<PAGE>
RULE NO. 424(b)(1)
REGISTRATION NO. 333-85893
333-85893-01
MEDIACOM LLC
MEDIACOM CAPITAL CORPORATION
Offer to Exchange $125,000,000 of our 7 7/8% Senior Notes due 2011
----------------
The notes being offered by this prospectus are being issued in exchange
for notes sold by us in a private placement in February 1999. The exchange
notes will be governed by the same indenture governing the initial notes. The
exchange notes will be substantially identical to the initial notes, except the
transfer restrictions and registration rights relating to the initial notes
will not apply to the exchange notes.
. The exchange offer expires at 5:00 p.m., New York City time, on
October 12, 1999, unless extended.
. No public market exists for the initial notes or the exchange
notes. We do not intend to list the exchange notes on any
securities exchange or to seek approval for quotation through any
automated quotation system.
----------------
Before you tender your initial notes, you should consider carefully the
section entitled "Risk Factors" beginning on page 17 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these notes or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
The date of this prospectus is September 9, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 17
Use of Proceeds.......................................................... 25
Capitalization........................................................... 25
Selected Historical and Pro Forma Consolidated Financial and Operating
Data.................................................................... 26
Unaudited Pro Forma Consolidated Financial Statements.................... 31
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 42
Business................................................................. 52
Legislation and Regulation............................................... 68
Management............................................................... 77
Certain Relationships and Related Transactions........................... 81
Membership Interests of Certain Beneficial Owners and Management......... 82
Description of the Operating Agreement................................... 83
Description of the Notes................................................. 87
Description of Other Indebtedness........................................ 120
Material Federal Tax Considerations...................................... 123
Exchange Offer........................................................... 127
Book-Entry; Delivery and Form............................................ 137
Plan of Distribution..................................................... 140
Legal Matters............................................................ 140
Experts.................................................................. 141
Additional Available Information......................................... 142
Glossary................................................................. G-1
Index to Financial Statements............................................ F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. Because it is a summary, it does not contain all of the information
you should consider before tendering your notes for the notes offered hereby.
We urge you to read this entire prospectus carefully, including the section
entitled "Risk Factors" beginning on page 17.
MEDIACOM
We are the 10th largest operator of cable television systems in the
United States, serving 711,300 basic subscribers in 21 states as of June 30,
1999, after giving effect to our pending acquisitions and other recently
announced industry transactions. We were founded in July 1995 by Rocco B.
Commisso, our Chairman and Chief Executive Officer, principally to acquire and
develop underperforming cable television systems in non-metropolitan markets.
Since commencement of our operations in March 1996, we have experienced
significant growth in subscribers, revenues, and cash flows, primarily as a
result of completing nine acquisitions of cable systems that served 355,800
basic subscribers as of June 30, 1999. We also have grown internally by
improving the financial performance of our systems, largely by introducing new
services to our customers resulting from substantial investments in our cable
network, and by enhancing the operating efficiencies of our systems.
During the second quarter of 1999, we signed agreements to purchase the
Triax and Zylstra cable systems, for an aggregate purchase price of $761.5
million, before closing costs and adjustments. As of June 30, 1999, these
pending acquisitions served 355,500 basic subscribers in nine states,
principally Illinois, Indiana, Iowa and Minnesota. We anticipate completion of
the Triax and Zylstra acquisitions during the second half of 1999. Giving
effect to our completed and pending acquisitions, our revenues were $272.3
million in 1998 and $143.9 million in the first six months of 1999.
We believe that the impact of digital technologies on video and
telecommunications delivery systems, together with the emergence of the
Internet as an interactive medium for communications, information,
entertainment, and electronic commerce, have positioned cable's high-speed,
interactive, broadband network as the primary platform for the delivery of
video, voice, and data services to the homes and businesses of our customers.
We also believe that there is considerable demand, including in the smaller
communities we serve, for new and enhanced products and services.
We intend to exploit these business opportunities by rapidly upgrading
our cable network to provide our customers with an expanded array of core cable
television services and new and enhanced products and services, such as digital
cable television, interactive video, high-speed Internet access, and telephony.
Recent Development
In July 1999, we signed an agreement, subject to completion of final
documentation, with SoftNet Systems, Inc., a high-speed Internet access and
content services company, to deploy SoftNet's services throughout our cable
television systems. Through this arrangement and the upgrade plan for our cable
network, by December 2002, we expect to have high-speed Internet access
available to 900,000 homes that are passed by our cable network, including the
Triax and Zylstra systems.
3
<PAGE>
Business Strategy
Our management team has developed and is executing a business strategy
with the goal of becoming the leading cable operator focused on providing
entertainment, information, and telecommunications services in the smaller
markets of the United States. The elements of our strategy are to:
. pursue acquisitions in non-metropolitan markets;
. improve the financial performance of our acquired systems;
. build and manage regionalized operating clusters;
. upgrade our cable network to increase channel capacity, activate two-
way communications capability and consolidate headend facilities;
. launch new and enhanced products and services, such as digital cable
television, interactive video and two-way, high-speed Internet access;
. maximize customer satisfaction by providing reliable, high-quality
service offerings, superior customer service and attractive
programming choices at reasonable rates; and
. implement financing plans that will support our operating strategy and
provide financial flexibility to pursue acquisition opportunities.
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.
Initial Offering
The initial notes were originally issued by us on February 26, 1999 in a
private offering. We are parties to an exchange and registration rights
agreement with the initial purchaser pursuant to which we agreed, among other
things, to file a registration statement with respect to the exchange notes on
or before August 25, 1999, to use our reasonable best efforts to have the
registration statement declared effective by December 23, 1999 and complete
this exchange offer by February 21, 2000. We must pay liquidated damages to the
holders of the initial notes if we do not meet these deadlines.
4
<PAGE>
Summary of Exchange Offer
We are offering to exchange $125.0 million aggregate principal amount of
our exchange notes for $125.0 million aggregate principal amount of our initial
notes. To exchange your initial notes, you must properly tender them and we
must accept your tender. We will exchange all outstanding initial notes that
are validly tendered and not validly withdrawn.
Expiration Date........... The exchange offer will expire at 5:00 p.m., New
York City time on October 12, 1999, unless we
extend it.
Exchange and Registration
Rights Agreement.......... You have the right to exchange the initial notes
that you hold for exchange notes with substantially
identical terms. This exchange offer is intended to
satisfy these rights. Once the exchange offer is
complete, you will no longer be entitled to any
exchange or registration rights with respect to
your notes.
Accrued Interest on the
Exchange Notes and The exchange notes will bear interest from their
Initial Notes............. issuance date. Holders of initial notes which are
accepted for exchange will receive, in cash,
accrued interest on the initial notes to, but not
including, the issuance date of the exchange notes.
Such interest will be paid with the first interest
payment on the exchange notes.
Conditions to the The exchange offer is subject to customary
Exchange Offer............ conditions, which we may waive. You should read the
discussion under "Exchange Offer--Conditions to the
Exchange Offer" for more information regarding
conditions of the exchange offer.
Procedures for Tendering
Initial Notes............. If you are a holder of initial notes and wish to
accept the exchange offer, you must either:
. complete, sign and date the accompanying Letter
of Transmittal, or a facsimile thereof; or
. arrange for the Depository Trust Company to
transmit required information to the exchange
agent in connection with a book-entry transfer.
You must mail or otherwise deliver such
documentation together with the initial notes to
the exchange agent at the address set forth in this
prospectus under "The Exchange Offer--Exchange
Agent."
Representation Upon By tendering your notes in this manner, you will be
Tender.................... representing, among other things, that:
. the exchange notes you acquire in the exchange
offer are being acquired in the ordinary course
of your business;
. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate in
the distribution of the exchange notes issued to
you in the exchange offer; and
. you are not a party related to us.
5
<PAGE>
Procedures for Beneficial If you are the beneficial owner of initial notes
Owners.................... registered in the name of a broker, dealer or other
nominee and you wish to tender your notes, you
should contact the person in whose name your notes
are registered and promptly instruct the person to
tender on your behalf.
Material Federal Tax
Consequences.............. It is our counsel's opinion that the exchange of
initial notes for exchange notes will not result in
any gain or loss to you for federal income tax
purposes. Your holding period for the exchange
notes will include the holding period for the
initial notes and your adjusted tax basis of the
exchange notes will be the same as your adjusted
tax basis of the initial notes at the time of the
exchange. For additional information, you should
read the discussion under "Material Federal Tax
Considerations."
Failure to Exchange Will
Affect You Adversely...... Initial notes that are not tendered, or that are
tendered but not accepted, will be subject to the
existing transfer restrictions on the initial notes
after the exchange offer. We will have no further
obligation to register the initial notes under the
Securities Act. If you do not participate in the
exchange offer, the liquidity of your notes could
be adversely affected.
Guaranteed Delivery If you wish to tender your initial notes and time
Procedures................ will not permit your required documents to reach
the exchange agent by the expiration date, or the
procedure for book-entry transfer cannot be
completed on time, you may tender your notes
according to the guaranteed delivery procedures.
For additional information, you should read the
discussion under "Exchange Offer--Guaranteed
Delivery Procedure."
Acceptance of Initial
Notes; Delivery of Subject to customary conditions, we will accept
Exchange Notes............ initial notes which are properly tendered in the
exchange offer and not withdrawn, before 5:00 p.m.,
New York City time, on the expiration date of the
exchange offer. The exchange notes will be
delivered as promptly as practicable following the
expiration date.
Use of Proceeds...........
We will not receive any proceeds from the exchange
offer.
Exchange Agent............ Harris Trust Company of New York is the exchange
agent for the exchange offer.
6
<PAGE>
Summary of Terms of the Exchange Notes
The exchange notes are substantially identical to the initial notes, with
limited exceptions. The exchange notes will evidence the same debt as the
initial notes. The exchange notes are subject to the same indenture as the
initial notes. For additional information, you should read the discussion under
"Description of Notes."
Issuers................... Mediacom LLC and Mediacom Capital Corporation
Interest.................. The exchange notes will bear interest at the rate
of 7 7/8% per annum, payable in cash on February 15
and August 15 of each year.
Maturity Date............. February 15, 2011.
Optional Redemption....... On or after February 15, 2006, we may redeem the
exchange notes, in whole or in part. Before
February 15, 2002, we may redeem up to 35% of the
aggregate principal amount of the notes originally
issued:
. 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.
The prices for the above optional redemptions are
set forth under "Description of the Notes--Optional
Redemption."
Change of Control......... If we sell specified assets or if we experience
specific kinds of changes of control, holders of
the exchange notes will have the opportunity to
sell their exchange notes to us 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 exchange notes:
. will be our general unsecured obligations;
. will rank on the same level, or "pari passu",
with any of our existing and future senior
indebtedness, including the 8 1/2% senior notes
due 2008 in the aggregate principal amount of
$200.0 million; and
. will be subordinated to all indebtedness and
other liabilities and commitments of our
subsidiaries, including their credit facilities
and trade payables.
The indenture governing the exchange notes permits
us and our operating subsidiaries to incur
additional indebtedness subject to limitations. As
of June 30, 1999, before giving effect to the Triax
and Zylstra acquisitions:
. we had approximately $359.6 million of
indebtedness outstanding (including approximately
$34.6 million of indebtedness of the
subsidiaries), with the subsidiaries having the
ability to borrow up
7
<PAGE>
to approximately an additional $260.0 million
under the subsidiary credit facilities. We expect
to incur approximately $766.0 million of
additional indebtedness to complete the Triax and
Zylstra acquisitions.
Covenants................
The indenture governing the initial notes and the
exchange notes limits our activities and the
activities of our restricted subsidiaries. The
provisions of the indenture limit our ability to:
. incur additional indebtedness;
. pay dividends or make other restricted payments;
. sell assets or subsidiary stock;
. enter into transactions with related parties;
. create liens;
. enter into agreements that restrict dividends or
other payments from restricted subsidiaries;
. merge, consolidate or sell all or substantially
all of our assets; and
. with respect to restricted subsidiaries, issue
capital stock.
These convenants are subject to important
exceptions. For more information about the exchange
notes, you should read the discussion under
"Description of the Notes."
Risk Factors............. You should carefully consider all of the
information under "Risk Factors" as well as other
information and data included in this prospectus
before tendering your initial notes in exchange for
exchange notes.
8
<PAGE>
Unaudited Summary Pro Forma Consolidated
Financial and Operating Data
The table below sets forth our unaudited summary pro forma consolidated
financial and operating data for the year ended December 31, 1998, and as of
and for the six months ended June 30, 1999. Such summary pro forma data has
been adjusted to illustrate the estimated effects of the following acquisitions
and transactions as if they had occurred at the beginning of the period
presented for the statement of operations and other data and as of June 30,
1999 for the balance sheet data:
. our acquisition of the Clearlake system on January 9, 1998;
. our acquisition of the Cablevision systems on January 23, 1998;
. our acquisition of the Caruthersville system on October 1, 1998;
. our pending acquisition of the Triax systems, which is expected to be
completed in the fourth quarter of 1999;
. our pending acquisition of the Zylstra systems, which is expected to be
completed in the second half of 1999;
. receipt of approximately $194.5 million of net proceeds in connection
with our 8 1/2% senior notes on April 1, 1998;
. receipt of approximately $121.9 million of net proceeds in connection
with our 7 7/8% senior notes on February 26, 1999--the initial notes
referred to in this prospectus;
. borrowings under our subsidiary credit facilities; and
. related equity contributions by our members.
The unaudited summary pro forma consolidated financial data give effect
to the acquisitions under the purchase method of accounting, other operating
assumptions and the impact of the offering of our senior notes. 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 to our financial statements.
The unaudited summary pro forma consolidated financial data have been
prepared based upon the historical financial statements and do not purport to
represent what our results of operations or financial condition would have
actually been or what operations in any future period would be if the
transactions that give rise to the pro forma adjustments had occurred on the
dates assumed. See "Capitalization," "Unaudited Pro Forma Consolidated
Financial Statements" and the financial statements and related notes included
elsewhere in this prospectus.
9
<PAGE>
Summary Pro Forma Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, 1998 June 30, 1999
----------------- -------------
(dollars in thousands, except
per subscriber data)
<S> <C> <C>
Statement of Operations Data:
Revenues...................................... $ 272,258 $ 143,923
Service costs................................. 89,966 48,157
Selling, general and administrative expenses.. 52,317 24,489
Management fee expense........................ 10,334 6,059
Depreciation and amortization................. 175,803 94,786
--------- ----------
Operating loss................................ (56,162) (29,568)
Interest expense, net(/1/).................... 85,537 40,298
Other expenses................................ 4,058 734
--------- ----------
Net loss from continuing operations........... $(145,757) $ (70,600)
========= ==========
Other Data:
System cash flow(/2/)......................... $ 129,975 $ 71,277
System cash flow margin(/3/).................. 47.7% 49.5%
Annualized system cash flow(/4/).............. $ 142,554
Adjusted EBITDA(/5/).......................... $ 119,641 $ 65,218
Adjusted EBITDA margin(/6/)................... 43.9% 45.3%
Annualized Adjusted EBITDA(/7/)............... $ 130,436
Ratio of total indebtedness to annualized
Adjusted EBITDA.............................. 8.6x
Ratio of Adjusted EBITDA to interest expense,
net.......................................... 1.6x
Net cash flows from operating activities...... $ 81,461 $ 35,258
Net cash flows from investing activities...... (89,877) (59,518)
Net cash flows from financing activities...... 8,631 22,871
Deficiency of earnings to fixed charges(/8/).. 145,757 70,600
Operating Data (end of period, except
average):
Homes passed(/9/)............................. 1,051,000 1,065,500
Basic subscribers(/10/)....................... 700,100 711,300
Basic penetration(/11/)....................... 66.6% 66.8%
Premium service units(/12/)................... 592,850 554,000
Premium penetration(/13/)..................... 84.7% 77.9%
Average monthly revenues per basic
subscriber(/14/)............................. $33.72
Annual system cash flow per basic
subscriber(/15/)............................. $200
Annual Adjusted EBITDA per basic
subscriber(/16/)............................. $183
Balance Sheet Data (end of period):
Total assets.................................. $1,225,410
Total indebtedness............................ 1,125,629
Total members' equity......................... 63,262
</TABLE>
(footnotes on following page)
10
<PAGE>
Notes to Summary Pro Forma Consolidated Financial and Operating Data
(1) Net of interest income. Interest income for the periods presented is not
material.
(2) Represents Adjusted EBITDA (as defined below in note 5) 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 as it is commonly used in the cable television
industry to analyze and compare cable television companies on the basis of
operating performance, leverage and liquidity and a company's overall
ability to service its debt. 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 noted above in note 2.
(4) Represents system cash flow for the six months ended June 30, 1999,
multiplied by two. Our management believes this calculation provides a
meaningful measure of performance, on an annualized basis, for the reasons
noted above in note 2.
(5) Represents operating income (loss) before depreciation and amortization.
Adjusted 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 and is not intended to represent funds available for
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.
Adjusted EBITDA is included in this prospectus because our management
believes that Adjusted EBITDA is a meaningful measure for purposes of
acquisitions and monitoring performance as it is commonly used in the
cable television industry and by the investment community to analyze and
compare cable television companies on the basis of operating performance,
debt leverage, ability to incur additional indebtedness and a company's
overall ability to service its debt. In addition, our primary debt
instruments contain certain covenants, compliance with which is measured
by computations similar to determining Adjusted EBITDA. Our definition of
Adjusted EBITDA may not be identical to similarly titled measures reported
by other companies.
(6) Represents Adjusted 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 noted above in note 5.
(7) Represents Adjusted EBITDA for the six months ended June 30, 1999,
multiplied by two. This calculation provides the measure by which the
ratio of total indebtedness to annualized Adjusted EBITDA is determined.
This ratio is commonly used in the cable television industry as a measure
of leverage, for the reasons noted above in note 5.
(8) For purposes of this computation, earnings are defined as income (loss)
before fixed charges. Fixed charges are interest costs and other debt
costs.
11
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Notes to Summary Pro Forma Consolidated Financial and Operating Data
(9) Homes passed are the number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
system's service area.
(10) Basic subscribers are 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.
(11) Basic penetration means basic subscribers as a percentage of total number
of homes passed.
(12) Premium service units mean the number of subscriptions to premium
services, which are paid for on an individual basis. A subscriber may
purchase more than one premium service, each of which is counted as a
separate premium service unit.
(13) Premium penetration means premium service units as a percentage of total
number of basic subscribers. This ratio may be greater than 100% if the
average customer subscribes to more than one premium service unit.
(14) Represents average monthly revenues for the period divided by the number
of basic subscribers as of the end of 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.
(15) Represents annualized system cash flow for the period divided by the
number of basic subscribers at the end of 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.
(16) Represents annualized Adjusted EBITDA for the period divided by the number
of basic subscribers at the end of such period. This measurement is used
in the cable television industry to analyze and compare cable television
companies on the basis of operating performance.
12
<PAGE>
Summary Historical Consolidated Financial and Operating Data
The following table presents:
. summary historical consolidated financial and operating data as of
and for the period from the commencement of operations (March 12,
1996) to December 31, 1996 and for the years ended December 31,
1997 and 1998, derived from our audited consolidated financial
statements and should be read in conjunction with those statements,
which are included in this prospectus; and
. unaudited summary historical consolidated financial and operating
data as of and for the six months ended June 30, 1998 and 1999,
derived from our unaudited consolidated financial statements and
should be read in conjunction with those statements, which are
included in this prospectus.
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 six months ended June
30, 1999 are not necessarily indicative of the results that may be expected for
the full year.
See "Management's Discussion and Analysis of Financial Condition" and
"Selected Historical and Pro Forma Consolidated Financial and Operating Data."
13
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Summary Historical Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
Six Months
March 12 Year Year Ended
Through Ended Ended June 30,
Dec. 31, Dec. 31, Dec. 31, ---------------------
1996 1997 1998 1998 1999
--------------------------------- ---------- ---------
(dollars in thousands, except per subscriber data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 5,411 $ 17,634 $ 129,297 $ 60,068 $ 74,178
Service costs........... 1,511 5,547 43,849 21,463 24,175
Selling, general and
administrative
expenses............... 931 2,696 25,596 11,541 14,502
Management fee expense.. 270 882 5,797 2,782 3,588
Depreciation and
amortization........... 2,157 7,636 65,793 27,422 41,431
--------- --------- ---------- ---------- ---------
Operating income
(loss)................. 542 873 (11,738) (3,140) (9,518)
Interest expense,
net(/1/)............... 1,528 4,829 23,994 11,738 13,392
Other expenses.......... 967 640 4,058 3,568 734
--------- --------- ---------- ---------- ---------
Net loss................ $ (1,953) $ (4,596) $ (39,790) $ (18,446) $ (23,644)
========= ========= ========== ========== =========
Other Data:
System cash flow(/2/)... $ 2,969 $ 9,391 $ 59,852 $ 27,064 $ 35,501
System cash flow
margin(/3/)............ 54.9% 53.3% 46.3% 45.1% 47.9%
Annualized system cash
flow(/4/).............. $ 71,002
Adjusted EBITDA(/5/).... $ 2,699 $ 8,509 $ 54,055 $ 24,282 $ 31,913
Adjusted EBITDA
margin(/6/)............ 49.9% 48.3% 41.8% 40.4% 43.0%
Annualized Adjusted
EBITDA(/7/)............ $ 63,826
Ratio of total
indebtedness to
annualized
Adjusted EBITDA........ 5.6x
Ratio of Adjusted EBITDA
to interest expense,
net.................... 2.4x
Net cash flows from
operating activities... $ 237 $ 7,007 $ 53,556 $ 31,803 $ 17,306
Net cash flows from
investing activities .. (45,257) (60,008) (397,085) (354,079) (36,205)
Net cash flows from
financing activities... 45,416 53,632 344,714 322,657 18,242
Deficiency of earnings
to fixed charges(/8/).. 1,953 4,596 39,790 18,446 23,644
Operating Data (end of
period, except
average):
Homes passed(/9/)....... 38,749 87,750 520,000 486,000 523,000
Basic
subscribers(/10/)...... 27,153 64,350 354,000 345,000 355,800
Basic
penetration(/11/)...... 70.1% 73.3% 68.1% 71.0% 68.0%
Premium service
units(/12/)............ 11,691 39,288 407,100 398,500 385,400
Premium
penetration(/13/)...... 43.1% 61.1% 115.0% 115.5% 108.3%
Average monthly revenues
per basic
subscriber(/14/)....... $34.75
Annual system cash flow
per basic
subscriber(/15/)....... $200
Annual Adjusted EBITDA
per basic
subscriber(/16/)....... $179
Balance Sheet Data (end
of period):
Total assets............ $ 46,560 $ 102,791 $ 451,152 $ 449,225 $ 448,410
Total indebtedness...... 40,529 72,768 337,905 315,129 359,629
Total members' equity... 4,537 24,441 78,651 99,995 55,007
</TABLE>
(footnotes on following page)
14
<PAGE>
Notes to Summary Historical Consolidated Financial and Operating Data
(1) Net of interest income. Interest income for the periods presented is not
material.
(2) Represents Adjusted EBITDA (as defined below in note 5) 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 as it is commonly used in the cable television
industry to analyze and compare cable television companies on the basis of
operating performance, leverage and liquidity and a company's overall
ability to service its debt. 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 noted above in note 2.
(4) Represents system cash flow for the six months ended June 30, 1999,
multiplied by two. Our management believes this calculation provides a
meaningful measure of performance, on an annualized basis, for the reasons
noted above in note 2.
(5) Represents operating income (loss) before depreciation and amortization.
Adjusted 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 and is not intended to represent funds available for
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.
Adjusted EBITDA is included in this prospectus because our management
believes that Adjusted EBITDA is a meaningful measure for purposes of
acquisitions and monitoring performance as it is commonly used in the
cable television industry and by the investment community to analyze and
compare cable television companies on the basis of operating performance,
debt leverage, ability to incur additional indebtedness and a company's
overall ability to service its debt. In addition, our primary debt
instruments contain certain covenants, compliance with which is measured
by computations similar to determining Adjusted EBITDA. Our definition of
Adjusted EBITDA may not be identical to similarly titled measures reported
by other companies.
(6) Represents Adjusted 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 noted above in note 5.
(7) Represents Adjusted EBITDA for the six months ended June 30, 1999,
multiplied by two. This calculation provides the measure by which the
ratio of total indebtedness to annualized Adjusted EBITDA is determined.
This ratio is commonly used in the cable television industry as a measure
of leverage, for the reasons noted above in note 5.
(8) For purposes of this computation, earnings are defined as income (loss)
before fixed charges. Fixed charges are interest costs and other debt
costs.
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Notes to Summary Historical Consolidated Financial and Operating Data
(9) Homes passed are the number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
system's service area.
(10) Basic subscribers are 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.
(11) Basic penetration means basic customers as a percentage of total number of
homes passed.
(12) Premium service units mean the number of subscriptions to premium
services, which are paid for on an individual basis. A subscriber may
purchase more than one premium service, each of which is counted as a
separate premium service unit.
(13) Premium penetration means premium service units as a percentage of total
number of basic customers. This ratio may be greater than 100% if the
average customer subscribes to more than one premium service unit.
(14) Represents average monthly revenues for the period divided by the number
of basic subscribers as of the end of 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.
(15) Represents annualized system cash flow for the period divided by the
number of basic subscribers at the end of 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.
(16) Represents annualized Adjusted EBITDA for the period divided by the number
of basic subscribers at the end of such period. This measurement is used
in the cable television industry to analyze and compare cable television
companies on the basis of operating performance.
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RISK FACTORS
You should carefully consider the risk factors set forth below, as well
as the other information in this prospectus, before tendering initial notes in
exchange for exchange notes.
We have substantial existing debt and may incur substantial additional debt.
Such debt may adversely affect our ability to obtain financing in the future
and requires our operating subsidiaries to apply a substantial portion of their
cash flow to debt service
As of June 30, 1999, we had outstanding consolidated indebtedness of
$359.6 million. Consolidated interest expense was $13.4 million for the six
months ended June 30, 1999. Giving effect to the Triax and Zylstra
acquisitions, our total indebtedness on June 30, 1999 would have been
approximately $1.1 billion. This high level of debt and our debt service
obligations could have material adverse consequences, including:
. we may have limited ability to obtain additional financing for working
capital, capital expenditures or acquisitions in the future;
. our operating subsidiaries will be dedicating a substantial portion of
their cash flow from operations to the payment of the principal of and
interest on their debt, thereby reducing funds available for future
operations and for distribution to us; and
. we may be more vulnerable to economic downturns and we may be limited
in our ability to withstand competitive pressures.
We anticipate incurring additional debt to finance subsequent
acquisitions, and to fund the expansion, maintenance and upgrade of our
existing systems and the Triax and Zylstra systems. If new debt is added to our
current debt levels, the related risks that we now face could intensify.
There can be no assurance that we will continue to generate cash and
obtain financing sufficient to meet our debt service, capital expenditure and
working capital obligations. For additional information, you should read the
discussion under "Description of the Notes," "Description of Other
Indebtedness" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
We do not have sufficient earnings to cover fixed charges and are dependent on
the future performance of our operating subsidiaries to satisfy our obligations
Our earnings were insufficient to cover fixed charges by $39.8 million
for the year ended December 31, 1998 and $23.6 million for the six months ended
June 30, 1999. In these periods, however, earnings were reduced by substantial
non-cash charges, principally consisting of depreciation and amortization of
$65.8 million for the year ended December 31, 1998 and $41.4 million for the
six months ended June 30, 1999. For additional information, you should read the
discussion under "Selected Historical and Pro Forma Consolidated Financial and
Operating Data."
Our ability to make scheduled debt payments or to refinance our debt will
depend on the future operating performances and cash flows of our subsidiary
operating companies, which are subject to prevailing economic conditions and
interest rate levels, and financial, competitive, business and other factors,
many of which are beyond our control. In addition, our business strategy
includes making substantial capital expenditures to maintain and improve our
cable systems, expand services offered to our customers and make acquisitions
of additional cable systems. Based upon current levels of operations, we
believe that our subsidiaries will be able to meet their debt service
obligations, including distributions to Mediacom to enable us to make payments
on the exchange notes when due and implement our business strategy. However, if
our subsidiaries cannot generate sufficient cash flow from operations for these
purposes, they may have to adopt alternative strategies which may include
reducing or delaying capital expenditures and acquisitions, selling
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<PAGE>
assets, restructuring or refinancing debt or seeking additional equity capital.
We cannot assure you that we will be permitted or able to refinance debt under
the terms of the indenture governing the initial notes and our exchange notes
or our operating subsidiaries' credit facilities or that we can do so on
satisfactory terms. 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 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 adversely affect our access to
capital markets. We reported net losses of $4.6 million, $39.8 million and
$23.6 million, for the years ended December 31, 1997 and 1998, and the six
months ended June 30, 1999. The Triax systems experienced net losses of $24.5
million, $38.5 million, and $20.0 million, for the years ended December 31,
1997 and 1998 and the six months ended June 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
construction and upgrading of our systems, and interest costs on borrowed
money. We expect that we will continue to incur such non-operating expenses at
increased levels as a result of our network upgrade program and recent
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."
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 the notes and our other senior notes and the
credit facilities of our operating subsidiaries contain numerous restrictive
covenants. These covenants place restrictions on, 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; and
. sell or otherwise dispose of assets and merge or consolidate with
another entity.
The credit facilities of our subsidiaries also contain a number of
financial covenants that require the operating subsidiaries to meet specified
financial ratios and tests. For additional information, you should read the
discussion under "Description of Other Indebtedness" and "Description of the
Notes--Covenants." Events beyond the control of our subsidiaries may affect
their ability to meet these 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 credit facilities or our indentures may adversely affect our growth, our
financial condition and our results of operations.
Mediacom is a holding company and we rely on cash distributions from our
subsidiaries to pay amounts due under the exchange notes
Mediacom is a holding company with no significant assets other than our
investments in and advances to our operating subsidiaries. Mediacom Capital, a
wholly owned subsidiary, was formed solely for the purpose of serving as a co-
issuer of senior unsecured notes, including the exchange notes and initial
notes, and has no assets or operations from which it can make payments on the
exchange notes. We will be the sole obligors on the exchange notes. The
exchange notes will not be guaranteed by any of our subsidiaries. Therefore,
the
18
<PAGE>
exchange notes will be subordinated to all debt and other liabilities of the
operating subsidiaries. Claims of creditors of our subsidiaries, including
general trade creditors, will have priority as to the assets of our
subsidiaries over our claims and the claims of the holders of the exchange
notes. As of June 30, 1999, our operating subsidiaries had approximately $34.6
million of debt outstanding, including debt outstanding under the credit
facilities, and $33.8 million of trade payables and other liabilities
outstanding. Additionally, on April 29, 1999, a bank issued two irrevocable
letters of credit in the aggregate amount of $30.0 million in favor of the
seller of Triax systems to secure our performance under the related definitive
agreement. Giving effect to the Triax and Zylstra acquisitions, our operating
subsidiaries would have had approximately $800.6 million of debt outstanding,
and an additional $2.7 million of trade payables and other liabilities.
We will rely on cash distributions from our operating subsidiaries as the
sole source of funds to meet debt service obligations under the exchange notes.
The ability of the subsidiaries to make cash distributions will be subject to
restrictions in the credit facilities governing indebtedness of the
subsidiaries. Subject to certain conditions, the credit facilities permit the
subsidiaries to make cash distributions to us in amounts sufficient for us to
pay interest when due on the exchange notes. We cannot assure you that such
conditions will be satisfied at the time interest and other payments under the
exchange notes are payable. For additional information, you should read the
discussion under "Description of Other Indebtedness."
We may not have the ability to obtain the funds necessary to pay amounts due
under the exchange notes following a change of control offer. This would place
us in default under the indenture governing the exchange notes
Under the indenture governing the exchange notes, upon the occurrence of
specified change of control events, we will be required to offer to repurchase
all outstanding notes. However, we may not have sufficient funds at the time of
the change of control event to make the required repurchase. In addition, a
change of control would constitute an event of default under our subsidiaries'
credit facilities. Because the exchange notes are subordinated to the payment
of all debt and other liabilities of our operating subsidiaries including their
credit facilities, the credit facilities would have to be repaid by our
operating subsidiaries before their assets could be distributed to us for
repurchase of the exchange notes. Our failure to make or complete an offer to
repurchase the exchange notes would place us in default under the indenture.
We have a limited history of operating our current cable television systems and
these systems may not generate operating results at or exceeding historical
levels and our business has grown primarily through acquisitions
We commenced operations in 1996 and have grown principally through
acquisitions. We acquired a substantial portion of our operations in early
1998. The proposed Triax and Zylstra acquisitions will nearly double the number
of customers served by systems under our management. Accordingly, you have
limited information about our operations and the results that we can achieve
through our management. You also have limited information upon which you can
evaluate our performance and your investment in the exchange notes. We cannot
assure you that we will succeed at effectively managing our various cable
systems or the systems that we plan to acquire. We cannot assure you that the
past operating history of any or all of the cable systems that we have acquired
will be indicative of our future results.
If we were to lose key personnel and could not find appropriate replacements in
a timely manner, our business could be adversely affected
If any of our key personnel become unable or unwilling to participate in
our business and operations, our profitability could suffer. Our success is
substantially dependent upon the retention and continued performance of key
individuals, including Rocco B. Commisso, our chairman and chief executive
officer. The subsidiary credit facilities provide that a default will result if
Mr. Commisso ceases to be the chairman and chief executive officer of Mediacom
Management, which manages the day-to-day operations of our operating
subsidiaries. You should read the discussion under "Management" for information
concerning the experience of Mr. Commisso and our executive officers.
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<PAGE>
Our success will also depend upon our ability to attract and retain
personnel for customer relations and field operations. We continually need to
hire, integrate and retain personnel for positions that require a high level of
technical expertise and the ability to communicate technical concepts to our
customers. There is no guarantee that we will be able to recruit or retain
these skilled workers. Failure to do so could impair our ability to operate
efficiently and maintain our reputation for high quality service. This could
also impair our ability to retain current customers and attract new customers,
which would cause our financial performance to decline.
If we are unable to successfully integrate our newly acquired cable systems,
our business could be adversely affected
The integration of the new cable systems will place significant demands
on our management and our operational, financial and marketing resources. Since
January 1, 1998, we have completed three acquisitions that comprise
approximately 81% of our current basic subscribers. We expect to continue to
acquire cable systems as an element of our business strategy. Subject to
satisfaction of closing conditions, we have agreed to acquire the Triax and
Zylstra systems. The acquisitions, if completed as expected in the second half
of 1999, will nearly double the number of our subscribers. Our current
operating and financial systems and controls may not be adequate and any steps
taken to improve these systems and controls may not be sufficient. Our
business, financial condition and results of operations could suffer materially
if we fail to successfully integrate and manage acquired cable systems in a
timely manner.
We may have to obtain equity financing in addition to anticipated borrowings
under our new credit facilities to acquire the Triax systems
We anticipate acquiring the Triax systems in the fourth quarter of 1999.
We expect to use proceeds from borrowings by our subsidiaries under our new
credit facilities as the primary source of funds to pay the estimated $740.0
million purchase price. Under the terms of the indentures governing our notes,
our subsidiaries cannot be liable for indebtedness in excess of six times
operating cash flow of our systems. As of June 30, 1999, and based on pro forma
operating cash flow for the three months ended June 30, 1999, our subsidiaries
could not borrow the entire $740.0 million amount without exceeding this
limitation. Based on our estimates of pro forma operating cash flow for the
three months ended September 30, 1999, our subsidiaries will be able to borrow
$740.0 million without being in violation of this limitation. If actual
operating results are less than our projected results, we will need to obtain
additional equity contributions from our members or others to complete the
purchase of the Triax systems in compliance with the indenture limitation.
There is no assurance we will be able to obtain this equity financing or that
it will be on terms acceptable to us. For additional information, you should
read the discussion under "Description of Notes--Covenants--Limitation on
Indebtedness."
We may be unable to negotiate construction contracts on favorable terms and our
construction costs may increase significantly. This could adversely affect our
growth, financial condition and results of operations
The expansion and upgrade of our existing systems and the systems we have
agreed to acquire in our pending acquisitions will require us to hire
contractors and enter into a number of construction agreements. We may have
difficulty hiring experienced contractors, and the contractors we hire may
encounter cost overruns or delays in construction. Although we have recently
been able to negotiate construction contracts at rates which we believe are
competitive relative to the cable industry as a whole, our construction costs
may increase significantly over the next few years as existing contracts expire
and as demand for cable construction services continues to grow. We cannot
assure you that we will be able to construct new systems or expand or rebuild
existing or acquired systems in a timely manner or at a reasonable cost. This
may adversely affect our growth, financial condition and results of operations.
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<PAGE>
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, we cannot predict the success of
our acquisition strategy. 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 in the future.
We may need additional financing to continue the development of our business
Our capital investment program may not generate projected results and we
may need to obtain additional financing to provide for, among other things:
. planned capital expenditures;
. unanticipated expenses and cost overruns;
. technologies and services which may be introduced in the future; and
. other events which we cannot predict at this time.
There can be no guarantee that we will be able to issue additional debt
or obtain other additional equity capital on satisfactory terms, or at all, to
meet our future financing needs. Our failure to raise additional financing
could have a material adverse effect on our business, results of operations,
prospects and financial condition.
The competition we face from other cable networks and alternative service
providers may cause us to lose market share
Our industry is very competitive. The nature and level of the competition
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. We cannot assure you that we will have the resources to compete
effectively. Many of our present and potential competitors have substantially
greater resources, greater brand name recognition and long-standing
relationships with regulatory authorities. Also, some of our competitors may
use technology that customers may find superior to ours.
Our current and potential competitors include:
. broadcast television providers, which transmit to "off-air" antennas;
. direct broadcast satellite providers, which transmit programming
signals via satellite;
. telephone companies providing video, Internet and other
telecommunications services;
. operators of satellite master antenna television systems, a
distribution system that feeds satellite signals to multiple dwelling
units such as hotels and apartments;
. utilities which possess fiber optic transmission lines capable of
transmitting signals with minimum signal loss or distortion; and
. multichannel multipoint distribution systems, or wireless cable, which
distribute cable television signals through microwave technology.
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<PAGE>
Direct broadcast satellite, known as DBS, has emerged as significant
competition to cable operators. DBS has grown rapidly over the last several
years, far exceeding the growth rate of the cable television industry. The U.S.
Congress is considering legislation which would permit DBS providers to
transmit local broadcast signals. If DBS operators are able to deliver local
broadcast signals, cable system operators will lose a significant competitive
advantage over DBS providers. The continued growth of DBS providers and other
competitors may adversely affect our growth, financial condition and results of
operations.
Recent changes in federal law and recent administrative and judicial
decisions have also removed restrictions that have limited entry into the cable
television business by potential competitors such as telephone companies,
registered utility holding companies and their subsidiaries. Such developments
will enable local telephone companies to provide a wide variety of video
services in the telephone company's service area which will be directly
competitive with services provided by cable television systems. We cannot
predict the extent to which competition will materialize in our franchise areas
from other cable television operators, other video programming distribution
systems and other broadband telecommunications services to the home. We also
cannot predict whether we will face new competitors or their impact on us. You
should read the discussion under "Business--Competition" for additional
information.
Our non-exclusive franchises are subject to non-renewal or termination, 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 and renegotiation from time to
time. Our cable systems are dependent upon the retention and renewal of their
respective local franchises. A franchise is generally granted for a fixed term
ranging from five to fifteen years, but in many cases is terminable if the
franchisee fails to comply with its material provisions. Franchises typically
impose conditions relating to the operation of cable television systems,
including requirements relating to the payment of fees, system bandwidth
capacity, customer service, franchise renewal and termination. No assurance can
be given that our cable systems will be able to retain or renew such franchises
or that the terms of any such renewal will be on terms as favorable as their
respective existing franchises. Furthermore, it is possible that a franchise
authority might grant a franchise to another cable company or a local utility
or telephone company. The non-renewal or termination of franchises or the
granting of competing 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
performance. You should read the discussion under the "Business--Franchises"
and "Legislation and Regulation--State and Local Regulation" for additional
information concerning our franchises.
Our programming costs are substantial and they may increase, which could result
in a decrease in profitability if we are unable to pass that increase on to our
customers
In recent years the cable industry has experienced a rapid escalation in
the cost of programming, particularly sports programming. The escalation in
programming costs may continue and we may not be able to pass programming cost
increases on to our customers. In addition, as we upgrade the channel capacity
of our systems and add programming to our basic and expanded basic tiers, we
may face additional market constraints on our ability to pass programming costs
on to our customers. The inability to pass these increases on to our customers
could negatively impact our financial condition and results of operations.
Programming has been and is expected to continue to be our largest single
expense item and accounted for approximately 22.1% and 24.4% of our total
operating expenses for the years ended December 31, 1997 and 1998.
