<PAGE>
As filed with the Securities and Exchange Commission on February 2, 2000
Registration No. 333-90879
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
Amendment No. 3
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
Mediacom Communications Corporation
(Exact name of registrant as specified in its charter)
Delaware 4841 06-1566067
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification Number)
jurisdiction of Classification Code
incorporation or Number)
organization)
100 Crystal Run Road
Middletown, New York 10941
(914) 695-2600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-----------
Rocco B. Commisso
Chairman and Chief Executive Officer
Mediacom Communications Corporation
100 Crystal Run Road
Middletown, New York 10941
(914) 695-2600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------
Copies to:
Robert L. Winikoff, Esq. James J. Clark, Esq.
Christopher Cox, Esq.
Joseph H. Schmitt, Esq.
Cooperman Levitt Winikoff Lester & Cahill Gordon & Reindel
Newman, P.C. 80 Pine Street
800 Third Avenue New York, New York 10005
New York, New York 10022 (212) 701-3000
(212) 688-7000 Fax: (212) 269-5420
Fax: (212) 755-2839
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the registration statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 2, 2000
20,000,000 Shares
[LOGO OF MEDIACOM]
Mediacom Communications Corporation
Class A Common Stock
---------
Prior to this offering, there has been no public market for our Class A
common stock. The initial public offering price of the Class A common stock is
expected to be between $16.00 and $19.00 per share. Our Class A common stock
has been approved for listing on The Nasdaq Stock Market's National Market
under the symbol "MCCC."
The underwriters have an option to purchase a maximum of 3,000,000 additional
shares to cover over-allotments of shares.
Following this offering, we will have two classes of common stock, Class A
common stock and Class B common stock. Holders of each class generally have
identical rights, except for differences in voting. Holders of our Class A
common stock have one vote per share, while holders of our Class B common stock
have ten votes per share. After this offering, the holders of our Class B
common stock will have 82.6% of the combined voting power of our common stock.
Investing in the Class A common stock involves risks. See "Risk Factors" on
page 10.
<TABLE>
<CAPTION>
Underwriting
Price Discounts Proceeds
to and to
Public Commissions Mediacom
------ ------------ --------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of Class A common stock will be made on or about
.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston Salomon Smith Barney Donaldson, Lufkin & Jenrette
Goldman, Sachs & Co. Merrill Lynch & Co.
Chase Securities Inc. CIBC World Markets First Union Securities, Inc.
The date of this prospectus is .
<PAGE>
[Map of the United States marked to indicate location of our cable systems.]
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary ............... 1
Risk Factors ..................... 10
Forward-Looking Statements ....... 15
Use of Proceeds................... 16
Dividend Policy................... 16
Capitalization ................... 17
Dilution ......................... 19
Completed Acquisitions............ 20
Unaudited Pro Forma Consolidated
Financial Data................... 21
Selected Historical Consolidated
Financial and Operating Data..... 33
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 37
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Industry........................... 45
Business........................... 47
Legislation and Regulation......... 64
Management......................... 73
Certain Relationships and Related
Transactions...................... 81
Principal Stockholders............. 85
Description of Certain
Indebtedness...................... 87
Description of Capital Stock....... 91
Shares Eligible for Future Sale.... 94
Underwriters....................... 96
Legal Matters...................... 99
Experts............................ 99
Available Information.............. 100
Index to Financial Statements...... F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Dealer Prospectus Delivery Obligation
Until , 25 days after the commencement of this offering, all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the dealer's obligation to deliver a prospectus when acting as an underwriter
and with respect to unsold allotments or subscriptions.
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. It may
not contain all the information that is important to you. For a more complete
understanding of this offering, you should read the entire prospectus
carefully, including the risk factors and the financial statements. We were
formed as a Delaware corporation on November 8, 1999, and immediately prior to
this offering will issue shares of our common stock in exchange for all
membership interests in Mediacom LLC. Upon completion of the exchange, Mediacom
LLC will become our subsidiary and will continue to serve as the holding
company for our operating subsidiaries. Unless we tell you otherwise, the
information in this prospectus assumes that Mediacom LLC is our subsidiary,
that the underwriters will not exercise their over-allotment option and that
the Class A common stock being offered will be sold at $17.50 per share, which
is the mid-point of the range set forth on the cover page of this prospectus.
Overview
We are the ninth largest cable operator in the United States, based on
customers served by wholly-owned systems after giving effect to our pending
acquisitions and recently announced industry transactions. Our cable systems
pass approximately 1.1 million homes and serve approximately 744,000 basic
subscribers, including our pending acquisitions. We were founded in July 1995
by Rocco B. Commisso, our Chairman and Chief Executive Officer, to acquire and
develop cable television systems serving principally non-metropolitan markets
of the United States.
Since commencement of our operations in March 1996, we have experienced
significant growth by deploying a disciplined strategy of acquiring
underperforming cable systems primarily in markets with favorable demographic
profiles. Through September 1999, we spent approximately $432.4 million to
complete nine acquisitions of cable systems that served 358,000 basic
subscribers. In October and November 1999, we acquired for approximately $759.6
million the cable systems of Triax Midwest Associates, L.P. and Zylstra
Communications Corporation that served 358,000 basic subscribers as of
September 30, 1999.
We have also generated strong internal growth and improved the operating and
financial performance of our systems. These results have been achieved
primarily through the introduction of an expanded array of core cable
television products and services made possible by the rapid upgrade of our
cable network. Assuming all our systems, excluding the Triax and Zylstra
systems, were acquired on January 1, 1997, in 1998 our internal subscriber
growth was 2.5% and for the nine months ended September 30, 1999 our internal
subscriber growth was 1.8%. Since commencement of our operations, we have also
experienced significant increases in operating losses and net losses.
We believe that advancements in digital technologies, together with the
explosive growth of the Internet, have positioned the cable industry's high-
speed, interactive, broadband network as the primary platform for the delivery
of video, voice and data services to homes and businesses. We believe that
there is considerable demand in the communities we serve for these products and
services. To capitalize on these opportunities, we are rapidly upgrading our
cable network to provide our customers with an expanded array of broadband
products and services. These include digital cable television, two-way, high-
speed Internet access, interactive video and telephony.
Approximately 73% of our customers are currently served by systems which
have been upgraded to higher bandwidth capacities, excluding those
customers served by the Triax and Zylstra systems. Our upgrade program already
has enabled us to begin introducing new broadband products and services. As of
December 1999, we offered digital cable services in systems passing more than
243,000 homes. In addition, through our strategic relationship with SoftNet
Systems, Inc.'s subsidiary, ISP Channel, which was finalized in November 1999,
we have deployed two-way, high-speed Internet access service in systems passing
more than 177,000 homes as of December 1999.
1
<PAGE>
Business Strategy
Our objective is to become the leading cable operator focused on providing
entertainment, information and telecommunications services in non-metropolitan
markets of the United States. The key elements of our strategy are to:
. Improve the operating and financial performance of our acquired cable
systems;
. Develop efficient operating clusters;
. Rapidly upgrade our cable network;
. Introduce new and enhanced products and services;
. Maximize customer satisfaction to build customer loyalty;
. Acquire underperforming cable systems principally in non-metropolitan
markets; and
. Implement a flexible financing structure.
Principal Executive Offices
Our principal executive offices are located at 100 Crystal Run Road,
Middletown, New York 10941. Our telephone number is (914) 695-2600, and our
website is located at www.mediacomllc.com. The information on our website is
not part of this prospectus.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Class A common stock offered.......... 20,000,000 shares
Common stock to be outstanding after
this offering........................ 60,977,562 shares of Class A common stock
29,022,438 shares of Class B common stock
90,000,000 shares
Voting rights......................... Holders of each class of our common stock generally
have identical rights, except for differences in
voting. Holders of our Class A common stock have one
vote per share, while holders of our Class B common
stock have ten votes per share. After this offering,
the holders of our Class B common stock will have
82.6% of the combined voting power of our common
stock. Mr. Commisso, through his ownership of our
Class B common stock, will have the power to elect all
of our directors and control stockholder decisions
immediately following this offering.
Nasdaq National Market symbol......... MCCC
</TABLE>
The outstanding shares of common stock excludes 1,971,108 shares of Class A
common stock and 8,148,892 shares of Class B common stock issuable upon the
exercise of stock options to be outstanding upon completion of this offering,
none of which will then be exercisable.
3
<PAGE>
Summary Unaudited Pro Forma Consolidated Financial and Operating Data
The following summary unaudited pro forma consolidated financial and
operating data has been derived from and should be read in conjunction with
"Unaudited Pro Forma Consolidated Financial Data," "Selected Historical
Consolidated Financial and Operating Data" and the historical financial
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
---------------- -----------------
(dollars in thousands, except per
share and per subscriber data)
<S> <C> <C>
Statement of Operations Data:
Revenues................................ $ 272,258 $ 218,631
Costs and expenses:
Service costs.......................... 90,928 73,154
Selling, general and administrative
expenses.............................. 51,355 37,504
Corporate expense...................... 7,254 6,048
Depreciation and amortization.......... 175,047 145,778
---------------- ----------------
Operating loss.......................... (52,326) (43,853)
Interest expense, net................... 59,855 44,999
Other expenses.......................... 4,058 979
---------------- ----------------
Loss before income taxes................ (116,239) (89,831)
Provision (benefit) for income taxes.... -- --
---------------- ----------------
Net loss from continuing operations..... $ (116,239) $ (89,831)
================ ================
Pro forma basic and diluted net loss per
share(1)............................... $ (1.29) $ (1.00)
Pro forma weighted average common shares
outstanding............................ 90,000,000 90,000,000
Balance Sheet Data (end of period):
Total assets............................ $ 1,232,718
Total debt.............................. 812,475
Total stockholders' equity.............. 374,152
Other Data:
System cash flow(2)..................... $ 129,975 $ 107,973
System cash flow margin(3).............. 47.7% 49.4%
EBITDA(4)............................... $ 122,721 101,925
EBITDA margin(5)........................ 45.1% 46.6%
Net cash flows from operating
activities............................. $ 88,386 $ 54,746
Net cash flows used in investing
activities............................. (93,091) (98,027)
Net cash flows from financing
activities............................. 8,719 46,347
Operating Data (end of period, except
average):
Homes passed(6)......................... 1,051,000 1,069,000
Basic subscribers(7).................... 707,500 716,000
Basic penetration(8).................... 67.3% 67.0%
Premium service units(9)................ 592,850 567,500
Premium penetration(10)................. 83.8% 79.3%
Average monthly revenues per basic
subscriber(11)......................... $34.00
</TABLE>
(notes on following page)
4
<PAGE>
Notes to Summary Unaudited Pro Forma Consolidated Financial and Operating Data
(1) Pro forma basic and diluted loss per share is calculated based on
90,000,000 shares of common stock. The number of shares of common stock
reflects the 40,977,562 Class A shares and 29,022,438 Class B shares
issued to effect the exchange of membership interests of Mediacom LLC and
the 20,000,000 Class A shares that will be issued in this offering as if
these shares were outstanding for all periods presented. The shares issued
to effect the exchange for the membership interests are based upon the
relative ownership percentages of membership interests in Mediacom LLC
immediately prior to the completion of this offering and are based on an
initial public offering price of $17.50 per share.
(2) Represents EBITDA, as defined in note 4 below, before corporate expense.
System cash flow:
. is not intended to be a performance measure that should be regarded as an
alternative either to operating income or net income as an indicator of
operating performance or to the statement of cash flows as a measure of
liquidity;
. is not intended to represent funds available for debt service, dividends,
reinvestment or other discretionary uses; and
. should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
System cash flow is included in this prospectus because our management
believes that system cash flow is a meaningful measure of performance
commonly used in the cable television industry and by the investment
community to analyze and compare cable television companies. Our definition
of system cash flow may not be identical to similarly titled measures
reported by other companies.
(3) Represents system cash flow as a percentage of revenues. This measurement
is used by us, and is commonly used in the cable television industry, to
analyze and compare cable television companies on the basis of operating
performance, for the reasons discussed in note 2 above.
(4) Represents operating income (loss) before depreciation and amortization.
EBITDA:
. is not intended to be a performance measure that should be regarded as an
alternative either to operating income or net income as an indicator of
operating performance or to the statement of cash flows as a measure of
liquidity;
. is not intended to represent funds available for debt service, dividends,
reinvestment or other discretionary uses; and
. should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
EBITDA is included in this prospectus because our management believes that
EBITDA is a meaningful measure of performance commonly used in the cable
television industry and by the investment community to analyze and compare
cable television companies. Our definition of EBITDA may not be identical
to similarly titled measures reported by other companies.
(5) Represents EBITDA as a percentage of revenues. This measurement is used by
us, and is commonly used in the cable television industry, to analyze and
compare cable television companies on the basis of operating performance,
for the reasons discussed in note 4 above.
(6) Represents the number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
system's service area.
(7) Represents subscribers of a cable system who receive a package of over-
the-air broadcast stations, local access channels and/or certain
satellite-delivered cable television services, and who are usually charged
a flat monthly rate for a number of channels.
5
<PAGE>
(8) Represents basic subscribers as a percentage of total number of homes
passed.
(9) Represents the number of subscriptions to premium services. A subscriber
may purchase more than one premium service, each of which is counted as a
separate premium service unit. For the nine months ended
September 30, 1999, premium service units decreased primarily due to the
Disney Channel being moved from a premium service to the basic programming
packages in several of our cable systems.
(10) Represents premium service units as a percentage of total number of basic
subscribers.
(11) Represents average monthly revenues for the period divided by average
monthly basic subscribers for such period. This measurement is commonly
used in the cable television industry to analyze and compare cable
television companies on the basis of operating performance.
6
<PAGE>
Summary Historical Consolidated Financial and Operating Data
The following summary historical consolidated financial and operating data
of Mediacom LLC should be read in conjunction with "Selected Historical
Consolidated Financial and Operating Data," "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" and the historical
consolidated financial statements of Mediacom LLC included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
March 12 Nine Months Ended
Through Year Ended Year Ended September 30,
December 31, December 31, December 31, ---------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ --------- ----------
(Unaudited)
(dollars in thousands, except per share and per subscriber
data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues............... $ 5,411 $ 17,634 $ 129,297 $ 94,374 $ 113,230
Costs and expenses:
Service costs......... 1,511 5,547 43,849 32,873 36,571
Selling, general and
administrative
expenses............. 931 2,696 25,596 18,101 21,816
Management fee
expense(1)........... 270 882 5,797 4,340 5,150
Depreciation and
amortization......... 2,157 7,636 65,793 44,338 66,154
-------- -------- ---------- --------- ----------
Operating income
(loss)................ 542 873 (11,738) (5,278) (16,461)
Interest expense,
net(2)................ 1,528 4,829 23,994 17,786 20,577
Other expenses......... 967 640 4,058 3,838 979
-------- -------- ---------- --------- ----------
Net loss............... $ (1,953) $ (4,596) $ (39,790) $ (26,902) $ (38,017)
-------- -------- ---------- --------- ----------
Pro forma provision
(benefit) for income
taxes(3).............. -- --
---------- ----------
Pro forma net loss(4).. $ (39,790) $ (38,017)
========== ==========
Pro forma basic and
diluted net loss per
share(5).............. $ (0.57) $ (0.54)
Pro forma weighted
average common shares
outstanding........... 70,000,000 70,000,000
Balance Sheet Data (end
of period):
Total assets........... $ 46,560 $102,791 $ 451,152 $ 447,666 $ 455,155
Total debt............. 40,529 72,768 337,905 317,398 377,500
Total members' equity.. 4,537 24,441 78,651 91,539 40,634
Other Data:
System cash flow(6).... $ 2,969 $ 9,391 $ 59,852 $ 43,400 $ 54,843
System cash flow
margin(7)............. 54.9% 53.3% 46.3% 46.0% 48.4%
EBITDA(8).............. $ 2,699 $ 8,509 $ 54,055 $ 39,060 $ 49,693
EBITDA margin(9)....... 49.9% 48.3% 41.8% 41.4% 43.9%
Net cash flows from
operating activities.. $ 237 $ 7,007 $ 53,556 $ 47,796 $ 29,795
Net cash flows used in
investing activities.. (45,257) (60,008) (397,085) (372,452) (60,632)
Net cash flows from
financing activities.. 45,416 53,632 344,714 324,597 32,325
Operating Data (end of
period, except
average):
Homes passed(10)....... 38,749 87,750 520,000 512,000 525,000
Basic subscribers(11).. 27,153 64,350 354,000 348,000 358,000
Basic penetration(12).. 70.1% 73.3% 68.1% 68.0% 68.2%
Premium service
units(13)............. 11,691 39,288 407,100 387,100 396,500
Premium
penetration(14)....... 43.1% 61.1% 115.0% 111.2% 110.8%
Average monthly
revenues per basic
subscriber(15)........ $32.14 $35.34
</TABLE>
(notes on following page)
7
<PAGE>
Notes to Summary Historical Consolidated Financial and Operating Data
(1) Represents fees paid to Mediacom Management Corporation for management
services rendered to our operating subsidiaries. Mediacom Management
utilizes these fees to compensate its employees as well as to fund its
corporate overhead. The management agreements with Mediacom Management
were amended effective November 19, 1999 in connection with an amendment
to Mediacom LLC's operating agreement. The amended agreements provide for
management fees equal to 2% of annual gross revenues. Each of the
management agreements will be terminated upon the completion of this
offering. At that time, Mediacom Management's employees will become our
employees and its corporate overhead will become our corporate overhead.
These expenses will be reflected as our corporate expense, which we
estimate will amount to approximately 2% of our annual gross revenues.
(2) Net of interest income. Interest income for the periods presented was not
material.
(3) Represents an income tax provision (benefit) assuming the exchange of
membership interests in Mediacom LLC for shares of our common stock. We
have operating losses for the periods presented and have not reflected any
tax benefit for such losses.
(4) Pro forma net loss does not include a $628,000 expense associated with the
amendments to our management agreements with Mediacom Management, for
which additional membership interests will be issued to an existing member
of Mediacom LLC and one-time $9.3 million and $12.8 million non-recurring,
non-cash compensation charges associated with a grant of equity interests,
based on an initial public offering price of $17.50 per share, by an
existing member of Mediacom LLC to certain members of our management team
for the year ended December 31, 1998 and the nine months ended September
30, 1999, respectively. See note 6 of Mediacom LLC's interim financials
for further discussion.
(5) Pro forma basic and diluted loss per share is calculated based on
70,000,000 shares of common stock. The number of shares of common stock
reflects the 40,977,562 Class A shares and 29,022,438 Class B shares
issued to effect the exchange of membership interests of Mediacom LLC as
if these shares were outstanding for all periods presented and excludes
the shares that will be issued in this offering. The shares issued to
effect the exchange for the membership interests are based upon the
relative ownership percentages of membership interests in Mediacom LLC
immediately prior to the completion of the offering and are based on an
initial public offering price of $17.50 per share.
(6) Represents EBITDA, as defined in note 8 below, before management fee
expense. System cash flow:
. is not intended to be a performance measure that should be regarded as
an alternative either to operating income or net income as an indicator
of operating performance or to the statement of cash flows as a measure
of liquidity;
. is not intended to represent funds available for debt service,
dividends, reinvestment or other discretionary uses; and
. should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
System cash flow is included in this prospectus because our management
believes that system cash flow is a meaningful measure of performance
commonly used in the cable television industry and by the investment
community to analyze and compare cable television companies. Our definition
of system cash flow may not be identical to similarly titled measures
reported by other companies.
(7) Represents system cash flow as a percentage of revenues. This measurement
is used by us, and is commonly used in the cable television industry, to
analyze and compare cable television companies on the basis of operating
performance, for the reasons discussed in note 6 above.
8
<PAGE>
(8) Represents operating income (loss) before depreciation and amortization.
EBITDA:
. is not intended to be a performance measure that should be regarded as
an alternative either to operating income or net income as an indicator
of operating performance or to the statement of cash flows as a measure
of liquidity;
. is not intended to represent funds available for debt service,
dividends, reinvestment or other discretionary uses; and
. should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
EBITDA is included in this prospectus because our management believes that
EBITDA is a meaningful measure of performance commonly used in the cable
television industry and by the investment community to analyze and compare
cable television companies. Our definition of EBITDA may not be identical to
similarly titled measures reported by other companies.
(9) Represents EBITDA as a percentage of revenues. This measurement is used
by us, and is commonly used in the cable television industry, to analyze
and compare cable television companies on the basis of operating
performance, for the reasons discussed in note 8 above.
(10) Represents the number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
system's service area.
(11) Represents subscribers of a cable television system who receive a package
of over-the-air broadcast stations, local access channels and/or certain
satellite-delivered cable television services and who are usually charged
a flat monthly rate for a number of channels.
(12) Represents basic subscribers as a percentage of total number of homes
passed.
(13) Represents the number of subscriptions to premium services. A subscriber
may purchase more than one premium service, each of which is counted as a
separate premium service unit. For the nine months ended September 30,
1999, premium service units decreased primarily due to the Disney Channel
being moved from a premium service to the basic programming packages in
several of our cable systems.
(14) Represents premium service units as a percentage of total number of basic
subscribers. This ratio may be greater than 100% if the average basic
subscriber subscribes to more than one premium service unit.
(15) Represents average monthly revenues for the period divided by average
monthly basic subscribers for such period. This measurement is commonly
used in the cable television industry to analyze and compare cable
television companies on the basis of operating performance.
9
<PAGE>
RISK FACTORS
An investment in our Class A common stock involves the following risks. You
should consider carefully these risk factors, as well as the other information
in this prospectus, before you decide to purchase shares of our Class A common
stock.
Our Business
We have a history of net losses and may not be profitable in the future.
We have had a history of net losses and expect to continue to report net
losses for the foreseeable future, which could cause our stock price to decline
and adversely affect our ability to finance our business in the future. We
reported net losses of $4.6 million, $39.8 million and $38.0 million for the
years ended December 31, 1997 and 1998 and the nine months ended September 30,
1999. On a pro forma basis, we had net losses of $116.2 million and $89.8
million for the year ended December 31, 1998 and the nine months ended
September 30, 1999. The principal reasons for our prior and anticipated net
losses include the depreciation and amortization expenses associated with our
acquisitions, the capital expenditures related to expanding and upgrading our
cable systems and interest costs on borrowed money. We expect that we will
continue to incur these expenses at increased levels as a result of our network
upgrade program and our recent and pending acquisitions, which expenses will
result in continued net losses. For additional information, you should read the
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
We have grown rapidly and have a limited history of operating our current
cable systems, which may make it difficult for you to evaluate our
performance.
We commenced operations in 1996 and have grown rapidly since then,
principally through acquisitions. We acquired a substantial portion of our
operations in early 1998. In addition, our recent acquisitions of the Triax and
Zylstra systems nearly doubled the number of subscribers served by our systems.
As a result, you have limited information upon which to evaluate our
performance in managing our current systems, and our historical financial
information may not be indicative of the future results we can achieve with our
systems.
If we are unable to successfully integrate our newly acquired cable systems,
our growth and profitability could be adversely affected.
Since January 1, 1998, we have completed five acquisitions that comprise
approximately 91% of our current basic subscribers. In addition, we expect to
continue to acquire cable systems as an element of our business strategy. The
successful integration and management of acquired cable systems involve the
following principal risks that could adversely affect our growth and
profitability:
. our acquired systems may result in unexpected operating difficulties,
liabilities or contingencies, which could be significant;
. the integration of acquired systems may place significant demands on our
management, diverting their attention from, and making it more difficult
for them to manage, our other systems;
. the integration of acquired systems may require significant financial
resources that could otherwise be used for the ongoing development of
our other systems, including our network upgrade program;
. we may be unable to recruit additional qualified personnel which may be
required to integrate and manage acquired systems; and
. our existing operational, financial and management systems may be
incompatible with or inadequate to effectively integrate and manage
acquired systems and any steps taken to implement changes in our systems
may not be sufficient.
The loss of key personnel could have a material adverse effect on our
business.
