SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2001
Commission File Number: 0-29227
Mediacom Communications Corporation
(Exact name of Registrant as specified in its charter)
Delaware 06-1566067
(State of incorporation) (I.R.S. Employer
Identification Number)
100 Crystal Run Road
Middletown, NY 10941
(Address of principal executive offices)
(845) 695-2600
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
---- ----
As of March 31, 2001, there were 60,618,923 shares of Class A common stock
and 29,342,990 shares of Class B common stock outstanding.
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2001
TABLE OF CONTENTS
PART I
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Page
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Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 2001 (unaudited) and December 31, 2000............... 1
Consolidated Statements of Operations and Comprehensive Loss-
Three Months Ended March 31, 2001 and 2000 (unaudited)......... 2
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and 2000 (unaudited)......... 3
Notes to Consolidated Financial Statements (unaudited)............ 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 8
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.......................................................14
PART II
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Item 6. Exhibits and Reports on Form 8-K....................................15
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You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
Securities and Exchange Commission (the "SEC"). In this Quarterly Report, we
state our beliefs of future events and of our future financial performance. In
some cases, you can identify those so-called "forward-looking statements" by
words such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of those words and other comparable words. You should be aware that those
statements are only our predictions. Actual events or results may differ
materially. In evaluating those statements, you should specifically consider
various factors, including the risks discussed in our Annual Report on Form 10-K
for the year-ended December 31, 2000 and other reports that we file from time to
time with the SEC. Those factors may cause our actual results to differ
materially from any of our forward-looking statements. All forward-looking
statements attributable to us or a person acting on our behalf are expressly
qualified in their entirety by this cautionary statement.
PART I
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ITEM 1. FINANCIAL STATEMENTS
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in 000's)
March 31, December 31,
2001 2000
---------- ------------
ASSETS (Unaudited)
Cash and cash equivalents $ 12,052 $ 4,152
Subscriber accounts receivable, net of allowance for doubtful accounts
of $707 and $932, respectively 13,184 13,500
Prepaid expenses and other assets 5,229 4,255
Investments 5,187 3,985
Investment in cable television systems:
Inventory 17,253 14,131
Property, plant and equipment, at cost 872,916 841,549
Less - accumulated depreciation (236,049) (204,617)
------------ ------------
Property, plant and equipment, net 636,867 636,932
Intangible assets, net of accumulated amortization of $143,361 and
$125,181, respectively 668,176 686,009
------------ ------------
Total investment in cable television systems 1,322,296 1,337,072
Other assets, net of accumulated amortization of $6,753 and
$5,749, respectively 29,040 17,008
------------ ------------
Total assets $ 1,386,988 $ 1,379,972
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Debt $ 1,025,000 $ 987,000
Accounts payable and accrued expenses 79,673 81,140
Subscriber advances 4,267 3,886
Deferred revenue 9,248 40,510
Other liabilities 10,973 5,815
------------ ------------
Total liabilities $ 1,129,161 $ 1,118,351
STOCKHOLDERS' EQUITY
Class A common stock, $.01 par value; 300,000,000 shares authorized;
60,618,923 shares issued and outstanding as of March 31, 2001 606 606
Class B common stock, $.01 par value; 100,000,000 shares authorized;
29,342,990 shares issued and outstanding as of March 31, 2001 293 293
Additional paid in capital 540,111 538,642
Accumulated comprehensive loss (1,100) (414)
Accumulated deficit (282,083) (277,506)
------------ ------------
Total stockholders' equity 257,827 261,621
------------ ------------
Total liabilities and stockholders' equity $ 1,386,988 $ 1,379,972
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
1
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(All amounts in 000's, except per share data)
(Unaudited)
Three Months Ended March 31,
----------------------------
2001 2000
------------ -----------
Revenues $ 90,334 $ 77,440
Costs and expenses:
Service costs 31,477 26,635
Selling, general and administrative expenses 15,170 13,389
Corporate expenses 1,517 1,420
Depreciation and amortization 50,957 40,680
Non-cash stock charges 1,195 26,073
------------ -----------
Operating loss (9,982) (30,757)
------------ -----------
Interest expense, net 20,733 18,423
Other (income) expenses (27,843) 457
------------ -----------
Net loss before income taxes (2,872) (49,637)
Provision for income taxes 63 4,589
------------ -----------
Net loss before cumulative change in accounting principle (2,935) (54,226)
Cumulative effect of change in accounting principle 1,642 --
------------ -----------
Net loss $ (4,577) $(54,226)
Unrealized (loss) gain on investments (686) 1,517
------------ -----------
Comprehensive loss $ (5,263) $(52,709)
============ ===========
Basic and diluted loss per share:
Before cumulative effect of accounting change $ (0.03) $ (0.83)
Cumulative effect of accounting change (0.02) --
------------ -----------
$ (0.05) $ (0.83)
============ ===========
Weighted average common shares outstanding 89,956 65,223
The accompanying notes to consolidated financial statements
are an integral part of these statements.
2
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in 000's)
(Unaudited)
Three Months Ended March 31,
----------------------------
2001 2000
------------ -----------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (4,577) $ (54,226)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation and amortization 50,957 40,680
Provision for deferred income taxes -- 4,589
Change in fair value of swaps 3,270 --
Vesting of management stock 1,195 1,600
Other non-cash charges -- 24,473
Elimination and amortization of deferred Softnet revenue (30,244) (273)
Changes in assets and liabilities:
Subscriber accounts receivable 316 1,236
Prepaid expenses and other assets (974) (2,417)
Accounts payable and accrued expenses 6,729 5,397
Subscriber advances 381 (258)
Deferred revenue (1,018) (343)
------------ -----------
Net cash flows provided by operating activities 26,035 20,458
------------ -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (42,686) (36,775)
Other, net (808) (735)
------------ -----------
Net cash flows used in investing activities (43,494) (37,510)
------------ -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
New borrowings 508,000 26,500
Repayment of debt (470,000) (365,500)
Net proceeds from sale of Class A common stock -- 354,453
Issuance of common stock in employee stock purchase plan 289 --
Financing costs (12,930) (100)
------------ -----------
Net cash flows provided by financing activities 25,359 15,353
------------ -----------
Net increase (decrease) in cash and cash equivalents 7,900 (1,699)
CASH AND CASH EQUIVALENTS, beginning of period 4,152 4,473
------------ -----------
CASH AND CASH EQUIVALENTS, end of period $ 12,052 $ 2,774
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 17,682 $ 23,001
============ ===========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
3
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization
Mediacom Communications Corporation ("MCC," and collectively with its
direct and indirect subsidiaries, the "Company") is involved in the acquisition
and development of cable television systems serving principally non-metropolitan
markets. Through these cable systems, the Company provides entertainment,
information and telecommunications services to its subscribers. As of March 31,
2001, the Company had acquired and was operating cable systems in 22 states,
principally Alabama, California, Florida, Illinois, Indiana, Iowa, Kentucky,
Minnesota, Missouri and North Carolina.
MCC, a Delaware corporation organized in November 1999, completed an
initial public offering on February 9, 2000. Prior to the initial public
offering, MCC had no assets, liabilities, contingent liabilities or operations.
Immediately prior to the completion of its initial public offering, MCC issued
shares of its Class A and Class B common stock in exchange for all of the
outstanding membership interests in Mediacom LLC, a New York limited liability
company organized in July 1995.
(2) Statement of Accounting Presentation and Other Information
Basis of Preparation of Consolidated Financial Statements
The consolidated financial statements presented for periods prior to the
initial public offering of MCC are the consolidated financial statements of
Mediacom LLC. Certain reclassifications have been made to the prior year's
presentation and amounts to conform to the current year's presentation and
amounts.
The consolidated financial statements as of March 31, 2001 and 2000 are
unaudited. However, in the opinion of management, such statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the periods presented. The accounting
policies followed during such interim periods reported are in conformity with
generally accepted accounting principles and are consistent with those applied
during annual periods. For additional disclosures, including a summary of MCC's
accounting policies, the interim financial statements should be read in
conjunction with MCC's Annual Report on Form 10-K (File No. 0-29227). The
results of operations for the interim periods are not necessarily indicative of
the results that might be expected for future interim periods or for the full
year ending December 31, 2001.