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 legislation and
regulation at the federal and local levels and, in some instances, at the state
level, and many aspects of such regulation are currently the subject of
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judicial proceedings and administrative or legislative proposals. The Federal
Communications Commission has principal regulatory responsibility. In addition,
operating in a regulated industry generally increases the cost of doing
business. We may also become subject to additional regulatory burdens and
related increased costs. As we continue to offer telecommunication services, we
may be required to obtain federal, state and local licenses or other
authorizations to offer such services. We may not be able to obtain such
licenses or authorizations in a timely manner, or at all, or conditions could
be imposed upon such licenses and 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.
We may be required to provide access to our networks to other Internet service
providers. This could significantly increase our competition and adversely
affect the rebuild of our systems and our ability to provide new products and
services.
Proposals are currently before Congress and the FCC to require cable
operators to provide equal access over their cable systems to other Internet
service providers. To date, the FCC has declined to impose such requirements.
This same "open access" issue is being considered by some local franchising
authorities as well. Recently, a federal district court in Portland, Oregon,
upheld the authority of the local franchising authority to impose an open
access requirement in connection with a cable television franchise transfer and
that decision has been appealed to the U.S. Court of Appeals for the Ninth
Circuit. If we are required to provide such open access, it could adversely
impact our anticipated revenues from high-speed cable modem services and could
complicate marketing and technical issues associated with the introduction of
such services.
If our computer systems or those of third parties with whom we do business are
not Year 2000 compliant, our operations may be 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."
Your failure to participate in the exchange offer will have adverse
consequences
Holders of initial notes who do not exchange their initial notes for
exchange notes pursuant to the exchange offer will continue to be subject to
the restrictions on transfer of the initial notes as a consequence of the
issuance of the initial notes pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act. In general, initial notes may not be offered or sold, unless
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registered under the Securities Act, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. We do not anticipate that we will register the initial notes
under the Securities Act.
This prospectus includes forward-looking statements that may not be accurate
indicators of our future performance
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate," and "continue" or similar words. You
should read statements that contain these words carefully because they:
. discuss our future expectations;
. contain projections of our future results of operations or of our
financial condition; or
. state other forward-looking information.
We believe it is important to communicate our expectations to the holders
of our notes. However, there may be events in the future that we are not able
to accurately predict or over which we have no control. The risk factors listed
in this section, as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results
to differ materially from the expectations we describe in our forward-looking
statements. You should be aware that the occurrence of the events described in
these risk factors and elsewhere in this prospectus could have a material
adverse effect on our business, operating results and financial condition.
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USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the
exchange and registration rights agreement. We will not receive any cash
proceeds from the issuance of the exchange notes in the exchange offer.
We received net proceeds of approximately $121.9 million from the private
offering of the initial notes. We contributed such proceeds to our operating
subsidiaries in the form of subordinated loans. Our subsidiaries used such
amounts to repay a portion of the outstanding principal indebtedness and
related accrued interest under the revolving credit lines of their respective
credit facilities. For additional information, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Other Indebtedness."
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999, as
adjusted to give effect to additional borrowings under our proposed credit
facilities and an additional equity contribution in connection with the pending
Triax and Zylstra acquisitions as if such transactions occurred on June 30,
1999. The following table should be read in conjunction with our financial
statements and accompanying notes thereto, which are contained later in this
prospectus. For additional information, see "Unaudited Pro forma Consolidated
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Description of Other Indebtedness."
<TABLE>
<CAPTION>
As of June 30, 1999
----------------------
Historical As Adjusted
---------- -----------
(dollars in millions)
<S> <C> <C>
Long-term debt (including current maturities):
Mediacom:
Senior notes due 2008................................ $200.0 $ 200.0
Senior notes due 2011................................ 125.0 125.0
Subsidiaries:
Southeast credit facility(/1/)....................... 18.0 --
Western credit facility(/2/)......................... 13.0 --
Mediacom USA credit facility(/3/).................... -- 428.5
Acquisition credit facility(/4/)..................... -- 368.5
Seller note.......................................... 3.6 3.6
------ --------
Total long-term debt............................. 359.6 1,125.6
Total members' equity(/5/)............................... 55.0 63.3
------ --------
Total capitalization............................. $414.6 $1,188.9
====== ========
</TABLE>
- -----------------------------
(/1/) Southeast credit facility had $177.0 million of unused credit
commitments, all of which could have been borrowed and distributed to
Mediacom under the most restrictive covenants of such credit facility.
(/2/) Western credit facility had $83.0 million of unused credit commitments,
all of which could have been borrowed and distributed to Mediacom under
the most restrictive covenants of such credit facility.
(/3/) Mediacom USA credit facility will replace the Southeast and Western
credit facilities. We have received commitment letters from lenders for
a $500.0 million credit facility, although definitive loan documentation
has not yet been signed.
(/4/) Acquisition credit facility represents an anticipated $500.0 million
credit facility.
(/5/) Total members' equity, as adjusted, is increased by $10.5 million, the
additional equity that is expected from our members in connection with
our pending acquisitions, and is decreased by the write off of
unamortized financing fees of $2.2 million related to our existing
credit facilities.
25
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED
FINANCIAL AND OPERATING DATA
In the table below, we provide you with:
. selected historical financial data, as of and for the years ended
December 31, 1994 and 1995 and for the period from January 1, 1996
through March 11, 1996, derived from the audited financial statements
of Benchmark Acquisition Fund II Limited Partnership;
. selected historical consolidated financial and operating data as of
and for the period from the commencement of operations (March 12,
1996) to December 31, 1996 and for the years ended December 31, 1997
and 1998, derived from our audited consolidated financial statements
and should be read in conjunction with those statements, which are
included in this prospectus; and
. unaudited selected historical consolidated financial and operating
data as of and for the six months ended June 30, 1998 and 1999,
derived from our consolidated financial statements and should be read
in conjunction with those statements, which are included in this
prospectus.
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 six months ended June
30, 1999 are not necessarily indicative of the results that may be expected for
the full year.
In addition, the table below presents our unaudited selected pro forma
consolidated financial and operating data for the year ended December 31, 1998
and as of and for the six months ended June 30, 1999. Such data has been
adjusted to illustrate the estimated effects of the following acquisitions and
transactions as if they had occurred at the beginning of the period presented
for the statement of operations data and as of June 30, 1999 for the balance
sheet data:
. our acquisition of the Clearlake system on January 9, 1998;
. our acquisition of the Cablevision systems on January 23, 1998;
. our acquisition of the Caruthersville system on October 1, 1998;
. our pending acquisition of the Triax systems, which is expected to be
completed in the fourth quarter of 1999;
. our pending acquisition of the Zylstra systems, which is expected to
be completed in the second half of 1999;
. receipt of approximately $194.5 million of net proceeds in connection
with our 8 1/2% senior notes on April 1, 1998;
. receipt of approximately $121.9 million of net proceeds in connection
with our 7 7/8% senior notes on February 26, 1999--the initial notes
referred to in this prospectus;
. borrowings under our subsidiary credit facilities; and
. related equity contributions by our members.
26
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED
FINANCIAL AND OPERATING DATA--(continued)
The unaudited selected pro forma consolidated financial data give effect
to the acquisitions of the systems under the purchase method of accounting,
other operating assumptions and the impact of the offering of our senior notes.
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 to our financial statements.
The unaudited selected pro forma consolidated financial data have been
prepared based upon the historical financial statements and do not purport to
represent what our results of operations or financial condition would have
actually been or what operations in any future period would be if the
transactions that give rise to the pro forma adjustments had occurred on the
dates assumed. See "Capitalization," "Unaudited Pro Forma Consolidated
Financial Statements," and the financial statements and related notes included
elsewhere in this prospectus.
27
<PAGE>
Selected Historical and Pro Forma Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
Predecessor(/1/) Mediacom(/2/) Pro Forma
----------------------------- ------------------------------------------------ ---------------------
Six Months Six
Year Year Jan. 1 March 12 Year Year Ended Year Months
Ended Ended Through Through Ended Ended June 30, Ended Ended
Dec. 31, Dec. 31, March 11, Dec. 31, Dec. 31, Dec. 31, ------------------ Dec. 31, June 30,
1994 1995 1996 1996 1997 1998 1998 1999 1998 1999
-------- -------- --------- -------- -------- -------- -------- -------- --------- ----------
(dollars in thousands, except per subscriber data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues.......... $ 5,075 $ 5,171 $1,038 $ 5,411 $ 17,634 $129,297 $ 60,068 $ 74,178 $ 272,258 $ 143,923
Service costs..... 1,322 1,536 297 1,511 5,547 43,849 21,463 24,175 89,966 48,157
Selling, general
and administrative
expenses.......... 1,016 1,059 222 931 2,696 25,596 11,541 14,502 52,317 24,489
Management fee
expense........... 252 261 52 270 882 5,797 2,782 3,588 10,334 6,059
Depreciation and
amortization...... 4,092 3,945 527 2,157 7,636 65,793 27,422 41,431 175,803 94,786
------- ------- ------ ------- -------- -------- -------- -------- --------- ----------
Operating (loss)
income............ (1,607) (1,630) (60) 542 873 (11,738) (3,140) (9,518) (56,162) (29,568)
Interest expense,
net(/3/).......... 878 935 201 1,528 4,829 23,994 11,738 13,392 85,537 40,298
Other expenses.... -- -- -- 967 640 4,058 3,568 734 4,058 734
------- ------- ------ ------- -------- -------- -------- -------- --------- ----------
Net loss from
continuing
operations........ $(2,485) $(2,565) $ (261) $(1,953) $ (4,596) $(39,790) $(18,446) $(23,644) $(145,757) $ (70,600)
======= ======= ====== ======= ======== ======== ======== ======== ========= ==========
Other Data:
System cash
flow(/4/)......... $ 2,737 $ 2,576 $ 519 $ 2,969 $ 9,391 $ 59,852 $ 27,064 $ 35,501 $ 129,975 $ 71,277
System cash flow
margin(/5/)....... 53.9% 49.8% 50.0% 54.9% 53.3% 46.3% 45.1% 47.9% 47.7% 49.5%
Annualized system
cash flow(/6/).... $ 142,554
Adjusted
EBITDA(/7/)....... $ 2,485 $ 2,315 $ 467 $ 2,699 $ 8,509 $ 54,055 $ 24,282 $ 31,913 $ 119,641 $ 65,218
Adjusted EBITDA
margin(/8/)....... 49.0% 44.8% 45.0% 49.9% 48.3% 41.8% 40.4% 43.0% 43.9% 45.3%
Annualized
Adjusted
EBITDA(/9/)....... $ 130,436
Ratio of total
indebtedness to
annualized
Adjusted EBITDA... 8.6x
Ratio of Adjusted
EBITDA to interest
expense, net...... 1.6x
Net cash flows
from operating
activities........ $ 1,395 $ 1,478 $ 226 $ 237 $ 7,007 $ 53,556 $ 31,803 $ 17,306 $ 81,461 $ 35,258
Net cash flows
from investing
activities........ (552) (261) (86) (45,257) (60,008) (397,085) (354,079) (36,205) (89,877) (59,518)
Net cash flows
from financing
activities........ (919) (1,077) -- 45,416 53,632 344,714 322,657 18,242 8,631 22,871
Deficiency of
earnings to fixed
charges(/10/)..... 2,485 2,565 261 1,953 4,596 39,790 18,446 23,644 145,757 70,600
Operating Data
(end of period,
except average):
Homes
passed(/11/)...... 38,749 87,750 520,000 486,000 523,000 1,051,000 1,065,500
Basic
subscribers(/12/).. 27,153 64,350 354,000 345,000 355,800 700,100 711,300
Basic
penetration(/13/).. 70.1% 73.3% 68.1% 71.0% 68.0% 66.6% 66.8%
Premium service
units(/14/)....... 11,691 39,288 407,100 398,500 385,400 592,850 554,000
Premium
penetration(/15/).. 43.1% 61.1% 115.0% 115.5% 108.3% 84.7% 77.9%
Average monthly
revenues per basic
subscriber(/16/).. $33.72
Annual system cash
flow per basic
subscriber(/17/).. $200
Annual Adjusted
EBITDA per basic
subscriber(/18/).. $183
Balance Sheet Data
(end of period):
Total assets...... $11,755 $ 8,149 $46,560 $102,791 $451,152 $449,225 $448,410 $1,225,410
Total
indebtedness...... 13,294 12,217 40,529 72,768 337,905 315,129 359,629 1,125,629
Total members'
equity............ (2,003) (4,568) 4,537 24,441 78,651 99,995 55,007 63,262
</TABLE>
(footnotes on following page)
28
<PAGE>
Notes to Selected Historical and Pro Forma Consolidated Financial and Operating
Data
(1) The 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 have been derived from the audited financial statements of the
Benchmark Acquisition Fund II Limited Partnership. The Benchmark
Acquisition Fund II Limited Partnership is our predecessor company.
(2) We commenced operations on March 12, 1996 with the acquisition of the
Ridgecrest system and have since completed eight additional acquisitions.
See the financial statements and related notes included elsewhere in this
prospectus. The historical amounts represent the results of operations of
the systems acquired from the date of acquisition to the end of the period
presented.
(3) Net of interest income. Interest income for the periods presented is not
material.
(4) Represents Adjusted EBITDA (as defined below in note 7) 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 as it is commonly used in the cable television
industry to analyze and compare cable television companies on the basis of
operating performance, leverage and liquidity and a company's overall
ability to service its debt. Our definition of system cash flow may not be
identical to similarly titled measures reported by other companies.
(5) 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 noted above in note 4.
(6) Represents system cash flow for the six months ended June 30, 1999,
multiplied by two. Our management believes this calculation provides a
meaningful measure of performance, on an annualized basis, for the reasons
noted above in note 4.
(7) Represents operating income (loss) before depreciation and amortization.
Adjusted 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
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.
Adjusted EBITDA is included in this prospectus because our management
believes that Adjusted EBITDA is a meaningful measure for purposes of
acquisitions and monitoring performance as it is commonly used in the
cable television industry and by the investment community to analyze and
compare cable television companies on the basis of operating performance,
debt leverage, ability to incur additional indebtedness and a company's
overall ability to service its debt. In addition, our primary debt
instruments contain certain covenants, compliance with which is measured
by computations similar to determining Adjusted EBITDA. Our definition of
Adjusted EBITDA may not be identical to similarly titled measures reported
by other companies.
(8) Represents Adjusted 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 noted above in note 7.
29
<PAGE>
Notes to Selected Historical and Pro Forma Consolidated Financial and Operating
Data
(9) Represents Adjusted EBITDA for the six months ended June 30, 1999,
multiplied by two. This calculation provides the measure by which the
ratio of total indebtedness to annualized Adjusted EBITDA is determined.
This ratio is commonly used in the cable television industry as a measure
of leverage, for the reasons noted above in note 7.
(10) For purposes of this computation, earnings are defined as income (loss)
before fixed charges. Fixed charges are interest costs and other debt
costs.
(11) Homes passed are the number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
system's service area.
(12) Basic subscribers are 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.
(13) Basic penetration means basic subscribers as a percentage of total number
of homes passed.
(14) Premium service units mean the number of subscriptions to premium
services, which are paid for on an individual basis. A subscriber may
purchase more than one premium service, each of which is counted as a
separate premium service unit.
(15) Premium penetration means premium service units as a percentage of total
number of basic subscribers. This ratio may be greater than 100% if the
average customer subscribes to more than one premium service unit.
(16) Represents average monthly revenues for the period divided by the number
of basic subscribers as of the end of 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.
(17) Represents annualized system cash flow for the period divided by the
number of basic subscribers at the end of 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.
(18) Represents annualized Adjusted EBITDA for the period divided by the number
of basic subscribers at the end of such period. This measurement is used
in the cable television industry to analyze and compare cable television
companies on the basis of operating performance.
30
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The table below sets forth our unaudited pro forma consolidated financial
and operating data for the year ended December 31, 1998, and as of and for the
six months ended June 30, 1999. Such pro forma data has been adjusted to
illustrate the estimated effects of the following acquisitions and transactions
as if they had occurred at the beginning of the period presented for the
statement of operations data and as of June 30, 1999 for the balance sheet
data:
. our acquisition of the Clearlake system on January 9, 1998;
. our acquisition of the Cablevision systems on January 23, 1998;
. our acquisition of the Caruthersville system on October 1, 1998;
. our pending acquisition of the Triax systems, which is expected to
be completed in the fourth quarter of 1999;
. our pending acquisition of the Zylstra systems, which is expected to
be completed in the second half of 1999;
. receipt of approximately $194.5 million of net proceeds in
connection with our 8 1/2% senior notes on April 1, 1998;
. receipt of approximately $121.9 million of net proceeds in
connection with our 7 7/8% senior notes on February 26, 1999--the
initial notes referred to in this prospectus;
. borrowings under our subsidiary credit facilities; and
. related equity contributions by our members.
The unaudited pro forma consolidated financial statements give effect to
the acquisitions of the systems under the purchase method of accounting, other
operating assumptions and the impact of the offering of our senior notes. 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 to our financial statements.
The unaudited pro forma consolidated financial statements have been
prepared based upon the historical financial statements and do not purport to
represent what our results of operations or financial condition would have
actually been or what operations in any future period would be if the
transactions that give rise to the pro forma adjustments had occurred on the
dates assumed. See "Unaudited Summary Pro Forma Consolidated Financial and
Operating Data," "Capitalization" and the financial statements and related
notes included elsewhere in this prospectus.
31
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Pending Acquisitions
---------------------------------------
Mediacom Triax Zylstra
(as reported) (as reported) (as reported) Adjustments Total
------------- ------------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash
equivalents............ $ 1,555 $ 2,820 $ 97 $ (2,917)(a) $ 1,555
Subscriber accounts
receivable, net........ 2,342 1,890 545 -- 4,777
Prepaid expenses and
other assets........... 1,690 -- 310 -- 2,000
Inventory............... 10,135 -- -- -- 10,135
Property, plant and
equipment, net......... 277,126 162,168 4,914 213,668(b) 657,876
Intangible assets, net.. 140,956 165,170 58 221,522(c) 527,706
Other assets, net....... 14,606 5,835 -- 920(d) 21,361
-------- -------- ------ -------- ----------
Total assets.......... $448,410 $337,883 $5,924 $433,193 $1,225,410
======== ======== ====== ======== ==========
Liabilities and Members'
Equity
Debt.................... $359,629 $409,290 $ 34 $356,676(e) $1,125,629
Accounts payable and
accrued expenses....... 31,000 17,466 1,509 (17,053)(f) 32,922
Subscriber advance
payments and deposits.. 1,888 823 -- -- 2,711
Management fees
payable................ 751 -- -- -- 751
Other liablilities...... 135 -- -- -- 135
-------- -------- ------ -------- ----------
Total liabilities..... 393,403 427,579 1,543 339,623 1,162,148
-------- -------- ------ -------- ----------
Capital contributions... 124,990 -- 1,607 8,893(g) 135,490
Retained earnings
(accumulated deficit).. (69,983) (89,696) 2,774 84,677(h) (72,228)
-------- -------- ------ -------- ----------
Total members'
equity............... 55,007 (89,696) 4,381 93,570 63,262
-------- -------- ------ -------- ----------
Total liabilities and
members' equity...... $448,410 $337,883 $5,924 $433,193 $1,225,410
======== ======== ====== ======== ==========
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheet.
32
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(dollars in thousands)
For purposes of determining the pro forma effect of the transactions
described above on our consolidated balance sheet as of June 30, 1999, the
following adjustments have been made:
(a) Represents elimination of cash not included in the acquisition of
Triax and Zylstra.
(b) Represents increase to property, plant and equipment as a result of
our pending acquisitions based on a preliminary allocation of the
purchase price assuming estimated fair values as follows:
<TABLE>
<CAPTION>
Purchase Preliminary Estimated
Price Allocation Fair Value
-------- ----------- ----------
<S> <C> <C> <C>
Triax................................ $740,000 50.0% $ 370,000
Zylstra.............................. 21,500 50.0% 10,750
---------
380,750
Historical balance of property, plant
and equipment--Triax and Zylstra.... (167,082)
---------
Increase to property, plant and
equipment........................... $ 213,668
=========
(c) Represents increase to intangible assets as a result of our pending
acquisitions based on a preliminary allocation of the purchase price
and assumes estimated fair values as follows:
<CAPTION>
Purchase Preliminary Estimated
Price Allocation Fair Value
-------- ----------- ----------
<S> <C> <C> <C>
Triax................................ $740,000 50.0% $ 370,000
Zylstra.............................. 21,500 50.0% 10,750
Closing costs........................ 6,000
---------
386,750
Historical balance of property, plant
and equipment--Triax and Zylstra.... (165,228)
---------
Increase to intangible assets........ $ 221,522
=========
</TABLE>
(d) Represents adjustment to other assets in connection with:
. an addition of $9,000 in closing costs in connection with our
new credit facilities;
. elimination of unamortized financing fees related to our
existing credit facilities of $2,245; and
. elimination of historical other assets of Triax and Zylstra of
$5,835.
(e) Represents the following adjustments to debt related to the
acquisition of Triax and Zylstra:
<TABLE>
<S> <C>
Proceeds from the Mediacom USA credit facility.............. $ 428,500
Proceeds from the Acquisition credit facility............... 368,500
Repayment of our existing credit facilities................. (31,000)
Elimination of existing debt of Triax and Zylstra........... (409,324)
---------
Increase to debt............................................ $ 356,676
=========
</TABLE>
33
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET--(continued)
JUNE 30, 1999
(dollars in thousands)
(f) Represents elimination of accounts payable and accrued expenses of
Triax and Zylstra not assumed by us.
(g) Represents elimination of historical capital contributions of
Zylstra of $1,607 and additional capital contributions to us by our
members of $10,500.
(h) Represents adjustment to accumulated deficit in connection with:
. elimination of historical accumulated deficits of Triax and
Zylstra of $86,922; and
. write-off of unamortized fees related to the existing credit
facilities of $2,245.
34
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Pending Acquisitions
---------------------------------------
Mediacom Triax Zylstra Other
(as reported) Adjustments Subtotal (as reported) (as reported) Adjustments Subtotal Adjustments
------------- ----------- -------- ------------- ------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......... $129,297 $ 6,888(a) $136,185 $119,669 $4,970 $ 11,434(d) $ 272,258 $ --
Service costs.... 43,849 2,803(a) 46,652 37,534 1,883 3,897(d) 89,966 --
Selling, general
and
administrative
expenses........ 25,596 2,274(a) 27,870 21,808 747 1,892(d) 52,317 --
Management fee
expense......... 5,797 7(a) 5,804 4,048 482 -- 10,334 --
Depreciation and
amortization..... 65,793 3,090(b) 68,883 65,391 279 40,948(e) 175,501 302(g)
-------- ------- -------- -------- ------ -------- --------- -----
Operating (loss)
income......... (11,738) (1,286) (13,024) (9,112) 1,579 (35,303) (55,860) (302)
Interest expense
(income), net... 23,994 2,605(c) 26,599 29,358 (51) 28,975(f) 84,881 656(h)
Other expenses... 4,058 -- 4,058 -- -- -- 4,058 --
-------- ------- -------- -------- ------ -------- --------- -----
Net (loss)
income......... $(39,790) $(3,891) $(43,681) $(38,470) $1,630 $(64,278) $(144,799) $(958)
======== ======= ======== ======== ====== ======== ========= =====
Deficiency of
earnings to
fixed charges.. $ 39,790
========
<CAPTION>
Total
----------
<S> <C>
Revenues......... $ 272,258
Service costs.... 89,966
Selling, general
and
administrative
expenses........ 52,317
Management fee
expense......... 10,334
Depreciation and
amortization..... 175,803
----------
Operating (loss)
income......... (56,162)
Interest expense
(income), net... 85,537
Other expenses... 4,058
----------
Net (loss)
income......... $(145,757)
==========
Deficiency of
earnings to
fixed charges.. $ 145,757
==========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
35
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(dollars in thousands)
For purposes of determining the pro forma effects of the transactions
described above on our consolidated statement of operations for the year ended
December 31, 1998, the following adjustments have been made:
(a) The table below represents actual revenues, service costs, and
selling, general and administrative expenses and management fee
expense of the Clearlake, Cablevision and Caruthersville systems
recognized prior to the dates of their respective acquisition. See
"Business--Development of the Systems."
<TABLE>
<CAPTION>
Clearlake Cablevision Caruthersville Total
--------- ----------- -------------- ------
<S> <C> <C> <C> <C>
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
</TABLE>
(b) Represents additional depreciation and amortization related to the
step-up in value of the Clearlake, Cablevision and Caruthersville
systems based on the final allocation of their purchase price. See
note 3 of our December 31, 1998 consolidated financial statements.
(c) Represents increase to interest expense due to incremental
indebtedness arising from the purchase of the Clearlake, Cablevision
and Caruthersville systems as if the purchases occurred on January
1, 1998 and additional interest as if the 8 1/2% senior note
offering occurred on January 1, 1998. An 1/8% change in the interest
rates will increase or decrease the interest expense per annum by
$75 after adjusting for interest rate swap agreements. Outstanding
principal under the subsidiary credit facilities represents average
borrowings during the period.
<TABLE>
<CAPTION>
Interest Pro Forma
Principal Rate Expense
--------- -------- ---------
<S> <C> <C> <C>
Subsidiary credit facilities............... $122,365 7.61% $ 9,312
Seller note................................ 3,193 9.00% 287
8 1/2% senior notes........................ 200,000 8.50% 17,000
-------
Pro forma interest expense................. $26,599
Historical-Mediacom........................ (23,994)
-------
Increase to interest expense............... $ 2,605
=======
</TABLE>
(d) 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 date of their
respective acquisition by Triax Midwest Associates, L.P. These
systems were acquired by Triax Midwest Associates on June 30, 1998
and September 30, 1998, respectively. See note 3 to the December 31,
1998 financial statements of Triax Midwest Associates, L.P.
<TABLE>
<CAPTION>
Jones Marcus Total
------ ------ -------
<S> <C> <C> <C>
Revenues......................................... $2,920 $8,514 $11,434
Service costs.................................... 936 2,961 3,897
Selling, general and administrative expenses..... 702 1,190 1,892
</TABLE>
36
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS--(continued)
FOR THE YEAR ENDED DECEMBER 31, 1998
(dollars in thousands)
(e) Represents increase to historical depreciation and amortization as a
result of our pending acquisitions based on estimated fair values as
follows:
<TABLE>
<CAPTION>
Preliminary
Allocation Pro
of Purchase Asset Forma
Triax Price Life Expense
----- ----------- ----- --------
<S> <C> <C> <C>
Property, plant and
equipment.............. $370,000 7 $ 52,857
Franchise costs......... 185,000 15 12,333
Subscriber lists........ 185,000 5 37,000
-------- --------
Total................... $740,000 $102,190
======== ========
<CAPTION>
Preliminary
Allocation Pro
of Purchase Asset Forma
Zylstra Price Life Expense
------- ----------- ----- --------
<S> <C> <C> <C>
Property, plant and
equipment.............. $ 10,750 7 $ 1,536
Franchise costs......... 5,375 15 358
Subscriber lists........ 5,375 5 1,075
-------- --------
Total................... $ 21,500 $ 2,969
======== ========
<CAPTION>
Preliminary
Allocation Pro
of Purchase Asset Forma
Triax and Zylstra Price Life Expense
----------------- ----------- ----- --------
<S> <C> <C> <C>
Property, plant and
equipment.............. $380,750 7 $ 54,393
Franchise costs......... 190,375 15 12,692
Subscriber lists........ 190,375 5 38,075
Other................... -- -- 1,458
-------- --------
Pro forma depreciation
and amortization....... $761,500 106,618
========
Historical--Triax and
Zylstra................ (65,670)
--------
Increase to depreciation
and amortization....... $ 40,948
========
</TABLE>
37
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS--(continued)
FOR THE YEAR ENDED DECEMBER 31, 1998
(dollars in thousands)
(f) Represents increase to interest expense due to incremental
indebtedness arising from the purchase of the Triax and Zylstra
systems as if such purchases occurred on January 1, 1998. An 1/8%
change in the interest rates will increase or decrease the interest
expense per annum by $1,033 after adjusting for interest rate swap
agreements. Historical interest expense has been eliminated, as we
have not assumed the debt obligations of Triax and Zylstra.
Outstanding principal under the subsidiary credit facilities
represents average borrowings during the period.
<TABLE>
<CAPTION>
Pro
Interest Forma
Principal Rate Expense
--------- -------- --------
<S> <C> <C> <C>
Subsidiary credit facilities............. $888,226 7.61% $ 67,594
Seller note.............................. 3,193 9.00% 287
Senior notes............................. 200,000 8.50% 17,000
--------
Pro forma interest expense............... 84,881
Historical-Triax and Zylstra............. (55,906)
--------
Increase to interest expense............. $ 28,975
========
(g) Represents amortization of $302 in deferred offering fees and
expenses of our 7 7/8% senior notes due 2011.
(h) Represents increase to interest expense as if the 7 7/8% senior note
offering occurred on January 1, 1998. An 1/8% change in the interest
rates will increase or decrease the interest expense per annum by
$882 after adjusting for interest rate swap agreements. Outstanding
principal under the subsidiary credit facilities represents average
borrowings during the period.
<CAPTION>
Pro
Interest Forma
Principal Rate Expense
--------- -------- --------
<S> <C> <C> <C>
Subsidiary credit facilities............. $767,411 7.61% $ 58,400
Seller note.............................. 3,193 9.00% 287
Senior notes due 2008.................... 200,000 8.50% 17,000
Senior notes due 2011.................... 125,000 7.88% 9,850
--------
Pro forma interest expense after
offering................................ 85,537
Pro forma interest expense prior to
offering................................ (84,881)
--------
Increase to interest expense............. $ 656
========
</TABLE>
38
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Pending Acquisitions
---------------------------------------
Mediacom Triax Zylstra Other
(as reported) (as reported) (as reported) Adjustments Subtotal Adjustments Total
------------- ------------- ------------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 74,178 $ 67,257 $2,488 $ -- $143,923 $ -- $143,923
Service Costs........... 24,175 22,924 1,058 -- 48,157 -- 48,157
Selling, general and
administrative
expenses............... 14,502 9,592 395 -- 24,489 -- 24,489
Management fee expense.. 3,588 2,218 253 -- 6,059 -- 6,059
Depreciation and
amortization........... 41,431 35,644 274 17,391(a) 94,740 46(d) 94,786
-------- -------- ------ -------- -------- ----- --------
Operating (loss)
income................. (9,518) (3,121) 508 (17,391) (29,522) (46) (29,568)
Interest expense
(income), net.......... 13,392 16,252 (30) 10,473(b) 40,087 211(e) 40,298
Other expenses
(income)............... 734 -- (2) 2(c) 734 -- 734
-------- -------- ------ -------- -------- ----- --------
Net (loss) income from
continuing operations.. $(23,644) $(19,373) $ 540 $(27,866) $(70,343) $(257) $(70,600)
======== ======== ====== ======== ======== ===== ========
Deficiency of earnings
of fixed charges....... $ 23,644 $ 70,600
======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
39
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(dollars in thousands)
For purposes of determining the pro forma effects of the transactions
described above on our consolidated statement of operations for the six months
ended June 30, 1999, the following adjustments have been made:
(a) Represents increase to historical depreciation and amortization
expense as a result of our pending acquisitions based on estimated
fair values as follows:
<TABLE>
<CAPTION>
Preliminary
Allocation Pro
of Purchase Asset Forma
Triax Price Life Expense
----- ----------- ----- --------
<S> <C> <C> <C>
Property, plant and equipment............. $370,000 7 $ 52,857
Franchise costs........................... 185,000 15 12,333
Subscriber lists.......................... 185,000 5 37,000
-------- --------
Total..................................... $740,000 $102,190
======== ========
<CAPTION>
Preliminary
Allocation Pro
of Purchase Asset Forma
Zylstra Price Life Expense
------- ----------- ----- --------
<S> <C> <C> <C>
Property, plant and equipment............. $ 10,750 7 $ 1,536
Franchise costs........................... 5,375 15 358
Subscriber lists.......................... 5,375 5 1,075
-------- --------
Total..................................... $ 21,500 $ 2,969
======== ========
<CAPTION>
Preliminary
Allocation Pro
of Purchase Asset Forma
Triax and Zylstra Price Life Expense
----------------- ----------- ----- --------
<S> <C> <C> <C>
Property, plant and equipment............. $380,750 7 $ 54,393
Franchise costs........................... 190,375 15 12,692
Subscriber lists.......................... 190,375 5 38,075
Other..................................... -- -- 1,458
-------- --------
Pro forma depreciation and amortization-
annualized (A)........................... $761,500 106,618
========
Pro forma depreciation and amortization--
Six months ended June 30, 1999 (A divided
by 2).................................... 53,309
Historical--Triax and Zylstra............. (35,918)
--------
Increase to depreciation and
amortization............................. $ 17,391
========
</TABLE>
40
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS--(continued)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(dollars in thousands)
(b) Represents increase to interest expense due to incremental
indebtedness arising from the purchase of the Triax and Zylstra
systems as if the purchases occurred on January 1, 1999. An 1/8%
change in the interest rates will increase or decrease the interest
expense per annum by $895 after adjusting for interest rate swap
agreements.
<TABLE>
<S> <C>
Additional indebtedness required for acquisitions............. $766,000
Interest rate................................................. 6.97%
--------
Pro forma interest expense--annualized (A).................... $ 53,390
Pro forma interest expense--Six months ended June 30, 1999
(A divided by 2)............................................. $ 26,695
Historical--Triax and Zylstra................................. (16,222)
--------
Increase to interest expense.................................. $ 10,473
========
</TABLE>
(c) Represents elimination of other income of Zylstra.
(d) Represents amortization of $46 in deferred offering fees and
expenses of our 7 7/8% senior notes due 2011.
(e) Represents increase to interest expense as if the 7 7/8% senior note
offering occurred on January 1, 1999. The increase to interest
expense is based on a 55 day period (from January 1, 1999 to
February 25, 1999) prior to receiving the proceeds from the offering
on February 26, 1999. An 1/8% change in the interest rates will
increase or decrease the interest expense per annum by $895 after
adjusting for interest rate swap agreements.
<TABLE>
<CAPTION>
Pro
Interest Forma
Principal Rate Expense
--------- -------- -------
<S> <C> <C> <C>
Interest on 7 7/8% senior notes........... $125,000 7.875% $ 9,844
Interest on bank indebtedness............. 125,000 6.970% (8,713)
Interest on discount and closing costs.... 3,625 6.970% 253
-------
Increase to interest expense--annualized.. $ 1,384
-------
Increase to interest expense (January 1,
1999 to February 25, 1999)............... $ 211
=======
</TABLE>
41
<PAGE>
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 pending acquisitions of the Triax and Zylstra systems will
approximately double the number of basic subscribers we currently serve. As
such, we do not believe the discussion and analysis of our historical financial
condition and results of operations set forth below are indicative of our
future performance. All acquisitions have been accounted for under the purchase
method of accounting and, therefore, our historical results of operations
include the results of operations for each acquired system subsequent to its
respective acquisition date.
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.
Other revenues represent pay-per-view charges, late payment fees, advertising
revenues and commissions related to the sale of goods by home shopping
services. We generated significant increases in revenues for the three and six
months ended June 30, 1999, each of the past two years and for the period ended
December 31, 1996, primarily through acquisitions and increases in monthly
revenues per basic subscriber. The following table sets forth for the periods
indicated the percentage of our total revenues attributable to the sources
indicated:
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, December 31,
----------------- --------------------
1999 1998 1998 1997 1996
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Basic revenues...................... 81.0% 80.0% 80.0% 81.0% 80.0%
Premium revenues.................... 13.0% 15.0% 15.0% 9.0% 8.0%
Other revenues...................... 6.0% 5.0% 5.0% 10.0% 12.0%
-------- -------- ------ ------ ------
100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ====== ====== ======
</TABLE>
Our operating expenses consist of service costs and selling, general, and
administrative expenses directly attributable to our cable television 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 FCC'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 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 strategic, managerial, financial and
operational oversight and advice services to us. In exchange for all such
services, Mediacom Management receives annual management fees, ranging from
4.0% to 5.0% of our annual gross revenues. Also, Mediacom Management receives a
fee of 0.5% of the purchase price of the acquisitions we complete and such fees
are included in other expenses.
42
<PAGE>
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.
Adjusted EBITDA represents operating income (loss) before depreciation
and amortization. Adjusted 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 an alternative to the
statement of cash flows as a measure of liquidity as determined in accordance
with generally accepted accounting principles. Adjusted EBITDA is included in
this prospectus because our management believes that Adjusted 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 on the basis of operating performance, leverage and
liquidity. In addition, the credit facilities of our operating subsidiaries
contain certain covenants, compliance with which is measured by computations
similar to determining Adjusted EBITDA. Our definition of Adjusted EBITDA may
not be identical to similarly titled measures reported by other companies.
Results of Operations
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30,
1998
The following historical information for the three months ended June 30,
1999 and 1998 includes the results of operations of the Caruthersville system--
acquired on October 1, 1998--from the date of acquisition.
Revenues increased 11.9% to approximately $38.2 million for the three
months ended June 30, 1999, as compared to approximately $34.1 million for the
three months ended June 30, 1998 primarily as a result of:
. an increase in the average monthly basic service rate of $2.89 per
basic subscriber; and
. internal basic subscriber growth of 2.0%, excluding the acquisition of
the Caruthersville system.
Average monthly revenue per basic subscriber increased to $35.75 for the
three months ended June 30, 1999, from $32.89 for the corresponding period of
1998. At June 30, 1999, we served approximately 355,800 basic subscribers
compared to approximately 345,000 basic subscribers at June 30, 1998.
Service costs increased by 6.1% to approximately $12.4 million for the
three months ended June 30, 1999, as compared to approximately $11.6 million
for the three months ended June 30, 1998. The Caruthersville system accounted
for approximately 28.6% of the total increase. Excluding the Caruthersville
system, these costs increased by approximately $571,000 primarily as a result
of increased programming costs, additional programming carried by our systems
and increased employee expenses. As a percentage of revenues, service costs
were 32.3% for the three months ended June 30, 1999 as compared with 34.1% for
the three months ended June 30, 1998.
Selling, general and administrative expenses increased by 17.0% to
approximately $7.3 million for the three months ended June 30, 1999, as
compared to approximately $6.2 million for the three months ended June 30,
1998. The Caruthersville system accounted for approximately 10.6% of the total
increase. Excluding the Caruthersville system, these costs increased by
approximately $983,000 primarily as a result of increased marketing costs
associated with the promotion of new programming services and higher personnel
expenses. As a percentage of revenues, selling, general and administrative
expenses were 19.1% for the three months ended June 30, 1999 as compared with
18.3% for the three months ended June 30, 1998.
43
<PAGE>
Management fee expense increased by 22.1% to approximately $1.9 million
for the three months ended June 30, 1999, from approximately $1.6 million in
the comparable 1998 period, due to the higher revenues generated in the 1999
period.
Depreciation and amortization increased by 29.9% to approximately $21.0
million for the three months ended June 30, 1999, from approximately $16.2
million in the comparable 1998 period. This increase was substantially due to
our acquisitions in 1998 and additional capital expenditures associated with
the upgrade of our systems.
Interest expense, net, increased by 4.3% to approximately $7.0 million
for the three months ended June 30, 1999, from approximately $6.7 million for
the three months ended June 30, 1998. This increase was substantially due to
higher average debt outstanding during the 1999 period. Other income was
approximately $259,000 for the three months ended June 30, 1999 as compared to
other expense of approximately $228,000 for the three months ended June 30,
1998. This change was principally due to a decrease in the fair value of
interest rate swaps.
Due to the factors described above, we generated a net loss of
approximately $11.2 million for the three months ended June 30, 1999 compared
to a net loss of approximately $8.5 million for the three months ended June 30,
1998.
Adjusted EBITDA increased 13.2% to approximately $16.6 million for the
three months ended June 30, 1999, from approximately $14.7 million for the
three months ended June 30, 1998. This increase was substantially due to the
reasons noted above. Adjusted EBITDA as a percentage of revenues increased to
43.5% for the three months ended June 30, 1999, from 43.0% for the three months
ended June 30, 1998. On a pro forma basis, assuming the Caruthersville system
was owned and operated by us as of April 1, 1998, Adjusted EBITDA increased by
12.1% for the three months ended June 30, 1999 over the comparable period in
1998.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
The following historical information for the six months ended June 30,
1999 and 1998 includes the results of operations of the Clearlake system--
acquired on January 9, 1998, the Cablevision systems--acquired on January 23,
1998, and the Caruthersville system--acquired on October 1, 1998, only for that
portion of the respective period that such cable television systems were owned
by us.
Revenues increased 23.5% to approximately $74.2 million for the six
months ended June 30, 1999, as compared to approximately $60.1 million for the
six months ended June 30, 1998 primarily as a result of:
. the inclusion of the results of operations of the cable television
systems owned by us on June 30, 1999 for the full six month period in
1999;
. an increase in the average monthly basic service rate of $2.98 per
basic subscriber; and
. internal basic subscriber growth of 2.0%, excluding the acquisition of
the Caruthersville system.