Our success is substantially dependent upon the retention and continued
performance of our key personnel, including Rocco B. Commisso, our Chairman and
Chief Executive Officer. We have not entered into an
10
<PAGE>
employment agreement with Mr. Commisso. If Mr. Commisso or any of our other
key personnel cease to be employed by us for any reason, our business could be
materially adversely affected. In addition, our subsidiary credit facilities
provide that a default will result if Mr. Commisso ceases to be our Chairman
and Chief Executive Officer. We do not currently maintain key man life
insurance on Mr. Commisso.
We have substantial existing debt and may incur substantial additional debt,
which could adversely affect our ability to obtain financing in the future
and require our operating subsidiaries to apply a substantial portion of
their cash flow to debt service.
As of September 30, 1999, we had outstanding total indebtedness of $377.5
million and our net interest expense for the nine months ended September 30,
1999 was $20.6 million. On a pro forma basis, our total indebtedness as of
September 30, 1999 was $812.5 million and our net interest expense for the
nine months ended September 30, 1999 was $45.0 million. This high level of
debt and our debt service obligations could have material consequences,
including:
. we may have limited ability to obtain additional financing for working
capital, capital expenditures, acquisitions and general corporate
purposes in the future;
. our operating subsidiaries will be required to dedicate a substantial
portion of their cash flow from operations to the payment of the
principal of and interest on their debt, thereby reducing funds we have
available for working capital, capital expenditures, acquisitions and
general corporate purposes;
. we may have limited flexibility in planning for, or reacting to, changes
in our business and industry; and
. we may be at a disadvantage when compared to those of our competitors
that have less debt.
We anticipate incurring additional debt in the future to finance
acquisitions and to fund the expansion, maintenance and upgrade of our
systems. If new debt is added to our current debt levels, the related risks
that we now face could intensify.
A default under our indentures or our subsidiary credit facilities could
result in an acceleration of our indebtedness or a foreclosure on the
membership interests of our operating subsidiaries.
The indentures governing our senior notes and the agreements governing our
subsidiary credit facilities contain numerous financial and operating
covenants. The breach of any of these covenants will result in a default under
the applicable indenture or agreement which could result in the indebtedness
under our indentures or agreements becoming immediately due and payable. In
addition, a default under our indentures or our subsidiary credit facilities
could result in a default or acceleration of our other indebtedness with
cross-default provisions and could result in a foreclosure by the lenders
under our subsidiary credit facilities on the membership interests of our
operating subsidiaries that we pledged to secure these facilities.
The terms of our indebtedness could materially limit our financial and
operating flexibility.
Several of the covenants contained in our indentures and our subsidiary
credit facilities could materially limit our financial and operating
flexibility by restricting, among other things, our ability and the ability of
our operating subsidiaries to:
. incur additional indebtedness;
. create liens and other encumbrances;
. pay dividends and make other payments, investment, loans and guarantees;
. enter into transactions with related parties;
. sell or otherwise dispose of assets and merge or consolidate with
another entity;
. repurchase or redeem capital stock or debt;
. pledge assets; and
. issue capital stock.
11
<PAGE>
We may not be able to obtain additional capital to continue the development
of our business.
Our business requires substantial capital for the upgrade, expansion and
maintenance of our cable systems. We may not be able to obtain the funds
necessary to finance our capital improvement program through internally
generated funds, additional borrowings or other sources. If we are unable to
obtain these funds, our growth could be adversely affected.
If we are unsuccessful in implementing our growth strategy, our profitability
could be adversely affected.
We expect that a substantial portion of our future growth will be achieved
through revenues from new products and services and the acquisition of
additional cable systems. We may not be able to offer these new products and
services successfully to our customers and these new products and services may
not generate adequate revenues. In addition, our acquisition strategy may not
be successful. In the past year, the cable television industry has undergone
dramatic consolidation, which has reduced the number of future acquisition
prospects. This consolidation may increase the purchase price of future
acquisitions, and we may not be successful in identifying attractive
acquisition targets or obtaining the financing necessary to complete
acquisitions in the future.
Our construction costs may increase significantly, which could adversely
affect our growth and profitability.
The expansion and upgrade of our cable systems require us to hire and enter
into construction agreements with contractors. The growth and consolidation of
the cable television industry has created an increasing demand for cable
construction services, which has increased the costs of these services. Our
construction costs may increase significantly over the next few years as
existing agreements expire and we negotiate new agreements. In addition, we
may not be able to construct new cable systems or expand or upgrade existing
or acquired systems in a timely manner or at a reasonable cost, which may
adversely affect our growth and profitability.
Our programming costs are substantial and may increase, which could result in
a decrease in profitability if we are unable to pass increases on to our
customers.
In recent years, the cable television industry has experienced a rapid
escalation in the cost of programming, particularly sports programming. The
escalation in programming costs may continue, and we may not be able to pass
programming cost increases on to our customers. In addition, as we upgrade the
number of channels that we provide to our customers and add programming to our
basic and expanded basic programming tiers, we may face additional market
constraints on our ability to pass programming costs on to our customers. The
inability to pass these cost increases on to our customers could adversely
affect our profitability.
Our Chairman and Chief Executive Officer has the ability to control all major
corporate decisions, which could inhibit or prevent a change of control or
change in management.
Following this offering, Rocco B. Commisso, our Chairman and Chief
Executive Officer, will beneficially own all of our Class B common stock,
representing 82.6% of the combined voting power of our common stock. As a
result, Mr. Commisso will generally have the ability to control the outcome of
all matters requiring stockholder approval, including the election of our
entire board of directors, the approval of any merger or consolidation
involving us and the sale of all or substantially all of our assets. If a
change of control or change in management is delayed or prevented by Mr.
Commisso, the market price of our Class A common stock could be adversely
affected or holders may not receive a change of control premium over the then-
current market price of our Class A common stock. In addition, the covenants
contained in our subsidiary credit facilities provide that a default will
result if Mr. Commisso, together with one or more of our employees, ceases to
own at least 50.1% of the combined voting power of our common stock on a
fully-diluted basis.
12
<PAGE>
System failures or miscalculations attributable to the Year 2000 issue could
disrupt our future operations.
The Year 2000 issue is the result of computer programs only being able to
use two digits rather than four to define a given year. Thus, date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. We believe that we have adequately addressed the Year 2000 issue, having
experienced no failures or disruptions in our internal operating systems to
our products and services or in those of our third party vendors or suppliers
either on or after January 1, 2000 to the date of this prospectus. However, it
is possible that future failures or disruptions stemming from Year 2000 issues
may yet result in our inability to process transactions, send invoices, accept
customer orders or timely provide customers with products and services.
A legal action has been commenced to enjoin our use of the term "Mediacom" in
our business.
We have been named in a lawsuit in which a third party alleges that our use
of the term "Mediacom" in connection with our business infringes their
federally registered trademark. The lawsuit seeks a permanent injunction and
unspecified monetary damages. If we are found to have infringed the
proprietary rights of this or other third parties with respect to our use of
the "Mediacom" mark or variations thereof, we could be enjoined from using the
"Mediacom" mark in connection with our business and be required to pay
material monetary damages.
Our Industry
We may not be able to compete effectively in the highly competitive cable
industry.
Our industry is highly competitive. The nature and level of the competition
we face affects, among other things, how much we must spend to upgrade our
cable systems, how much we must spend on marketing and promotions and the
prices we can charge our customers. We may not have the resources necessary to
compete effectively. Many of our present and potential competitors may have
fewer regulatory burdens, substantially greater resources, greater brand name
recognition and long-standing relationships with regulatory authorities. We
expect advancements in communications technology, as well as changes in the
marketplace, to occur in the future which may compete with services that our
cable systems offer. The success of these ongoing and future developments
could have an adverse impact on our business and operations.
Continued growth of direct broadcast satellite operators could adversely
affect our growth and profitability.
Direct broadcast satellite operators have grown at a rate far exceeding the
cable television industry growth rate and have emerged as a significant
competitor to cable operators. Direct broadcast satellite service consists of
television programming transmitted via high-powered satellites to individual
homes, each served by a small satellite dish. The continued growth of direct
broadcast satellite operators may adversely affect our growth and
profitability. Legislation permitting direct broadcast satellite operators to
transmit local broadcast signals was enacted on November 29, 1999. This
eliminates a significant competitive advantage which cable system operators
have had over direct broadcast satellite operators. Direct broadcast satellite
operators have begun delivering local broadcast signals in the largest markets
and there are plans to expand such carriage to many more markets over the next
year.
Recent changes in the regulatory environment may introduce additional
competitors in our markets.
Recent changes in federal law and recent administrative and judicial
decisions have removed restrictions that have limited entry into the cable
television industry by potential competitors such as telephone companies and
registered utility holding companies. As a result, competition may materialize
in our franchise areas from other cable television operators, other video
programming distribution systems and other broadband telecommunications
services to the home. For example, these developments will enable local
telephone and utility companies to provide a wide variety of video services in
their service areas which will be directly competitive with the services
provided by cable television systems in the same area.
13
<PAGE>
Our franchises are non-exclusive and local franchising authorities may grant
competing franchises in our markets.
Our cable systems are operated under non-exclusive franchises granted by
local franchising authorities. As a result, competing operators of cable
systems and other potential competitors, such as municipal utility providers,
may be granted franchises and may build cable systems in markets where we hold
franchises. Any such competition could adversely affect our business. The
existence of multiple cable systems in the same geographic area is generally
referred to as an overbuild. We currently face overbuilds in a limited number
of our markets.
We may be required to provide access to our networks to other Internet
service providers, which could significantly increase our competition and
adversely affect our ability to provide new products and services.
The U.S. Congress and the Federal Communications Commission have been asked
to require cable operators to provide access over their cable systems to other
Internet service providers. If we are required to provide open access, it
could prohibit us from entering into or limit our existing agreements with
Internet service providers, adversely impact our anticipated revenues from
high-speed Internet access services and complicate marketing and technical
issues associated with the introduction of these services. To date, the U.S.
Congress and the Federal Communications Commission have declined to impose
these requirements. This same open access issue is also being considered by
some local franchising authorities and several courts. Franchise renewals and
transfers could become more difficult depending upon the outcome of this
issue.
Our franchises are subject to non-renewal or termination by local
authorities, which could cause us to lose our right to operate some of our
systems.
Cable television companies operate under non-exclusive franchises granted
by local authorities that are subject to renewal, renegotiation and
termination from time to time. Our cable systems are dependent upon the
retention and renewal of their respective local franchises. We may not be able
to retain or renew our franchises and any renewals may not be on terms
favorable to us. The non-renewal or termination of franchises with respect to
a significant portion of any of our cable systems would have a material
adverse effect on our business.
This Offering
Existing stockholders may sell their common stock after this offering, which
could adversely affect the market price of the Class A common stock.
Sales of a substantial number of shares of our common stock, or the
perception that sales could occur, could adversely affect the market price for
shares of our Class A common stock by causing the amount of our common stock
available for sale to exceed the demand for our common stock. These sales
could also make it more difficult for us to sell equity securities in the
future at a time and price we deem appropriate. After this offering, we will
have outstanding 60,977,562 shares of Class A common stock and 29,022,438
shares of Class B common stock. Approximately 40,977,562 shares of Class A
common stock and all shares of Class B common stock, in the aggregate
representing 77.8% of our outstanding common stock upon completion of this
offering, will be restricted securities under the Securities Act of 1933.
These securities will be subject to restrictions on the timing, manner and
volume of sales of the restricted shares. However, each of Rocco B. Commisso,
our Chairman and Chief Executive Officer, Morris Communications Corporation,
CB Capital Investors, LLC, Chase Manhattan Capital, LLC, U.S. Investor, Inc.,
Private Market Fund and our less than 5% stockholders, will have rights to
require us to register their shares beginning 180 days after the completion of
this offering.
14
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements. You can identify these statements by forward-looking words such as
"may," "will," "expect," "plan," "intend," "anticipate," "believe," "estimate"
and "continue" or similar words. You should read statements that contain these
words carefully because they:
. discuss our future expectations;
. contain projections of our future results of operations or of our
financial condition; or
. state other forward-looking information.
We believe it is important to communicate our expectations to our investors.
However, forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from any results, performance or
achievements expressed or implied by any forward-looking statements. These
factors include, among other things, those listed under "Risk Factors" and
elsewhere in this prospectus. Although we believe that the expectations
reflected in our forward-looking statements are reasonable, we cannot assure
you of future results, performance or achievements.
15
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of our Class A common stock
in this offering, after deducting the estimated underwriting discounts,
commissions and offering expenses payable by us, will be approximately $327.1
million, or approximately $376.6 million if the underwriters' over-allotment
option is exercised in full. We intend to use all of the net proceeds of this
offering to repay indebtedness outstanding under our subsidiary credit
facilities.
As of January 10, 2000, we had $816.0 million of indebtedness outstanding
under our subsidiary credit facilities. These facilities, which have final
maturities ranging from March 2008 to December 2008, are subject to earlier
repayment on dates ranging from June 2007 to December 2007 if we do not
refinance our 8 1/2% senior notes prior to March 31, 2007. Weighted interest
rates for loans outstanding under our subsidiary credit facilities was 8.0% as
of January 10, 2000. Borrowings under our subsidiary credit facilities were
used to refinance prior indebtedness and to fund our acquisitions of the Triax
and Zylstra systems. You should read the discussion under "Description of
Certain Indebtedness--Credit Facilities" for additional information about our
subsidiary credit facilities.
DIVIDEND POLICY
We have never paid or declared cash dividends on our common stock and
currently intend to retain any future earnings for the development of our
business. Therefore, we do not currently anticipate paying any cash dividends
in the forseeable future. In addition, our subsidiary credit facilities
restrict the ability of our subsidiaries to pay dividends. Our future dividend
policy is within the discretion of our board of directors and will depend upon
various factors, including our results of operations, financial condition,
capital requirements and investment opportunities.
16
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1999, on a consolidated
basis:
. the historical capitalization of Mediacom LLC;
. the pro forma capitalization of Mediacom LLC to reflect:
-- the repayment of an unsecured senior subordinated note in the
original amount of $2.8 million and accrued interest,
-- the $10.5 million equity contribution made by the members of
Mediacom LLC in connection with the acquisition of the Triax systems
in November 1999,
-- borrowings of $762.1 million under our subsidiary credit facilities
to finance the acquisitions of the Triax and Zylstra systems and the
related write-off of unamortized financing fees from our former
subsidiary credit facilities,
-- a $25.1 million deferred charge associated with amendments to our
management agreements with Mediacom Management, for which additional
membership interests will be issued to an existing member of
Mediacom LLC and a related $628,000 expense for the period November
19, 1999 through December 31, 1999, and
-- a one-time $12.8 million non-recurring, non-cash compensation charge
and the effect to deferred compensation of $11.8 million associated
with a grant of equity interests, based on an initial public
offering price of $17.50 per share, by an existing member of
Mediacom LLC to certain members of our management team as further
discussed in note 6 of Mediacom LLC's interim financials; and
. our pro forma as adjusted capitalization to reflect:
-- the exchange of membership interests in Mediacom LLC for shares of
our common stock,
-- a one-time $1.9 million non-recurring, non-cash charge to record a
net deferred tax liability as of September 30, 1999 that will be
recognized upon the exchange of membership interests in Mediacom LLC
for shares of our common stock, and
-- the issuance and sale of our Class A common stock in this offering
at an initial public offering price of $17.50 per share and the
application of the net proceeds from the sale to repay $327.1
million of indebtedness outstanding under our subsidiary credit
facilities.
17
<PAGE>
The table below should be read in conjunction with the historical
consolidated financial statements of Mediacom LLC included elsewhere in this
prospectus. For additional information, see "Unaudited Pro Forma Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Description of
Certain Indebtedness."
<TABLE>
<CAPTION>
As of September 30, 1999
-----------------------------------
Mediacom
Communications
Mediacom LLC Corporation
-------------------- --------------
Pro Forma
Historical Pro Forma As Adjusted
---------- --------- --------------
(dollars in millions)
<S> <C> <C> <C>
Cash and cash equivalents.................. $ 3.7 $ 4.6 $ 4.6
====== ======== ========
Total debt:
7 7/8% senior notes...................... $200.0 $ 200.0 $ 200.0
8 1/2% senior notes...................... 125.0 125.0 125.0
Subsidiary credit facilities(1).......... 52.5 814.6 487.5
------ -------- --------
Total debt............................. 377.5 1,139.6 812.5
Total members' equity...................... 40.6 49.0 --
Stockholders' equity:
Class A common stock, par value $0.01,
300,000,000 shares
authorized, and 60,977,562 shares issued
and outstanding......................... 0.6
Class B common stock, par value $0.01,
100,000,000 shares
authorized, and 29,022,438 shares issued
and outstanding......................... 0.3
Additional paid-in capital............... 475.1
Accumulated deficit...................... (101.9)
--------
Total stockholders' equity............. 374.1
------ -------- --------
Total capitalization................. $418.1 $1,188.6 $1,186.6
====== ======== ========
</TABLE>
- ---------------------
(1) After completion of this offering, we will have approximately $612 million
of unused credit commitments under our subsidiary credit facilities.
18
<PAGE>
DILUTION
The difference between the initial public offering price per share of our
Class A common stock and the pro forma net tangible book value per share of our
Class A and Class B common stock after this offering constitutes the dilution
to investors in this offering. Net tangible book value per share is determined
by subtracting our total liabilities from the total book value of our tangible
assets and dividing the difference by the number of shares of our Class A and
Class B common stock deemed to be outstanding on the date total book value is
determined.
As of September 30, 1999, our net tangible deficit was $554.6 million, or
$7.92 per share of common stock, after giving effect to the transactions
described under "Capitalization," excluding this offering. After giving effect
to the sale of 20,000,000 shares of our Class A common stock at an initial
public offering price of $17.50 per share, and the deduction of estimated
underwriting discounts, commissions and offering expenses, our pro forma net
tangible deficit as of September 30, 1999 would have been a deficit of $229.5
million, or $2.55 per share of common stock. This represents an immediate
increase in our net tangible deficit of $5.37 per share to current stockholders
and an immediate dilution of $20.05 per share to new investors purchasing our
Class A common stock. The following table illustrates the foregoing information
as of September 30, 1999 with respect to dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......... $17.50
Pro forma net tangible deficit per share before this
offering.............................................. $(7.92)
Increase per share attributable to this offering....... 5.37
------
Pro forma net tangible deficit per share after this
offering................................................ (2.55)
------
Dilution per share to new investors...................... $20.05
======
</TABLE>
The following table sets forth as of September 30, 1999, information with
respect to our existing stockholders and new investors, after giving effect to
the exchange of membership interests of Mediacom LLC for shares of our common
stock:
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ -------------------- Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 70,000,000 77.8% $135,490,000 27.9% $1.94
New investors.............. 20,000,000 22.2 350,000,000 72.1 17.50
---------- ----- ------------ -----
Total.................... 90,000,000 100.0% $485,490,000 100.0%
========== ===== ============ =====
</TABLE>
To the extent that shares of our common stock are issued in connection with
the stock option arrangements, there will be further dilution to new investors.
19
<PAGE>
COMPLETED ACQUISITIONS
Since commencement of our operations in March 1996, we have completed 11
acquisitions of cable systems. The table below summarizes information related
to our completed acquisitions of cable systems in chronological order. The
systems were purchased from the named party identified in the Predecessor Owner
column or from one or more of its related parties or its controlling or
managing operator. The dollar amount set forth in the Purchase Price column
represents the final purchase price before closing costs and adjustments.
<TABLE>
<CAPTION>
Basic
Subscribers
as of
Location of Acquisition Purchase Price September 30,
Systems Predecessor Owner Date (in millions) 1999
- ------------------ ----------------------------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Ridgecrest, CA Benchmark Communications March 1996 $ 18.8 9,300
Kern Valley, CA Booth American Company June 1996 11.0 6,000
Nogales, AZ Saguaro Cable TV Investors, L.P. December 1996 11.4 7,900
Valley Center, CA Valley Center Cable Systems, L.P. December 1996 2.5 1,950
Dagsboro, DE American Cable TV Investors 5, Ltd. June 1997 42.6 32,300
Sun City, CA Cox Communications, Inc. September 1997 11.5 9,950
Clearlake, CA Jones Intercable, Inc. January 1998 21.4 18,200
Various States Cablevision Systems Corporation January 1998 308.2 268,350
Caruthersville, MO Cablevision Systems Corporation October 1998 5.0 4,050
Various States Zylstra Communications Corporation October 1999 19.5 14,000
Various States Triax Midwest Associates, L.P. November 1999 740.1 344,000
-------- -------
$1,192.0 716,000
======== =======
</TABLE>
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data as of and for
the nine months ended September 30, 1999 and for the year ended December 31,
1998 are based on the historical consolidated financial statements of Mediacom
LLC, as adjusted to illustrate the estimated effects of the following
transactions as if each transaction had occurred on January 1, 1998 for the
statement of operations data and on September 30, 1999 for the balance sheet
data:
. our acquisitions of cable systems described under "Completed
Transactions" that were completed in 1998 and the incurrence of
indebtedness arising from the acquisitions under our former subsidiary
credit facilities;
. the issuance and sale of our 8 1/2% senior notes on April 1, 1998 and
the application of $194.5 million of net proceeds from the sale to repay
outstanding indebtedness under our former subsidiary credit facilities;
. the issuance and sale of our 7 7/8% senior notes on February 26, 1999
and the application of $121.9 million of net proceeds from the sale to
repay outstanding indebtedness under our former subsidiary credit
facilities;
. the repayment of an unsecured senior subordinated note in the original
amount of $2.8 million and accrued interest;
. the establishment of our current subsidiary credit facilities and the
repayment of all outstanding indebtedness under our former subsidiary
credit facilities;
. the $10.5 million equity contribution made by members of Mediacom LLC in
connection with the acquisition of the Triax systems in November 1999;
. our acquisitions of cable systems described under "Completed
Transactions" that were completed in 1999 and the incurrence of
indebtedness arising from the acquisitions under our current subsidiary
credit facilities;
. a $25.1 million deferred charge associated with amendments to our
management agreements with Mediacom Management, for which additional
membership interests will be issued to an existing member of Mediacom
LLC and a related $628,000 expense for the period November 19, 1999
through December 31, 1999;
. a one-time $12.8 million non-recurring, non-cash compensation charge and
the effect to deferred compensation of $11.8 million associated with a
grant of equity interests, based on an initial public offering price of
$17.50 per share, by an existing member of Mediacom LLC to certain
members of our management team as further discussed in note 6 of
Mediacom LLC's interim financials;
. the exchange of membership interests in Mediacom LLC for shares of our
common stock;
. the effect to management fee expense as a result of amending the
management agreements with Mediacom Management;
. a one-time $1.9 million non-recurring, non-cash charge to record a net
deferred tax liability as of September 30, 1999 that will be recognized
upon the exchange of membership interests in Mediacom LLC for shares of
our common stock;
. the reclassification of management fee expense to corporate expense due
to the termination of our management agreements with Mediacom
Management; and
. the issuance and sale of our Class A common stock in this offering at an
initial public offering price of $17.50 per share and the application of
the net proceeds from the sale to repay $327.1 million of outstanding
indebtedness under our subsidiary credit facilities.
21
<PAGE>
The unaudited pro forma consolidated financial data give effect to the
acquisitions of our cable systems under the purchase method of accounting. The
purchase price allocation among property, plant and equipment, intangible
assets, other assets and liabilities of the Triax and Zylstra systems is
preliminary and will be completed upon receipt of appraisal reports. We do not
believe that the adjustment resulting from the final allocation of the purchase
price will be material.
The unaudited pro forma consolidated financial data do not purport to
represent what our results of operations or financial condition would actually
have been had the transactions described above occurred on the dates indicated
or to project our results of operations or financial condition for any future
period or date. You should read the historical consolidated financial
statements of Mediacom LLC and U.S. Cable Television Group, L.P. and the
historical financial statements of Triax, appearing elsewhere in this
prospectus.