Recent Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities," was
issued effective January 1, 2001. This statement establishes the accounting and
reporting standards for derivatives and hedging activity. Upon adoption of SFAS
133, all derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. As a result
of the adoption of SFAS 133, the Company recorded an after tax charge of
approximately $1.6 million in the consolidated statements of operations during
the three months ended March 31, 2001.
In March 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas of the
SEC's views in applying generally accepted accounting principles to revenue
recognition in financial statements. SAB 101 does not apply to the Company's
basic cable television business. The Company will continue to account for
revenues based upon Statement of Financial Accounting Standards No. 51,
"Financial Reporting by Cable Television Companies." SAB 101 will not have a
material impact on the Company's results of operations and consolidated
financial statements.
4
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) Acquisitions
During 2000, the Company completed nine acquisitions of cable systems
serving 53,000 basic subscribers for an aggregate purchase price of $109.2
million, including a $2.5 million deferred conditional payment to a seller. The
cable systems serve communities in Alabama, Illinois, Iowa, Kentucky, Minnesota
and South Dakota. The aggregate purchase price has been allocated as follows:
approximately $48.2 million to property, plant and equipment, and approximately
$58.5 million to intangible assets. Additionally, approximately $2.7 million of
direct acquisition costs have been allocated to property, plant and equipment
and intangible assets. These acquisitions were financed with borrowings under
the Company's credit facilities.
These acquisitions were accounted for using the purchase method of
accounting, and accordingly, the purchase price of each of these acquired
systems have been allocated to the assets acquired and liabilities assumed at
their estimated fair values at their respective dates of acquisition.
Unaudited Pro Forma Information
The Company has reported the operating results of the acquired systems from
the dates of their respective acquisition. The unaudited pro forma operating
results presented below give pro forma effect to the acquisitions of the
acquired systems as if such transactions had been consummated on January 1,
2000. This financial information has been prepared for comparative purposes only
and does not purport to be indicative of the operating results which actually
would have resulted had the acquisitions of the acquired systems been
consummated at the beginning of the period presented.
Three Months
Ended
March 31, 2000
----------------------
(dollars in thousands,
except per
share amounts)
Revenues................................................ $ 82,987
Operating expenses and costs:
Service costs........................................ 28,989
SG&A expenses........................................ 14,458
Corporate expenses................................... 1,420
Depreciation and amortization........................ 43,369
Non-cash stock charges............................... 26,073
-----------
Operating loss.......................................... (31,322)
-----------
Net loss................................................ $(57,088)
===========
Basic and diluted loss per share $ (0.88)
(4) Loss Per Share
The Company calculates loss per share in accordance with Statement of
Financial of Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share."
SFAS 128 computes basic loss per share by dividing the net loss by the weighted
average number of shares of common stock outstanding during the period. Diluted
loss per share is computed by dividing the net loss by the weighted average
number of shares of common stock outstanding during the
5
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
period plus the effects of any potentially dilutive securities. Since the
Company is reporting a net loss for the period, the inclusion of outstanding
stock options would cause its loss per share to decrease and therefore, in
accordance with SFAS 128, these options are not included in the computation of
diluted loss per share.
The following table summarizes the Company's calculation of basic and
diluted loss per share for the three months ended March 31, 2001 and 2000:
Three Months Ended March 31,
----------------------------
2001 2000
----------- -----------
(in thousands, except per
share amounts)
Net loss................................................... $ (4,577) $(54,226)
Basic and diluted loss per share:
Before cumulative effect of accounting change........... $ (0.03) $ (0.83)
Cumulative effect of accounting change.................. (0.02) --
----------- -----------
$ (0.05) $ (0.83)
=========== ===========
Weighted average common shares outstanding................. 89,956 65,223
For the three months ended March 31, 2000, the weighted average shares
outstanding was based, in part, on the conversion ratio used to exchange the
Mediacom LLC membership units for shares of MCC common stock upon MCC's initial
public offering in February 2000.
(5) Debt
As of March 31, 2001 and December 31, 2000, debt consisted of:
March 31, December 31,
2001 2000
----------- ------------
(dollars in thousands)
8 1/2% senior notes........................................ $ 200,000 $200,000
7 7/8% senior notes........................................ 125,000 125,000
9 1/2% senior notes........................................ 500,000 --
Bank credit facilities..................................... 200,000 662,000
----------- ------------
$1,025,000 $987,000
=========== ============
The average interest rate on outstanding debt under the bank credit
agreements was 8.0% and 8.3% for the three months ended March 31, 2001 and
December 31, 2000, respectively, before giving effect to the interest rate swap
agreements discussed below.
The Company uses interest rate swap agreements in order to fix the interest
rate for the duration of the contract as a hedge against interest rate
volatility. As of March 31, 2001, the Company had entered into interest rate
exchange agreements (the "Swaps") with various banks pursuant to which the
interest rate on $170.0 million is fixed at a weighted average swap rate of
approximately 6.7%, plus the average applicable margin over the Eurodollar Rate
option under the bank credit agreements. Under the terms of the Swaps, which
expire from 2002 through 2004, the Company is exposed to credit loss in the
event of nonperformance by the other parties to the Swaps. However, the Company
does not anticipate nonperformance by the counterparties.
6
MEDIACOM COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The stated maturities of all debt outstanding as of March 31, 2001 are as
follows (dollars in thousands):
2002.......................................... $ 750
2003.......................................... 2,000
2004.......................................... 2,000
2005.......................................... 2,000
2006.......................................... 2,000
Thereafter ................................... 1,016,250
-----------
$1,025,000
===========
(6) SoftNet
As of December 31, 2000, deferred revenue resulting from the Company's
receipt of shares of SoftNet Systems, Inc. common stock amounted to
approximately $30.2 million, net of amortization taken. As of January 31, 2001,
the Company formally terminated its relationship with SoftNet in all material
respects. The Company recognized revenue of approximately $287,000 and $273,000
for the period ended January 31, 2001 and the three months ended March 31, 2000,
respectively. As a result of the termination of the SoftNet relationship, the
Company recognized the remaining deferred revenue of approximately $30.0 million
as other income in the consolidated statements of operations during the three
months ended March 31, 2001.
For the year ended December 31, 2000, relating to the decline in value of
the Company's investment in shares of SoftNet common stock that was deemed other
than temporary, the Company recorded a non-cash charge of approximately $28.5
million as a realized loss in other expenses in its consolidated statements of
operations.
(7) Pending Acquisitions
On February 26, 2001, the Company entered into agreements with AT&T
Broadband, LLC to acquire cable systems serving approximately 840,000 basic
subscribers in Georgia, Illinois, Iowa, and Missouri, for an aggregate purchase
price of $2.215 billion in cash, subject to closing adjustments. The Company
expects to fund these acquisitions through a combination of new debt and equity
financings and borrowings under the Company's existing subsidiary credit
facilities. These pending transactions are expected to close in the second and
third quarter of 2001, subject to customary closing conditions, including the
receipt of regulatory and other approvals.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The Company does not believe the discussion and analysis of its historical
financial condition and results of operations set forth below are indicative,
nor should they be relied upon as an indicator, of its future performance
because of certain significant past events. Those events include numerous
acquisitions and several financing transactions, including the Company's initial
public offering in February 2000.
Organization
The Company was organized as a Delaware corporation in November 1999 and
completed an initial public offering in February 2000. Immediately prior to the
completion of its initial public offering, the Company issued shares of common
stock in exchange for all of the outstanding membership interests in Mediacom
LLC, a New York limited liability company. Mediacom LLC commenced operations in
March 1996.
Until the Company's initial public offering in February 2000, Mediacom
Management Corporation, a Delaware corporation, provided management services to
the operating subsidiaries of Mediacom LLC and received annual management fees.
Mediacom Management utilized these fees to compensate its employees as well as
to fund its corporate overhead. Such management fees were 2% of the Company's
annual gross revenues. The management agreements were terminated upon the date
of the Company's initial public offering. At that time, Mediacom Management's
employees became the Company's employees and its corporate overhead became the
Company's corporate overhead. These expenses are reflected as corporate expenses
in the consolidated statements of operations.
Acquisitions
The Company has significantly expanded its business through acquisitions.