Service costs increased by 12.6% to approximately $24.2 million for the
six months ended June 30, 1999, as compared to approximately $21.5 million for
the six months ended June 30, 1998. The Clearlake, Cablevision and
Caruthersville systems accounted for substantially all of this increase. As a
percentage of revenues, service costs were 32.6% for the six months ended June
30, 1999, as compared with 35.7% for the six months ended June 30, 1998.
Selling, general and administrative expenses increased by 25.7% to
approximately $14.5 million for the six months ended June 30, 1999, from
approximately $11.5 million for the six months ended June 30, 1998. The
Clearlake, Cablevision and Caruthersville systems accounted for approximately
43.3% of the total increase. Excluding systems acquired in 1998, these costs
increased by approximately $1.7 million primarily as a result of increased
marketing costs associated with the promotion of new programming services and
increased
44
<PAGE>
personnel expenses. As a percentage of revenues, selling, general and
administrative expenses were 19.6% for the six months ended June 30, 1999 as
compared with 19.2% for the six months ended June 30, 1998.
Management fee expense increased by 29.0% to approximately $3.6 million
for the six months ended June 30, 1999, from approximately $2.8 million in the
comparable 1998 period, due to the higher revenues generated in the 1999
period.
Depreciation and amortization increased by 51.1% to approximately $41.4
million for the six months ended June 30, 1999, from approximately $27.4
million in the comparable 1998 period. This increase was substantially due to
our acquisitions in 1998 and additional capital expenditures associated with
the upgrade of our systems.
Interest expense, net, increased by 14.1% to approximately $13.4 million
for the six months ended June 30, 1999, from approximately $11.7 million for
the six months ended June 30, 1998. This increase was substantially due to
higher average debt outstanding during the 1999 period as a result of debt
incurred in connection with our acquisitions. Other expenses decreased by 79.4%
to approximately $734,000 for the six months ended June 30, 1999, from
approximately $3.6 million for the six months ended June 30, 1998. This
decrease was principally due to acquisition fees incurred in the 1998 period in
connection with the acquisition of the Clearlake system and the Cablevision
systems.
Due to the factors described above, we generated a net loss of
approximately $23.6 million for the six months ended June 30, 1999, compared to
a net loss of approximately $18.4 million for the six months ended June 30,
1998.
Adjusted EBITDA increased 31.4% to approximately $31.9 million for the
six months ended June 30, 1999, from approximately $24.3 million for the six
months ended June 30, 1998. This increase was substantially due to the
inclusion of the results of operations of the Clearlake, Cablevision and
Caruthersville systems for the full six-month period in 1999, and the other
factors described above. Adjusted EBITDA as a percentage of revenues increased
to 43.0% for the six months ended June 30, 1999, from 40.4% for the six months
ended June 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,
Adjusted EBITDA increased by 17.6% for the six months ended June 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--
acquired on June 24, 1997, the Sun City system--acquired on September 19, 1997,
the Clearlake system--acquired on January 9, 1998, the Cablevision systems--
acquired on January 23, 1998, and the Caruthersville system--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.
45
<PAGE>
Revenues increased to approximately $129.3 million for the year ended
December 31, 1998, from approximately $17.6 million for the prior fiscal year
principally due to:
. the inclusion of the results of operations of the Lower Delaware
system and the Sun City system for the full year ended December 31,
1998;
. the inclusion of the results of operations of the Clearlake,
Cablevision and the Caruthersville systems from their respective
acquisition dates;
. the implementation of average monthly basic service rate increases of
$3.34 per basic subscriber; and
. internal basic subscriber growth of 2.5%.
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. Service costs were approximately 33.9% of
revenues in 1998, as compared to approximately 31.5% of revenues in 1997.
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.
Selling, general and administrative expenses were approximately 19.8% of
revenues in 1998, as compared to approximately 15.3% of revenues in 1997.
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 increased to approximately $65.8 million
for the year ended December 31, 1998, as compared to approximately $7.6 million
for the prior year.
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.
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 purchase of the Cablevision, Caruthersville, Clearlake,
Lower Delaware and Sun City systems. 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 of the
Cablevision, Clearlake and Caruthersville systems.
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.
Adjusted 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 of the Cablevision, Caruthersville, Clearlake, Lower Delaware and
Sun City systems. Adjusted EBITDA as a percentage of revenues 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.
46
<PAGE>
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.
The results of operations for the year ended December 31, 1997, were
impacted by the inclusion of:
. the full year of results of operations of the Ridgecrest, Kern Valley,
Nogales and the 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.
Revenues increased to approximately $17.6 million for the year ended
December 31, 1997, from approximately $5.4 million for the period ended
December 31, 1996.
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. Service costs were approximately 31.5% of revenues in 1997, as
compared to approximately 27.9% of revenues in 1996.
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. Selling,
general and administrative expenses were approximately 15.3% of revenues in
1997, as compared to approximately 17.2% of revenues in 1996.
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 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 the
inclusion of the results of operations of the Lower Delaware, Sun City,
Ridgecrest, Kern Valley, Nogales and Valley Center systems.
Due to the factors described above, we had operating income of
approximately $873,000 for the year ended December 31, 1997, as compared to
approximately $542,000 for the period ended December 31, 1996.
Interest expense increased to approximately $4.8 million for the year
ended December 31, 1997, from 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 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.
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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.
Adjusted EBITDA increased by to approximately $8.5 million for the year
ended December 31, 1997, as compared to approximately $2.7 million for the
period ended December 31, 1996. This increase was substantially due to the
inclusion of the results of operations of the Lower Delaware and Sun City
systems and the results of operations for the full year of the Ridgecrest, Kern
Valley, Nogales and Valley Center systems. Adjusted EBITDA as a percentage of
revenues 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 the 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 the same sources.
During the third quarter of 1998, we modified our previously disclosed
five-year capital improvement program by accelerating its planned completion
date to June 30, 2000. Upon completion, we anticipate that 85% of our existing
customers will be served by systems with 550MHz to 750MHz bandwidth capacity.
As a result of these strategic initiatives, total capital expenditures
were $53.7 million for the year ended December 31, 1998 and $35.9 million for
the six months ended June 30, 1999. For the year ended December 31, 1998, and
for the six months ended June 30, 1999, net cash flows from operating
activities were $53.6 million and $17.3 million, respectively, which together
with borrowings under our subsidiary bank credit facilities, funded such
capital expenditures. We anticipate that total capital expenditures will be
$66.0 million during 1999. We intend to use net cash flows from operating
activities and borrowings under our subsidiary bank credit facilities to fund
these capital expenditures.
As a result of the pending acquisitions of the Triax and Zylstra systems,
we have updated our capital improvement program and now expect to spend
approximately $350.0 million over the three-year period ending December 2002,
of which approximately $210.0 million will be invested to upgrade the cable
network and approximately $140.0 million will be used for plant expansion, new
services, converters and maintenance. By December 2002, including the Triax and
Zylstra systems, we anticipate:
. 91.0% of our basic subscribers will be served by systems with 550MHz
to 750MHz bandwidth capacity and two-way communications capability;
and
. eliminating 369 headend facilities of our systems, resulting in 90
headend facilities serving all of our basic subscribers and 30 headend
facilities serving 84% of our basic subscribers.
From commencement of our operations in March 1996 through December 1998,
we acquired cable television systems serving 355,800 basic subscribers as of
June 30, 1999, for an aggregate purchase price of $432.4 million before closing
costs and adjustments.
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To finance such acquisitions, working capital requirements and capital
expenditures and to provide liquidity for future capital needs, we had
completed the following financing arrangements as of June 30, 1999:
. $100.0 million subsidiary bank credit agreement expiring in September
2005;
. $225.0 million subsidiary bank credit agreement expiring in September
2006;
. $2.8 million original principal amount seller note issued in
connection with the acquisition of a cable television system;
. $200.0 million offering of our 8 1/2% senior notes in April 1998;
. $125.0 million offering of our 7 7/8% senior notes in February 1999;
and
. $125.0 million of equity capital contributed by our investors.
As of June 30, 1999, we had entered into interest rate swap agreements to
hedge a notional amount of $50.0 million of borrowings under the bank credit
agreements, which expire from 2000 through 2002. For the three months ended
June 30, 1999, the weighted average interest rate on all indebtedness
outstanding under our credit facilities was approximately 6.3%, before giving
effect to the aforementioned interest rate swap agreements.
As of June 30, 1999, a bank had issued two irrevocable letters under our
existing bank credit agreements in the aggregate amount of $30.0 million in
favor of the seller of the Triax systems to secure our performance under the
related agreement to acquire these systems.
As a result of these financing arrangements, as of June 30, 1999, we had
$260.0 million of unused credit commitments, all of which could have been
borrowed and distributed to us under the most restrictive covenants in the bank
credit agreements. 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 June 30, 1999, the debt leverage ratio--
defined as total debt at the end of the period divided by annualized Adjusted
EBITDA for the period--was 5.41x and the interest coverage ratio--defined as
Adjusted EBITDA divided by interest expense, net, for the period--was 2.37x.
For additional information, see "Description of Other Indebtedness."
We expect to spend $761.5 million, before adjustments and closing costs,
to acquire the Triax and Zylstra systems. In order to finance these
acquisitions and to provide liquidity for future capital needs, we plan to
establish two new subsidiary credit facilities in an aggregate amount of $1.0
billion. We have received commitments from lenders for the first facility which
will replace and combine our existing subsidiary bank credit facilities and
provide a $400.0 million revolving credit facility and a $100.0 million term
loan. These commitments are subject to numerous conditions, including
completion of documentation acceptable to the lenders. It is anticipated that
the second facility would provide for an additional $500.0 million in credit
commitments. There can be no assurance that either or both new credit
facilities will be completed. We also expect to receive $10.5 million of new
capital commitments from our existing members. We anticipate that these
financing arrangements will be completed prior to closing the acquisition of
the Triax systems. For additional information, see "Description of Other
Indebtedness."
We are regularly presented with opportunities to acquire cable television
systems that are evaluated on the basis of our acquisition strategy. Although
we presently do not have any definitive agreements to acquire or sell any of
our cable television systems, other than the definitive agreements to acquire
the Triax and Zylstra systems, from time to time we negotiate with prospective
sellers to acquire additional cable television systems. These potential
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. No assurance can be given
that such definitive documents will be entered into or that, if entered into,
the acquisitions will be completed.
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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 complete the
financing arrangements described above, or, if we were able to do so, that the
terms would be favorable to us.
Recent Developments
In July 1999, we signed an agreement, subject to completion of final
documentation, with SoftNet Systems, Inc., a high-speed Internet access and
content services company, to deploy SoftNet's services throughout our cable
television systems. In addition to a revenue sharing arrangement, we will
receive 3.5 million shares of SoftNet's common stock in exchange for SoftNet's
exclusive rights to deliver their services to our customers. Through this
arrangement and the upgrade plan of our cable network, by December 2002, we
expect to have two-way, high-speed Internet access available to 900,000 homes
that are passed by our cable network, including the Triax and Zylstra systems.
Impact of Recently Issued Accounting Standards
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. Such 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 significant suppliers and
vendors.
Our program management team has defined a four-phase approach to
determining the Year 2000 readiness of our internal systems, software and
equipment. Such 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 June 30, 1999, our assessment and remediation were substantially
complete, and testing and implementation were 50% complete, with final
completion expected by the fourth quarter of 1999.
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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.
We are in the process of acquiring the Triax and Zylstra systems, and we
are monitoring the Year 2000 remediation process for such systems to ensure
completion of remediation promptly after we acquire these systems. 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 television systems. We are in the process of including
these pending 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 program
management team has surveyed the significant third-party vendors and suppliers
whose systems, services or products are important to our operations: e.g.,
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
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 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 June 30,
1999, approximately 40% of our significant third-party vendors had not
responded to the project management team surveys.
In addition to the survey process described above, our 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 June 30, 1999, Year 2000 costs incurred were not material. 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.
These 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.
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BUSINESS
The following section and other parts of this prospectus contain cable
industry terms and technical jargon which readers of this prospectus may find
unfamiliar. We have therefore included a glossary in this prospectus beginning
on page G-1 to assist readers unfamiliar with such terms.
Introduction
We are the 10th largest operator of cable television systems in the
United States, passing 1,065,500 homes and serving 711,300 basic subscribers in
21 states as of June 30, 1999, after giving effect to our pending acquisitions
and other recently announced industry transactions. We were founded in July
1995 by Rocco B. Commisso, our Chairman and Chief Executive Officer,
principally to acquire and develop underperforming cable television systems in
selected non-metropolitan markets.
Since the commencement of our operations in March 1996, we have
experienced significant growth in subscribers, revenues, and cash flows,
primarily as a result of our acquisition activities. Through December 1998, we
spent $432.4 million, before closing costs and adjustments, to complete nine
acquisitions of cable systems that, as of June 30, 1999, passed 523,000 homes
and served 355,800 subscribers in 14 states, principally Alabama, California,
Florida, Kentucky, Missouri and North Carolina.
During the second quarter of 1999, we signed agreements to purchase the
Triax and Zylstra cable systems for an aggregate purchase price of $761.5
million, before closing costs and adjustments. As of June 30, 1999, the Triax
and Zylstra systems passed 542,500 homes and served 355,500 basic subscribers
in nine states, principally Illinois, Indiana, Iowa and Minnesota. Giving
effect to our completed and pending acquisitions, our 1998 revenues were $272.3
million, our Adjusted EBITDA was $119.6 million and our net cash flows from
operations were $81.5 million. On the same basis, for the six months ended June
30, 1999, our revenues were $143.9 million, Adjusted EBITDA was $65.2 million
and our net cash flows from operations were $35.3 million.
We also have improved the financial performance of our systems, largely
as a result of introducing new services to our customers and enhancing the
operating efficiencies of our systems. Assuming all our existing systems were
acquired on January 1, 1997, in 1998 our revenues increased by 13.0%, Adjusted
EBITDA rose by 35.0%, the Adjusted EBITDA margin improved from 35.1% to 42.0%,
and internal subscriber growth was 2.5%. On the same assumptions, comparing six
months ended June 30, 1999 to the corresponding period in 1998, our revenues
increased by 11.4%, Adjusted EBITDA rose by 17.6%, the Adjusted EBITDA margin
improved from 40.8% to 43.0%, and internal subscriber growth was 2.0%.
As a whole, our systems serve communities with favorable demographic
profiles but their customers were generally underserved prior to our ownership.
To increase customer satisfaction and improve the financial performance of our
systems, we have made and will continue to make substantial investments in our
cable network so that it is capable of delivering more information and
entertainment services with greater technical reliability. As of June 30, 1999,
over 62% of our existing customers were served by systems with 550MHz to 750MHz
bandwidth capacity. By June 2000, we expect that 85% of our existing customers
will be served by systems with 550MHz to 750MHz bandwidth capacity.
We believe that the impact of digital technologies on video and
telecommunications delivery systems, together with the emergence of the
Internet as an interactive medium for communications, information,
entertainment, and electronic commerce, have positioned cable's high-speed,
interactive, broadband network as the primary platform for the delivery of
video, voice, and data services to the homes and businesses of our customers.
We also believe that there is considerable demand, including in the smaller
communities we serve, for new and enhanced products and services. We intend to
exploit these business opportunities by rapidly upgrading our cable network. By
December 2002, including the Triax and Zylstra systems, we plan to spend
approximately $210.0 million to upgrade our cable network so that 91% of our
customers will be served by systems with 550 MHz to 750MHz bandwidth capacity
and two-way communications capability and 84% of our customers will be served
by 30 headend facilities.
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Organization
Mediacom serves as the holding company for our operating subsidiaries,
each of which is wholly owned, except for a 1.0% ownership interest in
Mediacom California LLC, held by Mediacom Management. Mediacom Capital, a New
York corporation wholly-owned by Mediacom, was formed in 1998 specifically to
permit Mediacom to issue debt in the public market and does not conduct
operations of its own.
Pursuant to separate management agreements with the operating
subsidiaries, Mediacom Management, a corporation wholly owned by Mr. Commisso,
is paid management fees for managing the day-to-day operations of our
subsidiaries. In accordance with the operating agreement governing the affairs
and operations of Mediacom, Mr. Commisso is the sole manager of Mediacom and
has overall management and effective control of our business and affairs.
Pending Acquisitions
We anticipate that the Triax and Zylstra acquisitions will be completed
during the second half of 1999. There can be no assurance that either the
Triax or Zylstra acquisitions will be completed on the terms described in this
prospectus, or at all. Completion of each of the Triax and Zylstra
acquisitions is subject to several conditions including:
. receipt (or waiver) of all necessary material consents from third
parties;
. absence of any material adverse changes in the condition, properties or
business of the systems to be purchased; and
. notification, approval and compliance with the requirements of
appropriate governmental agencies, including, without limitation,
transfer of cable television franchises.
Cable Television Industry
Overview
Cable television systems receive a variety of television, radio, and data
signals transmitted to the headend facilities by means of off-air antennas,
microwave relay systems and satellite earth stations. These signals are then
modulated, amplified and distributed, primarily through fiber optic and
coaxial cable, to customers who pay a fee for this service. Cable television
systems may also originate their own television programming and other
information services for distribution through the system. The FCC, some state
governments and substantially all local governments regulate the cable
television industry. Cable television systems generally are constructed and
operated pursuant to non-exclusive franchises or similar licenses granted by
local governmental authorities for a specified term of years, generally for
extended periods of up to 15 years.
Cable television systems offer customers various levels, or tiers, of
cable television services consisting of:
. off-air television signals of local network, independent and
educational stations;
. a limited number of television signals from so-called superstations
originating from distant cities, such as WGN;
. various satellite-delivered, non-broadcast channels, such as CNN, MTV,
USA Network, ESPN and TNT;
. programming originated locally by the cable television system, such as
public, governmental and educational access programs; and
. informational displays featuring news, weather, stock market and
financial reports, and public service announcements.
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For an extra monthly charge, cable television systems also offer premium
television services to their customers, such as HBO, Showtime and regional
sports networks. These services are satellite-delivered channels consisting
principally of feature films, live sports events, concerts and other special
entertainment features, usually presented without commercial interruption.
A customer generally pays an initial installation charge and fixed
monthly fees for basic and premium television services and for other services,
such as the rental of converters and remote control devices. Such monthly
service fees constitute the primary source of revenue for cable operators. In
addition to customer revenue from these services, cable operators generate
revenue from additional fees paid by customers for pay-per-view programming of
movies and special events and from the sale of available advertising spots on
advertiser-supported programming. Cable operators also offer to their customers
home shopping services, which pay the cable operators a share of revenue from
sales of products in the cable operators' service areas.
Digital Video
We have begun to utilize our upgraded network to offer a wide array of
new broadband video services to our customers. Digital video technology is a
computerized method of defining, transmitting and storing information that
makes up a television signal. We are installing headend equipment capable of
delivering digitally encoded cable transmissions to a digital-capable set-top
converter box in the customer's home. Digital video technology offers
significant advantages. For example, since digital signals can be compressed,
they can transmit up to 12 channels in the space currently used to transmit
just one analog channel. This will allow us to significantly increase
programming and service offerings, including near video-on-demand, to our
customers.
In June 1999, we introduced digital cable television in an existing
system serving approximately 16,000 basic subscribers and plan to introduce
digital cable television in other existing systems during the second half of
1999 serving approximately 140,000 basic subscribers. We are providing to our
digital video subscribers programming packages which include up to 42
additional multichannel premium services, enhanced pay-per-view options with up
to 30 movie and sports channels, up to 40 channels of CD-quality music and an
interactive on-screen program guide to help them navigate the new digital
choices. We expect to rapidly introduce digital cable television in our
remaining systems, including the Triax and Zylstra systems, as we increase the
channel capacity of our cable network and consolidate our headend facilities.
High-Speed Data Services
The broadband cable network enables data to be transmitted up to 100
times faster than traditional telephone modem technologies. This high-speed
capability allows the 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, for
systems with two-way communications capability, 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. We
believe that these factors of speed and easy accessibility will increase the
use and impact of the Internet. Although other high-speed alternatives are
being developed to compete with cable, we believe that the cable platform
currently is best able to deliver these services to our customers.
The cable industry has developed standards so that inter-operable, non-
proprietary cable modems could be made available for purchase by customers.
Such availability will allow customers to use these modems in different systems
similar to the traditional telephone modem. In March 1998, the Data Over Cable
Service Interface Specifications created by Cable Television Laboratories, Inc.
and others was approved by the International Telecommunications Union as an
international standard for transmitting data over cable systems. Cable
Television Laboratories also established a formal certification process for
cable modems equipment suppliers to obtain a compliance certificate for their
equipment based on this standard. The cable industry expects that standardized
cable modems will become available for purchase in the second half of 1999 at
retail outlets.
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In one of our systems, 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 this market and one other market. The provision of this
dial-up service creates a customer base that can be upgraded to the high-speed
cable modem service in the future.
In July 1999, we signed an agreement, subject to completion of final
documentation, with SoftNet Systems, Inc., a high-speed broadband Internet
access and content services company, to deploy SoftNet's high-speed Internet
access services throughout our cable television systems, under its branded
name, ISP Channel. Through this arrangement with SoftNet, by December 2002, 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. ISP Channel also provides
several additional services, such as the ability to dial-up away from the
customer's home or business, multiple computer access and Internet fax
services. By June 2000, we plan to introduce two-way, high-speed Internet
access in systems passing 250,000 homes. There can be no assurance that we will
complete final documentation of this transaction with SoftNet.
Telephony
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 voice telephony signals
over our cable network. We believe the investments we are making to upgrade our
cable network will position us to provide telephony services in the future.
Business Strategy
Our management team has developed and is executing a business strategy
with the goal of becoming the leading cable operator focused on providing
entertainment, information, and telecommunications services in the smaller
markets of the United States. The key elements of our strategy are:
Pursue Acquisitions in Non-Metropolitan Markets. We have acquired
regionalized clusters of cable television systems serving primarily suburban
areas within the top 50 to 100 television markets and small and medium sized
communities where customers generally require cable television to clearly
receive a full complement of off-air television signals. We believe that there
are advantages in acquiring and operating cable television systems in such
markets, such as:
. 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.
Integrate and Improve Acquired Systems. We seek to rapidly integrate
acquired systems and implement our core operating strategies to improve the
financial and operating performance of these systems. Prior to completion of
our acquisitions, we formulate plans for customer care and billing, plant
upgrades, headend consolidation, new product and service launches, competitive
positioning and human resource requirements. Upon acquisition, we implement
managerial, operating, purchasing, personnel and engineering changes designed
to effect these plans. Critical to our operating strategies is the attraction
and retention of high quality management at both the regional and local levels.
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Build and Manage Regionalized Operating Clusters. We operate regionally
clustered systems in 21 states, including the Triax and Zylstra systems. Our
acquisition strategy is focused, 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 to realize operating efficiencies
through the consolidation of many managerial, customer service, marketing,
administrative and technical functions. This 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 products and services because of the
larger number of customers served by a single headend facility.
We manage our systems through four operating regions. Our regional
management teams oversee local system activities and operate autonomously
within financial and operating guidelines established by our corporate office.
We believe that 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.
Upgrade Our Cable Network. We are rapidly upgrading our cable network to
provide new and enhanced services, improve our competitive position and
increase overall customer satisfaction. By June 2000, we expect that
substantially all of our existing systems will have a minimum bandwidth
capacity of 450MHz and that over 85% of our existing basic subscribers will be
served by systems with 550MHz to 750MHz bandwidth capacity. By December 2002,
we plan to upgrade the remainder of our existing systems and the Triax and
Zylstra systems. Our upgrade plans will allow us to:
. offer an array of new and enhanced services, such as digital cable
television, high-speed Internet access and interactive video;
. increase channel capacity up to a minimum of 82 channels, or more if
digital video technology is used; and
. activate the two-way communications capability of our systems, which
will give our customers the ability to send and receive signals over
the cable network so that high-speed Internet access will not require
a separate telephone line at the customer's home.
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.
Our upgrade plans will result also in the consolidation of headend
facilities. We expect to reduce the number of headend facilities from 459 as of
June 30, 1999 to 90 by December 2002, including the Triax and Zylstra systems.
Launch New and Enhanced Products and Services. We have acquired cable
television systems that have generally underserved their customers. We believe
that significant opportunities exist to increase the revenues of our systems 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. By December 31,
1999, we anticipate introducing digital cable television in systems serving
156,000 of our existing customers. In addition, we have launched high-speed
Internet access in one of our existing systems and are currently exploring
opportunities in interactive video programming and telephony services. To
accelerate the deployment of our high-speed Internet access business, we have
entered into an exclusive agreement with SoftNet. See "Business--Cable
Television Industry--High Speed Data Services."
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Maximize Customer Satisfaction. 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 76% of our
existing customers that are staffed with dedicated personnel who provide
service 24 hours a day, seven days a week. We believe that our focus on
customer service has enhanced our reputation in the communities we serve and
will increase the demand for our new products and services.
Deploy Flexible Financing Structure. To support our business strategy and
to allow us to pursue our acquisition strategy, we have developed a financing
strategy utilizing a blend of equity and debt capital to complement our
acquisition and operating activities. Through our holding company structure, we
raise equity from our members and issue public long-term debt at the holding
company level, while utilizing our subsidiaries to access debt capital,
principally in the commercial bank market, through two stand-alone borrowing
groups. We believe this financing strategy is beneficial because it broadens
our access to various debt markets, enhances our flexibility in managing our
capital structure, reduces the overall cost of debt capital and permits us to
maintain a substantial liquidity position in the form of unused and available
bank credit commitments.
Development of the Systems
Since commencement of our operations in March 1996, we have completed
nine acquisitions of cable television systems. The following table summarizes
information relating to completed and pending acquisitions of cable television
systems in chronological order:
<TABLE>
<CAPTION>
Purchase
Location of Acquisition Price Basic
Systems Predecessor Owner(/1/) Date (in millions)(/2/) Subscribers(/3/)
- ------------------ ----------------------------------- -------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Ridgecrest, CA Benchmark Communications March 1996 $ 18.8 9,200
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 CableSystems, L.P. December 1996 2.5 1,950
Dagsboro, DE American Cable TV Investors 5, Ltd. June 1997 42.6 31,700
Sun City, CA Cox Communications, Inc. September 1997 11.5 9,950
Clearlake, CA Jones Intercable, Inc. January 1998 21.4 17,900
Various States Cablevision Systems Corporation January 1998 308.2 267,150
Caruthersville, MO Cablevision Systems Corporation October 1998 5.0 4,050
Various States Triax Midwest Associates, L.P. Pending 740.0 341,500
Various States Zylstra Communications Corporation Pending 21.5 14,000
-------- -------
$1,193.9 711,300
======== =======
</TABLE>
- -----------------------------
(/1/) Purchased from the named party, one or more of its related parties, or
the controlling or managing operator.
(/2/) Represents the final purchase price before closing costs and adjustments.
(/3/) As of June 30, 1999.
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<PAGE>
Description of the Operating Regions
We have established four operating regions to manage our existing
systems: Southern, Mid-Atlantic, Central and Western. The table below and the
discussion that follows provide an overview of selected operating and technical
statistics for our existing regions and the Triax and Zylstra systems, as of
and for the three months ended June 30, 1999--unless otherwise indicated.
<TABLE>
<CAPTION>
Mid-
Southern Atlantic Central Western Triax Zylstra Total
-------- -------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Homes passed............ 190,800 125,700 125,000 81,500 521,000 21,500 1,065,500
Miles of plant.......... 4,800 2,950 2,975 1,350 9,720 280 22,075
Density(/1/)............ 40 43 42 60 54 77 48
Headend facilities...... 55 15 70 9 305 5 459
Planned headend
elimination............ 45 8 52 0 263 1 369
Basic subscribers....... 134,700 87,100 81,100 52,900 341,500 14,000 711,300
Basic penetration....... 70.6% 69.3% 64.9% 64.9% 65.5% 65.1% 66.8%
Premium service units... 178,900 78,500 105,400 22,600 164,700 3,900 554,000
Premium penetration..... 132.8% 90.1% 130.0% 42.7% 48.2% 27.9% 77.9%
Average monthly revenues
per basic
subscriber(/2/)........ $36.83 $33.00 $34.98 $36.86 $33.07 $29.42 $34.20
Percentage of basic
subscribers at 550MHz
to 750MHz(/3/)......... 50.6% 91.0% 49.3% 65.7% 23.0% 0.0% 42.3%
</TABLE>
- -----------------------------
(/1/) Homes passed divided by miles of plant.
(/2/) Represents average monthly revenues for the three months ended June 30,
1999, divided by basic subscribers as of the end of such period.
(/3/) Represents percentage of basic subscribers within a region or within the
Triax and Zylstra systems served by the indicated bandwidth capacity.
Southern Region. Over 82% of the region's basic subscribers 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
June 30, 1999, the region's systems passed approximately 190,800 homes and
served approximately 134,700 basic subscribers. The internal subscriber growth
for this region was 2.9% for the period ending June 30, 1999. We measure
internal subscriber growth as the percentage change in basic subscribers over a
12-month period, excluding the effects of acquisitions. All of the region's
basic subscribers are serviced from a regional customer service center in Gulf
Breeze, Florida, which provides 24-hour, 7-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. In June 1999, we introduced digital cable television in one
of the region's systems serving approximately 16,000 basic subscribers and plan
to introduce digital cable television in five other systems during the second
half of 1999, serving approximately 40,000 basic subscribers. 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 55 to ten. At that time, we expect that 85% of
this region's basic subscribers will be served by five headend facilities.
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<PAGE>
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. As of June 30, 1999, the region's systems passed
approximately 125,700 homes and served approximately 87,100 basic subscribers.
The internal subscriber growth for this region was 3.2% for the period ending
June 30, 1999. Approximately 65% of the region's basic subscribers are serviced
from a regional customer service center in Hendersonville, North Carolina,
which provides 24-hour, 7-day per week service.
The Mid-Atlantic region's systems have been significantly upgraded with
91% of the region's basic subscribers served by systems with at least 550MHz
bandwidth capacity. During the second half of 1999, we plan to launch digital
cable television in three of the Mid-Atlantic region's systems serving
approximately 52,000 basic customers. 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 15 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 June 30, 1999, the
region's systems passed approximately 125,000 homes and served approximately
81,100 basic subscribers. The internal subscriber growth rate of this region
was 0.5% for the period ending June 30, 1999. Substantially all of the region's
basic subscribers are serviced from a regional customer service center in
Benton, Kentucky, which provides 24-hour, 7-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
systems with 550MHz to 750MHz bandwidth capacity. During the second half of
1999, we plan to introduce digital cable television in two of the Central
region's systems serving approximately 14,000 basic subscribers. 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 70 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 June 30, 1999, the region's systems
passed approximately 81,500 homes and served approximately 52,900 basic
subscribers. The region's internal subscriber growth was flat for the period
ending June 30, 1999. The region's basic subscribers are serviced from seven
local offices.
The Western region's systems have been significantly upgraded with all of
the region's basic subscribers served by systems with a minimum 450MHz
bandwidth capacity and over 65% served by systems with 550MHz bandwidth
capacity. During the second half of 1999, we plan to launch digital cable
television in three of the Western region's systems serving approximately
34,000 basic subscribers. The region's basic subscribers are served by nine
headend facilities. 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.
Triax Systems. The Triax systems serve communities in Arizona, Illinois,
Indiana, Iowa, Michigan, Minnesota, Ohio and Wisconsin. As of June 30, 1999,
these systems passed approximately 521,000 homes and served approximately
341,500 basic subscribers. Substantially all of Triax's basic subscribers are
serviced from two regional customer service centers located in Chillicothe,
Illinois and Waseca, Minnesota, which provide 24-hour, 7-day per week service.
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<PAGE>
As of June 30, 1999, approximately 55% of Triax's subscribers were served
by systems with at least 450MHz bandwidth capacity. 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 Iowa,
Minnesota and South Dakota. As of June 30, 1999, these systems passed
approximately 21,500 homes and served approximately 14,000 basic subscribers.
Upon completion of the Triax and Zylstra acquisitions, we expect that Zylstra's
subscribers will be serviced from Triax's customer service centers and receive
24-hour, 7-day per week service.
As of June 30, 1999, approximately 36% of Zylstra's subscriber were
served by systems with at least 400MHz bandwidth capacity. By December 2000, as
a result of our planned investments to upgrade Zylstra's cable network, we
expect that all of Zylstra's basic subscribers will be served by systems with
750MHz bandwidth capacity and two-way communications capability.
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 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
$350.0 million, with approximately $210.0 million used to upgrade our cable
network. The remaining capital of $140.0 million will be spent on plant
expansion, new services, converters and maintenance. The objectives of our
upgrade program are to increase the bandwidth capacity to 750MHz or higher, to
activate two-way communications capability and to consolidate our headend
facilities, through the extensive deployment of fiber optics networks. The
upgrade of our cable network will allow us to provide digital cable television,
interactive video, high-speed Internet access and other telecommunication
services.
The following table describes the technological state of our cable
network, including the Triax and Zylstra systems, as of June 30, 1999 and
through December 31, 2002, based on our current upgrade plans:
<TABLE>
<CAPTION>
Percentage of Basic Subscribers
--------------------------------
Less than 550MHz- Two-Way
450MHz 450MHz 750MHz Capable
--------- ------ ------- -------
<S> <C> <C> <C> <C>
June 30, 1999............................. 35% 23% 42% 4%
December 31, 1999......................... 19% 23% 58% 9%
December 31, 2000......................... 7% 21% 72% 41%
December 31, 2001......................... 0% 19% 81% 65%
December 31, 2002......................... 0% 9% 91% 91%
</TABLE>
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.
As of June 30, 1999, our systems were operated from 459 headend
facilities. We plan to eliminate 369 headend facilities by December 2002. At
that time, we expect that 84% of our basic subscribers will be served by 30
headend facilities. The consolidation of headend facilities allows us to
realize operating efficiencies and results in lower fixed capital costs on a
per home basis as we introduce new products and services.
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<PAGE>
A central feature of our upgrade program is the deployment of high
capacity, hybrid fiber-optic coaxial architecture referred to as HFC
architecture. The HFC 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
250 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 HFC 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 HFC network design will enhance our cable
network's capability to provide advanced telecommunications services.
Sales and Marketing
Our marketing programs and campaigns are based upon offering a variety of
cable services creatively packaged and tailored to appeal to our different
markets and to segments within each market. We routinely survey our customers
to ensure that we are meeting the demands of our customers and stay abreast of
our competition in order to effectively counter competitors' service offerings
and promotional campaigns. 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.
Programming Supply
We have various contracts to obtain basic and premium programming for the
systems from program suppliers whose compensation is typically based on a fixed
fee per customer. Our programming contracts are generally for a fixed period of
time and are subject to negotiated renewal. Some program suppliers provide
volume discount pricing structures or offer marketing support to us. Our
successful marketing of multiple premium service packages emphasizing customer
value enables us to take advantage of such cost incentives. In addition, we are
a member of the National Cable Television Cooperative, Inc., a programming
consortium consisting of small to medium-sized multiple system operators
serving, in the aggregate, over twelve million cable subscribers. The
consortium helps create efficiencies in the areas of obtaining and
administering programming contracts, as well as 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. We believe that we will be able to pass through
expected increases in our programming costs to customers, although there can be
no assurance that we will be able 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.
Programming Services
Although services vary from system to system due to differences in
channel capacity, viewer interests and community demographics, the majority of
systems offer a basic service tier, consisting of local television channels,
network and independent stations, available over-the-air, satellite-delivered
superstations originating from distant cities such as WGN, and local public,
government, home-shopping and leased access channels. A majority of our systems
offer, for a monthly fee, an expanded basic tier of various satellite-
delivered, non-broadcast channels, such as CNN, MTV, USA Network, ESPN and TNT.
In addition to these services, our systems typically provide one or more
premium services such as HBO, Cinemax, Showtime, The Movie Channel and Starz,
which are combined in different packages to appeal to the various segments of
the viewing
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<PAGE>
audience. 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. 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. Basic subscribers may subscribe for one or more premium service units.
A premium service unit is a single premium service for which a subscriber must
pay an additional monthly fee in order to receive the service. 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. The systems also typically
provide one or more pay-per-view services purchased from independent suppliers
such as Viewer's Choice and Showtime Event Television. These services are
satellite-delivered channels, consisting principally of feature films, live
sporting events, concerts and other special events, usually presented without
commercial interruption. 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.
Customer Rates
Monthly customer rates for services vary from market to market, primarily
according to the amount of programming provided. At June 30, 1999, for our
existing systems, our monthly basic service rates for residential customers
ranged from $4.73 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 the three months ended June 30, 1999, for our
existing systems, the weighted average monthly rate for our combined basic and
expanded basic services was approximately $27.08.
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
unit accounts 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 are an eligible small cable company under FCC rules, which enables 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. Approximately 74%
of the basic subscribers served by our existing systems are covered by such FCC
rules. Upon the completion of the Triax systems, we will no longer be an
eligible small cable company. 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.
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
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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. As of June 30, 1999, we
maintained three regional calling centers in three of our four regions, which
service 76% of our systems' customers. They are staffed with dedicated
personnel who provide service to our customers 24 hours a day, seven days a
week, on a toll-free basis. We believe our regional calling centers allow us to
coordinate more effectively installation appointments and 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. Substantially
all of Triax's customers are serviced from two regional calling centers that
provide service 24 hours a day, seven days a week.
In addition, we are dedicated to fostering strong community relations in
the communities served by the 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. We also install and
provide free cable television service and, where available, Internet access to
schools, government buildings and not-for-profit hospitals in its franchise
areas. We believe that our relations with the communities in which our systems
operate are good.
Franchises
Cable television 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 June 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 the 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 June 30, 1999.
<TABLE>
<CAPTION>
Percentage of Number of Percentage of
Year of Franchise Number of Total Basic Total Basic
Expiration Franchises Franchises Subscribers Subscribers
----------------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
1999 through 2002....... 313 35.1% 253,222 35.6%
2003 and thereafter..... 578 64.9% 458,078 64.4%
--- ------ ------- ------
Total................. 891 100.0% 711,300 100.0%
=== ====== ======= ======
</TABLE>
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<PAGE>
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 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
Cable television 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 television system's ability to provide a
greater variety of programming than is available over the air or through
competitive alternative delivery sources.
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 100 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. Unlike cable television systems, however, direct
broadcast satellite cannot legally deliver local broadcast signals. However,
legislation has passed both houses of Congress that would permit direct
broadcast satellite operators to elect to provide local broadcast signals to
their customers under the Copyright Act. When direct broadcast satellite
providers are permitted to deliver local broadcast signals, cable television
systems will lose a significant competitive advantage. 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 providers. In addition,
medium-power fixed-service satellites can deliver direct-to-home satellite
services over small home satellite dishes, and one provider, PrimeStar,
currently provides service to subscribers using such a satellite. DIRECTV's
owner, Hughes Electronics Corp., recently purchased PrimeStar.
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 television systems has
been limited by channel capacity (35-channel maximum) and the need for
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unobstructed line-of-sight over-the-air transmission. Although relatively few
wireless cable systems in the United States are currently in operation or under
construction, virtually all markets have been licensed or tentatively licensed.
The use of digital compression technology, and the FCC's recent amendment to
its rules to permit reverse path or two-way transmission over wireless
facilities, may enable multichannel multipoint distribution systems to deliver
more channels and additional services.
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.
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 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 1992 Cable Act permits franchising authorities to build and operate
their own cable systems. Municipally-owned cable systems enjoy certain
competitive advantages such as lower-cost financing and exemption from the
payment of franchise fees. The 1992 Cable Act also prohibits the grant of
exclusive franchises, thus other private entities can obtain franchises in the
communities in which we operate.
The 1996 Telecom Act eliminates the restriction against ownership,
subject to certain exceptions, and operation of cable systems by local
telephone companies within their local exchange service areas. Telephone
companies are now free to enter the retail video distribution business through
any means, such as direct broadcast satellite, wireless cable, satellite master
antenna television or as traditional franchised cable system operators.
Alternatively, the 1996 Telecom Act authorizes local telephone companies to
operate open video systems, a facilities-based distribution system, like a
cable system, but which is open, i.e., also available for use by programmers
other than the owner of the facility. Up to two-thirds of the channel capacity
on an "open video system" must be available to programmers unaffiliated with
the local telephone company. As a result of these changes, well financed
businesses from outside the cable television industry--such as public utilities
that own the poles to which cable is attached--may become competitors for
franchises or providers of competing services. The 1996 Telecom Act, however,
also includes numerous provisions designed to make it easier for cable
operators and others to compete directly with local exchange telephone carriers
in the provision of traditional telephone service and other telecommunications
services.
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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.
The cable television industry competes with radio, 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.