Unaudited Pro Forma Consolidated Statement of Operations
For the Nine Months Ended September 30, 1999
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Mediacom LLC Triax Zylstra Acquisition Other Offering
(historical) (historical) (historical) Adjustments Adjustments Subtotal Adjustments
------------ ----------- ------------ ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues............ $113,230 $ 101,654 $3,747 $ -- $ -- $ 218,631 $ --
Costs and expenses:
Service costs....... 36,571 34,925 1,658 -- -- 73,154 --
Selling, general
and administrative
expenses........... 21,816 15,038 650 -- -- 37,504 --
Management fee
expense............ 5,150 3,331 452 -- (2,885)(e) 6,048 (6,048)(f)
Corporate expense... -- -- -- -- -- -- 6,048 (f)
Depreciation and
amortization....... 66,154 54,111 409 25,104 (b) -- 145,778 --
-------- --------- ------ -------- ------ --------- --------
Operating (loss)
income............. (16,461) (5,751) 578 (25,104) 2,885 (43,853) --
Interest expense
(income), net...... 20,577 24,941 (41) 19,502 (c) -- 64,979 (19,980)(g)
Other expenses
(income)........... 979 -- (36) 36 (d) -- 979 --
-------- --------- ------ -------- ------ ---------
Provision (benefit)
for income taxes... -- (h)
--------
Net (loss) income
from continuing
operations......... $(38,017) $ (30,692) $ 655 $(44,642) $2,885 $(109,811) $ 19,980
======== ========= ====== ======== ====== ========= ========
Pro forma basic and
diluted net loss
per share(a).......
Pro forma weighted
average
common shares outstanding..
<CAPTION>
Total
-----------
<S> <C>
Statement of
Operations Data:
Revenues............ $ 218,631
Costs and expenses:
Service costs....... 73,154
Selling, general
and administrative
expenses........... 37,504
Management fee
expense............ --
Corporate expense... 6,048
Depreciation and
amortization....... 145,778
-----------
Operating (loss)
income............. (43,853)
Interest expense
(income), net...... 44,999
Other expenses
(income)........... 979
Provision (benefit)
for income taxes... --
-----------
Net (loss) income
from continuing
operations......... $ (89,831)
===========
Pro forma basic and
diluted net loss
per share(a)....... $ (1.00)
Pro forma weighted
average
common shares outstanding..90,000,000
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
22
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statement of Operations
For the Nine Months Ended September 30, 1999
(dollars in thousands, except per share data)
For purposes of determining the pro forma effects of the transactions
described above on the historical consolidated statement of operations of
Mediacom LLC for the nine months ended September 30, 1999, the following
adjustments have been made:
(a) Pro forma basic and diluted loss per share is calculated based on
90,000,000 shares of common stock. The number of shares of common
stock reflects the 40,977,562 Class A shares and 29,022,438 Class B
shares issued to effect the exchange of membership interests of
Mediacom LLC and the 20,000,000 Class A shares that will be issued in
this offering. Upon completion of this offering, options to purchase
our common stock will be issued to certain employees with an exercise
price equal to the initial public offering price. Accordingly, these
stock options have no effect on the pro forma loss per share amounts.
No adjustment has been made to the unaudited pro forma consolidated
statement of operations for a one-time $12,837 non-recurring, non-cash
compensation charge associated with a grant of vested and non-
forfeitable equity interests, based on an initial public offering price
of $17.50 per share, by an existing member of Mediacom LLC to certain
members of our management team as further discussed in note 6 of
Mediacom LLC's interim financials.
(b) Represents increase to historical depreciation and amortization
expense as a result of a preliminary allocation of the Triax and
Zylstra purchase price and other costs:
<TABLE>
<CAPTION>
Estimated Asset Pro Forma
Triax and Zylstra Fair Values Life Expense
----------------- ----------- ----- ---------
<S> <C> <C> <C>
Property, plant and equipment................ $297,558 7 $ 42,508
Franchise costs.............................. 227,964 15 15,198
Subscriber lists............................. 236,990 5 47,398
Deferred financing costs..................... 6,800 8.5 800
Other acquisition costs...................... 3,900 15 260
--------
Annualized pro forma depreciation and
amortization (A)............................ 106,164
Pro forma depreciation and amortization--
Nine months ended September 30, 1999
(A multiplied by 75%)....................... 79,624
Historical--Triax and Zylstra................ (54,520)
--------
Increase to depreciation and amortization.... $ 25,104
========
</TABLE>
(c) Represents increase to interest expense due to incremental
indebtedness arising from our acquisitions of the Triax and Zylstra
systems and our 7 7/8% senior note offering and decrease to interest
expense arising from our repayment of the unsecured senior
subordinated note in the original amount of $2,800 and accrued
interest. An 1/8% change in the interest rates will increase or
decrease the interest expense per annum by $956 after adjusting for
interest rate swap agreements. Historical interest expense of Triax
and Zylstra has been eliminated, as we have not assumed their debt
obligations.
<TABLE>
<CAPTION>
Interest Pro Forma
Principal Rate Expense
--------- -------- ---------
<S> <C> <C> <C>
Subsidiary credit facilities............... $814,550 7.34% $59,788
8 1/2% senior notes........................ 200,000 8.50 17,000
7 7/8% senior notes........................ 125,000 7.88 9,850
-------
Pro forma interest expense (A)............. 86,638
Pro forma interest expense--Nine months
ended September 30, 1999 (A multiplied by
75%)...................................... 64,979
Historical interest expense................ (45,477)
-------
Increase to interest expense............... $19,502
=======
</TABLE>
23
<PAGE>
(d) Represents elimination of other income of Zylstra.
(e) The management agreements with Mediacom Management were amended
effective November 19, 1999 in connection with an amendment to
Mediacom LLC's operating agreement. The amended agreements provide for
management fees equal to 2% of annual gross revenues. No adjustment
has been made to the unaudited pro forma consolidated statement of
operations for a $628,000 expense associated with the amendments to
the management agreements with Mediacom Management, for which
additional membership interests will be issued to an existing member
of Mediacom LLC. We have not adjusted management fee expense for the
Triax and Zylstra systems.
<TABLE>
<S> <C>
Mediacom LLC revenues.......................................... $113,230
2% of revenues................................................. 2,265
Historical Mediacom LLC management fees........................ (5,150)
--------
Decrease to management fee expense............................. $ (2,885)
========
</TABLE>
(f) Represents elimination of management fees paid to Mediacom Management
for management services rendered to our operating subsidiaries.
Mediacom Management utilized these fees to compensate its employees as
well as to fund its corporate overhead. The management agreements with
Mediacom Management were amended effective November 19, 1999 in
connection with an amendment to Mediacom LLC's operating agreement. The
amended agreements provide for management fees equal to 2% of annual
gross revenues. Each of the management agreements will be terminated
upon completion of this offering. At that time, Mediacom Management's
employees will become our employees and its corporate overhead will
become our corporate overhead. These expenses will be reflected as our
corporate expense, which we estimate will amount to approximately 2% of
our annual gross revenues.
The number of employees and their salaries included in corporate
expense will be the same before and after they become our employees.
(g) Represents decrease to interest expense arising from the repayment of
$327,075 of outstanding indebtedness under our subsidiary credit
facilities with the net proceeds of this offering. An 1/8% change in
the interest rates will increase or decrease the interest expense per
annum by $547 after adjusting for interest rate swap agreements.
<TABLE>
<CAPTION>
Interest Pro Forma
Principal Rate Expense
--------- -------- ---------
<S> <C> <C> <C>
Subsidiary credit facilities................ $487,475 6.80% $ 33,148
8 1/2% senior notes......................... 200,000 8.50 17,000
7 7/8% senior notes......................... 125,000 7.88 9,850
--------
Pro forma interest expense after
offering (A)............................... 59,998
Pro forma interest expense after offering--
Nine months ended September 30, 1999 (A
multiplied by 75%)......................... 44,999
Pro forma interest expense prior to
offering................................... (64,979)
--------
Decrease to interest expense................ $(19,980)
========
</TABLE>
(h) No provision has been made in the unaudited pro forma consolidated
statement of operations for federal, state or local income taxes
because Mediacom LLC is a limited liability company and its members
are required to report their share of income or loss in their
respective income tax returns. After the completion of this offering
and the exchange of membership interests in Mediacom LLC for shares of
our common stock, our results will be included in our corporate tax
returns. However, due to our pro forma consolidated net loss, no
income tax benefit has been reflected.
24
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1998
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Mediacom LLC Triax Zylstra Acquisition Other
(historical) Adjustments Subtotal (historical) (historical) Adjustments Adjustments
------------ ----------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues........ $129,297 $ 6,888 (b) $136,185 $119,669 $4,970 $ 11,434 (e) $ --
Costs and
expenses:
Service costs... 43,849 2,803 (b) 46,652 38,496 1,883 3,897 (e) --
Selling, general
and
administrative
expenses....... 25,596 2,274 (b) 27,870 20,846 747 1,892 (e) --
Management fee
expense........ 5,797 7 (b) 5,804 4,048 482 -- (3,080)(h)
Corporate
expense........ -- -- -- -- -- -- --
Depreciation and
amortization... 65,793 3,090 (c) 68,883 65,391 279 40,494 (f) --
-------- ------- -------- -------- ------ -------- ------
Operating (loss)
income......... (11,738) (1,286) (13,024) (9,112) 1,579 (34,849) 3,080
Interest expense
(income), net.. 23,994 2,769 (d) 26,763 29,358 (51) 32,989 (g) --
Other expenses.. 4,058 -- 4,058 -- -- -- --
-------- ------- -------- -------- ------ -------- ------
Provision
(benefit)
for income
taxes..........
Net (loss)
income......... $(39,790) $(4,055) $(43,845) $(38,470) $1,630 $(67,838) $3,080
======== ======= ======== ======== ====== ======== ======
Pro forma basic
and diluted net
loss per
share(a).......
Pro forma
weighted
average of
common shares
outstanding....
<CAPTION>
Offering
Subtotal Adjustments Total
---------- ------------- -----------
<S> <C> <C> <C>
Statement of
Operations Data:
Revenues........ $ 272,258 $ -- $ 272,258
Costs and
expenses:
Service costs... 90,928 -- 90,928
Selling, general
and
administrative
expenses....... 51,355 -- 51,355
Management fee
expense........ 7,254 (7,254)(i) --
Corporate
expense........ -- 7,254 (i) 7,254
Depreciation and
amortization... 175,047 -- 175,047
---------- ------------- -----------
Operating (loss)
income......... (52,326) -- (52,326)
Interest expense
(income), net.. 89,059 (29,204)(j) 59,855
Other expenses.. 4,058 -- 4,058
----------
Provision
(benefit)
for income
taxes.......... -- (k) --
------------- -----------
Net (loss)
income......... $(145,443) $29,204 $ (116,239)
========== ============= ===========
Pro forma basic
and diluted net
loss per
share(a)....... $ (1.29)
Pro forma
weighted
average of
common shares
outstanding.... 90,000,000
</TABLE>
See accompanying notes to unaudited pro forma consolidated statement of
operations.
25
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1998
(dollars in thousands, except per share data)
For purposes of determining the pro forma effects of the transactions
described above on the historical consolidated statement of operations of
Mediacom LLC for the year ended December 31, 1998, the following adjustments
have been made:
(a) Pro forma basic and diluted loss per share is calculated based on
90,000,000 shares of common stock. The number of shares of common
stock reflects the 40,977,562 Class A shares and 29,022,438 Class B
shares issued to effect the exchange of membership interests of
Mediacom LLC and the 20,000,000 Class A shares that will be issued in
this offering. Upon completion of this offering, options to purchase
our common stock will be issued to certain employees with an exercise
price equal to the public offering price. Accordingly, these stock
options have no effect on the pro forma loss per share amounts.
No adjustment has been made to the unaudited pro forma consolidated
statement of operations for a one-time $9,302 non-recurring, non-cash
compensation charge associated with a grant of vested and non-
forfeitable equity interests, based on an initial public offering price
of $17.50 per share, by an existing member of Mediacom LLC to certain
members of our management team as further discussed in note 6 of
Mediacom LLC's interim financials.
(b) The table below represents actual revenues, service costs, and
selling, general and administrative expenses and management fee
expense of certain cable systems owned by:
. Jones Intercable, Inc., referred to as Clearlake, and acquired on
January 9, 1998;
. Cablevision Systems Corporation in various states, referred to as
Cablevision, and acquired on January 23, 1998; and
. Cablevision Systems Corporation, referred to as Caruthersville, and
acquired on October 1, 1998.
These amounts were recognized prior to our acquisition of such cable
systems.
<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>
(c) Represents historical depreciation and amortization of the
Cablevision, Clearlake and Caruthersville systems recognized prior to
the respective dates of acquisition and additional depreciation and
amortization related to the step-up in value of the systems based on
the final allocation of their purchase price. See note 3 of the
historical consolidated financial statements of Mediacom LLC for the
year ended December 31, 1998.
(d) Represents increase to interest expense due to incremental
indebtedness arising from our acquisition of the Clearlake,
Cablevision and Caruthersville systems and our 8 1/2% senior note
offering. An 1/8% change in the interest rates will increase or
decrease the interest expense per annum by $106 after adjusting for
interest rate swap agreements.
26
<PAGE>
<TABLE>
<CAPTION>
Interest Pro Forma
Principal Rate Expense
--------- -------- ---------
<S> <C> <C> <C>
Subsidiary credit facilities................ $134,425 7.03% $ 9,450
8 1/2% senior notes......................... 200,000 8.50 17,000
Unsecured senior subordinated note.......... 3,480 9.00 313
--------
Pro forma interest expense.................. 26,763
Historical--Mediacom LLC.................... (23,994)
--------
Increase to interest expense................ $ 2,769
========
</TABLE>
(e) The table below represents historical revenues, service costs, and
selling, general and administrative expenses of the Jones systems and
the Marcus systems, recognized prior to the respective dates of
acquisition by Triax. These systems were acquired by Triax on June 30,
1998 and September 30, 1998, for $22.8 million and $60.8 million,
respectively. See note 3 to the historical financial statements of
Triax for the year ended December 31, 1998.
<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>
(f) Represents increase to historical depreciation and amortization as a
result of a preliminary allocation of the Triax and Zylstra purchase
price and other costs:
<TABLE>
<CAPTION>
Estimated Asset Pro Forma
Triax and Zylstra Fair Values Life Expense
----------------- ----------- ----- ---------
<S> <C> <C> <C>
Property, plant and equipment............... $297,558 7 $ 42,508
Franchise costs............................. 227,964 15 15,198
Subscriber lists............................ 236,990 5 47,398
Deferred financing costs.................... 6,800 8.5 800
Other acquisition costs..................... 3,900 15 260
--------
Pro forma depreciation and amortization..... 106,164
Historical--Triax and Zylstra............... (65,670)
--------
Increase to depreciation and amortization... $ 40,494
========
</TABLE>
(g) Represents increase to interest expense due to incremental
indebtedness arising from our acquisitions of the Triax and Zylstra
systems, our 8 1/2% senior note offering and our 7 7/8% senior note
offering and decrease to interest expenses arising from our repayment
of the unsecured senior subordinated note in the original amount of
$2,800 and accrued interest. An 1/8% change in the interest rates will
increase or decrease the interest expense per annum by $911 after
adjusting for interest rate swap agreements. Historical interest
expense of Triax and Zylstra has been eliminated, as we have not
assumed their debt obligations.
<TABLE>
<CAPTION>
Interest Pro Forma
Principal Rate Expense
--------- -------- ---------
<S> <C> <C> <C>
Subsidiary credit facilities................ $778,580 7.99% $ 62,209
8 1/2% senior notes......................... 200,000 8.50 17,000
7 7/8% senior notes......................... 125,000 7.88 9,850
--------
Pro forma interest expense.................. 89,059
Pro forma--Mediacom LLC..................... (26,763)
Historical--Triax and Zylstra............... (29,307)
--------
Increase to interest expense................ $ 32,989
========
</TABLE>
27
<PAGE>
(h) The management agreements with Mediacom Management were amended
effective November 19, 1999 in connection with an amendment to
Mediacom LLC's operating agreement. The amended agreements provide for
management fees equal to 2% of annual gross revenues. No adjustment
has been made to the unaudited pro forma consolidated statement of
operations for a $628,000 expense associated with the amendments to
the management agreements with Mediacom Management, for which
additional membership interests will be issued to an existing member
of Mediacom LLC. We have not adjusted management fee expense for the
Triax and Zylstra systems.
<TABLE>
<S> <C>
Mediacom LLC revenues.......................................... $136,185
2% of revenues................................................. 2,724
Historical Mediacom LLC management fees........................ (5,804)
--------
Decrease to management fee expense............................. $ (3,080)
========
</TABLE>
(i) Represents elimination of management fees paid to Mediacom Management
for management services rendered to our operating subsidiaries.
Mediacom Management utilized these fees to compensate its employees as
well as to fund its corporate overhead. The management agreements with
Mediacom Management were amended effective November 19, 1999 in
connection with an amendment to Mediacom LLC's operating agreement. The
amended agreements provide for management fees equal to 2% of annual
gross revenues. Each of the management agreements will be terminated
upon completion of this offering. At that time, Mediacom Management's
employees will become our employees and its corporate overhead will
become our corporate overhead. These expenses will be reflected as our
corporate expense, which we estimate will amount to approximately 2% of
our annual gross revenues.
The number of employees and their salaries included in corporate
expense will be the same before and after they become our employees.
(j) Represents decrease to interest expense arising from the repayment of
$327,075 of outstanding indebtedness under our subsidiary credit
facilities with the net proceeds of this offering. An 1/8% change in
the interest rates will increase or decrease the interest expense per
annum by $502 after adjusting for interest rate swap agreements.
<TABLE>
<CAPTION>
Pro
Interest Forma
Principal Rate Expense
--------- -------- --------
<S> <C> <C> <C>
Subsidiary credit facilities............... $451,505 7.31% $ 33,005
8 1/2% senior notes........................ 200,000 8.50 17,000
7 7/8% senior notes........................ 125,000 7.88 9,850
--------
Pro forma interest expense after offering.. 59,855
Pro forma interest expense prior to
offering.................................. (89,059)
--------
Decrease to interest expense............... $(29,204)
========
</TABLE>
(k) No provision has been made in the unaudited pro forma consolidated
statement of operations for federal, state or local income taxes
because Mediacom LLC is a limited liability company and its members
are required to report their share of income or loss in their
respective income tax returns. After the completion of this offering
and the exchange of membership interests in Mediacom LLC for shares of
our common stock, our results will be included in our corporate tax
returns. However, due to our pro forma consolidated net loss, no
income tax benefit has been reflected.
28
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
As of September 30, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Mediacom LLC Triax Zylstra Other Offering
(historical) (historical) (historical) Adjustments Adjustments Subtotal Adjustments
------------ ------------ ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash and cash
equivalents........ $ 3,700 $ -- $ -- $ 890 (a) $ -- $ 4,590 $ --
Subscriber accounts
receivable, net.... 2,269 2,043 532 696 (a) -- 5,540 --
Prepaid expenses
and other assets... 2,947 -- 72 238 (a) -- 3,257 --
Inventory.......... 11,606 -- -- 2,000 (b) -- 13,606 --
Property, plant and
equipment, net..... 286,900 168,588 4,872 124,098 (b) -- 584,458 --
Intangible assets,
net................ 134,768 153,604 59 315,191 (b) -- 603,622 --
Other assets, net.. 12,965 7,450 -- (2,770)(c) -- 17,645 --
-------- --------- ------ -------- -------- ---------- ---------
Total assets...... $455,155 $ 331,685 $5,535 $440,343 -- $1,232,718 $ --
======== ========= ====== ======== ======== ========== =========
Liabilities and
Members'/Stockholders'
Equity
Debt............... $377,500 $ 418,810 $ -- $343,240 (d) $ -- $1,139,550 $(327,075)(i)
Accounts payable
and accrued
expenses........... 35,164 13,108 618 (9,624)(a) -- 39,266 --
Subscriber advance
payments and
deposits........... 1,857 782 442 1,807 (a) -- 4,888 --
Deferred income tax
liability.......... -- -- -- -- -- -- 1,937 (j)
Other liabilities.. -- -- -- -- -- -- --
-------- --------- ------ -------- -------- ---------- ---------
Total
liabilities...... 414,521 432,700 1,060 335,423 -- 1,183,704 (325,138)
Members' equity
Capital
contributions...... 124,990 -- 1,588 8,912 (e) 13,465 (g) 148,955 (148,955)(k)
Accumulated
deficit............ (84,356) (101,015) 2,887 96,008 (f) (13,465)(h) (99,941) 99,941 (k)
-------- --------- ------ -------- -------- ---------- ---------
Total member's
equity
(deficit)........ 40,634 (101,015) 4,475 104,920 -- 49,014 (49,014)
Stockholders'
equity
Class A common
stock.............. 610 (l)
Class B common
stock............. 290 (l)
Additional paid-in
capital............ 475,130 (l)
Accumulated
deficit............ (101,878)(m)
---------
Total
stockholders'
equity........... 374,152
---------
Total liabilities
and
members'/stockholders'
equity........... $455,155 $ 331,685 $5,535 $440,343 $ -- $1,232,718 $ --
======== ========= ====== ======== ======== ========== =========
<CAPTION>
Total
-----------
<S> <C>
Assets
Cash and cash
equivalents........ $ 4,590
Subscriber accounts
receivable, net.... 5,540
Prepaid expenses
and other assets... 3,257
Inventory.......... 13,606
Property, plant and
equipment, net..... 584,458
Intangible assets,
net................ 603,622
Other assets, net.. 17,645
-----------
Total assets...... $1,232,718
===========
Liabilities and
Members'/Stockholders'
Equity
Debt............... $ 812,475
Accounts payable
and accrued
expenses........... 39,266
Subscriber advance
payments and
deposits........... 4,888
Deferred income tax
liability.......... 1,937
Other liabilities.. --
-----------
Total
liabilities...... 858,566
Members' equity
Capital
contributions...... --
Accumulated
deficit............ --
-----------
Total member's
equity
(deficit)........ --
Stockholders'
equity
Class A common
stock.............. 610
Class B common
stock............. 290
Additional paid-in
capital............ 475,130
Accumulated
deficit............ (101,878)
-----------
Total
stockholders'
equity........... 374,152
-----------
Total liabilities
and
members'/stockholders'
equity........... $1,232,718
===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheet.
29
<PAGE>
Notes to Unaudited Pro Forma Consolidated Balance Sheet
As of September 30, 1999
(dollars in thousands)
For purposes of determining the pro forma effect of the transactions
described above on the historical consolidated balance sheet of Mediacom LLC as
of September 30, 1999, the following adjustments have been made:
(a) Represents elimination of cash not included in the acquisition of
Triax, which was acquired on November 5, 1999, and Zylstra, which was
acquired on October 15, 1999, and adjustments to working capital due to
timing differences. These adjustments reflect changes in working
capital as of the acquisition date as compared to working capital as of
September 30, 1999 since those acquisitions were completed subsequent
to September 30, 1999. Working capital as of the acquisition date was
prepared jointly by the seller and us based on the most recent
financial information available.
<TABLE>
<CAPTION>
Working Working
Capital as of Capital as of
Acquisition September 30,
Date 1999 Adjustments
------------- ------------- -----------
<S> <C> <C> <C>
Assets acquired:
Cash and cash equivalents..... $ 890 $ -- $ 890
Subscriber accounts
receivable, net.............. 3,271 2,575 696
Prepaid expenses and other
assets....................... 310 72 238
Liabilities assumed:
Accounts payable and accrued
expenses..................... 4,102 13,726 (9,624)
Subscriber advance payments
and deposits................. 3,031 1,224 1,807
------- -------- -------
Net working capital............. $(2,662) $(12,303) $ 9,641
======= ======== =======
</TABLE>
(b) Represents an increase to property, plant and equipment and intangible
assets as a result of our acquisitions based on a preliminary
allocation of the purchase price assuming estimated fair values.