All acquisitions have been accounted for under the purchase method of accounting
and, therefore, the Company's historical results of operations include the
results of operations for each acquired system subsequent to its respective
acquisition date. In 2000, the Company completed nine acquisitions of cable
systems serving a total of 53,000 basic subscribers (the "2000 Acquisitions").
The table below sets forth information on the acquisitions the Company completed
in 2000.
Basic Subscribers
Purchase Price as of
Predecessor Owner Acquisition Date (in millions) Acquisition Date
- ----------------- ---------------- -------------- -----------------
Rapid Communications Partners, L.P. April 2000 $ 8.0 6,000
MidAmerican Cable Systems, L.P. April 2000 8.0 5,000
TriCable, Inc May 2000 1.8 1,000
Spirit Lake Cable TV, Inc. June 2000 10.8 5,000
South Kentucky Services Corporation July 2000 2.1 1,000
Dowden Midwest Cable Partners, L.P. August 2000 1.2 1,000
Illinet Communications of Central Illinois, LLC October 2000 15.8 8,000
Satellite Cable Services, Inc. October 2000 27.5 12,000
AT&T Broadband, LLC December 2000 34.0 14,000
-------- ------
$ 109.2 53,000
======== ======
8
Pending AT&T Acquisitions
On February 26, 2001, the Company entered into agreements with AT&T
Broadband, LLC to acquire cable systems serving approximately 840,000 basic
subscribers in Georgia, Illinois, Iowa and Missouri, for an aggregate purchase
price of $2.215 billion in cash, subject to closing adjustments. Among the AT&T
systems' largest clusters are communities such as: Albany, Columbus, Tifton and
Valdosta, Georgia; Charleston, Carbondale, Effingham, Marion, Moline and Rock
Island, Illinois; Ames, Cedar Rapids, Clinton, Davenport, Des Moines, Dubuque,
Fort Dodge, Iowa City, Mason City and Waterloo, Iowa; and Columbia, Jefferson
City and Springfield, Missouri. The Company expects to fund these acquisitions
through a combination of new debt and equity financings and borrowings under the
Company's existing subsidiary credit facilities. These pending transactions are
expected to close in the second and third quarter of 2001, subject to customary
closing conditions, including the receipt of regulatory and other approvals.
Unless otherwise stated in this Quarterly Report, the operating and
financial data contained herein do not include the effect of the pending AT&T
transactions.
General
EBITDA represents operating loss before depreciation and amortization and
non-cash stock charges. EBITDA:
o 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;
o is not intended to represent funds available for debt service,
dividends, reinvestment or other discretionary uses; and
o should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with generally accepted
accounting principles.
EBITDA is included herein because the Company's management believes that EBITDA
is a meaningful measure of performance as it is commonly used by the cable
television industry and by the investment community to analyze and compare cable
television companies. The Company's definition of EBITDA may not be identical to
similarly titled measures reported by other companies.
Actual Results of Operations
The following historical information includes the results of operations of
the 2000 Acquisitions, only for that portion of the respective period that such
cable television systems were owned by the Company.
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31,
2000
Revenues. Revenues increased 16.7% to $90.3 million for the three months
ended March 31, 2001 as compared to $77.4 million for the three months ended
March 31, 2000. Of the revenue increase of $12.9 million, approximately $6.0
million was attributable to the 2000 Acquisitions. Excluding the 2000
Acquisitions, revenues increased primarily due to basic rate increases
associated with new programming introductions in the Company's core television
services and to customer growth in the Company's recently launched digital cable
and high-speed Internet access services.
Service costs. Service costs increased 18.2% to $31.5 million for the three
months ended March 31, 2001 as compared to $26.6 million for the three months
ended March 31, 2000. Of the service cost increase of $4.9 million,
approximately $2.6 million was attributable to the 2000 Acquisitions. Excluding
the 2000 Acquisitions, these costs increased primarily as a result of higher
programming expenses, including rate increases by programmers and the costs of
channel additions, and recurring costs associated with the Company's high-speed
Internet access services. As a percentage of revenues, service costs were 34.8%
for the three months ended March 31, 2001, as compared with 34.4% for the three
months ended March 31, 2000.
9
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 13.3% to $15.2 million for the three months
ended March 31, 2001 as compared to $13.4 million for the three months ended
March 31, 2000. Of the selling, general and administrative expenses increase of
$1.8 million, approximately $1.1 million was attributable to the 2000
Acquisitions. Excluding the 2000 Acquisitions, these costs increased primarily
as a result of marketing costs associated with the promotion of the Company's
new product offerings and higher customer service employee expense. As a
percentage of revenues, selling, general and administrative expenses were 16.8%
for the three months ended March 31, 2001 as compared with 17.3% for the three
months ended March 31, 2000.
Corporate expenses. Corporate expenses increased 6.8% to $1.5 million for
the three months ended March 31, 2001 as compared to $1.4 million for the three
months ended March 31, 2000. As a percentage of revenues, corporate expenses
were 1.7% for the three months ended March 31, 2001 as compared with 1.8% for
the three months ended March 31, 2000.
Depreciation and amortization. Depreciation and amortization increased
25.3% to $51.0 million for the three months ended March 31, 2001 as compared to
$40.7 million for the three months ended March 31, 2000. This increase was due
to the Company's purchase of the 2000 Acquisitions and capital expenditures
associated with the upgrade of the Company's cable systems.
Non-cash stock charges. Non-cash stock charges decreased 95.4% to $1.2
million for the three months ended March 31, 2001 as compared to $26.1 million
for the three months ended March 31, 2000. This decrease is due to a one-time
$24.5 million charge which occurred in February 2000, resulting from the
termination of the management agreements with Mediacom Management on the date of
the Company's initial public offering.
Interest expense, net. Interest expense, net, increased 12.5% to $20.7
million for the three months ended March 31, 2001 as compared to $18.4 million
for the three months ended March 31, 2000. This increase was primarily due to
higher cost of debt, resulting from the issuance of the Company's 9 1/2% senior
notes issued in January 2001, and higher average debt outstanding for the three
months ended March 31, 2001.
Other (income) expenses. Other income was $27.8 million for the three
months ended March 31, 2001 as compared to $457,000 of other expense for the
three months ended March 31, 2000. This change was principally due to the
elimination of the remainder of the deferred SoftNet revenue resulting from the
termination of the contract with SoftNet Systems, Inc. (See Note 6).
Provision for income taxes. Provision for income taxes was $63,000 for the
three months ended March 31, 2001 as compared to $4.6 million for the three
months ended March 31, 2000. This provision reflects the net tax effect of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Net loss. Due to the factors described above and a one-time charge of $1.6
million resulting from the cumulative effect of change in accounting principle,
the Company generated a net loss of $4.6 million for the three months ended
March 31, 2001 as compared to a net loss of $54.2 million for the three months
ended March 31, 2000.
EBITDA. EBITDA increased 17.2% to $42.2 million for the three months ended
March 31, 2001 as compared to $36.0 million for the three months ended March 31,
2000. This increase was substantially due to the reasons noted above. As a
percentage of revenues, EBITDA increased to 46.7% for the three months ended
March 31, 2001 as compared with 46.5% for the three months ended March 31, 2000.
10
Selected Pro Forma Results
The Company has reported the results of operations of the 2000 Acquisitions
from the date of their respective acquisition. The financial information below
for the three months ended March 31, 2001 and 2000, presents selected unaudited
pro forma operating results assuming the purchase of the 2000 Acquisitions had
been consummated on January 1, 2000. This financial information is not
necessarily indicative of what results would have been had the Company operated
these cable systems since the beginning of 2000.
Three Months Ended March 31,
---------------------------------
2001 2000
-------------- ---------------
(dollars in thousands, except
per subscriber data)
Revenues.................................................. $ 90,334 $ 82,987
Costs and expenses:
Service costs.......................................... 31,477 28,989
SG&A expenses.......................................... 15,170 14,458
Corporate expenses..................................... 1,517 1,420
Depreciation and amortization.......................... 50,957 43,369
Non-cash stock charges................................. 1,195 26,073
-------------- ---------------
Operating loss............................................ $ (9,982) $ (31,322)
============== ===============
Other Data:
EBITDA $ 42,170 $ 38,120
EBITDA margin(1).......................................... 46.7% 45.9%
Basic subscribers(2)...................................... 777,000 771,600
Average monthly revenue per basic subscriber(3)........... $38.70 $35.87
- --------------
(1) Represents EBITDA as a percentage of revenues.
