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations and partners' capital
(deficiency) and cash flows for the periods from January 1, 1996 to August 12,
1996 and August 13, 1996 to December 31, 1996, and for each of the years in the
two year period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 U.S. Cable
Television Group, L.P. and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for the periods from
January 1, 1996 to August 12, 1996 and August 13, 1996 to December 31, 1996,
and for each of the years in the two year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements,
effective August 13, 1996, U.S. Cable Television Group L.P. redeemed certain
limited and general partnership interests in a business combination accounted
for as a purchase. As a result of the redemption, the consolidated financial
information for the period after the redemption is presented on a different
cost basis than that for the period before the redemption, and therefore, is
not comparable.
KPMG LLP
Jericho, New York
April 1, 1997, except as to Note 11,
which is as of January 23, 1998
F-41
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(Dollars in thousands)
1996 1995
-------- --------
ASSETS
------
Cash and cash equivalents.................................. $ 49 $ 36
Accounts receivable--subscribers (less allowance for
doubtful accounts of $122 and $202)....................... 995 1,004
Other receivables.......................................... 383 348
Accounts receivable from affiliates........................ -- 75
Prepaid expenses and other assets.......................... 477 404
Property, plant and equipment, net......................... 93,543 101,439
Deferred franchise costs (less accumulated amortization of
$92,787).................................................. -- 13,738
Excess cost over fair value of net assets acquired (less
accumulated amortization of $7,952 and $22,272)........... 140,487 61,197
Deferred financing and other costs (less accumulated
amortization of $292 and $4,452).......................... 1,997 1,620
-------- --------
$237,931 $179,861
======== ========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
----------------------------------------------
Accounts payable........................................... $ 10,246 $ 4,170
Accrued expenses:
Franchise fees........................................... 1,089 995
Payroll and related benefits............................. 4,728 3,796
Programming costs........................................ -- 7,216
Interest................................................. 947 --
Other.................................................... 3,688 7,442
Accounts payable to affiliates............................. 500 --
Bank debt.................................................. 159,460 --
Senior debt................................................ -- 214,392
Junior subordinated note................................... -- 34,645
-------- --------
Total liabilities...................................... 180,658 272,656
Partners' capital (deficiency)............................. 57,273 (92,795)
-------- --------
$237,931 $179,861
======== ========
See accompanying notes to consolidated financial statements.
F-42
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
PARTNERS' CAPITAL (DEFICIENCY)
(see note 1)
(Dollars in thousands)
Period from Period from
August 13, January 1, Year Ended
1996 to 1996 to December 31,
December 31, August 12, ------------------
1996 1996 1995 1994
------------ ----------- -------- --------
Revenue........................... $ 32,144 $ 49,685 $ 76,568 $ 71,960
-------- --------- -------- --------
Operating expenses:
Technical expenses.............. 15,111 23,467 34,895 29,674
Selling, general and
administrative expenses........ 6,677 11,021 19,875 20,776
Depreciation and amortization... 17,842 21,034 36,329 41,861
-------- --------- -------- --------
Operating loss.................. (7,486) (5,837) (14,531) (20,351)
Other (expense) income:
Interest expense................ (5,136) (10,922) (26,157) (24,195)
Interest income................. 14 33 70 236
Other, net...................... (119) (69) (241) (1,280)
-------- --------- -------- --------
Net loss.......................... (12,727) (16,795) (40,859) (45,590)
Partners' capital (deficiency):
Beginning of period............. -- (92,795) (51,936) (6,346)
Capital contribution............ 70,000 -- -- --
-------- --------- -------- --------
End of year....................... $ 57,273 $(109,590) $(92,795) $(51,936)
======== ========= ======== ========
See accompanying notes to consolidated financial statements.
F-43
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(see note 1)
(Dollars in thousands)
Period from Period from
August 13, January 1, Year Ended
1996 to 1996 to December 31,
December 31, August 12, ------------------
1996 1996 1995 1994
------------ ----------- -------- --------
Cash flows from operating
activities:
Net loss........................ $ (12,727) $(16,795) $(40,859) $(45,590)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and
amortization................. 17,842 21,034 36,329 41,861
Amortization of deferred
financing costs.............. 292 477 746 752
Loss on disposal of
equipment.................... 43 39 104 192
Interest on senior
subordinated debentures...... -- -- 10,022 9,038
Interest on junior
subordinated debentures...... -- -- 3,970 3,516
Changes in assets and
liabilities, net of effects of
acquisition:
Accounts receivables, net..... 634 (625) (546) (47)
Other receivables............. 94 (129) (225) (54)
Prepaid expenses and other
assets....................... 131 (204) (3) 80
Accounts payable and accrued
expenses..................... 265 (2,318) 3,193 2,995
Accounts payable to
affiliates................... (576) 1,029 (744) 575
--------- -------- -------- --------
Net cash provided by operating
activities....................... 5,998 2,508 11,987 13,318
--------- -------- -------- --------
Cash flows used in investing
activities:
Capital expenditures............ (5,317) (11,995) (20,502) (21,359)
Proceeds from sale of
equipment...................... 53 48 430 --
--------- -------- -------- --------
Net cash used in investing
activities..................... (5,264) (11,947) (20,072) (21,359)
--------- -------- -------- --------
Cash flows from financing
activities:
Advance from V Cable............ -- 70,000 -- --
Cash paid for redemption of
partners' interests............ (4,010) -- -- --
Additions to excess costs....... (98) -- -- --
Additions to deferred financing
costs.......................... (2,289) -- -- --
Proceeds from bank debt......... 159,810 -- 8,000 --
Repayment of bank debt.......... (350) -- -- --
Repayment of senior debt........ (153,538) (60,807) -- --
Repayment of note payable....... -- -- -- (35)
--------- -------- -------- --------
Net cash used in financing
activities..................... (475) 9,193 8,000 (35)
Net increase in cash and cash
equivalents...................... 259 (246) (85) (8,076)
Cash and cash equivalents at
beginning of period.............. (210) 36 121 8,197
--------- -------- -------- --------
Cash and cash equivalents at end
of period........................ $ 49 $ (210) $ 36 $ 121
========= ======== ======== ========
See accompanying notes to consolidated financial statements.
F-44
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(1) The Company
U.S. Cable Television Group, L.P. (the "Company") was formed for the
purpose of acquiring, owning and operating cable television systems, which are
generally operated pursuant to non-exclusive franchises awarded by states or
local government authorities for specified periods of time. The Company
currently operates cable television systems serving portions of the
southeastern and Midwestern United States. The Company's revenues are derived
principally from the provision of cable television services, which include
recurring monthly fees paid by subscribers.
Prior to the Redemption discussed in the next paragraph, the partnership
consisted of V Cable, Inc. ("V Cable"), a wholly-owned subsidiary of
Cablevision Systems Corporation ("CSC"), with an indirect 1% general
partnership interest and a 19% limited partnership interest, General Electric
Capital Corporation ("GECC"), with a 72% limited partnership interest and
various individuals and entities owning the remaining 8% partnership interest,
as general and/or limited partners (the "Predecessor Company"). Profits and
losses were allocated in accordance with the Amended and Restated Agreement of
Limited Partnership.
On March 18, 1996, V Cable advanced $70 million to the Company which was
considered a capital contribution coincident with the Redemption. On August 13,
1996, the Company redeemed the partnership interests not already owned by V
Cable ("the Redemption") for a payment of approximately $4 million to the
holders of 8% of the partnership interests and the repayment of the balance of
the debt owed to General Electric Capital Corporation ("GECC") of approximately
$154 million. The payment of $4 million and repayment of the GECC debt was
financed under a new $175 million credit facility (Note 4). As a result of the
Redemption, which was accounted for as a purchase, the consolidated financial
information for the periods after the Redemption is presented on a different
cost basis than that for the period before the Redemption and, therefore, is
not comparable due to the change in ownership.
Subsequent to the Redemption, V Cable, through wholly-owned subsidiaries,
holds an indirect 1% general partnership interest and a direct 99% limited
partnership interest (the "Successor Company"). The partnership will terminate
December 1, 2030, unless earlier termination occurs as provided in the Amended
and Restated Agreement of Limited Partnership.
As a result of the capital contribution of $70,000 (discussed above), the
$4,010 Redemption price and $98 of miscellaneous transaction costs, the
Successor Company effectively paid $74,108 to acquire net liabilities of
$74,331, which resulted in excess costs over fair value of $148,439, as
follows:
Purchase price and transaction costs............................ $ 74,108
---------
Net liabilities acquired:
Cash, receivables and prepaids................................ 2,504
Property, plant and equipment................................. 98,212
Accounts payables and accrued expenses........................ (20,433)
Accounts payable--affiliate................................... (1,076)
Senior debt................................................... (153,538)
---------
(74,331)
---------
Excess costs over fair value of net liabilities acquired........ $ 148,439
=========
For purposes of the consolidated financial statements for the period from
August 13, 1996 to December 31, 1996, this excess cost amount is being
amortized over a 7 year period.
F-45
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
(2) Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenues as cable television services are provided
to subscribers.
Long-Lived Assets
Property, plant and equipment, including construction materials, are
recorded at cost, which includes all direct costs and certain indirect costs
associated with the construction of cable television transmission and
distribution systems and the costs of new subscriber installations. Property,
plant and equipment are being depreciated over their estimated useful lives
using the straight-line method. Leasehold improvements are amortized over the
shorter of their useful lives or the terms of the related leases.
With respect to the Predecessor Company, franchise costs were amortized
on the straight-line basis over the average term of the franchises
(approximately 4-12 years) and excess costs over fair value of net assets
acquired were amortized over a 15 year period on the straight-line basis. As
mentioned in note 1, the Successor Company is amortizing excess costs over fair
value of net assets acquired over 7 years.
The Company implemented the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," effective January 1, 1996.
The Company reviews its long-lived assets (property, plant and equipment, and
related intangible assets that arose from business combinations accounted for
under the purchase method) for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable. If the
sum of the expected cash flows, undiscounted and without interest, is less than
the carrying amount of the asset, an impairment loss is recognized as the
amount by which the carrying amount of the asset exceeds its fair value. The
adoption of Statement No. 121 had no impact on the Company's financial position
or results of operations.
Deferred Financing and Other Costs
Costs incurred to obtain debt are deferred and amortized on the straight-
line basis over the term of the related debt. Other costs consist of
organization costs in 1995 which were amortized over a five year period on the
straight line basis.
Income Taxes
The Company operates as a limited partnership; accordingly, its taxable
income or loss is includable in the tax returns of the partners, and therefore,
no provision for income taxes has been made on the books of the Company. ECC
Holdings Corporation ("ECC"), one of the Company's subsidiaries, is a corporate
entity and as such is subject to federal and state income taxes. Income tax
amounts in these consolidated financial statements pertain to ECC.
F-46
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
(2) Significant Accounting Policies (continued)
ECC accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires the liability method of accounting for deferred income taxes and
permits the recognition of deferred tax assets, subject to an ongoing
assessment of realizability.
Cash Flows
For purposes of the statement of cash flows, the Company considers short-
term investments with a maturity at date of purchase of three months or less to
be cash equivalents. The Company paid cash interest of approximately $13,610
for the period from January 1, 1996 to August 12, 1996, $4,189 for the period
from August 13, 1996 to December 31, 1996 and $8,761 and $12,900 for the years
ended December 31, 1995 and 1994, respectively.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent 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.
(3) Property, Plant and Equipment
Property, plant and equipment and estimated useful lives at December 31,
1996 and 1995 are as follows:
Estimated
1996 1995 Useful lives
-------- --------- -------------
Cable television transmission and
distribution systems:
Converters............................... $ 6,810 $ 18,609 5 years
Headends................................. 6,338 27,363 9 years
Distribution systems..................... 81,502 171,570 10 years
Program, service, microwave and test
equipment................................. 2,219 4,396 4-7 years
Construction in progress (including
materials and supplies)................... 521 675
-------- ---------
97,390 222,613
Furniture and fixtures..................... 591 4,429 5 years
Vehicles................................... 2,886 7,411 4 years
Building and improvements.................. 1,074 2,895 30 years
Leasehold improvements..................... 1,305 -- Term of Lease
Land....................................... -- 852
-------- ---------
103,246 238,200
Less accumulated depreciation.............. (9,703) (136,761)
-------- ---------
$ 93,543 $ 101,439
======== =========
F-47
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
(4) Debt
Bank Debt
As discussed in Note 1, on August 13, 1996, the Successor Company paid
GECC approximately $154,000 in exchange for GECC's limited partnership
interests in the Company and in satisfaction of the outstanding balance of all
indebtedness due GECC. The repayment of the GECC debt was financed under a new
$175,000 credit facility. The credit facility is with a group of banks led by
the Bank of New York, as agent, and consists of a three year $175,000 revolving
credit facility maturing on August 13, 1999. The revolving credit facility is
payable in full upon maturity. As of December 31, 1996, the Company has
outstanding borrowings under its revolving credit facility of $159,460, leaving
unrestricted and undrawn funds available amounting to $15,540. Amounts
outstanding under the facility bear interest at varying rates based upon the
bank's LIBOR rate, as defined in the loan agreement. The weighted average
interest rate was 7.6% on December 31, 1996. The Company is also obligated to
pay fees of .375% per annum on the unused loan commitment.
Substantially all of the general and limited partnership interests in the
Company have been pledged in support of the borrowings under the credit
agreement. The credit facility contains various restrictive covenants, with
which the Company was in compliance at December 31, 1996.
Senior Debt and Junior Subordinated Note
At December 31, 1995, the credit agreement between the Predecessor
Company and GECC (the "Credit Agreement") was composed of a Senior Loan
Agreement and a Junior Loan Agreement. Under the Senior Loan Agreement, GECC
had provided a $30,000 revolving line of credit (the "Revolving Line"), a
$104,443 term loan (the "Series A Term Loan") with interest payable currently
and, a $92,302 term loan (the "Series B Term Loan") with payment of interest
deferred until December 31, 2001. Under the Junior Loan Agreement, GECC had
provided a $24,039 term loan (the "Junior Term Loan") with payment of interest
deferred until December 31, 2001. The senior loan agreement and junior loan
agreement are collectively referred to as the "Loan Agreements".
At December 31, 1995, the Predecessor Company's outstanding debt to GECC,
which was all due on December 31, 2001, was comprised of the following:
Senior Debt
Revolving line of credit, with interest at varying rates....... $ 8,000
Series A Term Loan, with interest at 10.12%.................... 104,443
Series B Term Loan, with interest at 10.62%.................... 101,949
--------
Total Senior Debt............................................ 214,392
Junior Subordinated Note, with interest at 12.55%................ 34,645
--------
Total debt................................................... $249,037
========
(5) Income Taxes
ECC has a net operating loss carryforward for federal income tax purposes
of approximately $21,708 expiring in varying amounts through 2011.