Preliminary subscriber and purchase price adjustments are estimates
made at the acquisition date to adjust the purchase price based on
various conditions of the contract. These conditions include the
number of subscribers as of the acquisition date and the amount of
capital investment made to property, plant and equipment by the seller
during 1999. These adjustments will be finalized approximately 120
days after the acquisition date and should not be materially different
from the estimates used here. The preliminary subscriber adjustment is
allocated to intangibles as it relates directly to subscriber lists.
The preliminary purchase price adjustment of $4,282 is allocated to
property, plant and equipment, primarily since it relates to the
amount of capital investment not made by the seller. The remaining
preliminary purchase price adjustment of $168 is allocated to
intangibles since it represents direct costs of the acquisition.
<TABLE>
<CAPTION>
Estimated
Fair Values
----------------------
Property,
Purchase Other Net Plant and
Price Assets Equipment Intangibles
-------- --------- --------- -----------
<S> <C> <C> <C> <C>
Original Triax purchase
price....................... $740,100 $ -- $ 296,040 $444,060
Original Zylstra purchase
price....................... 19,500 -- 7,800 11,700
Preliminary subscriber
adjustment.................. 9,026 -- -- 9,026
Preliminary purchase price
adjustment.................. (4,114) -- (4,282) 168
Property, plant and equipment
reclassified as inventory... -- 2,000 (2,000) --
Net working capital ......... (2,662) (2,662) -- --
-------- ------ --------- --------
Subtotal..................... 761,850 (662) 297,558 464,954
Closing costs................ 3,900 -- -- 3,900
-------- ------ --------- --------
Total acquisition costs...... $765,750 $ (662) 297,558 468,854
======== ======
Historical amounts........... (173,460) (153,663)
--------- --------
Increase..................... $ 124,098 $315,191
========= ========
</TABLE>
30
<PAGE>
(c) Represents adjustment to other assets in connection with:
. incurrence of $6,800 in closing costs in connection with our
subsidiary credit facilities;
. elimination of unamortized deferred financing costs of $2,120
related to our former credit facilities; and
. elimination of unamortized deferred loan costs and other costs of
Triax of $7,450.
(d) Represents the following adjustments to debt related to our
acquisitions of the Triax and Zylstra systems:
<TABLE>
<S> <C>
Proceeds from our subsidiary credit facilities................ $ 814,550
Repayment of our former subsidiary credit facilities.......... (52,500)
Elimination of Triax and Zylstra debt......................... (418,810)
---------
Increase to debt.............................................. $ 343,240
=========
</TABLE>
(e) Represents adjustments to capital contributions in connection with:
. the elimination of Triax and Zylstra contributed capital accounts of
$1,588; and
. additional capital contributions to Mediacom LLC by its members of
$10,500.
(f) Represents adjustments to accumulated deficit in connection with:
. the elimination of Triax and Zylstra accumulated deficit of $98,128;
and
. the write-off of unamortized deferred financing costs related to our
former credit facilities of $2,120.
(g) Represents the following adjustments to capital contributions in
connection with:
. a grant of additional membership interest by an existing member of
$25,100 associated with amendments to the management agreements with
Mediacom Management; and
. a grant of additional membership interests of $24,611 by an existing
member of Mediacom LLC to certain members of our management team,
offset by the deferred compensation in the amount of $11,774 for the
nonvested and forfeitable portion of the equity interests, based on
an initial public offering price of $17.50 per share, by an existing
member of Mediacom LLC to certain members of our management team as
further discussed in note 6 of Mediacom LLC's interim financials.
(h) Represents adjustments to accumulated deficit in connection with:
. a $628,000 expense associated with amendments to the management
agreements with Mediacom Management, for which additional membership
interests will be issued to an existing member of Mediacom LLC; and
. a one-time $12,837 non-recurring, non-cash compensation charge
associated with the vested portion of a grant of equity interest by
an existing member of Mediacom LLC to certain members of our
management team as further discussed in note 6 of Mediacom LLC's
interim financials.
(i) Represents the repayment of outstanding indebtedness under subsidiary
credit facilities with the net proceeds of this offering.
(j) Represents the recognition of a one-time $1,937 non-recurring, non-
cash charge to record a net deferred tax liability as of September 30,
1999 that will be recognized upon the exchange of membership interests
in Mediacom LLC for shares of our common stock.
31
<PAGE>
(k) Reflects the elimination of members' equity upon the exchange of
membership interests for shares of our common stock.
(l) Represents adjustments to stockholders' equity in connection with:
. the issuance of 40,977,562 shares of Class A common stock, based
upon an initial public offering price of $17.50 per share, and
29,022,438 shares of Class B common stock, based upon an initial
public offering price of $17.50 per share, upon the exchange of
membership interests in Mediacom LLC for shares of our common stock;
and
. the issuance and sale of 20,000,000 shares of Class A common stock
in this offering at an initial public offering price of $17.50 per
share.
(m) Reflects the following assumptions:
. reclassification of accumulated deficit to stockholders' equity from
members' equity; and
. recognition of a one-time $1,937 non-recurring, non-cash charge to
record a net deferred tax liability as of September 30, 1999 that
will be recognized upon the exchange of membership interests in
Mediacom LLC for shares of our common stock.
32
<PAGE>
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL AND OPERATING DATA
In the table below, we provide you with:
. selected historical financial data for the years ended December 31, 1994
and 1995 and for the period from January 1, 1996 through March 11, 1996,
and balance sheet data as of December 31, 1994 and 1995, and March 11,
1996, which are derived from the audited financial statements of
Benchmark Acquisition Fund II Limited Partnership, which is our
predecessor company;
. selected historical consolidated financial and operating data for the
period from the commencement of our operations on March 12, 1996 to
December 31, 1996 and for the years ended December 31, 1997 and 1998,
and balance sheet data as of December 31, 1996, 1997 and 1998, which are
derived from and should be read in conjunction with the audited
consolidated financial statements of Mediacom LLC included elsewhere in
this prospectus; and
. selected historical consolidated financial and operating data for the
nine months ended September 30, 1998 and 1999, and balance sheet data as
of September 30, 1998 and 1999, which are derived from and should be
read in conjunction with the unaudited consolidated financial statements
of Mediacom LLC included elsewhere in this prospectus.
We commenced operations on March 12, 1996 with the acquisition of a cable
system from Benchmark Acquisition Fund II Limited Partnership and have since
completed eight additional acquisitions as of September 30, 1999. The
historical results of operations of the systems acquired have been included
from their respective dates of acquisition to the end of the period presented.
In our opinion, the unaudited interim financial statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, which consist only of normal recurring adjustments, necessary to
present fairly the financial position and the results of operations for the
interim periods. Financial and operating results for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the full year.
We were formed as a limited liability company in July 1995 and commenced our
operations on March 12, 1996. Accordingly, since that time, our taxable income
or loss has been included in the federal and certain state income tax returns
of our members. Upon completion of this offering, we will become subject to the
provisions of Subchapter C of the Internal Revenue Code. As a C corporation, we
will be fully subject to the federal, state and local income taxes.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
33
<PAGE>
Selected Historical Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
Predecessor Mediacom LLC
----------------------------------- --------------------------------------------------------------
Nine Months Ended
September 30,
-----------------
Year Year January 1 March 12 Year Year
Ended Ended Through Through Ended Ended
December 31, December 31, March 11, December 31, December 31, December 31,
1994 1995 1996 1996 1997 1998 1998 1999
------------ ------------ --------- ------------ ------------ ------------ --------- -----------
(Unaudited)
(dollars in thousands, except per share and per subscriber data)
Statement of
Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............ $ 5,075 $ 5,171 $1,038 $ 5,411 $ 17,634 $ 129,297 $ 94,374 $ 113,230
Costs and expenses:
Service costs....... 1,322 1,536 297 1,511 5,547 43,849 32,873 36,571
Selling, general and
administrative
expenses............ 1,016 1,059 222 931 2,696 25,596 18,101 21,816
Management fee
expense(1).......... 252 261 52 270 882 5,797 4,340 5,150
Depreciation and
amortization........ 4,092 3,945 527 2,157 7,636 65,793 44,338 66,154
------- ------- ------ -------- -------- ----------- --------- -----------
Operating income
(loss).............. (1,607) (1,630) (60) 542 873 (11,738) (5,278) (16,461)
Interest expense,
net(2).............. 878 935 201 1,528 4,829 23,994 17,786 20,577
Other expenses...... -- -- -- 967 640 4,058 3,838 979
------- ------- ------ -------- -------- ----------- --------- -----------
Net loss............ $(2,485) $(2,565) $ (261) $ (1,953) $ (4,596) $ (39,790) $ (26,902) $ (38,017)
------- ------- ------ -------- -------- ----------- --------- -----------
Pro forma provision
(benefit) for income
taxes(3)............ -- --
----------- -----------
Pro forma net
loss(4)............. $ (39,790) $ (38,017)
=========== ===========
Pro forma basic and
diluted net loss per
share(5)............ $ (0.57) $ (0.54)
Pro forma weighted
average common
shares outstanding.. 70,000,000 70,000,000
Balance Sheet Data
(end of period):
Total assets........ $11,755 $ 8,149 $ 46,560 $102,791 $ 451,152 $ 447,666 $ 455,155
Total debt.......... 13,294 12,217 40,529 72,768 337,905 317,398 377,500
Total members'
equity.............. (2,003) (4,568) 4,537 24,441 78,651 91,539 40,634
Other Data:
System cash
flow(6)............. $ 2,737 $ 2,576 $ 519 $ 2,969 $ 9,391 $ 59,852 $ 43,400 $ 54,843
System cash flow
margin(7)........... 53.9% 49.8% 50.0% 54.9% 53.3% 46.3% 46.0% 48.4%
EBITDA(8)........... $ 2,485 $ 2,315 $ 467 $ 2,699 $ 8,509 $ 54,055 $ 39,060 49,693
EBITDA margin(9).... 49.0% 44.8% 45.0% 49.9% 48.3% 41.8% 41.4% 43.9%
Net cash flows from
operating
activities.......... $ 1,395 $ 1,478 $ 226 $ 237 $ 7,007 $ 53,556 $ 47,796 $ 29,795
Net cash flows used
in investing
activities.......... (552) (261) (86) (45,257) (60,008) (397,085) (372,452) (60,632)
Net cash flows (used
in) from financing
activities.......... (919) (1,077) -- 45,416 53,632 344,714 324,597 32,325
Operating Data (end
of period, except
average):
Homes passed(10).... 38,749 87,750 520,000 512,000 525,000
Basic
subscribers(11)..... 27,153 64,350 354,000 348,000 358,000
Basic
penetration(12)..... 70.1% 73.3% 68.1% 68.0% 68.2%
Premium service
units(13)........... 11,691 39,288 407,100 387,100 396,500
Premium
penetration(14)..... 43.1% 61.1% 115.0% 111.2% 110.8%
Average monthly
revenues per basic
subscriber(15)...... $32.14 $35.34
</TABLE>
(notes on following page)
34
<PAGE>
Notes to Selected Historical Consolidated Financial and Operating Data
(1) Represents fees paid to Mediacom Management for management services
rendered to our operating subsidiaries. Mediacom Management utilizes these
fees to compensate its employees as well as to fund its corporate
overhead. The management agreements with Mediacom Management were amended
effective November 19, 1999 in connection with an amendment to Mediacom
LLC's operating agreement. The amended agreements provide for management
fees equal to 2% of annual gross revenues. Each of the management
agreements will be terminated upon the completion of this offering. At
that time, Mediacom Management's employees will become our employees and
its corporate overhead will become our corporate overhead. These expenses
will be reflected as our corporate expense, which we estimate will amount
to approximately 2% of our annual gross revenues.
(2) Net of interest income. Interest income for the periods presented is not
material.
(3) Represents an income tax provision (benefit) assuming the exchange of
membership interests in Mediacom LLC for shares of our common stock. We
have operating losses for the periods presented and have not reflected any
tax benefit for such losses.
(4) Pro forma net loss does not include a $628,000 expense associated with the
amendments to our management agreements with Mediacom Management, for
which additional membership interests will be issued to an existing member
of Mediacom LLC and one-time $9.3 million and $12.8 million non-recurring,
non-cash compensation charges associated with a grant of equity interests
by an existing member of Mediacom LLC to certain members of our management
team for the year ended December 31, 1998 and the nine months ended
September 30, 1999, respectively. See note 6 of Mediacom LLC's interim
financials for further discussion.
(5) Pro forma basic and diluted loss per share is calculated based on
70,000,000 shares of common stock. The number of shares of common stock
reflects the 40,977,562 Class A shares and 29,022,438 Class B shares
issued to effect the exchange of membership interests of Mediacom LLC as
if these shares were outstanding for all periods presented and excludes
the shares that will be issued in this offering. The shares issued to
effect the exchange for the membership interests are based upon the
relative ownership percentages of membership interests in Mediacom LLC
immediately prior to the completion of this offering and are based on an
initial public offering price of $17.50 per share.
(6) Represents EBITDA, as defined in note 8 below, before management fee
expense. System cash flow:
. is not intended to be a performance measure that should be regarded as
an alternative either to operating income or net income as an indicator
of operating performance or to the statement of cash flows as a measure
of liquidity;
. is not intended to represent funds available for debt service,
dividends, reinvestment or other discretionary uses; and
. should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with generally accepted
accounting principles.
System cash flow is included in this prospectus because our management
believes that system cash flow is a meaningful measure of performance
commonly used in the cable television industry and by the investment
community to analyze and compare cable television companies. Our definition
of system cash flow may not be identical to similarly titled measures
reported by other companies.
(7) Represents system cash flow as a percentage of revenues. This measurement
is used by us, and is commonly used in the cable television industry, to
analyze and compare cable television companies on the basis of operating
performance, for the reasons discussed in note 6 above.
35
<PAGE>
(8) Represents operating income (loss) before depreciation and amortization.
EBITDA:
. is not intended to be a performance measure that should be regarded as
an alternative either to operating income or net income as an indicator
of operating performance or to the statement of cash flows as a measure
of liquidity;
. is not intended to represent funds available for debt service,
dividends, reinvestment or other discretionary uses; and
. should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with generally accepted
accounting principles.
EBITDA is included in this prospectus because our management believes that
EBITDA is a meaningful measure of performance commonly used in the cable
television industry and by the investment community to analyze and compare
cable television companies. Our definition of EBITDA may not be identical
to similarly titled measures reported by other companies.
(9) Represents EBITDA as a percentage of revenues. This measurement is used by
us, and is commonly used in the cable industry, to analyze and compare
cable companies on the basis of operating performance, for the reasons
discussed in note 8 above.
(10) Represents the number of single residence homes, apartments and
condominium units passed by the cable distribution network in a cable
system's service area.
(11) Represents subscribers of a cable television system who receive a package
of over-the-air broadcast stations, local access channels and/or certain
satellite-delivered cable television services, and who are usually charged
a flat monthly rate for a number of channels.
(12) Represents basic subscribers as a percentage of total number of homes
passed.
(13) Represents the number of subscriptions to premium services. A subscriber
may purchase more than one premium service, each of which is counted as a
separate premium service unit. For the nine months ended September 30,
1999, premium service units reflect the Disney Channel being moved from a
premium service to the basic programming packages in several of our cable
systems.
(14) Represents premium service units as a percentage of total number of basic
subscribers. This ratio may be greater than 100% if the average basic
subscriber subscribes to more than one premium service unit.
(15) Represents average monthly revenues for the period divided by average
monthly basic subscribers for such period. This measurement is commonly
used in the cable television industry to analyze and compare cable
companies on the basis of operating performance.
36
<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 acquisitions of the Zylstra and Triax systems in October and November 1999
together doubled the number of our basic subscribers. All acquisitions have
been accounted for under the purchase method of accounting and, therefore, our
historical results of operations include the results of operations for each
acquired system, other than the Zylstra and Triax systems, subsequent to its
respective acquisition date. As such, we do not believe the discussion and
analysis of our historical financial condition and results of operations set
forth below are indicative nor should they be relied upon as an indicator of
our future performance.
General
Our revenues are primarily attributable to monthly subscription fees charged
to basic subscribers for our basic and premium cable television programming
services.
. Basic revenues consist of monthly subscription fees for all services
other than premium programming and also include monthly charges for
customer equipment rental and installation fees.
. Premium revenues consist of monthly subscription fees for
programming provided on a per channel basis or as part of premium
service packages.
. Other revenues represent pay-per-view charges, late payment fees,
advertising revenues and commissions related to the sale of goods by
home shopping services. Pay-per-view is programming offered on a
per-program basis which a subscriber selects and pays a separate
fee.
The following table sets forth for the periods indicated the percentage of
our total revenues attributable to the sources indicated:
<TABLE>
<CAPTION>
Nine Months
Period From Year Ended Ended
March 12, 1996 December 31, September 30,
to December 31, -------------- --------------
1996 1997 1998 1998 1999
--------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Basic revenues............ 80.0% 81.0% 80.0% 80.0% 81.0%
Premium revenues.......... 8.0 9.0 15.0 15.0 13.0
Other revenues............ 12.0 10.0 5.0 5.0 6.0
----- ------ ------ ------ ------
Total revenues.......... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ====== ====== ====== ======
</TABLE>
For the nine months ended September 30, 1999, for each of the past two years
and for the period ended December 31, 1996, we generated significant increases
in revenues as a result of our acquisition activities, increases in monthly
revenues per basic subscriber and internal subscriber growth.
Our operating expenses consist of service costs and selling, general and
administrative expenses directly attributable to our cable systems. Service
costs include fees paid to programming suppliers, expenses related to copyright
fees, wages and salaries of technical personnel and plant operating costs.
Programming fees have historically increased at rates in excess of inflation
due to increases in the number of programming services we have offered and
improvements in the quality of programming. We believe that under the Federal
Communication Commission's existing cable rate regulations, we will be able to
increase our rates for cable television services to more than cover any
increases in the costs of programming. However, competitive factors may limit
our ability to increase our rates. We benefit from our membership in a
cooperative of cable television companies which serve over twelve million basic
subscribers, which provides its members with significant
37
<PAGE>
volume discounts from programming suppliers and cable equipment vendors.
Selling, general and administrative expenses directly attributable to our cable
television systems include wages and salaries for customer service and
administrative personnel, franchise fees and expenses related to billing,
marketing, bad debt, advertising sales and office administration.
Mediacom Management provides management services to the operating
subsidiaries of Mediacom LLC and receives annual management fees. Until
November 19, 1999, management fees ranged from 4.0% to 5.0% of our annual gross
revenues. The management agreements with Mediacom Management were amended
effective November 19, 1999 in connection with an amendment to Mediacom LLC's
operating agreement to provide for annual management fees equal to 2.0% of
annual gross revenues. Also, Mediacom Management received an acquisition fee
ranging from 0.5% to 1.0% of the purchase price of acquisitions made by
Mediacom LLC and such fees are included in other expenses. Mediacom Management
utilizes these fees to compensate its employees as well as to fund its
corporate overhead. Mediacom Management has agreed to waive all management fees
accrued from July 1, 1999 through November 19, 1999, and to waive the
acquisition fees related to the acquisitions of the Triax and Zylstra systems.
Each of the management agreements will be terminated upon the completion of
this offering. At that time, Mediacom Management's employees will become our
employees and its corporate overhead will become our corporate overhead. These
expenses will be reflected as our corporate expense, which we estimate will
amount to approximately 2% of our annual gross revenues. Also, in accordance
with the amendment to Mediacom LLC's operating agreement, no further
acquisition fees will be payable.
On November 19, 1999, we recorded a one-time $12.5 million non-recurring,
non-cash charge associated with the amendments to our management agreements
with Mediacom Management, for which additional membership interests will be
issued to an existing member of Mediacom LLC, and a one-time $13.5 million non-
recurring, non-cash compensation charge associated with a grant of vested and
nonforfeitable equity interests, based on an initial public offering price of
$17.50 per share, by an existing member of Mediacom LLC to certain members of
our management team. In addition, we recorded deferred compensation of $11.1
million on November 19, 1999 relating to nonvested and forfeitable membership
interests granted by the existing member of Mediacom LLC to these members of
our management team, which will be recorded as a non-cash compensation charge
over a period of five to eight years.
The high level of depreciation and amortization associated with our
acquisition activities as well as the interest expense related to our financing
activities have caused us to report net losses in our limited operating
history. We believe that such net losses are common for cable television
companies and anticipate that we will continue to incur net losses for the
foreseeable future.
EBITDA represents operating income (loss) before depreciation and
amortization. EBITDA:
. is not intended to be a performance measure that should be regarded as
an alternative either to operating income or net income as an indicator
of operating performance or to the statement of cash flows as a measure
of liquidity;
. is not intended to represent funds available for debt service,
dividends, reinvestment or other discretionary uses; and
. should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
EBITDA is included in this prospectus because our management believes that
EBITDA is a meaningful measure commonly used in the cable television industry
and by the investment community to analyze and
38
<PAGE>
compare cable television companies. Our definition of EBITDA may not be
identical to similarly titled measures reported by other companies.
Results of Operations
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
The following historical information for the nine months ended September 30,
1999 and 1998 includes the results of operations of the Clearlake system, which
was acquired on January 9, 1998, the Cablevision systems, which were acquired
on January 23, 1998, and the Caruthersville system, which was acquired on
October 1, 1998, only for that portion of the respective period that such cable
television systems were owned by us.
Revenues. Revenues increased 20.0% to approximately $113.2 million for the
nine months ended September 30, 1999, as compared to approximately $94.4
million for the nine months ended September 30, 1998, primarily as a result of:
. an increase in the average monthly basic service rate of $3.01 per basic
subscriber;
. the inclusion of the results of operations of the cable television
systems acquired by us during the nine months ended September 30, 1998
for the full nine-month period in 1999; and
. internal basic subscriber growth of 1.8%, excluding the acquisition of
the Caruthersville system.
Service costs. Service costs increased 11.2% to approximately $36.6 million
for the nine months ended September 30, 1999, as compared to approximately
$32.9 million for the nine months ended September 30, 1998. Our ownership of
the Clearlake, Cablevision and Caruthersville systems for the full nine-month
period in 1999 accounted for 74.1% of this increase. The remaining 25.9% of
this increase is due principally to higher programming costs. As a percentage
of revenues, service costs were 32.3% for the nine months ended September 30,
1999, as compared to 34.8% for the nine months ended September 30, 1998 due to
revenues increasing at a faster rate than service costs for the 1999 period.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 20.5% to approximately $21.8 million for the
nine months ended September 30, 1999, as compared to approximately $18.1
million for the nine months ended September 30, 1998. Our ownership of the
Clearlake, Cablevision and Caruthersville systems for the full nine-month
period in 1999 accounted for 38.2% of this increase in selling, general and
administrative expenses. The remaining 61.8% of this increase is primarily due
to increased marketing costs associated with the promotion of new programming
services and increased personnel expenses. As a percentage of revenues,
selling, general and administrative expenses were 19.3% for the nine months
ended September 30, 1999, as compared to 19.2% for the nine months ended
September 30, 1998.
Management fee expense. Management fee expense increased 18.7% to
approximately $5.2 million for the nine months ended September 30, 1999, as
compared to approximately $4.3 million for the nine months ended September 30,
1998, due to the higher revenues generated in the 1999 period.
Depreciation and amortization. Depreciation and amortization increased 49.2%
to approximately $66.2 million for the nine months ended September 30, 1999, as
compared to approximately $44.3 million for the nine months ended September 30,
1998. This increase was substantially due to our purchase of the Clearlake,
Cablevision and Caruthersville systems in 1998 and additional capital
expenditures associated with the upgrade of our systems.
Operating income (loss). Due to the factors described above, we generated an
operating loss of approximately $16.5 million for the nine months ended
September 30, 1999, as compared to an operating loss of approximately $5.3
million for the nine months ended September 30, 1998.