(2) At end of the period.
(3) Represents average monthly revenues for the last three months of the period
divided by average basic subscribers for the period.
Selected Pro Forma Results for Three Months Ended March 31, 2001 Compared
to Selected Pro Forma Results for Three Months Ended March 31, 2000
Revenues increased 8.9% to $90.3 million for the three months ended March
31, 2001, as compared to $83.0 million for the three months ended March 31,
2000. This increase was attributable principally to basic rate increases
associated with new programming introductions in the Company's core television
services, internal subscriber growth of 0.7% and to customer growth in the
Company's recently launched digital cable and high-speed Internet access
services.
Service costs and selling, general and administrative expenses in the
aggregate increased 7.4% to $46.6 million for the three months ended March 31,
2001 from $43.4 million for the three months ended March 31, 2000, principally
due to higher programming costs, costs associated with the Company's high-speed
Internet access services, marketing costs associated with the promotion of the
Company's new product offerings and higher customer service employee expense.
Corporate expenses increased 6.8% to $1.5 million for the three months
ended March 31, 2001 from $1.4 million for the three months ended March 31,
2000. As a percentage of revenues, corporate expenses were 1.7% for the three
months ended March 31, 2001 and 2000.
Depreciation and amortization increased 17.5% to $51.0 million for the
three months ended March 31, 2001 from $43.4 million for the three months ended
March 31, 2000. This increase was principally due to capital expenditures
associated with the upgrade of the Company's cable systems. Non-cash stock
charges were as reported above.
11
As a result of the above factors, the Company generated an operating loss
of $10.0 million for the three months ended March 31, 2001, compared to $31.3
million for the three months ended March 31, 2000.
EBITDA increased by 10.6% to $42.2 million for the three months ended March
31, 2001 from $38.1 million for the three months ended March 31, 2000. The
EBITDA margin improved to 46.7% for the three months ended March 31, 2001 from
45.9% for the three months ended March 31, 2000.
Liquidity and Capital Resources
The Company's business requires substantial capital for the upgrade,
expansion and maintenance of its cable network. In addition, the Company has
pursued, and will continue to pursue, a business strategy that includes
selective acquisitions. The Company has funded and will continue to fund its
working capital requirements, capital expenditures and acquisitions through a
combination of internally generated funds, long-term borrowings and equity
financings.
Investing Activities
The Company plans to continue its aggressive cable network upgrade program
and expects that 90% of its cable network will be upgraded with 550MHz to 870MHz
bandwidth capacity and 80% of its homes passed will have two-way communications
capability by year-end 2001. To achieve these targets and to fund other
requirements, including new plant construction, headend eliminations, regional
fiber interconnections, digital and high-speed data equipment and network
maintenance, the Company expects to invest between $180.0 million and $200.0
million in capital expenditures in 2001. For the three months ended March 31,
2001, the Company's capital expenditures were $42.7 million.
In 2000, the Company completed nine acquisitions of cable systems that
served approximately 53,000 basic subscribers for an aggregate purchase price of
$109.2 million.
On February 26, 2001, the Company entered into agreements with AT&T
Broadband, LLC to acquire cable systems serving approximately 840,000 basic
subscribers in Georgia, Illinois, Iowa, and Missouri, for an aggregate purchase
price of $2.215 billion in cash, subject to closing adjustments. The Company
expects to fund these acquisitions through a combination of new debt and equity
financings and borrowings under the Company's existing subsidiary credit
facilities. These transactions are expected to close in the second and third
quarter of 2001, subject to customary closing conditions, including the receipt
of regulatory and other approvals.
Financing Activities
To finance the Company's prior acquisitions and network upgrade program and
to provide liquidity for future capital needs, the Company has completed the
following financing arrangements since January 1, 1998:
o $550.0 million subsidiary credit facilities expiring in September
2008;
o $550.0 million subsidiary credit facilities expiring in December 2008;
o $200.0 million offering of 8 1/2% senior notes due April 2008;
o $125.0 million offering of 7 7/8% senior notes due February 2011;
o $500.0 million offering of 9 1/2% senior notes due January 2013 (see
below);
o $104.5 million of equity capital contributed by the members of
Mediacom LLC; and
o $354.1 million of net proceeds from the Company's initial public
offering in February 2000.
12
The final maturities of the Company's subsidiary credit facilities are
subject to earlier repayment on dates ranging from June 2007 to December 2007 if
the Company does not refinance its 8 1/2% senior notes prior to March 31, 2007.
As of March 31, 2001, the Company was in compliance with all of the financial
and other covenants in its subsidiary credit facilities and public debt
indentures. As of March 31, 2001, the Company had approximately $898.6 million
of unused credit commitments under its subsidiary credit facilities.
As of March 31, 2001, the Company entered into interest rate swap
agreements, which expire from 2002 through 2004, to hedge $170.0 million of
floating rate debt under its subsidiary credit facilities. As a result of these
interest rate swap agreements, 97% of the Company's outstanding indebtedness was
at fixed interest rates or subject to interest rate protection on such date.
After giving effect to these interest rate swap agreements, as of March 31,
2001, the Company's weighted average cost of indebtedness was approximately
9.0%.
Debt leverage and interest coverage ratios are commonly used in the cable
television industry to measure liquidity and financial condition. For the three
month period ended March 31, 2001, the Company's debt leverage ratio (defined as
total debt at the end of the period, divided by pro forma annualized EBITDA for
the period) was 6.1x and the Company's interest coverage ratio (defined as
EBITDA divided by interest expense, net, for the period) was 2.0x.
On January 24, 2001, MCC's wholly-owned subsidiaries, Mediacom LLC and
Mediacom Capital, completed an offering of $500.0 million of 9 1/2% senior notes
due January 2013. Interest on the 9 1/2% senior notes will be payable
semi-annually on January 15 and July 15 of each year, commencing on July 15,
2001. Approximately $467.5 million of the net proceeds were used to repay a
substantial portion of the indebtedness outstanding under the Company's
subsidiary credit facilities and related accrued interest. The balance of the
net proceeds was used for general corporate purposes.
On February 7, 2001, the Company filed a registration statement with the
Securities and Exchange Commission ("SEC") under which the Company may sell any
combination of common and preferred stock, debt securities, warrants and
subscription rights, for a maximum aggregate amount of $1.0 billion. The SEC
declared this registration statement effective on February 13, 2001.
Although the Company has not generated earnings sufficient to cover fixed
charges, the Company has generated cash and obtained financing sufficient to
meet its debt service, working capital, capital expenditure and acquisition
requirements. The Company expects that it will continue to be able to generate
funds and obtain financing sufficient to service the Company's obligations and
complete its pending and future acquisitions. There can be no assurance that the
Company will be able to obtain sufficient financing, or, if it were able to do
so, that the terms would be favorable to them.
Recent Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities," was
issued effective January 1, 2001. This statement establishes the accounting and
reporting standards for derivatives and hedging activity. Upon adoption of SFAS
133, all derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. The Company
recorded an after tax charge of approximately $1.6 million as a change in
accounting principle in the first quarter of 2001.
In March 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"). SAB 101 summarizes certain areas of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 does not apply to the Company's basic cable television business. The
Company will continue to account for revenues based upon Statement of Financial
Accounting Standards No. 51, "Financial Reporting by Cable Television
Companies." SAB 101 will not have a material impact on the Company's results of
operations and consolidated financial statements.
Inflation and Changing Prices
The Company's 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 their results of
operations.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company uses interest rate swap
agreements in order to fix the interest rate for the duration of the contract as
a hedge against interest rate volatility. As of March 31, 2001, the Company had
interest rate exchange agreements (the "Swaps") with various banks pursuant to
which the interest rate on $170.0 million is fixed at a weighted average swap
rate of approximately 6.7%, plus the average applicable margin over the
Eurodollar Rate option under the Company's bank credit agreements. Under the
terms of the Swaps, which expire from 2002 through 2004, the Company is exposed
to credit loss in the event of nonperformance by the other parties to the Swaps.
However, the Company does not anticipate nonperformance by the counterparties.