We plan 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. 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. In a recent report, the
FCC declined to institute a proceeding to examine this issue, and concluded
that alternative means of access are or soon will be made to a broad range of
Internet service providers. Although the FCC declined to take action on
Internet service providers access to broadband cable facilities, it indicated
that it would continue to monitor this issue. Congress and several state and
local jurisdictions are also reviewing this issue.
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. Several of the Regional Bell
Operating Companies have asked the FCC to deregulate packet-switched networks
to allow them to provide high-speed broadband services, including interactive
online services, without regard to present service boundaries and other
regulatory restrictions. Packet-switched networks are a type of data
communication in which small blocks of data are independently transmitted and
reassembled at their destination. The online services offered by these
competitors could affect our business.
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 customer house drop equipment
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 or lease parcels of real property for signal reception sites,
microwave facilities and business offices, and own all of our service vehicles.
We believe that our properties both owned and leased, are in good condition and
are suitable and adequate for our operations.
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Our cables 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 periodic upgrading to improve system performance and
capacity.
Employees
Other than the executive officers named in the "Management" section of
this prospectus, we have no employees. As of June 30, 1999, our operating
subsidiaries had approximately 654 full-time equivalent employees. None of our
employees is 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.
Federal law prohibits 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 has, on a headend basis, 15,000 or fewer basic customers. A "small
cable company" is defined as an entity serving a total of 400,000 for 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 de jure 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 are a small cable company,
but upon the completion of the Triax acquisition, we will 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 will 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
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. permit regulated equipment rates to be computed by aggregating costs
of broad categories of equipment at the franchise, system, regional or
company level.
Content Requirements
The Communications Act and the FCC's regulations contain broadcast signal
carriage requirements that allow local commercial television broadcast
stations:
. to elect once every three years to require a cable system to carry the
station, subject to certain exceptions; or
. to negotiate with us on the terms by which we carry the station on our
cable system, commonly called retransmission consent.
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 video
program distributors; and
. limit the ability of such programmers to offer exclusive programming
arrangements to their related parties.
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The Communications Act and FCC 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 federal district court recently determined
that this provision was unconstitutional. The federal government has announced
that it will appeal the lower court's ruling.
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 is also considering proposals by Internet service providers to
gain 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
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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 (state or local,
depending on the practice in individual states) to award one or more
franchises within their jurisdictions;
. generally prohibits us from operating in communities without a
franchise;
. encourages competition with existing cable systems by:
-allowing municipalities to operate their own cable systems without
franchises; and
-preventing franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area;
. 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;
. 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.
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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 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; and
. opened an administrative proceeding to reevaluate its cable television
ownership attribution rules.
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
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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. We expect the FCC to
modify its open video rules to comply with the federal court's decision, but we
are unable to predict the impact any rule modifications may have on our
business and operations.
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 2001, by certain
companies providing telecommunications services. The FCC also adopted a second
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 utilities involved
in that litigation have appealed the lower court's decision. We are unable to
predict the outcome of this litigation or the ultimate impact of any revised
FCC rate formula or of any new pole attachment rate regulations on our business
and operations.
Other Regulatory Requirement 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;
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. 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.
Copyright
Our cable systems typically include in their channel line-ups local and
distant television and radio broadcast signals, which are protected by the
copyright laws. We generally do not obtain a license to use this programming
directly from the owners of the programming, but instead comply with an
alternative federal compulsory copyright licensing process. In exchange for
filing certain reports and contributing a percentage of our revenues to a
federal copyright royalty pool, we obtain blanket permission to retransmit the
copyrighted material carried on these broadcast signals. The nature and amount
of future copyright payments for broadcast signal carriage cannot be predicted
at this time.
In a report to Congress, the U.S. Copyright Office recommended that
Congress make major revisions to the cable television compulsory license. The
possible simplification, modification or elimination of the compulsory
copyright license is the subject of continuing legislative review. The
elimination or substantial modification of the cable compulsory license could
adversely affect our ability to obtain suitable programming and could
substantially increase the cost of programming that remains available for
distribution to our subscribers. We cannot predict the outcome of this
legislative activity.
Copyrighted music performed in programming supplied to cable television
systems by pay cable networks and basic cable networks is licensed by the
networks through private agreements with the American Society of Composers and
Publishers, commonly referred to as ASCAP, and BMI, Inc., the two major
performing rights organizations in the United States. Both ASCAP 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.
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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 pursuant to
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; and
. sale or transfer of the franchise; territory of the franchise;
indemnification of the franchising authority; and use and occupancy of
public streets; and types of cable services provided.
A number of states subject cable systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Attempts in other states to
regulate cable systems are continuing and can be expected to increase. To date,
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
The table below sets forth information concerning our executive officers,
none of whom are compensated by us for their respective services. The executive
officers are instead compensated by Mediacom Management, which receives
management fees pursuant to management agreements with us. All executive
officers hold the same positions in Mediacom Management and in our operating
subsidiaries. Mr. Commisso is also our sole manager pursuant to our operating
agreement, and the President and sole Director of Mediacom Management and
Mediacom Capital. Mr. Stephan is also the Treasurer and Secretary of Mediacom
Capital. Mr. Commisso and Mr. Stephan are members of our executive committee,
for which Mr. Commisso acts as chairman.
Executive Officers
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Rocco B. Commisso........... 49 Chairman and Chief Executive Officer
Mark E. Stephan............. 43 Senior Vice President, Chief Financial Officer
and Treasurer
Joseph Van Loan............. 57 Senior Vice President, Technology
Italia Commisso Weinand..... 45 Senior Vice President, Programming
and Human Resources and Secretary
Calvin G. Craib............. 45 Vice President, Business Development
Bruce J. Gluckman........... 46 Vice President, Legal and Regulatory Affairs
John G. Pascarelli.......... 38 Vice President, Marketing
Brian M. Walsh.............. 33 Vice President and Controller
William D. Wegener.......... 37 Vice President, Network Development
The following table sets forth information concerning persons who hold
key operating management positions with our operating subsidiaries:
Field Management
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James M. Carey.............. 48 Senior Vice President, Operations
Richard L. Hale............. 50 Vice President, Southern Region
Arnold Cool................. 51 Regional Manager, Central Region
Louis Gentile............... 39 Regional Manager, Western Region
Donald E. Zagorski.......... 40 Regional Manager, Mid-Atlantic Region
</TABLE>
Rocco B. Commisso has 21 years of experience with the cable television
industry and has served as Chairman and Chief Executive Officer since founding
us in July 1995. From August 1986 to March 1995, he served as Executive Vice
President, Chief Financial Officer and Director of Cablevision Industries
Corporation, the eighth largest cable television company in the United States
before its sale to Time Warner. Prior to that time, Mr. Commisso served as
Senior Vice President of Royal Bank of Canada's affiliate in the United States
from 1981 to August 1986, 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
the National Cable Television Association. Mr. Commisso holds a Bachelor of
Science in Industrial Engineering and a Masters of Business Administration from
Columbia University.
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<PAGE>
Mark E. Stephan has 12 years of experience with the cable television
industry and has served as Senior Vice President, Chief Financial Officer and
Treasurer since March 1996. Previously, Mr. Stephan served as Vice President,
Finance for Cablevision Industries from July 1993 to February 1996. From 1987
to June 1993, he served as Manager of the telecommunications and media-lending
group of Royal Bank of Canada. Mr. Stephan holds a Bachelor of Science in
Economics from Colorado State University.
Joseph Van Loan has 23 years of experience in the cable television
industry and has served as Senior Vice President, Technology since November
1996. Previously, Mr. Van Loan served as Senior Vice President, Engineering for
Cablevision Industries from 1990. From 1988 to 1990, he managed a private
telecommunications consulting practice specializing in domestic and
international cable television and broadcasting. Prior to that time, Mr. Van
Loan served as Vice President, Engineering for Viacom Cable from 1976 to 1988.
Mr. Van Loan received the 1986 Vanguard Award for Science and Technology from
the National Cable Television Association. Mr. Van Loan holds a Bachelor of
Science in Electrical Engineering from California State Polytechnic University.
Italia Commisso Weinand has 22 years of experience in the cable
television industry and has served as Senior Vice President, Programming and
Human Resources and Secretary since February 1998. Ms. Weinand joined us in
April 1996 as Vice President, Operations. Previously, she served as System
Manager and Regional Manager for Comcast Corporation from July 1985 to March
1996. Prior to that time, Ms. Weinand held various management positions in
system operations, marketing, customer service, and government relations with
Time Warner, Times Mirror Cable, and Tele-Communications, Inc. Ms. Weinand
holds a Bachelor of Science in Marketing from Fordham University. Ms. Weinand
is the sister of Mr. Commisso.
Calvin G. Craib has 17 years experience in the cable television industry
and has served as Vice President, Business Development since April 1999.
Previously, he served as Vice President, Finance and Administration for
Interactive Marketing Group from June 1997 to December 1998. Prior to that
time, Mr. Craib served as Senior Vice President, Operations, and Chief
Financial Officer for Douglas Communications from 1986 to May 1997. He joined
the industry in 1981, and has worked at Warner Amex Cable Communications and
Tribune Cable Communications. Mr. Craib holds a Bachelor of Arts in Economics
from the University of New Hampshire and a Masters of Business Administration
in Finance from Columbia University.
Bruce J. Gluckman has six years of experience in the cable television
industry and has served as Vice President, Legal and Regulatory Affairs since
June 1999. Mr. Gluckman joined us in February 1998 as Director of Legal
Affairs. Previously, 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 experience in the
practice of law. Mr. Gluckman holds a Bachelor of Arts from the University of
Chicago and a Juris Doctor from Washington University.
John G. Pascarelli has 19 years of experience in the cable television
industry and joined us as Vice President, Marketing in March 1998. Previously,
Mr. Pascarelli served as Vice President, Marketing for Helicon from January
1996 to February 1998 and as Corporate and Divisional Director of Marketing for
Cablevision Industries from November 1988 to December 1995. Mr. Pascarelli has
worked in the cable television industry since 1980 when he joined Continental
Cablevision, Inc. as a sales manager and thereafter held positions in sales and
marketing with Cablevision Systems Corporation and Storer Communications.
Brian M. Walsh has 11 years of experience in the cable television
industry and has served as Vice President and Controller since February 1998.
Mr. Walsh joined us in April 1996 as Director of Accounting. Previously, he
served as Divisional Business Manager from January 1994 to December 1995 and as
Regional Business Manager from January 1992 to December 1993 for Cablevision
Industries. Mr. Walsh has worked in the cable television industry since 1988
when he joined Cablevision Industries as a staff accountant. Mr. Walsh holds a
Bachelor of Science in Accounting from Siena College.
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<PAGE>
William D. Wegener has 18 years of experience in the Cable Television
industry and has served as Vice President, Network Development, since June
1999. Mr. Wegener joined us in February 1998 as Director of Network
Development. Previously, he served as Senior Sales Engineer for C-Cor
Electronics from October 1995 to October 1997. Prior to that, he served as
Manager of Network Planning from 1992 to September 1995. Manager of System
Design from 1989 to September 1992, and as System Designer from 1981 to 1988
for Cablevision Industries. He is a senior member of the Society of Cable
Telecommunications Engineers.
James M. Carey has 18 years of experience in the cable television
industry and has served as Senior Vice President, Operations since February
1998 and as a consultant to us since September 1997. Previously, Mr. Carey was
founder and President of Infinet Results, a consulting firm to the
telecommunications industry, from December 1996 to August 1997. Prior to that
time, 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 cluster comprising of 500,000 basic subscribers. From
December 1988 to July 1995, he served as Regional Vice President of Cablevision
Industries' Southern Region serving 180,000 basic subscribers. Mr. Carey holds
a Bachelor of Business Administration in Management from Georgia College.
Richard L. Hale has 15 years of experience in the cable television
industry and has served as Vice President, Southern region since June 1999.
Previously, Mr. Hale served as Regional Manager of the Southern region since
September 1998 and as Regional Manager for the Central region from January
1998. Prior to that time, Mr. Hale served as Regional Manager of Cablevision
System's Kentucky/Missouri region from February 1996 to December 1997, as
General Manager of Cablevision Systems' cable television systems in Arkansas
and Missouri from February 1992 to January 1996, and as Regional Sales and
Marketing Director of such systems from 1988 to 1991. Mr. Hale began his career
in the cable television industry in 1984 as Regional Sales and Marketing
Director of Adams-Russell.
Arnold Cool has 21 years of experience in the cable television industry
and has served as Regional Manager of the Central region since September 1998.
Previously, Mr. Cool served as Director of Engineering, Central region from
February 1998 to September 1998. Prior to that time, he served as Chief
Engineer from November 1996 to January 1998, and as Technical Supervisor from
April 1993 to October 1996, for Cablevision Systems' cable television systems
in Kentucky and Missouri. Mr. Cool has held various technical and supervisory
responsibilities for Cablevision Systems and for smaller cable television
companies since 1978.
Louis Gentile has 10 years of experience in the cable television industry
and has served as Regional Manager of the Western region since February 1999.
Previously, Mr. Gentile served as Divisional Financial Director for Mediacom
Southeast from February 1998 to January 1999. Prior to that time, he served as
Regional Business Manager for Cablevision Systems from March 1995 to January
1998 and as Business Manager for Cablevision Systems' Florida systems from
January 1992 to February 1995. Mr. Gentile began his career in the cable
television industry in 1989 when he joined MultiVision Cable Television as an
accountant. Mr. Gentile holds a Bachelor of Science in Accounting from Mercy
College and a Masters of Business Administration from the Sacred Heart
University Graduate School of Business Administration.
Donald E. Zagorski has 18 years of experience in the cable television
industry and has served as Regional Manager of the Mid-Atlantic region since
September 1998. Previously, Mr. Zagorski served as General Manager of our Lower
Delaware system since June 1997. Prior to that time, he served as System and
Regional Manager for Tele-Media Company from March 1990 to May 1997. From 1981
to 1988, Mr. Zagorski held various technical and supervisory positions with
Outer Banks Cablevision and Group W Cable. Mr. Zagorski holds a Bachelor of
Arts in Business Administration from the State University of New York.
Management and Executive Committee
Our operating agreement provides that one Manager shall have overall
management and control of its business and affairs, and that Rocco B. Commisso
is to serve as Manager. Mr. Commisso may designate a corporation or other
entity controlled by him to serve as Manager.
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The operating agreement provides for the establishment of a five-member
Executive Committee to whom Mr. Commisso, as Manager, is required to report
with respect to certain matters. Approval of the Executive Committee must be
obtained for certain extraordinary actions. Mr. Commisso serves as Chairman of
the Executive Committee and is entitled to designate two additional members,
one of whom may be an employee of Mediacom Management or one of our operating
subsidiaries. The remaining two members of the Executive Committee are
designated by the other member or members having the largest equity holdings in
us. The Executive Committee's current members are Rocco B. Commisso, Mark E.
Stephan, Robert L. Winikoff, William S. Morris III and Craig S. Mitchell. Each
member of the Executive Committee shall serve until a successor is duly elected
and duly qualified.
Executive and Other Compensation
We do not make any payments in respect to compensation to any of our
executive officers. Such executive officers receive compensation from Mediacom
Management, which is entitled to receive management fees from our subsidiaries
in exchange for providing management services.
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. Pursuant to the 401(k) plan, employees may elect to defer up to 15%
of their current pre-tax compensation and have the amount of such 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.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Agreements
Separate management agreements with each of our operating subsidiaries
provide for Mediacom Management to be paid annual management fees of 5% of the
first $50.0 million of our annual gross operating revenues, 4.5% of such
revenues in excess of $50.0 million, up to $75.0 million, and 4% of such
revenues in excess of $75.0 million. For the year ended 1998 and the six months
ended June 30, 1999, management fees paid to Mediacom Management were
approximately $5.8 million and $3.8 million, respectively.
Transaction Fees and Expense Reimbursement
Our operating agreement provides that Mediacom Management is paid an
acquisition fee of 1% of the purchase price of acquisitions made by Mediacom
until our pro forma consolidated annual revenues equal $75.0 million. After
consolidated annual revenues equal such an amount, the fee paid to Mediacom
Management is reduced to 0.5% of the purchase price of such acquisition. In
1998, acquisition fees paid to Mediacom Management were $3.3 million. No such
fees were paid during the six months ended June 30, 1999.
Other Relationships with Our Members
Chase Manhattan Capital, L.P. and CB Capital Investors, L.P., which
collectively hold approximately 9.5% of our membership interests, are parties
related to Chase Securities Inc. and The Chase Manhattan Bank. The Chase
Manhattan Bank is the administrative agent and a lender under each of our
subsidiaries bank credit facilities and has received customary fees for acting
in such capacities. We repaid promissory notes in the aggregate principal
amount of $20.0 million, plus accrued interest in the amount of $0.3 million,
to The Chase Manhattan Bank in April 1998. In 1998, The Chase Manhattan Bank
received fees in the amount of $0.2 million for providing a letter of credit.
Chase Securities was the initial purchaser of the 8 1/2% senior notes and
received fees of $5.5 million in 1998 in connection with the offering of such
notes. Chase Securities acted as placement agent in connection with the
placement of our membership interests and as advisory agent in connection with
our purchase of the Cablevision systems. For such placement and advisory
services, Chase Securities received fees totaling $3.5 million in 1998. Chase
Securities was the initial purchaser of the 7 7/8% senior notes and received
fees of $3.1 million in connection with the offering of such notes.
Morris Communications Corporation, which holds approximately 64.5% of our
membership interests, received fees in 1998 of $2.0 million with respect to its
equity contribution.
In connection with the purchase of a cable television system in Kern
County, California from Booth American Company, Mediacom California issued to
Booth American Company, which holds approximately 6.9% of our membership
interests, the seller note in the original principal amount of $2.8 million.
Interest is deferred throughout the term of the seller note and is payable at
maturity on June 28, 2006. The annual interest rate was 9.0% in 1998. See Note
8 of our audited consolidated financial statements.
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MEMBERSHIP INTERESTS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of the date of this prospectus,
information regarding each of the beneficial owners of membership interests in
Mediacom. Rocco B. Commisso is the only executive officer owning such
interests. Mediacom Capital was incorporated in March 1998 and is a wholly
owned subsidiary of Mediacom, has no assets and does not conduct any
operations.
<TABLE>
<CAPTION>
Percentage
of Outstanding
Number of Membership
Beneficial Owner Membership Units Interests
---------------- ---------------- --------------
<S> <C> <C>
Rocco B. Commisso 14,474.37 9.65%
c/o Mediacom LLC
100 Crystal Run Road
Middletown, NY 10941
Morris Communications Corporation 96,776.25 64.51
725 Broad Street
Augusta, GA 30901
CB Capital Investors, L.P.(/1/) 14,306.01 9.54
c/o Chase Manhattan Capital Corporation
380 Madison Avenue
New York, NY 10017
U.S. Investor, Inc.(/2/) 10,379.76 6.92
333 West Fort Street
Detroit, MI 48226
Private Market Fund, L.P. 7,931.33 5.29
c/o Pacific Corporate Group
1200 Prospect Street,
Suite 200
La Jolla, CA 92037
BMO Financial 5,682.52 3.79
c/o Bank of Montreal
430 Park Avenue
New York, NY 10022
Other Investors 449.76 0.30
---------- -------
150,000.00 100.00%
========== =======
</TABLE>
- -----------------------------
(/1/) Includes approximately 2% in respect of membership interests owned by its
related party, Chase Manhattan Capital, L.P.
(/2/) A party related to Booth American Company.
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DESCRIPTION OF THE OPERATING AGREEMENT
The following is a summary of certain provisions of our Operating
Agreement. This summary does not purport to be a complete description of the
Operating Agreement, and is qualified in its entirety by reference to the
Operating Agreement which is available upon request of us at 100 Crystal Run
Road, Middletown, New York 10941, Attention: Chief Financial Officer.
Establishment, Purpose and Duration
We were formed as a limited liability company on July 17, 1995, pursuant
to the provisions of the New York Limited Liability Company Law. Our purposes,
as set forth in our Operating Agreement, are to acquire, directly or through
investments, franchises to operate, and to own, invest in, design, construct,
maintain, manage and operate, exchange and dispose of, one or more cable
television systems or other businesses providing telecommunications services,
and to do all things reasonably incidental thereto, including borrowing and
lending money and securing such borrowings by mortgage, pledge, or other lien,
and leasing or disposing of such systems or businesses.
We will be dissolved upon the first to occur of the following:
. December 31, 2020;
. 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 we are continued
by the vote or written consent of no less than two-thirds of the
remaining membership interests; or
. the entry of a decree of judicial dissolution.
Management and Executive Committee
The Operating Agreement provides that one Manager shall have overall
management and control of our business and affairs and designates Rocco B.
Commisso as Manager until his resignation and the subsequent approval of his
successor by the vote of a majority of the outstanding membership interests.
However, without the consent or approval of members, Mr. Commisso may
designate a corporation or other entity controlled by him and of which he and
members of his immediate family own at least 51% of the equity interests to
serve as our Manager. The Manager may resign at any time and may be removed
for gross negligence or willful misconduct by a vote of no less than two-
thirds of the outstanding membership interests exclusive of those held by the
Manager.
The Operating Agreement provides for a five-member Executive Committee to
whom the Manager is required to report with respect to certain matters,
including our financial status. As manager, Mr. Commisso is the Chairman of
the Executive Committee and is entitled to designate two additional members,
one of whom may be an employee of Mediacom Management or a subsidiary. The
remaining two members of the Executive Committee are designated by our member
or members having the largest equity holdings, which presently is Morris
Communications Corporation. Informational meetings must be held at least
quarterly.
Approval of the Executive Committee, acting by majority vote, is required
for the following actions:
. acquisitions requiring a capital call in excess of $10.0 million or
having a purchase price in excess of $40.0 million;
. the making of a capital call exceeding $8.0 million not involving an
acquisition;
. financing transactions increasing our indebtedness by $40.0 million or
more;
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. dispositions of assets having a sale price in excess of $40.0 million;
. transactions with our related parties or manager requiring payments in
excess of $1.0 million, exclusive of fee payments and reimbursement of
expenses specified in the Operating Agreement;
. offerings of our membership interests or other equity interests, and
any amendments to the Operating Agreement necessary or desirable to
complete the offering;
. determination of our equity value upon the occurrence of events
specified in the Operating Agreement;
. proposed transfers of more than 5,000 units of membership interest by
any member, other than a party related to such member;
. the resolution of conflicts of interest between us and our related
parties, including the Manager;
. our merger or consolidation with or into any other business entity;
and
. taking any actions relating to bankruptcy or similar relief.
The number of members of the Executive Committee will be increased to
seven upon the occurrence of any of the following:
. bankruptcy, incapacity or withdrawal of the Manager or any other event
that terminates the membership of the Manager;
. the Manager is no longer chief executive officer and controlling
shareholder of Mediacom Management while any management agreement
between Mediacom Management and one of our subsidiaries is in effect;
. we have not disposed of our assets and redeemed the membership
interests of all members other than Mr. Commisso and his related
parties within two years of the approval by the members of such a
disposition, as discussed below under "--Voting Rights"; or
. our consolidated system cash flow for any two consecutive fiscal
quarters is less than 80% of the financial projections for such fiscal
quarters, as provided to our lenders in connection with proposed
acquisitions or refinancings.
In such a case, Mr. Commisso and his related parties would be entitled to
designate three of the members of the Executive Committee and our other members
would designate the remaining four.
Right of First Offer
If the Executive Committee or our members determine to sell any or all of
our assets or subsidiaries, the Manager has the right of first offer with
respect to such sale. Within 30 days of a determination to sell, the Manager
may present the proposed terms of an offer for purchase to the members, a
majority of which will be necessary to approve the transaction. Within 30 days
of delivery of the Manager's offer, we shall hold a meeting at which a vote of
the majority of the membership interests not held by the Manager and his
related parties shall be required to accept or reject the Manager's offer. If
the Manager's offer is rejected, the Executive Committee would have 120 days
within which to solicit offers from prospective buyers, including other
members. If within such 120-day period, the Executive Committee is unable to
solicit a bona fide offer from a qualified buyer or negotiate a contract on
terms at least as favorable as those offered by the Manager and for a purchase
price of not less than 105% of the Manager's offered purchase price, the
Executive Committee must accept the Manager's offer unless such sale is to be
effected prior to December 31, 2004, in which case it may
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reject the offer. If the Manager's offer is accepted, we, acting through the
Executive Committee, and the Manager shall proceed to prepare a contract of
sale.
Voting Rights
Our members generally do not have the right to vote on any matters.
However, a vote of no less than two-thirds of the outstanding membership
interests is required for:
. the disposition of substantially all of our assets which, if to be
effected prior to December 31, 2004, shall also require the approval
of the manager;
. the amendment of the Operating Agreement, other than for
administrative purposes;
. a material change to our business purposes;
. the removal of the Manager for gross negligence or willful misconduct;
and
. the continuation of our business following the bankruptcy, death,
disability, legal incapacity, removal or withdrawal of the Manager.
Capital Contributions; Capital Calls
Under the Operating Agreement, our members have made capital
contributions pursuant to capital commitment agreements. To the extent any
member has a capital commitment in excess of such member's capital
contributions, the Manager may make capital calls on a pro rata basis to all
members with respect to no less than 5% of the difference between each member's
capital commitment and capital contribution. The Operating Agreement provides
us with several remedies in the event a member fails to pay any of the amounts
requested pursuant to a capital call, including redeeming the defaulting
member's membership interests for 50% of the equity value, less costs of
collection and interest accrued on unpaid capital call amounts.
Put Rights
Each member has the right to require us to redeem its membership
interests at any time if the holding of such interests exceeds the amount
permitted, or its 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
our 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 we are unable to redeem for cash any
or all of such membership interests at such time, we 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
5.0% over prime.
In addition, in connection with the acquisition of the Cablevision
systems on January 23, 1998, the FCC issued a transactional forbearance from
its cross-ownership restrictions, effective for a period of one year,
permitting CB Capital Investors, L.P. to purchase additional units of
membership interest in us. The FCC extended the forbearance period to January
23, 2000. If at the end of such forbearance period, CB Capital Investors'
membership interest in us remains above the limitations imposed by the FCC's
cross-ownership restrictions, we will be required to repurchase such number of
CB Capital Investors' units of membership interest which exceed the permissible
ownership level. If such repurchase were to occur on January 23, 2000 (i.e.,
upon expiration of the transactional forbearance), and assuming no changes in
the number of our outstanding membership units and no changes in such cross-
ownership rules, the repurchase price for such excess membership interests
would be approximately $7.5 million. See "Membership Interests of Certain
Beneficial Owners and Management" and "Legislation and Regulation." Except as
set forth above, no member has the right to have its membership interests
redeemed or its capital contributions returned prior to our dissolution.
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Transfer of Membership Interests; Preemptive Rights
Under the Operating Agreement, members may not transfer their interests
in us without the Manager's consent, except for transfers to related parties of
the members, and certain significant transfers that also require the consent of
the Executive Committee. If it becomes illegal for a member to hold membership
interests or, if by reason of legal or regulatory restrictions the cost to such
member of holding such interests becomes significantly increased, the affected
member, upon three business days prior notice to the other members, may
transfer its interests to accredited investors and qualified institutional
buyers who are "U.S. Persons" for Federal income tax purposes and who may
lawfully hold such interests under the Communications Act and the FCC rules and
regulations adopted under the Communications Act. Any permitted transferee must
agree to be bound by the provisions of the Operating Agreement.
We may admit additional members provided that, other than in connection
with an acquisition or other business combination or in contemplation of an
initial public offering of equity securities, notice is first given to each of
the members. Each member shall then have the preemptive right to purchase a
portion of the offered interests up to such member's pro rata share based upon
the ratio of such member's interests to all outstanding interests. If any
member does not exercise its preemptive right, the other members exercising the
preemptive right, if any, may subscribe for the remaining offered interests.
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DESCRIPTION OF THE NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions."
The initial notes were issued and the exchange notes will be issued under
an indenture, dated as of February 19, 1999, between us and Harris Trust
Company of New York, formerly known as Bank of Montreal Trust Company, as
trustee. The terms of the notes include those stated in the indenture and those
made part of the indenture by reference to the Trust Indenture Act of 1939, as
amended.
The form and terms of the exchange notes are the same in all material
respects as the form and terms of the initial notes, except that the exchange
notes will have been registered under the Securities Act and therefore will not
bear legends restricting their transfer. The initial notes have not been
registered under the Securities Act and are subject to transfer restrictions.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, define your rights as
holders of these notes. Copies of the indenture are available as set forth
under "Available Information."
Brief Description of the Notes
The notes:
(1) are our general unsecured obligations;
(2) are equal in right of payment to all our existing and future
unsubordinated, unsecured indebtedness, including our 8 1/2% senior
notes due 2008 in the principal amount of $200.0 million; and
(3) are effectively subordinated in right of payment to all our existing
and future secured indebtedness to the extent of the value of the
assets securing such indebtedness and to all liabilities, including
trade payables, of our subsidiaries, other than Mediacom Capital
Corporation.
Principal, Maturity and Interest
The notes initially were issued in an aggregate principal amount of
$125.0 million and will mature on February 15, 2011. Interest on the notes will
accrue at the rate of 7 7/8% per annum from February 26, 1999 or from the most
recent date on which interest has been paid or provided for, payable semi-
annually on February 15 and August 15 of each year, commencing August 15, 1999.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Up to $250.0 million aggregate principal amount of additional notes
having substantially identical terms and conditions as the notes may be issued
pursuant to the indenture, subject to compliance with the covenants contained
in the indenture, including those discussed under "Covenants--Limitation on
Indebtedness" below, as a new incurrence of indebtedness by us. The notes will
be issued in denominations of $1,000 and integral multiples of $1,000.
Principal of, premium, if any, and interest, including Liquidated
Damages, if any, on the notes will be payable, and the notes may be exchanged
or transferred, at the office or agency we maintain for such purpose in the
Borough of Manhattan, The City of New York, which initially shall be the
corporate trust office of the trustee at 88 Pine Street, New York, New York
10005. At our option payment of interest and Liquidated Damages, if any, may be
made by check mailed to the registered holders of the notes at their registered
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addresses; provided that all payments with respect to global notes and
certificated notes the holders of which have given written wire transfer
instructions to the trustee by no later than five business days prior to the
relevant payment date will be required to be made by wire transfer of
immediately available funds to the accounts specified by the holders of such
notes.
Optional Redemption
At any time prior to February 15, 2002, we may, on any one or more
occasions, redeem up to 35% of the aggregate principal amount of the notes,
including any additional notes, on a pro rata basis or nearly as pro rata as
practicable, at a redemption price of 107.85% of the principal amount of the
notes, plus accrued and unpaid interest to the redemption date, with the net
cash proceeds of one or more Equity Offerings; provided that:
. at least 65% of the aggregate principal amount of the notes remains
outstanding immediately after the occurrence of such redemption; and
. the redemption must occur within 90 days of the date of the closing of
such Equity Offering.
On or after February 15, 2006, we may redeem all or any part of the
notes, on not less than 30 and not more than 60 days' notice, at the following
redemption prices, expressed as percentages of principal amount, if redeemed
during the twelve-month period beginning with February 15 of the year
indicated below, in each case together with accrued and unpaid interest and
Liquidated Damages, if any, relating to the notes to the date of redemption:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2006........................................................... 103.938%
2007........................................................... 101.969%
2008 and thereafter............................................ 100.000%
</TABLE>
Selection and Notice
If less than all the notes are to be redeemed, the trustee will select
the notes for redemption as follows:
. if the notes are listed on a national securities exchange, selection
will be made in accordance with the rules of such exchange; or
. if the notes are not so listed, on a pro rata basis or by lot or by
such other method that the trustee deems to be fair and equitable to
holders.
If any note is to be redeemed in part only, the notice of redemption that
relates to such note shall state the portion of the principal amount of such
note to be redeemed and a new note or notes in principal amount equal to the
unredeemed principal portion of such note will be issued; provided, that no
notes of a principal amount of $1,000 or less shall be redeemed in part.
Notice of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each holder of notes to be
redeemed at his registered address. On and after the redemption date, interest
will cease to accrue on notes or portions of notes called for redemption.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of notes shall have the right
to require us to repurchase all or any part of such holder's notes pursuant to
Change of Control Offer at a purchase price equal to 101% of the
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principal amount of the notes plus any accrued and unpaid interest and
Liquidated Damages, if any, on the notes to the date of repurchase (the "Change
of Control Payment").
Within 30 days following any Change of Control, we will mail a notice to
each holder describing the transaction or transactions that constitute the
"Change of Control" and offering to repurchase notes on the Change of Control
Payment Date specified in such notice, pursuant to the procedures required by
the indenture and described in such notice. We will comply with the
requirements of Rule 14 e-1 under the Securities Exchange Act of 1934 and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the notes as a
result of a Change of Control.
On the Change of Control Payment Date, we will, to the extent lawful:
(1) accept for payment notes or portions of notes tendered pursuant to
the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all notes or portions of notes so
tendered; and
(3) deliver or cause to be delivered to the trustee the notes so
accepted, together with an Officers' Certificate stating the notes
or portions of the notes tendered to us.
The Paying Agent will promptly mail to each holder of notes so accepted
payment in an amount equal to the Change in Control Payment for such notes, and
the trustee will promptly authenticate and mail, or cause to be transferred by
book entry, to such holder, a new note equal in principal amount to any
unpurchased portion of the notes surrendered; provided that each such new note
shall be issued in an original principal amount in denominations of $1,000 and
integral multiples of $1,000.
We will send to the trustee and the holders of notes on or as soon as
practicable after the Change of Control Payment Date a notice setting forth the
results of the Change of Control Offer.
We will not be required to make a Change of Control Offer if a third
party makes the Change of Control Offer in the manner, at the time and
otherwise in compliance with the requirements set forth in the indenture
applicable to a Change of Control Offer made by us and purchases all notes or
portions of notes validly tendered and not withdrawn under such Change of
Control Offer. In addition, we will not be required to make a Change of Control
Offer in the event of a highly leveraged transaction that does not constitute a
Change of Control.
The subsidiary credit facilities provide that certain "change of control"
events with respect to Mediacom constitute an event of default thereunder. The
subsidiary credit facilities will not permit the subsidiaries to make
distributions to us so as to permit us to effect a purchase of the notes upon
the Change of Control without the prior satisfaction of certain financial tests
and other conditions. Any future credit facilities or other agreements relating
to indebtedness to which we or our subsidiaries become a party may contain
similar restrictions and provisions. If a Change of Control were to occur, we
may not have sufficient available funds to pay the Change of Control Payment
for all notes that might be delivered by holders of the notes seeking to accept
the Change of Control Offer after payment of the subsidiaries' obligations
under the subsidiary credit facilities or other agreements relating to
indebtedness, under which an event of default has occurred. Our failure to make
or complete the Change of Control Offer or to pay the Change of Control Payment
when due will give the trustee and the holders of the notes the rights
described under "Events of Default" below.
The definition of Change of Control includes a phrase relating to the
sale, assignment, conveyance, transfer, lease or other disposition of "all or
substantially all" of our assets and the assets of our Subsidiaries. Although
there is a developing body of case law interpreting the phrase substantially
all, there is not a precise or established definition of the phrase under
applicable law. Accordingly, the ability of a holder of the notes to
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require us to repurchase such notes as a result of a sale, assignment,
conveyance, transfer, lease or other disposition of less than all of our
assets and the assets of our Subsidiaries to another Person or group may be
uncertain.
Asset Sales
Mediacom will not, and will not permit any Restricted Subsidiary to,
complete an Asset Sale unless:
(1) Mediacom or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such sale or other disposition at least
equal to the fair market value thereof, as determined in good faith
by the Executive Committee, whose determination shall be conclusive
and evidenced by a Committee Resolution;
(2) not less than 75% of the consideration received by Mediacom or such
restricted subsidiary, as the case may be, is in the form of cash or
cash equivalents; and
(3) the Asset Sale Proceeds received by Mediacom or such restricted
subsidiary are applied:
(a) first, to the extent Mediacom elects, or is required, to
prepay, repay or purchase debt under any then existing
Indebtedness of Mediacom or any Restricted Subsidiary, within
360 days following the receipt of the Asset Sale Proceeds from
any Asset Sale or, to the extent Mediacom elects, to make an
investment in assets, including Equity Interests or other
securities purchased in connection with the acquisition of
Equity Interests or property of another Person, used or useful
in a Related Business, provided that such investment occurs and
such Asset Sale Proceeds are so applied within 360 days
following the receipt of such Asset Sale Proceeds (the
"Reinvestment Date"); and
(b) second, on a pro rata basis:
(1) to the repayment of an amount of Other Pari Passu Debt
not exceeding the Other Pari Passu Debt Pro Rata Share;
provided that any such repayment shall result in a
permanent reduction of any commitment in respect of such
Other Pari Passu Debt in an amount equal to the principal
amount so repaid); and
(2) if on the Reinvestment Date with respect to any Asset
Sale the Excess Proceeds exceed $10.0 million, we shall
apply an amount equal to such Excess Proceeds to an offer
to repurchase the notes, at a purchase price in cash
equal to 100% of the principal amount of such notes plus
accrued and unpaid interest and Liquidated Damages, if
any, to the date of repurchase (an "Excess Proceeds
Offer"); provided, that so long as any of the 8 1/2%
notes are outstanding, we shall make such an Excess
Proceeds Offer, together with a similar pro rata offer to
the holders of the 8 1/2% notes and purchase any notes
and 8 1/2% notes tendered in such offers within 359 days
following the receipt of the Asset Sale Proceeds. If an
Excess Proceeds Offer is not fully subscribed, we may
retain the portion of the Excess Proceeds not required to
repurchase notes.
For purposes of determining the percentage of cash consideration received
by Mediacom or any Restricted Subsidiary, the amount of any:
. liabilities--as shown on Mediacom's or such Restricted Subsidiary's
most recent balance sheet--of Mediacom or any Restricted Subsidiary
that are actually assumed by the transferee in such Asset Sale and
from which Mediacom and the Restricted Subsidiaries are fully released
shall be deemed to be cash; and
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. securities, notes or other similar obligations received by Mediacom or
such Restricted Subsidiary from such transferee that are immediately
converted, or are converted within 30 days of the related Asset Sale,
by Mediacom or such Restricted Subsidiary into cash shall be deemed to
be cash in an amount equal to the net cash proceeds realized upon such
conversion.
If we are required to make an Excess Proceeds Offer, within 30 days
following the Reinvestment Date, we will mail a notice to the holders of notes
stating, among other things:
(1) that such holders have the right to require us to apply the Excess
Proceeds to repurchase such notes at a purchase price in cash equal
to 100% of the principal amount of such notes plus accrued and
unpaid interest and Liquidated Damages, if any, to the date of
purchase;
(2) the purchase date, which shall be no earlier than 30 days and not
later than 60 days from the date such notice is mailed;
(3) the instructions, determined by us, that each holder must follow in
order to have such notes repurchased; and
(4) the calculations used in determining the amount of Excess Proceeds
to be applied to the repurchase of such notes.
If the aggregate principal amount of notes surrendered by holders of
such notes exceeds the amount of Excess Proceeds, the Trustee shall select the
notes to be purchased on a pro rata basis or by lot or by such other method
that the Trustee deems to be fair and equitable to holders. Upon completion of
the Excess Proceeds Offer, the amount of Excess Proceeds shall be reset to
zero.
We will comply, to the extent applicable, with the requirements of
Section 14(e) of the Securities Exchange Act and any other securities laws or
regulations in connection with the repurchase of notes as a result of an
Excess Proceeds Offer.
Notwithstanding the foregoing, Mediacom and any Restricted Subsidiary
will be permitted to complete an Asset Swap if:
(1) at the time of entering into the related Asset Swap Agreement or
immediately after giving effect to such Asset Swap no Default or
Event of Default shall have occurred and be continuing or would
occur as a consequence of such Asset Swap; and
(2) such Asset Swap shall have been approved in good faith by the
Executive Committee, whose approval shall be conclusive and
evidenced by a Committee Resolution, which states that such Asset
Swap is fair to Mediacom or such Restricted Subsidiary, as the case
may be, from a financial point of view.
If a Restricted Subsidiary were to complete an Asset Sale, the
Subsidiary Credit Facilities will not permit such Restricted Subsidiary to
make a distribution to us of the related Asset Sale Proceeds so as to permit
us to effect an Excess Proceeds Offer with such Asset Sale Proceeds without
the prior satisfaction of certain financial tests and other conditions. Any
future credit agreements or other agreements relating to Indebtedness to which
we or our Subsidiaries become a party may contain similar restrictions or
other provisions which would prohibit us from purchasing any notes from Asset
Sale Proceeds. In the event an Excess Proceeds Offer occurs at a time when we
are prohibited from receiving Asset Sale Proceeds or purchasing the notes, we
could seek the consent of their lenders to the distribution of Asset Sales
Proceeds or the purchase of notes or could attempt to refinance the
Indebtedness that contains such prohibition. If we do not obtain such a
consent or repay such Indebtedness, we may remain prohibited from purchasing
the notes. In such case, our failure to purchase tendered notes when due will
give the trustee and the holders of the notes the rights described under
"Events of Default" below.