Interest expense, net. Interest expense, net, increased 15.7% to
approximately $20.6 million for the nine months ended September 30, 1999, as
compared to approximately $17.8 million for the nine months ended
39
<PAGE>
September 30, 1998. This increase was substantially due to higher average debt
outstanding during the 1999 period as a result of the debt incurred in
connection with the purchase of the Clearlake, Cablevision and Caruthersville
systems.
Other expenses. Other expenses decreased 74.5% to approximately $979,000 for
the nine months ended September 30, 1999, as compared to approximately $3.8
million for the nine months ended September 30, 1998. This decrease was
principally due to acquisition fees paid to Mediacom Management in the 1998
period in connection with the acquisition of the Clearlake and Cablevision
systems.
Net loss. Due to the factors described above, we generated a net loss of
approximately $38.0 million for the nine months ended September 30, 1999, as
compared to a net loss of approximately $26.9 million for the nine months ended
September 30, 1998.
EBITDA. EBITDA increased 27.2% to approximately $49.7 million for the nine
months ended September 30, 1999, as compared to approximately $39.1 million for
the nine months ended September 30, 1998. This increase was substantially due
to the reasons noted above. As a percentage of revenues, EBITDA increased to
43.9% for the nine months ended September 30, 1999, as compared to 41.4% for
the nine months ended September 30, 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
The following historical information for the years ended December 31, 1998
and 1997 includes the results of operations of the Lower Delaware system, which
was acquired on June 24, 1997, the Sun City system, which was acquired on
September 19, 1997, the Clearlake system, which was acquired on January 9,
1998, the Cablevision systems, which were acquired on January 23, 1998, and the
Caruthersville system, which was acquired on October 1, 1998, only for that
portion of the respective period that such cable television systems were owned
by us.
The Cablevision, Caruthersville, Clearlake, Lower Delaware and Sun City
systems comprise a substantial portion of our basic subscribers. At December
31, 1998, these systems served 328,350 basic subscribers, representing 92.8% of
the 354,000 subscribers served by us as of such date. Accordingly, the
Cablevision, Caruthersville, Clearlake, Lower Delaware and Sun City systems
have had a significant impact on the results of operations for the year ended
December 31, 1998, compared to the prior year. Consequently, we believe that
any comparison of our results of operations between the years ended December
31, 1998 and 1997 are not indicative of our results of operations in the
future.
Revenues. Revenues increased to approximately $129.3 million for the year
ended December 31, 1998, as compared to approximately $17.6 million for the
prior year principally due to:
. the inclusion of the results of operations of the Lower Delaware and Sun
City systems for the full year ended December 31, 1998;
. the inclusion of the results of operations of the Clearlake, Cablevision
and Caruthersville systems from their respective acquisition dates;
. an increase in the average monthly basic service rate of $3.34 per basic
subscriber; and
. internal basic subscriber growth of 2.5%.
Service costs. Service costs increased to approximately $43.8 million for
the year ended December 31, 1998, as compared to approximately $5.5 million for
the prior year. Substantially all of this increase was due to the inclusion of
the results of operations of the Cablevision, Caruthersville, Clearlake, Lower
Delaware and Sun City systems. As a percentage of revenues, service costs were
33.9% in 1998, as compared to 31.5% in 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to approximately $25.6 million for the year
ended December 31, 1998, as compared to approximately $2.7 million for the
prior year. Substantially all of this increase was due to the inclusion of the
results of operations of the
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Cablevision, Caruthersville, Clearlake, Lower Delaware and Sun City systems. As
a percentage of revenues, selling, general and administrative expenses were
19.8% in 1998, as compared to 15.3% in 1997.
Management fee expense. Management fee expense increased to approximately
$5.8 million for the year ended December 31, 1998, as compared to approximately
$882,000 for the prior year due to the higher revenues generated in 1998.
Depreciation and amortization. Depreciation and amortization increased to
approximately $65.8 million for the year ended December 31, 1998, as compared
to approximately $7.6 million for the prior year. This increase was
substantially due to our acquisitions described above and additional capital
expenditures associated with the upgrade of our systems.
Operating income (loss). Due to the factors described above, we generated an
operating loss of approximately $11.7 million for the year ended December 31,
1998, as compared to operating income of approximately $873,000 for the prior
year.
Interest expense, net. Interest expense, net, increased to approximately
$24.0 million for the year ended December 31, 1998, as compared to
approximately $4.8 million for the prior year. This increase was substantially
due to the additional debt incurred in connection with the acquisitions
described above.
Other expenses. Other expenses increased to approximately $4.1 million for
the year ended December 31, 1998, as compared to approximately $640,000 for the
prior year. This increase was substantially due to acquisition fees paid to
Mediacom Management in connection with the acquisitions described above.
Net loss. Due to the factors described above, we generated a net loss of
approximately $39.8 million for the year ended December 31, 1998, as compared
to a net loss of approximately $4.6 million for the prior year.
EBITDA. EBITDA increased to approximately $54.1 million for the year ended
December 31, 1998, as compared to approximately $8.5 million for the prior
year. This increase was substantially due to the inclusion of the results of
operations from the date of their acquisition by us of the Cablevision,
Caruthersville, Clearlake, Lower Delaware and Sun City systems. As a percentage
of revenues, EBITDA decreased to 41.8% for the year ended December 31, 1998, as
compared to 48.3% for the prior year. This decrease was principally due to the
higher programming costs and selling, general and administrative expenses of
the Cablevision, Caruthersville, Clearlake, Lower Delaware and Sun City systems
in relation to the revenues generated by such cable television systems.
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, which was acquired on March 12, 1996, the date of
commencement of our operations, the Kern Valley system, which was acquired on
June 28, 1996, the Valley Center and Nogales systems, which were acquired on
December 27, 1996, the Lower Delaware system, which was acquired on June 24,
1997, and the Sun City system, which was acquired on September 19, 1997, only
for that portion of the respective period that such systems were owned by us.
Revenues. Revenues increased to approximately $17.6 million for the year
ended December 31, 1997, as compared to approximately $5.4 million for the
period ended December 31, 1996, principally due to the inclusion of:
. the full year of results of operations of the Ridgecrest, Kern Valley,
Nogales and Valley Center systems;
. the results of operations of the Lower Delaware system from the date of
its acquisition on June 24, 1997; and
. the results of operations of the Sun City system from the date of its
acquisition on September 19, 1997.
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Service costs. Service costs increased to approximately $5.5 million for the
year ended December 31, 1997, as compared to approximately $1.5 million for the
period ended December 31, 1996. Substantially all of this increase was due to
the inclusion of the results of operations of Lower Delaware and Sun City
systems and the full year of results of the Ridgecrest, Kern Valley, Nogales
and Valley Center systems. As a percentage of revenues, service costs were
31.5% in 1997, as compared to 27.9% in 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to approximately $2.7 million for the year
ended December 31, 1997, as compared to approximately $931,000 for the period
ended December 31, 1996. Substantially all of this increase was due to the
inclusion of the results of operations of the aforementioned acquisitions in
1997 and the full year of results of operations of the Ridgecrest, Kern Valley,
Nogales and Valley Center systems. As a percentage of revenues, selling,
general and administrative expenses were 15.3% in 1997, as compared to 17.2% in
1996.
Management fee expense. Management fee expense increased to approximately
$882,000 for the year ended December 31, 1997, as compared to approximately
$270,000 for the period ended December 31, 1996, due to the higher revenues
generated in 1997.
Depreciation and amortization. Depreciation and amortization increased to
approximately $7.6 million for the year ended December 31, 1997, as compared to
approximately $2.2 million for the period ended December 31, 1996. This
increase was substantially due to our acquisitions described above and
additional capital expenditures associated with the upgrade of our systems.
Operating income. Due to the factors described above, we had operating
income of approximately $873,000 for the year ended December 31, 1997, as
compared to operating income of approximately $542,000 for the period ended
December 31, 1996.
Interest expense, net. Interest expense, net, increased to approximately
$4.8 million for the year ended December 31, 1997, as compared to approximately
$1.5 million for the period ended December 31, 1996. This increase was
principally due to the increased levels of debt incurred in connection with the
Lower Delaware and Sun City systems.
Other expenses. Other expenses decreased to approximately $640,000 for the
year ended December 31, 1997, as compared to approximately $967,000 for the
period ended December 31, 1996. This decrease was principally due to pre-
acquisition expenses recorded in 1996.
Net loss. Due to the factors described above, we generated a net loss of
approximately $4.6 million for the year ended December 31, 1997, as compared to
a net loss of approximately $2.0 million for the period ended December 31,
1996.
EBITDA. EBITDA increased to approximately $8.5 million for the year ended
December 31, 1997, as compared to approximately $2.7 million for the prior
year. This increase was substantially due to the inclusion of the results of
operations from the date of their acquisition by us of the Lower Delaware and
Sun City systems and the results of operations of the Ridgecrest, Kern Valley,
Nogales and Valley Center systems for the full year. As a percentage of
revenues, EBITDA decreased to 48.3% for the year ended December 31, 1997, as
compared to 49.9% for the period ended December 31, 1996. This decrease was
principally due to the higher programming costs of the cable television systems
acquired during 1997 in relation to the revenues generated by such cable
television systems.
Liquidity and Capital Resources
Our business requires substantial capital for the upgrade, expansion and
maintenance of our cable network. In addition, we have pursued, and will
continue to pursue, a business strategy that includes selective acquisitions.
We have funded our working capital requirements, capital expenditures and
acquisitions through a combination of internally generated funds, long-term
borrowings and equity contributions. We intend to continue to finance such
expenditures through internally generated funds, long-term borrowings and
equity financings.
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During the third quarter of 1998, we modified our previously disclosed five-
year system upgrade program by accelerating its planned completion date to June
30, 2000. Upon completion, we anticipate that 85% of our customers, excluding
the Triax and Zylstra customers, will be served by systems with 550MHz to
750MHz bandwidth capacity. Bandwidth measures the information-carrying capacity
of a communication channel and indicates the range of usable frequencies that
can be carried by a cable television system.
As a result of our accelerated capital improvement program, total capital
expenditures were $53.7 million for the year ended December 31, 1998 and $60.2
million for the nine months ended September 30, 1999. For the year ended
December 31, 1998, and for the nine months ended September 30, 1999, net cash
flows from operations were $53.6 million and $29.8 million, respectively, which
together with borrowings under our subsidiary credit facilities, funded such
capital expenditures. We anticipate that total capital expenditures will have
been approximately $85.0 million during 1999, as compared to our original plans
to spend approximately $66.0 million during this fiscal year. This increase is
principally due to expenditures relating to our launch of digital cable and
two-way, high-speed Internet services in several of our systems and to the
Triax and Zylstra systems. We intend to use net cash flows from operations and
borrowings under our subsidiary credit facilities to fund these capital
expenditures.
As a result of our recent acquisitions of the Triax and Zylstra systems, we
have updated our capital improvement program and now expect to spend
approximately $400 million over the three-year period ending December 2002, of
which approximately $240 million will be invested to upgrade our cable network
and approximately $160 million will be used for plant expansion, digital
headends and set-top boxes, cable modems and maintenance. The Triax and Zylstra
systems represent 58.0% of total capital spending in this period, including
approximately $150 million of planned investments to upgrade the cable network
of these systems. We expect to fund these expenditures through net cash flows
from operations and additional borrowings under our subsidiary credit
facilities. By December 2002, including the Triax and Zylstra systems, we
anticipate:
. 91% of our basic subscribers will be served by systems with 550MHz
to 750MHz bandwidth capacity and two-way communications capability,
which provides for upstream and downstream communications; and
. 360 signal processing and distribution facilities, or headend
facilities, will be eliminated, resulting in 90 headend facilities
serving all of our basic subscribers and 40 headend facilities
serving 92% of our basic subscribers.
From commencement of our operations in March 1996 through December 1998, we
acquired nine cable systems for an aggregate purchase price of $432.4 million,
before closing costs and adjustments. In October and November 1999, we spent
$759.6 million, before closing costs and adjustments, to acquire the Triax and
Zylstra systems.
To finance our acquisitions, working capital requirements and capital
expenditures and to provide liquidity for future capital needs, we had
completed the following financing arrangements as of January 2000:
. $200.0 million offering of our 8 1/2% senior notes due April 2008;
. $125.0 million offering of our 7 7/8% senior notes due February
2011;
. $550.0 million subsidiary credit facility expiring in September
2008;
. $550.0 million subsidiary credit facility expiring in December 2008;
and
. $135.4 million of equity capital contributed by the members of
Mediacom LLC.
The final maturities of our subsidiary credit facilities are subject to earlier
repayment on dates ranging from June 2007 to December 2007 if we do not
refinance our 8 1/2% senior notes prior to March 31, 2007.
As of January 10, 2000, we had entered into interest rate swap agreements,
which expire from 2000 through 2002, to hedge $50.0 million of floating rate
debt under our subsidiary credit facilities. As of such date, the weighted
average interest rate on all indebtedness outstanding under our subsidiary
credit facilities was 8.0%, before giving effect to these interest rate swap
agreements. As of January 10, 2000, we had approximately $283.6 million of
unused credit commitments.
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The proceeds from this offering will reduce the indebtedness under our
subsidiary credit facilities. This reduction of indebtedness will increase our
existing borrowing capacity under our subsidiary credit facilities, which will
fund the upgrade of our systems and future acquisitions, including our pending
acquisitions. In addition, borrowings under our subsidiary credit facilities
may be used for general corporate purposes, including working capital
requirements.
We are regularly presented with opportunities to acquire cable systems that
are evaluated on the basis of our acquisition strategy. In the second half of
1999, we signed three letters of intent to acquire cable systems serving
approximately 16,200 basic subscribers for an aggregate purchase price of $30.8
million. We expect to complete the acquisitions of these systems in the second
quarter of 2000, subject to the negotiation of definitive documentation and the
receipt of all necessary regulatory approvals. On December 28, 1999, we entered
into an agreement to acquire the cable television systems owned by Rapid
Communications Partners, L.P. for a purchase price of $8.0 million. These
systems serve approximately 6,300 basic subscribers. On January 18, 2000, we
entered into an agreement to acquire the cable television systems owned by
MidAmerican Cable Systems, L.P. for a purchase price of $8.9 million. These
systems serve approximately 5,500 basic subscribers. We expect to complete
these acquisitions in the second quarter of 2000, subject to the receipt of all
necessary regulatory approvals. All of these cable systems are in close
proximity to our systems, thereby complementing our operating clusters.
Although we have not generated earnings sufficient to cover fixed charges,
we have generated cash and obtained financing sufficient to meet our debt
service, working capital, capital expenditure and acquisition requirements. We
expect that we will continue to be able to generate funds and obtain financing
sufficient to service our obligations and complete our pending acquisitions.
There can be no assurance that we will be able to obtain sufficient financing,
or, if we were able to do so, that the terms would be favorable to us.
Recent Pronouncements
In 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued. SFAS 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. We will adopt SFAS 133 in 2001, but have not
quantified the impact or not yet determined the timing or method of the
adoption.
Inflation and Changing Prices
Our systems' costs and expenses are subject to inflation and price
fluctuations. Since changes in costs can be passed through to subscribers, such
changes are not expected to have a material effect on our results of
operations.
Year 2000 Compliance
We have not experienced any problems with our computer systems or software
products failing or malfunctioning because they were unable to distinguish 21st
century dates from 20th century dates, which are generally known as Year 2000
problems. We are also not aware of any material Year 2000 problems with our
suppliers or vendors. While we have not had any problems to the date of this
prospectus, our one remaining worst-case business interruption would be a
failure by our billing systems service provider which could result in a loss of
customer records and disrupt our ability to bill customers for a protracted
period of time.
During 1999 we performed Year 2000 testing on our existing hardware and
software components and replaced all non-compliant components with new products
which were Year 2000 compliant. As of January 10, 2000, we have not incurred
material Year 2000 costs. Although no assurances can be given, we currently
expect that the total projected costs associated with our Year 2000 program
will be less than $350,000.
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INDUSTRY
Unless otherwise specified, all cable television industry statistical data
in this prospectus are from Paul Kagan Associates, Inc., a leading cable
television industry publisher. The statistical data for the cable television
industry discussed in this prospectus, including growth rates, may not reflect
our future results.
The U.S. cable television industry is projected to pass 96.6 million homes
and serve 67.3 million basic subscribers, representing a penetration of 69.7%,
as of December 31, 1999. Over the past six years, the industry has experienced
a compound annual growth rate of 2.7% in basic subscribers and 8.3% in total
revenues. It is estimated that the annual revenues of the U.S. cable television
industry will be $36.9 billion in 1999 and will grow to $66.4 billion in 2004.
The following table details the projected revenues and growth rates of core
cable services, digital video, high-speed data and telephony from 1999 to 2004:
<TABLE>
<CAPTION>
Compound
Annual
Growth
1999 2004 Rate
---------- ---------- --------
(dollars in millions)
<S> <C> <C> <C>
Core cable services(1)..................... $34,384 $45,892 5.9%
Digital video(2)........................... 1,275 8,091 44.7
High-speed data............................ 503 3,805 49.9
Telephony(3)............................... 727 8,602 63.9
---------- ----------
Total revenues ........................ $36,889 $66,390 12.5%
========== ==========
</TABLE>
------------
(1) Includes basic cable, premium services, advanced analog,
local advertising, home shopping, equipment rental and
installation.
(2) Includes digital video, pay-per-view, near video-on-
demand, video-on-demand and other interactive services.
Near video-on-demand is a pay-per-view service that
allows customers to select and order a movie of their
choice from a selection of movies being broadcast on
several dedicated channels. Each movie is broadcast on
multiple channels to offer the customer several start
times for the same movie. Video-on-demand is a pay-per-
view service that allows customers to select and order a
movie of their choice on demand from a large library of
movies.
(3) Includes business and residential.
The compound annual growth rate in revenues from core cable services is
projected to slow to 5.9% as a result of increased competition in the
multichannel video marketplace and lower subscriber growth rates. We believe,
however, that the cable industry's higher projected total revenues growth
during the next five years will be fueled by a dramatic increase in consumer
awareness of and demand for new broadband services.
. Digital Video. On an industry-wide basis, 5.1 million customers are
projected to subscribe to a digital cable service as of December 31,
1999. By the end of 2000, the number of digital service customers is
projected to increase to 10.6 million, representing a penetration of
15.6% of basic subscribers, and to 33.6 million by 2004, representing a
penetration of 47.3% of basic subscribers.
. Two-Way, High-Speed Data. We believe that cable companies currently
deliver Internet services to over 200 markets throughout the United
States, and over 1.6 million households are projected to receive
Internet access from their cable providers as of December 31, 1999. The
number of homes passed by cable systems offering high-speed, residential
cable Internet services is projected to increase from 29.0 million homes
in 1999 to 39.0 million homes by 2000 and to 62.9 million homes by 2004.
The number of high-speed Internet service customers is expected to be
3.3 million by the end of 2000, representing a penetration of 8.5% of
homes passed, and is further expected to increase to 12.7 million homes
by the end of 2004, representing a penetration of 20.2% of homes passed.
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. Telephony. The number of cable telephony customers is expected to be
600,000 by the end of 2000, representing a penetration of 9.0% of the
marketed homes, and 9.8 million customers by 2004, representing a
penetration of 25.0%.
We believe that the increase in consumer demand for and availability of new
broadband services will be driven largely by the following developments:
Internet
A significant development for the cable television industry has been the
emergence of the Internet as a mass medium for commerce and communications.
International Data Corporation estimates that there were approximately 142
million worldwide users of the Internet at the end of 1998 and that the number
of users will grow to 502 million by the end of 2003. The growth in the number
of users, together with the wealth of content available on the Internet, have
led to sharp increases in the daily traffic volume on the Internet. The ability
of Internet service providers to attract and retain customers is largely based
on their capacity to deliver content quickly and reliably. The combination of
richer content and rapidly increasing volume of usage on the Internet can
lengthen the time required for a user to download information over traditional
telephone networks. This has caused Internet users to seek alternative
providers, such as cable television operators, that have the technical
infrastructure to deliver higher speeds.
Telecommunications Act of 1996
The Telecommunications Act of 1996, the first comprehensive revision of the
federal telecommunications laws since 1934, has led to a sharp acceleration of
the industry's evolution. Among other things, this new law intended to promote
competition in the local telephone markets for the first time. Today, several
of the nation's largest cable operators offer local phone service. We believe
recent developments, including AT&T's purchase of Tele-Communications, Inc.,
AT&T's proposed purchase of MediaOne, Inc. and AT&T's proposed joint ventures
with six other cable operators, will likely accelerate the pace of development
of the voice telephony business for the cable industry.
Competition
Cable television operators face increasing competition from satellite,
wireless and wireline competitors in the delivery of multichannel video
programming. From 1993 to 1999, these alternative providers increased their
market share from 3.1% to nearly 16.0% of total television households. During
this same period, however, cable television's penetration of homes passed
increased from 63.1% to 69.7% due to the cable industry's introduction of an
array of core cable products and services, greater technical reliability of its
network and the enhanced quality of its customer service which has resulted in
improved customer satisfaction. In response to increasing competition and to
meet the growing needs of their customers, cable operators are rapidly
upgrading their broadband networks with new technologies to provide their
customers with new and enhanced products and services.
Technology
Most cable operators' upgrade programs feature the use of high capacity,
hybrid fiber optic coaxial architecture in their network design. The hybrid
fiber optic coaxial architecture combines the use of fiber optic cable, which
can carry hundreds of video, data and voice channels over extended distances,
with coaxial cable, which is the most efficient delivery medium for the
connection to the home. As a result, fiber optics and advanced transmission
technology has made it cost-effective for cable operators to consolidate
headends to create large regional networks. This modern network architecture
can provide cable customers with a wide array of enhanced video, voice and
high-speed data communications possibilities. The cable television industry as
a whole invested in excess of $7.7 billion in 1998 to maintain and upgrade
cable networks, creating an enhanced platform for the delivery of digital
television, two-way, high-speed Internet access, interactive services and
telephony.
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BUSINESS
Introduction
We are the ninth largest cable operator in the United States, based on
customers served by wholly-owned systems after giving effect to our pending
acquisitions and recently announced industry transactions. Our cable systems
pass approximately 1.1 million homes and serve approximately 744,000 basic
subscribers, including our pending acquisitions. We were founded in July 1995
by Rocco B. Commisso, our Chairman and Chief Executive Officer, to acquire and
develop cable television systems serving principally non-metropolitan markets
of the United States.
Since commencement of our operations in March 1996, we have experienced
significant growth by deploying a disciplined strategy of acquiring
underperforming cable systems primarily in markets with favorable demographic
profiles. Through September 1999, we spent approximately $432.4 million to
complete nine acquisitions of cable systems that served 358,000 basic
subscribers. In October and November 1999, we acquired for approximately $759.6
million the cable systems of Triax and Zylstra that served 358,000 basic
subscribers as of September 30, 1999. On a pro forma basis, in 1998 our
revenues were $272.3 million, EBITDA was $122.7 million, operating loss was
$52.3 million and net loss was $116.2 million. On the same basis, for the nine
months ended September 30, 1999, our revenues were $218.6 million, EBITDA was
$101.9 million, operating loss was $43.9 million and net loss was $89.8
million.
We also have generated strong internal growth and improved the operating and
financial performance of our systems. These results have been achieved
primarily through the introduction of an expanded array of core cable
television products and services made possible by the rapid upgrade of our
cable network. Assuming all our systems, excluding the Triax and Zylstra
systems, were acquired on January 1, 1997, in 1998 our revenues grew by 13.0%,
EBITDA increased by 31.9%, the EBITDA margin improved from 35.1% to 41.0% and
our internal subscriber growth was 2.5%. Based on the same assumptions, for the
nine months ended September 30, 1999, our revenues grew by 11.8%, EBITDA
increased by 21.6%, the EBITDA margin improved from 40.4% to 43.9% and our
internal subscriber growth was 1.8%. During these periods, we also experienced
significant increases in operating losses and net losses.