The Company would have paid approximately $3.3 million if it terminated the
Swaps, inclusive of accrued interest, at March 31, 2001. The table below
provides information for the Company's long term debt. See Note 5 to the
Company's consolidated financial statements.
Expected Maturity
----------------------------------------------------------------------
(All dollar amounts in thousands)
2002 2003 2004 2005 2006 Thereafter Total Fair Value
--------- ---------- ---------- ---------- ---------- ------------ ------------ ------------
Fixed rate $ - $ - $ - $ - $ - $ 200,000 $ 200,000 $ 190,000
Weighted average
interest rate 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5%
Fixed rate $ - $ - $ - $ - $ - $ 125,000 $ 125,000 $ 108,000
Weighted average
interest rate 7.9% 7.9% 7.9% 7.9% 7.9% 7.9% 7.9%
Fixed rate $ - $ - $ - $ - $ - $ 500,000 $ 500,000 $ 489,000
Weighted average
interest rate 9.5% 9.5% 9.5% 9.5% 9.5% 9.5% 9.5%
Variable rate $ 750 $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 191,250 $ 200,000 $ 200,000
Weighted average
interest rate 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
14
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit Description
------- -------------------
10.1 1999 Stock Option Plan, as amended
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the three months
ended March 31, 2001:
Date Report
Date of Report Filed with SEC Items Reported
-------------- -------------- --------------
January 16, 2001 January 17, 2001 Item 5 - Other Events
Item 7 - Financial Statements, Pro Forma Financial
Information and Exhibits
January 18, 2001 January 22, 2001 Item 5 - Other Events
Item 7 - Financial Statements, Pro Forma Financial
Information and Exhibits
February 26, 2001 March 2, 2001 Item 5 - Other Events
Item 7 - Financial Statements, Pro Forma Financial
Information and Exhibits
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDIACOM COMMUNICATIONS CORPORATION
May 15, 2001 BY: /S/ MARK E. STEPHAN
---------------------------------
Mark E. Stephan
Senior Vice President,
Chief Financial Officer,
Treasurer and Principal Financial
Officer
16
EXHIBIT 10.1
MEDIACOM COMMUNICATIONS CORPORATION
FIRST AMENDED AND RESTATED
--------------------------
1999 STOCK OPTION PLAN
----------------------
1. Purpose of the Plan.
The purpose of the Mediacom Communications Corporation 1999 Stock Option
Plan (the "Plan") is to promote the interests of Mediacom Communications
Corporation, a Delaware corporation (the "Company"), and its stockholders by
strengthening the Company's ability to attract and retain competent employees,
to make service on the Board of Directors of the Company (the "Board") more
attractive to present and prospective non-employee directors of the Company and
to provide a means to encourage stock ownership and proprietary interest in the
Company by officers, non-employee directors and valued employees and other
individuals upon whose judgment, initiative and efforts the financial success
and growth of the Company largely depend.
2. Options Granted under the Plan.
(a) The Company is authorized under this Plan to grant (i) incentive stock
options ("qualified incentive options") that are intended to satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), (ii) non-qualified stock options ("non-qualified options") that
are not intended to satisfy the requirements of Section 422 of the Code and
(iii) stock appreciation rights ("SARs"), in each case, with respect to shares
of the Company's Class A and/or Class B common stock, $0.01 par value per share
("Common Stock")
(b) Options granted pursuant to the Plan shall be authorized by action of
the Board (or a committee designated by the Board) and may be designated as
either qualified incentive stock options that are intended to satisfy the
requirements of Section 422 of the Code, or non-qualified options that are not
intended to satisfy the requirements of Section 422 of the Code. Such
designation shall be in the sole discretion of the Board. Options designated as
qualified incentive stock options that fail to satisfy, or fail to continue to
satisfy, the requirements of Section 422 of the Code by reason of the transfer,
exercise or failure to exercise such options or as otherwise provided in Section
422 of the Code shall be redesignated as non-qualified options automatically on
the date of such failure without further action by the Board.
3. Stock Subject to the Plan.
(a) The total number of shares (the "Total Authorized Plan Shares") of the
authorized but unissued or treasury shares of Common Stock for which the Company
is authorized under this Plan to grant qualified incentive stock options,
non-qualified options and SARs shall be equal, in the aggregate, to the greater
-------
of (x) seven million (7,000,000) shares of Common Stock or, (y) in the event of
- --
an initial public offering of Common Stock of the Company during the term of
this Plan, an amount of shares of Common Stock determined as follows:
(A) 300,000; plus
----
(B) an amount equal to (i) the total number of shares of Common Stock
outstanding upon the completion of the Company's initial public offering,
including any shares issued by the Company pursuant to the underwriters'
over-allotment option (collectively, the "Outstanding Shares"), divided by
0.85, reduced by (ii) the total number of Outstanding Shares; minus
---------- -----
(C) an amount equal to (i) 7.2% of (ii) the total number of
Outstanding Shares divided by 0.9; and
(D) which aggregate number of shares of Common Stock derived from
clauses (A), (B) and (C) above shall be rounded to the next highest 100,000
shares to arrive at the Total Authorized Plan Shares.
(b) Notwithstanding the number of Total Authorized Plan Shares determined
as set forth in clauses (A) - (D) of subsection (a)(y) above, the total number
of shares of Common Stock for which the Company is authorized under this Plan to
grant qualified incentive stock options shall not exceed seven million
(7,000,000) shares of Common Stock (the "Total Authorized QSO Shares"), and the
amount, if any, of the Total Authorized Plan Shares in excess of the Total
Authorized ISO Shares may only be applied in respect of non-qualified options
and SARs.
(c) The number of Total Authorized Plan Shares and Total Authorized ISO
Shares, as the case may be, shall be subject to adjustment as provided in
Section 14 hereof and may be shares of any class of Common Stock as determined
by the Board; provided, however, that, in either case, such number of shares may
from time to time be reduced by the Board to the extent that a corresponding
number of issued and outstanding shares of Common Stock are purchased by the
Company and set aside for issue upon the exercise of options hereunder.
(d) If an option granted or assumed hereunder shall expire, terminate or be
cancelled for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for subsequent option grants
under the Plan; provided, however, that shares as to which an option has been
surrendered in connection with the exercise of a related SAR will not again be
available for subsequent option or SAR grants under the Plan.
(e) Stock issuable upon exercise of an option or SAR granted under the Plan
may be subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board.
4. Administration of the Plan.
The Plan shall be administered by the Board. No member of the Board shall
act upon any matter exclusively affecting an option or SAR granted or to be
granted to himself or herself under the Plan. A majority of the members of the
Board shall constitute a quorum, and any action may be
-2-
taken by a majority of those present and voting at any meeting. The decision of
the Board as to all questions of interpretation and application of the Plan
shall be final, binding and conclusive on all persons. The Board may, in its
sole discretion, grant options to purchase shares of Common Stock, grant SARs
and issue shares upon exercise of such options and SARs, as provided in the
Plan. The Board shall have authority, subject to the express provisions of the
Plan, to construe the respective option and SAR agreements and the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of the respective option and SAR agreements,
which may but need not be identical, and to make all other determinations in the
judgment of the Board necessary or desirable for the administration of the Plan.
The Board may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option or SAR agreement in the manner and to
the extent it shall deem expedient to carry the Plan into effect and shall be
the sole and final judge of such expediency. No director shall be liable for any
action or determination made in good faith. The Board may, in its discretion,
delegate its power, duties and responsibilities to a committee, consisting of
two or more members of the Board, all of whom are "Non-Employee Directors" (as
hereinafter defined). If a committee is so appointed, all references to the
Board herein shall mean and relate to such committee, unless the context
otherwise requires. For the purposes of the Plan, a director or member of such
committee shall be deemed to be a "Non-Employee Director" only if such person
qualifies as a "Non-Employee Director" within the meaning of paragraph (b)(3)(i)
of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as such term is interpreted from time to time.
5. Eligibility.
(a) Options and SARs may be granted to directors, officers and employees of
the Company or a subsidiary of the Company (herein called "subsidiary" or
"subsidiaries"), as defined in Section 424 of Code and the Treasury Regulations
promulgated thereunder (the "Regulations"), and to such other individuals as the
Board, in its discretion, may determine; provided, that no Option or SAR may be
granted to any employee or other person who is or becomes represented for
purposes of collective bargaining by a labor organization and is or becomes
covered by a collective bargaining agreement between such labor organization and
the Company or a subsidiary unless such collective bargaining agreement, by its
terms, expressly provides for participation by such person in this Plan.