F-48
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
The tax effects of temporary differences which give rise to significant
deferred tax assets or liabilities and the corresponding valuation allowance at
December 31, 1996 and 1995 are as follows:
Deferred Assets
1996 1995
-------- --------
Depreciation and amortization......................... $ 7,132 $ (9,572)
Allowance for doubtful accounts....................... 51 85
Benefits of tax loss carry forwards................... 9,117 24,783
-------- --------
Net deferred tax assets............................... 16,300 15,296
Valuation allowance................................... (16,300) (15,296)
-------- --------
$ -- $ --
======== ========
ECC has provided a valuation allowance for the total amount of the net
deferred tax assets since realization of these assets is not assured due
principally to a history of operating losses. The amount of the valuation
allowance increased by $1,004 during the year ended December 31, 1996.
(6) Operating Leases
The Company leases certain office and transmission facilities under terms
of operating leases expiring at various dates through 2008. The leases
generally provide for fixed annual rental payments plus real estate taxes and
certain other costs. Rent expense for the periods from January 1, 1996 to
August 12, 1996 and from August 13, 1996 to December 31, 1996 amounted to
approximately $505 and $303, respectively, and for the years ended December 31,
1995 and 1994 amounted to $705 and $635, respectively.
The Company rents space on utility poles for its operations. The
Company's pole rental agreements are for varying terms, and management
anticipates renewals as they expire. Pole rental expense for the periods from
January 1, 1996 to August 12, 1996 and from August 13, 1996 to December 31,
1996 amounted to approximately $912 and $547, respectively, and for the years
ended December 31, 1995 and 1994 amounted to $1,312 and $1,199, respectively.
The minimum future annual rental payments for all operating leases,
including pole rentals from January 1, 1997 through December 31, 2008, at rates
presently in force at December 31, 1996, are approximately: 1997, $1,902; 1998,
$1,764; 1999, $1,735; 2000, $1,657; 2001, $1,599; and thereafter $2,945.
(7) Related Party Transactions
CSC has interests in several entities engaged in providing cable
television programming and other services to the cable television industry. For
the periods from January 1, 1996 to August 12, 1996 and from August 13, 1996 to
December 31, 1996, the Company was charged approximately $510 and $268,
respectively, and for the years ended December 31, 1995 and 1994 the Company
was charged approximately $568 and $407, respectively, by these entities for
such services. At December 31, 1996 and 1995, the Company owed approximately
$60 and $107 to these companies for such programming services which is included
in accounts payable-affiliates in the accompanying consolidated balance sheets.
CSC provides the Company with general and administrative services. For
the periods from January 1, 1996 to August 12, 1996 and from August 13, 1996 to
December 31, 1996, the Company was charged $2,274
F-49
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
and $1,712, respectively, and for the years ended December 31, 1995 and 1994
these charges totaled approximately $3,530 and $3,300. Amounts owed to CSC at
December 31, 1996 and 1995 for such expenses were approximately $408 and $365
and is included in accounts payable-affiliates in the accompanying consolidated
balance sheet.
(8) Benefit Plan
During 1989, the Company adopted a 401K savings plan (the "Plan").
Employee participation is voluntary. Under the provisions of the Plan,
employees may defer up to 15% of their annual compensation (as defined). The
Company currently contributes 50% of the contributions made by participating
employees subject to a contribution cap of 6% of the employee's compensation.
The Company may make additional contributions at its discretion. Expense
relating to this Plan amounted to $327, $321 and $295 in 1996, 1995 and 1994,
respectively.
The Company does not provide postretirement benefits for any of its
employees.
(9) Disclosures About The Fair Value Of Financial Instruments
Cash and Cash Equivalents, Accounts Receivable--Subscribers, Other
Receivables, Prepaid Expenses and Other Assets, Accounts Payable, Accrued
Expenses, and Accounts Payable to Affiliates
The carrying amount approximates fair value due to the short maturity of
these instruments.
Bank Debt
The fair value of the company's long term debt instruments approximates
its book value since the interest rate is LIBOR-based and accordingly is
adjusted for market rate fluctuations.
Senior and Junior Debt
At December 31, 1995, the carrying amount of the Senior and Junior Debt
approximated fair value.
(10) Commitments
CSC and its cable television affiliates (including the Company) have an
affiliation agreement with a program supplier whereby CSC and its cable
television affiliates are obligated to make Base Rate Annual Payments, as
defined and subject to certain adjustments pursuant to the agreement, through
2004. The Company would be contingently liable for its proportionate share of
Base Rate Annual Payments, based on subscriber usage, of approximately; $1,276
in 1997; $1,320 in 1998 and $1,366 in 1999. For the years 2000 through 2004,
such payments would increase by percentage increases in the Consumer Price
Index, or five percent, whichever is less, over the prior year's Base Annual
Payment.
(11) Subsequent Event
On August 29, 1997, CSC and certain of its wholly-owned subsidiaries
entered into an agreement with Mediacom LLC ("Mediacom") to sell to Mediacom
cable systems owned by the Company. The transaction was consummated on January
23, 1998 for a sales price of approximately $311 million.
F-50
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.
Denver, Colorado,
February 26, 1999.
F-51
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-52
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-53
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)
Pre Recapitalization Limited
Partners (Note 1) Post
------------------------------- Recapitalization
Residual Special Limited
Non-Managing Managing Equity Interest Limited Cavalier Partners
General Partner General Partner Held by TTC Partner Cable, L.P. All Others (Note 1) Total
--------------- --------------- --------------- ------- ----------- ---------- ---------------- ---------
(Effective (Effective
August 30, August 30,
1996) 1996)
BALANCES,
December 31,
1995............ $ (83,549) $ -- $ -- $ -- $ -- $ -- $ -- $ (83,549)
Net loss for the
eight month
period ended
August 30,
1996............ (9,022) -- -- -- -- -- -- (9,022)
--------- ----- ------ ------- -------- -------- -------- ---------
BALANCES, August
30, 1996
(Unaudited)..... (92,571) -- -- -- -- -- -- (92,571)
Cash redemption
of partnership
interests....... -- -- -- (6,680) (12,071) (19,500) -- (38,251)
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......... (62) -- 62 -- -- -- -- --
Cash
contributions... 1,100 -- -- -- -- -- 50,250 51,350
Issuance of
limited
partnership
units in
connection with
acquisition of
cable
properties...... -- -- -- -- -- -- 59,765 59,765
Cash
distributions to
DD Cable
Partners........ -- -- -- -- -- -- (4,200) (4,200)
Syndication
costs........... (26) -- -- -- -- -- (2,578) (2,604)
Net loss for the
four month
period ending
December 31,
1996............ (78) -- -- -- -- -- (7,676) (7,754)
--------- ----- ------ ------- -------- -------- -------- ---------
BALANCES,
December 31,
1996............ (91,637) -- 62 -- -- -- 57,310 (34,265)
Accretion of
residual equity
interest held by
TTC through a
charge to
accumulated
deficit......... (488) -- 488 -- -- -- -- --
Cash
contributions... -- -- -- -- -- -- 13,043 13,043
Syndication
costs........... -- -- -- -- -- -- (253) (253)
Net loss for the
year ended
December 31,
1997............ (245) -- -- -- -- -- (24,256) (24,501)
--------- ----- ------ ------- -------- -------- -------- ---------
BALANCES,
December 31,
1997............ (92,370) -- 550 -- -- -- 45,844 (45,976)
Accretion of
residual equity
interest held by
TTC through a
charge to
accumulated
deficit......... (738) -- 738 -- -- -- -- --
Cash
contributions... -- -- -- -- -- -- 15,000 15,000
Syndication
costs........... -- -- -- -- -- -- (217) (217)
Net loss for the
year ended
December 31,
1998............ (385) -- -- -- -- -- (38,085) (38,470)
--------- ----- ------ ------- -------- -------- -------- ---------
BALANCES,
December 31,
1998............ (93,493) -- 1,288 -- -- -- 22,542 (69,663)
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) -- -- -- -- -- (22,542) (31,352)
--------- ----- ------ ------- -------- -------- -------- ---------
BALANCES,
September 30,
1999 $
(Unaudited)..... $(103,038) $ -- $2,023 $ -- $ -- $ -- -- $(101,015)
========= ===== ====== ======= ======== ======== ======== =========
The accompanying notes to the financial statements are an integral part of
these statements.
F-54
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 December For the Nine Months
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-55
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-56
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.
The financial statements as of September 30, 1999 and 1998 are unaudited;
however, in the opinion of management, since statements include all
adjustments, consisting only of normal recurring adjustments,
F-57
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)
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
--------- --------- -------------- -------------
Predominantly
Property, plant and
equipment.............. $ 217,561 $ 266,965 $ 301,880 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-58
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-59
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-60
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:
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-61
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 July 31, 1999, the Partnership acquired certain cable television systems
located in Geneseo, Illinois, including certain liabilities from the acquired
business, from an unrelated third party. The purchase price of $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.
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-62
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-63
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-64
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-65
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 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.
Effective September 30, 1999, the Partnership acquired certain cable television
system assets, located in 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.
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
F-66
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)
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-67
[Mediacom Communications Corporation Logo]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth various expenses, other than underwriting
discounts, which will be incurred in connection with this offering:
SEC registration fee............................................ $121,440
Nasdaq National Market listing fee.............................. *
NASD filing fee................................................. 30,500
Blue sky fees and expenses...................................... *
Printing and engraving expenses................................. *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Transfer Agent fees............................................. *
Miscellaneous expenses.......................................... *
--------
Total......................................................... $ *
========
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee of or agent to the Registrant. The
statute provides that it is not exclusive of other rights to which those
seeking indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise. The Registrant's by-laws
provides for indemnification by the Registrant of any director or officer (as
such term is defined in the by-laws) of the Registrant who is or was a director
of any of its subsidiaries, or, at the request of the Registrant, is or was
serving as a director or officer of, or in any other capacity for, any other
enterprise, to the fullest extent permitted by law. The by-laws also provide
that the Registrant shall advance expenses to a director or officer and, if
reimbursement of such expenses is demanded in advance of the final disposition
of the matter with respect to which such demand is being made, upon receipt of
an undertaking by or on behalf of such director or officer to repay such amount
if it is ultimately determined that the director or officer is not entitled to
be indemnified by the Registrant. To the extent authorized from time to time by
the board of directors of the Registrant, the Registrant may provide to any one
or more employees of the Registrant, one or more officers, employees and other
agents of any subsidiary or one or more directors, officers, employees and
other agents of any other enterprise, rights of indemnification and to receive
payment or reimbursement of expenses, including attorneys' fees, that are
similar to the rights conferred in the by-laws of the Registrant on directors
and officers of the Registrant or any subsidiary or other enterprise. The by-
laws do not limit the power of the Registrant or its board of directors to
provide other indemnification and expense reimbursement rights to directors,
officers, employees, agents and other persons otherwise than pursuant to the
by-laws. The Registrant intends to enter into agreements with certain
directors, officers and employees who are asked to serve in specified
capacities at subsidiaries and other entities.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for payments of
II-1
unlawful dividends or unlawful stock repurchases or redemptions, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Registrant's certificate of incorporation provides for such limitation of
liability.
The Registrant intends to maintain policies of insurance under which its
directors and officers will be insured, within the limits and subject to the
limitations of the policies, against certain expenses in connection with the
defense of, and certain liabilities which might be imposed as a result of,
actions, suits or proceedings to which they are parties by reason of being or
having been such directors or officers.
Reference is also made to Section 7 of the underwriting agreement filed as
Exhibit 1.1 to the registration statement for information concerning the
underwriters' obligation to indemnify the Registrant and its officers and
directors in certain circumstances.
Item 15. Recent Sales of Unregistered Securities
The Registrant has not issued any common stock since its formation on
November 8, 1999. Concurrently with the consummation of the offering to which
this registration statement relates, the Registrant will issue shares of common
stock in exchange for outstanding membership interests in Mediacom LLC in
accordance with the relative ownership percentages of membership interests in
Mediacom LLC immediately prior to this offering. The exchange of membership
interests for shares of common stock will not be registered under the
Securities Act of 1933 because the offering and sale will be made in reliance
on the exemption provided by Section 4(2) of the Securities Act of 1933 and
Rule 506 thereunder for transactions by an issuer not involving a public
offering (with the recipients representing their intentions to acquire the
securities for their own accounts and not with a view to the distribution
thereof and acknowledging that the securities will be issued in a transaction
not registered under the Securities Act of 1933).
II-2
The following table sets forth the membership interests issued by Mediacom
LLC to various persons during the past three years:
Amount of
Membership
Name of Person Date Interests Issued* Consideration
- -------------- ------- ----------------- -------------
Chase Manhattan Capital, L.P........... 3/31/97 401.8909 **
1/15/98 864.5288 **
11/3/99 4,540.8503 **
U.S. Investor, Inc..................... 3/31/97 641.8909 **
6/22/97 1,950.0000 $ 1,950,000
9/18/97 500.0000 $500,000
1/15/98 2,319.5476 **
1/15/98 2,293.7799 $ 2,293,780
11/3/99 256.2200 $ 256,220
11/3/99 16,026.3555 **
Morris Communications Corp............. 6/22/97 9,750.0000 $ 9,750,000
9/18/97 2,500.0000 $ 2,500,000
1/15/98 4,693.7111 **
1/15/98 79,832.5359 $79,832,536
11/3/99 8,917.4640 $ 8,917,464
11/3/99 149,422.5253 **
CB Capital Investors, L.P.............. 6/22/97 3,900.0000 $ 3,900,000
9/18/97 1,000.0000 $ 1,000,000
1/15/98 1,877.4844 **
1/15/98 4,587.5598 $ 4,587,560
11/3/99 512.4400 $ 512,440
11/3/99 17,547.6283 **
Private Market Fund, L.P............... 6/22/97 1,950.0000 $ 1,950,000
9/18/97 500.0000 $ 500,000
1/15/98 938.7422 **
1/15/98 4,542.5837 $ 4,542,584
11/3/99 507.4160 $ 507,416
11/3/99 12,245.9673 **
Rocco B. Commisso...................... 3/31/97 1,956.2182 **
1/15/98 6,867.2437 **
11/3/99 80,248.4288 **
Aggregate of less than 5% holders...... 6/22/97 1,950.0000 $1,950,000
9/18/97 500.0000 $ 500,000
1/15/98 938.7422 **
1/15/98 2,743.5407 $ 2,743,540
11/3/99 306.4600 $ 306,460
11/3/99 9,468.2445 **
- ---------------------
* Each membership interest has a value upon issuance of $1,000.