Business Strategy
Our objective is to become the leading cable operator focused on providing
entertainment, information and telecommunications services in non-metropolitan
markets of the United States. The key elements of our strategy are to:
Improve the Operating and Financial Performance of Our Acquired Cable Systems
We seek to rapidly integrate our acquired cable systems and improve their
operating and financial performance. Prior to completion of an acquisition, we
formulate plans for customer care and billing improvements, network upgrades,
headend consolidation, new product and service launches, competitive
positioning and human resource requirements. After completing an acquisition,
we implement managerial, operating, purchasing, personnel and engineering
changes designed to effect these plans.
Develop Efficient Operating Clusters
Our systems are managed through six operating clusters, including the Triax
and Zylstra systems, by local management teams that oversee system activities
and operate autonomously within financial and operating guidelines established
by our corporate office. To enhance these clusters, our acquisition strategy
focuses, in part, on acquiring or trading for systems in close proximity to our
own systems. By further concentrating the geographic clustering of our cable
systems, we expect additional operating efficiencies through the consolidation
of many managerial, customer service, marketing, administrative and technical
functions.
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The clustering of systems also enables us to consolidate headend facilities,
resulting in lower fixed capital costs on a per home basis as we introduce new
and enhanced products and services because of the larger number of customers
served by a single headend facility. As a result of our clustering and upgrade
program, we expect to reduce the number of our headend facilities from 450 as
of September 30, 1999 to 90 by December 2002, so that 92% of our customers will
be served by 40 headend facilities.
Rapidly Upgrade Our Cable Network
We are rapidly upgrading our cable network to provide new broadband products
and services, improve our competitive position and increase overall customer
satisfaction. By December 2002, we anticipate that 91% of our basic subscribers
will be served by cable systems with 550MHz to 750MHz bandwidth capacity and
two-way communications capability. As part of our upgrade program, we plan to
deploy over 10,000 route miles of fiber optic cable to create large regional
fiber optic networks with the potential to provide advanced telecommunications
services. Our upgrade plans will allow us to:
. offer digital cable television, two-way, high-speed Internet access and
interactive video;
. increase channel capacity to a minimum of 82 channels, and significantly
more with digital video technology;
. activate the two-way communications capability of our systems, which
will give our customers the ability to send and receive signals over our
cable network;
. eliminate 360 headend facilities, lowering our fixed capital costs on a
per home basis as we introduce new products and services; and
. utilize our regional fiber optic networks to offer advanced
telecommunications services.
Channel capacity refers to the number of traditional video programming channels
that can be carried over a communications system.
Introduce New and Enhanced Products and Services
We have acquired cable systems that prior to our ownership generally
underserved their customers. We believe that significant opportunities exist to
increase our revenues by expanding the array of products and services we offer.
We have used and will continue to use the expanded channel capacity of our
upgraded systems to introduce several new basic programming services,
additional premium services and numerous pay-per-view channels.
Utilizing digital video technology, we are offering multiple packages of
premium services, several pay-per-view channels on a near video-on-demand
basis, digital music services and interactive program guides. As of December
1999, we offered digital cable services in systems passing 243,000 homes. As a
result of our strategic relationship with SoftNet's ISP Channel, we expect to
accelerate the deployment of two-way, high-speed Internet access throughout our
systems. As of December 1999, we had deployed ISP Channel's two-way, high-speed
Internet access service in systems passing over 177,000 homes. In addition, we
are currently exploring opportunities in interactive video programming and
telecommunications services. ISP Channel is a service mark of SoftNet Systems,
Inc.
Maximize Customer Satisfaction to Build Customer Loyalty
As a result of our strong regional and local management presence, we are
more responsive to customer needs and preferences and better positioned to
strengthen relations with the local government authorities and the communities
we serve. We seek a high level of customer satisfaction by providing superior
customer
48
<PAGE>
service and attractively priced product and service offerings. We believe our
investments in the cable network are increasing customer satisfaction as a
result of a wide array of new product and service introductions, greater
technical reliability and improved quality of service. We have implemented
stringent internal customer service standards, which we believe meet or exceed
those established by the National Cable Television Association. We have
regional calling centers servicing 87% of our customers that are staffed with
dedicated personnel who provide service 24 hours a day, seven days a week. We
believe that our focus on customer service has enhanced our reputation in the
communities we serve, which has increased customer loyalty and the potential
demand for our new and enhanced products and services.
Acquire Underperforming Cable Systems Principally in Non-Metropolitan Markets
Our disciplined acquisition strategy targets underperforming cable systems
serving primarily non-metropolitan markets with favorable demographic profiles.
These systems are typically within the top 50 to 100 television markets and
small and medium-sized communities where customers generally require cable to
clearly receive a full complement of off-air television signals. Our markets
have attractive demographic characteristics, including household growth rates
that on average are higher than the national average. According to National
Decision Systems, the projected household growth in areas served by our systems
is 5.4% for the period ending 2004, exceeding the projected U.S. household
growth of 5.2% for the same period. We believe that there are advantages in
acquiring and operating cable systems in non-metropolitan markets, including:
. less direct competition given the lower housing densities and the
resulting higher costs per customer of constructing a cable network;
. higher penetration levels of our services and lower customer turnover as
a result of fewer competing entertainment alternatives; and
. generally lower overhead and operating costs than those incurred by
cable operators serving larger markets.
In addition, we seek to acquire or trade for cable systems in close
proximity to our existing operations because it is more cost effective to
provide cable television and advanced telecommunications services over an
expanded subscriber base within a concentrated geographic area. We believe that
we may be able to purchase fill-in acquisitions at favorable prices in
geographic regions where we are the dominant provider of cable television
services. In the second half of 1999, we signed one agreement and four letters
of intent to acquire cable systems serving approximately 28,000 basic
subscribers located in close proximity to our systems, thereby complementing
our operating clusters.
Implement a Flexible Financing Structure
To support our business strategy and enhance our financial flexibility, we
have developed a financing strategy utilizing a blend of equity and debt
capital to complement our acquisition and operating activities. We have
diversified our sources of debt capital by raising long term debt at the
holding company level, while utilizing our subsidiaries to access debt,
principally in the commercial bank market, through separate borrowing groups.
We believe our financing strategy is beneficial because it broadens our
access to various equity and debt markets, enhances our flexibility in managing
our capital structure, reduces the overall cost of debt capital and permits us
to maintain a substantial liquidity position in the form of unused and
available subsidiary credit facilities. We intend to use the net proceeds of
this offering to repay approximately $327.1 million of outstanding indebtedness
under our subsidiary credit facilities. As a result, on a pro forma basis for
the offering, we will reduce our financial leverage, increase our unused credit
commitments to approximately $612 million and lower our overall cost of debt
capital to 7.4%.
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Products and Services
We provide our customers with the ability to tailor their product selection
from a full array of core cable television services. In addition, we have begun
to offer our customers new and enhanced products and services such as digital
cable services and two-way, high-speed Internet access. We also are exploring
opportunities in interactive video programming and telecommunications services.
Core Cable Television Services
We design both our basic channel line-up and our additional channel
offerings for each system according to demographics, programming preferences,
channel capacity, competition, price sensitivity and local regulation. Our core
cable television service offering includes the following:
Limited Basic. Our limited basic service includes, for a monthly fee, local
broadcast channels, network and independent stations, available over-the-air
limited satellite-delivered programming, and local public, government, home-
shopping and leased access channels.
Family Cable. Our Family Cable service includes, for an additional monthly
fee, various satellite-delivered, non-broadcast channels such as CNN, MTV, USA
Network, ESPN, Lifetime, Nickelodeon and TNT.
Premium Channels. These services are satellite delivered channels consisting
principally of feature films, original programming, live sports events,
concerts and other special entertainment features, usually presented without
commercial interruption. HBO, Cinemax, Showtime, The Movie Channel and Starz
are typical examples. Such premium programming services are offered by the
systems both on a per-channel basis and as part of premium service packages
designed to enhance customer value and to enable us to take advantage of
programming agreements offering cost incentives based on premium service unit
growth.
The significant expansion of bandwidth capacity resulting from our capital
improvement program will allow us to expand the use of tiered and multichannel
packaging strategies for marketing and promoting premium and niche programming
services. We believe that these packaging strategies will increase basic and
premium penetration as well as revenue per basic subscriber.
Pay-Per-View. These channels allow customers to pay to view a single showing
of a feature film, live sporting event, concert and other special event, on an
unedited, commercial-free basis. Such pay-per-view services are offered by us
on a per-viewing basis, with subscribers only paying for programs which they
select for viewing.
Digital Cable Services
Digital video technology is a computerized method of defining, transmitting
and storing information that makes up a television signal. Digital video
technology allows us to greatly increase our channel offerings through the use
of compressed digital video technology, which converts one analog channel into
eight to 12 digital channels. The digitally compressed signal is uplinked to a
satellite, which sends the signal back down to our cable system's headend to be
distributed, via optical fiber and coaxial cable, to our customer's home. A
digital capable set-top box in the customer's home converts the digital signal
back into an analog format so that it can be viewed on a normal television
screen. We believe the implementation of digital technology has significantly
enhanced and expanded the video and service offerings we provide to our
customers.
We provide our digital video customers with programming packages that
include:
. up to 41 multichannel premium services;
. 34 pay-per-view movie and sports channels;
. up to 45 channels of digital music; and
. an interactive on-screen program guide to help them navigate the new
digital choices.
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We introduced digital cable services in June 1999. To date, we have achieved
a digital cable penetration of 7.4% in the two systems where digital cable
services have been available since June 1999. For the month of November 1999,
average per customer revenue was approximately $20.04 for our digital service.
As of December 1999, we offered digital cable services in systems passing
approximately 243,000 homes. We expect to rapidly introduce digital cable
television in our remaining systems, including the Triax and Zylstra systems,
as we upgrade our cable network and consolidate our headend facilities.
High-Speed Internet Access
We plan to introduce two-way, high-speed Internet access over our network in
substantially all of our systems. The broadband cable network enables data to
be transmitted up to 100 times faster than traditional telephone modem
technologies. This high-speed capability allows our cable modem customer to
download large files from the Internet in a fraction of the time required when
using the traditional telephone modem. It also allows much quicker response
times when surfing the Internet, providing a richer experience for the
customer. In addition, the two-way communications capability of the cable
Internet connection eliminates the need for a telephone line, is always on and
does not require the customer to dial into the Internet service provider and
await authorization.
To ensure that inter-operable, non-proprietary cable modems are made
available for purchase by customers on a retail basis, the cable industry has
developed general software operating standards, known as data over cable
service interface specifications. As of December 1999, thirteen cable industry
vendors, including equipment manufacturers such as Cisco, General Instrument,
Phillips Electronics, Samsung, Scientific-Atlanta, Sony, Thomson and Toshiba,
received official certification from Cable Television Laboratories, Inc. As a
result, standardized cable modems are currently available for purchase through
various distribution channels including retail outlets, bundled with personal
computer purchases, and directly through the cable operator. Such availability
will allow customers to use these modems in different systems similar to the
traditional telephone modem, and should accelerate the deployment of high-speed
Internet access over cable networks.
We believe that the speed, ease of installation and ubiquity of cable modems
will increase the use and impact of the Internet. Furthermore, we believe that
the cable television network combined with data over cable service interface
specifications is currently the best vehicle to deliver all Internet protocol
services including Internet access, broadband content, streaming media and
Internet protocol telephony to our customers both on the computer and to the
television via a digital set-top box, even though other high-speed alternatives
are being developed.
In November 1999, we completed an agreement with SoftNet to deploy its two-
way, high-speed Internet access services throughout our cable systems. The
service will be marketed under SoftNet's branded name, ISP Channel. ISP Channel
also provides several additional services, such as the ability to dial-up from
the customer's home or business, multiple computer access and Internet fax
services. Through the agreement with SoftNet, we are required to upgrade our
cable network to provide two-way communications capability in systems passing
900,000 homes, including the Triax and Zylstra systems, and make available such
homes to SoftNet by December 2002. As of December 1999, we had deployed ISP
Channel's two-way, high-speed Internet access service in systems passing over
177,000 homes. As consideration for giving SoftNet access to our customers,
SoftNet issued to us 3.5 million shares of its common stock, representing a
market value of approximately $82 million as of January 10, 2000. Of the issued
shares, up to 90% are subject to forfeiture in the event we do not make
available a specified number of two-way capable homes by certain prescribed
dates.
We currently provide high-speed Internet access to approximately 300
customers through the use of one-way cable modems, which permit data to be
downstreamed at high-speed while utilizing a telephone line return path. We
also provide dial-up telephone Internet access to approximately 4,500 customers
in two of our markets. The provision of this dial-up service creates a customer
base that can be upgraded to the two-way, high-speed cable modem service in the
future.
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Interactive Services
Our upgraded cable network will have the capacity to deliver various
interactive television services. Interactive television can be divided among
three general service categories: enhanced television; Internet over the
television; and video-on-demand. These new services enable the customer to
interact over the television set, generally by using a conventional remote
television control or a computer keyboard, to either buy a product or service
or request information on a product or service.
Enhanced television includes such services as ancillary programming
information, interactive advertising and impulse sales and purchases. Companies
delivering enhanced television services include TV Guide Interactive, Wink
Communications and Source Media. TV Guide Interactive provides the most basic
enhanced television service, a navigator that permits customers to customize
television program listings, set reminders and parental controls and order pay-
per-view events. Wink offers viewers the opportunity to interact with the
television during programs or commercials by way of flashing icons, leading
them to program-related information, such as news, sports and weather, or the
ability to purchase merchandise, or request product samples, coupons or
catalogues. Source Media allows viewers to receive local programming and
information services using a local guide and navigator with an Internet style
experience.
Companies providing Internet access over the television include WebTV and
WorldGate Communications. Internet access and e-mail are delivered using a set-
top box with the customer using a wireless keyboard. WebTV customers buy the
set-top device at retail outlets and are able to view enhanced web images on
the television screen. WorldGate Communications allows a viewer watching a
commercial or program on the television to link directly to a related web page
and requires no purchase by the customer of the set-top box. WorldGate
Communications uses the set-top boxes now being deployed by the cable industry.
Companies providing video-on-demand such as DIVA Systems Corporation and
Intertainer Inc. use servers at the headend facility of a cable system to
provide hundreds of movies or special events on demand with video cassette
recorder functionality, or the ability to fast forward, pause and rewind a
program at will. Using a remote control, customers order programming through
their set-tops that signals the server, enabling hardware and software residing
at the headend facility.
While we have not entered into any agreements with any interactive service
providers, we are in discussions with several such providers and will introduce
interactive services to our customers in 2000.
Telecommunications Services
During the last several years, the cable industry has been developing the
capability to provide telephony services. Several of the nation's largest cable
operators now offer residential and/or commercial phone service. We believe
recent developments, including AT&T's purchase of Tele-Communications, Inc.,
its proposed purchase of MediaOne, Inc. and its proposed joint ventures with
six other cable operators, will likely accelerate the pace of development of
the voice telephony business for the cable industry. We are exploring
technologies using Internet protocol telephony as well as traditional switching
technologies that are currently available to transmit telephony signals over
our cable network.
Our upgrade plans include the installation of over 10,000 route miles of
fiber optic cable resulting in the creation of large, high-capacity regional
networks. We expect to construct our networks with excess fiber optic capacity,
thereby affording us the flexibility to pursue new data and telecommunications
opportunities such as:
. providing wide-area networks, which extends a local area network outside
one building to other local area networks in other buildings and in
possibly other cities;
. providing point-to-point data services, which is a secure circuit that
directly connects two points;
. offering virtual private networks, which use a shared data network to
transport private data reliably and securely;
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. leasing dark fiber capacity to enable carriers to penetrate markets and
bypass incumbent providers; and
. entering into strategic relationships, similar to our relationship with
SoftNet, to leverage our network footprints.
Our Systems
Overview
Prior to the acquisitions of the Triax and Zylstra systems, we managed our
systems through four operating regions: Southern, Mid-Atlantic, Central and
Western. The table below and the discussion that follows provide an overview of
selected operating and technical statistics for our four established regions
and the Triax and Zylstra systems as of September 30, 1999, unless otherwise
indicated.
<TABLE>
<CAPTION>
Southern Mid-Atlantic Central Western Triax Zylstra Total
-------- ------------ ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Homes passed............... 191,700 126,000 125,500 81,800 522,500 21,500 1,069,000
Basic subscribers.......... 135,200 88,300 81,200 53,300 344,000 14,000 716,000
Basic penetration.......... 70.5% 70.1% 64.7% 65.2% 65.8% 65.1% 67.0%
Premium service units...... 185,400 80,900 107,100 23,100 167,000 4,000 567,500
Premium penetration........ 137.1% 91.6% 131.9% 43.3% 48.5% 28.6% 79.3%
Average monthly revenues
per basic subscriber(1).. $37.51 $34.89 $35.07 $37.48 $33.16 $29.41 $34.65
Cable Network Data:
Miles of plant............. 4,850 2,980 2,990 1,370 9,800 280 22,270
Density(2)................. 40 42 42 60 53 77 48
Headend facilities......... 53 12 66 9 305 5 450
Headend facilities after
upgrades(3)............... 10 7 18 9 42 4 90
Percentage of basic
subscribers
at 550MHz to 750MHz....... 66.6% 93.9% 65.8% 65.7% 30.3% 31.4% 51.7%
</TABLE>
- ---------------------
(1) Represents average monthly revenues for the three months ended September
30, 1999, divided by average basic subscribers for such period.
(2) Represents homes passed divided by miles of plant.
(3) Represents number of headend facilities by December 2002 based on our
current upgrade program.
Southern Region
Over 82% of our basic subscribers in this region are located in the suburbs
and outlying areas of Pensacola, Fort Walton Beach and Panama City, Florida;
Mobile and Huntsville, Alabama; and Biloxi, Mississippi. As of September 30,
1999, the region's systems passed approximately 191,700 homes and served
approximately 135,200 basic subscribers. The internal subscriber growth for
this region was 2.7% for the period ending September 30, 1999. We measure
internal subscriber growth as the percentage change in basic subscribers over a
12-month period, excluding the effects of acquisitions. According to National
Decision Systems, the projected household growth in areas served by the
Southern region's systems is 8.8% for the period ending 2004, exceeding the
projected U.S. household growth of 5.2% for the same period. All of the
region's basic subscribers are serviced from a regional customer service center
in Gulf Breeze, Florida, which provides 24 hour, seven day per week service.
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We have made and continue to make significant investments to upgrade the
Southern region's cable network. By June 2000, we expect that 85% of this
region's basic subscribers will be served by systems with 550MHz to 750MHz
bandwidth capacity. As of December 1999, we offered digital cable services in
systems passing 73,000 homes and ISP Channel's Internet services in systems
passing 53,000 homes. By December 2002, we anticipate that 95% of the region's
basic subscribers will be served by systems with two-way communications
capability and that the number of headend facilities will be reduced from 53 to
ten. At that time, we expect that 85% of this region's basic subscribers will
be served by five headend facilities.
Mid-Atlantic Region
The Mid-Atlantic region's systems serve communities in lower Delaware,
southeastern Maryland and the northeastern and western areas of North Carolina.
Our two largest systems in this region are Hendersonville, North Carolina, near
Asheville, North Carolina, and lower Delaware, outside of Ocean City, Maryland.
As of September 30, 1999, the region's systems passed approximately 126,000
homes and served approximately 88,300 basic subscribers. According to National
Decision Systems, the projected household growth in areas served by the Mid-
Atlantic region's systems is 8.6% for the period ending 2004, exceeding the
projected U.S. household growth of 5.2% for the same period. The internal
subscriber growth for this region was 2.4% for the period ending September 30,
1999. Approximately 65% of the region's basic subscribers are serviced from our
regional customer service centers, which provide 24 hour, seven day per week
service.
We have significantly upgraded the Mid-Atlantic region's systems with 92% of
basic subscribers served by systems with at least 550MHz bandwidth capacity. As
of December 1999, we offered digital cable services in systems passing 77,000
homes and ISP Channel's Internet services in systems passing 45,000 homes. By
December 2002, we expect that 95% of the region's basic subscribers will be
served by systems with two-way communications capability and that the number of
headend facilities will be reduced from 12 to seven. At that time, we expect
that 94% of the region's basic subscribers will be served by three headend
facilities.
Central Region
The Central region's systems serve the suburbs and outlying areas of Kansas
City and Springfield, Missouri, Topeka, Kansas, and communities in the western
portion of Kentucky. As of September 30, 1999, the region's systems passed
approximately 125,500 homes and served approximately 81,200 basic subscribers.
The internal subscriber growth rate of this region was 0.6% for the period
ending September 30, 1999. According to National Decision Systems, the
projected U.S. household growth in areas served by the Central region's systems
is 4.7% for the period ending 2004, as compared to the projected U.S. household
growth of 5.2% for the same period. Substantially all of the region's basic
subscribers are serviced from our regional customer service centers, which
provide 24 hour, seven day per week service.
As a result of our continuing investments in the cable network, the Central
region will see significant increases in channel capacity. By June 2000, we
expect that 89% of this region's basic subscribers will be served by one system
with 550MHz to 750MHz bandwidth capacity. As of December 1999, we offered
digital cable services in systems passing 21,000 homes and ISP Channel's
Internet services in systems passing 12,000 homes. By December 2002, we expect
that 90% of the Central region's basic subscribers will be served by systems
with two-way communications capability and that the number of headend
facilities will be reduced from 66 to 18. At that time, we expect that 60% of
the region's basic subscribers will be served by three headend facilities.
Western Region
The Western region's systems serve communities in the following areas:
Clearlake, California; the Indian Wells Valley in central California; portions
of Riverside County and San Diego County, California; and Nogales, Arizona and
outlying areas. As of September 30, 1999, the region's systems passed
approximately
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81,800 homes and served approximately 53,300 basic subscribers. The region's
internal basic subscriber growth was flat for the period ending September 30,
1999. According to National Decision Systems, the projected household growth in
areas served by the Western region's systems is 6.7% for the period ending
2004, exceeding the projected U.S. household growth of 5.2% for the same
period. The region's basic subscribers are serviced from seven local offices.
In the Western region, we also provide high-speed Internet access to
approximately 300 customers through the use of one-way cable modems and dial-up
telephone Internet access to approximately 4,500 customers.
We have significantly upgraded the Western region's systems with all basic
subscribers served by systems with a minimum 450MHz bandwidth capacity and over
65% served by systems with 550MHz bandwidth capacity. As of December 1999, we
offered digital cable services in systems passing 46,000 homes and ISP
Channel's Internet services in systems passing over 42,000 homes. Where
possible we plan to offer to all our existing Internet customers ISP Channel's
two-way, high-speed services. By December 2002, we expect that 90% of the
Western region's basic subscribers will be served by systems with at least
550MHz bandwidth capacity and two-way communications capability. The region's
basic subscribers are served by nine headend facilities.
Triax Systems
As of September 30, 1999, the Triax systems passed approximately 522,500
homes and served approximately 344,000 basic subscribers. Many of Triax's
systems are located within 30 miles of major or medium-sized markets, including
Minneapolis and Rochester, Minnesota; Bloomington, Champaign, Decatur, Peoria,
and Springfield, Illinois; Elkhart, Fort Wayne, and South Bend, Indiana; and
Cedar Rapids, Iowa. Substantially all of Triax's basic subscribers are serviced
from two regional customer service centers, which provide 24 hour, seven day
per week service. The Triax systems also include two systems serving
approximately 8,000 customers in Arizona, which our Western region will manage
and operate.
The Triax systems consist of two operating regions: the Midwest region and
the North Central region. The Midwest region manages and operates systems
serving approximately 173,500 basic subscribers principally in Illinois and
Indiana. The Midwest region's larger systems serve the communities of
Jacksonville, Ottawa, Pontiac and Streater, Illinois and Angola, Auburn,
Bluffton, Bremen, Kendallville and North Webster, Indiana. According to
National Decision Systems, the projected household growth in areas served by
the Midwest region's systems is 3.5% for the period ending 2004, as compared to
the projected U.S. household growth of 5.2% for the same period.