(b) Options designated as qualified incentive stock options may be granted
only to officers and key employees of the Company or of any subsidiary.
Directors who are not otherwise employees of the Company or a subsidiary shall
not be eligible to be granted qualified incentive stock options pursuant to the
Plan. SARs and options designated as non-qualified options may be granted to (i)
officers and key employees of the Company or of any of its subsidiaries, or (ii)
agents and directors of and consultants to the Company, whether or not otherwise
employees of the Company.
(c) In determining the eligibility of an individual to be granted an option
or SAR, and in determining the number of shares to be optioned to any
individual, the Board shall take into account the recommendation of the
Company's Chairman of the Board, the position and responsibilities of the
individual being considered, the length of such individual's employment with or
services to the
-3-
Company or the subsidiaries, the nature and value to the Company or its
subsidiaries of his or her service and accomplishments, his or her present and
potential contribution to the success of the Company or its subsidiaries, and
such other factors as the Board may deem relevant.
6. Restrictions on Qualified Incentive Stock Options.
Qualified incentive stock options (but not non-qualified options) granted
under this Plan shall be subject to the following restrictions:
(a) Limitation on Number of Shares. The aggregate fair market value of the
shares of Common Stock with respect to which qualified incentive stock options
are granted, determined as of the date the qualified incentive stock options are
granted, exercisable for the first time by an individual during any calendar
year shall not exceed $100,000. If a qualified incentive stock option is granted
pursuant to which the aggregate fair market value of shares with respect to
which it first becomes exercisable in any calendar year by an individual exceeds
such $100,000 limitation, the portion of such option which is in excess of the
$100,000 limitation, and any such options issued subsequently which first
becomes exercisable in the same such calendar year, shall be treated as a
non-qualified option pursuant to section 422(d)(1) of the Code. In the event
that an individual is eligible to participate in any other stock option plan of
the Company or any parent or subsidiary of the Company which is also intended to
comply with the provisions of Section 422 of the Code, such $100,000 limitation
shall apply to the aggregate number of shares for which qualified incentive
stock options may be granted under this Plan and all such other plans.
(b) Ten Percent (10%) Stockholder. If any employee to whom a qualified
incentive stock option is granted pursuant to the provisions of this Plan is on
the date of grant the owner of stock (as determined under Section 424(d) of the
Code) possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any parent or subsidiary of the Company, then the
following special provisions shall be applicable to the qualified incentive
stock options granted to such individual:
(i) The option price per share subject to such qualified incentive
stock options shall not be less than 110% of the fair market value of the
stock determined at the time such option was granted. In determining the
fair market value under this clause (i), the provisions of Section 8 hereof
shall apply.
(ii) The qualified incentive stock option shall have a term expiring
not more than five (5) years from the date of the granting thereof.
7. Option Agreement.
Each option and SAR shall be evidenced by a written agreement (the
"Agreement") duly executed on behalf of the Company and by the grantee to whom
such option or SAR is granted, which Agreement shall comply with and be subject
to the terms and conditions of the Plan. The Agreement may contain such other
terms, provisions and conditions which are not inconsistent with
-4-
the Plan as may be determined by the Board, provided that options designated as
qualified incentive stock options shall meet all of the conditions for qualified
incentive stock options as defined in Section 422 of the Code. No option or SAR
shall be granted within the meaning of the Plan and no purported grant of any
option or SAR shall be effective until the Agreement shall have been duly
executed on behalf of the Company and the optionee. More than one option and SAR
may be granted to an individual.
8. Option Price.
(a) The option price or prices of shares of Common Stock for options
designated as non-qualified stock options shall be as determined by the Board.
(b) Subject to the conditions set forth in Section 6(b) hereof, the option
price or prices of shares of Common Stock for options designated as qualified
incentive stock options shall be at least the fair market value of such Common
Stock at the time the option is granted as determined by the Board in accordance
with subsection (c) below.
(c) The fair market value of Common Stock shall be determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its fair
market value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day on the date of such grant and
determination, as reported in The Wall Street Journal or such other source
as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its fair market
value shall be the mean of the closing bid and asked prices for the Common
Stock on the date of such grant and determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable;
(iii) In the absence of an established market for the Common Stock,
the fair market value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of determining the fair market value of Common Stock
in connection with the grant of a qualified incentive stock option at the
time of the initial public offering of the Company's Common Stock, the fair
market value shall be the initial price to the public as set forth in the
final prospectus included within the registration statement in Form S-1
filed with the Securities and Exchange Commission for such initial public
offering.
-5-
9. Manner of Payment; Manner of Exercise.
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such options, (ii) shares of
Common Stock owned by the optionee having a fair market value equal in amount to
the exercise price of such options, or (iii) any combination of (i) and (ii);
provided, however, that payment of the exercise price by delivery of shares of
Common Stock owned by such optionee may be made only upon the condition that
such payment does not result in a charge to earnings for financial accounting
purposes as determined by the Board, unless such condition is waived by the
Board. The fair market value of any shares of Common Stock which may be
delivered upon exercise of an option shall be determined by the Board in
accordance with Section 8 hereof.
(b) To the extent that the right to purchase shares under an option has
accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares as provided in subparagraph (a) above. Upon such exercise,
delivery of a certificate for paid-up non-assessable shares shall be made at the
principal office of the Company to the person or persons exercising the option
at such time, or as shall be designated in such notice, during ordinary business
hours, after three (3) days but not more than ninety (90) days from the date of
receipt of the notice by the Company, or at such time, place and manner as may
be agreed upon by the Company and the person or persons exercising the option.
10. Exercise of Options and SARs.
Each option and SAR granted under the Plan shall, subject to Section 11 and
Section 13 hereof, shall be exercisable at such time or times and during such
period as shall be set forth in the Agreement; provided, however, that no option
or SAR granted under the Plan shall have a term in excess of ten (10) years from
the date of grant. To the extent that an option or SAR is not exercised when it
becomes initially exercisable, such option or SAR shall not expire but shall be
carried forward and shall be exercisable, on a cumulative basis, until the
expiration of the exercise period provided in the Agreement unless and until
such option or SAR sooner terminates or is cancelled pursuant to Section 11 or
Section 13 hereof. No partial exercise may be made for less than one hundred
(100) full shares of Common Stock. The exercise of an option shall result in the
cancellation of the SAR to which it relates with respect to the same number of
shares of Common Stock as to which the option was exercised.
11. Term, Expiration, Exercisability and Rescission of Options and SARs.
(a) Term and Expiration.
(i) Except as otherwise expressly provided by Section 6(b) of this
Plan, each option and SAR granted under the Plan shall expire ten (10)
years from the date of the granting thereof unless sooner terminated or
cancelled as provided in this Section 11 or in the Agreement.
-6-
(ii) In the event the grantee of any option or SAR ceases for any
reason to perform services for the Company or one of its subsidiaries, the
entire portion of each such option or SAR which is not then vested or
otherwise exercisable under this Plan and the Agreement shall automatically
expire, terminate and become null and void on the date such grantee ceases
to perform such services; provided, however, that the Board or the Chairman
of the Board, in their sole discretion, may at the time of the grant or at
any other time (x) permit any option or SAR to continue in effect in
accordance with the terms of the Agreement and this Plan after the grantee
ceases to perform services for the Company or a subsidiary and/or (y)
accelerate the vesting and exercisability of such option or SAR with
respect to shares that are not vested or otherwise exercisable under the
provision of the Agreement or this Plan at the time the grantee ceases to
perform such services.
(iii) In the event the grantee of any option or SAR is or becomes
represented for purposes of collective bargaining by a labor organization
and is or becomes covered by a collective bargaining agreement between such
labor organization and the Company or a subsidiary which does not, by its
terms, expressly provide for participation by the grantee in the Plan, the
entire portion of each option and SAR granted to such grantee that is not
then vested or otherwise exercisable under this Plan and the Agreement
shall thereupon automatically expire, terminate and become null and void.