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Events of Default
Each of the following is an Event of Default:
(1) default in payment of any principal of, or premium, if any, on the
notes when due;
(2) default for 30 days in payment of any interest or Liquidated
Damages, if any, on the notes when due;
(3) default by us for 60 days after written notice by holders of not
less than 25% in principal amount of the notes then outstanding in
the observance or performance of any other covenant in the notes or
the indenture;
(4) default in the payment at maturity, continued for the longer of any
applicable grace period or 30 days, of any Indebtedness aggregating
$15.0 million or more of us or any Significant Subsidiary or any
group of Restricted Subsidiaries of Mediacom which, if merged into
each other, would constitute a Significant Subsidiary; or
(5) the acceleration of any such Indebtedness which default shall not be
cured or waived, or such acceleration shall not be rescinded or
annulled, within 30 days after written notice by holders of not less
than 25% in principal amount of the notes then outstanding;
(6) any final judgment or judgments for the payment of money in excess
of $15.0 million, net of amounts covered by insurance, shall be
rendered against us or any Significant Subsidiary or any group of
Restricted Subsidiaries of Mediacom which, if merged into each
other, would constitute a Significant Subsidiary, and shall not be
discharged for any period of 60 consecutive days, during which a
stay of enforcement of such judgment shall not be in effect; and
(7) certain events involving bankruptcy, insolvency or reorganization of
us or a Significant Subsidiary or any group of Restricted
Subsidiaries of Mediacom which, if merged into each other, would
constitute a Significant Subsidiary.
The indenture provides, except for a default in payment of principal of
or premium, if any, or interest on the notes, that the trustee may withhold
notice to the holders of notes of any default if the trustee considers it to be
in the best interest of the holders of the notes to do so.
If an Event of Default resulting from certain events of bankruptcy,
insolvency or reorganization shall occur, the principal of all the notes shall
be due and payable immediately without further action or notice on the part of
the trustee or the holders of the notes. If any other Event of Default occurs
and is continuing, the trustee or the holders of not less than 25% in principal
amount of the notes then outstanding may declare the principal of all the notes
to be due and payable immediately. If we shall cure--or the holders of a
majority in principal amount of the notes, if permitted by the indenture, shall
waive--all defaults, other than the nonpayment of principal, interest and
premium, if any, on any notes which shall have become due by acceleration and
other conditions are met, such declaration may be annulled by the holders of a
majority in principal amount of the notes then outstanding.
The holders of a majority in principal amount of the notes then
outstanding shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee subject to
limitations specified in the indenture. Subject to the provisions of the
indenture relating to the duties of the trustee, if an Event of Default shall
occur and be continuing, the trustee will be under no obligation to exercise
any of its rights or powers under the indenture at the request or direction of
any of the holders of the notes, unless such holders have offered to the
trustee reasonable indemnity.
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Covenants
Limitation on Restricted Payments
Mediacom will not, and will not permit any Restricted Subsidiary to, make
any Restricted Payment if:
. at the time of such proposed Restricted Payment, a Default or Event of
Default shall have occurred and be continuing or shall occur as a
consequence of such Restricted Payment;
. immediately after giving effect to such proposed Restricted Payment,
Mediacom would not be able to Incur $1.00 of additional Indebtedness
under the Debt to Operating Cash Flow Ratio of the first paragraph of
"--Limitation on Indebtedness" below; or
. immediately after giving effect to any such Restricted Payment, the
aggregate of all Restricted Payments which shall have been made on or
after the date of the indenture would exceed an amount equal to the
difference between:
(a) the Cumulative Credit; and
(b) 1.4 times Cumulative Interest Expense.
For the purposes of this limitation, the amount of any non-cash
Restricted Payment will be its fair market value on the date of such
Restricted Payment, without giving effect to subsequent changes in value, as
determined in good faith by the Executive Committee, whose determination shall
be conclusive and evidenced by a Committee Resolution.
The preceding provisions will not prevent:
(1) the retirement of any of Mediacom's Equity Interests in exchange for,
or out of the proceeds of, the substantially concurrent sale of
Equity Interests of Mediacom other than from a sale to a Subsidiary
of Mediacom or an employee stock ownership plan or to a trust
established by Mediacom or any Subsidiary of Mediacom for the benefit
of its employees;
(2) the payment of any dividend or distribution on, or redemption of
Equity Interests within 60 days after the date of declaration of such
dividend or distribution or the giving of formal notice of such
redemption, if at the date of such declaration or giving of such
formal notice such payment or redemption would comply with the
provisions of the indenture;
(3) Investments constituting Restricted Payments made as a result of the
receipt of non-cash consideration from any Asset Sale made pursuant
to and in compliance with the provisions described under "Repurchase
at the Option of Holders--Asset Sales" above;
(4) payments of compensation to officers, directors and employees of
Mediacom or any Restricted Subsidiary so long as the Executive
Committee or the manager of Mediacom in good faith shall have
approved the terms of such payments;
(5) the payment of dividends on any Equity Interests of any Restricted
Subsidiary following the issuance of such Equity Interests in an
amount per annum of up to 6% of the net proceeds received by Mediacom
or such Restricted Subsidiary from an Equity Offering of such Equity
Interests;
(6) the payment of management, consulting and advisory fees, and any
related reimbursement of expenses or indemnity, to Mediacom
Management or any of its Affiliates and other amounts payable
pursuant to the Operating Agreement, other than any dividend or
distribution on or with
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respect to any Equity Interests of Mediacom or any redemption,
repurchase, retirement or other direct or indirect acquisition of
any Equity Interests of Mediacom, or any warrants, rights or options
to purchase or acquire any such Equity Interests or any securities
exchangeable for or convertible into any such Equity Interests;
(7) the payment of amounts in connection with any merger, consolidation,
or sale of assets effected in accordance with the "--Merger or Sales
of Assets" covenant below, provided that no such payment may be made
pursuant to this clause unless, after giving effect to such
transaction--and the Incurrence of any Indebtedness in connection
therewith and the use of the proceeds of such transaction--Mediacom
would be able to Incur $1.00 of additional Indebtedness in
compliance with the first paragraph of "--Limitation on
Indebtedness" below such that after incurring that $1.00 of
additional Indebtedness, the Debt to Operating Cash Flow Ratio would
be less than or equal to 6.0 to 1.0;
(8) the retirement, redemption or repurchase (a "Regulatory Equity
Interest Repurchase") of any of Mediacom's Equity Interests pursuant
to Article 11 of the Operating Agreement as a result of the
occurrence of a Triggering Event, as defined in the Operating
Agreement and which relates to business investment company, Federal
Communications Commission and other regulatory violations described
in the Operating Agreement;
(9) the redemption, repurchase, retirement, defeasance or other
acquisition of any Subordinated Obligations in exchange for, or out
of net cash proceeds of the substantially concurrent of Equity
Interests of Mediacom or Subordinated Obligations of Mediacom sale,
other than to a Subsidiary of Mediacom or an employee stock
ownership plan or to a trust established by Mediacom or any
Subsidiary of Mediacom for the benefit of its employees;
(10) the payment of any dividend or distribution on or distribution on
or with respect to any Equity Interests of any Restricted
Subsidiary to the holders of its Equity Interests on a pro rata
basis;
(11) the making and consummation of (A) an Excess Proceeds Offer in
accordance with the provisions of the indenture with any Excess
Proceeds or (B) a Change of Control Offer with respect to the notes
in accordance with the provisions of the indenture;
(12) during the period Mediacom is treated as a partnership for U.S.
federal income tax purposes and after such period to the extent
relating to the liability for such period, the payment of
distributions in respect of members' or partners' income tax
liability with respect to Mediacom in an amount not to exceed the
aggregate amount of tax distributions, if any, permitted to be made
by Mediacom to its members under the Operating Agreement, such
amount not to include amounts in respect of taxes resulting from
Mediacom's reorganization as or change in the status to a
corporation;
(13) the payment by any Restricted Subsidiary to Mediacom or another
Restricted Subsidiary of principal and interest due in respect of
intercompany Indebtedness and dividends and other distributions in
respect of Preferred Equity Interests in such Restricted
Subsidiary;
(14) the payment by Mediacom California of all amounts due in respect of
the promissory note in the original principal amount of $2.8
million issued to Booth American Company; and
(15) the distribution of any Investment originally made by Mediacom or
any Restricted Subsidiary pursuant to the first paragraph of this
covenant to holders of Equity Interests of Mediacom or such
Restricted Subsidiary, as the case may be; provided, however, that
in the case of clauses (2), (5), (7), (10), (11) and (15) of this
paragraph, no Default or Event of Default shall have occurred and
be continuing at the time of such Restricted Payment or as a result
of such
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Restricted Payment. In determining the aggregate amount of
Restricted Payments made on or after the date of the indenture,
Restricted Payments made pursuant to clauses (2) and (5) and any
Restricted Payment deemed to have been made pursuant to the "--
Limitation on Transactions with Affiliates" covenant below shall be
included in such calculation.
Limitation on Indebtedness
Mediacom will not, and will not permit any of its Restricted
Subsidiaries, to directly or indirectly, Incur any Indebtedness, including
Acquired Indebtedness, or issue any Disqualified Equity Interests except for
Permitted Indebtedness; provided, however, that Mediacom or any Restricted
Subsidiary may Incur Indebtedness or issue Disqualified Equity Interests if,
at the time of and immediately after giving pro forma effect to such
Incurrence of Indebtedness or issuance of Disqualified Equity Interests and
the application of the proceeds therefrom, the Debt to Operating Cash Flow
Ratio would be less than or equal to 7.0 to 1.0.
The foregoing limitations will not apply to the Incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which will be
given independent effect:
(1) indebtedness under the initial notes, the exchange notes and the
indenture;
(2) indebtedness and Disqualified Equity Interests of Mediacom and the
Restricted Subsidiaries outstanding on the Issue Date other than
Indebtedness described in clause (1), (3), (4) or (6) of this
paragraph;
(3) (A) Indebtedness of the Restricted Subsidiaries under the Subsidiary
Credit Facilities, including any refinancing of such Indebtedness,
and (B) Indebtedness of the Restricted Subsidiaries, including any
refinancing of such Indebtedness, if, at the time of and immediately
after giving pro forma effect to the Incurrence of such Indebtedness
and the application of the proceeds therefrom, the Debt to Operating
Cash Flow Ratio would be less than or equal to 6.0 to 1.0; provided,
however, that for purposes of the calculation of such Ratio, the
term "Consolidated Total Indebtedness" shall refer only to the
Consolidated Total Indebtedness of the Restricted Subsidiaries
(including Indebtedness Incurred under the Subsidiary Credit
Facilities and the Future Subsidiary Credit Facilities) outstanding
as of the Determination Date (as defined hereafter in the term "Debt
to Operating Cash Flow Ratio") and the term "Operating Cash Flow"
shall refer only to the Subsidiary Operating Cash Flow of the
Restricted Subsidiaries for the related Measurement Period (as
defined hereafter in the term "Debt to Operating Cash Flow Ratio");
(4) Indebtedness and Disqualified Equity Interests of (x) any Restricted
Subsidiary owed to or issued to and held by Mediacom or any
Restricted Subsidiary and (y) Mediacom owed to and held by any
Restricted Subsidiary which is unsecured and subordinated in right
of payment to the payment and performance of our obligations under
the indenture and the notes; provided, however, that an Incurrence
of Indebtedness and Disqualified Equity Interests that is not
permitted by this clause (4) shall be deemed to have occurred upon
(i) any sale or other disposition of any Indebtedness or
Disqualified Equity Interests of Mediacom or a Restricted Subsidiary
referred to in this clause (4) to any Person, other than Mediacom or
a Restricted Subsidiary, (ii) any sale or other disposition of
Equity Interests of a Restricted Subsidiary which holds Indebtedness
or Disqualified Equity Interests of Mediacom or another Restricted
Subsidiary such that such Restricted Subsidiary ceases to be a
Restricted Subsidiary or (iii) any designation of a Restricted
Subsidiary which holds Indebtedness or Disqualified Equity Interests
of Mediacom as an Unrestricted Subsidiary;
(5) guarantees by any Restricted Subsidiary of Indebtedness of Mediacom
or any other Restricted Subsidiary Incurred in accordance with the
provisions of the indenture;
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(6) Hedging Agreements of Mediacom or any Restricted Subsidiary relating
to any Indebtedness of Mediacom or such Restricted Subsidiary, as
the case may be, incurred in accordance with the provisions of the
indenture, and entered into for bona fide business purposes and not
for speculation;
(7) Indebtedness or Disqualified Equity Interests of Mediacom or any
Restricted Subsidiary to the extent representing a replacement,
renewal, refinancing or extension (collectively, a "refinancing") of
outstanding Indebtedness or Disqualified Equity Interests of
Mediacom or any Restricted Subsidiary, as the case may be, Incurred
in compliance with the Debt to Operating Cash Flow Ratio of the
first paragraph of this covenant or clause (1) or (2) of this
paragraph provided, however, that:
. Indebtedness or Disqualified Equity Interests of Mediacom may not
be refinanced under this clause (7) with Indebtedness or
Disqualified Equity Interests of any Restricted Subsidiary;
. any such refinancing shall not exceed the sum of the principal
amount or liquidation preference or redemption payment value--or,
if such Indebtedness or Disqualified Equity Interests provides for
a lesser amount to be due and payable upon a declaration of
acceleration thereof at the time of such refinancing, an amount no
greater than such lesser amount--of the Indebtedness or
Disqualified Equity Interests being refinanced plus the amount of
accrued interest or dividends thereon and the amount of any
reasonably determined prepayment premium necessary to accomplish
such refinancing and such reasonable fees and expenses incurred in
connection therewith;
. Indebtedness representing a refinancing of Indebtedness of
Mediacom shall have a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of the
Indebtedness being refinanced;
. Subordinated Obligations of Mediacom or Disqualified Equity
Interests of Mediacom may only be refinanced with Subordinated
Obligations of Mediacom or Disqualified Equity Interests of
Mediacom; and
. Other Pari Passu Debt which is unsecured may only be refinanced
with unsecured Indebtedness, which is either Other Pari Passu Debt
or Subordinated Obligations, or with Disqualified Equity
Interests.
(8) Indebtedness of Mediacom or a Restricted Subsidiary Incurred as a
result of the pledge by Mediacom or such Restricted Subsidiary of
intercompany indebtedness or Equity Interests in another Restricted
Subsidiary or Equity Interests in an Unrestricted Subsidiary in the
circumstance where recourse to Mediacom or such Restricted
Subsidiary is limited to the value of the intercompany Indebtedness
or the Equity Interests so pledged;
(9) Indebtedness of Mediacom or a Restricted Subsidiary represented by
Capitalized Lease Obligations, mortgage financings, purchase money
obligations or letters of credit, in each case Incurred for the
purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used
in the business of Mediacom or such Restricted Subsidiary or a
Related Business in an aggregate principal amount not to exceed
$15.0 million at any time outstanding;
(10) Indebtedness of Mediacom Incurred to finance, including any
refinancing of such Indebtedness, one or more Regulatory Equity
Interest Repurchases occurring in accordance with and pursuant to
the Operating Agreement; and
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(11) in addition to any Indebtedness described in clauses (1) through
(10) above, Indebtedness of Mediacom or any of the Restricted
Subsidiaries so long as the aggregate principal amount of all such
Indebtedness incurred pursuant to this clause does not exceed $10.0
million at any one time outstanding.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (1) through (11)
above or is entitled to be incurred pursuant to the first paragraph of this
covenant, Mediacom shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness shall be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof.
Limitation on Transactions with Affiliates
Mediacom will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, engage in any transaction, or series of related
transactions, involving in the aggregate $5.0 million or more with any
Affiliate unless such transaction, or series of related transactions shall have
been approved pursuant to a Committee Resolution rendered in good faith by the
Executive Committee or, if applicable, a committee comprising the independent
members of the Executive Committee.
Pursuant to the indenture, such approval is conclusive evidence that such
transaction, or series of related transactions, is (a) in the best interest of
Mediacom or such Restricted Subsidiary and (b) upon terms which would be
obtainable by Mediacom or a Restricted Subsidiary in a comparable arm's-length
transaction with a Person which is not an Affiliate.
The foregoing limitation will not apply in the case of any of the
following--the "Specified Affiliate Transactions":
(1) the making of any Restricted Payment, including the making of any
Permitted Investment that is permitted pursuant to "--Limitation on
Restricted Payments";
(2) any transaction or series of transactions between Mediacom and one
or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries;
(3) the payment of compensation--including, without limitation, amounts
paid pursuant to employee benefit plans--for the personal services
of, and indemnity provided on behalf of, officers, members,
directors and employees of Mediacom or any Restricted Subsidiary,
and management, consulting or advisory fees and reimbursements of
expenses and indemnity in each case so long as the Executive
Committee in good faith shall have approved the terms thereof and
deemed the services theretofore or thereafter to be performed for
such compensation or fees to be fair consideration therefore;
(4) any payments for goods or services purchased in the ordinary course
of business, upon terms which would be obtainable by Mediacom or a
Restricted Subsidiary in a comparable arm's-length transaction with
a Person which is not an Affiliate; and
(5) any transaction pursuant to any agreement with any Affiliate in
effect on the date of the indenture--including, but not limited to,
the Operating Agreement and other agreements relating to the payment
of management fees, acquisition fees and expense reimbursements,
including any amendments thereto entered into after the date of the
indenture--provided, that the terms of any such amendment are not
less favorable to Mediacom than the terms of the relevant agreement
in effect prior to any such amendment, as determined in good faith
by the Executive Committee.
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Except in the case of a Specified Affiliate Transaction, Mediacom will
not, and will not permit any Restricted Subsidiary, directly or indirectly, to
engage in any transaction, or series of related transactions, involving in the
aggregate $25.0 million or more with any Affiliate unless:
(1) such transaction, or series of related transactions, have been
approved pursuant to a Committee Resolution rendered in good faith
by the Executive Committee or, if applicable, a committee comprising
the independent members of the Executive Committee to the effect set
forth in clauses (a) and (b) of the first paragraph of this covenant
above; and
(2) Mediacom has received an opinion from an independent nationally
recognized accounting, appraisal or investment banking firm
experienced in the review of similar types of transactions stating
that the terms of such transaction, or series of related
transactions, are fair to Mediacom or such Restricted Subsidiary, as
the case may be, from a financial point of view.
Notwithstanding the foregoing, any transaction, or series of related
transactions, entered into by Mediacom or any Restricted Subsidiary with any
Affiliate without complying with the foregoing provisions of this covenant
shall not constitute a violation of this covenant if Mediacom or such
Restricted Subsidiary would be permitted to make a Restricted Payment pursuant
to the first paragraph of "--Limitation on Restricted Payments" at the time of
the completion of such transaction, or series of related transactions, in an
amount equal to the fair market value of such transaction, or series of related
transactions, as determined in good faith by the Executive Committee, whose
determination shall be conclusive and evidenced by a Committee Resolution. In
such a case, Mediacom or such Restricted Subsidiary, as the case may be, shall
be deemed to have made a Restricted Payment for purposes of the calculation of
Restricted Payments pursuant to clause (3) of the first paragraph of "--
Limitation on Restricted Payments."
Limitation on Liens
Mediacom will not Incur any Indebtedness secured by a Lien against or on
any of its property or assets now owned or hereafter acquired by Mediacom
except for Permitted Liens unless contemporaneously therewith effective
provision is made to secure the notes equally and ratably with such secured
Indebtedness.
Permitted Liens means:
(1) Liens, if any, in effect on the date of the indenture;
(2) Liens in favor of governmental bodies to secure progress or advance
payments;
(3) Liens on Equity Interests or Indebtedness existing at the time of
the acquisition of such Equity Interests or Indebtedness, including
acquisition through merger or consolidation; provided that such
Liens were not Incurred in anticipation of such acquisition;
(4) Liens securing industrial revenue or pollution control bonds;
(5) Liens securing the notes;
(6) Liens securing Indebtedness of Mediacom in an amount not to exceed
$10.0 million at any time outstanding;
(7) Other Permitted Liens; and
(8) any extension, renewal or replacement of any Lien referred to in the
above clauses.
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Limitation on Business Activities of Mediacom Capital
Mediacom Capital will not hold any material assets, become liable for any
material obligations, engage in any trade or business, or conduct any business
activity, other than the issuance of Equity Interests to Mediacom or any Wholly
Owned Restricted Subsidiary, the Incurrence of Indebtedness as a co-obligor or
guarantor of Indebtedness Incurred by Mediacom, including the notes, if any,
that is permitted to be Incurred by Mediacom under "--Limitation on
Indebtedness" above, provided that the net proceeds of such Indebtedness are
retained by Mediacom or loaned to or contributed as capital to one or more of
the Restricted Subsidiaries other than Mediacom Capital, and activities
incidental thereto. Neither Mediacom nor any Restricted Subsidiary will engage
in any transactions with Mediacom Capital in violation of the immediately
preceding sentence.
Designation of Unrestricted Subsidiaries
The Executive Committee may designate any Subsidiary, including any newly
acquired or newly formed Subsidiary or a Person becoming a Subsidiary through
merger or consolidation or Investment in such Subsidiary, as an "Unrestricted
Subsidiary" under the indenture only if:
(a) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to the designation;
(b) at the time of and after giving effect to such Designation, Mediacom
would be able to Incur $1.00 of additional Indebtedness under the
Debt to Operating Cash Flow Ratio of the first paragraph of "--
Limitation on Indebtedness" above; and
(c) Mediacom would be permitted to make a Restricted Payment at the time
of designation pursuant to the first paragraph of "--Limitation on
Restricted Payments" above in an amount equal to Mediacom's
proportionate interest in the fair market value of such Subsidiary
on such date, as determined in good faith by the Executive
Committee, whose determination shall be conclusive and evidenced by
a Committee Resolution. Neither Mediacom Capital nor any of its
Subsidiaries may be designated as Unrestricted Subsidiaries.
In addition, at the time of designation all of the Indebtedness of such
Unrestricted Subsidiary will consist of, and will at all times thereafter
consist of, Non-Recourse Indebtedness, and that neither Mediacom nor any
Restricted Subsidiary will at any time have any direct or indirect obligation
to:
. make additional Investments, other than Permitted Investments, in any
Unrestricted Subsidiary; or
. maintain or preserve the financial condition of any Unrestricted
Subsidiary or cause any Unrestricted Subsidiary to achieve any
specified levels of operating results; or
. be party to any agreement, contract, arrangement or understanding with
any Unrestricted Subsidiary unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to
Mediacom or such Restricted Subsidiary than those that might be
obtained, in light of all the circumstances, at the time from Persons
who are not parties related to Mediacom.
If, at any time, any Unrestricted Subsidiary would violate the foregoing
requirements, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of such Subsidiary shall be
deemed to be Incurred as of such date.
Mediacom may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary if:
(1) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to the revocation;
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(2) at the time of and after giving effect to such Revocation, Mediacom
would be able to Incur $1.00 of additional Indebtedness under the
Debt to Operating Cash Flow Ratio of the first paragraph of "--
Limitation on Indebtedness" above; and
(3) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following the Revocation would, if Incurred
at such time, have been permitted to be Incurred for all purposes of
the indenture.
Limitation on Guarantees of Certain Indebtedness
Mediacom will not:
. permit any Restricted Subsidiary to guarantee any Indebtedness of
either of us other than the notes (the "Other Indebtedness"); or
. pledge any intercompany Indebtedness representing obligations of any
of its Restricted Subsidiaries to secure the payment of Other
Indebtedness;
in each case unless such Restricted Subsidiary, we and the trustee execute and
deliver a supplemental indenture causing such Restricted Subsidiary to
guarantee the issuers' obligations under the indenture and the notes to the
same extent that such Restricted Subsidiary guaranteed our obligations under
the Other Indebtedness, including waiver of subrogation, if any. Thereafter,
such Restricted Subsidiary shall be a Guarantor for all purposes of the
indenture.
The guarantee of a Restricted Subsidiary will be released upon:
(1) the sale of all of the Equity Interests, or all or substantially all
of the assets, of the applicable Guarantor, in each case other than
to Mediacom or a subsidiary;
(2) the designation by Mediacom of the applicable Guarantor as an
Unrestricted Subsidiary; or
(3) the release of the guarantee of such Guarantor with respect to the
obligations which caused such Guarantor to deliver a guarantee of
the notes in accordance with the preceding paragraph;
in each case in compliance with the indenture--including, in the event of a
sale of Equity Interests or assets described in clause (1) above, that the net
cash proceeds are applied in accordance with the requirements of the applicable
provision of the indenture described under "Repurchase at the Option of
Holders--Asset Sales" above.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries
Mediacom will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions to Mediacom or any
Restricted Subsidiary on its Equity Interests;
(2) pay any Indebtedness owed to Mediacom or any Restricted Subsidiary;
(3) make loans or advances, or guarantee any such loans or advances, to
Mediacom or any Restricted Subsidiary;
(4) transfer any of its properties or assets to Mediacom or any
Restricted Subsidiary;
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(5) grant Liens on the assets of Mediacom or any Restricted Subsidiary
in favor of the holders of the notes; or
(6) guarantee the notes or any renewals or refinancings of the notes
(any of the actions described in clauses (1) through (6) above is
referred to in this covenant as a "Specified Action").
The first paragraph of this covenant will not prohibit:
(1) such encumbrances or restrictions arising by reason of Acquired
Indebtedness of any Restricted Subsidiary existing at the time such
Person became a Restricted Subsidiary, provided that such
encumbrances or restrictions were not created in anticipation of
such Person becoming a Restricted Subsidiary and are not applicable
to Mediacom or any other Restricted Subsidiary;
(2) such encumbrances or restrictions arising under refinancing
Indebtedness permitted by clause (6) of the second paragraph under
"Limitation on Indebtedness" above; provided that the terms and
conditions of any such restrictions are no less favorable to the
holders of notes than those under the Indebtedness being refinanced;
(3) customary provisions restricting the assignment of any contract or
interest of Mediacom or any Restricted Subsidiary;
(4) restrictions contained in the indenture or any other indenture
governing debt securities that are no more restrictive than those
contained in the indenture; and
(5) restrictions under the Subsidiary Credit Facilities and under the
Future Subsidiary Credit Facilities, provided that, in the case of
any Future Subsidiary Credit Facility Mediacom will have used
commercially reasonable efforts to include in the agreements
relating to such Future Subsidiary Credit Facility provisions
concerning the encumbrance or restriction on the ability of any
Restricted Subsidiary to take any Specified Action that are no more
restrictive than those in effect in the Subsidiary Credit Facilities
on the date of the creation of the applicable restriction in such
Future Subsidiary Credit Facility--"Comparable Restriction
Provisions"; and provided further that if Mediacom concludes in its
sole discretion based on then prevailing market conditions that it
is not in the best interest of Mediacom and the Restricted
Subsidiaries to comply with the foregoing proviso, the failure to
include Comparable Restriction Provisions in the agreements relating
to such Future Subsidiary Credit Facility will not constitute a
violation of the provisions of this covenant.
Reports
Whether or not we are then subject to Section 13(a) or 15(d) of the
Securities Exchange Act or any successor provision thereto, we shall file with
the Securities and Exchange Commission, if permitted by Securities and Exchange
Commission practice and applicable law and regulations, so long as the notes
are outstanding, the annual reports, quarterly reports and other periodic
reports which we would have been required to file with the Securities and
Exchange Commission pursuant to Section 13(a) or 15(d) or any successor
provision thereto if we were so subject on or prior to the respective dates--
the "Required Filing Dates"--by which we would have been required to file such
documents if we were so subject. We shall also in any event:
(a) within 15 days of each Required Filing Date, whether or not
permitted or required to be filed with the Securities and Exchange
Commission, (i) transmit or cause to be transmitted by mail to all
holders of notes, at such holder's address appearing in the register
maintained by the Registrar, without cost to such holders; and (ii)
file with the Trustee, copies of the annual reports, quarterly
reports and other documents which we are required to file with the
Securities and Exchange Commission pursuant to the preceding
sentence, or if such filing is not so permitted, information and
data of a similar nature; and
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(b) if notwithstanding the preceding sentence, our filing such documents
with the Securities and Exchange Commission is not permitted by
Securities and Exchange Commission practice or applicable law or
regulations, promptly upon written request supply copies of such
documents to any holder of notes. In addition, for so long as any
notes remain outstanding and prior to the later of the consummation
of the exchange offer and the effectiveness of the shelf
registration statement, if required, we shall furnish to holders and
to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
Merger or Sales of Assets
Neither of us will consolidate or merge with or into, or transfer all or
substantially all of its assets to another Person unless:
(1) either (A) we shall be the continuing Person, or (B) the Person
formed by or surviving any such consolidation or merger, if other
than us, or to which any such transfer shall have been made, is a
corporation, limited liability company or limited partnership
organized and existing under the laws of the United States, any
State thereof or the District of Columbia;
(2) the surviving Person, if other than us, expressly assumes by
supplemental indenture all of our obligations under the notes and
the indenture;
(3) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;
(4) immediately after giving effect to such transaction, the surviving
Person would be able to Incur $1.00 of additional Indebtedness under
the Debt to Operating Cash Flow Ratio of the first paragraph of "--
Limitation on Indebtedness" above; and
(5) Mediacom shall have delivered to the Trustee prior to the proposed
transaction an Officers' Certificate and an Opinion of Counsel, each
stating that the proposed consolidation, merger or transfer and such
supplemental indenture will comply with the indenture.
No Guarantor will consolidate or merge with or into, or transfer all or
substantially all of its assets to another Person unless:
(1) either (A) such Guarantor shall be the continuing Person, or (B) the
Person formed by or surviving any such consolidation or merger, if
other than such Guarantor, or to which any such transfer shall have
been made, is a corporation, limited liability company or limited
partnership organized and existing under the laws of the United
States, any State thereof or the District of Columbia;
(2) the surviving Person, if other than such Guarantor, expressly
assumes by supplemental indenture all the obligations of such
Guarantor under its guarantee of the notes and the indenture;
(3) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and
(4) Mediacom shall have delivered to the trustee prior to the proposed
transaction an Officers' Certificate and an Opinion of Counsel, each
stating that the proposed consolidation, merger or transfer and such
supplemental indenture will comply with the indenture.
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No Liability of Managers, Officers, Employees, or Shareholders
No manager, director, officer, employee, member, shareholder, partner or
incorporator of either of us or any Subsidiary, as such, will have any
liability for any of our obligations under the notes, the exchange notes, if
any, or the indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder of notes by accepting a
note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
Defeasance and Covenant Defeasance
We may, at our option, elect either:
(1) to have all our obligations with respect to the notes discharged
except for the obligations to register the transfer or exchange of
such notes, to replace temporary or mutilated, destroyed, lost or
stolen notes, and maintain an office or agency in respect of the
notes and to hold moneys for payment in trust ("defeasance"); or
(2) to be released from our obligations with respect to the notes under
certain covenants, and related Events of Default, contained in the
indenture, including but not limited to those described above under
"Covenants" ("covenant defeasance"), upon the deposit with the
trustee, or other qualifying trustee, in trust for such purpose, of
money and/or U.S. Government Obligations which through the payment
of principal and interest in accordance with their terms will
provide money, in an amount sufficient to pay the principal of,
premium, if any, and interest and Liquidated Damages, if any, on the
notes, on the scheduled due dates therefor.
Such a trust may only be established if, among other things:
. no Default or Event of Default has occurred and is continuing or would
arise therefrom (or, with respect to Events of Default resulting from
certain events of bankruptcy, insolvency or reorganization, would
occur at any time in the period ending on the 91st day after the date
of deposit; and
. We have delivered to the trustee an opinion of counsel to the effect
that:
(a) defeasance or covenant defeasance, as the case may be, will
not require registration of us, the trustee or the trust fund
under the Investment Company Act of 1940 or the Investment
Advisors Act of 1940; and
(b) the holders of the notes will recognize income, gain or loss
for Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred.
Such opinion, in the case of defeasance under clause (a) above, must
refer to and be based upon a private ruling concerning the notes of the
Internal Revenue Service or a ruling of general effect published by the
Internal Revenue Service.
Modification of Indenture
Without the consent of holders of the notes, we and the trustee may enter
into one or more supplemental indentures for specified purposes, including
providing for a successor or successors to us, adding guarantees, releasing
Guarantors when permitted by the indenture, providing for security for the
notes, adding to our covenants, surrendering any right or power conferred upon
us, providing for uncertificated notes in addition to or in place of
certificated notes, making any change that does not adversely affect the rights
of any
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holder, complying with any requirement of the Trust Indenture Act or curing
ambiguities, defects or inconsistencies.
In addition, we and the trustee, with the consent of holders of at least
a majority in aggregate principal amount of the notes at the time outstanding,
may modify the indenture or any supplemental indenture or the rights of the
holders of the notes, except that no such modification shall, without the
consent of each holder affected thereby:
. change or extend the fixed maturity of any notes, reduce the rate or
extend the time of payment of interest or Liquidated Damages thereon,
reduce the principal amount of any note or premium, if any, on any
note or change the currency in which the notes are payable;
. reduce the premium payable upon any redemption of notes in accordance
with the optional redemption provisions of the notes or change the
time before which no such redemption may be made;
. waive a default in the payment of principal or interest or Liquidated
Damages on the notes (except that holders of a majority in aggregate
principal amount of the notes at the time outstanding may (a) rescind
an acceleration of the notes that resulted from a non-payment default
and (b) waive the payment default that resulted from such
acceleration) or alter the rights of holders to waive defaults; or
. reduce the aforesaid percentage of notes, the consent of the holders
of which is required for any such modification. Any existing Event of
Default, other than a default in the payment of principal or interest
or Liquidated Damages on the notes, or compliance with any provision
of the notes or the indenture, other than any provision related to the
payment of principal or interest or Liquidated Damages on the notes,
may be waived with the consent of holders of at least a majority in
aggregate principal amount of the notes at the time outstanding.
Compliance Certificate
Mediacom will deliver to the trustee within 120 days after the end of
each fiscal year of Mediacom an Officers' Certificate stating whether or not
the signers know of any Event of Default that has occurred and, if they do, the
certificate will describe the Event of Default and its status.
Concerning the trustee
Harris Trust Company of New York is the trustee under the indenture and
serves as Registrar and Paying Agent with regard to the notes. Bank of
Montreal, a party related to the trustee, is a lender under each of the
subsidiary credit facilities. A party related to The Bank of Montreal holds
approximately 3.8% of our membership interests.
As of the date of this prospectus, we are in compliance with the
financial and other covenants provided for in the indenture.
Certain Definitions
Set forth below are certain defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of all such terms as
well as any other capitalized terms used in this prospectus for which no
definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or assumed in connection with
an Asset Acquisition from such Person and not Incurred in connection with, or
in anticipation of, such Person becoming a Restricted Subsidiary or such Asset
Acquisition.
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"Affiliate" of any specified Person means:
(1) any Person that directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with Mediacom;
(2) any spouse, immediate family member or other relative who has the
same principal residence as any Person described in clause (1)
above;
(3) any trust in which any such Persons described in clauses (1) and (2)
above has a beneficial interest; and
(4) any corporation or other organization of which any such Persons
described above collectively owns 5% or more of the equity of such
entity.
For purposes of this definition, "control," as used with respect to any
specified Person, includes the direct or indirect beneficial ownership of more
than 5% of the voting securities of such Person or the power to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.
"Asset Acquisition" means:
(1) an Investment by Mediacom or any Restricted Subsidiary in any other
Person pursuant to which such Person shall become a Restricted
Subsidiary or shall be consolidated or merged with or into Mediacom
or any Restricted Subsidiary; or
(2) any acquisition by Mediacom or any Restricted Subsidiary of the
assets of any Person which constitute substantially all of an
operating unit, a division or a line of business of such Person or
which is otherwise outside of the ordinary course of business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer,
lease or other disposition to any Person other than Mediacom or any Wholly
Owned Restricted Subsidiary or any Controlled Subsidiary, in one transaction or
a series of related transactions of:
(1) any Equity Interest of any Restricted Subsidiary;
(2) any material license, franchise or other authorization of Mediacom
or any Restricted Subsidiary;
(3) any assets of Mediacom or any Restricted Subsidiary which constitute
substantially all of an operating unit, a division or a line of
business of Mediacom or any Restricted Subsidiary; or
(4) any other property or asset of Mediacom or any Restricted Subsidiary
outside of the ordinary course of business.
Notwithstanding the preceding, the following items shall not be deemed to
be Asset Sales:
(1) any transaction completed in compliance with "Repurchase at the
Option of Holders--Change of Control" above and "Covenants--Merger
or Sales of Assets" above, and the creation of any Lien not
prohibited under "Covenants--Limitation on Liens" above;
(2) the sale of property or equipment that has become worn out, obsolete
or damaged or otherwise unsuitable for use in connection with the
business of Mediacom or any Restricted Subsidiary, as the case may
be;
(3) any transaction completed in compliance with "Covenants--Limitation
on Restricted Payments" above; and
(4) Asset Swaps permitted pursuant to "Repurchase at the Option of
Holders--Asset Sales."
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In addition, solely for purposes of "Repurchase at the Option of
Holders--Asset Sales" above, any sale, conveyance, transfer, lease or other
disposition, whether in one transaction or a series of related transactions,
involving assets with a fair market value not in excess of $2.0 million in any
fiscal year shall be deemed not to be an Asset Sale. "Asset Sale Proceeds"
means, with respect to any Asset Sale:
(A) cash received by Mediacom or any of its Restricted Subsidiaries from
such Asset Sale, including cash received as consideration for the
assumption of liabilities incurred in connection with or in
anticipation of such Asset Sale, after:
(1) provision for all income or other taxes measured by or
resulting from such Asset Sale;
(2) payment of all brokerage commissions, underwriting, legal,
accounting and other fees and expenses related to such Asset
Sale, and any relocation expenses incurred as a result of such
Asset Sale;
(3) provision for minority interest holders in any Restricted
Subsidiary as a result of such Asset Sale by such Restricted
Subsidiary;
(4) payment of amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that
were the subject of such Asset Sale, including payments made
to obtain or avoid the need for the consent of any holder of
such Indebtedness; and
(5) deduction of appropriate amounts to be provided by Mediacom or
such Restricted Subsidiary as a reserve, in accordance with
generally accepted accounting principles consistently applied,
against any liabilities associated with the assets sold or
disposed of in such Asset Sale and retained by Mediacom or
such Restricted Subsidiary after such Asset Sale, including,
without limitation, pension and other post employment benefit
liabilities and liabilities related to environmental matters
or against any indemnification obligations associated with the
assets sold or disposed of in such Asset Sale; and
(B) promissory notes and other non-cash consideration received by
Mediacom or any Restricted Subsidiary from such Asset Sale or other
disposition upon the liquidation or conversion of such notes or non-
cash consideration into cash.
"Asset Swap" means the substantially concurrent purchase and sale, or
exchange, of Productive Assets between Mediacom or any of the Restricted
Subsidiaries and another Person or group of affiliated Persons, which Person or
group of affiliated Persons is not affiliated with Mediacom and the Restricted
Subsidiaries, pursuant to an Asset Swap Agreement; it being understood that an
Asset Swap may include a cash equalization payment made in connection
therewith, provided that such cash payment, if received by Mediacom or any of
the Restricted Subsidiaries, shall be deemed to be proceeds received from an
Asset Sale and shall be applied in accordance with "Repurchase at the Option of
Holders--Asset Sales."
"Asset Swap Agreement" means a definitive agreement, subject only to
customary closing conditions that Mediacom in good faith believes will be
satisfied, providing for an Asset Swap provided, however, that any amendment
to, or waiver of, any closing condition that individually or in the aggregate
is material to such Asset Swap shall be deemed to be a new Asset Swap.
"Available Asset Sale Proceeds" means, with respect to any Asset Sale,
the aggregate Asset Sale Proceeds from such Asset Sale that have not been
applied in accordance with clause (3)(a) and that have not yet been the basis
for application in accordance with clause (3)(b) of the first paragraph of
"Repurchase at the Option of Holders--Asset Sales" above.
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"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with generally accepted accounting principles
and the amount of such Indebtedness shall be the capitalized amount of such
obligations determined in accordance with generally accepted accounting
principles consistently applied.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof
having maturities of not more than six months from the date of
acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight
bank deposits, in each case with any lender party to any Subsidiary
Credit Facility or any Future Subsidiary Credit Facility or with any
domestic commercial bank having capital and surplus in excess of
$500.0 million;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in the preceding two
clauses (2) and (3) above entered into with any financial
institution meeting the qualifications specified in the immediately
preceding clause (3) above;
(5) commercial paper having a rating of at least P-1 from Moody's or a
rating of at least A-1 from S&P; and
(6) money market mutual or similar funds having assets in excess of
$100.0 million, at least 95% of the assets of which are comprised of
assets specified in clauses (1) through (5) above.