The North Central region manages and operates systems serving approximately
162,500 basic subscribers principally in Iowa, Minnesota and Wisconsin. The
North Central region's larger systems serve the communities of Lake Minnetonka,
Savage and Prior Lake, Minnesota; Praire du Chien, Mauston, Platteville and
Viroqua, Wisconsin; and Esterville and Spencer, Iowa. According to National
Decision Systems, the projected household growth in areas served by the North
Central region's systems is 3.5% for the period ending 2004, as compared to the
projected U.S. household growth of 5.2% for the same period.
As of September 30, 1999, approximately 62% of Triax's basic subscribers
were served by systems with at least 400MHz bandwidth capacity. As of December
1999, we offered digital cable services in systems passing 20,000 homes and ISP
Channel's Internet services in systems passing 25,000 homes. We plan to make
significant capital investments in the Triax systems to increase bandwidth
capacity, activate two-way communications capability and consolidate headend
facilities. By December 2002, as a result of our planned investments to upgrade
Triax's cable network, we expect that 88% of Triax's basic subscribers will be
served by systems with 550MHz to 750MHz bandwidth capacity and two-way
communications capability. At that time, we expect the number of Triax's
headend facilities will be reduced from 305 to 42 and that 60% of Triax's basic
subscribers will be served by five headend facilities.
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Zylstra Systems
The Zylstra systems serve communities in Vermillion and Yankton, South
Dakota; Worthington and Luverne, Minnesota; and Orange City and Alton, Iowa. As
of September 30, 1999, these systems passed approximately 21,500 homes and
served approximately 14,000 basic subscribers. We anticipate expanding the
level of customer service that Zylstra's subscribers receive by utilizing our
customer service centers to provide 24 hour, seven day per week service. The
Zylstra systems are now part of our North Central region.
As of September 30, 1999, approximately 66% of Zylstra's basic subscribers
were served by systems with at least 400MHz bandwidth capacity. As of December
1999, we offered digital cable services in one system passing over 6,000 homes.
By December 2001, we expect that all of the Zylstra systems will be upgraded to
750MHz bandwidth capacity and that digital cable and ISP Channel's Internet
services will be made available to Zylstra's subscribers. Zylstra's basic
subscribers are served by five headend facilities, one of which is scheduled to
be eliminated.
Technology Overview
As part of our commitment to maximize customer satisfaction, to improve our
competitive position and to introduce new and enhanced products and services to
our customers, we plan to make significant investments in our cable network,
including the Triax and Zylstra systems, over the three-year period ending
December 2002. During such period, we intend to invest approximately $400
million, with approximately $240 million used to upgrade our cable network. The
remaining $160 million will be spent on plant expansion, digital headend
facilities and set-top boxes, cable modems and maintenance. The objectives of
our upgrade program are:
. to increase the bandwidth capacity to 750MHz or higher;
. to activate two-way communications capability;
. to consolidate our headend facilities, through the extensive deployment
of fiber optic networks; and
. to allow us to provide digital cable television, two-way, high-speed
Internet access, interactive video and other telecommunications
services.
The following table describes the technological state of our cable network,
including the Triax and Zylstra systems, as of September 30, 1999 and through
December 31, 2002, based on our current upgrade plans:
<TABLE>
<CAPTION>
Percentage of Basic Subscribers
---------------------------------
Less than 400MHz- 550MHz- Two-Way
400MHz 450MHz 750MHz Capable
--------- ------- ------- -------
<S> <C> <C> <C> <C>
September 30, 1999....................... 25% 23% 52% 6%
December 31, 1999........................ 19% 23% 58% 11%
December 31, 2000........................ 7% 21% 72% 42%
December 31, 2001........................ 0% 19% 81% 67%
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.
A central feature of our upgrade program is the deployment of high capacity,
hybrid fiber-optic coaxial architecture. The hybrid fiber optic coaxial
architecture combines the use of fiber optic cable, which can carry hundreds of
video, data and voice channels over extended distances, with coaxial cable,
which requires a more extensive signal amplification in order to obtain the
desired levels for delivering channels. In most of our
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systems, we connect fiber optic cable to individual nodes serving an average of
350 homes or commercial buildings. A node is a single connection to a system's
main, high-capacity fiber optic cable that is shared by a number of customers.
Coaxial cable is then connected from each node to the individual homes or
buildings. We believe hybrid fiber optic coaxial architecture provides higher
capacity, superior signal quality, greater network reliability and reduced
operating costs than traditional cable network design. Together with our plans
for two-way communications capability, we believe hybrid fiber optic coaxial
architecture will enhance our cable network's capability to provide advanced
telecommunications services.
As of September 30, 1999, our systems were operated from 450 headend
facilities, including the Triax and Zylstra systems. We believe that fiber
optics and advanced transmission technologies make it cost effective to
consolidate our headend facilities, allowing us to realize operating
efficiencies and resulting in lower fixed capital costs on a per home basis as
we introduce new products and services. By December 2002, we plan to eliminate
360 headend facilities so that all of our customers will be served by 90
headend facilities and 92% of our customers will be served by 40 headend
facilities.
As part of this headend consolidation program, we plan to deploy over 10,000
route miles of fiber optic cable to create large regional fiber optic networks
with the potential to provide advanced telecommunications services. We expect
to construct our regional networks with excess fiber optic capacity in order to
accommodate new and expanded products and services in the future.
Sales and Marketing
We seek to be the premier provider of entertainment, information and
telecommunications services in the markets we serve. Our marketing programs and
campaigns offer a variety of cable services creatively packaged and tailored to
appeal to each of our local markets and to segments within each market. We
routinely survey our customers to ensure that we are meeting their demands and
our customer surveys keep us abreast of our competition so that we can counter
effectively competitors' service offerings and promotional campaigns. With our
strong local presence, we interact with our customers on a more individualized
basis allowing us to better service our customers and enhance customer loyalty
and trust.
We use a coordinated array of marketing techniques to attract and retain
customers and to increase premium service penetration, including door-to-door
and direct mail solicitation, telemarketing, media advertising, local
promotional events typically sponsored by programming services and cross-
channel promotion of new services and pay-per-view.
We build awareness of our brand through a variety of promotional campaigns,
particularly in our newly acquired systems. As a result of our branding
efforts, our emphasis on customer service and our investments in the cable
network, we believe we have developed a reputation for quality, reliability and
timely introduction of new products and services.
We invest a significant amount of time, effort and financial resources in
the training and evaluation of our marketing professionals and customer sales
representatives. Our approximately 100 customer sales representatives customize
their sales presentation to fit each of our customers' specific needs by
conducting focused consumer research and are given the incentive to use their
frequent contact with our customers as opportunities to sell our new products
and services. As a result, we believe we can accelerate the introduction of new
products and services to our customers and achieve high success rates in
attracting and retaining customers.
Programming Supply
We have various contracts to obtain basic and premium programming for the
systems from program suppliers whose compensation is typically based on a fixed
fee per customer. Our programming contracts are generally for a fixed period of
time and are subject to negotiated renewal. Some program suppliers provide
volume discount pricing structures or offer marketing support to us. Our
successful marketing of multiple premium service packages emphasizing customer
value enables us to take advantage of such cost incentives. In
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addition, we are a member of the National Cable Television Cooperative, Inc., a
programming consortium consisting of small to medium-sized multiple system
operators serving, in the aggregate, over twelve million cable subscribers. A
multiple system operator is a cable television operator that owns or operates
more than one cable television system. The consortium helps create efficiencies
in the areas of obtaining and administering programming contracts, as well as
secures more favorable programming rates and contract terms for small to
medium-sized cable operators. We intend to negotiate programming contract
renewals both directly and through the consortium to obtain the best available
contract terms.
Our programming costs are expected to increase in the future due to
additional programming being provided to our customers, increased costs to
purchase programming, inflationary increases and other factors affecting the
cable television industry. Although we will legally be able to pass through
expected increases in our programming costs to customers, there can be no
assurance that the marketplace will allow us to do so. We also have various
retransmission consent arrangements with commercial broadcast stations which
generally expire in January 2000 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.
Currently, there are over 150 cable networks seeking to be carried on our
systems. We leverage our analog and digital channel capacity resulting from our
capital improvement program to negotiate with our programming suppliers more
favorable long-term contracts and other financial arrangements to offset
programming cost increases.
Customer Rates
Monthly customer rates for services vary from market to market, primarily
according to the amount of programming provided. As of September 30, 1999,
excluding the Triax and Zylstra systems, our monthly basic service rates for
residential customers ranged from $4.93 to $35.95; the combined monthly basic
and expanded basic service rates for residential customers ranged from $23.95
to $36.95; and per-channel premium service rates, not including special
promotions, ranged from $1.75 to $12.50 per service for our systems, excluding
the Triax and Zylstra systems. For the three months ended September 30, 1999,
excluding the Triax and Zylstra systems, the weighted average monthly rate for
our combined basic and expanded basic services was approximately $27.35.
Prior to our acquisition of the Triax systems, we were an eligible small
cable company under FCC rules which enabled us to utilize a simplified rate
setting methodology for most of the systems in establishing maximum rates for
basic and expanded basic services. This methodology almost always results in
rates that exceed those produced by the cost-of-service rules applicable to
larger cable operators. The cost-of-service rules refer to the rate setting
methodology prescribed by the FCC. Prior to our acquisition of their systems,
Triax also used the simplified rate setting methodology, although in a small
percentage of their systems. Although we are no longer an eligible small cable
company, in most cases, our systems which utilized this methodology, including
the recently acquired Triax systems, are allowed to maintain the rates set
thereby. For additional information, see "Legislation and Regulation--Federal
Regulation--Rate Regulation." We believe that our rate practices are generally
consistent with the current practices in the industry.
A one-time installation fee, which we may wholly or partially waive during a
promotional period, is usually charged to new customers. We charge monthly fees
for converters and remote control tuning devices and also charge administrative
fees for delinquent payments for service. Customers are free to discontinue
service at any time without additional charge in the majority of the systems
and may be charged a reconnection fee to resume service. Commercial customers,
such as hotels, motels and hospitals, are charged negotiated monthly fees and a
non-recurring fee for the installation of service. Multiple dwelling units,
which include commercial customers as well as condominiums and apartment
complexes, may be offered a bulk rate in exchange for single-point billing and
basic service to all units.
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In addition to customer fees, we derive modest amounts of revenues from the
sale of local spot advertising time on locally originated and satellite-
delivered programming and from affiliations with home shopping services, which
offer merchandise for sale to customers and compensate system operators with a
percentage of their sales receipts. We expect to increase the sale of
advertising time and the revenues derived from such sales as a result of the
consolidation of our headend facilities. This consolidation will significantly
increase the number of customers we serve from many of our headend facilities
which we expect will result in increased advertising revenues.
Customer Service and Community Relations
We are dedicated to providing superior customer service. Our emphasis on
system reliability and customer satisfaction is a cornerstone of our business
strategy. We expect that on-going investments in our cable network will
significantly strengthen customer service as it will enhance the reliability of
our cable network and allow us to introduce new programming and other services
to our customers. We have implemented stringent internal customer service
standards, which we believe meet or exceed those established by the National
Cable Television Association. We maintain five regional calling centers, which
service 87% of our systems' customers. They are staffed with dedicated
personnel who provide service to our customers 24 hours a day, seven days a
week, on a toll-free basis. We believe our regional calling centers allow us to
coordinate more effectively installation appointments and reduce response time
to customer inquiries. We continue to invest in both personnel and equipment of
our regional calling centers to ensure that these operating units are
professionally managed and employ state-of-the-art technology.
In addition, we are dedicated to fostering strong community relations in the
communities served by our systems. We support local charities and community
causes in various ways, including staged events and promotional campaigns to
raise funds and supplies for persons in need and in-kind donations that include
production services and free airtime on cable networks. We participate in the
"Cable in the Classroom" program, which is a national effort by cable companies
to provide schools with free cable television service and, where available,
Internet access. We also install and provide free cable television service to
government buildings and not-for-profit hospitals in our franchise areas. We
believe that our relations with the communities in which our systems operate
are good.
Franchises
Cable systems are generally operated under non-exclusive franchises granted
by local governmental authorities. These franchises typically contain many
conditions, such as: time limitations on commencement and completion of
construction; conditions of service, including number of channels, types of
programming and the provision of free service to schools and other public
institutions; and the granting of insurance and indemnity bonds by the cable
operator. The provisions of local franchises are subject to federal regulation
under the Communications Act of 1934, as amended.
As of September 30, 1999, our systems, including the Triax and Zylstra
systems, were subject to 891 franchises. These franchises, which are non-
exclusive, provide for the payment of fees to the issuing authority. In most of
the systems, such franchise fees are passed through directly to the customers.
The 1984 Cable Act prohibits franchising authorities from imposing franchise
fees in excess of 5% of gross revenues and also permits the cable television
system operator to seek renegotiation and modification of franchise
requirements if warranted by changed circumstances.
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Substantially all of our systems' basic subscribers are in service areas
that require a franchise. The table below groups the franchises of our systems,
including the Triax and Zylstra systems, by date of expiration and presents the
approximate number and percentage of basic subscribers for each group of
franchises on a pro forma basis as of September 30, 1999.
<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....... 214 24.0% 174,100 24.3%
2003 and thereafter..... 677 76.0% 541,900 75.7%
--- ----- ------- -----
Total................. 891 100.0% 716,000 100.0%
=== ===== ======= =====
</TABLE>
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
Providers of Broadcast Television and Other Entertainment
Cable systems compete with other communications and entertainment media,
including over-the-air television broadcast signals that a viewer is able to
receive directly. The extent to which a cable system competes with over-the-air
broadcasting depends upon the quality and quantity of the broadcast signals
available by direct antenna reception compared to the quality and quantity of
such signals and alternative services offered by a cable system. Cable systems
also face competition from alternative methods of distributing and receiving
television signals and from other sources of entertainment such as live
sporting events, movie theaters and home video products, including videotape
recorders and videodisc players. In recent years, the FCC has adopted policies
authorizing new technologies and a more favorable operating environment for
certain existing technologies that provide, or may provide, substantial
additional competition for cable television systems. The extent to which a
cable television service is competitive depends in significant part upon the
cable system's ability to provide a greater variety of programming, superior
technical performance and superior customer service than are available over the
air or through competitive alternative delivery sources.
Direct Broadcast Satellite Providers
Individuals can purchase home satellite dishes, which allow them to receive
satellite-delivered broadcast and non-broadcast program services that formerly
were available only to cable television subscribers. Most satellite-distributed
program signals are electronically scrambled to permit reception only with
authorized decoding equipment for which the consumer must pay a fee. The 1992
Cable Act enhances the right of cable competitors to purchase non-broadcast
satellite-delivered programming. For additional information, see "Legislation
and Regulation--Federal Regulation."
Television programming is now also being delivered to individuals by high-
powered direct broadcast satellites utilizing video compression technology.
This technology can provide more than 150 channels of
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programming over a single high-powered satellite with significantly higher
capacity available if, as is the case with DIRECTV, multiple satellites are
placed in the same orbital position. Until recently, direct broadcast satellite
operators could not legally deliver local broadcast signals. Legislation
permitting direct broadcast satellite operators to transmit local broadcast
signals was enacted on November 29, 1999. This eliminates a significant
competitive advantage which cable system operators have had over direct
broadcast satellite operators. Direct broadcast satellite operators have begun
delivering local broadcast signals in the largest markets and there are plans
to expand such coverage to many more markets over the next year. Direct
broadcast satellite service can be received virtually anywhere in the
continental United States through the installation of a small roof top or side-
mounted antenna, and it is more accessible than cable television service where
a cable plant has not been constructed or where it is not cost effective to
construct cable television facilities. Direct broadcast satellite service is
being heavily marketed on a nationwide basis by several service operators.
Multichannel Multipoint Distribution Systems
Multichannel multipoint distribution systems deliver programming services
over microwave channels licensed by the FCC and received by subscribers with
special antennas. These wireless cable systems are less capital intensive, are
not required to obtain local franchises or pay franchise fees, and are subject
to fewer regulatory requirements than cable television systems. To date, the
ability of wireless cable services to compete with cable systems has been
limited by a channel capacity of up to 35-channels and the need for
unobstructed line-of-sight over-the-air transmission. Although relatively few
wireless cable systems in the United States are currently in operation or under
construction, virtually all markets have been licensed or tentatively licensed.
The use of digital compression technology, and the FCC's recent amendment to
its rules to permit reverse path or two-way transmission over wireless
facilities, may enable multichannel multipoint distribution systems to deliver
more channels and additional services, including Internet related services.
Digital compression technology refers to the conversion of the standard video
signal into a digital signal and the compression of that signal to facilitate
multiple channel transmissions through a single channel's signal.
Private Cable Television Systems
Private cable television systems compete with conventional cable television
systems for the right to service condominiums, apartment complexes and other
multiple unit residential developments. The operators of these private systems,
known as satellite master antenna television systems, often enter into
exclusive agreements with apartment building owners or homeowners' associations
that preclude franchised cable television operators from serving residents of
such private complexes. However, the 1984 Cable Act gives franchised cable
operators the right to use existing compatible easements within their franchise
areas on nondiscriminatory terms and conditions. Accordingly, where there are
preexisting compatible easements, cable operators may not be unfairly denied
access or discriminated against with respect to access to the premises served
by those easements. Conflicting judicial decisions have been issued
interpreting the scope of the access right granted by the 1984 Cable Act,
particularly with respect to easements located entirely on private property.
Under the 1996 Telecom Act, satellite master antenna television systems can
interconnect non-commonly owned buildings without having to comply with local,
state and federal regulatory requirements that are imposed upon cable systems
providing similar services, as long as they do not use public rights of way.
The FCC has held that the latter provision is not violated so long as
interconnection across public rights of way is provided by a third party.
Advertising Sales
The cable television industry competes with radio, broadcast television,
print media, and the Internet for advertising revenues. As the cable television
industry continues to offer more of its own programming channels, such as
Discovery and USA Network, we expect income from advertising revenues to
increase.
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Traditional Overbuilds
Cable television systems are operated under non-exclusive franchises granted
by local authorities. More than one cable system may legally be built in the
same area. Franchising authorities have from time to time granted additional
franchises to other companies, including other cable operators or telephone
companies, and these additional franchises might contain terms and conditions
more favorable than those afforded to the incumbent cable operator. In
addition, entities willing to establish an open video system, under which they
offer unaffiliated programmers non-discriminatory access to a portion of the
system's cable system may be able to avoid significant local franchising
requirements. Well financed businesses from outside the cable industry, such as
public utilities which already possess or are developing fiber optic and other
transmission facilities in the areas they serve may over time become
competitors. We believe that various entities are currently offering cable
service to an estimated 20,000 homes passed in the service areas of our
franchises.
Other Competition
The FCC has authorized a new interactive television service which permits
non-video transmission of information between an individual's home and
entertainment and information service providers. This service, which can be
used by direct broadcast satellite systems, television stations and other video
programming distributors, including cable television systems, is an alternative
technology for the delivery of interactive video services. It does not appear
at the present time that this service will have a material impact on the
operations of cable television systems.
The FCC has allocated spectrum in the 28GHz range for a new multichannel
wireless service that can be used to provide video and telecommunications
services. The FCC recently completed the process of awarding licenses to use
this spectrum via a market-by-market auction. We do not know whether such a
service would have a material impact on the operations of cable television
systems.
The 1996 Telecom Act directed the FCC to establish, and the FCC has adopted,
regulations and policies for the issuance of licenses for digital television to
incumbent television broadcast licensees. Digital television can deliver high
definition television pictures and multiple digital-quality program streams, as
well as CD-quality audio programming and advanced digital services, such as
data transfer or subscription video. The FCC also has authorized television
broadcast stations to transmit textual and graphic information that may be
useful to both consumers and businesses. The FCC also permits commercial and
noncommercial FM stations to use their subcarrier frequencies to provide non-
broadcast services, including data transmission.
We have begun to accelerate the offering by our cable systems of high-speed
Internet access to our basic subscribers. These cable systems will compete with
a number of other companies, many of which have substantial resources, such as
existing Internet service providers and local and long distance telephone
companies. For example, telephone companies are accelerating the deployment of
asymmetric digital subscriber line technology. These companies report this
technology will allow Internet access to subscribers at peak data transmission
speeds greater than that of modems over conventional telephone lines. Recently,
a number of Internet service providers have asked local authorities and the FCC
to give them rights of access to cable systems' broadband infrastructure so
that they can deliver their services directly to cable systems' customers.
Several local franchising authorities have been examining the issue and a few
have required cable operators to provide such access. A U.S. District Court
recently ruled that localities are authorized to require such access. This
decision is being appealed. Some cable companies have initiated litigation
challenging municipal open access requirements. The FCC has thus far declined
to take action on Internet service providers access to broadband cable
facilities. Congress and several state and local jurisdictions are also
reviewing this issue.
Advances in communications technology, as well as changes in the marketplace
and the regulatory and legislative environment, are constantly occurring. Thus,
it is not possible to predict the competitive effect that ongoing or future
developments might have on the cable industry. For more information, see the
discussion under "Legislation and Regulation."
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Properties
Our principal physical assets consist of cable television operating plant
and equipment, including signal receiving, encoding and decoding devices,
headend facilities and distribution systems and equipment at or near customers'
homes for each of the systems. The signal receiving apparatus typically
includes a tower, antenna, ancillary electronic equipment and earth stations
for reception of satellite signals. Headend facilities are located near the
receiving devices. Some basic subscribers of the systems utilize converters
that can be addressed by sending coded signals from the headend facility over
the cable network. Our distribution system consists primarily of coaxial and
fiber optic cables and related electronic equipment.
We own the real property housing our regional call center in Gulf Breeze,
Florida as well as numerous locations for business offices and warehouses
throughout our operating regions. We lease space for our other regional call
centers in Chillicothe, Illinois; Benton, Kentucky; Waseca, Minnesota; and
Hendersonville, North Carolina. We also lease additional locations for business
offices and warehouses throughout our operating regions. Our headend
facilities, signal reception sites and microwave facilities are located on
owned and leased parcels of land, and we generally own the towers on which
certain of our equipment is located. We own most of our service vehicles. Our
annual lease payments currently are approximately $2.9 million. We believe that
our properties both owned and leased, are in good condition and are suitable
and adequate for our operations.
Our cable television plant and related equipment generally are attached to
utility poles under pole rental agreements with local public utilities,
although in some areas the distribution cable is buried in underground ducts or
trenches. The physical components of the systems require maintenance and
periodic upgrading to improve system performance and capacity.
Employees
As of January 10, 2000, we employed 1,261 full-time employees and 206 part-
time employees. None of our employees are represented by a labor union. We
consider our relations with our employees to be good.
Legal Proceedings
On January 19, 2000, Grey Advertising Inc. and Mediacom Inc., a wholly-owned
subsidiary of Grey, filed an action against us in the United States District
Court for the Southern District of New York asserting trademark infringement,
among other claims. The complaint alleges that Grey owns a federally registered
trademark for "Mediacom" and that our use of this name constitutes trademark
infringement. Grey is seeking a permanent injunction to prohibit us from using
the Mediacom name in the conduct of our business together with unspecified
monetary damages. Although our time to respond to the complaint has not yet
expired, we intend to deny the substantive allegations of the complaint and
defend the action. If we are found to have infringed the proprietary rights of
Grey with respect to our use of the "Mediacom" mark or variations thereof, we
could be enjoined from using the "Mediacom" mark in connection with our
business and be required to pay material monetary damages.
There are no other material pending legal proceedings to which we are a
party or to which any of our properties are subject.
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LEGISLATION AND REGULATION
A federal law known as the Communications Act of 1934, as amended,
establishes a national policy to guide the regulation, development and
operation of cable communications systems. In 1996, a comprehensive amendment
to the Communications Act became effective and is expected to promote
competition and decrease governmental regulation of various communications
industries, including the cable television industry. However, until the desired
competition develops, various federal, state and local governmental units will
have broad regulatory authority and responsibilities over telecommunications
and cable television matters. The courts, especially the federal courts, will
continue to play an important oversight role as the statutory and regulatory
provisions are interpreted and enforced by the various federal, state and local
governmental units.