(iv) Nothing contained in this subsection 11(a) shall be construed as
extending, or permitting the extension of, the term of any option or SAR
beyond the time period set forth in clause (i) of this subsection 11(a).
(b) Limitations on Exercise.
(i) In the event the grantee of any option or SAR ceases for any
reason to perform services for the Company or one of its subsidiaries, each
option and SAR granted to such grantee that is vested and otherwise
exercisable and in effect under this Plan and the Agreement on the date
such grantee ceases to perform such services shall automatically terminate
and be cancelled unless such option or SAR, as the case may be, is
exercised in accordance with the Agreement and this Plan within 90 days
after the grantee ceases to perform such services; provided, however, that
the Board or the Chairman of the Board, in their sole discretion, may at
the time of the grant or at any other time extend the period within which
such option or SAR may be exercised beyond such 90 day period, subject to
earlier cancellation pursuant s subsection 11(c) and/or rescission pursuant
to subsection 11(d) hereof.
(ii) In the event the grantee of any option or SAR is or becomes
represented for purposes of collective bargaining by a labor organization
and is or becomes covered by a collective bargaining agreement between such
labor organization and the Company or a subsidiary which does not, by its
terms, expressly provide for participation by the grantee in the Plan, each
option and SAR granted to such grantee that is then vested and otherwise
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exercisable and in effect under this Plan and the Agreement shall
automatically terminate, be cancelled and become null and void.
(c) Wrongful Activities; Cancellation. Notwithstanding any provisions of
the Agreement or under this Plan, in the event the Company or a subsidiary
terminates the employment of any grantee of an option or SAR on the grounds that
such grantee engaged in any of the following activities ("Wrongful Activities"),
or if at any time it is determined by the Board that the grantee engaged in any
Wrongful Activity either during or after his or her employment with the Company
or a subsidiary, then, in either of such events, any and all options or SARs
granted to such grantee hereunder shall automatically terminate and be cancelled
upon such termination of employment or determination by the Board, as the case
may be, regardless of the extent to which such options and/or SARs are or were
otherwise vested, accrued and exercisable:
(i) the commission by the grantee of a criminal act punishable as a
felony with respect to his or her employment with the Company or any
subsidiary; or
(ii) the unlawful taking or use by the grantee of any asset or
property of the Company or of any subsidiary; or
(ii) the breach by the grantee of the terms of the Agreement or of any
other written agreement (including any Agreement concerning the grant of an
option or SAR under the Plan) between the employee and the Company or a
subsidiary (which for these purpose shall include any predecessor entity or
equity owner of such entity) insofar as such terms prohibit or otherwise
restrict the grantee from (A) using or disclosing any confidential
information of the Company or any subsidiary, (B) soliciting, encouraging
or otherwise assisting any person to leave the employ of the Company or any
subsidiary, (C) competing with, or rendering services to any competitor of,
the Company or any subsidiary or (D) making or publishing any statement
(oral or written) that is negative or derogatory in any way to the Company,
any subsidiary or any of their respective executive officers.
(d) Rescission. Upon the exercise of any option or SAR at any time during
or after the grantee's employment with the Company or a subsidiary, the grantee
shall certify on a form acceptable to the Board that the grantee is in
compliance with all of the terms and conditions of the Agreement and Plan and
has not engaged in any Wrongful Activities. If at any time following the
exercise of any option or SAR the Board determines that the grantee engaged in
any Wrongful Activities at any time either prior to or within one year after
such exercise, the exercise of such option or SAR, and any payment and delivery
in connection therewith, shall be cancelled and rescinded. The Company shall
notify the grantee in writing of any such rescission within two years after such
exercise. Within ten days after delivery of such notice to the grantee, the
grantee shall pay to the Company the amount of any gain realized or payment
received as a result of the rescinded exercise, payment or delivery. Such
payment shall be made, in the discretion of the Board, either in cash or by
returning to the Company the number of shares of common Stock received by the
grantee in connection with the rescinded exercise, payment or delivery. The
remedies contained in this Section 11 with respect to the rescission and/or
cancellation of any option or SAR granted to any
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grantee who engages in any Wrongful Activity shall be in addition to, and shall
not be construed as a limitation of, any and all other remedies available to the
Company against such grantee by reason of such Wrongful Activity.
12. Options Not Transferable.
The right of any grantee to exercise any option or SAR granted to him or
her shall not be assignable or transferable by such grantee other than by will
or the laws of descent, and any such option or SAR shall be exercisable during
the lifetime of such grantee only by him; provided, that the Board may permit a
grantee, by expressly so providing in the related Agreement, to assign or
transfer, without consideration (and only without consideration), the right to
exercise any option or SAR granted to him or her to such grantee's children,
grandchildren or spouse, to trusts for the benefit of such family members and to
partnerships in which such family members are the only partners. Any option or
SAR granted under this Plan shall be null and void and without effect upon the
bankruptcy of the grantee to whom the option is granted, or upon any attempted
assignment or transfer except as herein provided, including without limitation,
any purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, attachment, trustee process or similar
process, whether legal or equitable, upon such option or SAR.
13. Terms and Conditions of SARs.
(a) An SAR may be granted separately or in connection with an option
(either at the time of grant or at any time during the term of the option).
(b) The exercise of an SAR granted in connection with an option shall
result in the cancellation of the option to which it relates with respect to the
same number of shares of Common Stock as to which the SAR was exercised.
(c) An SAR granted in connection with an option shall be exercisable or
transferable only to the extent that such related option is exercisable or
transferable.
(d) Upon the exercise of an SAR related to an option, the holder will be
entitled to receive payment of an amount determined by multiplying:
(i) the difference obtained by subtracting the purchase price of a
share of Common Stock specified in the related option from the fair market
value of a share of Common Stock on the date of exercise of such SAR (as
determined by the Board in accordance with Section 8 hereof), by
(ii) the number of shares as to which such SAR is exercised.
(e) An SAR granted without relationship to an option shall be exercisable
as determined by the Board, but in no event after ten years from the date of
grant.
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(f) An SAR granted without relationship to an option will entitle the
holder, upon exercise of the SAR, to receive payment of an amount determined by
multiplying:
(i) the difference obtained by subtracting the fair market value of a
share of Common Stock on the date the SAR was granted from the fair market
value of a share of Common Stock on the date of exercise of such SAR (as
determined by the Board in accordance with Section 8 hereof), by
(ii) the number of shares as to which such SAR is exercised.
(g) Notwithstanding subsections (d) and (f) above, the Board may limit the
amount payable upon exercise of an SAR. Any such limitation shall be determined
as of the date of grant and noted on the instrument evidencing the SAR granted.
(h) At the discretion of the Board, payment of the amount determined under
subsections (d) and (f) above may be made either in whole shares of Common Stock
valued at their fair market value on the date of exercise of the SAR (as
determined by the Board in accordance with Section 8 hereof), or solely in cash,
or in a combination of cash and shares. If the Board decides to make full
payment in shares of Common Stock and the amount payable results in a fractional
share, payment for the fractional share shall be made in cash.
(i) Neither an SAR nor an option granted in connection with an SAR granted
to a person subject to Section 16(b) of the Exchange Act may be exercised before
six months after the date of grant.
14. Recapitalization, Reorganization and the Like.
(a) In the event that the outstanding shares of Common Stock are changed
into or exchanged for a different number or kind of shares or other securities
of the Company or of another corporation by reason of any reorganization,
merger, consolidation, recapitalization, reclassification, stock split-up,
combination of shares, or dividends payable in capital stock, appropriate
adjustment shall be made in accordance with Section 424(a) of the Code in the
number and kind of shares as to which options and SARs may be granted under the
Plan and as to which outstanding options and SARs or portions thereof then
unexercised shall be exercisable, to the end that the proportionate interest of
the grantee shall be maintained as before the occurrence of such event. Such
adjustment in outstanding options and SARs shall be made without change in the
total price applicable to the unexercised portion of such options and SARs and
with a corresponding adjustment in the exercise price per share.