** Such person received additional membership interests based upon a
determination by the executive committee of Mediacom LLC that the aggregate
equity value of Mediacom LLC increased because of the occurrence of a
certain event.
The issuance of the membership interests was not registered under the
Securities Act of 1933 because the issuance was made in reliance on the
exemption provided by Section 4(2) of the Securities Act of 1933 for
transactions by an issuer not involving a public offering.
II-3
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
The following exhibits are filed as part of this Registration Statement:
Exhibit
Number Exhibit Description
------- -------------------
1.1* Form of Underwriting Agreement between Registrant and the underwriters
2.1 Asset Purchase and Sale Agreement, dated as of May 23, 1996, by and
between Mediacom California LLC and Booth American Company (1)
2.2 Asset Purchase Agreement, dated as of August 29, 1996, between
Mediacom LLC and Saguaro Cable TV Investors, L.P. (1)
2.3 Asset Purchase Agreement, dated as of August 29, 1996, between
Mediacom California LLC and Valley Center Cablesystems, L.P. (1)
2.4 Asset Purchase Agreement, dated as of December 24, 1996, by and
between Mediacom LLC and American Cable TV Investors 5, Ltd. (1)
2.5 Asset Purchase Agreement, dated May 22, 1997, between Mediacom
California LLC and CoxCom, Inc. (1)
2.6 Asset Purchase Agreement, dated September 17, 1997, between Mediacom
California LLC and Jones Cable Income Fund 1-B/C Venture (1)
2.7 Asset Purchase Agreement, dated August 29, 1997, among Mediacom LLC,
U.S. Cable Television Group, L.P., ECC Holding Corporation, Missouri
Cable Partners, L.P. and Cablevision Systems Corporation (1)
2.8 Asset Purchase Agreement, dated June 24, 1998, among Mediacom
Southeast, Mediacom LLC, Bootheel Video, Inc. and CSC Holdings (2)
2.9 Asset Purchase Agreement, dated April 29, 1999 between Mediacom LLC
and Triax Midwest Associates, L.P. (3)
2.10 Stock Purchase Agreement, dated May 25, 1999 among Mediacom LLC,
Charles D. Zylstra, Kara M. Zylstra and Trusts created under the Will
dated June 3, 1982 of Roger E. Zylstra, deceased, for the benefit of
Charles D. Zylstra and Kara M. Zylstra (4)
3.1** Certificate of Incorporation of Registrant prior to the effective date
of this registration statement
3.2* Form of Restated Certificate of Incorporation of Registrant to be
filed on the effective date of this registration statement
3.3** By-laws of Registrant
4.1* Form of certificate evidencing shares of Class A common stock
5.1* Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C.
10.1 Management Agreement dated as of December 27, 1996 by and between
Mediacom Arizona LLC and Mediacom Management (1)
10.2 First Amended and Restated Management Agreement dated December 27,
1996 by and between Mediacom California LLC and Mediacom Management
(1)
10.3 Management Agreement dated June 24, 1997 by and between Mediacom
Delaware LLC and Mediacom Management (1)
10.4 Management Agreement dated January 23, 1998 by and between Mediacom
Southeast LLC and Mediacom Management (1)
II-4
Exhibit
Number Exhibit Description
------- -------------------
10.5** Credit Agreement dated as of September 30, 1999 for the Mediacom USA
Credit Facility
10.6** Credit Agreement dated as of November 5, 1999 for the Mediacom Midwest
Credit Facility
10.7* 1999 Stock Option Plan
10.8* Amended and Restated Registration Rights Agreement by and among
Mediacom Communications Corporation, Rocco B. Commisso, BMO Financial,
Inc., CB Capital Investors, L.P., Chase Manhattan Capital, L.P.,
Morris Communications Corporation, Private Market Fund, L.P. and U.S.
Investor, Inc.
10.9* 1999 Employee Stock Purchase Plan
10.10 Stock Purchase Agreement, dated as of November 4, 1999, between
SoftNet Systems, Inc. and Mediacom LLC. THIS DOCUMENT HAS BEEN
SUBMITTED TO THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION
FOR APPLICATION FOR "CONFIDENTIAL TREATMENT."
21.1** Subsidiaries of Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of KPMG LLP
23.4* Consent of Cooperman Levitt Winikoff Lester & Newman, P.C.
23.5 Consent of William S. Morris III
23.6 Consent of Craig S. Mitchell
23.7 Consent of Thomas V. Reifenheiser
23.8 Consent of Natale S. Ricciardi
23.9 Consent of Robert L. Winikoff
Powers of Attorney (included on the signature page of this
24.1** registration statement)
27.1 Financial Data Schedule of Mediacom LLC (5)
- ------------
* To be filed by amendment.
** Previously filed with this Registration Statement.
(1) Filed as an exhibit to the Registration Statement on Form S-4 (File No.
333-57285) of Mediacom LLC and Mediacom Capital Corporation and
incorporated herein by reference.
(2) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 of Mediacom LLC and Mediacom Capital Corporation
and incorporated herein by reference.
(3) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1999 of Mediacom LLC and Mediacom Capital
Corporation and incorporated herein by reference.
(4) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1999 of Mediacom LLC and Mediacom Capital
Corporation and incorporated herein by reference.
(5) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1999 of Mediacom LLC and Mediacom Capital
Corporation and incorporated herein by reference.
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts--Reference is made to page
F-20 of the prospectus that is a part of this Registration Statement.
II-5
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
(2) That for purposes of determining any liability under the Securities
Act, 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 Registrant 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.
(3) That for the purpose of determining any liability under the
Securities Act, 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
Registrant pursuant to Item 14 of this Part II to the registration statement,
or otherwise, Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a director, officer or
controlling person of Registrant 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, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 December 21, 1999.
Mediacom Communications 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.
Signature Title Date
--------- ----- ----
/s/ Rocco B. Commisso Chairman and Chief December 21,
___________________________________________ Executive Officer 1999
Rocco B. Commisso (principal executive
officer)
/s/ Mark E. Stephan Senior Vice President, December 21,
___________________________________________ Chief Financial Officer, 1999
Mark E. Stephan Treasurer and Director
(principal financial
officer and principal
accounting officer)
II-7
Exhibit 10.10
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
SOFTNET SYSTEMS, INC.,
AND
MEDIACOM LLC
-----------------
dated
November 4, 1999
-----------------
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of November 4, 1999, by and
between SOFTNET SYSTEMS, INC., a Delaware corporation (the "Company"), and
MEDIACOM LLC, a New York limited liability company ("Mediacom").
W I T N E S S E T H:
WHEREAS, the Company wishes to issue to Mediacom, and Mediacom wishes
to purchase from the Company, the Common Shares on the terms and subject to the
conditions set forth herein; and
WHEREAS, the Common Shares are being issued in order to induce
Mediacom to enter into an affiliate agreement pursuant to which, subject to the
terms and provisions contained therein, Mediacom will agree to use the Company's
subsidiary, ISP Channel, Inc., as the exclusive provider of Internet access to
customers passed by Mediacom's cable infrastructure (the "Affiliate Agreement"),
a copy of which is attached hereto as Exhibit A; and
---------
WHEREAS, the Company has made a good faith determination that the
Common Shares to be issued hereunder represent the fair market value of securing
Mediacom's obligations under the Affiliate Agreement; and
WHEREAS, concurrently with this Agreement, the parties shall execute
that certain Registration Rights Agreement dated as of the same date as this
Agreement, by and among the Company and Mediacom, the form of which is attached
hereto as Exhibit B (the "Registration Rights Agreement").
---------
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions.
-----------
1.1 "Additional Shares" means shares of Common Stock issued pursuant
-----------------
to Section 2.2.
1.2 "Alternate Cash Consideration" means the difference between
----------------------------
_______________* and the product of (a) the sum of (i) the First Shares plus
(ii) the Second Shares, multiplied by (b) the average closing price of the
Common Stock for the twenty trading days prior to the trading day immediately
preceding the Third Closing Date, as reported by the principal exchange or
automated quotation system upon which the Common Stock is then traded.
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment.
1.3 "Ancillary Agreements" means the Affiliate Agreement, the Stockholder
--------------------
Agreement and the Registration Rights Agreement.
1.4 "Committed Home Passed" has the same meaning as set forth in the
---------------------
Affiliate Agreement .
1.5 "Common Shares" means the Initial Shares and the Additional Shares.
-------------
1.6 "Common Stock" means the common stock, par value $0.01 per share, of
------------
the Company.
1.7 "Default Shares" means _____________* shares of Common Stock.
--------------
1.8 "First Closing" has the meaning set forth in Section 7.1
-------------
1.9 "First Closing Date" has the meaning set forth in Section 7.1.
------------------
1.10 "First Shares" means that number of shares of Common Stock derived by
------------
dividing $15,000,000 by the closing price of the Common Stock on the trading day
prior to the date hereof, as reported by the principal exchange or automated
quotation system upon which the Common Stock is then traded, rounding down, and
subtracting one (1).
1.11 "Fully Diluted Common Stock" means, at any given time, the sum of (a)
--------------------------
the number of shares of Common Stock that are outstanding, and (b) the number of
shares of Common Stock that are issuable upon exercise, conversion or exchange
of all outstanding options, warrants and other securities and obligations of the
Company.
1.12 "HSR Approval" means the earlier of (a) the termination or expiration
------------
of the waiting period for filings made under the Hart-Scott-Rodino Antitrust
Improvement Act 1976, as amended (the "HSR Act"), or (b) approval by the Federal
Trade Commission and the Department of Justice pursuant to the HSR Act of the
transactions contemplated hereby.
1.13 "Initial Shares" means the First Shares, the Second Shares and,
--------------
subject to Section 6.6, the Third Shares, which shall equal (a) 3.5 million
shares of Common Stock in the aggregate or (b) in the event the Company does not
obtain Stockholder Approval as required by Section 6.5, the sum of the First
Shares and the Second Shares, all as subject to adjustment for Default Shares.
1.14 "ISP Channel Services" has the same meaning as the term "Services" in
--------------------
the Affiliate Agreement.
* Denotes the information has been filed separately with the Securities and
Exchange Commision for Confidential Treatment.
2
1.15 "Material Adverse Effect" means a material adverse effect on the
-----------------------
business, operations, properties, assets, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries, taken as a whole.
1.16 "Preferred Share" has the meaning set forth in the Stockholder
---------------
Agreement.
1.17 "Second Closing" has the meaning set forth in Section 7.2.
--------------
1.18 "Second Closing Date" has the meaning set forth in Section 7.2.
-------------------
1.19 "Second Shares" means that number of shares of Common Stock which
-------------
on the Second Closing Date will be equal to the maximum number of shares of
Common Stock which the Company is permitted to issue to Mediacom without seeking
Stockholder Approval under the then current rules of the NASDAQ Stock Market.
1.20 "Stockholder Agreement" means that certain Stockholder Agreement
---------------------
by and between the Company and Mediacom dated the same date as this Agreement, a
copy of which is attached hereto as Exhibit C.
---------
1.21 "Stockholder Approval" has the meaning set forth in Section 6.5.
--------------------
1.22 "Subsidiary" means any corporation, limited liability company or
----------
other entity of which the Company or Mediacom, as applicable, directly or
indirectly, controls or which the Company or Mediacom, as applicable, owns,
directly or indirectly, more than 50% of the capital stock or other voting
and/or equity interests.
1.23 "Third Closing" has the meaning set forth in Section 7.3.
-------------
1.24 "Third Closing Date" has the meaning set forth in Section 7.3.
------------------
1.25 "Third Shares" means that number of shares of Common Stock equal
------------
to the difference between 3.5 million and the sum of (a) the First Shares, (b)
the Second Shares and (c) any Default Shares payable to the Company as of the
Third Closing Date.
1.26 "Unrestricted Shares" has the meaning set forth in the
-------------------
Stockholder Agreement.
1.27 "Year 2000 Issue" means the failure of computer software,
---------------
hardware and firmware systems and equipment containing embedded computer ships
to properly receive, transmit, process, manipulate, store, retrieve, re-transmit
or in any other way utilize data and information due to the occurrence of the
year 2000 or the inclusion of dates on or after January 1, 2000.
3
2. Issuance of Common Shares. Subject to the terms and conditions set forth
-------------------------
in this Agreement, the Company agrees to issue to Mediacom the Common Shares as
follows:
2.1 Initial Shares.
--------------
(a) First Shares. The Company shall issue to Mediacom the First
------------
Shares on the First Closing Date.
(b) Second Shares. The Company shall issue to Mediacom the Second
-------------
Shares on the Second Closing Date.
(c) Third Shares. In the event Stockholder Approval is required
------------
under Section 6.5, the Company shall issue to Mediacom the Third Shares, or
subject to Section 6.6, the Alternate Cash Consideration, on the Third Closing
Date.
2.2 Additional Shares. For each Committed Home Passed in excess of
900,000 that Mediacom makes available for ISP Channel Services, the Company
shall issue to Mediacom additional shares of Common Stock equal to the greater
of (i) ____________* divided by the per share closing price of the Common Stock
on the trading day prior to the date such shares are issued, as reported by the
principal exchange or automated quotation system upon which the Common Stock is
then traded and (ii) the lesser of (x) the quotient derived from dividing (A)
____________* multiplied by the per share closing price of the Common Stock on
the trading day prior to the date such shares are issued, as reported by the
principal exchange or automated quotation system upon which the Common Stock is
then traded by (B) 900,000 and (y) ___________* shares; provided, that the
--------
Company shall not be obligated to accept more than 3,000,000 Committed Homes
Passed for ISP Channel Services without prior approval by the Board of Directors
of the Company; provided, further, that in no event shall Mediacom acquire more
--------
than 35% of the Fully Diluted Common Stock without prior approval by the Board
of Directors of the Company.
(a) Procedure. For each delivery of such excess Committed Homes
---------
Passed, Mediacom shall deliver to the Company a certificate signed by an
authorized officer of Mediacom certifying that (i) Mediacom has delivered such
excess Committed Homes Passed, and (ii) the Affiliate Agreement has been amended
to reflect the delivery of such excess Committed Homes Passed. The Company shall
issue to Mediacom such Additional Shares within 30 days of receipt of such
certificate.