A "Change of Control" means the occurrence of any of the following
events:
(1) any Person, as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act, including any group acting for the purpose
of acquiring, holding or disposing of securities within the meaning
of Rule 13d-5(b)(1) under the Securities Exchange Act--other than
one or more Permitted Holders, is or becomes the "beneficial
owner"--as defined in Rule 13d-3 and 13d-5 under the Securities
Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all shares that any such Person has the
right to acquire, whether such right is exercisable immediately or
only after the passage of time, upon the happening of an event or
otherwise--directly or indirectly, of more than 50% of the total
voting power of the then outstanding Voting Equity Interests of
Mediacom;
(2) Mediacom consolidates with, or merges with or into, another Person,
other than a Wholly Owned Restricted Subsidiary, or Mediacom or any
its Subsidiaries sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of the assets of
Mediacom and its Subsidiaries on a consolidated basis to any Person,
other than Mediacom or any Wholly Owned Restricted Subsidiary, other
than any such transaction where immediately after such transaction
the Person or Persons that "beneficially owned"--as defined in Rule
13d-3 and 13d-5 under the Securities Exchange Act, except that a
Person shall be deemed to have "beneficial ownership" of all shares
that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the
happening of an event or otherwise--immediately prior to such
transaction, directly or indirectly, a majority of the total voting
power of the then outstanding Voting Equity Interests of Mediacom,
"beneficially own" (as so determined), directly or indirectly, more
than 50% of the total voting power of the then outstanding Voting
Equity Interests of the surviving or transferee Person;
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(3) Mediacom is liquidated or dissolved or adopts a plan of liquidation
or dissolution, whether or not otherwise in compliance with the
provisions of the indenture;
(4) a majority of the members of the Executive Committee of Mediacom
shall consist of Persons who are not Continuing Members; or
(5) Mediacom ceases to own 100% of the issued and outstanding Equity
Interests of Mediacom Capital, other than by reason of a merger of
Mediacom Capital into and with a corporate successor to Mediacom;
provided, however, that a Change of Control will be deemed not to
have occurred in any of the circumstances described above if after
the occurrence of any such circumstance (A) Rocco B. Commisso
continues to be the manager of Mediacom pursuant to the Operating
Agreement and/or the chief executive officer of Mediacom, or the
surviving or transferee Person, or (B) Rocco B. Commisso and the
other Permitted Holders together with their respective designees
constitute the majority of the members of the Executive Committee.
"Committee Resolution" means, with respect to Mediacom, a duly adopted
resolution of the Executive Committee of Mediacom.
"Consolidated Income Tax Expense" means, with respect to Mediacom for any
period, the provision for federal, state, local and foreign income taxes
payable by Mediacom and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied.
"Consolidated Interest Expense" means, with respect to Mediacom and the
Restricted Subsidiaries for any period, without duplication, the sum of:
(1) the interest expense of Mediacom and the Restricted Subsidiaries for
such period as determined on a consolidated basis in accordance with
generally accepted accounting principles consistently applied,
including, without limitation, amortization of original issued
discount on any Indebtedness and the interest portion of any
deferred payment obligation and after taking into account the effect
of elections made under any Hedging Agreements, however denominated,
with respect to such Indebtedness;
(2) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by Mediacom and the
Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with generally accepted accounting
principles consistently applied; and
(3) dividends and distributions in respect of Disqualified Equity
Interests actually paid in cash by Mediacom and the Restricted
Subsidiaries during such period as determined on a consolidated
basis in accordance with generally accepted accounting principles
consistently applied.
For purposes of this definition, interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
by Mediacom to be the rate of interest implicit in such Capitalized Lease
Obligation in accordance with generally accepted accounting principles
consistently applied.
"Consolidated Net Income" means, with respect to any period, the net
income (loss) of Mediacom and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied, adjusted, to the extent included in
calculating such net income (loss), by excluding, without duplication;
(1) all extraordinary, unusual or nonrecurring items of income or
expense and of gains or losses and all gains and losses from the
sale or other disposition of assets out of the ordinary course of
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business, net of taxes, fees and expenses relating to the
transaction giving rise thereto, for such period;
(2) that portion of such net income (loss) derived from or in respect of
Investments in Persons other than any Restricted Subsidiary, except
to the extent actually received in cash by Mediacom or any
Restricted Subsidiary;
(3) the portion of such net income (loss) allocable to minority
interests in unconsolidated Persons for such period, except to the
extent actually received in cash by Mediacom or any Restricted
Subsidiary;
(4) net income (loss) of any other Person combined with Mediacom or any
Restricted Subsidiary on a "pooling of interests" basis attributable
to any period prior to the date of combination;
(5) net income (loss) of any Restricted Subsidiary to the extent that
the declaration or payment of dividends or similar distributions by
that Restricted Subsidiary of that net income (loss) is not at the
date of determination permitted without any prior governmental
approval (which has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or the holders
of its Equity Interests;
(6) the cumulative effect of a change in accounting principles after the
date of the indenture;
(7) net income (loss) attributable to discontinued operations;
(8) management fees payable to the "manager" as defined in the Operating
Agreement and to Mediacom Management and its Affiliates pursuant to
management agreements with Subsidiaries of Mediacom accrued for such
period that have not been paid during such period; and
(9) any other item of expense, other than "interest expense," which
appears on Mediacom's consolidated statement of income (loss) below
the line item "Operating Income," determined on a consolidated basis
in accordance with generally accepted accounting principles
consistently applied.
"Consolidated Total Indebtedness" means, as at any date of
determination, an amount equal to the aggregate amount of all outstanding
Indebtedness and the aggregate liquidation preference or redemption payment
value of all Disqualified Equity Interests of Mediacom and the Restricted
Subsidiaries outstanding as of such date of determination, less the
obligations of Mediacom or any Restricted Subsidiary under any Hedging
Agreement as of such date of determination that would appear as a liability on
the balance sheet of such Person, in each case determined on a consolidated
basis in accordance with generally accepted accounting principles consistently
applied.
"Continuing Member" means, as of the date of determination, any Person
whom:
(1) was a member of the Executive Committee of Mediacom on the date of
the indenture;
(2) was nominated for election or elected to the Executive Committee of
Mediacom with the affirmative vote of a majority of the Continuing
Members who were members of the Executive Committee at the time of
such nomination or election; or
(3) is a representative of, or was approved by, a Permitted Holder.
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"Controlled Subsidiary" means a Restricted Subsidiary which is engaged
in a Related Business:
(1) 80% or more of the outstanding Equity Interests of which, other than
Equity Interests constituting directors' qualifying shares to the
extent mandated by applicable law, are owned by Mediacom or by one
or more Wholly Owned Restricted Subsidiaries or Controlled
Subsidiaries or by Mediacom and one or more Wholly Owned Restricted
Subsidiaries or Controlled Subsidiaries;
(2) of which Mediacom possesses, directly or indirectly, the power to
direct or cause the direction of the management or policies, whether
through the ownership of Voting Equity Interests, by agreement or
otherwise; and
(3) all of whose Indebtedness is Non-Recourse Indebtedness.
"Cumulative Credit" means the sum of:
(1) $10.0 million; plus
(2) the aggregate Net Cash Proceeds received by Mediacom or a Restricted
Subsidiary from the issue or sale, other than to a Restricted
Subsidiary, of Equity Interests of Mediacom or a Restricted
Subsidiary, other than Disqualified Equity Interests, on or after
April 1, 1998; plus
(3) the principal amount--or accreted amount, determined in accordance
with generally accepted accounting principles, if less--of any
Indebtedness, or the liquidation preference or redemption payment
value of any Disqualified Equity Interests, of Mediacom or any
Restricted Subsidiary which has been converted into or exchanged for
Equity Interests of Mediacom or a Restricted Subsidiary, other than
Disqualified Equity Interests, on or after April 1, 1998; plus
(4) cumulative Operating Cash Flow on or after April 1, 1998, to the end
of the fiscal quarter immediately preceding the date of the proposed
Restricted Payment, or, if cumulative Operating Cash Flow for such
period is negative, minus the amount by which cumulative Operating
Cash Flow is less than zero; plus
(5) to the extent not already included in Operating Cash Flow, if any
Investment constituting a Restricted Payment that was made after the
date of the indenture is sold or otherwise liquidated or repaid or
any Unrestricted Subsidiary which was designated as an Unrestricted
Subsidiary after the date of the indenture is sold or otherwise
liquidated, the fair market value of such Restricted Payment, less
the cost of disposition, if any, on the date of such sale,
liquidation or repayment, as determined in good faith by the
Executive Committee, whose determination shall be conclusive and
evidenced by a Committee Resolution; plus
(6) if any Unrestricted Subsidiary is redesignated as a Restricted
Subsidiary, the value of the Restricted Payment that would result if
such Subsidiary were redesignated as an Unrestricted Subsidiary at
such time, determined in accordance with the provisions described
under "Covenants--Designation of Unrestricted Subsidiaries" above.
"Cumulative Interest Expense" means the aggregate amount of Consolidated
Interest Expense paid or accrued by us and the Restricted Subsidiaries on or
after April 1, 1998, to the end of the fiscal quarter immediately preceding
the proposed Restricted Payment.
"Debt to Operating Cash Flow Ratio" means the ratio of (x) the
Consolidated Total Indebtedness as of the date of calculation (the
"Determination Date") to (y) four times the Operating Cash Flow for the latest
three months for which financial information is available immediately
preceding such Determination Date (the "Measurement Period"). For purposes of
calculating Operating Cash Flow for the Measurement Period immediately prior
to the relevant Determination Date:
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(1) any Person that is a Restricted Subsidiary on the Determination
Date--or would become a Restricted Subsidiary on such Determination
Date in connection with the transaction that requires the
determination of such Operating Cash Flow--will be deemed to have
been a Restricted Subsidiary at all times during such Measurement
Period;
(2) any Person that is not a Restricted Subsidiary on such Determination
Date--or would cease to be a Restricted Subsidiary on such
Determination Date in connection with the transaction that requires
the determination of such Operating Cash Flow--will be deemed not
have been a Restricted Subsidiary at any time during such
Measurement Period; and
(3) if Mediacom or any Restricted Subsidiary shall have in any manner:
(x) acquired, including through an Asset Acquisition or the
commencement of activities constituting such operating
business; or
(y) disposed of, including by way of an Asset Sale or the
termination or discontinuance of activities constituting such
operating business, any operating business during such
Measurement Period or after the end of such period and on or
prior to such Determination Date;
such calculation will be made on a pro forma basis in accordance with generally
accepted accounting principles consistently applied, as if, in the case of an
Asset Acquisition or the commencement of activities constituting such operating
business, all such transactions had been completed on the first day of such
Measurement Period, and, in the case of an Asset Sale or termination or
discontinuance of activities constituting such operating business, all such
transactions had been completed prior to the first day of such Measurement
Period.
"Disqualified Equity Interest" means:
(1) any Equity Interest issued by Mediacom which, by its terms, or by
the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder of such Equity
Interest, or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder of such
Equity Interest--except, in each such case, upon the occurrence of a
Change of Control or a Regulatory Equity Interest Repurchase--in
whole or in part, or is exchangeable into Indebtedness, on or prior
to the earlier of the maturity date of the notes or the date on
which no notes remain outstanding; and
(2) any Equity Interest issued by any Restricted Subsidiary which, by
its terms--or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the
holder of such Equity Interest--or upon the happening of any event,
matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the
holder of such Equity Interest, in whole or in part, or is
exchangeable into Indebtedness.
"Equity Interest" in any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of
or interests in, however designated, corporate stock or other equity
participations, including partnership interests, whether general or limited,
and membership interests in such Person, including any Preferred Equity
Interests.
"Equity Offering" means a public or private offering by Mediacom or a
Restricted Subsidiary for cash of its respective Equity Interests, other than
Disqualified Equity Interests, or options, warrants or rights with respect to
such Equity Interests.
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"Excess Proceeds" means, with respect to any Asset Sale, the then
Available Asset Sale Proceeds less any such Available Asset Sale Proceeds that
are required to be applied and are applied in accordance with clause (3)(b)(1)
of the first paragraph of "Repurchase at the Option of Holders--Asset Sales"
above.
"Executive Committee" means:
(1) so long as Mediacom is a limited liability company, (x) while the
Operating Agreement is in effect, the Executive Committee authorized
thereunder, and (y) at any other time, the manager or board of
managers of Mediacom, or management committee or similar governing
body responsible for the management of the business and affairs of
Mediacom;
(2) if Mediacom were to be reorganized as a corporation, the board of
directors of Mediacom; and
(3) if Mediacom were to be reorganized as a partnership, the board of
directors of the corporate general partner of such partnership, or
if such general partner is itself a partnership, the board of
directors of such general partner's corporate general partner.
"Future Subsidiary Credit Facilities" means one or more debt facilities,
other than the Subsidiary Credit Facilities, entered into from time to time
after the date of the indenture by one or more Restricted Subsidiaries or
groups of Restricted Subsidiaries with banks or other institutional lenders,
together with all loan documents and instruments thereunder, without
limitation, any guarantee agreements and security documents, including any
amendment, including any amendment and restatement, modification or supplement
thereto or any refinancing, refunding, deferral, renewal, extension or
replacement of such debt facilities--including, in any such case and without
limitation, adding or removing Subsidiaries of Mediacom as borrowers or
guarantors thereunder--whether by the same or any other lender or group of
lenders.
"Guarantor" means any Subsidiary of Mediacom that guarantees our
obligations under the indenture and the notes issued after the date of the
indenture pursuant to "Covenants--Limitation on Guarantees of Certain
Indebtedness" above.
"Hedging Agreement" means any interest rate swap agreement, interest rate
cap agreement, interest rate collar agreement or other similar agreement
providing for the transfer or mitigation of interest rate risks either
generally or under specific contingencies.
"Incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur, including by conversion, exchange or
otherwise, assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to
generally accepted accounting principles or otherwise, of any such Indebtedness
or other obligation on the balance sheet of such Person. Indebtedness of any
Person or any of its Subsidiaries existing at the time such Person becomes a
Restricted Subsidiary--or is merged into or consolidates with Mediacom or any
Restricted Subsidiary--whether or not such Indebtedness was incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary--or being merged into or consolidated with Mediacom or any
Restricted Subsidiary--shall be deemed Incurred at the time any such Person
becomes a Restricted Subsidiary or merges into or consolidates with Mediacom or
any Restricted Subsidiary. The terms "Incurrence", "Incurred" and "Incurring"
shall have meanings correlative to the foregoing.
"Indebtedness" means, with respect to any Person, without duplication,
any indebtedness, secured or unsecured, contingent or otherwise, in respect of
borrowed money (whether or not the recourse of the lender is to the whole of
the assets of such Person or only to a portion of such Indebtedness), or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or representing the deferred and unpaid balance of the purchase price of
property or services--but excluding trade payables incurred in the ordinary
course of business--and non-interest bearing installment obligations and other
accrued liabilities arising in the ordinary course of business if and to the
extent any of the preceeding indebtedness would appear as a liability upon a
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balance sheet of such Person prepared in accordance with generally accepted
accounting principles, and shall also include, to the extent not otherwise
included, but without duplication:
(1) any Capitalized Lease Obligations;
(2) obligations secured by a lien to which any property or assets owned
or held by such Person is subject, whether or not the obligation or
obligations secured thereby shall have been assumed;
(3) guarantees of items of other Persons which would be included within
this definition for such other Persons, whether or not such items
would appear upon the balance sheet of the guarantor;
(4) obligations of Mediacom or any Restricted Subsidiary under any
Hedging Agreement applicable to any of the foregoing--if and only to
the extent any amount due in respect of such Hedging Agreement would
appear as a liability upon a balance sheet of such Person prepared
in accordance with generally accepted accounting principles.
Notwithstanding the foregoing, Indebtedness:
(1) shall not include obligations under performance bonds, performance
guarantees, surety bonds and appeal bonds, letters of credit or
similar obligations, Incurred in the ordinary course of business,
including in connection with pole rental or conduit attachments and
the like or the requirements of cable television franchising
authorities, and otherwise consistent with industry practice;
(2) shall not include obligations of any Person (x) arising from the
honoring by a bank or other financial institution of a check, draft
or other similar instrument inadvertently drawn against insufficient
funds in the ordinary course of business, provided such obligations
are extinguished within five business days of their Incurrence, (y)
resulting from the endorsement of negotiable instruments for
collection in the ordinary course of business and consistent with
past practice and (z) under stand-by letters of credit to the extent
collateralized by cash or Cash Equivalents; and
(3) which provides that an amount less than the principal amount of such
Indebtedness shall be due upon any declaration of acceleration of
such Indebtedness shall be deemed to be Incurred or outstanding in
an amount equal to the accreted value of such Indebtedness at the
date of determination.
"Investment" means, directly or indirectly, any advance, loan or other
extension of credit, including by means of a guarantee, or capital contribution
to--by means of transfers of property to others, payments for property or
services for the account or use of others or otherwise--the acquisition, by
purchase or otherwise, of any stock, bonds, notes, debentures, partnership,
membership or joint venture interests or other securities or other evidence of
beneficial interest of any Person, provided that the term "Investment" shall
not include any such advance, loan or extension of credit having a term not
exceeding 90 days arising in the ordinary course of business or any pledge of
Equity Interests pursuant to the Subsidiary Credit Facilities or any Future
Subsidiary Credit Facilities. If Mediacom or any Restricted Subsidiary sells or
otherwise disposes of any Voting Equity Interest of any direct or indirect
Restricted Subsidiary such that, after giving effect to such sale or
disposition, Mediacom no longer owns, directly or indirectly, greater than 50%
of the outstanding Voting Equity Interests of such Restricted Subsidiary,
Mediacom shall be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Voting Equity
Interests of such former Restricted Subsidiary not sold or disposed of.
"Lien" means any mortgage, pledge, lien, charge, security interest,
hypothecation, assignment for security or encumbrance of any kind, including
any conditional sale or capital lease or other title retention agreement, any
lease in the nature thereof or any agreement to give a security interest.
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"Liquidated Damages" has the meaning specified in the section of this
prospectus entitled "Exchange and Registration Rights Agreement."
"Mediacom Management" means Mediacom Management Corporation, a Delaware
corporation.
"Moody's" means Moody's Investors Service, Inc.
"Net Cash Proceeds" means, with respect to any issuance or sale of
Equity Interests, the proceeds in the form of cash or Cash Equivalents
received by Mediacom or any Restricted Subsidiary of such issuance or sale,
net of attorneys' fees, accountants fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultant and other fees
actually incurred in connection with such issuance or sale and net of taxes
paid or payable as a result of such issuance or sale.
"Non-Recourse Indebtedness" means Indebtedness of a Person:
(1) as to which neither of us nor any of the Restricted Subsidiaries,
other than such Person or any Subsidiaries of such Person, (a)
provides any guarantee or credit support of any kind--including any
undertaking, guarantee, indemnity, agreement or instrument that
would constitute Indebtedness--or (b) is directly or indirectly
liable, as a guarantor or otherwise; and
(2) the incurrence of which will not result in any recourse against any
of the assets of either of us or the Restricted Subsidiaries--other
than to such Person or to any Subsidiaries of such Person and other
than to the Equity Interests in such Person or in another Restricted
Subsidiary or an Unrestricted Subsidiary pledged by Mediacom, a
Restricted Subsidiary or an Unrestricted Subsidiary--provided,
however, that Mediacom or any Restricted Subsidiary may make a loan
to a Controlled Subsidiary or an Unrestricted Subsidiary, or
guarantee a loan made to a Controlled Subsidiary or an Unrestricted
Subsidiary, if such loan or guarantee is permitted by "Covenants--
Limitation on Restricted Payments" above at the time of the making
of such loan or guarantee, and such loan or guarantee shall not
constitute Indebtedness which is not Non-Recourse Indebtedness.
"Operating Agreement" means the Third Amended and Restated Operating
Agreement of Mediacom dated as of January 20, 1998, as the same may be
amended, supplemented or modified from time to time.
"Operating Cash Flow" means, with respect to Mediacom and the Restricted
Subsidiaries on a consolidated basis, for any period, an amount equal to
Consolidated Net Income for such period increased (without duplication) by the
sum of:
(1) Consolidated Income Tax Expense accrued for such period to the
extent deducted in determining Consolidated Net Income for such
period;
(2) Consolidated Interest Expense for such period to the extent deducted
in determining Consolidated Net Income for such period; and
(3) depreciation, amortization and any other non-cash items for such
period to the extent deducted in determining Consolidated Net Income
for such period--other than any non-cash item, other than the
management fees referred to in clause (8) of the definition of
"Consolidated Net Income", which requires the accrual of, or a
reserve for, cash charges for any future period--of Mediacom and the
Restricted Subsidiaries, including, without limitation, amortization
of capitalized debt issuance costs for such period, all of the
foregoing determined on a consolidated basis in accordance with
generally accepted accounting principles consistently applied, and
decreased by non-cash items to the extent they increase Consolidated
Net Income, including the partial or entire reversal of reserves
taken in prior periods, for such period.
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"Other Pari Passu Debt" means Indebtedness of Mediacom or any Restricted
Subsidiary that does not constitute Subordinated Obligations, is not senior in
right of payment to the notes and has a stated final maturity which is the same
as the stated final maturity of the notes.
"Other Pari Passu Debt Pro Rata Share" means the amount of the applicable
Available Asset Sale Proceeds obtained by multiplying the amount of such
Available Asset Sale Proceeds by a fraction, (i) the numerator of which is the
aggregate principal amount and/or accreted value, as the case may be, of all
Other Pari Passu Debt outstanding at the time of the applicable Asset Sale with
respect to which Mediacom or any Restricted Subsidiary is required to use
Available Asset Sale Proceeds to repay or make an offer to purchase or repay
and (ii) the denominator of which is the sum of (a) the aggregate principal
amount of all notes outstanding at the time of the applicable Asset Sale and
(b) the aggregate principal amount and/or accreted value, as the case may be,
of all Other Pari Passu Debt outstanding at the time of the applicable Asset
Sale Offer with respect to which Mediacom or any Restricted Subsidiary is
required to use the applicable Available Asset Sale Proceeds to offer to repay
or make an offer to purchase or repay.
"Other Permitted Liens" means:
(1) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary
course of business which secure payment of obligations that are not
yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted
and for which an appropriate reserve or provision shall have been
made in accordance with generally accepted accounting principles
consistently applied;
(2) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted
and for which an appropriate reserve or provision shall have been
made in accordance with generally accepted accounting principles
consistently applied;
(3) easements, rights of way, and other restrictions on use of property
or minor imperfections of title that in the aggregate are not
material in amount and do not in any case materially detract from
the property subject thereto or interfere with the ordinary conduct
of the business of Mediacom or its subsidiaries;
(4) Liens related to Capitalized Lease Obligations, mortgage financings
or purchase money obligations, including refinancings thereof, in
each case Incurred for the purpose of financing all or any part of
the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of Mediacom or any
Restricted Subsidiary or a Related Business, provided that any such
Lien encumbers only the asset or assets so financed, purchased,
constructed or improved;
(5) Liens resulting from the pledge by Mediacom of Equity Interests in a
Restricted Subsidiary in connection with a Subsidiary Credit
Facility or a Future Subsidiary Credit Facility or in an
Unrestricted Subsidiary in any circumstance, in each such case where
recourse to Mediacom is limited to the value of the Equity Interests
so pledged;
(6) Liens resulting from the pledge by Mediacom of intercompany
indebtedness owed to Mediacom in connection with a Subsidiary Credit
Facility or a Future Subsidiary Credit Facility;
(7) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and
other types of social security;
(8) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds, deposits to secure the performance
of bids, trade contracts, government contracts, leases
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or licenses or other obligations of a like nature incurred in the
ordinary course of business, including without limitation, landlord
Liens on leased properties;
(9) leases or subleases granted to third Persons not interfering with
the ordinary course of business of Mediacom;
(10) deposits made in the ordinary course of business to secure
liability to insurance carriers;
(11) Liens securing reimbursement obligations with respect to letters of
credit which encumber documents and other property relating to such
letters of credit and the products and proceeds of such property;
(12) Liens on the assets of Mediacom to secure hedging agreements with
respect to Indebtedness permitted by the indenture to be Incurred;
(13) attachment or judgment Liens not giving rise to a Default or an
Event of Default;
(14) any interest or title of a lessor under any capital lease or
operating lease; and
(15) Liens resulting from the pledge of "Unfunded Capital Commitments,"
as defined in the Operating Agreement, securing the repayment of
Indebtedness in respect of reimbursement obligations for letters of
credit given in connection with or in contemplation of the
acquisition of a Related Business.
"Permitted Holder" means:
(1) Rocco B. Commisso or his spouse or siblings, any of their lineal
descendants and their spouses;
(2) any controlled Affiliate of any individual described in clause (1)
above;
(3) in the event of the death or incompetence of any individual
described in clause (1) above, such Person's estate, executor,
administrator, committee or other personal representative, in each
case who at any particular date will beneficially own or have the
right to acquire, directly or indirectly, Equity Interests of
Mediacom;
(4) any trust or trusts created for the benefit of each Person described
in this definition, including any trust for the benefit of the
parents or siblings of any individual described in clause (1) above;
(5) any trust for the benefit of any such trust;
(6) any of the holders of Equity Interests in Mediacom on the date of
the indenture; or
(7) any of the Affiliates of any Person described in the immediately
preceding clause.
"Permitted Investments" means:
(1) Cash Equivalents;
(2) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance
and other similar deposits;
(3) the extension of credit to vendors, suppliers and customers in the
ordinary course of business;
(4) Investments existing as of the date of the indenture, and any
amendment, modification, extension or renewal thereof to the extent
such amendment, modification, extension or renewal does not
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require Mediacom or any Restricted Subsidiary to make any additional
cash or non-cash payments or provide additional services in
connection therewith;
(5) Hedging Agreements;
(6) any Investment for which the sole consideration provided is Equity
Interests, other than Disqualified Equity Interests, of Mediacom;
(7) any Investment consisting of a guarantee permitted under clause (5)
of the second paragraph of "Covenants--Limitation on Indebtedness"
above;
(8) Investments in Mediacom, in any Wholly Owned Restricted Subsidiary
or in any Controlled Subsidiary or any Person that, as a result of
or in connection with such Investment, becomes a Wholly Owned
Restricted Subsidiary or a Controlled Subsidiary or is merged with
or into or consolidated with Mediacom or a Wholly Owned Restricted
Subsidiary or a Controlled Subsidiary;
(9) loans and advances to officers, directors and employees of Mediacom
and the Restricted Subsidiaries for business-related travel
expenses, moving expenses and other similar expenses in each case
incurred in the ordinary course of business;
(10) any acquisition of assets solely in exchange for the issuance of
Equity Interests, other than Disqualified Equity Interests, of
Mediacom;
(11) Related Business Investments; and
(12) other investments made pursuant to this clause (12) at any time,
and from time to time, after the date of the indenture, in addition
to any Permitted Investments described in the above clauses, in an
aggregate amount at any one time outstanding not to exceed $10
million.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
"Preferred Equity Interest" means, in any Person, an Equity Interest of
any class or classes, however designated, which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"Productive Assets" means assets of a kind used or useable by Mediacom
and the Restricted Subsidiaries in any Related Business and specifically
includes assets acquired through Asset Acquisitions, it being understood that
"assets" may include Equity Interests of a Person that owns such Productive
Assets, provided that after giving effect to such transaction, such Person
would be a Restricted Subsidiary.
"Related Business" means a cable television, media and communications,
telecommunications or data transmission business, and businesses ancillary,
complementary or reasonably related thereto, and reasonable extensions thereof.
"Related Business Investment" means:
(1) any capital expenditure or Investment, in each case related to the
business of Mediacom and its Restricted Subsidiaries as conducted on
the date of the Indenture and as such business may thereafter evolve
in the fields of Related Businesses;
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(2) any Investment in any other Person primarily engaged in a Related
Business; and
(3) any customary deposits or earnest money payments made by Mediacom or
any Restricted Subsidiary in connection with or in contemplation of
the acquisition of a Related Business.
"Restricted Payment" means:
(1) any dividend, whether made in cash, property or securities, on or
with respect to any Equity Interests of Mediacom or of any
Restricted Subsidiary, other than with respect to Disqualified
Equity Interests and other than any dividend made to Mediacom or
another Restricted Subsidiary or any dividend payable in Equity
Interests of Mediacom or any Restricted Subsidiary; or
(2) any distribution, whether made in cash, property or securities, on
or with respect to any Equity Interests of Mediacom or of any
Restricted Subsidiary, other than with respect to Disqualified
Equity Interests and other than any distribution made to Mediacom or
another Restricted Subsidiary or any distribution payable in Equity
Interests of Mediacom or any Restricted Subsidiary; or
(3) any redemption, repurchase, retirement or other direct or indirect
acquisition of any Equity Interests of Mediacom, other than
Disqualified Equity Interests, or any warrants, rights or options to
purchase or acquire any such Equity Interests or any securities
exchangeable for or convertible into any such Equity Interests; or
(4) any redemption, repurchase, retirement or other direct or indirect
acquisition for value or other payment of principal, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking
fund payment, of any Subordinated Obligations; or
(5) any Investment, other than a Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of Mediacom that has not
been designated by the Executive Committee of Mediacom by a Committee
Resolution delivered to the trustee as an Unrestricted Subsidiary pursuant to
"Covenants--Designation of Unrestricted Subsidiaries" above. Any such
designation may be revoked by a Committee Resolution delivered to the trustee,
subject to the provisions of such covenant.
"S&P" means Standard & Poor's Ratings Group.
"Significant Subsidiary" means any Restricted Subsidiary which at the
time of determination had:
(1) total assets which, as of the date of Mediacom's most recent
quarterly consolidated balance sheet, constituted at least 10% of
Mediacom's total assets on a consolidated basis as of such date; or
(2) revenues for the three-month period ending on the date of Mediacom's
most recent quarterly consolidated statement of income which
constituted at least 10% of Mediacom's total revenues on a
consolidated basis for such period; or
(3) Mediacom's most recent quarterly consolidated statement of income
which constituted at least 10% of Mediacom's total Operating Cash
Flow on a consolidated basis for such period.
"Subordinated Obligations" means, with respect to either us, any
Indebtedness of either of us which is expressly subordinated in right of
payment to the notes.
"Subsidiary" means a Person the majority of whose voting stock,
membership interests or other Voting Equity Interests is or are owned by
Mediacom or a subsidiary. Voting stock in a corporation is Equity Interests
having voting power under ordinary circumstances to elect directors.
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"Subsidiary Credit Facilities" means the Southeast Credit Facility and
the Western Credit Facility, together with all loan documents and instruments
thereunder (including, without limitation, any guarantee agreements and
security documents), including any amendment, any amendment and restatement,
modification or supplement thereto or any refinancing, refunding, deferral,
renewal, extension or replacement thereof (including, in any such case and
without limitation, adding or removing Subsidiaries of Mediacom as borrowers or
guarantors thereunder), whether by the same or any other lender or group of
lenders, pursuant to which (i) an aggregate amount of Indebtedness up to $325.0
million may be Incurred pursuant to clause (3)(i) of the second paragraph of
"Covenants--Limitation on Indebtedness" and (ii) any additional amount of
Indebtedness in excess of $325 million may be Incurred pursuant to the first
paragraph or pursuant to clause (3)(ii) or any other applicable clause (other
than clause (3)(i) of the second paragraph of "Covenants--Limitation on
Indebtedness."
"Subsidiary Operating Cash Flow" means, with respect to any Subsidiary
for any period, the "Operating Cash Flow" of such Subsidiary and its
Subsidiaries for such period determined by utilizing all of the elements of the
definition of "Operating Cash Flow" in the indenture, including the defined
terms used in such definition, consistently applied only to such Subsidiary and
its Subsidiaries on a consolidated basis for such period.
"Unrestricted Subsidiary" means any Subsidiary of Mediacom designated as
such pursuant to the provisions of "Covenants--Designation of Unrestricted
Subsidiaries" above, and any Subsidiary of an Unrestricted Subsidiary. Any such
designation may be revoked by a Committee Resolution delivered to the trustee,
subject to the provisions of such covenant.
"Voting Equity Interests" means Equity Interests in any Person with
voting power under ordinary circumstances entitling the holders of such Equity
Interests to elect the Executive Committee, the board of managers, board of
directors or other governing body of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect of such
Indebtedness by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment, by (ii) the
then outstanding aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary, 99%
or more of the outstanding Equity Interests of which, other than Equity
Interests constituting directors' qualifying shares to the extent mandated by
applicable law, are owned by Mediacom or by one or more Wholly Owned Restricted
Subsidiaries or by Mediacom and one or more Wholly Owned Restricted
Subsidiaries.
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DESCRIPTION OF OTHER INDEBTEDNESS
Current Subsidiary Credit Facilities
Our operating subsidiaries currently obtain bank financing through two
stand-alone borrowing groups, the Western group and the Southeast group. The
credit arrangements for each borrowing group are non-recourse to us, 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 arrangements permit the relevant
subsidiaries, subject to covenant and other restrictions, to make distributions
to us.
We currently obtain financing for the operations of the Western group
through a credit agreement among our subsidiaries included in the Western
group, the lenders party thereto, and The Chase Manhattan Bank, as
administrative agent. The Western credit facility is a $100.0 million reducing
revolving credit facility expiring September 30, 2005. At June 30, 1999, there
was $13.0 million outstanding under the Western credit facility. Interest under
the Western credit facility is payable at a Eurodollar rate, plus a floating
percentage tied to the leverage ratio ranging from 1.375% to 2.750% for
Eurodollar rate borrowings. The floating percentage is one percentage point
lower in the case of base rate loans. The weighted average interest rate at
June 30, 1999 on the outstanding borrowings under the Western credit facility
was approximately 6.5%. At June 30, 1999, an interest rate swap agreement had
been entered into to hedge the underlying Eurodollar rate exposure in the
notional amount of $10.0 million with an expiration date of February 2000.
We currently obtain financing for the operations of the Southeast group
through a credit agreement, among Mediacom Southeast, the lenders party thereto
and The Chase Manhattan Bank, as administrative agent. The Southeast credit
facility is a $225.0 million reducing revolving credit facility expiring June
30, 2006. At June 30, 1999, there was $18.0 million outstanding under the
Southeast credit facility and $30.0 million of letters of credit issued under
the Southeast credit facility on the account of Mediacom Southeast. Interest
under the Southeast credit facility is payable at a Eurodollar base rate, plus
a floating percentage tied to the leverage ratio ranging from 1.25% to 2.25%
for Eurodollar rate borrowings. The floating percentage is one percentage point
lower in the case of base rate loans. The weighted average interest rate at
June 30, 1999 on the outstanding borrowings under the Southeast credit facility
was approximately 6.5%. At June 30, 1999, separate interest rate swap
agreements had been entered into to hedge the underlying Eurodollar rate
exposure in the notional amount of $40.0 million with expiration dates ranging
from May 2000 through October 2002.
In general, the subsidiary credit facilities require the respective
borrowing groups to use the proceeds from specified equity and debt issuances,
as well as specified asset dispositions, to prepay borrowings under the
respective subsidiary credit facilities and to reduce permanently commitments
thereunder. The subsidiary credit facilities also require mandatory prepayments
of amounts outstanding and permanent reductions in the commitments thereunder,
beginning on December 31, 1999, based on a percentage of excess cash flow.
The subsidiary credit facilities are secured by our pledge of the
ownership interests in the subsidiaries and a first priority lien on all the
tangible and intangible assets of our subsidiaries, other than real property in
the case of the Southeast credit facility. The indebtedness under the
subsidiary credit facilities is guaranteed by us on a limited recourse basis to
the extent of our ownership interests in the subsidiaries.
The subsidiary credit facilities contain covenants, including, but not
limited to, insurance requirements, limitations on mergers and acquisitions,
consolidations and sales of certain assets, restrictions on certain
transactions with related parties, the maintenance of specified financial
ratios, limitations on liens, the incurrence of additional indebtedness and
restricted payments, and restrictions on the ability to engage in any business.
In addition, an event of default will occur under the subsidiary credit
facilities if:
. Mr. Commisso ceases to be the Chairman and Chief Executive Officer of
Mediacom Management;
. Mediacom Management shall cease to act as manager of our subsidiaries;
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. we cease to own all of the equity interests of our subsidiaries that
we currently own; or
. ""change of control" events specified in the subsidiary credit
facilities occur and are continuing.
As of June 30, 1999, we had inter-company loans to and preferred equity
investments in our subsidiaries in the aggregate amount of approximately $322.9
million. The subsidiary credit facilities allow the subsidiaries to pay to us
interest on inter-company loans and make similar distributions in respect of
preferred equity contributions if no default is then continuing under the
subsidiary credit facilities. We can use such payments and distributions to
make interest payments on our senior notes, including the exchange notes.
Additionally, the subsidiaries can repay or redeem, as appropriate, such inter-
company loans and preferred equity investments if: (i) the leverage ratio on a
pro forma basis is less than 5.5 to 1.0 (reducing over five years to 3.0 to
1.0); and (ii) the subsidiaries are in compliance with other specified
financial covenants and no default is then continuing. As of June 30, 1999, the
leverage ratio of Mediacom Southeast under the Southeast credit facility and
the leverage ratio of the Western group under the Western credit facility were
each less than 1.0 to 1.0. Accordingly, the subsidiaries were able to make
distributions to us in respect of such repayments or redemptions in the
aggregate amount of approximately $260.0 million as of June 30, 1999. Leverage
ratio is defined, at any date, as the ratio of (a) total indebtedness
(excluding inter-company indebtedness) to (b) four times system cash flow for
the most recent fiscal quarter.
New Subsidiary Credit Facilities
The description set forth below does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the
provisions of the definitive documents which will set forth the terms and
conditions of our new subsidiary credit facilities.
To finance the acquisition of the Triax and Zylstra systems, our
subsidiaries will enter into two separate new credit facilities. The first
facility, referred to as the Mediacom USA facility, will combine and replace
the existing Western group and Southeast group credit facilities. This facility
will consist of the following:
<TABLE>
<CAPTION>
Maximum
Percentage Maximum
over Percentage
Mediacom USA Eurodollar over Base
Facility Amount Term Rate(/1/) Rate(/1/)
------------ --------------------- --------- ---------- ----------
(dollars in millions)
<S> <C> <C> <C> <C>
Revolving credit
facility $400.0 8.5 years(/2/) 2.25% 1.25%
Term loan 100.0 9.0 years(/3/) 2.75% 1.75%
------
Total $500.0
======
</TABLE>
- -----------------------------
(/1/) Pricing based on leverage ratio in the case of revolving credit loans.
Term loans bear interest at maximum percentage over applicable rate.
(/2/) Subject to reduction by nine months if we do not refinance our 8 1/2%
senior notes.
(/3/) Subject to reduction by 12 months if we do not refinance our 8 1/2%
senior notes.
The reducing revolving credit facility will be available to our existing
subsidiaries for general business purposes, for refinancing indebtedness
outstanding under the existing Southeast and Western credit facilities (a total
of approximately $31.0 million at June 30, 1999), to make restricted payments
to us, to make investments and to fund acquisitions. Up to $100.0 million of
the revolving credit facility will be available for letters of credit. The term
loan will be available in up to two drawings, with the first drawing to occur
at the closing of this credit facility and the second drawing to occur within
forty-five days thereafter. The proceeds of the term loan will be available to
refinance indebtedness, make distributions to us and to purchase cable systems
from affiliates of the borrowers. We have obtained commitments from the lenders
for the full amount of the
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revolving credit facility and term loan. These commitments are subject to
numerous conditions, including completion of documentation acceptable to the
lenders.
In general, the Mediacom USA Facility will require our subsidiaries to
use the proceeds from specified equity and debt issuances, as well as
specified asset dispositions, to prepay borrowings under this facility and to
reduce permanently commitments thereunder. This facility will also require
mandatory prepayments of amounts outstanding and permanent reductions in the
commitments thereunder, beginning with the year 2002, based on a percentage of
excess cash flow.
The Mediacom USA Facility will be secured by our pledge of the ownership
interests in the subsidiaries. The indebtedness under this facility will be
guaranteed by us on a limited recourse basis to the extent of our ownership
interests in the subsidiaries.
The Mediacom USA Facility will contain covenants and other restrictions
similar to those set forth in the current facilities.
It is anticipated that the second new credit facility, referred to as
the Acquisition Credit Facility, will be for $500.0 million. The borrowers
under this facility will be our newly formed subsidiaries that will operate
the Triax and Zylstra systems following our acquisition of these systems. This
facility will be available to our new subsidiaries to fund, in part, the
acquisition of the Triax and Zylstra systems. We anticipate the terms and
conditions of the Acquisition Credit Facility will be similar to those of the
Mediacom USA facility.
There can be no assurance that either or both new subsidiary credit
facilities will be completed.