(b) In addition, unless otherwise determined by the Board in its sole
discretion, in the case of any (i) sale or conveyance to another entity of all
or substantially all of the property and assets of the Company or (ii) Change in
Control (as hereinafter defined) of the Company, the purchaser(s) of the
Company's assets or stock may, in his, her or its discretion, deliver to the
optionee the same kind of consideration that is delivered to the stockholders of
the Company as a result of such sale,
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conveyance or Change in Control, or the Board may cancel all outstanding options
and SARs in exchange for consideration in cash or in kind which consideration in
both cases shall be equal in value to the value of those shares of stock or
other securities the optionee would have received had the option been exercised
(to the extent then exercisable) and no disposition of the shares acquired upon
such exercise had been made prior to such sale, conveyance or Change in Control,
less the exercise price therefor. Upon receipt of such consideration, the
options and SARs shall immediately terminate and be of no further force and
effect. The value of the stock or other securities the grantee would have
received if the option had been exercised shall be determined in good faith by
the Board, and in the case of shares of Common Stock, in accordance with the
provisions of Section 8 hereof.
(c) The Board shall also have the power and right to accelerate the
exercisability of any options or SARs, notwithstanding any limitations in this
Plan or in the Agreement, upon such a sale, conveyance or Change in Control.
Upon such acceleration, any options or portion thereof originally designated as
qualified incentive stock options that no longer qualify as qualified incentive
stock options under Section 422 of the Code as a result of such acceleration
shall be redesignated as non-qualified stock options.
(d) A "Change in Control" shall be deemed to have occurred if any person,
or any two or more persons acting as a group, and all affiliates of such person
or persons, who prior to such time owned less than fifty percent (50%) of the
then outstanding Common Stock, shall acquire such additional shares of Common
Stock in one or more transactions, or series of transactions, such that
following such transaction or transactions, such person or group and affiliates
beneficially own fifty percent (50%) or more of the Common Stock outstanding.
(e) If by reason of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation, the Board shall
authorize the issuance or assumption of a stock option or stock options in a
transaction to which Section 424(a) of the Code applies, then, notwithstanding
any other provision of the Plan, the Board may grant an option or options upon
such terms and conditions as it may deem appropriate for the purpose of
assumption of the old option, or substitution of a new option for the old
option, in conformity with the provisions of such Section 424(a) of the Code and
the Regulations thereunder, and any such option shall not reduce the number of
shares otherwise available for issuance under the Plan.
(f) No fraction of a share shall be purchasable or deliverable upon the
exercise of any option or SAR, but in the event any adjustment hereunder in the
number of shares covered by the option or SAR shall cause such number to include
a fraction of a share, such fraction shall be adjusted to the nearest smaller
whole number of shares.
15. No Special Employment Rights.
Nothing contained in the Plan or in any option or SAR granted under the
Plan shall confer upon any grantee any right with respect to the continuation of
his or her employment by the Company (or any subsidiary) or interfere in any way
with the right of the Company (or any subsidiary), subject to the terms of any
separate employment agreement to the contrary, at any time
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to terminate such employment or to increase or decrease the compensation of the
grantee from the rate in existence at the time of the grant of an option or SAR.
Whether an authorized leave of absence, or absence in military or government
service, shall constitute termination of employment shall be determined in
accordance with Regulations Section 1.421-7(h)(2).
16. Withholding.
The Company's obligation to deliver shares upon the exercise of any
non-qualified option or SAR granted under the Plan shall be subject to the
option holder's satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements. The Company and optionee may agree
to withhold shares of Common Stock purchased upon exercise of an option or SAR
to satisfy the above-mentioned withholding requirements; provided, however, that
no such agreement may be made by a grantee who is an "officer" or "director"
within the meaning of Section 16 of the Exchange Act, except pursuant to a
standing election to so withhold shares of Common Stock purchased upon exercise
of an option, such election to be made not less than six months prior to such
exercise and which election may be revoked only upon six months prior written
notice.
17. Restrictions on Issuance of Shares.
(a) Notwithstanding the provisions of Section 9 hereof, the Company may
delay the issuance of shares covered by the exercise of an option or SAR and the
delivery of a certificate for such shares until one of the following conditions
shall be satisfied:
(i) The shares with respect to which such option or SAR has been
exercised are at the time of the issue of such shares effectively
registered or qualified under applicable Federal and state securities acts
now in force or as hereafter amended; or
(ii) Counsel for the Company shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld, that such shares
are exempt from registration and qualification under applicable Federal and
state securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options and SARs shall be
effective, and the Company shall use its best efforts to bring about compliance
with the above conditions, within a reasonable time, except that the Company
shall be under no obligation to qualify shares or to cause a registration
statement or a post-effective amendment to any registration statement to be
prepared for the purpose of covering the issue of shares in respect of which any
option may be exercised, except as otherwise agreed to by the Company in
writing.
18. Purchase for Investment; Rights of Holder on Subsequent Registration.
(a) Unless the shares to be issued upon exercise of an option or SAR
granted under the Plan have been effectively registered under the Securities Act
of 1933, as amended (the 1933 Act"), the Company shall be under no obligation to
issue any shares covered by any option or SAR unless the
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person who exercises such option, in whole or in part, shall give a written
representation and undertaking to the Company which is satisfactory in form and
scope to counsel for the Company and upon which, in the opinion of such counsel,
the Company may reasonably rely, that he or she is acquiring the shares issued
pursuant to such exercise of the option or SAR for his or her own account as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares, and that he or she will make no transfer of the
same except in compliance with any rules and regulations in force at the time of
such transfer under the 1933 Act, or any other applicable law, and that if
shares are issued without such registration, a legend to this effect may be
endorsed upon the securities so issued.
(b) In the event that the Company shall, nevertheless, deem it necessary or
desirable to register under the 1933 Act or other applicable statutes any shares
with respect to which an option or SAR shall have been exercised, or to qualify
any such shares for exemption from the 1933 Act or other applicable statutes,
then the Company may take such action and may require from each grantee such
information in writing for use in any registration statement, supplementary
registration statement, prospectus, preliminary prospectus or offering circular
as is reasonably necessary for such purpose and may require reasonable indemnity
to the Company and its officers and directors from such holder against all
losses, claims, damages and liabilities arising from such use of the information
so furnished and caused by any untrue statement of any material fact therein or
caused by the omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made.
19. Loans.
At the discretion of the Board, the Company may loan to the optionee some
or all of the purchase price of the shares acquired upon exercise of an option
granted under the Plan.
20. Modification of Outstanding Options and SARs.
Subject to limitations contained herein, the Board may authorize the
amendment of any outstanding option or SAR with the consent of the grantee when
and subject to such conditions as are deemed to be in the best interests of the
Company and in accordance with the purposes of the Plan.
21. Term of Plan.
The Plan shall become effective upon the earlier to occur of its adoption
by the Board of Directors or its approval by the shareholders of the Company. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 22 hereof. The Board may grant options and SARs under the Plan
prior to stockholder approval, but any such option shall become effective as of
the date of grant only upon such approval and, accordingly, no such option may
be exercisable prior to such approval.
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22. Termination and Amendment of Plan.
The Board may at any time terminate the Plan or make such modification or
amendment thereof as it deems advisable; provided, however, that (i) the Board
may not, without approval by a majority vote of the stockholders of the Company,
increase the maximum number of shares for which options and SARs may be granted
or change the designation of the class of persons eligible to receive options
and SARs under the Plan, and (ii) any such modification or amendment of the Plan
shall be approved by a majority vote of the stockholders of the Company to the
extent that such stockholder approval is necessary to comply with applicable
provisions of the Code, rules promulgated pursuant to Section 16 of the Exchange
Act, applicable state law, or applicable National Association of Securities
Dealers, Inc. or exchange listing requirements. Termination or any modification
or amendment of the Plan shall not, without the consent of an optionee, affect
his or her rights under an option or SAR theretofore granted to him or her.
23. Limitation of Rights in the Underlying Shares.
A holder of an option or SAR shall not be deemed for any purpose to be a
stockholder of the Company with respect to such option or SAR except to the
extent that such option or SAR shall have been exercised with respect thereto
and, in addition, a stock certificate shall have been issued theretofore and
delivered to the holder.
24. Notices.
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and shall be deemed given and delivered when mailed by
registered or certified mail or delivered by hand and addressed, if to the
Company, at its principal place of business, attention: Chairman, and, if to the
grantee or holder of an option or SAR, at the address of the grantee or holder
appearing on the records of the Company.
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