(b) Adjustment for Subdivisions and Combinations. In the event at
--------------------------------------------
any time the Company shall, by subdivision, stock split, reverse stock split,
dividend, combination or reclassification of any shares of its capital stock or
otherwise change any of the shares of Common Stock into the same or different
number of securities of any class or classes. The specific share numbers set
forth herein and in the Ancillary Agreements shall be proportionately adjusted
to reflect such change. An adjustment made pursuant to this Section
* Denotes the information has been filed separately with the Securities and
Exchange Commission for Confidential Treatment.
4
2.2(b) shall become effective immediately after the effective date of such
subdivision or combination.
2.3 Shares to be Subject to Transfer Restrictions. The Common Shares
---------------------------------------------
shall be subject to transfer restrictions and other conditions as set forth in
the Stockholder Agreement.
3. Execution of Ancillary Agreements. In consideration for the issuance of
---------------------------------
the Common Shares, Mediacom shall enter into the Ancillary Agreements and use
ISP Channel, Inc. as the exclusive provider of Internet access passed by
Mediacom's cable infrastructure according to the terms of the Affiliate
Agreement.
4. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to Mediacom as follows, except as set forth on a
Schedule of Exceptions (the "Schedule of Exceptions") furnished to Mediacom
attached hereto as Schedule A, which exceptions shall be deemed to be
----------
representations and warranties as if made hereunder:
4.1 Organization and Qualification. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has all requisite corporate power to carry on its
business as it is now being conducted and is duly qualified to do business as a
foreign corporation and is in good standing in each of the jurisdictions in
which the properties owned, leased or operated by the Company or the nature of
the business conducted by the Company makes such qualification necessary and
where the failure to so qualify (individually or in the aggregate) would have a
Material Adverse Effect.
4.2 Subsidiaries. The Schedule of Exceptions sets forth each
------------
Subsidiary of the Company. Except as set forth in the Schedule of Exceptions,
the Company does not own any capital stock in any other corporation or similar
business entity nor is the Company a partner in any partnership or joint
venture. The Schedule of Exceptions describes the state or other jurisdiction of
incorporation or organization and the percentage ownership interest owned by the
Company of each Subsidiary. Each Subsidiary is a corporation or limited
liability company duly organized, validly existing and in good standing under
the laws of its state or other jurisdiction of incorporation or organization.
Each Subsidiary has all requisite power (corporate or otherwise) to carry on its
business as it is now being conducted and is duly qualified to do business as a
foreign corporation or limited liability company and is in good standing in the
jurisdictions in which the properties owned, leased or operated by such
Subsidiary or the nature of the business conducted by such Subsidiary makes such
qualification necessary and where the failure to so qualify (individually or in
the aggregate) would have a Material Adverse Effect.
4.3 Authorization, Validity and Enforceability. The Company has full
------------------------------------------
power, authority and legal capacity to execute and deliver this Agreement and
each of the Ancillary Agreements, and subject to the HSR Approval, to perform
its obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby, including without limitation the issuance of
the Common Shares hereunder and the issuance of the Preferred Share pursuant to
the Stockholder Agreement. This Agreement and each of the
5
Ancillary Agreements have been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally, and
(b) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
4.4 No Conflicts. Subject to the HSR Approval, the execution and
------------
delivery by the Company of this Agreement and each of the Ancillary Agreements
and the performance by the Company of its obligations hereunder and thereunder,
and the consummation of the transactions contemplated hereby and thereby
(including, without limitation, the offer and sale of the Common Shares
hereunder and the issuance of the Preferred Share pursuant to the Stockholder
Agreement), do not and will not conflict with or violate the Certificate of
Incorporation or By-laws of the Company and do not and will not conflict with,
result in any breach or violation of, constitute a default under (or an event
which with the giving of notice or the lapse of time or both would constitute a
default under), give rise to any right of termination or acceleration of any
right or obligation of the Company under, or result in the creation of any lien
or encumbrance upon any assets or properties of the Company by reason of the
terms of, (a) any material contract to which the Company or by or to which the
Company or its assets or properties may be bound or subject, or (b) any order,
writ, judgment, injunction, award, decree, law, statute, ordinance, rule or
regulation applicable to the Company.
4.5 Third-Party Consents and Approvals. Except for the Stockholder
----------------------------------
Approval and the HSR Approval, no consent, approval, authorization, license or
order of, registration, qualification, designation, declaration or filing with,
or notice to, any governmental entity or any other person is necessary to be
obtained, made or given by the Company in connection with the execution and
delivery of this Agreement, the performance by the Company of its obligations
hereunder, and the consummation of the transactions contemplated hereby.
4.6 Title to Securities. The Common Shares, when issued and delivered
-------------------
in accordance with the terms of this Agreement for the consideration expressed
herein, and the Preferred Share, when issued and delivered in accordance with
the terms of the Stockholder Agreement, will be duly and validly issued, fully
paid and nonassessable. The issuance, sale and delivery of the Common Shares is
not subject to any preemptive rights of stockholders of the Company or to any
right of first refusal or other similar right in favor of any person.
4.7 Capitalization and Voting Rights.
--------------------------------
(a) The authorized capital of the Company consists of:
(i) Preferred Stock. 4,000,000 shares of Preferred Stock, par
---------------
value $.10 per share (the "Preferred Stock"), of which no shares were
issued and outstanding as of October 31, 1999.
6
(ii) Common Stock. 100,000,000 shares of Common Stock, of
------------
which _____________ shares were issued and outstanding as of October 31, 1999.
(b) All outstanding shares of Common Stock are duly and validly
authorized and issued, fully paid and nonassessable, and were issued in
compliance with all applicable state and federal laws concerning the issuance of
securities and not in violation of any preemptive rights of stockholders of the
Company or to any right of first refusal or other similar right in favor of any
person. All shares of Common Stock issuable upon exercise of all options,
warrants or other rights or agreements for the purchase or acquisition of Common
Stock (including Additional Shares) have been duly reserved for issuance and,
upon issuance thereof in accordance with the respective terms of their governing
documents, will be duly and validly issued, fully paid and non-assessable.
(c) Except as disclosed in the Schedule of Exceptions there are no
(i) outstanding options, warrants, rights (including conversion or preemptive
rights) or agreements or obligations (contingent or otherwise) for the purchase,
repurchase or acquisition or retirement of any shares of its capital stock or
other interests therein, (ii) securities of the Company convertible into or
exchangeable for any capital stock of the Company, (iii) commitments of the
Company to issue any shares, warrants, options or other such rights or to
distribute to holders of any class of its capital stock in respect thereof, any
evidences of indebtedness or assets, or (D) agreements to pay any dividend or
make any other distribution in respect thereof. Between October 31, 1999 and the
Closing Date, the Company has not issued any shares of capital stock or other
securities other than upon conversion or exercise or otherwise as a result of
conversion rights, options, warrants and other rights or agreements for the
purchase of shares of capital stock that were outstanding as of October 31,
1999. The Company is not a party or subject to any agreement and, to the
Company's knowledge, there is no agreement between any persons and/or entities,
which affects or relates to the voting or giving of written consents with
respect to any security or by a director of the Company.
4.8 Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company or any
of its Subsidiaries is required in connection with (a) the execution, delivery
and performance of this Agreement or any of the Ancillary Agreements, (b) the
issuance, sale and delivery of the Common Shares and the Preferred Share, and
(c) the consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements, except for (i) such filings required pursuant to
applicable federal and state securities laws and blue sky laws, which filings
will be effected within the required statutory period, and (ii) the HSR
Approval.
4.9 Litigation. There is no action, suit, proceeding or investigation
----------
pending, or to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement or the right of the Company to
enter into such Agreement or to consummate the transactions contemplated hereby,
or that might result, either
7
individually or in the aggregate, in a Material Adverse Effect or any change in
the current equity ownership of the Company.
4.10 Certificate of Incorporation, By-laws and Minutes. The Company
-------------------------------------------------
has heretofore made available to Mediacom true and complete copies of its
Certificate of Incorporation and By-laws as in effect on the date hereof. The
minute books of the Company and the Subsidiaries, which have been made available
to Mediacom for inspection, contain true and complete records of all meetings
and consents of the Board of Directors and stockholders of the Company and the
Subsidiaries.
4.11 No Violation of Law. To the Company's knowledge, the Company and
-------------------
each Subsidiary is not in violation of and has not been given notice or been
charged with any violation of any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any governmental or regulatory
body or authority, except for violations which, in the aggregate, do not have,
and would not reasonably be expected to have a Material Adverse Effect. Neither
the Company nor any Subsidiary has received any written notice that any
investigation or review with respect to it by any governmental or regulatory
body or authority is pending or threatened, other than, in each case, those the
outcome of which, as far as reasonably can be foreseen, would not reasonably be
expected to have a Material Adverse Effect. The Company and each Subsidiary have
all permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct their
businesses as presently conducted, except for those, the absence of which, alone
or in the aggregate, would not have a Material Adverse Effect (collectively, the
"Permits"). The Company and each Subsidiary (a) have duly and timely filed all
reports and other information required to be filed with any governmental or
regulatory authority in connection with its Permits, and (b) are not in material
violation of the terms of any of its Permits, except for such omissions or
delays in filings, reports or violations which, alone or in the aggregate, would
not have a Material Adverse Effect.
4.12 Registration Rights. Except as set forth in the Schedule of
-------------------
Exceptions, the Company has not granted or agreed to grant any registration
rights under any applicable securities laws to any person.
4.13 Intellectual Property. The Company and each Subsidiary owns or
---------------------
has the right to use the patents, unpatented inventions, trademarks, tradenames,
service marks, service names, copyrights, trade secrets, know-how, design,
process and other intangible assets (collectively, "Proprietary Assets") used in
the business of the Company and the Subsidiaries free and clear of liens,
claims, and encumbrances created outside of the ordinary course of business or
identified in agreements referred to in the SEC Reports. Neither the Company nor
any Subsidiary is knowingly violating or infringing the rights of others in any
patent, unpatented invention, trademark, trade name, servicemark, copyright,
trade secret, know-how, design, process or other intangible asset. The Company
has not received any communications alleging that the Company (or any of its
employees or consultants) has violated or infringed or, by
8
conducting its business as proposed, would violate or infringe, any Proprietary
Asset of any other person or entity. To the Company's knowledge, no third party
has any ownership, right, title, interest, claim or lien on any of the Company's
Proprietary Assets and the Company has taken, and in the future the Company will
use its best efforts to take all steps reasonably necessary to preserve its
legal rights in, and the secrecy of, all its Proprietary Assets, except those
for which disclosure is required for legitimate business or legal reasons.
Except as set forth in the Schedule of Exceptions, the Company has not granted,
and, to the Company's knowledge there are not outstanding, any options, licenses
or agreements of any kind relating to any Proprietary Asset of the Company, nor
is the Company bound by or a party to any option, license or agreement of any
kind with respect to any of its Proprietary Assets. Except as set forth on the
Schedule of Exceptions, the Company is not obligated to pay any royalties or
other payments to third parties with respect to the marketing, sale,
distribution, manufacture, license or use of any of Proprietary Asset or any
other property or rights.
4.14 Company SEC Reports. Since January 1, 1998, the Company has timely
-------------------
filed with the Securities and Exchange Commission (the "SEC") all reports,
registrations and other documents, together with any amendments thereto,
required to be filed under the Securities Act of 1933, as amended (the
"Securities Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act")(all such reports, registrations and documents filed with the SEC
since January 1, 1998 are collectively referred to as the "Company SEC
Reports"). As of their respective dates or such later date as the Company filed
an amendment with the SEC, the Company SEC Reports complied in all material
respects with all rules and regulations promulgated by the SEC and did not
contain any untrue statement of a material fact or omit to state a material face
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading. The
consolidated financial statements of the Company (the "Company Financial
Statements") included in the Company SEC Reports present fairly, in all material
respects, the consolidated financial position of the Company and the
Subsidiaries as of their respective dates and the results of their operations
and cash flows for the fiscal years and periods covered in accordance with GAAP
consistently applied and in accordance with Regulation S-X of the SEC (subject,
in the case of unaudited interim period financial statements to normal recurring
year-end adjustments which, individully or collectively, are not material).
Without limiting the generality of the foregoing, (a) as of the date of the most
recent balance sheet included in the Company Fiancial Statements, there was no
material debt, liability or obligation of any nature not fully reflected or
reserved in accordance with GAAP; and (b) there are no assets of the Company or
any Subsidiary, the value of which (in the reasonable judgment of the Company)
is materially overstated in the Company Financial Statements. Except as set
forth in the Company SEC Reports, neither the Company nor any Subsidiary, to
their knowledge, has any liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise) other than liabilities and obligations which
would not, individually or in the aggregate, have a Material Adverse Effect.
4.15 Brokers and Finders. The Company has not, directly or indirectly,
-------------------
employed any investment banker, broker, finder, consultant or intermediary in
connection with
9
the transactions contemplated by this Agreement which would be entitled to any
investment banking, brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated hereby.
4.16 Year 2000 Issue. The Company has reviewed the effect of the Year
---------------
2000 Issue on the computer software used by the Company and the Subsidiaries in
the business of the Company and the Subsidiaries, as well as those hardware and
firmware systems and equipment containing embedded microchips owned or operated
by the Company and the Subsidiaries or used or relied upon in the conduct of
their business (including systems and equipment supplied by others or with which
such computer systems of the Company and the Subsidiaries interface). The costs
to the Company of any reprogramming required as a result of the Year 2000 Issue
to permit the proper functioning of such systems and equipment and the proper
processing of data, and the testing of such reprogramming, are not reasonably
expected to have a Material Adverse Effect on the Company.
5. Representations and Warranties of Mediacom. Mediacom hereby represents
------------------------------------------
and warrants to the Company that:
5.1 Authorization. Mediacom has full power and authority to enter into
-------------
this Agreement, and such Agreement constitutes its valid and legally binding
obligation, enforceable in accordance with its terms.
5.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
Mediacom in reliance upon Mediacom's representation to the Company, which by
Mediacom's execution of this Agreement Mediacom hereby confirms, that the Common
Shares to be received by Mediacom will be acquired for investment for Mediacom's
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Mediacom has no present intention of
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, Mediacom further represents that Mediacom does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to any of the Common Shares.
5.3 Disclosure of Information. Mediacom believes it has received all
-------------------------
the information it considers necessary or appropriate for deciding whether to
acquire the Common Shares. Mediacom further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Securities and the business,
properties, prospects and financial condition of the Company. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 4 of this Agreement or the right of Mediacom to rely thereon.
5.4 Investment Experience. Mediacom acknowledges that it can bear the
---------------------
economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Common
10
Shares. Mediacom has the capacity to protect its own interests in connection
with the transactions contemplated by this Agreement. Mediacom has not been
organized for the purpose of acquiring the Common Shares.