Seller Note
In connection with the purchase of the Kern Valley system in June 1996,
one of our subsidiaries issued the seller note in the original principal
amount of $2.8 million. Each of the subsidiaries included in the Western Group
is now a co-obligor under the seller note. The seller note matures on June 28,
2006 and accrues interest, payable on such maturity date, at the rate of 9%
until June 28, 2001, at which time the rate becomes 15% until June 28, 2003,
and becomes 18% thereafter. Interest compounds annually and all interest rate
increases described above are deemed retroactive to the issue date of the
seller note. The seller note contains default provisions as well as
restrictive covenants with respect to the issuance of additional debt by the
Western Group.
Other Senior Notes due 2008
We have outstanding $200.0 million principal amount of 8 1/2% senior
notes due 2008. The 8 1/2% senior notes rank on a parity with the exchange
notes.
The indenture governing the 8 1/2% senior notes contains restrictive
covenants, mandatory offers to purchase, events of default and other
provisions nearly identical to the comparable provisions set forth in the
indenture governing the exchange notes. For additional information, see
"Description of the Notes."
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MATERIAL FEDERAL TAX CONSIDERATIONS
Set forth below are the material United States federal income tax
consequences relevant to, in the opinion of Cooperman Levitt Winikoff Lester &
Newman, P.C., our legal counsel, the exchange offer. Except where noted, the
following deals only with the notes held as capital assets within the meaning
of section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"),
by a holder of notes that is an individual citizen or resident of the United
States or is a United States corporation that has purchased the notes pursuant
to their original issue. The following does not deal with special situations
such as those of broker-dealers, tax-exempt organizations, individual
retirement accounts and other tax deferred accounts, financial institutions,
insurance companies, or persons holding notes as part of a hedging or
conversion transaction or a straddle. Furthermore, the following is based upon
the provisions of the Code and regulations, rulings and judicial decisions
promulgated under the Code as of the date hereof. Such authorities may be
repealed, revoked, or modified, possibly with retroactive effect, so as to
result in United States federal income tax consequences different from those
discussed below. In addition, except as otherwise indicated, the following does
not consider the effect of any applicable foreign, state, local or other tax
laws or estate or gift tax considerations.
As used in this prospectus, a "United States person" is:
(1) a citizen or resident of the U.S;
(2) a corporation, partnership or other entity created or organized in
or under the laws of the U.S. or any of its political subdivision;
(3) an estate the income of which is subject to U.S. federal income
taxation regardless of its source;
(4) a trust if:
(a) a United States court is able to exercise primary supervision
over the administration of the trust; and
(b) one or more United States persons have the authority to
control all substantial decisions of the trust;
(5) a certain type of trust in existence on August 20, 1996, which was
treated as a United States person under the Code in effect
immediately prior to such date and which has made a valid election
to be treated as a United States person under the Code; and
(6) any person otherwise subject to U.S. federal income tax on a net
income basis in respect of its worldwide taxable income.
A "U.S. holder" is a beneficial owner of a note who is a United States
Person. A "foreign holder" is a beneficial owner of a note who is not a U.S.
holder.
Prospective investors are advised to consult their own tax advisors with
regard to the application of the tax considerations discussed below to their
particular situations, as well as the application of any state, local, foreign
or other tax laws, or subsequent revisions of such laws.
Federal Income Taxation of U.S. Holders
Exchange of Notes
The exchange of exchange notes pursuant to the exchange offer will not be
treated as a taxable sale, exchange or other disposition of the corresponding
initial notes because the terms of the exchange notes are not materially
different from the terms of the initial notes. Accordingly:
(1) no gain or loss will be realized by a U.S. holder upon receipt of an
exchange note;
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(2) the holding period of the exchange note will include the holding
period of the initial note exchanged therefor; and
(3) the adjusted tax basis of the exchange notes will be the same as the
adjusted tax basis of the initial notes exchanged.
The filing of a shelf registration statement should not result in a
taxable exchange to us or any holder of a note.
Payments of Interest
A U.S. holder of an exchange note generally will be required to report as
ordinary income for federal income tax purposes interest received or accrued on
the exchange note in accordance with the U.S. holder's method of tax
accounting.
Market Discount
If a U.S. holder purchases an exchange note for an amount that is less
than its "stated redemption price at maturity" (which is the stated principal
amount), the amount of the difference will be treated as "market discount" for
federal income tax purposes unless such difference is less than a specified de
minimis amount. Under the de minimis exception, an exchange note is considered
to have no market discount if the excess of the stated redemption price at
maturity of the exchange note over the holder's tax basis in such note
immediately after its acquisition is less than 0.25% of the stated redemption
price at maturity of the exchange note multiplied by the number of complete
years to the maturity date of the exchange note after the acquisition date.
Under the market discount rules, a U.S. holder of an exchange note that
does have market discount is required to treat any principal payment on, or any
gain from the sale, exchange, retirement or other disposition of an exchange
note as ordinary income to the extent of the accrued market discount not
previously included in income at the time of such payment or disposition. In
addition, such a holder may be required to defer until maturity of the exchange
note or its earlier disposition in a taxable transaction the deduction of all
or a portion of the interest expense on any indebtedness incurred or continued
to purchase or carry such exchange note.
Any market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the exchange note,
unless the U.S. holder elects to accrue the market discount on a constant
interest method. A U.S. holder of an exchange note may elect to include market
discount in income currently as it accrues (on either a ratable or constant
interest method), in which case the rule described above regarding deferral of
interest deductions will not apply. This election to include market discount in
income currently, once made, applies to all market discount obligations
acquired on or after the first taxable year to which the election applies and
may not be revoked without the consent of the Internal Revenue Service.
Bond Premium
A U.S. holder who purchases an exchange note for an amount in excess of
its stated redemption price at maturity will be considered to have purchased
the exchange note with "amortizable bond premium" equal to the amount of such
excess. A U.S. holder generally may elect to amortize the premium on the
constant yield to maturity method. The amount amortized in any year under such
method will be treated as a reduction of the holder's interest income from the
exchange note during such year and will reduce the holder's adjusted tax basis
in the exchange note by such amount. A holder of an exchange note that does not
make the election to amortize the premium will not reduce its tax basis in the
exchange note, and thus effectively will realize a smaller gain, or a larger
loss, on a taxable disposition of the exchange note than it would have realized
had the election been made. The election to amortize the premium on a constant
yield to maturity method, once made, applies to all debt obligations held or
acquired by the electing holder on or after the first day of the first taxable
year to which the election applies and may not be revoked without the consent
of the Internal Revenues Service.
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Sale, Exchange or Retirement
A U.S. holder's tax basis in an exchange note generally will equal the
purchase price paid therefor, increased by market discount previously included
in income by such U.S. holder and decreased by any amortized premium applied to
reduce interest and any principal payments on the exchange note. Upon the sale,
exchange or retirement, including redemption, of an exchange note, a holder of
an exchange note generally will recognize gain or loss equal to the difference
between the amount of cash and the fair market value of other property received
from the sale, exchange or retirement of the exchange note (other than in
respect of accrued and unpaid interest on the exchange note) and the adjusted
tax basis in the exchange note. Such gain or loss generally will be capital
gain or loss, except to the extent of any accrued market discount, which will
be taxed as ordinary income. Amounts received attributable to accrued but
unpaid interest will be treated as ordinary interest income.
Under current law, net capital gains of individuals generally are subject
to the following maximum federal tax rates:
(1) twenty percent, for property held more than one year; and
(2) beginning in the year 2006, eighteen percent, for property acquired
after the year 2000 and held for more than five years.
The deductibility of capital losses is subject to limitations.
Federal Income Taxation of Foreign Holders
The following is a summary of certain United States Federal income tax
consequences of the ownership and sale or other disposition of the exchange
notes by a foreign holder.
If the income or gain on the exchange notes is "effectively connected
with the conduct of a trade or business within the United States" of the
foreign holder of the exchange notes, such income or gain will be subject to
tax essentially in the same manner as if the exchange notes were held by a
United States person, as discussed above, and in the case of a foreign person
that is a foreign corporation, may also be subject to the federal branch
profits tax.
If the income on the exchange notes is not effectively connected with the
conduct of a trade or business within the United States, then under the
"portfolio interest" exception to the general rules for the withholding of tax
on interest paid to a foreign holder, a foreign holder will not be subject to
United States tax, or to withholding, on interest on an exchange note, provided
that:
(1) the foreign holder does not actually or constructively own 10% or
more of a capital or profits interest in Mediacom within the meaning
of Section 871(h)(3) of the Code;
(2) the foreign holder is not a controlled foreign corporation that is
considered related to Mediacom within the meaning of Section
864(d)(4) of the Code; and
(3) we, our paying agent or the person who would otherwise be required
to withhold tax received either:
(a) a statement on Internal Revenue Service Form W-8, signed under
penalties of perjury by the beneficial owner of the exchange
note, in which the owner certifies that the owner is not a
United States person and which provides the owner's name and
address; or
(b) a statement signed under penalties of perjury by a financial
institution holding the exchange note on behalf of the
beneficial owners, together with a copy of each beneficial
owner's Form W-8.
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Recently finalized regulations, which generally will become effective on
January 1, 2000, add certain alternative certification procedures. A foreign
holder who does not qualify for the "portfolio interest" exception will be
subject to United States withholding tax at a flat rate of 30% (or a lower
applicable treaty rate upon delivery of requisite certification of eligibility)
on interest payments on the exchange notes which are not effectively connected
with the conduct of a trade or business within the United States.
If the gain on the exchange notes is not effectively connected with the
conduct of a trade or business within the United States, then gain recognized
by a foreign holder upon the redemption, sale or exchange of an exchange note,
including any gain representing accrued market discount, will not be subject to
United States tax unless the foreign holder is an individual present in the
United States for 183 days or more during the taxable year in which the
exchange note is redeemed, sold or exchanged, and certain other requirements
are met, in which case the foreign holder will be subject to United States tax
at a flat rate of 30%, unless exempt by applicable treaty upon delivery of
requisite certification of eligibility. Foreign holders who are individuals may
also be subject to tax pursuant to provisions of United States federal income
tax law applicable to certain United States expatriates.
Federal Estate Taxation of Foreign Holders
An exchange note that is held by an individual who at the time of death
is not a citizen or resident of the United States will not be subject to U.S.
federal estate tax as a result of such individual's death, provided that, at
the time of the individual's death, payments of interest with respect to such
exchange note would have qualified for the portfolio interest exception.
Federal Income Tax Backup Withholding
Certain (generally, non-corporate) U.S. holders may be subject to back-up
withholding at a rate of 31% on payments of principal, premium and interest on,
and the proceeds of the disposition of the exchange notes if the holder:
(1) fails to provide a taxpayer identification number;
(2) furnishes an incorrect taxpayer identification number;
(3) is notified by the Internal Revenue Service that he or she has
failed to report properly payments of interest and dividends and the
Internal Revenue Service has notified us that he or she is subject
to backup withholding; or
(4) fails, under certain circumstances, to provide a signed statement,
certified under penalties of perjury, that the taxpayer
identification number provided is correct and that he or she is not
subject to backup withholding.
The amount of any backup withholding deducted from a payment to a U.S.
holder is allowable as a credit against the U.S. holder's federal income tax
liability, provided that certain required information is furnished to the
Internal Revenue Service. Certain holders, (including, among others,
corporations and foreign individuals who comply with certain certification
requirements described above under "Foreign Holders") are not subject to backup
withholding. Holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
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EXCHANGE OFFER
Exchange and Registration Rights Agreement
The initial notes were originally issued on February 26, 1999 to Chase
Securities Inc. pursuant to a purchase agreement dated February 19, 1999. The
initial purchaser subsequently resold the notes to qualified institutional
buyers in reliance on Rule 144A under the Securities Act, and outside the
United States in accordance with Regulation S under the Securities Act. We are
parties to an exchange and registration rights agreement with the initial
purchaser entered into as a condition to the closing under the purchase
agreement. Pursuant to the exchange and registration rights agreement, we
agreed, for the benefit of the holders of the initial notes, at our cost to:
. file an exchange offer registration statement on or before August 25,
1999 with the Securities and Exchange Commission with respect to the
exchange offer for the notes; and
. use our reasonable best efforts to have the registration statement
declared effective under the Securities Act by December 23, 1999.
Upon the registration statement being declared effective, we will offer
the exchange notes in exchange for surrender of the initial notes. We will
keep the exchange offer open for not less than 30 days, or longer if required
by applicable law, after the date on which notice of the exchange offer is
mailed to the holders of the initial notes. For each initial note surrendered
to us pursuant to the exchange offer, the holder of such initial note will
receive an exchange note having a principal amount equal to that of the
surrendered initial note.
Under existing interpretations of the staff of the Securities and
Exchange Commission contained in several no-action letters to third parties,
we believe that the exchange notes will in general be freely tradeable after
the exchange offer without further registration under the Securities Act.
However, any purchaser of initial notes who is an "affiliate" of ours or who
intends to participate in the exchange offer for the purpose of distributing
the exchange notes:
. will not be able to rely on these interpretations of the staff of the
Securities and Exchange Commission;
. will not be able to tender its initial notes in the exchange offer;
and
. must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the
initial notes, unless such sale or transfer is made pursuant to an
exemption from such requirements.
As contemplated by these no-action letters and the exchange and
registration rights agreement, each holder accepting the exchange offer is
required to represent to us in the letter of transmittal that:
. the exchange notes are to be acquired by the holder or the person
receiving such exchange notes, whether or not such person is the
holder, in the ordinary course of business;
. the holder or any such other person, other than a broker-dealer
referred to in the next sentence, is not engaging and does not intend
to engage, in distribution of the exchange notes;
. the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution of
the exchange notes;
. neither the holder nor any such other person is an "affiliate" of ours
within the meaning of Rule 405 under the Securities Act.
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The holder or any such other person acknowledges that if such holder or
any other person participates in the exchange offer for the purpose of
distributing the exchange notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the exchange notes and cannot rely on those no-action letters.
As indicated above, each broker-dealer that receives exchange notes for
its own account in exchange for initial notes must acknowledge that it:
. acquired the exchange notes for its own account as a result of market-
making activities or other trading activities;
. has not entered into any arrangement or understanding with us or any
"affiliate," within the meaning of Rule 405 under the Securities Act,
to distribute the exchange notes to be received in the exchange offer;
and
. will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such exchange notes.
For a description of the procedures for resales by broker-dealers, see
"Plan of Distribution."
Shelf Registration Statement
If:
. we determine that the exchange offer is not available or may not be
completed on time because it would violate applicable law or its
interpretations by the staff of the Securities and Exchange
Commission; or
. any notes validly tendered pursuant to the exchange offer are not
exchanged for exchange notes before February 20, 2000, which is 360
days from the date the initial notes were issued; or
. the initial purchaser so requests with respect to initial notes not
eligible to be exchanged for exchange notes in the exchange offer; or
. any holder of initial notes that participates in the exchange offer
does not receive freely transferable exchange notes in return for
initial notes; or
. we so elect;
Then, we will be obligated, at our sole expense, to:
. file with the Securities and Exchange Commission a shelf registration
statement covering resales of the initial notes;
. use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act as
promptly as practicable after filing; and
. use our reasonable best efforts to keep the shelf registration
statement continuously effective, supplemented and amended as required
by the Securities Act, to permit the prospectus which is a part of the
shelf registration statement to be usable by holders after the shelf
registration statement is declared effective through February 21, 2001
or any shorter period of time that will terminate when all of the
initial notes covered by the shelf registration statement have been
sold under the shelf registration statement or are no longer are
considered restricted securities under the Securities Act.
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If we file a shelf registration statement, we will provide to each holder
of the initial notes being registered copies of the prospectus that is a part
of the shelf registration statement. We will also notify each of these holders
when the shelf registration statement has become effective and take other
actions as are required to permit unrestricted resales of the initial notes
being registered. A holder that sells initial notes under the shelf
registration statement will be required to be named as a selling security
holder in the related prospectus and to deliver a prospectus to purchasers,
will be liable under some of the civil liability provisions under the
Securities Act in connection with those sales and will be bound by the
provisions of the exchange and registration rights agreement that are
applicable to the holder, including indemnification rights and obligations.
Holders of initial notes will be required to deliver information to be
used in connection with the shelf registration statement to have their initial
notes included in the shelf registration statement and benefit from the
provisions regarding liquidated damages set forth below.
The exchange and registration rights agreement provides that if:
(a) we fail to file the registration statement required by the exchange
and registration rights agreement on or before the date specified
for such filing;
(b) the registration statement or the shelf registration statement is
not declared effective by the Securities and Exchange Commission on
or prior to the date specified on the exchange and registration
rights agreement for such effectiveness;
(c) we fail to complete the exchange offer within 360 days of the
February 26, 1999 issue date; or
(d) the shelf registration statement or the registration statement is
filed and declared effective but thereafter ceases to be effective
or usable in connection with resales of registrable securities
during the period specified in the exchange and registration rights
agreement (each such event referred to in clauses (a) through (d)
above a "registration default");
we will pay liquidated damages to holders of the initial notes at the rate of
$.0192 per week of default per $1,000 principal amount of initial notes.
All accrued liquidated damages will be payable to holders of the initial
notes in cash on the semi-annual interest payment dates on the notes,
commencing with the first such date occurring after any such registration
default, until such registration default is cured.
"Registrable securities" means each initial note until:
. the date on which such initial note has been exchanged by a person
other than a broker-dealer for an exchange note in the exchange offer;
. following the exchange by a broker-dealer in the exchange offer of an
initial note for an exchange note, the date on which such exchange
note is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sale a copy of the prospectus contained in
the registration statement;
. the date on which such initial note has been effectively registered
under the Securities Act and disposed of in accordance with the shelf
registration statement; or
. the date on which such initial note is distributed to the public
pursuant to Rule 144 under the Securities Act.
The summary in this prospectus of certain provisions of the exchange and
registration rights agreement is subject to, and is qualified in its entirety
by, all the provisions of the exchange and registration rights agreement, a
copy of which is filed as an exhibit to the registration statement of which
this prospectus is a part.
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Expiration Date; Extensions; Amendments; Termination
The exchange offer will expire at 5:00 p.m., New York City time, on
October 12, 1999, unless we extend it in our reasonable discretion. The
expiration date of the exchange offer will be at least 30 days after we mail
notice of the exchange offer to holders as provided in Rule 14e-1(a) under the
Securities Exchange Act and the exchange and registration rights agreement.
To extend the expiration date, we will need to notify the exchange agent
of any extension by oral, promptly confirmed in writing, or written notice. We
will also need to notify the holders of the initial notes by mailing an
announcement or by means of a press release or other public announcement
communicated, unless otherwise required by applicable law or regulation, before
9:00 A.M., New York City time, on the next business day after the previously
scheduled expiration date.
We expressly reserve the right:
. to delay acceptance of any initial notes, to extend the exchange offer
or to terminate the exchange offer and not permit acceptance of
initial notes not previously accepted if any of the conditions
described below under "--Conditions to the Exchange Offer" have
occurred and have not been waived by us, if permitted to be waived, by
giving oral or written notice of the delay, extension or termination
to the exchange agent; or
. to amend the terms of the exchange offer in any manner.
If we amend the exchange offer in a manner determined by us to constitute
a material change, we will promptly disclose the amendment in a manner
reasonably calculated to inform the holders of the initial notes of the
amendment including providing public announcement, or giving oral or written
notice to the holders of the initial notes. A material change in the terms of
the exchange offer could include a change in the timing of the exchange offer,
a change in the exchange agent and other similar changes in the terms of the
exchange offer. If any material change is made to the terms of the exchange
offer, we will disclose the change by means of a post-effective amendment to
the registration statement of which this prospectus is a part and will
distribute an amended or supplemented prospectus to each registered holder of
initial notes. In addition, we will also extend the exchange offer for an
additional five to ten business days as required by the Securities Exchange
Act, depending on the significance of the amendment, if the exchange offer
would otherwise expire during that period. Any delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral,
promptly confirmed in writing, or written notice to the exchange agent.
Procedures for Tendering Initial Notes
To tender your initial notes in this exchange offer, you must use one of
the three alternative procedures described below:
. regular delivery procedure: Complete, sign and date the letter of
transmittal, or a facsimile of the letter of transmittal. Have the
signatures on the letter of transmittal, guaranteed if required by the
letter of transmittal. Mail or otherwise deliver the letter of
transmittal or the facsimile, together with the certificates
representing your initial notes being tendered and any other required
documents, to the exchange agent on or before 5:00 p.m., New York City
time, on the expiration date.
. book-entry delivery procedure: Send a timely confirmation of a book-
entry transfer of your initial notes, if this procedure is available,
into the exchange agent's account at The Depository Trust Company
("DTC") as contemplated by the procedures for book-entry transfer
described under "--Book-Entry Delivery Procedure" below, on or before
5:00 p.m., New York City time, on the expiration date.
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. guaranteed delivery procedure: If time will not permit you to complete
your tender by using the procedures described above before the
expiration date, comply with the guaranteed delivery procedures
described under "--Guaranteed Delivery Procedure" below.
The method of delivery of initial notes, the letter of transmittal and
all other required documents is at your election and risk. Instead of delivery
by mail, we recommend that you use an overnight or hand-delivery service. If
you choose the mail, we recommend that you use registered mail, properly
insured, with return receipt requested. In all cases, you should allow
sufficient time to assure timely delivery. You should not send any letters of
transmittal or initial notes to us. You must deliver all documents to the
exchange agent at its address provided below. You may also request your
respective brokers, dealers, commercial banks, trust companies or nominees to
tender your initial notes on your behalf.
Only a holder of initial notes may tender initial notes in this exchange
offer. For purposes of this exchange offer, a holder is any person in whose
name initial notes are registered on our books or any other person who has
obtained a properly completed bond power from the registered holder.
If you are the beneficial owner of initial notes that are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
and you wish to tender your notes, you must contact this registered holder
promptly and instruct this registered holder to tender these notes on your
behalf. If you wish to tender these initial notes on your own behalf, you
must, before completing and executing the letter of transmittal and delivering
your initial notes, either make appropriate arrangements to register the
ownership of these notes in your name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may
take considerable time.
You must have any signatures on a letter of transmittal or a notice of
withdrawal guaranteed by an eligible institution. An eligible institution is:
(1) a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.,
(2) a commercial bank or trust company having an office or correspondent
in the United States; or
(3) an eligible guarantor institution within the meaning of Rule 17Ad-15
under the Securities Exchange Act.
However, signatures on a letter of transmittal do not have to be
guaranteed if initial notes are tendered:
. by a registered holder, or by a participant in DTC in the case of book-
entry transfers, whose name appears on a security position listing as
the owner, who has not completed the box entitled "Special Issuance
Instructions' or "Special Delivery Instructions' on the letter of
transmittal and only if the exchange notes are being issued directly to
this registered holder, or deposited into this participant's account at
DTC in the case of book-entry transfers; or
. for the account of an eligible institution.
If the letter of transmittal or any bond powers are signed by:
(1) the recordholder(s) of the initial notes tendered: The signature must
correspond with the name(s) written on the face of the initial notes
without alteration, enlargement or any change whatsoever;
(2) a participant in DTC: The signature must correspond with the name as
it appears on the security position listing as the holder of the
initial notes;
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(3) a person other than the registered holder of any initial notes:
These initial notes must be endorsed or accompanied by bond powers
and a proxy that authorize this person to tender the initial notes
on behalf of the registered holder, in satisfactory form to us as
determined in our sole discretion, in each case, as the name of the
registered holder or holders appears on the initial notes.
(4) trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or
representative capacity. These persons should so indicate such
capacities when signing. Unless waived by us, evidence satisfactory
to us of their authority to so act must also be submitted with the
letter of transmittal.
Book-Entry Delivery Procedure
Any financial institution that is a participant in DTC's system may make
book-entry deliveries of initial notes by causing DTC to transfer these initial
notes into the exchange agent's account at DTC according to DTC's procedures
for transfer. To effectively tender notes through DTC, the financial
institution that is a participant in DTC will electronically transmit its
acceptance through the Automatic Tender Offer Program. DTC will then edit and
verify the acceptance and send an agent's message to the exchange agent for its
acceptance. An agent's message is a message transmitted by DTC to the exchange
agent stating that DTC has received an express acknowledgment from the
participant in DTC tendering the initial notes that the participant has
received and agrees to be bound by the terms of the letter of transmittal, and
that we may enforce this agreement against the participant. The exchange agent
will make a request to establish an account for the initial notes at DTC for
purposes of the exchange offer within two business days after the date of this
prospectus.
A delivery of initial notes through a book-entry transfer into the
exchange agent's account at DTC will only be effective if an agent's message or
the letter of transmittal or a facsimile of the letter of transmittal with any
required signature guarantees and any other required documents is transmitted
to and received by the exchange agent at the address indicated below under "--
Exchange Agent" on or before the expiration date unless the guaranteed delivery
procedures described below are complied with. Delivery of documents to the
Depository Trust Company does not constitute delivery to the Exchange Agent.
Guaranteed Delivery Procedure
If you are a registered holder of initial notes and desire to tender your
notes, and (1) these notes are not immediately available, (2) time will not
permit your notes or other required documents to reach the exchange agent
before the expiration date, or (3) the procedures for book-entry transfer
cannot be completed on a timely basis and an agent's message delivered, you may
still tender in this exchange offer if:
. you tender through an eligible institution, on or before the
expiration date, the exchange agent receives a properly completed and
duly executed letter of transmittal or facsimile of the letter of
transmittal and a notice of guaranteed delivery, substantially in the
form provided by us, with your name and address as holder of the
initial notes and the amount of notes tendered, stating that the
tender is being made by this letter and notice and guaranteeing that
within three New York Stock Exchange trading days after the expiration
date the certificates for all the initial notes tendered, in proper
form for transfer, or a book-entry confirmation with an agent's
message, as the case may be, and any other documents required by the
letter of transmittal will be deposited by the eligible institution
with the exchange agent; and
. the certificates for all your tendered initial notes in proper form
for transfer, or a book-entry confirmation, as the case may be, and
all other documents required by the letter of transmittal are received
by the exchange agent within three New York Stock Exchange trading
days after the expiration date.
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Acceptance of Initial Notes for Exchange; Delivery of Exchange Notes
Your tender of initial notes will constitute an agreement between you and
us governed by the terms and conditions provided in this prospectus and in the
letter of transmittal.
We will be deemed to have received your tender as of the date when your
duly signed letter of transmittal accompanied by your initial notes tendered,
or a timely confirmation of a book-entry transfer of these notes into the
exchange agent's account at DTC with an agent's message, or a notice of
guaranteed delivery from an eligible institution is received by the exchange
agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal tenders will be determined by us in our sole
discretion. Our determination will be final and binding.
We reserve the absolute right to reject any and all initial notes not
properly tendered or any initial notes which, if accepted, would, in our
opinion or our counsel's opinion, be unlawful. We also reserve the absolute
right to waive any conditions of this exchange offer or irregularities or
defects in tender as to particular notes. Our interpretation of the terms and
conditions of this exchange offer, including the instructions in the letter of
transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of initial notes must be
cured within the time that we shall determine. Neither the exchange agent any
other person or we will be under any duty to give notification of defects or
irregularities with respect to tenders of initial notes. Neither the exchange
agent nor we will incur any liability for any failure to give notification of
these defects or irregularities. Tenders of initial notes will not be deemed to
have been made until the irregularities have been cured or waived. The exchange
agent will return without cost to their holders any initial notes that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived as promptly as practicable following the expiration date.
If all the conditions to the exchange offer are satisfied or waived on
the expiration date, we will accept all initial notes properly tendered and
will issue the exchange notes promptly thereafter. Please refer to the section
of this prospectus entitled "--Conditions to the Exchange Offer" below. For
purposes of this exchange offer, initial notes will be deemed to have been
accepted as validly tendered for exchange when, as and if, we give oral or
written notice of acceptance to the exchange agent.
We will issue the exchange notes in exchange for the initial notes
tendered by a notice of guaranteed delivery by an eligible institution only
against delivery to the exchange agent of the letter of transmittal, the
tendered initial notes and any other required documents, or the receipt by the
exchange agent of a timely confirmation of a book-entry transfer of initial
notes into the exchange agent's account at DTC with an agent's message, in each
case, in form satisfactory to us and the exchange agent.
If any tendered initial notes are not accepted for any reason or if
initial notes are submitted for a greater principal amount than the holder
desires to exchange, the unaccepted or non-exchanged initial notes will be
returned without expense to the tendering holder, or, in the case of initial
notes tendered by book-entry transfer procedures described above, will be
credited to an account maintained with the book-entry transfer facility, as
promptly as practicable after withdrawal, rejection of tender or the expiration
or termination of the exchange offer.
In addition, we reserve the right in our sole discretion, but in
compliance with the provisions of the indenture, to:
. purchase or make offers for any initial notes that remain outstanding
after the expiration date, or, as described under "--Expiration Date;
Extensions; Amendments; Termination," to terminate the exchange offer
as provided by the terms of our exchange and registration rights
agreement, and
. purchase initial notes in the open market, in privately negotiated
transactions or otherwise, to the extent permitted by applicable law.
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The terms of any of the purchases or offers described above could differ
from the terms of the exchange offer.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw
tenders of initial notes at any time before 5:00 p.m., New York City time, on
the expiration date.
For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent before 5:00 p.m., New
York City time, on the expiration date at the address provided below under "--
Exchange Agent" and before acceptance of your tendered initial notes for
exchange by us.
Any notice of withdrawal must:
. specify the name of the person having tendered the initial notes to be
withdrawn;
. identify the initial notes to be withdrawn, including, if applicable,
the registration number or numbers and total principal amount of these
notes;
. be signed by the person having tendered the initial notes to be
withdrawn in the same manner as the original signature on the letter
of transmittal by which these initial notes were tendered, including
any required signature guarantees, or be accompanied by documents of
transfer sufficient to permit the trustee for the initial notes to
register the transfer of these notes into the name of the person
having made the original tender and withdrawing the tender; and
. state that you are withdrawing your tender of initial notes.
We will determine all questions as to the validity, form and
eligibility, including time of receipt, of all notices of withdrawal and our
determination will be final and binding on all parties. Initial notes that are
withdrawn will be deemed not to have been validly tendered for exchange in
this exchange offer.
You may retender properly withdrawn initial notes in this exchange offer
by following one of the procedures described under "--Procedures for Tendering
Initial Notes" above at any time before the expiration date.
Conditions to the Exchange Offer
With exceptions, we will not be required to accept initial notes for
exchange, or issue exchange notes in exchange for any initial notes, and we
may terminate or amend the exchange offer as provided in this prospectus
before the acceptance of the initial notes, if:
. the exchange offer violates applicable law or any interpretation of
the staff of the Securities and Exchange Commission;
. any required governmental approval has not been obtained; or
. a court or any governmental authority has issued an injunction, order
or decree that would prevent or impair our ability to proceed with the
exchange offer.
These conditions are for our sole benefit. We may assert any of these
conditions regardless of the circumstances giving rise to any of them. We may
also waive these conditions, in whole or in part, at any time and from time to
time, if we determine in our reasonable discretion, but within the limits of
applicable law, that any of the foregoing events or conditions has occurred or
exists or has not been satisfied. Our failure at any
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time to exercise any of rights will not be deemed a waiver of these rights and
these rights will be deemed ongoing rights which we may assert at any time and
from time to time.
If we determine that we may terminate the exchange offer, as provided
above, we may:
. refuse to accept any initial notes and return any initial notes that
have been tendered to their holders;
. extend the exchange offer and retain all initial notes tendered before
the expiration date, allowing, however, the holders of tendered
initial notes to exercise their rights to withdraw their tendered
initial notes; or
. waive any termination event with respect to the exchange offer and
accept all properly tendered initial notes that have not been
withdrawn or otherwise amend the terms of the exchange offer in any
respect as provided under "--Expiration Date; Extensions; Amendments;
Termination."
If we determine that we may terminate the exchange offer, we may be
required to file a shelf registration statement with the Securities and
Exchange Commission as described under "--Shelf Registration Statement." The
exchange offer is not dependent upon any minimum principal amount of initial
notes being tendered for exchange.
Accounting Treatment
We will record the exchange notes at the same carrying value as the
initial notes, as reflected in our accounting records on the date of the
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes. We will amortize the costs of the exchange offer and the unamortized
expenses related to the issuance of the exchange notes over the term of the
exchange notes.
Exchange Agent
We have appointed Harris Trust Company of New York as exchange agent for
the exchange offer. You should direct all questions and requests for
assistance or additional copies of this prospectus or the letter of
transmittal to the exchange agent as follows:
Harris Trust Company of New York
Wall Street Plaza
88 Pine Street--19th Floor
New York, New York 10005
Attention: Reorganization Department
Fax number: (212) 701-7636
Fees and Expenses
We will bear the expenses of soliciting tenders under the exchange
offer. The principal solicitation for tenders under the exchange offer is
being made by mail; however, our officers and other employees may make
additional solicitations by telegraph, telephone, telecopy or in person.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. However, we will pay the
exchange agent reasonable and customary fees for its services and will
reimburse the exchange agent for its reasonable out-of-pocket expenses in
connection with the exchange offer. We may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of the prospectus, letters of
transmittal and related documents to the beneficial owners of the initial
notes, and in handling or forwarding tenders for exchange.
We will pay the expenses incurred in connection with the exchange offer,
including fees and expenses of the exchange agent and trustee and accounting,
legal, printing and related fees and expenses.
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We will generally pay all transfer taxes, if any, applicable to the
exchange of initial notes under the exchange offer. However, tendering holders
will pay the amount of any transfer taxes, whether imposed on the registered
holder or any other person, if:
. certificates representing exchange notes or initial notes for
principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the initial notes tendered;
or
. tendered initial notes are registered in the name of any person other
than the person signing the letter of transmittal; or
. a transfer tax is imposed for any reason other than the exchange of
initial notes under the exchange offer.
If satisfactory evidence of payment of these taxes or exemption
therefrom is not submitted with the letter of transmittal, the amount of the
transfer taxes will be billed directly to the tendering holder.
Your Failure to Participate in the Exchange Offer Will Have Adverse
Consequences
If you do not properly tender your initial notes in the exchange offer,
your initial notes will remain outstanding and continue to accrue interest.
However, you will not be able to resell, offer to resell or otherwise transfer
the initial notes unless they are registered under the Securities Act or
unless you resell them, offer to resell or otherwise transfer them under an
exemption from the registration requirements of, or in a transaction not
governed by, the Securities Act. In addition, you will no longer be able to
obligate us to register the initial notes under the Securities Act, except in
the limited circumstances provided under our exchange and registration rights
agreement. To the extent the initial notes are tendered and accepted in the
exchange offer, the trading market, if any, for the initial notes would be
adversely affected. You should refer to "Risk Factors--Your failure to
participate in the exchange offer will have adverse consequences."
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BOOK-ENTRY; DELIVERY AND FORM
Principal and interest payments on global securities registered in the
name of DTC's nominee will be made in immediate available funds to DTC's
nominee as the registered owner of the global securities. We and the trustee
will treat DTC's nominee as the owner of the global securities for all other
purposes as well. Accordingly, we, the trustee, any paying agent and the
initial purchaser will have no direct responsibility or liability for any
aspect of the records relating to payments made on account of beneficial
interests in the global securities or for maintaining, supervising or reviewing
any records relating to these beneficial interests. It is DTC's current
practice, upon receipt of any payment of principal or interest, to credit
direct participants' accounts on the payment date according to their respective
holdings of beneficial interests in the global securities. These payments will
be the responsibility of the direct and indirect participants and not of DTC,
the trustee or us.
So long as DTC or its nominee is the registered owner or holder of the
global security, DTC or its nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by the global security for the
purposes of:
(1) receiving payment on the notes;
(2) receiving notices; and
(3) for all other purposes under the Indentures and the notes.
Beneficial interests in the notes will be evidenced only by, and
transfers of the notes will be effected only through, records maintained by DTC
and its participants.
Except as described below, owners of beneficial interests in a global
security will not be entitled to receive physical delivery of certificated
notes in definitive form and will not be considered the holders of the global
security for any purposes under the Indentures. Accordingly, each person owning
a beneficial interest in a global security must rely on the procedures of DTC.
And, if that person is not a participant, the person must rely on the
procedures of the participant through which that person owns its interest, to
exercise any rights of a holder under the Indentures. Under existing industry
practices, if we request any action of holders or an owner of a beneficial
interest in a global security desires to take any action under the Indentures,
DTC would authorize the participants holding the relevant beneficial interest
to take that action. The participants then would authorize beneficial owners
owning through the participants to take the action or would otherwise act upon
the instructions of beneficial owners owning through them.
DTC has advised us that it will take any action permitted to be taken by
a holder of notes only at the direction of one or more participants to whose
account with DTC interests in the global security are credited. Further, DTC
will take action only as to the portion of the aggregate principal amount at
maturity of the notes as to which the participant or participants has or have
given the direction.
Although DTC, Euroclear and Cedel have agreed to the procedures described
above in order to facilitate transfers of interests in global securities among
participants in DTC, Euroclear and Cedel, they are under no obligation to
perform these procedures, and the procedures may be discontinued at any time.
None of us, the trustee, any agent of the initial purchaser or ours will have
any responsibility for the performance by DTC, Euroclear and Cedel or their
respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
DTC has provided the following information to us. DTC is a:
(1) limited-purpose trust company organized under the New York Banking
Law;
(2) a banking organization within the meaning of the New York Banking
Law;
137
<PAGE>
(3) a member of the U.S. Federal Reserve System;
(4) a clearing corporation within the meaning of the New York Uniform
Commercial Code; and
(5) a clearing agency registered under the provisions of Section 17A of
the Securities Exchange Act.
Certificated Notes
Notes represented by a global security are exchangeable for certificated
notes only if:
(1) DTC notifies us that it is unwilling or unable to continue as
depository or if DTC ceases to be a registered clearing agency, and
a successor depository is not appointed by us within 90 days;
(2) we determine not to require all of the notes to be represented by a
global security and notifies the trustee of their decision; or
(3) an event of default or an event which, with the giving of notice or
lapse of time, or both, would constitute an Event of Default
relating to the notes represented by the global security has
occurred and is continuing.
Any global security that is exchangeable for certificated notes in
accordance with the preceding sentence will be transferred to, and registered
and exchanged for, certificated notes in authorized denominations and
registered in the names as DTC or its nominee may direct. However, a global
security is only exchangeable for a global security of like denomination to be
registered in the name of DTC or its nominee. If a global security becomes
exchangeable for certificated notes:
(1) certificated notes will be issued only in fully registered form in
denominations of $1,000 or integral multiples of $1,000;
(2) payment of principal, premium, if any, and interest on the
certificated notes will be payable, and the transfer of the
certificated notes will be registrable, at the office or agency we
maintain for these purposes; and
(3) no service charge will be made for any issuance of the certificated
notes, although the issuers may require payment of a sum sufficient
to cover any tax or governmental charge imposed in connection with
the issuance.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as
the case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or Cedel, as
the case may be, by the counterparts in such system in accordance with the
rules and procedures and within the established deadlines, Brussels time, of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant global notes in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositaries for
Euroclear or Cedel.
138
<PAGE>
Because of time zone differences, the securities account of a Euroclear
or Cedel participant purchasing an interest in a global note from a participant
in DTC will be credited, and any such crediting will be reported to the
relevant Euroclear or Cedel participant, during the securities settlement
processing day, which must be a business day for Euroclear and Cedel,
immediately following the settlement date of DTC. Cash received in Euroclear or
Cedel as a result of sales of interest in a global security by or through a
Euroclear or Cedel participant to a participant in DTC will be received with
value on the settlement date of DTC but will be available in the relevant
Euroclear or Cedel cash account only as of the business day for Euroclear or
Cedel following DTC's settlement date.
139
<PAGE>
PLAN OF DISTRIBUTION
A broker-dealer that is the holder of initial notes that were acquired
for the account of such broker-dealer as a result of market-making or other
trading activities, other than initial notes acquired directly from us or any
of our affiliates, may exchange such initial notes for exchange notes pursuant
to the exchange offer; provided, that each broker-dealer that receives exchange
notes for its own account in exchange for initial notes, where such initial
notes were acquired by such broker-dealer as a result of market-making or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. This prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for initial
notes where such initial notes were acquired as a result of market-making
activities or other trading activities. We have agreed that for a period of 180
days after consummation of the exchange offer or such time as any broker-dealer
no longer owns any registrable securities, we will make this prospectus, as it
may be amended or supplemented from time to time, available to any broker-
dealer for use in connection with any such resale. All dealers effecting
transactions in the exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers or any other holder of exchange notes. Exchange notes received
by broker-dealers for their own account pursuant to the exchange offer may be
sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the
exchange notes or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly to purchasers
or to or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers of
any such exchange notes. Any broker-dealer that resells exchange notes that
were received by it for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of such exchange notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any such resale of exchange notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after consummation of the exchange offer or such
time as any broker-dealer no longer owns any registrable securities, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. We have agreed to pay all expenses incident to
the exchange offer and to our performance of, or compliance with, the exchange
and registration rights agreement, other than commissions or concessions of any
brokers or dealers, and will indemnify the holders of the notes, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon for
us by Cooperman Levitt Winikoff Lester & Newman, P.C., New York, New York.