5.5 No Solicitation. Neither the offer nor the sale of the Common
---------------
Shares to Mediacom has been accomplished by the publication of any form of
advertisement or general solicitation.
5.6 Restricted Securities. Mediacom understands that the Common Shares
---------------------
are characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such Securities may be resold without registration under the Securities Act,
only in certain limited circumstances. In this connection, Mediacom represents
that it is familiar with SEC Rule 144, as presently in effect, and understands
the resale limitations imposed thereby and by the Act.
5.7 Legends. Mediacom acknowledges that the Common Shares, and any
-------
securities issued in respect thereof or exchange therefor, may bear one or all
of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT."
(b) "THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFER,
REPURCHASE RIGHTS AND OTHER CONDITIONS CONTAINED IN THAT CERTAIN STOCKHOLDER
AGREEMENT BETWEEN MEDIACOM LLC AND THE COMPANY, DATED NOVEMBER 4, 1999."
(c) Any legend required by the laws of the jurisdiction where
Mediacom is domiciled or incorporated.
(d) Any legend required by the Blue Sky laws of any other state to
the extent such laws are applicable to the shares represented by the certificate
so legended.
6. Conditions to the First Closing, Second Closing and Third Closing;
-----------------------------------------------------------------
Covenants and Alternate Consideration
- --------------------------------------
11
6.1 Conditions to the Company's Obligations. The obligations of the
---------------------------------------
Company to issue the Common Shares shall be subject to the satisfaction of the
following conditions as of the First Closing, the Second Closing and the Third
Closing:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Mediacom contained in this Agreement shall be true and correct as
of the First Closing Date, the Second Closing Date and the Third Closing Date
with the same force and effect as though made as of each such respective Closing
Date.
(b) Covenants. Mediacom shall have complied with all covenants and
---------
agreements required to be complied with by Mediacom hereunder and in the
Affiliate Agreement.
(c) Compliance Certificate. The Company shall have received from
----------------------
an officer of Mediacom a certificate, dated as of the First Closing Date, the
Second Closing Date, or the Third Closing Date, as the case may be, that the
conditions specified in Sections 6.1(a) and 6.1(b) have been fulfilled.
(d) Consents and Approvals. Mediacom shall have obtained, made or
----------------------
given all consents, approvals, authorizations, licenses or orders of,
registrations, qualifications, designations, declarations or filings with, or
notice to any governmental entity or any other person to the extent necessary to
be obtained, made or given by Mediacom in connection with the transactions
contemplated hereby.
(e) No Injunction or Illegality. No injunction, order, decree or
---------------------------
judgment shall have been issued by any court or other governmental entity and be
in effect, and no statute, rule or regulation shall have been enacted or
promulgated by any governmental entity and be in effect, which in each case
restrains or prohibits any of the transactions contemplated hereby.
(f) Ancillary Agreements. Mediacom shall have executed and
--------------------
delivered to the Company the Ancillary Agreements and the Ancillary Agreements
shall be in full force and effect.
(g) Delivery of Documents. The Company shall have received from
---------------------
Mediacom: incumbency certificates and such other evidence of corporate authority
for the transactions contemplated hereby as the Company and its counsel shall
reasonably request. The Company may conclusively rely on such documents.
(h) Celebratory Dinner. Solely as a condition to the First Closing,
------------------
Rocco Commisso, the Chairman and Chief Executive Officer of Mediacom, shall have
come to California for a celebratory dinner in his honor.
12
6.2 Conditions to Mediacom's Obligations. The obligations of Mediacom
------------------------------------
to consummate the First Closing, the Second Closing and the Third Closing shall
be subject to the satisfaction of the following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in this Agreement shall be true and correct
as of the First Closing Date, the Second Closing or the Third Closing Date, as
the case may be, (other than representations and warranties made as of a
specific date, which shall be true and correct as of the date specified), with
the same force and effect as though such representations and warranties had been
made as of each such respective Closing Date.
(b) Covenants. The Company shall have performed and complied with
---------
all covenants and agreements required to be performed or complied with by the
Company hereunder and under the Ancillary Agreements.
(c) Compliance Certificate. Mediacom shall have received from an
----------------------
officer of the Company a certificate, dated as of the First Closing or Second
Closing, as the case may be (and as to each issuance of Additional Shares, the
date of issuance of such shares), that the conditions specified in Sections
6.2(a) and 6.2(b) have been fulfilled.
(d) Consents and Approvals. All consents, approvals,
----------------------
authorizations, licenses or orders of, registrations, qualifications,
designations, declarations or filings with, or notice to any governmental entity
or any other person necessary to be obtained, made or given in connection with
the transactions contemplated hereby shall have been duly obtained, made or
given and shall be in full force and effect.
(e) No Injunction or Illegality. No injunction, order, decree or
---------------------------
judgment shall have been issued by any court or other governmental entity and be
in effect, and no statute, rule or regulation shall have been enacted or
promulgated by any governmental entity and be in effect, which in each case
restrains or prohibits any of the transactions contemplated hereby.
(f) Ancillary Agreements. The Company shall have entered into each
--------------------
of the Ancillary Agreements and the Ancillary Agreements shall be in full force
and effect.
(g) Share Certificates; Alternate Cash Consideration. Mediacom
------------------------------------------------
shall have received stock certificates of the Company representing the First
Shares for the First Closing, the Second Shares for the Second Closing, or the
Third Shares, or subject to Section 6.6, the Alternate Cash Consideration, for
the Third Closing, in such denominations as may be requested by Mediacom.
(h) Delivery of Documents. Mediacom shall have received from the
---------------------
Company: (i) a copy of the Amended and Restated Certificate of Incorporation of
the Company in effect at the time of the Closing, certified as having been filed
with the Delaware Secretary of
13
State, (ii) a copy of the By-laws of the Company in effect at the time of the
Closing, certified as being true and correct by the Secretary of the Company,
and (iii) incumbency certificates, board resolutions and such other evidence of
corporate authority for the transactions contemplated hereby as Mediacom and its
counsel shall reasonably request. Mediacom may conclusively rely on such
documents.
(i) Opinion of Counsel. Mediacom shall have received an opinion from
------------------
Latham & Watkins, corporate counsel to the Company, dated as of the First
Closing Date, the Second Closing Date or the Third Closing Date, as the case may
be, in form reasonably satisfactory to Mediacom.
6.3 Additional Conditions to the Second Closing. The obligations of the
-------------------------------------------
Company and Mediacom to consummate the Second Closing shall be subject to HSR
Approval. The obligation of Mediacom to consummate the Second Closing shall
also be subject to the Company's amending its Bylaws as set forth in Section 5.3
of the Stockholder Agreement.
6.4 HSR Filings. Each of the parties hereto covenants and agrees to use
-----------
its reasonable commercial efforts to comply promptly with any applicable
requirements under the HSR Act, and rules and regulations promulgated
thereunder, relating to filing and furnishing of information to the Federal
Trade Commission ("FTC") and the Antitrust Division of the Department of Justice
("DOJ"), the parties' actions to include, without limitation, (a) filing or
causing to be filed the Notification and Report (the "HSR Report") required to
be filed by them, or by any other person that is part of the same "person" (as
defined in the HSR Act) or any of them, and taking all other action required by
the HSR Act; (b) coordinating the filing of such HSR Reports (and exchanging
drafts thereof) so as to present both HSR Reports to the FTC and the DOJ within
10 business days after the date of execution of this Agreement, or as soon
thereafter as reasonably practicable, and to avoid substantial errors or
inconsistencies between the two in the description of the transaction; and (c)
using their reasonable commercial efforts to comply with any additional request
for documents or information made by the FTC or the DOJ or by a court and
assisting the other party to so comply. Notwithstanding anything herein to the
contrary, in the event that the consummation of the transactions contemplated
under this Agreement is challenged by the FTC, the DOJ or any agency or
instrumentality of the federal government by an action to stay or enjoin such
consummation, then the parties shall cooperate with each other, as reasonably
requested, until either party does not reasonably believe that there are
reasonable grounds to contest such action, at which time such party shall have
the right to terminate this Agreement and the Ancillary Agreements, unless the
other party, at its sole cost and expense, elects to contest such action, in
which case the noncontesting party shall cooperate with the contesting party and
assist the contesting party, as reasonably requested, to contest such action
until such time as any party terminates this Agreement under this Section. In
the event that a stay or injunction is granted (preliminary or otherwise), then
either party may terminate this Agreement by prompt written notice to the other.
If any other form of equitable relief affecting any party is granted to the FTC,
the DOJ or other such agency or instrumentality, then the noncontesting party
may terminate this Agreement by prompt written notice to the other
14
party. Upon any termination pursuant to this Section 6.4 other than as a result
of a breach of this Agreement, no party shall have any further obligation or
liability to the other party under this Agreement or the Ancillary Agreements.
To effectuate the intent of the foregoing provisions of this Section 6.4, the
parties agree to exchange requested or required information in making the
filings and in complying as above provided, and the parties agree to take all
reasonable steps to preserve the confidentiality of the information set forth in
any filings.
6.5 Stockholder Approval. The Company covenants and agrees to submit
--------------------
to its stockholders for approval at the 2000 Annual Meeting of Stockholders,
duly called and held as promptly as reasonably possible, but not later than
March 31, 2000 (the "Stockholders Meeting"), and the Company will recommend to,
and will use its best efforts to solicit and obtain from such stockholders, the
approval of (a) the issuance of the Common Shares, as contemplated by this
Agreement, but only in the event stockholder approval is necessary to issue the
Third Shares in order to comply with the rules of the NASDAQ Stock Market
("Shareholder Approval") and (b) the election of Mediacom's designee to the
Company's Board of Directors consistent with Mediacom's percentage ownership of
the Common Stock, as set forth in Section 5 of the Stockholder Agreement. The
Company shall timely prepare and file with the SEC a preliminary proxy statement
in connection with the Stockholders Meeting, and shall endeavor to obtain prompt
review of such proxy statement by the SEC, to respond to comments receive and to
mail the definitive version thereof (together with any supplements thereto, the
"Proxy Statement") promptly to its stockholders. The Proxy Statement will comply
as to form in all material respects with all applicable rules and regulations
under the Exchange Act . Copies of all preliminary proxy material to be
submitted to the SEC, and all SEC responses, comments or inquiries related
thereto shall be sent or communicated to Mediacom and its counsel sufficiently
in advance of filing or other formal action with respect thereto to provide them
with a reasonable opportunity to review and comment thereon.
6.6 Alternate Cash Consideration. In the event that, despite its best
----------------------------
efforts, the Company shall not obtain Stockholder Approval, at the Third Closing
the Company shall deliver to Mediacom the Alternate Cash Consideration, at
Mediacom's option, by the delivery of a certified or cashier's check or by
federal wire transfer to an account designated by Mediacom.
6.7 Additional Shares. Solely as a condition to issuing Additional
-----------------
Shares, the Company shall be reasonably satisfied that Mediacom has made
available for ISP Channel Services the number of Committed Homes Passed that
requires the issuance of Additional Shares.
7. Closing Dates.
-------------
7.1 First Closing. Subject to the satisfaction (or waiver) of the
-------------
conditions thereto set forth in Section 6.1 and 6.2, the date and the time of
the issuance and sale of the First Shares pursuant to this Agreement (the "First
Closing") shall be 10:00 a.m., on November 3, 1999 at 650 Townsend Street, Suite
225, San Francisco, CA, or at such other date, time and place
15
as the Company and Mediacom mutually agree upon orally or in writing (the "First
Closing Date").
7.2 Second Closing. Subject to the satisfaction (or waiver) of the
--------------
conditions thereto set forth in Section 6.1, 6.2, 6.3 and 6.4, the date and the
time of the issuance and sale of the Second Shares pursuant to this Agreement
(the "Second Closing") shall be no later than the fifth business day following
HSR Approval at 650 Townsend Street, Suite 225, San Francisco, CA, or at such
other date, time and place as the Company and Mediacom mutually agree upon
orally or in writing (the "Second Closing Date").
7.3 Third Closing. Subject to the satisfaction (or waiver) of the
-------------
conditions thereto set forth in Section 6, the date and the time of the issuance
and sale of the Third Shares, or delivery of the Alternate Cash Consideration,
pursuant to this Agreement (the "Third Closing") shall be within five business
days after the earlier of (a) Stockholder Approval or (b) March 31, 2000, at 650
Townsend Street, Suite 225, San Francisco, CA, or at such later date, time and
place as the Company and Mediacom mutually agree upon orally or in writing (the
"Third Closing Date"); provided, that the Third Closing shall be unnecessary in
--------
the event Stockholder Approval is not required by Section 6.5.
8. Protective Provision. In the event ISP Channel, Inc. or the Company
--------------------
enter into agreements with any other cable operator that have, in the aggregate,
terms, rates and conditions more favorable than set forth in this Agreement and
the Ancillary Agreements, taken as a whole, then such party shall offer to
Mediacom such set of terms, rates and conditions offered to the other cable
operator; provided, however, that this provision shall not apply to agreements
for test or demonstration purposes.
9. Miscellaneous.
--------------
9.1 Survival of Representations and Warranties; Indemnity.
-----------------------------------------------------
(a) The representations and warranties contained in this Agreement
shall survive the execution and delivery of this Agreement regardless of any
investigation made by or on behalf of either party hereto, until the fifth
anniversary of the date hereof.
(b) The Company hereby agrees to indemnify, defend and hold
harmless Mediacom, any affiliate of Mediacom, and any director, officer,
employee, representative or agent of any of them (an "Indemnified Party") from
and against, and agrees to pay or cause to be paid to such Indemnified Party the
amounts ("Losses") equal to the sum of any and all claims, demands, costs,
expenses or other liabilities of any kind that any Indemnified Party may incur
or suffer, directly or indirectly, including without limitation the cost of
investigation (including without limitation attorneys' fees) which arise out of,
result from or relate to (i) any misrepresentation or breach by the Company of
any of its representations or warranties or covenants contained in this
Agreement, or in any schedule, certificate, exhibit, or other instrument
furnished by, or on behalf of, the Company under this Agreement or (ii) any
16
claim by any stockholders of the Company arising under or in connection with
this Agreement. Each Indemnified Party shall give prompt notice to the Company
of the commencement of any suit, action or proceeding against such Indemnified
Party in respect of which indemnity may be sought hereunder. The Company may, at
its own expense, participate in and upon notice to the Indemnified Party, assume
the defense any such suit, action or proceeding; provided that (A) the Company's
--------
counsel is reasonable satisfactory to such Indemnified Party and (B) the Company
shall thereafter consult with such Indemnified Party upon such Indemnified
Party's reasonable request for such consultation from time to time with respect
to such suit, action or proceeding. If the Company assumes such defense, such
Indemnified Party shall have the right (but not the duty) to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the Company. The Company shall be liable for the fees and
expenses of counsel employed by such Indemnified Party for any period during
which the Company has not assumed the defense thereof. Whether or not the
Company chooses to defend or prosecute any claim, all of the parties hereto
shall cooperate in the defense or prosecution thereof. The Company shall not be
liable hereunder for any settlement effected without its consent or resulting
from a proceeding against an Indemnified Party in which the Company was not
permitted an opportunity to participate unless (1) such settlement includes an
unconditional release of the Company from all liability on claims that are the
subject matter of such claim, litigation or proceeding, and (2) such settlement
shall not require that the Company incur any obligation (monetary or otherwise)
or forego any rights. The Company shall not effect any settlement relating to a
proceeding against any Indemnified Party without the consent of such Indemnified
Party (which consent shall not be unreasonably withheld) unless such settlement
includes (as to such Indemnified Party) money damages only and an unconditional
release of such Indemnified Party from all Losses related to such proceeding.
9.2 Notices. All notices, demands or other communications to be given
-------
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid), mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid, or transmitted by facsimile (with request
for immediate confirmation of receipt in a manner customary for communications
of such type and with physical delivery of the communication being made by one
of the other means specified in this Section as promptly as practicable
thereafter). Such notices, demands and other communications shall be addressed
as follows:
If to the Company:
SOFTNET SYSTEMS, INC.
650 Townsend Street, Suite 225
San Francisco, California 94103
Attn: Steven Harris, Secretary
Telephone: (415) 365-2500
Telecopy: (415) 365-2556
17
If to Mediacom
MEDIACOM LLC
100 Crystal Run Road
Middletown, NY 10941
Attention: Rocco B. Commisso
Chairman and Chief Executive Officer
Telephone: (914) 695-2600
Telecopy: (914) 695-2639
with a copy to:
Cooperman Levitt Winikoff Lester & Newman, P.C.
800 Third Avenue
New York, NY 10022
Attention: Robert L. Winikoff, Esq.
Telephone: (212) 688-7000
Telecopy: (212) 755-2839
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party
(provided that notice of a change of address shall be effective only upon
receipt thereof).
9.3 Expenses. The Company shall pay, and hold Mediacom harmless from
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and against liability for the payment of, stamp and other taxes which may be
payable in respect of the execution and delivery of this Agreement or the
delivery or acquisition of any Common Shares.
9.4 Remedies. The parties shall have all rights and remedies set forth
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in this Agreement and all rights which such holders have under any law. Any
person having any rights under any provision of this agreement shall be entitled
to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement
and to exercise all other rights granted by law. The losing party shall pay the
reasonable fees and expenses incurred by the prevailing party for the
enforcement of the rights granted under this Agreement.
9.5 Entire Agreement; Waivers and Amendments. This Agreement
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(including the exhibits and schedules hereto and the documents and instruments
referred to herein) contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes all prior
written or oral agreements and understandings with respect thereto. This
Agreement may only be amended or modified, and the terms hereof may only be
waived, by a writing signed by both parties hereto or, in the case of a waiver,
by the party entitled to the benefit of the terms being waived.
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9.6 Assignment; Binding Effect. This Agreement may not be assigned or
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delegated, in whole or in part, by either party hereto without the prior written
consent of the other party hereto, except by operation of law in connection with
a merger, consolidation or other reorganization or sale of all or substantially
all of the assets of Mediacom; provided, that Mediacom may assign, in its sole
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discretion, all of its rights, interests and obligations under this Agreement to
any buyer who assumes all of Mediacom's obligations under this Agreement and the
Ancillary Agreements. Mediacom may assign any or all of its rights and
obligations hereunder to its direct or indirect wholly-owned Subsidiaries if
such Subsidiaries agrees in writing in form satisfactory to the Company to be
bound by this agreement and make the representations and warranties hereunder to
the same extent as Mediacom. In the event Mediacom assigns such rights to any
such Subsidiary, such Subsidiary shall be deemed to be "Mediacom" for all
purposes of this Agreement, and the Company shall re-issue the applicable Common
Shares in the name of any such Subsidiary at the direction in writing by
Mediacom. The assignment by Mediacom of any rights, interest or obligations
under the Registration Rights Agreement to a transferee of the Unrestricted
Shares acquired hereunder shall not affect or diminish the rights or obligations
of Mediacom under this Agreement. Subject to the foregoing, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
9.7 Severability. In the event that any provision of this Agreement
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shall be declared invalid or unenforceable by a court of competent jurisdiction
in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent declared invalid or unenforceable without affecting
the validity or enforceability of the other provisions of this Agreement, and
the remainder of this Agreement shall remain binding on the parties hereto.
9.8 Governing Law; Jurisdiction and Venue. This Agreement shall be
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governed by, construed and enforced in accordance with the internal laws of the
State of Delaware, excluding the conflict of laws provisions thereof that would
otherwise require the application of the law of any other jurisdiction. The
parties hereto acknowledge and agree that the state and federal courts sitting
in the State of Delaware shall have jurisdiction in any matter arising out of
this Agreement, and the parties hereby consent to such jurisdiction and agree
that the venue of any such matter shall also be proper in such state and federal
courts sitting in the State of Delaware.
9.9 Captions. The Section and subsection headings in this Agreement
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are inserted for convenience of reference only, and shall not affect the
interpretation of this Agreement.
9.10 Counterparts. This Agreement may be executed in counterparts, each
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of which shall be deemed an original and both of which together shall be
considered one and the same agreement.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first written above.
SOFTNET SYSTEMS, INC.
/s/ Lawrence B. Brilliant
-------------------------
By: Lawrence B. Brilliant
Title: Chief Executive Officer
MEDIACOM LLC
/s/Rocco B. Commisso
-------------------------
By: Rocco B. Commisso
Title: Chairman and Chief Executive Officer
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Exhibit A
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made as of
November 4, 1999, by and among SoftNet Systems, Inc., a Delaware corporation
(the "Company"), with headquarters located at 650 Townsend Street, Suite 225,
San Francisco, CA 94103 and Mediacom LLC, a New York limited liability company
(the "Initial Purchaser"), with headquarters located at 100 Crystal Run Road,
Middletown, New York 10941.
WHEREAS, in connection with the Stock Purchase Agreement dated of even date
herewith by and between the Company and the Initial Purchaser (the "Stock
Purchase Agreement"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue to the Initial Purchaser 3,500,000 shares
of common stock of the Company, par value $0.01 per share (the "Common Stock"),
and to issue additional shares of Common Stock under certain circumstances set
forth in the Stock Purchase Agreement (collectively, the "Shares").
WHEREAS, the Shares are being issued in order to induce the Initial
Purchaser to enter into an affiliate agreement pursuant to which, subject to the
terms and provisions contained therein, the Initial Purchaser agrees to use the
Company's subsidiary, ISP Channel, Inc., as the exclusive provider of Internet
access and other Internet services to customers passed by the Initial
Purchaser's cable infrastructure; and
WHEREAS, to induce the Initial Purchaser to execute and deliver the Stock
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws.
WHEREAS, the Shares are subject to a Stockholder Agreement by and between
the Company and the Initial Purchaser, of even date herewith (the "Stockholder
Agreement"), that governs certain rights and obligations with respect to the
parties.
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, and the Initial
Purchaser hereby agree as follows:
ARTICLE I
DEFINITIONS
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1.1 Definitions.
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(a) "Purchaser" means, collectively, the Initial Purchaser and any
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transferees or assignees who agree to become bound by the provisions of this
Agreement in accordance with Article IX hereof or who otherwise take rights
under this Agreement in accordance with the terms hereof.
(b) "register," "registered," and "registration" refer to a
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registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the "SEC").
(c) "Registrable Securities" means the Unrestricted Shares (as
----------------------
defined in the Stockholder Agreement), and any shares of capital stock issued or
issuable, from time to time (with any adjustments) on or in exchange for or
otherwise with respect to the Unrestricted Shares or any other Registrable
Securities. The Unrestricted Shares shall cease to be Registrable Securities to
the extent that they (in the reasonable opinion of counsel to the Purchaser)
have been sold to the public without registration and without restriction,
whether pursuant to Rule 144 or otherwise.
(d) "Registration Statement" means any registration statement of the
----------------------
Company under the Securities Act subject to or pursuant to Article II or another
provision of this Agreement, as applicable.
ARTICLE II
REGISTRATION
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2.1 Demand Registration. At any time after December 31, 1999 and subject
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to Section 2.5 of the Stockholder Agreement, if the Purchaser holds at least
500,000 shares of Registrable Securities, the Purchaser shall have the right to
request that the Company prepare, and file with the SEC a Registration Statement
on Form S-3 covering the resale of all or any portion of the then issued
Registrable Securities (a "Demand Registration"). The Registration Statement
shall have a minimum aggregate offering price (as set forth on the facing page
of the Registration Statement) to the public of $10,000,000. The Purchaser may
demand that any Registration Statement be a shelf-registration in accordance
with Rule 415 under the Securities Act or any successor rule providing for
offering securities on a continuous basis ("Rule 415"). The Company shall send
to all other Purchasers, if any, written notice of such request and if any such
Purchasers respond within fifteen (15) days after the effective date of such
notice (in accordance with Section 2.6 below), the Company shall include all
Registrable Securities requested by any such Purchaser to be registered in the
Demand Registration in accordance with this Section 2.1. The Registration
Statement (and each amendment or material supplement thereto, and each request
for acceleration of effectiveness thereof) shall be provided to (and subject to
the approval of (which approval shall not be unreasonably withheld or denied))
the Purchaser and its counsel prior to its filing. After receiving the
Registration Statement, the Purchaser shall provide the Company with either its
approval of the Registration Statement or its comments or corrections to the
Registration Statement within five (5) business days of receipt of the draft
Registration Statement. If the Purchaser does not respond with approval or
comments within five business days, it shall be deemed to approve the
Registration Statement. Without limiting the Company's obligations under this
Section, if Form S-3 is not available to the Company in connection with re-
sales, the Company shall file a Registration Statement on such form as is then
available to effect a registration, subject to the consent of the Purchaser (as
determined pursuant to Section 11.10 hereof) as to the form used for such
filing. The Purchaser shall have the right to request the filing of one
Registration Statement under this Section 2.1 in any twelve (12) month period;
provided, however, that if the Purchaser requests the filing of
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2
more than one Registration Statement in a twelve month period then the Purchaser
shall pay for all expenses of such Registration.
2.2 Underwritten Offering. If any offering pursuant to a Registration
---------------------
Statement pursuant to Section 2.1 hereof involves an underwritten offering, the
Purchaser who holds a majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select the investment
banker or bankers and manager or managers to administer the offering, which
investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company. If the underwriter of an underwritten offering
advises the Company that in its opinion the number of Registrable Securities
requested to be included in such offering exceeds the number of Registrable
Securities which can be sold in an orderly manner in such offering within a
price range acceptable to the Purchaser initially requesting such registration,
then the Company shall include in such registration prior to the inclusion of
any securities which are not Registrable Securities the number of Registrable
Securities requested to be included which, in the opinion of such underwriters,
can be sold in an orderly manner within the price range of such offering without
adversely affecting the marketability of the offering, pro rata among the
holders of such Registrable Securities. The Company shall agree to such
reasonable lock-up provisions as may be requested by such underwriter.
2.3 Registration and Permitted Delays. The Company shall file the
---------------------------------
Registration Statement within thirty (30) days of a demand pursuant to Section
2.1 above, and shall use its best efforts to cause the Registration Statement to
become effective as soon as practicable, but in no event later than the sixtieth
(60th) day following the date of the filing of the Registration Statement,
except in instances representing Permitted Delay (as defined below); provided,
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however, that if, notwithstanding such best efforts, the Registration Statement
is not declared effective on or prior to the 60th day following the date of the
filing of the Registration Statement as a result of the SEC review process, the
Company shall, so long as it continues to use such best efforts, have an
additional sixty (60) days to cause the registration statement to become
effective. The Company shall respond to each item of correspondence from the SEC
or the staff of the SEC relating to such registration statement as promptly as
practicable. If to the actual knowledge of a senior officer of the Company or
the Company's outside counsel the SEC and the staff of the SEC have no comments
(or no further comments) concerning such Registration Statement, the Company
shall as soon as practicable request acceleration of effectiveness of the
Registration Statement from the SEC. For purposes of this Agreement, "Permitted
Delay" shall mean the suspension of, or delay in filing of in response to a
demand, of the Registration Statement for up to seventy-five (75) days upon the
good faith determination by the Company's Board of Directors that such
Registration Statement would have a material adverse effect on any proposed
material financing, acquisition or other extraordinary corporate transaction as
a result of which such suspension or delay is in the best interest of the
Company and the holders of its outstanding Common Stock, provided, however, that
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no more than two (2) such Permitted Delays may be imposed during any period of
twelve (12) consecutive months; and provided, however that no Permitted Delay
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shall be imposed with respect to a demand by the Purchaser where such Permitted
Delay is not imposed on all other stockholders, and only to the same extent it
is imposed on all other stockholders holding registration rights with respect to
shares of capital stock of the Company; and provided further, that in the event
----------------
of a Permitted Delay, the holders of Registrable Securities initially requesting
registration shall be entitled to withdraw such request and, if such request is
withdrawn, such Demand Registration shall not count as one of the
3
permitted Demand Registrations hereunder and the Company shall pay all expenses
in connection with such registration in accordance with Article V.
2.4 "Piggyback" Registration. If, after the date hereof, the Company shall
------------------------
decide to file with the SEC a Registration Statement relating to an offering for
its own account or the account of others (other than a registration statement on
Form S-4 or Form S-8 or their then equivalents relating to equity securities to
be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option, stock purchase or
other employee benefit plans), including a Demand Registration pursuant to
Section 2.1 (unless inclusion therein would require the consent of such other
party, and the Company is unable, despite exercise of good faith efforts, to
obtain such consent) under the Securities Act of any of its equity securities
(any such Registration Statement, a "Company Registration Statement"), the
Company shall send to the Purchaser written notice of such determination and, if
within fifteen (15) days after the effective date of such notice (in accordance
with Section 2.6 below), the Purchaser shall so request in writing, the Company
shall include in such Company Registration Statement all or any part of the
Registrable Securities the Purchaser requests to be registered, except that if,
in connection with any underwritten public offering for the account of the
Company the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock which may be included in a Company Registration
Statement because, in such underwriter(s)' judgment, marketing or other factors
dictate such limitation is necessary to facilitate public distribution, then the
Company shall be obligated to include in such Company Registration Statement
only such limited portion of the Registrable Securities with respect to which
the Purchaser has requested inclusion hereunder as the underwriter shall permit;
provided, however, that the Company shall not exclude any Registrable Securities
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unless the Company has first excluded all outstanding securities, the holders of
which are not entitled to inclusion of such securities in such Company
Registration Statement; and provided, further, however, that, after giving
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effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having the
right to include such securities in a Company Registration Statement and holders
of securities not subject to a similar cut-back provision.