Robert L. Winikoff, a member of the Executive Committee of Mediacom, is a
member of Cooperman Levitt Winikoff Lester & Newman, P.C.
140
<PAGE>
EXPERTS
The audited consolidated financial statements and schedule of Mediacom
LLC and subsidiaries and the audited financial statement of Mediacom Capital
Corporation included in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
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, have
been included in this prospectus and in the registration statement in reliance
upon the reports of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. 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.
141
<PAGE>
ADDITIONAL AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 to register this exchange offer. This prospectus, which
forms a part of the registration statement, does not contain all the
information included in that registration statement. For further information
about us and the exchange notes offered in this prospectus, you should refer to
the registration statement and its exhibits. You may read and copy any document
we file with the Securities and Exchange Commission at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at 3475 Lenox
Road, N.E., Suite 1000, Atlanta, Georgia 30326-1232. Copies of such material
may be obtained from the Public Reference Section of the Commission at 450
Fifth Street, NW, Washington, D.C. 20549, at prescribed rates. You can also
review such material by accessing the Commission's Internet web site at
http://www.sec.gov. This site contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the Commission.
We intend to furnish to each holder of the exchange notes 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 holder of the exchange notes such other
reports as may be required by law.
142
<PAGE>
GLOSSARY
The following is a description of certain terms used in this prospectus:
<TABLE>
<C> <S>
Amplifier cascades............... The operation of two or more amplifiers in
series so that the output of one device
feeds the input of the next device.
Bandwidth........................ 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.
Basic penetration................ Basic subscribers as a percentage of total
number of homes passed.
Basic service tier............... A package of over-the-air broadcast
stations, local access channels and
satellite delivered cable television
services, other than premium services.
Basic subscriber................. A subscriber to a cable television system
who receives the basic service tier and who
is usually charged a flat monthly rate for
a number of channels.
Broadband........................ The ability to deliver multiple channels
and/or services to customers.
Cable modem...................... A device similar to a telephone modem that
sends and receives signals over a cable
television network at speeds exceeding 100
times the capacity of a telephone modem.
Cable television................. A broadband communications technology in
which multiple television channels as well
as audio and video signals are transmitted
either one way or bi-directionally through
a distribution system to single or multiple
specified locations.
Channel capacity................. The number of traditional video programming
channels that can be carried over a
communications system.
Clustering....................... A general term used to describe the
strategy of operating cable television
systems in a specific geographic region,
thus allowing for the achievement of
economies of scale and operating
efficiencies in such areas as system
management, marketing and technical
functions.
Cost-of-service.................. A rate-setting methodology prescribed by
the FCC which may give a cable television
operator the ability to establish maximum
rates for regulated services in excess of
the benchmark rate that would otherwise be
applicable.
Digital.......................... Technology that uses discrete levels
(usually 0 and 1)
to represent characters or numbers.
</TABLE>
G-1
<PAGE>
<TABLE>
<C> <S>
Digital compression.............. The conversion of the standard analog video
signal into a digital signal, and the
compression of that signal to facilitate
multiple channel transmissions through a
single channel's bandwidth.
Digital television............... A distribution technology where video
content is delivered in digital format.
Direct broadcast satellite
television system............... A service by which packages of television
programming are transmitted via high-
powered satellites to individual homes,
each served by a small satellite dish.
Expanded basic tier.............. Cable programming services other than
programming services provided on the basic
service tier or on a per-channel or per-
program basis.
Fiber optic cable................ Cable made of glass fibers through which
signals are transmitted as pulses of light
to the distribution portion of the cable
television which in turn goes to the
customer's home. Capacity for a very large
number of channels can be more easily
provided.
Headend facility................. A collection of hardware, typically
including satellite receivers, modulators,
amplifiers and video cassette playback
machines within which signals are processed
and then combined for distribution within
the cable television network.
High-speed Internet access....... High speed access to the Internet that is
provided over the cable network.
Homes passed..................... The number of single residence homes,
apartments and condominium units passed by
the cable distribution network in a cable
system's service area.
Internet......................... The large, worldwide network of thousands
of smaller, interconnected computer
networks. Originally developed for use by
the military and for academic research
purposes, the Internet is now accessible by
millions of users.
Multiple dwelling units.......... Condominiums, apartment complexes,
hospitals, hotels and other commercial
complexes.
Multichannel multipoint
distribution service............ A one-way radio transmission of television
channels over microwave frequencies from a
fixed station transmitting to multiple
receiving facilities located at fixed
points.
Multiple system operator......... A cable television operator that owns or
operates more than one cable television
system.
Near video-on-demand............. 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.
</TABLE>
G-2
<PAGE>
<TABLE>
<C> <S>
Network.......................... The distribution network element of a cable
television system consisting of coaxial and
fiber optic cable which begins at the
headend and is attached to power or
telephone company poles or buried
underground.
Node............................. The interface between the fiber optic and
coaxial distribution network.
Non-metropolitan markets......... Markets consisting of small cities and
their surrounding areas, typically with
populations of 500,000 or less, according
to the metropolitan areas measurement of
the U.S. Census Bureau.
Pay-per-view..................... Programming offered by a cable television
operator on a per-program basis which a
subscriber selects and for which a
subscriber pays a separate fee.
Premium penetration.............. Premium service units as a percentage of
the total number of basic subscribers. A
customer may purchase more than one premium
service, each of which is counted as a
separate premium service unit. This ratio
may be greater than 100% if the average
customer subscribes to more than one
premium service unit.
Premium service.................. Individual cable programming service
available only for monthly subscriptions on
a per-channel basis.
Premium service units............ The number of subscriptions to premium
services which are paid for on an
individual basis. A subscriber may purchase
more than one premium service, each of
which is counted as a separate premium
service unit.
Regional cluster................. Cable television systems grouped in
specific geographic regions and managed
together to achieve economies of scale and
operating efficiencies in such areas as
system management, marketing,
administrative and technical service.
Telephone modem.................. A device either inserted in a computer or
attached externally that encodes
(modulates) or decodes (demodulates) an
analog telephone signal to a digital signal
to receive data.
Telephony........................ The provision of telephone service.
Tiers............................ Varying levels of cable services consisting
of differing combinations of several over-
the-air broadcast and satellite delivered
cable television programming services.
Two-way communications The ability to have bandwidth available for
capability...................... upstream or two-way communication.
Upgrade.......................... The upgrade or replacement of an existing
cable system, usually undertaken to improve
its technological performance and/or to
expand the system's channel capacity in
order to provide more services.
Video-on-demand.................. A pay-per-view service that allows
customers to select and order a movie of
their choice on demand from a large film
library.
</TABLE>
G-3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Contents Page
-------- ----
<S> <C>
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 June 30, 1999 (unaudited) and December
31, 1998................................................................. F-20
Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 1999 and 1998 (unaudited)....................................... F-21
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1999 and 1998 (unaudited)................................................ F-22
Notes to Unaudited Consolidated Financial Statements...................... F-23
</TABLE>
MEDIACOM CAPITAL CORPORATION
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Contents Page
-------- ----
<S> <C>
Report of Independent Public Accountants.................................. F-28
Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998...... F-29
Note to Balance Sheets.................................................... F-30
</TABLE>
F-1
<PAGE>
U.S. CABLE TELEVISION GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Contents Page
-------- ----
<S> <C>
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, Pe-
riod 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
</TABLE>
TRIAX MIDWEST ASSOCIATES, L.P.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Contents Page
-------- ----
<S> <C>
Report of Independent Public Accountants.................................. F-51
Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999
(unaudited).............................................................. F-52
Statements of Operations for the Years Ended December 31, 1996, 1997 and
1998 and for the Six Months Ended June 30, 1998 and 1999 (unaudited)..... F-53
Statements of Partners' Deficit for the Years Ended December 31, 1996,
1997 and 1998 and for the Six Months Ended June 30, 1999 (unaudited)..... F-54
Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and
1998 and for the Six Months Ended June 30, 1998 and 1999 (unaudited)..... F-55
Notes to Financial Statements............................................. F-56
</TABLE>
F-2
<PAGE>
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
F-3
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in 000's)
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All dollar amounts in 000's)
<TABLE>
<CAPTION>
The Company Predecessor
------------------------------- ---------------
March 12,
Year Ended 1996
December 31, through January 1, 1996
----------------- December 31, through
1998 1997 1996 March 11, 1996
-------- ------- ------------ ---------------
<S> <C> <C> <C> <C>
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)
======== ======= ======= ======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(All dollar amounts in 000's)
<TABLE>
<S> <C>
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
========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in 000's)
<TABLE>
<CAPTION>
The Company Predecessor
--------------------------------- -----------
March 12, January 1,
Year Ended 1996 1996
December 31, through through
------------------- December 31, March 11,
1998 1997 1996 1996
--------- -------- ------------ -----------
<S> <C> <C> <C> <C>
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
- --------------------------------------------------
========= ======== ======== =====
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
<PAGE>
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
<PAGE>
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
<PAGE>
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 are recognized in the period in which the related services are
provided to the Company's subscribers.
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:
<TABLE>
<S> <C>
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
</TABLE>
F-10
<PAGE>
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:
<TABLE>
<S> <C>
Franchising costs............................................. 15 years
Goodwill...................................................... 15 years
Subscriber lists.............................................. 5 years
Covenants not to compete...................................... 3 to 7 years
</TABLE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revenue................................................ $136,148 $120,511
Operating loss......................................... (11,809) (15,352)
Net loss............................................... $(41,340) $(42,921)
</TABLE>
(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 2000 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:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
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
======== =======
</TABLE>
F-13
<PAGE>
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:
<TABLE>
<CAPTION>
Gross Asset Net Asset
1998 Value Amortization Value
---- ----------- ------------ ---------
<S> <C> <C> <C>
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
======== ======= ========
<CAPTION>
Gross Asset Net Asset
1997 Value Amortization Value
---- ----------- ------------ ---------
<S> <C> <C> <C>
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
======== ======= ========
</TABLE>
(8) Debt:
As of December 31, 1998 and 1997, debt consisted of:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
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
======== =======
</TABLE>
(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
<PAGE>
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 rations 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:
<TABLE>
<CAPTION>
Interest Rate Option Margin Rate
-------------------- ---------------
<S> <C>
Base Rate................................................. 0.250% to 1.625%
Eurodollar Rate........................................... 1.250% to 2.625%
</TABLE>
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
<PAGE>
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:
<TABLE>
<S> <C>
1999.............................................................. $ 2,000
2000.............................................................. 2,300
2001.............................................................. 6,600
2002.............................................................. 9,500
2003.............................................................. 13,600
Thereafter........................................................ 303,905
--------
$337,905
========
</TABLE>
(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 $29 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
<PAGE>
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:
<TABLE>
<S> <C>
1999................................................................ $1,815
2000................................................................ 1,190
2001................................................................ 768
2002................................................................ 379
2003................................................................ 267
</TABLE>
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.
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
F-17
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
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) Subsequent 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 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.
F-18
<PAGE>
Schedule II
MEDIACOM LLC AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(All dollar amounts in 000's)
<TABLE>
<CAPTION>
Balance at Additions
beginning of charged to costs Balance at
period and expenses Deductions end of period
------------ ---------------- ---------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
- -----------------------------
(/1/) Addition was charged to intangible assets
F-19
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in 000's)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 1,555 $ 2,212
Subscriber accounts receivable, net of allowance for
doubtful accounts of $397 in 1999 and $298 in 1998... 2,342 2,512
Prepaid expenses and other assets..................... 1,690 1,712
Investment in cable television systems:
Inventory........................................... 10,135 8,240
Property, plant and equipment, at cost.............. 346,260 314,627
Less--accumulated depreciation...................... (69,134) (45,423)
-------- --------
Property, plant and equipment, net................ 277,126 269,204
Intangible assets, net of accumulated amortization
of $38,888 in 1999 and $26,307 in 1998............. 140,956 150,928
-------- --------
Total investment in cable television systems...... 428,217 428,372
Other assets, net of accumulated amortization of
$7,039 in 1999 and $3,854 in 1998.................... 14,606 16,344
-------- --------
Total assets...................................... $448,410 $451,152
======== ========
LIABILITIES AND MEMBERS' EQUITY
LIABILITIES
Debt................................................ $359,629 $337,905
Accounts payable.................................... 1,204 2,678
Accrued expenses.................................... 29,931 29,446
Subscriber advances................................. 1,888 1,510
Management fees payable............................. 751 962
-------- --------
Total liabilities................................. 393,403 372,501
-------- --------
COMMITMENTS AND CONTINGENCIES......................... -- --
MEMBERS' EQUITY
Capital contributions............................... 124,990 124,990
Accumulated deficit................................. (69,983) (46,339)
-------- --------
Total members' equity............................. 55,007 78,651
-------- --------
Total liabilities and members' equity............. $448,410 $451,152
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-20
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All dollar amounts in 000's)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------- ------------------
1999 1998 1999 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues................................ $ 38,178 $34,125 $ 74,178 $ 60,068
Costs and expenses:
Service costs......................... 12,350 11,641 24,175 21,463
Selling, general, and administrative
expenses............................. 7,301 6,238 14,502 11,541
Management fee expense................ 1,923 1,575 3,588 2,782
Depreciation and amortization......... 21,029 16,193 41,431 27,422
-------- ------- -------- --------
Operating loss.......................... (4,425) (1,522) (9,518) (3,140)
-------- ------- -------- --------
Interest expense, net................... 7,012 6,721 13,392 11,738
Other (income) expenses................. (259) 228 734 3,568
-------- ------- -------- --------
Net loss................................ $(11,178) $(8,471) $(23,644) $(18,446)
======== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-21
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in 000's)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $ (23,644) $ (18,446)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Accretion of interest on seller note................. 149 136
Depreciation and amortization........................ 41,431 27,422
Decrease (increase) in subscriber accounts
receivable.......................................... 170 (4,425)
Decrease (increase) in prepaid expenses and other
assets.............................................. 22 (1,403)
(Decrease) increase in accounts payable.............. (1,474) 4,095
Increase in accrued expenses......................... 485 24,001
Increase in subscriber advances...................... 378 9
(Decrease) increase in management fees payable....... (211) 414
--------- ---------
Net cash flows from operating activities........... 17,306 31,803
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures................................... (35,891) (16,884)
Acquisitions of cable television systems............... -- (337,195)
Other, net............................................. (314) --
--------- ---------
Net cash flows used in investing activities........ (36,205) (354,079)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings......................................... 152,800 456,400
Repayment of debt...................................... (131,225) (214,175)
Capital contributions.................................. -- 94,000
Financing costs........................................ (3,333) (13,568)
--------- ---------
Net cash flows from financing activities........... 18,242 322,657
--------- ---------
Net (decrease) increase in cash and cash
equivalents....................................... ( 657) 381
CASH AND CASH EQUIVALENTS, beginning of period........... 2,212 1,027
--------- ---------
CASH AND CASH EQUIVALENTS, end of period................. $ 1,555 $ 1,408
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest............... $ 10,999 $ 7,482
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-22
<PAGE>
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 June 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 June 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 (the "Acquired
Systems") in 1998. 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 Acquired Systems 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-23
<PAGE>
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, borrowings under the Company's bank credit
facilities, and other bank debt (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 June 30, 1999 and December 31, 1998, debt consisted of:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Mediacom:
8 1/2% Senior Notes(a)............................. $200,000 $200,000
7 7/8% Senior Notes(b)............................. 125,000 --
Subsidiaries:
Bank Credit Facilities(c).......................... 31,000 134,425
Seller Note(d)..................................... 3,629 3,480
-------- --------
$359,629 $337,905
======== ========
</TABLE>
(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-24
<PAGE>
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 revolving credit 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
revolving credit 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. At June 30, 1999,
the aggregate commitments under the Bank Credit Agreements were
$321,000. The Bank Credit Agreements 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
Agreements make 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, 1998, ranging from 0.21% to
11.58% of the original commitment amount of the reducing revolver.
The Bank Credit Agreements require mandatory reductions of the
reducing revolver credit lines from excess cash flow, as defined,
beginning December 31, 1999. The Bank Credit Agreements 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 average interest rate
on outstanding debt under the Bank Credit Agreements was 6.3% and
6.9% for the three months ended June 30, 1999 and December 31, 1998,
respectively, before giving effect to the interest rate swap
agreements discussed below.
The Bank Credit Agreements require the Company 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
therein. The Bank Credit Agreements also require the Company to
maintain compliance with other covenants including, but not limited
to, limitations on mergers and acquisitions, consolidations and sales
of certain assets, liens, the incurrence of additional indebtedness,
certain restrictive payments, and certain transactions with
affiliates. The Company was in compliance with all covenants of its
Bank Credit Agreements as of June 30, 1999.
The Bank Credit Agreements 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
Agreement. The indebtedness under the Bank Credit Agreements is
guaranteed by Mediacom on a limited recourse basis to the extent of
its ownership interests in the operating subsidiaries. At June 30,
1999, the Company had $260,000 of unused bank commitments under the
Bank Credit Agreements, 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.
As of June 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 Bank Credit Agreements. 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. During the first quarter of
1999, the net proceeds from the offering of the 7 7/8% Senior Notes,
in the amount of approximately $121,900, were used to repay a
substantial portion of outstanding debt under the Bank Credit
Agreements. As a result of this repayment of floating
F-25
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
rate bank debt, approximately $19,000 of the $50,000 of Swaps
outstanding as of June 30, 1999, no longer qualify as hedge
instruments. Accordingly, such Swaps have been marked to market as of
June 30, 1999, with a fair value of approximately $135 which is
included in accrued expenses. The related effect to the consolidated
statement of operations was approximately $619, which is included in
other income for the three months ended June 30, 1999 and $135, which
is included in other expenses for the six months ended June 30, 1999.
(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. 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. There are no penalties
associated with prepayment of this note.
The Seller Note agreement contains a debt incurrence covenant limiting
the ability of the Company to incur additional indebtedness under the
Western Credit Agreement. The Seller Note is subordinated and junior
in right of payment to all senior obligations of certain subsidiaries,
as defined in the Western Credit Agreement.
All debt outstanding as of June 30, 1999, matures after December 31,
2004.
(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.
F-26
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
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.
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.
(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 June 30, 1999 and 1998
was approximately $18,527, and $16,246, respectively, and for the six months
ended June 30, 1999 and 1998 was approximately $35,501 and $27,064,
respectively.
(6) Recent Developments
On April 29, 1999, the Company entered into a definitive agreement to
acquire the cable television systems owned by Triax Midwest Associates, L.P.
(the "Triax Systems") for a purchase price of $740,000. The Triax Systems serve
approximately 341,500 basic subscribers in Arizona, Illinois, Indiana, Iowa,
Michigan, Minnesota, Ohio and Wisconsin. Closing is expected in the fourth
quarter of 1999 and is subject to regulatory and other customary approvals.
On May 26, 1999, the Company signed an agreement to purchase the
outstanding capital stock of Zylstra Communications Corporation (the "Zylstra
Systems") for a purchase price of $21,500. The Zylstra Systems serve
approximately 14,000 basic subscribers in Iowa, Minnesota, and South Dakota.
Closing is expected in the fourth quarter of 1999 and is subject to regulatory
and other customary approvals.
On July 2, 1999, the Company signed an exclusive agreement, subject to
completion of final documents, 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 in exchange for
SoftNet's exclusive long-term rights to deliver high-speed Internet access
services to the Company's customers. Under the terms of this arrangement, 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. There can be no assurance that the final documents for the
transaction with SoftNet Systems will be completed.
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
Mediacom Capital Corporation:
We have audited the accompanying balance sheet of Mediacom Capital Corporation
as of December 31, 1998. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Mediacom Capital Corporation
as of December 31, 1998, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Stamford, Connecticut
March 5, 1999
F-28
<PAGE>
MEDIACOM CAPITAL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Note receivable--from affiliate for issuance of common
stock................................................ $100 $100
---- ----
Total assets...................................... $100 $100
==== ====
LIABILITIES AND STOCKHOLDER'S EQUITY
Stockholder's equity
Common stock, par value $0.10; 200 shares
authorized; 100 shares issued and outstanding...... $ 10 $ 10
Additional paid-in capital.......................... 90 90
---- ----
Total stockholder's equity........................ $100 $100
---- ----
Total liabilities and stockholder's equity........ $100 $100
==== ====
</TABLE>
See accompanying note to balance sheets
F-29
<PAGE>
MEDIACOM CAPITAL CORPORATION
NOTE TO BALANCE SHEETS
(All dollar amounts in 000's)
(Unaudited)
(1) Organization
Mediacom Capital Corporation ("Mediacom Capital"), a New York
corporation, wholly-owned by Mediacom LLC ("Mediacom"), was organized on March
9, 1998 for the sole purpose of acting as co-issuer with Mediacom of $200,000
aggregate principal amount of the 8 1/2% senior notes due April 15, 2008.
Interest on the 8 1/2% senior notes is payable semi-annually on April 15 and
October 15 of each year. Mediacom Capital does not conduct operations of its
own.
On February 26, 1999, Mediacom and Mediacom Capital jointly issued
$125,000 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 bank debt under the bank credit
facilities of Mediacom's operating subsidiaries. Interest on the 7 7/8% senior
notes is payable semi-annually on February 15 and August 15 of each year,
commencing on August 15, 1999.
F-30
<PAGE>
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 Peat Marwick LLP
Jericho, New York
March 20, 1998
F-31
<PAGE>
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE>
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
PARTNERS' CAPITAL (DEFICIENCY)
(Dollars in thousands)
<TABLE>
<CAPTION>
Period from Period from
Year ended August 13, 1996 to January 1, 1996 to
December 31, 1997 December 31, 1996 August 12, 1996
----------------- -------------------- ------------------
<S> <C> <C> <C>
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)
======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Period from Period from
Year ended August 13, 1996 to January 1, 1996 to
December 31, 1997 December 31, 1996 August 12, 1996
----------------- ------------------ ------------------
<S> <C> <C> <C>
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)
======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE>
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:
<TABLE>
<S> <C>
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
=========
</TABLE>
F-35
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Estimated
1997 1996 Useful lives
-------- -------- -------------
<S> <C> <C> <C>
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
======== ========
</TABLE>
(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
<PAGE>
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:
<TABLE>
<CAPTION>
Deferred Assets 1997 1996
--------------- ------- -------
<S> <C> <C>
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)
------- -------
-- --
======= =======
</TABLE>
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
<PAGE>
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
<PAGE>
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 Peat Marwick LLP
Jericho, New York
April 1, 1997, except as to Note 11,
which is as of January 23, 1998
F-41
<PAGE>
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-42
<PAGE>
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
PARTNERS' CAPITAL (DEFICIENCY)
(see note 1)
(Dollars in thousands)
<TABLE>
<CAPTION>
Period from Period from
August 13, January 1, Year Ended
1996 to 1996 to December 31,
December 31, August 12, ------------------
1996 1996 1995 1994
------------ ----------- -------- --------
<S> <C> <C> <C> <C>
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)
======== ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE>
U.S. CABLE TELEVISION GROUP, L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(see note 1)
(Dollars in thousands)
<TABLE>
<CAPTION>
Period from Period from
August 13, January 1, Year Ended
1996 to 1996 to December 31,
December 31, August 12, ------------------
1996 1996 1995 1994
------------ ----------- -------- --------
<S> <C> <C> <C> <C>
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
========= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE>
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:
<TABLE>
<S> <C>
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
=========
</TABLE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
Estimated
1996 1995 Useful lives
-------- --------- -------------
<S> <C> <C> <C>
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
======== =========
</TABLE>
F-47
<PAGE>
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:
<TABLE>
<S> <C>
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
========
</TABLE>
(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
<PAGE>
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
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
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)
-------- --------
$ -- $ --
======== ========
</TABLE>
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
<PAGE>
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
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Triax Midwest Associates, L.P.:
We have audited the accompanying balance sheets of TRIAX MIDWEST ASSOCIATES,
L.P. (a Missouri limited partnership) as of December 31, 1997 and 1998, and
the related statements of operations, partners' deficit and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Triax Midwest Associates,
L.P. as of December 31, 1997 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado
February 26, 1999
F-51
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
BALANCE SHEETS
As of December 31, 1997 and 1998 and June 30, 1999 (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
June 30,
1997 1998 1999
-------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash.......................................... $ 3,297 $ 2,327 $ 2,820
Receivables, net of allowance of $554, $331
and $330, respectively....................... 2,555 2,303 1,890
Property, plant and equipment, net............ 124,616 153,224 162,168
Purchased intangibles, net.................... 157,671 185,268 165,170
Deferred costs, net........................... 5,980 6,995 3,511
Other assets.................................. 2,202 2,911 2,324
-------- -------- --------
$296,321 $353,028 $337,883
======== ======== ========
LIABILITIES AND PARTNERS' DEFICIT
Accrued interest expense...................... $ 6,057 $ 5,383 $ 5,003
Accounts payable and other accrued expenses... 11,582 11,714 12,113
Subscriber prepayments and deposits........... 695 828 823
Payables to affiliates........................ 359 348 350
Debt.......................................... 323,604 404,418 409,290
-------- -------- --------
342,297 422,691 427,579
Partners' deficit............................. (45,976) (69,663) (89,696)
-------- -------- --------
$296,321 $353,028 $337,883
======== ======== ========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these balance sheets.
F-52
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1997 and 1998
and for the Six Months Ended June 30, 1998 and 1999 (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the
Six Months Ended
For the Years Ended December 31, June 30,
---------------------------------- ------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 60,531 $ 101,521 $ 119,669 $ 57,155 $ 67,257
Operating expenses:
Programming........... 12,934 20,066 25,275 11,882 15,213
Operating, selling,
general and
administrative....... 16,459 26,050 32,241 13,935 16,263
Management fees....... 2,667 3,573 4,048 1,933 2,218
Administration fees
paid to an
affiliate............ 444 1,482 1,826 843 1,040
Depreciation and
amortization......... 26,492 48,845 65,391 28,451 35,644
---------- ---------- ---------- -------- --------
58,996 100,016 128,781 57,044 70,378
---------- ---------- ---------- -------- --------
Operating income
(loss)................. 1,535 1,505 (9,112) 111 (3,121)
Other expenses:
Interest.............. 18,311 26,006 29,358 13,558 16,252
---------- ---------- ---------- -------- --------
Net loss before
cumulative effect of
accounting change...... (16,776) (24,501) (38,470) (13,447) (19,373)
Cumulative effect of
accounting change...... -- -- -- -- (660)
---------- ---------- ---------- -------- --------
Net loss................ $ (16,776) $ (24,501) $ (38,470) $(13,447) $(20,033)
========== ========== ========== ======== ========
</TABLE>
The accompanying notes in the financial statements are an integral part of
these statements.
F-53
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
STATEMENTS OF PARTNERS' DEFICIT
For the Years Ended December 31, 1996, 1997 and 1998
and for the Six Months Ended June 30, 1999 (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Pre Recapitalization Limited
Partners (Note 1)
------------------------------- Post
Accumulated Recapitalization
Residual Special Limited
Non-Managing Managing Equity Interest Limited Cavalier Partners
General Partner General Partner of TTC Partner Cable, L.P. All Others (Note 1) Total
--------------- --------------- --------------- ------- ----------- ---------- ---------------- --------
(Effective (Effective
August 30, August 30,
1996) 1996)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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......... (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) --
Accumulation of
residual equity
interest of
TTC............. (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 ended
December 31,
1996............ (78) -- -- -- -- -- (7,676) (7,754)
-------- ----- ------ ------- -------- -------- -------- --------
BALANCES,
December 31,
1996............. (91,637) -- 62 -- -- -- 57,310 (34,265)
Accumulation of
residual equity
interest of
TTC............. (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)
Accumulation of
residual equity
interest of
TTC............. (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)
Accumulation of
residual equity
interest of TTC
(Unaudited)..... (472) -- 472 -- -- -- -- --
Net Loss for the
six months ended
June 30, 1999
(Unaudited)..... (200) -- -- -- -- -- (19,833) (20,033)
-------- ----- ------ ------- -------- -------- -------- --------
BALANCES, June
30, 1999
(Unaudited)...... $(94,165) $ -- $1,760 $ -- $ -- $ -- $ 2,709 $(89,696)
======== ===== ====== ======= ======== ======== ======== ========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these statements.
F-54
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
and For the Six Months Ended June 30, 1998 and 1999 (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the Years Ended For the Six Months
December 31, Ended June 30,
------------------------------ -----------------------
1996 1997 1998 1998 1999
--------- -------- --------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss.............. (16,776) (24,501) (38,470) (13,447) (20,033)
Adjustments to
reconcile net loss to
net cash flows from
operating
activities--
Depreciation and
amortization......... 26,492 48,845 65,391 28,451 35,644
Accretion of interest
on preferred stock
obligation........... 90 -- -- -- --
Amortization of
deferred loan costs.. 370 651 790 348 446
Cumulative effect of
accounting change.... -- -- -- -- 660
Loss (gain) on asset
dispositions......... -- -- 1,732 (492) 2
Decrease (increase) in
subscriber
receivables, net..... 1,926 (503) 93 (550) 413
(Increase) decrease in
other assets......... (7) (556) (623) (516) 672
Increase (decrease) in
accrued interest
expense.............. 181 1,312 (674) (6,057) (381)
Increase (decrease) in
accounts payable and
other accrued
expenses............. 4,502 525 (452) (1,555) 199
(Decrease) increase in
subscriber
prepayments and
deposits............. (2,684) 13 129 62 (5)
Write-off loan costs.. 174 -- -- -- --
(Decrease) increase in
payables to
affiliates........... (31) 113 (11) 23 2
--------- -------- --------- --------- --------
Net cash flows from
operating
activities.......... 14,237 25,899 27,905 6,267 17,619
--------- -------- --------- --------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property,
plant and equipment.. (10,275) (23,101) (36,122) (14,906) (21,358)
Acquisition of
properties, including
purchased
intangibles.......... -- (71,850) (86,255) (23,112) (20)
Proceeds from exchange
of properties,
including
intangibles.......... -- -- 1,594 1,594 --
Proceeds from sale of
properties, including
intangibles.......... -- -- 1,674 367 268
Cash paid for
franchise costs...... (582) (776) (2,122) (3,664) (528)
Cash paid for other
intangibles.......... (823) (37) -- -- (90)
--------- -------- --------- --------- --------
Net cash flows from
investing
activities.......... (11,680) (95,764) (121,231) (39,721) (21,728)
--------- -------- --------- --------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from
borrowings........... 275,000 67,000 399,000 345,000 12,000
Repayment of debt..... (268,477) (14,000) (319,000) (313,000) (7,000)
Contributions from
partners............. 51,350 13,043 15,000 -- --
Cash redemptions of
partnership
interests............ (38,251) -- -- -- --
Cash distributions to
DD Cable Partners.... (4,200) -- -- -- --
Payments on capital
leases............... (314) (322) (703) (272) (392)
Cash paid for loan
costs................ (5,683) (80) (1,724) (1,570) (6)
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 30,158 4,602
--------- -------- --------- --------- --------
NET INCREASE (DECREASE)
IN CASH............... 6,618 (4,477) (970) (3,296) 493
CASH, beginning of
period................ 1,156 7,774 3,297 3,297 2,327
--------- -------- --------- --------- --------
CASH, end of period.... $ 7,774 $ 3,297 $ 2,327 $ 1 $ 2,820
========= ======== ========= ========= ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
period for interest.. $ 16,848 $ 24,043 $ 29,209 $ 19,267 $ 16,186
========= ======== ========= ========= ========
SUPPLEMENTAL SCHEDULE
OF NON-CASH INVESTING
AND FINANCING
ACTIVITIES:
Property additions
financed by capital
leases............... $ 391 $ 1,313 $ 1,517 $ 678 $ 481
========= ======== ========= ========= ========
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 $ --
========= ======== ========= ========= ========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these statements.
F-55
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1998 and June 30, 1999
(All amounts related to the June 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 assumed 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 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
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and June 30, 1999
(All amounts related to the June 30, 1998 and 1999 periods are unaudited)
During 1997, TTC and certain officers of TTC (the "Officers") purchased limited
partner interests in Triax Investors Midwest, L.P. ("Investors Midwest"), which
holds a limited partner interest in the Partnership. Subsequent to TTC's and
the Officers' purchase of these Investors Midwest interests, Investors Midwest
elected to distribute its interest in the Partnership to certain of its
partners, resulting in TTC owning a direct limited partner interest in the
Partnership.
The Partnership Agreement, as amended, provides that on August 30, 2001 each
limited partner has the option to sell its interest to the Partnership for fair
market value at the time of the sale. The fair market value is to be determined
by appraised value approved by a majority vote of the Advisory Committee. In
accordance with the Partnership Agreement, if the Partnership is unable to
finance the acquisition of such interests, such selling limited partners can
cause the liquidation of the Partnership.
Allocation of Profits, Losses, Distributions and Credits Subsequent to
Partnership Recapitalization
Distributions
Cash distributions are to be made to both the limited partners and Triax Cable
GP equal to their adjusted capital contributions, then to the limited partners
and Triax Cable GP in an amount sufficient to yield a return of 13% per annum,
compounded annually (the "Priority Return"), then varying rates of distribution
to the Managing General Partner (17% to 20%) and to the limited partners and
Triax Cable GP (83% to 80%) based on internal rates of return earned by the New
Cash Partners, as set forth in the Amended and Restated Partnership Agreement,
on their adjusted capital contributions.
Losses from Operations
The Partnership will allocate its losses to the limited partners and Triax
Cable GP according to their proportionate interests in the book value of the
Partnership, except losses will not be allocated to any limited partner which
would cause the limited partner's capital account to become negative by an
amount greater than an amount which the limited partners are obligated to
contribute to the Partnership.
Profits and Gains
Generally, the Partnership will allocate its profits according to the limited
partners' and Triax Cable GP's proportionate interests in the book value of the
Partnership until profits allocated to limited partners equal losses previously
allocated to them. A special allocation of gain equal to the difference between
the fair value and tax basis of contributed property will be made, with respect
to partners contributing property to the Partnership, upon the sale of the
contributed Partnership assets.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-57
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and June 30, 1999
(All amounts related to the June 30, 1998 and 1999 periods are unaudited)
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
$601,889 and $590,351 for the six months ended June 30, 1998 and 1999,
respectively.
Depreciation and amortization are computed using the straight-line method over
the following estimated useful lives (amounts in thousands):
<TABLE>
<CAPTION>
1997 1998 June 30, 1999 Life
--------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Predominantly
Property, plant and
equipment.............. $ 217,561 $ 266,965 $ 288,560 10 years
Less--Accumulated
depreciation........... (92,945) (113,741) (126,392)
--------- --------- ---------
$ 124,616 $ 153,224 $ 162,168
========= ========= =========
Purchased Intangibles
Purchased intangibles are being amortized using the straight-line method over
the following estimated useful lives (amounts in thousands):
<CAPTION>
1997 1998 June 30, 1999 Life
--------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Franchises.............. $ 245,028 $ 310,544 $ 311,056 5-11.5 years
Noncompete.............. 400 1,595 1,595 3 years
Goodwill................ 12,804 12,804 12,804 20 years
--------- --------- ---------
258,232 324,943 325,455
Less--Accumulated
amortization........... (100,561) (139,675) (160,285)
--------- --------- ---------
$ 157,671 $ 185,268 $ 165,170
========= ========= =========
</TABLE>
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.
F-58
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and June 30, 1999
(All amounts related to the June 30, 1998 and 1999 periods are unaudited)
Deferred Costs
Deferred costs are being amortized using the straight-line method over the
following estimated useful lives (amounts in thousands):
<TABLE>
<CAPTION>
June 30,
1997 1998 1999 Life
------- ------- -------- ----------
<S> <C> <C> <C> <C>
Deferred loan costs................ $ 5,763 $ 7,488 $ 7,493 2-7 years
Organizational costs............... 858 858 -- 5-10 years
Other.............................. 500 500 500
------- ------- -------
7,121 8,846 7,993
Less--Accumulated amortization..... (1,141) (1,851) (4,482)
------- ------- -------
$ 5,980 $ 6,995 $ 3,511
======= ======= =======
</TABLE>
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
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and June 30, 1999
(All amounts related to the June 30, 1998 and 1999 periods are unaudited)
The purchase price was allocated to the acquired assets and liabilities as
follows (amounts in thousands):
<TABLE>
<S> <C>
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
=========
</TABLE>
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):
<TABLE>
<S> <C>
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
=======
</TABLE>
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 September 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
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and June 30, 1999
(All amounts related to the June 30, 1998 and 1999 periods are unaudited)
The purchase price was allocated to the acquired assets and liabilities as
follows (amounts in thousands):
<TABLE>
<S> <C>
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
=======
</TABLE>
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:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
-----------------------------------------------------------------
Unaudited
Actual Pro Forma Results(/1/)
-------- ----------------------
<S> <C> <C>
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.
<CAPTION>
For the Year Ended December 31, 1997
-----------------------------------------------------------------
Unaudited
Actual Pro Forma Results(/2/)
-------- ----------------------
<S> <C> <C>
REVENUES $101,521 $118,722
======== ========
NET LOSS $(24,501) $(31,001)
======== ========
(/2/)Presents pro forma effect of the Indiana Acquisition and Marcus.
<CAPTION>
For the Year Ended December 31, 1998
-----------------------------------------------------------------
Unaudited
Actual Pro Forma Results(/3/)
-------- ----------------------
<S> <C> <C>
REVENUES $119,669 $128,182
======== ========
NET LOSS $(38,470) $(41,754)
======== ========
</TABLE>
(/3/)Presents pro forma effect of Marcus.
F-61
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and June 30, 1999
(All amounts related to the June 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):
<TABLE>
<S> <C>
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
=======
</TABLE>
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.
The Indiana, Kentland and Gilberts 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
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and June 30, 1999
(All amounts related to the June 30, 1998 and 1999 periods are unaudited)
(4) DEBT
Debt consists of the following at December 31, 1997, 1998 and June 30, 1999
(amounts in thousands):
<TABLE>
<CAPTION>
June 30,
1997 1998 1999
-------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
Bank Revolving credit loan, due June 30,
2006, interest payable at rates based on
varying interest rate options............. $ 82,000 $ 97,000 $102,000
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 2,290
-------- -------- --------
$323,604 $404,418 $409,290
======== ======== ========
</TABLE>
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 $71
million at 7.38% for the period from April 6, 1999 to July 6, 1999 and on $25
million at 7.38% for the period from April 26, 1999 to July 26, 1999. The Term
A Loan and Term B Loans are fixed at 7.38% and 7.50%, respectively, for the
period from April 26, 1999 to July 26, 1999. In addition, the Partnership has
entered into various interest rate swap transactions covering $195 million in
notional amount as of June 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
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and June 30, 1999
(All amounts related to the June 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):
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
1999.............................................................. $ 775
2000.............................................................. 3,861
2001.............................................................. 16,375
2002.............................................................. 31,417
2003.............................................................. 39,407
Thereafter........................................................ 312,583
--------
$404,418
========
</TABLE>
(5) RELATED PARTY TRANSACTIONS
During the eight month period ending August 31, 1996, TTC 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. TTC 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 $1,933,000 and $2,218,000 for the six
months ended June 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 $353,000 and $422,000 for the six months
ended June 30, 1998 and 1999, respectively. The cumulative unpaid fees totaled
approximately $62,000, $550,000, $1,288,000 and $1,760,000 as of December 31,
1996, 1997, 1998 and June 30, 1999, respectively. These amounts have been
reflected in the statement of partners' deficit as "accumulated residual equity
interest of TTC", 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 $843,000 and $1,040,000 for the six months ended June
30, 1998 and 1999, respectively.
F-64
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and June 30, 1999
(All amounts related to the June 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 $336,000 and $413,000 for the six months ended June 30, 1998
and 1999, respectively. Pole attachment fees totaled approximately $496,000,
$798,000 and $970,000 in 1996, 1997 and 1998, respectively, and $473,000 and
$538,000 for the six months ended June 30, 1998 and 1999, respectively.
Future minimum rental commitments under noncancelable operating leases
subsequent to December 31, 1998 are as follows (amounts in thousands):
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1999................................................................ $685
2000................................................................ $511
2001................................................................ $377
2002................................................................ $298
2003................................................................ $238
Thereafter.......................................................... $757
</TABLE>
(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.
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.
F-65
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and June 30, 1999
(All amounts related to the June 30, 1998 and 1999 periods are unaudited)
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 is expected to occur in the fourth quarter of 1999
subject to regulatory and other customary approvals.
F-66
<PAGE>
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Mediacom
have not changed since the date hereof.
Until October 4, 1999 (25 days after the date of this prospectus), 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 dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