(b) If an offering in connection with which a Purchaser is entitled to
registration under this Section 2.4 is an underwritten offering, then each
Purchaser whose Registrable Securities are included in such Company Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering.
2.5 Eligibility for Form S-3. The Company represents and warrants that it
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currently meets the requirements for the use of Form S-3 for registration of the
re-sale by the Purchaser and that the Company shall use its best efforts to
continue to meet such requirements, and that such re-sales may currently be
effected pursuant to Form S-3; the Company shall file all reports required to be
filed by the Company with the SEC in a timely manner so as to maintain such
eligibility for the use of Form S-3 and shall use its best efforts in all other
respects to maintain such eligibility.
4
2.6 Notices. Upon receipt of a request for a Demand Registration, the
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Company shall give all other Purchasers, if any, prompt written notice of such
Demand Registration, which other Purchasers shall otherwise have the right to
participate in such Demand Registration either pursuant to (i) Section 2.1, in
the case of the Initial Purchaser, any affiliates of the Initial Purchaser, or
Purchasers holding at least 500,000 shares of Common Stock, or (ii) Section 2.4,
hereof, in the case of Purchasers not otherwise described in (i).
ARTICLE III
OBLIGATIONS OF THE COMPANY
--------------------------
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
3.1 Availability of Registration Statement. The Company shall prepare
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promptly and file with the SEC the Registration Statement required by Section
2.1, and use its best efforts to cause such Registration Statement relating to
Registrable Securities to become effective as soon as practicable after such
filing, and, if shelf-registration under Rule 415 is requested by Purchaser,
keep the Registration Statement continuously effective pursuant to Rule 415 and
available for use at all times, except as set forth herein, until such date as
all of the Registrable Securities covered by such Registration Statement have
been sold (the "Registration Period").
3.2 Amendments to Registration Statement. The Company shall prepare and
------------------------------------
file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary to keep the Registration
Statement effective and, subject to Section 3.7, available for use at all times
during the Registration Period, (including, without limitation, amendments and
supplements necessary in connection with a change in the "Plan of Distribution"
section in any Registration Statement or prospectus) and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by the Registration
Statement until the termination of the Registration Period or, if earlier, such
time as all of such Registrable Securities have been disposed of in accordance
with the intended methods of disposition by the seller or sellers thereof as set
forth in the Registration Statement. The Company shall cause such amendment
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof.
3.3 Information. Upon written request, the Company shall furnish to the
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Purchaser whose Registrable Securities are included in the Registration
Statement and its legal counsel promptly after the same is prepared and publicly
distributed, filed with the SEC, or received by the Company, one copy of the
Registration Statement and any amendment thereto, each preliminary prospectus
and prospectus and each amendment or supplement thereto and, such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as the Purchaser may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned (or to be owned) by the Purchaser. The Company shall promptly notify the
Purchaser of the effectiveness of any Registration Statement or post-effective
amendments thereto.
5
3.4 Blue Sky. The Company shall (a) register and qualify the Registrable
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Securities covered by the Registration Statement under securities laws of such
jurisdictions in the United States (including Puerto Rico) as each Purchaser who
holds (or has the right to hold) Registrable Securities being offered reasonably
requests, (b) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof and
availability for use during the Registration Period, (c) take such other actions
as may be reasonably necessary to maintain such registrations and qualifications
in effect at all times during the Registration Period, and (d) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
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required in connection therewith or as a condition thereto to (i) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3.4, (ii) subject itself to general taxation in any such
jurisdiction, (iii) file a general consent to service of process in any such
jurisdiction, (iv) provide any undertakings that cause the Company material
expense or burden, or (v) make any change in its charter or by-laws, which in
each case the board of directors of the Company determines to be contrary to the
best interests of the Company and its stockholders.
3.5 Underwriters. In the event the Purchaser, holding a majority in
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interest of the Registrable Securities being offered in an offering pursuant to
a Registration Statement or any amendment or supplement thereto under Section
2.1 or 2.4 hereof, selects underwriters for the offering, the Company shall
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, including, without limitation, customary indemnification and
contribution obligations, with the underwriters of such offering.
3.6 Correction of Statements or Omissions. As soon as practicable after
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becoming aware of such event, the Company shall publicly announce or notify by
facsimile the Purchaser (at the facsimile number for such Purchaser set forth on
the signature page hereto) of the happening of any event, of which the Company
has actual knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts as soon as possible to (but in any event within five (5) business days)
prepare a supplement or amendment to the Registration Statement (and make all
required filings with the SEC) to correct such untrue statement or omission if
not otherwise satisfied through the filing of a report with the SEC or otherwise
pursuant to applicable securities laws (but such a supplement or amendment or
other filing shall not be required if, notwithstanding the Company's best
efforts to so prepare and file such supplement, amendment or other filing, such
a supplement, amendment or other filing is no longer required by applicable law
to correct such untrue statement or omission because such untrue statement or
omission no longer exists) and the Company shall simultaneously (and thereafter
as requested) deliver such number of copies of such supplement or amendment to
each Purchaser (or other applicable document) as such Purchaser may request in
writing. Unless such an event is publicly announced, the Company shall not,
without the consent of a Purchaser, give such Purchaser any material non-public
information, but shall inform the Purchaser that the prospectus includes an
untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
6
3.7 Material Non-Public Information. If at any time during the
-------------------------------
Registration Period, counsel to the Company should determine in good faith that
the compliance by the Company with its disclosure obligations in connection with
the Registration Statement may require the disclosure of information which the
Board of Directors of the Company has identified as material and which the Board
of Directors has determined that the Company has a bona fide business purpose
for preserving as confidential, the Company shall promptly, (i) notify the
Purchasers in writing of the existence of material non-public information (but
in no event, without the prior written consent of a Purchaser, shall the Company
disclose to such Purchasers any of the facts or circumstances regarding such
information) and (ii) advise the Purchasers in writing to cease all sales under
the Registration Statement until such information is disclosed to the public or
ceases to be material.
3.8 Stop Orders. The Company shall use its best efforts to prevent the
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issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest practicable time, and the Company shall
immediately notify by facsimile the Purchaser (at the facsimile number set forth
on the signature page hereto) or, in the event of an underwritten offering, the
managing underwriters, of the issuance of such order and the resolution thereof.
3.9 Opinions of Counsel. If reasonably requested by the Purchaser in
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writing (taking into account any applicable legal precedent and any SEC staff
positions), the Company shall use its reasonable efforts to furnish, on the date
of effectiveness of the Registration Statement and thereafter from time to time
on such dates as the Purchaser may reasonably request (a) an opinion, dated as
of such applicable date, from counsel representing the Company addressed to the
Purchaser and in form, scope and substances as is customarily given in an
underwritten public offering and reasonably satisfactory to such counsel and (b)
a letter, dated as of such applicable date, from the Company's independent
certified public accountants addressed to the Purchaser and in form, scope and
substance as is customarily given to underwriters in an underwritten public
offering; provided, however, that the Purchaser shall only be entitled to the
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foregoing to the extent it is reasonably requested by the Purchaser and
consented to by the Company after consultation with its counsel (which consent
will not be unreasonably withheld based upon all relevant facts and
circumstances and taking into account the advice of such counsel) and in any
event no more than one time in any three-month period (unless a shorter period
would otherwise be reasonable under the applicable circumstances).
3.10 Inspection of Records. The Company shall provide the Purchaser,
---------------------
and any underwriter who may participate in the distribution of Registrable
Securities, registered pursuant to the Registration Statement and their
respective representatives, the opportunity, each at its own expense, to conduct
a reasonable inquiry of the Company's financial and other records during normal
business hours and make available its officers, directors and employees for
questions regarding information which the Purchaser may reasonably request in
connection with the Registration Statement; provided, however, the Purchaser
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shall hold in confidence and shall not make any disclosure of any record or
other information which the Company determines in good faith to be confidential,
and of which determination the inspectors are so notified in writing, unless (a)
the disclosure of such records is necessary to avoid or correct a misstatement
or omission in any Registration Statement, (b) the release of such records is
ordered pursuant to a subpoena or other order from a court or government body of
competent jurisdiction, or is
7
otherwise required by applicable law or legal process or (c) the information in
such records has been made generally available to the public other than by
disclosure in violation of this or any other agreement (to the knowledge of the
relevant inspector); provided further, that the Company is not required to waive
the attorney-client privilege and the Company shall not provide the Purchaser
with material non-public information in connection with such inquiry.
3.11 Purchaser Information. The Company shall hold in confidence and
---------------------
not make any disclosure of non-public information concerning the Purchaser
provided to the Company by the Purchaser unless (a) disclosure of such
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information is necessary to comply with federal or state securities laws, rules,
statutes or regulations, (b) the disclosure of such information is necessary to
avoid or correct a misstatement or omission in any Registration Statement or
other public filing by the Company, (c) the release of such information is
ordered pursuant to a subpoena or other order from a court or governmental body
of competent jurisdiction or is otherwise required by applicable law or legal
process, (d) such information has been made generally available to the public
other than by disclosure in violation, to the knowledge of the Company, of this
or any other agreement, or (e) the Purchaser consents to the form and content of
any such disclosure. The Company agrees that it shall, upon learning that
disclosure of such information concerning the Purchaser is sought in or by a
court or governmental body of competent jurisdiction in or through other means,
give prompt notice to the Purchaser prior to making such disclosure, and allow
the Purchaser, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.
3.12 Listing. The Company shall use its best efforts to cause the
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listing and the continuation of listing of all the Registrable Securities
covered by the Registration Statement on the American Stock Exchange, The Nasdaq
National Market System, The Nasdaq SmallCap Market or the New York Stock
Exchange, and cause the Registrable Securities to be quoted or listed on each
additional national securities exchange or quotation system upon which the other
Common Stock of the Company is then listed or quoted.
3.13 Transfer Agent. The Company shall provide a transfer agent and
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registrar, which may be a single entity, for the Registrable Securities not
later than the effective date of the Registration Statement.
3.14 Delivery of Certificates. The Company shall cooperate with the
Purchaser who holds Registrable Securities being offered and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends) representing
Registrable Securities to be offered pursuant to the Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or the Purchaser may
reasonably request and registered in such names as the managing underwriter or
underwriters, if any, or the Purchaser may request, and, within two (2) business
days after a Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Company shall cause legal counsel selected by
the Company to deliver, to the transfer agent for the Registrable Securities
(with copies to the Purchaser whose Registrable Securities are included in such
Registration Statement) an opinion of such counsel substantially in the form
attached hereto as Exhibit 1.
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3.15 Compliance with Laws. The Company shall comply with all
applicable laws related to a Registration Statement and offering and sale of
securities covered by the Registration
8
Statement and all applicable rules and regulations of governmental authorities
in connection therewith (including, without limitation, the Securities Act and
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated by the SEC).
3.16 Other Registration Rights. The Company has not and shall not
-------------------------
hereafter enter into any other registration agreement with respect to its
securities which is inconsistent with or violates or adversely affects the
rights granted to the holders of Registrable Securities in this Agreement.
ARTICLE IV
OBLIGATIONS OF THE PURCHASER
----------------------------
In connection with the registration of the Registrable Securities, the
Purchaser shall have the following obligations:
4.1 Information Concerning Purchasers. Purchaser shall furnish to the
---------------------------------
Company such information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it
as shall be required to effect the registration of such Registrable Securities.
At least five (5) business days prior to the first anticipated filing date of
the Registration Statement, the Company shall notify each Purchaser of the
information the Company so required from each such Purchaser.
4.2 Cooperation. Purchaser, by such Purchaser's acceptance of the
-----------
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statements hereunder, unless such Purchaser has notified the
Company in writing of such Purchaser's election to exclude all of such
Purchaser's Registrable Securities from the Registration Statement.
4.3 Prospectus Delivery Requirements. The Purchaser understands that
--------------------------------
the Securities Act may require delivery of a prospectus relating thereto in
connection with any sale thereof pursuant to such Registration Statement, and
each such Purchaser shall comply with any applicable prospectus delivery
requirements of the Securities Act in connection with any such sale.
4.4 Discontinuance of Distribution. The Purchaser agrees that, upon
------------------------------
receipt of written notice from the Company of the happening of any event of the
kind described in Sections 3.6 and 3.7, the Purchaser will immediately
discontinue disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until such Purchaser's receipt of
the copies of the supplemented or amended prospectus contemplated by Sections
3.6 or 3.7 or advice that a supplement or amendment is not required and, if so
directed by the Company, the Purchaser shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Purchaser's possession (other than a limited
number of permanent file copies), of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
4.5 Underwriting Agreements. Without limiting Purchaser's rights under
-----------------------
Section 2.1 or 2.4 hereof, no Purchaser may participate in any underwritten
distribution hereunder unless such Purchaser (a) agrees to sell the Purchaser's
Registrable Securities on the basis provided in
--------
9
any underwriting agreements in usual and customary form entered into by the
Company pursuant to Section 3.5 hereof, (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (c) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Article V.
4.6 SEC. The Purchaser agrees to use reasonable efforts to cooperate
---
with the Company (at the Company's expense) in responding to comments of the
staff of the SEC, provided nothing in this Section 4.6 shall affect any
obligations of the Company under this Agreement or otherwise create any
liability on the part of the Purchaser or require any change to the terms and
conditions of this Agreement or the Stock Purchase Agreement.
ARTICLE V
EXPENSES OF REGISTRATION
------------------------
Subject to Section 2.1, all reasonable expenses, other than
underwriting discounts and commissions, incurred by Purchaser in connection with
registrations, filings or qualifications pursuant to Articles II and III,
including, without limitation, the reasonable fees and disbursements of one
counsel to the Purchaser, including any of its transferees (such fees and
expenses not to exceed $5,000), and all registration, listing and qualification
fees, printers and accounting fees, and the fees and disbursements of counsel
for the Company and other expenses of the Company, shall be borne by the
Company.
ARTICLE VI
INDEMNIFICATION
---------------
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
6.1 Indemnification. To the extent permitted by law, the Company will
---------------
indemnify, hold harmless and defend (a) the Purchaser, (b) each underwriter of
Registrable Securities and (c) the directors, officers, partners, members,
employees, agents and persons who control the Purchaser and any such underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), if any (each,
an "Indemnified Person"), against any losses, claims, damages, liabilities or
expenses (collectively, together with actions, proceedings or inquiries whether
or not in any court, before any administrative body or by any regulatory or
self-regulatory organization, whether commenced or threatened, in respect
thereof, "Claims") to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or
10
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the offer or
sale of the Registrable Securities (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). The Company shall reimburse
each such Indemnified Person, promptly as such expenses are incurred and are due
and payable, for any reasonable legal fees or other reasonable expenses incurred
by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6.1: (x) shall not apply to an Indemnified
Person with respect to a Claim arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information furnished in writing
to the Company by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto; (y) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (z) with respect to any preliminary prospectus, shall
not inure to the benefit of any Indemnified Person if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented, if such
corrected prospectus was timely made available by the Company pursuant to
Section 3.3 hereof, and the Indemnified Person was promptly advised in writing
not to use the incorrect prospectus prior to the use giving rise to a Violation
and such Indemnified Person, notwithstanding such advice, used it. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by a Purchaser pursuant to Article IX.
6.2 Claims. To the extent permitted by law, the Purchaser agrees to
------
indemnify, hold harmless and defend, to the same extent and in the same manner
set forth in Section 6.1, the Company, each of its directors, each of its
officers who signs the Registration Statement, its employees, agents and
persons, if any, who control the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and any other stockholder
selling securities pursuant to the Registration Statement, together with its
directors, officers and members, and any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act (such
an "Indemnified Party"), against any Claim to which any of them may become
subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such Claim arises out of or is based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by the Purchaser
expressly for use in connection with such Registration Statement; and the
Purchaser will reimburse any legal or other expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
--------
indemnity agreement contained in this Section 6.2 shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of the Purchaser, which consent shall not be unreasonably
withheld; provided, further, however, that the Purchaser shall be liable under
--------
this Agreement (including this Section 6.2 and Article VII) for only that amount
as does not exceed the net proceeds actually received by the Purchaser as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Purchaser
11
pursuant to Article IX. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6.2 with respect
to any preliminary prospectus shall not inure to the benefit of any Indemnified
Party if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, and the Indemnified Party failed to utilize such
corrected prospectus.
6.3 Notices. Promptly after receipt by an Indemnified Person or
-------
Indemnified Party under this Article VI of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Article VI, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right (at its expense) to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume and continue control of the defense thereof with
counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that
--------
such indemnifying party shall diligently pursue such defense and an indemnifying
party shall not be entitled to assume (or continue) such defense if the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
conflicts of interest between such Indemnified Person or Indemnified Party and
any other party represented by such counsel in such proceeding or the actual or
potential defendants in, or targets of, any such action include both the
Indemnified Person or the Indemnified Party and the indemnifying party, and any
such Indemnified Person or Indemnified Party reasonably determines that there
may be legal defenses available to such Indemnified Person or Indemnified Party
which are different from or in addition to those available to such indemnifying
party. Notwithstanding any assumption of such defense and without limiting any
indemnification obligation provided for in Section 6.1 or 6.2, the Indemnified
--------
Party or Indemnified Person, as the case may be, shall be entitled to be
represented by counsel (at its own expense if the indemnifying party is
permitted to assume and continue control of the defense and otherwise at the
expense of the indemnifying party) and such counsel shall be entitled to
participate in such defense. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Article VI, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Article VI shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
ARTICLE VII
CONTRIBUTION
------------
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Article VI to the fullest extent permitted by law; provided, however, that
--------
(i) no party shall be liable for contribution if it is not
12
liable for indemnification pursuant to the provisions of Article VI hereof; (ii)
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; and (iii) contribution
(together with any indemnification or other obligations under this Agreement) by
any Purchaser of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such Purchaser from the sale of its Registrable
Securities.
ARTICLE VIII
REPORTS UNDER THE EXCHANGE ACT
------------------------------
With a view to making available to each Purchaser the benefits of Rule
144, the Company agrees that so long as a Purchaser holds Registrable
Securities, the Company shall use its best efforts to:
(a) Not terminate its status as an issuer required to file
reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination;
(b) File with the SEC in a timely manner and make and keep
available all reports and other documents required of the Company under the
Securities Act and the Exchange Act so long as the filing and availability of
such reports and other documents is required for the applicable provisions of
Rule 144; and
(c) Furnish to the Purchaser promptly upon written request, (i)
a copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested to permit the Purchaser to sell such
securities pursuant to Rule 144 without registration.
(d) Take such further action as the Purchaser may reasonably
request to enable the Purchaser to sell Registrable Securities without
registration under Rule 144, including any opinion of counsel to the Company
required by the Company's transfer agent.
ARTICLE IX
ASSIGNMENT OF REGISTRATION RIGHTS
---------------------------------
The rights of the Purchaser hereunder as to Registrable Securities
transferred by the Purchaser, including the right to have the Company register
Registrable Securities pursuant to this Agreement, shall be automatically
assigned by the Purchaser to any transferee of all or any portion of the
Registrable Securities who either (x) is an affiliate or subsidiary of the
Purchaser or (y) acquires at least 1,000,000 shares of Common Stock of the
Company, whether such transfer occurs before or after the Registration Statement
becomes effective, if: (a) the Purchaser agrees in writing with the transferee
or assignee to assign such rights, and a copy of such agreement is furnished to
the Company within a reasonable time after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee, and
(ii) the securities with respect to which such registration rights are being
transferred or assigned, (c) following such transfer or assignment, the further
disposition of such securities by the transferee or
13
assignee is restricted under the Securities Act or applicable state securities
laws, and (d) at or before the time the Company receives the written notice
contemplated by clause (ii) of this sentence, the transferee or assignee agrees
in writing for the benefit of the Company to be bound by all of the provisions
contained herein. The rights of the Purchaser hereunder with respect to any
Registrable Securities not shall not be assigned by virtue of the transfer of
other Registrable Securities or transferred Registrable Securities.
ARTICLE X
AMENDMENT OF REGISTRATION RIGHTS
--------------------------------
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company and
the Purchaser. Any amendment or waiver effected in accordance with this Article
X shall be binding upon the Purchaser and the Company.
ARTICLE XI
MISCELLANEOUS
-------------
11.1 Registered Holders. A person or entity is deemed to be a holder (or a
------------------
holder in interest) of Registrable Securities whenever such person or entity
owns of record such Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or entities with
respect to the same Registrable Securities, the Company shall act upon the basis
of instructions, notice or election received from the registered owner of such
Registrable Securities.
11.2 Notices. Any notices herein required or permitted to be given shall
-------
be in writing and may be personally served or delivered by courier or by machine
generated confirmed telecopy, and shall be deemed delivered at the time and date
of receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
SoftNet Systems, Inc.
650 Townsend Street, Suite 225
San Francisco, California 94103
Telecopy: (415) 365-2556
Attention: Steven Harris, Secretary
If to the Purchaser, as shown on the signature page hereto and if to
any other Purchaser, at such address as such Purchaser shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11.2.
11.3 Waiver. Failure of any party to exercise any right or remedy under
------
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
14
11.4 Governing Law; Jurisdiction and Venue. This Agreement shall be
-------------------------------------
governed by, construed and enforced in accordance with the internal laws of the
State of Delaware, excluding the conflict of laws provisions thereof that would
otherwise require the application of the law of any other jurisdiction. The
parties hereto acknowledge and agree that the state and federal courts sitting
in the State of Delaware shall have jurisdiction in any matter arising out of
this Agreement, and the parties hereby consent to such jurisdiction and agree
that the venue of any such matter shall also be proper in such state and federal
courts sitting in the State of Delaware.
11.5 Entire Agreement. This Agreement and the Stock Purchase Agreement
----------------
(including all schedules and exhibits thereto and all certificates and opinions
and other documents required thereby) constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the Stock Purchase
Agreement supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.
11.6 Successors and Assigns. Subject to the requirements of Article IX
----------------------
hereof, this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
11.7 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
11.8 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto, by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement.
11.9 Further Assurances. Each party shall do and perform, or cause to be
------------------
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
11.10 Consents. Unless otherwise provided herein, all consents and other
--------
determinations to be made pursuant to this Agreement shall be made on the basis
of a majority in interest with respect to the Registrable Securities.
11.11 Transferees. The number of Registrable Securities included in any
-----------
Registration Statement pursuant to Section 2.4 shall be allocated pro rata among
the Purchasers based on the number of Registrable Securities held by each
Purchaser at the time of establishment of such number. In the event a Purchaser
shall sell or otherwise transfer any of such holder's Registrable Securities,
each transferee shall be allocated a pro rata portion of the number of
Registrable Securities included on a Registration Statement for such transferor.
Any shares of Common Stock included on a Registration Statement and which remain
allocated to any person or entity which does not hold any Registrable Securities
shall be allocated to the remaining Purchasers,
pro rata based on the number of shares of Registrable Securities then held by
such remaining Purchasers.
11.12 Severability. If any provision of this Agreement shall be invalid or
------------
unenforceable, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement.
* * *
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first above written.
SOFTNET SYSTEMS, INC.
By: _______________________
Lawrence B. Brilliant
Chief Executive Officer
MEDIACOM LLC
By:_________________________
Name:_______________________
Title_______________________
Address: 100 Crystal Run Road
Middletown, NY 10941
Telecopy: (914) 695-2639
with a copy to:
Cooperman Levitt Winikoff Lester & Newman, P.C.
800 Third Avenue
New York, NY 10022
Attention: Robert L. Winikoff, Esq.
Facsimile: (212) 755-2839
17
EXHIBIT 1
to Registration
Rights Agreement
[Date]
[Name and address
of transfer agent]
RE: SoftNet Systems, Inc.
Ladies and Gentlemen:
We are counsel to SoftNet Systems, Inc., a Delaware corporation (the
"Company"), and we understand that [Name of Purchaser] (the "Holder") has
- -------- ------
purchased from the Company Common Stock of the Company, par value $.01 per share
(the "Common Stock"). The Common Stock was purchased by the Holder pursuant to
------------
a Stock Purchase Agreement, dated as of November 4, 1999, by and among the
Company and the signatories thereto (the "Agreement"). Pursuant to a
---------
Registration Rights Agreement, dated as of November 4, 1999, by and among the
Company and the Holder (the "Registration Rights Agreement"), the Company agreed
-----------------------------
with the Holder, among other things, to register the Registrable Securities (as
that term is defined in the Registration Rights Agreement) under the Securities
Act of 1933, as amended (the "Securities Act"), upon the terms provided in the
--------------
Registration Rights Agreement. In connection with the Company's obligations
under the Registration Rights Agreement, on __________ __, ____, the Company
filed a Registration Statement on Form S-3 (File No. 333- __________) (the
"Registration Statement") with the Securities and Exchange Commission (the
- -----------------------
"SEC") relating to the Registrable Securities, which names the Holder as a
---
selling stockholder thereunder.
[Other customary introductory and scope of examination language to be
inserted, in each case as acceptable to Holders.]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Securities Act.
[Other appropriate customary language to be included, in each case as
acceptable to Holders.]
Very truly yours,
cc: [Name of Purchaser]
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Stamford, Connecticut
December 20, 1999
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Denver, Colorado
December 20, 1999
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Cablevision Systems Corporation
We consent to the inclusion of our report dated March 20, 1998, on the
consolidated balance sheets of U.S. Cable Television Group, L.P. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations and partners' capital (deficiency) and cash flows for
the year ended December 31, 1997, and for the periods from January 1, 1996 to
August 12, 1996, and Augus 13, 1996 to December 31, 1996, in the registration
statement on Amendment No. 1 to Form S-1 and related prospectus of Mediacom
Communications Corporation. We also consent to the inclusion of our report dated
April 1, 1997, except as to Note 11 which is as of January 23, 1998, on the
consolidated balance sheets of U.S. Cable Television Group, L.P. and
subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of operations and partners' capital (deficiency) and cash flows for
the periods from January 1, 1996 to August 12, 1996, and August 13, 1996 to
December 31, 1996, and for the years ended December 31, 1995 and 1994, in the
registration statement on Amendment No. 1 to Form S-1 and related prospectus of
Mediacom Communications Corporation and to the reference to our firm under the
heading "Experts" in the registration statement and related prospectus. Such
reports include an explanatory paragraph related to a change in cost basis of
the consolidated financial information as a result of a redemption of certain
limited and general partnership interests effective August 13, 1996.
/s/ KPMG LLP
Melville, New York
December 20, 1999
Exhibit 23.5
CONSENT
The undersigned hereby consents to being named a nominee to become a member
of the board of directors of Mediacom Communications Corporation ("Mediacom")
upon the completion of Mediacom's public offering in Mediacom's Registration
Statement on Form S-1 (File No.: 333-90879).
/s/ William S. Morris III
----------------------------------
Name: William S. Morris III
Dated: December 20, 1999
Exhibit 23.6
CONSENT
The undersigned hereby consents to being named a nominee to become a member
of the board of directors of Mediacom Communications Corporation ("Mediacom")
upon the completion of Mediacom's public offering in Mediacom's Registration
Statement on Form S-1 (File No.: 333-90879).
/s/ Craig S. Mitchell
---------------------------
Name: Craig S. Mitchell
Dated: December 20, 1999
Exhibit 23.7
CONSENT
The undersigned hereby consents to being named a nominee to become a member
of the board of directors of Mediacom Communications Corporation ("Mediacom")
upon the completion of Mediacom's public offering in Mediacom's Registration
Statement on Form S-1 (File No.: 333-90879).
/s/ Thomas V. Reifenheiser
--------------------------------
Name: Thomas V. Reifenheiser
Dated: December 20, 1999
Exhibit 23.8
CONSENT
The undersigned hereby consents to being named a nominee to become a member
of the board of directors of Mediacom Communications Corporation ("Mediacom")
upon the completion of Mediacom's public offering in Mediacom's Registration
Statement on Form S-1 (File No.: 333-90879).
/s/ Natale S. Ricciardi
------------------------------
Name: Natale S. Ricciardi
Dated: December 20, 1999
Exhibit 23.9
CONSENT
The undersigned hereby consents to being named a nominee to become a member
of the board of directors of Mediacom Communications Corporation ("Mediacom")
upon the completion of Mediacom's public offering in Mediacom's Registration
Statement on Form S-1 (File No.: 333-90879).
/s/ Robert L. Winikoff
---------------------------
Name: Robert L. Winikoff
Dated: December 20, 1999