The Communications Act allocates principal responsibility for enforcing the
federal policies between the FCC, state and local governmental authorities. The
FCC and state regulatory agencies regularly conduct administrative proceedings
to adopt or amend regulations implementing the statutory mandate of the
Communications Act. At various times, interested parties to these
administrative proceedings challenge the new or amended regulations and
policies in the courts with varying levels of success. We expect that further
court actions and regulatory proceedings will occur and will refine the rights
and obligations of various parties, including the government, under the
Communications Act. The results of these judicial and administrative
proceedings may materially affect the cable industry and our business and
operations. In the following paragraphs, we summarize the federal laws and
regulations materially affecting the growth and operation of the cable
industry. We also provide a brief description of certain state and local laws.
Federal Regulation
The Communications Act and the regulations and policies of the FCC affect
significant aspects of our cable system operations, including:
. subscriber rates;
. the content of the programming we offer to subscribers, as well as the
way we sell our program packages to subscribers;
. the use of our cable systems by the local franchising authorities, the
public and other unrelated companies;
. our franchise agreements with local governmental authorities;
. cable system ownership limitations and prohibitions; and
. our use of utility poles and conduit.
Rate Regulation
The Communications Act and the FCC's regulations and policies limit the
ability of cable systems to raise rates for basic services and equipment. No
other rates can be regulated. Federal law exempts cable systems from rate
regulation of cable services and customer equipment only in communities that
are subject to effective competition, as defined by federal law. Federal law
also prohibits the regulation of cable operators' rates where comparable video
programming services, other than direct broadcast satellites, are offered by
local telephone companies, or their related parties, or by third parties using
the local telephone company's facilities.
Where there is no effective competition to the cable operator's services,
federal law gives local franchising authorities the responsibility to regulate
the rates charged by the operator for:
. the lowest level of programming service offered by cable operator,
typically called basic service, which includes the local broadcast
channels and any public access or governmental channels that are
required by the operator's franchise; and
. the installation, sale and lease of equipment used by subscribers to
receive basic service, such as converter boxes and remote control units.
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Local franchising authorities who wish to regulate basic service rates and
related equipment rates must first obtain FCC certification to regulate by
following a simplified FCC certification process and agreeing to follow
established FCC rules and policies when regulating the operator's rates.
Several years ago, the FCC adopted detailed rate regulations, guidelines and
rate forms that a cable system operator and the local franchising authority
must use in connection with the regulation of basic service and equipment
rates. The FCC adopted a benchmark methodology as the principal method of
regulating rates. However, if this methodology produces unacceptable rates, the
operator may also justify rates using a detailed cost-of-service methodology.
The FCC's rules also require franchising authorities to regulate equipment
rates on the basis of actual cost plus a reasonable profit, as defined by the
FCC.
If the local franchising authority concludes that an operator's rates are
too high under the FCC's rate rules, the local franchising authority may
require the operator to reduce rates and to refund overcharges to subscribers,
with interest. The operator may appeal adverse local rate decisions to the FCC.
The FCC's regulations allow an operator to modify regulated rates on a
quarterly or annual basis to account for changes in:
. the number of regulated channels;
. inflation; and
. certain external costs, such as franchise and other governmental fees,
copyright and retransmission consent fees, taxes, programming fees and
franchise-related obligations.
As a further alternative, in 1995 the FCC adopted a simplified cost-of-
service methodology which can be used by small cable systems owned by small
cable companies. A small cable system is defined as a cable television system
which serves 15,000 or fewer basic customers. A small cable company is defined
as an entity serving a total of 400,000 or fewer basic customers that is not
affiliated with a larger cable television company: i.e., a larger cable
television company does not own more that a 20 percent equity share or exercise
legal control. This small system rate-setting methodology almost always results
in rates which exceed those produced by the cost-of-service rules applicable to
larger cable television operators. Once the initial rates are set they can be
adjusted periodically for inflation and external cost changes as described
above. When an eligible small system grows larger than 15,000 basic customers,
it can maintain its then current rates, but it cannot increase its rates in the
normal course until an increase would be warranted under the rules applicable
to systems that have more than 15,000 customers. When a small cable company
grows larger than 400,000 basic customers, the qualified systems it then owns
will not lose their small system eligibility. If a small cable company sells a
qualified system, or if the company itself is sold, the qualified systems
retain that status even if the acquiring company is not a small cable company.
We were a small cable company, but with the completion of the Triax
acquisition, we no longer enjoy this status. However, as noted above, the
systems with less than 15,000 customers owned by us prior to the completion of
the Triax acquisition remain eligible for small cable system rate regulation.
The Communications Act and the FCC's regulations also:
. require operators to charge uniform rates throughout each franchise area
that is not subject to effective competition;
. prohibit regulation of non-predatory bulk discount rates offered by
operators to subscribers in commercial and residential developments; and
. permit regulated equipment rates to be computed by aggregating costs of
broad categories of equipment at the franchise, system, regional or
company level.
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Content Requirements
The Communications Act and the FCC's regulations contain broadcast signal
carriage requirements that allow local commercial television broadcast
stations:
. to elect once every three years to require a cable system to carry the
station, subject to certain exceptions; or
. to negotiate with us on the terms by which we carry the station on our
cable system, commonly called retransmission consent.
The Communications Act requires a cable operator to devote up to one-third
of its activated channel capacity for the mandatory carriage of local
commercial television stations. The Communications Act also gives local non-
commercial television stations mandatory carriage rights; however, such
stations are not given the option to negotiate retransmission consent for the
carriage of their signals by cable systems. Additionally, cable systems must
obtain retransmission consent for:
. all distant commercial television stations, except for commercial
satellite-delivered independent superstations such as WGN;
. commercial radio stations; and
. certain low-power television stations.
The FCC has also initiated an administrative proceeding to consider the
requirements, if any, for mandatory carriage of digital television signals
offered by local television broadcasters. We are unable to predict the ultimate
outcome of this proceeding or the impact of new carriage requirements on the
operations of our cable systems.
The Communications Act requires our cable systems to permit subscribers to
purchase video programming we offer on a per channel or a per program basis
without the necessity of subscribing to any tier of service, other than the
basic cable service tier. However, we are not required to comply with this
requirement until December 2002 for any of our cable systems that do not have
addressable converter boxes or that have other substantial technological
limitations. Many of our cable systems do not have the technological capability
to offer programming in the manner required by the statute and thus currently
are exempt from complying with the requirement. We anticipate having
significant capital expenditures over the next two to three years in order for
us to meet this requirement. We are unable to predict whether the full
implementation of this statutory provision in December 2002 will have a
material impact on the operation of our cable systems.
To increase competition between cable operators and other video program
distributors, the Communications Act and the FCC's regulations:
. preclude any satellite video programmer affiliated with a cable company,
or with a common carrier providing video programming directly to its
subscribers, from favoring an affiliated company over competitors;
. require such programmers to sell their programming to other unaffiliated
video program distributors; and
. limit the ability of such programmers to offer exclusive programming
arrangements to their related parties.
The Communications Act and the FCC's regulations contain restrictions on the
transmission by cable operators of obscene or indecent programming. It requires
cable operators to fully block both the video and audio portion of sexually
explicit or indecent programming on channels that are primarily dedicated to
sexually oriented programming or alternatively to carry such programming only
at safe harbor time periods, which are currently defined by the FCC as the
hours between 10 p.m. to 6 a.m. A three-judge federal district court
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recently determined that this provision was unconstitutional. The federal
government appealed the lower court's decision to the United States Supreme
Court which recently agreed to review this case.
The FCC actively regulates other aspects of our programming, involving such
areas as:
. our use of syndicated and network programs and local sports broadcast
programming;
. advertising in children's programming;
. political advertising;
. origination cablecasting;
. sponsorship identification; and
. closed captioning of video programming.
Use of Our Cable Systems by the Government and Unrelated Third Parties
The Communications Act allows local franchising authorities and unrelated
third parties to have access to our cable systems' channel capacity for their
own use. For example, it:
. permits franchising authorities to require cable operators to set aside
channels for public, educational and governmental access programming;
and
. requires a cable system with 36 or more activated channels to designate
a significant portion of its channel capacity for commercial leased
access by third parties to provide programming that may compete with
services offered by the cable operator.
The FCC regulates various aspects of third party commercial use of channel
capacity on our cable systems, including:
. the maximum reasonable rate a cable operator may charge for third party
commercial use of the designated channel capacity;
. the terms and conditions for commercial use of such channels; and
. the procedures for the expedited resolution of disputes concerning rates
or commercial use of the designated channel capacity.
The FCC has from time to time received petitions from Internet service
providers to require access to our cable systems. We cannot predict if these or
other similar proposals will be adopted, or, if adopted, whether they will have
an adverse impact on our business and operations.
Franchise Matters
We have non-exclusive franchises in virtually every community in which we
operate that authorize us to construct, operate and maintain our cable systems.
Although franchising matters are normally regulated at the local level through
a franchise agreement and/or a local ordinance, the Communications Act provides
oversight and guidelines to govern our relationship with local franchising
authorities. For example, the Communications Act:
. affirms the right of franchising authorities, which may be state or
local, depending on the practice in individual states, to award one or
more franchises within their jurisdictions;
. generally prohibits us from operating in communities without a
franchise;
. encourages competition with existing cable systems by:
-- allowing municipalities to operate their own cable systems without
franchises, and
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-- preventing franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area;
. permits local authorities, when granting or renewing our franchises, to
establish requirements for cable-related facilities and equipment, but
prohibits franchising authorities from establishing requirements for
specific video programming or information services other than in broad
categories;
. permits us to obtain modification of our franchise requirements from the
franchise authority or by judicial action if warranted by commercial
impracticability; and
. generally prohibits franchising authorities from:
-- imposing requirements during the initial cable franchising process
or during franchise renewal that require, prohibit or restrict us
from providing telecommunications services,
-- imposing franchise fees on revenues we derived from providing
telecommunications services over our cable systems,
-- restricting our use of any type of subscriber equipment or
transmission technology, and
-- limits our payment of franchise fees to the local franchising
authority to 5.0% of our gross revenues derived from providing cable
services over our cable system.
The Communications Act contains renewal procedures designed to protect us
against arbitrary denials of renewal of our franchises although, under certain
circumstances, the franchising authority could deny us a franchise renewal.
Moreover, even if our franchise is renewed, the franchising authority may seek
to impose upon us new and more onerous requirements, such as significant
upgrades in facilities and services or increased franchise fees as a condition
of renewal. Similarly, if a franchising authority's consent is required for the
purchase or sale of our cable system or franchise, the franchising authority
may attempt to impose more burdensome or onerous franchise requirements on us
in connection with a request for such consent. Historically, cable operators
providing satisfactory services to their subscribers and complying with the
terms of their franchises have almost always obtained franchise renewals. We
believe that we have generally met the terms of our franchises and have
provided quality levels of service. We anticipate that our future franchise
renewal prospects generally will be favorable.
Various courts have considered whether franchising authorities have the
legal right to limit the number of franchises awarded within a community and to
impose substantive franchise requirements. These decisions have been
inconsistent and, until the U.S. Supreme Court rules definitively on the scope
of cable operators' First Amendment protections, the legality of the
franchising process generally and of various specific franchise requirements is
likely to be in a state of flux.
Ownership Limitations
The Communications Act generally prohibits us from owning or operating a
satellite master antenna television system or multichannel multipoint
distribution system in any area where we provide franchised cable service and
do not have effective competition, as defined by federal law. We may, however,
acquire and operate a satellite master antenna television system in our
existing franchise service areas if the programming and other services provided
to the satellite master antenna television system subscribers are offered
according to the terms and conditions of our local franchise agreement.
The Communications Act also authorizes the FCC to adopt nationwide limits on
the number of subscribers under the control of a cable operator. A federal
district court has concluded that this subscriber limitation is
unconstitutional and the FCC has stayed its enforcement; an appeal of this
decision is pending in a federal
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appellate court. Pending further action by the federal courts, the FCC recently
reconsidered its cable ownership regulations and:
. reaffirmed its 30% nationwide subscriber ownership limit, but maintained
its voluntary stay on enforcement of that limitation pending further
action;
. reaffirmed its subscriber ownership information reporting rules that
require any person holding an attributable interest, as defined by FCC
rules, in cable systems reaching 20% or more of homes passed by cable
plant nationwide to notify the FCC of any incremental change in that
person's cable ownership interests;
. retained its 5% voting stock attribution benchmark;
. raised the passive investor voting stock benchmark from 10% to 20%; and
. adopted a new equity/debt rule that will attribute any interest of over
33% of the total assets, i.e., debt plus equity, voting or nonvoting, of
an entity.
The Communications Act and FCC regulations also impose limits on the number
of channels that can be occupied on a cable system by a video programmer in
which a cable operator has an interest. A federal district court has also
declared this statutory provision unconstitutional. An appeal of the district
court's decision has been consolidated with the appeal challenging the FCC's
subscriber ownership limitation regulations.
The 1996 amendments to the Communications Act eliminated the statutory
prohibition on the common ownership, operation or control of a cable system and
a television broadcast station in the same service area. The identical FCC
regulation remains in place pending re-examination, although the FCC has
eliminated its regulatory restriction on cross-ownership of cable systems and
national broadcasting networks.
The 1996 amendments to the Communications Act also made far-reaching changes
in the relationship between local telephone companies and cable service
providers. These amendments:
. eliminated federal legal barriers to competition in the local telephone
and cable communications businesses, including allowing local telephone
companies to offer video services in their local telephone service
areas;
. preempted legal barriers to telecommunications competition that
previously existed in state and local laws and regulations;
. set basic standards for relationships between telecommunications
providers; and
. generally limited acquisitions and prohibited joint ventures between
local telephone companies and cable operators in the same market.
Local telephone companies may provide service as traditional cable operators
with local franchises or they may opt to provide their programming over open
video systems, subject to certain conditions, including, but not limited to,
setting aside a portion of their channel capacity for use by unaffiliated
program distributors on a non-discriminatory basis. A federal appellate court
recently overturned various parts of the FCC's open video rules, including the
FCC's preemption of local franchising requirements for open video operators.
Pole Attachment Regulation
The Communications Act requires the FCC to regulate the rates, terms and
conditions imposed by public utilities for cable systems' use of utility pole
and conduit space unless state authorities have demonstrated to the FCC that
they adequately regulate pole attachment rates, as is the case in certain
states in which we operate. In the absence of state regulation, the FCC
administers pole attachment rates on a formula basis. The FCC's current rate
formula, which is being reevaluated by the FCC, governs the maximum rate
certain utilities may charge for attachments to their poles and conduit by
cable operators providing only cable services and until
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2001, by certain companies providing telecommunications services. The FCC also
adopted a new rate formula that will be effective in 2001 and will govern the
maximum rate certain utilities may charge for attachments to their poles and
conduit by companies providing telecommunications services, including cable
operators.
Any resulting increase in attachment rates due to the FCC's new rate formula
will be phased in over a five-year period in equal annual increments, beginning
in February 2001. Several parties have requested the FCC to reconsider its new
regulations and several parties have challenged the new rules in court. A
federal district court recently upheld the constitutionality of the new
statutory provision which requires that utilities provide cable systems and
telecommunications carriers with nondiscriminatory access to any pole, conduit
or right-of-way controlled by the utility. The lower court's decision was
upheld on appeal. We are unable to predict the ultimate impact of any revised
FCC rate formula or of any new pole attachment rate regulations on our business
and operations.
Other Regulatory Requirements of the Communications Act and the FCC
The Communications Act also includes provisions, among others, regulating:
. customer service;
. subscriber privacy;
. equal employment opportunity; and
. regulation of technical standards and equipment compatibility.
The FCC has adopted cable inside wiring rules to provide a more specific
procedure for the disposition of residential home wiring and internal building
wiring that belongs to an incumbent cable operator that is forced by the
building owner to terminate its cable services in a building with multiple
dwelling units. The FCC is also considering additional rules relating to inside
wiring that, if adopted, may disadvantage incumbent cable operators.
The FCC actively regulates other parts of our cable operations, involving
such areas as:
. equal employment opportunity;
. consumer protection and customer service;
. technical standards and testing of cable facilities;
. consumer electronics equipment compatibility;
. registration of cable systems;
. maintenance of various records and public inspection files;
. microwave frequency usage; and
. antenna structure notification, marking and lighting.
The FCC may enforce its regulations through the imposition of fines, the
issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate transmission facilities often used in connection with cable operations.
The FCC has ongoing rulemaking proceedings that may change its existing rules
or lead to new regulations. We are unable to predict the impact that any
further FCC rule changes may have on our business and operations.
Other bills and administrative proposals pertaining to cable communications
have previously been introduced in Congress or considered by other governmental
bodies over the past several years. It is probable that Congress and other
governmental bodies relating to the regulation of cable communications services
will make further attempts.
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Copyright
Our cable systems typically include in their channel line-ups local and
distant television and radio broadcast signals, which are protected by the
copyright laws. We generally do not obtain a license to use this programming
directly from the owners of the programming, but instead comply with an
alternative federal compulsory copyright licensing process. In exchange for
filing certain reports and contributing a percentage of our revenues to a
federal copyright royalty pool, we obtain blanket permission to retransmit the
copyrighted material carried on these broadcast signals. The nature and amount
of future copyright payments for broadcast signal carriage cannot be predicted
at this time.
Copyrighted music performed in programming supplied to cable television
systems by pay cable networks and basic cable networks is licensed by the
networks through private agreements with the American Society of Composers and
Publishers, commonly referred to as ASCAP, and BMI, Inc., the two major
performing rights organizations in the United States. Both the American Society
of Composers and Publishers and BMI offer through to the viewer licenses to the
cable networks which cover the retransmission of the cable networks'
programming by cable television systems to their customers.
Our cable systems also utilize music in other programming and advertising
that we provide to subscribers. The rights to use this music are controlled by
various music performing rights organizations which negotiate on behalf of
their copyright owners for license fees covering each performance. The cable
industry and the major music performing rights organizations are negotiating a
standard licensing agreement covering the performance of music contained in
advertising and other information inserted by operators into cable programming
and on local access and origination channels carried on cable systems. Rate
courts established by a New York federal court exist to determine appropriate
copyright coverage and royalty fees in the event the parties fail to reach a
settlement or to negotiate renewals of licensing agreements. Although we cannot
predict the ultimate outcome of these industry negotiations or the amount of
any license fees we may be required to pay for past and future use of music, we
do not believe such license fees will be significant to our financial position,
results of operations or liquidity.
State and Local Regulation
Our cable systems use local streets and rights-of-way. Consequently, we must
comply with state and local regulation, which is typically imposed through the
franchising process. Our cable systems generally are operated in accordance
with non-exclusive franchises, permits or licenses granted by a municipality or
other state or local government entity. Our franchises generally are granted
for fixed terms and in many cases are terminable if we fail to comply with
material provisions. The terms and conditions of our franchises vary materially
from jurisdiction to jurisdiction. Each franchise generally contains provisions
governing:
. franchise fees;
. franchise term;
. system construction and maintenance obligations;
. system channel capacity;
. design and technical performance;
. customer service standards;
. sale or transfer of the franchise;
. territory of the franchise;
. indemnification of the franchising authority;
. use and occupancy of public streets; and
. types of cable services provided.
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A number of states subject cable systems to the jurisdiction of centralized
state governmental agencies, some of which impose regulation of a character
similar to that of a public utility. Attempts in other states to regulate cable
systems are continuing and can be expected to increase. To date, no state in
which we operate has enacted such state level regulation. State and local
franchising jurisdiction is not unlimited; however, it must be exercised
consistently with federal law. The Communications Act immunizes franchising
authorities from monetary damage awards arising from regulation of cable
systems or decisions made on franchise grants, renewals, transfers and
amendments.
The foregoing describes all material present and proposed federal, state and
local regulations and legislation affecting the cable industry. Other existing
federal regulations, copyright licensing, and, in many jurisdictions, state and
local franchise requirements, are currently the subject of judicial
proceedings, legislative hearings and administrative proposals which could
change, in varying degrees, the manner in which cable systems operate. Neither
the outcome of these proceedings nor their impact upon the cable industry or
our cable operations can be predicted at this time.
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MANAGEMENT
Directors and Executive Officers
The table below sets forth our directors and executive officers. As of the
date of this prospectus, we have two directors. Upon completion of this
offering, the director nominees set forth below will be appointed to our board
of directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Rocco B. Commisso................. 50 Chairman and Chief Executive Officer
Mark E. Stephan................... 43 Senior Vice President, Chief Financial
Officer, Treasurer and Director
James M. Carey.................... 48 Senior Vice President, Operations
Joseph Van Loan................... 57 Senior Vice President, Technology
Italia Commisso Weinand........... 46 Senior Vice President, Programming and
Human Resources and Secretary
William S. Morris III............. 65 Director Nominee
Craig S. Mitchell................. 40 Director Nominee
Thomas V. Reifenheiser............ 64 Director Nominee
Natale S. Ricciardi............... 51 Director Nominee
Robert L. Winikoff................ 53 Director Nominee
</TABLE>
Rocco B. Commisso has 21 years of experience with the cable television
industry and has served as our Chairman and Chief Executive Officer since
founding Mediacom LLC in July 1995. From 1986 to 1995, he served as Executive
Vice President, Chief Financial Officer and a director of Cablevision
Industries Corporation. Prior to that time, Mr. Commisso served as Senior Vice
President of Royal Bank of Canada's affiliate in the United States from 1981,
where he founded and directed a specialized lending group to media and
communications companies. Mr. Commisso began his association with the cable
industry in 1978 at The Chase Manhattan Bank, where he was assigned to manage
the bank's lending activities to communications firms including the cable
industry. He serves on the board of directors of SoftNet Systems, Inc., the
National Cable Television Association and Cable Television Laboratories, Inc.
Mr. Commisso holds a Bachelor of Science in Industrial Engineering and a Master
of Business Administration from Columbia University.
Mark E. Stephan has 12 years of experience with the cable television
industry and has served as our Senior Vice President, Chief Financial Officer
and Treasurer since the commencement of our operations in March 1996. He is a
member of the executive committee of Mediacom LLC. Before joining us, Mr.
Stephan served as Vice President, Finance for Cablevision Industries from July
1993. Prior to that time, Mr. Stephan served as Manager of the
telecommunications and media lending group of Royal Bank of Canada.
James M. Carey has 18 years of experience in the cable television industry.
Before joining us in September 1997, Mr. Carey was founder and President of
Infinet Results, a telecommunications consulting firm, from December 1996. Mr.
Carey served as Executive Vice President, Operations at MediaOne Group from
August 1995 to November 1996, where he was responsible for MediaOne's Atlanta
cable operations. Prior to that time, he served as Regional Vice President of
Cablevision Industries' Southern Region. Mr. Carey is a member of the board of
directors of the American Cable Association.
Joseph Van Loan has 27 years of experience in the cable television industry.
Before joining us in November 1996, Mr. Van Loan served as Senior Vice
President, Engineering for Cablevision Industries from 1990. Prior to that
time, he managed a private telecommunications consulting practice specializing
in domestic and international cable television and broadcasting and served as
Vice President, Engineering for Viacom Cable. Mr. Van Loan received the 1986
Vanguard Award for Science and Technology from the National Cable Television
Association.
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Italia Commisso Weinand has 23 years of experience in the cable television
industry. Before joining us in April 1996, Ms. Weinand served as Regional
Manager for Comcast Corporation from July 1985. Prior to that time, Ms. Weinand
held various management positions with Tele-Communications, Times Mirror Cable
and Time Warner. She serves on the board of directors of the National Cable
Television Cooperative, Inc., a programming consortium consisting of small to
medium-sized multiple system operators. Ms. Weinand is the sister of Mr.
Commisso.
William S. Morris III is a nominee to become a member of our board of
directors upon the completion of this offering. He is a member of the executive
committee of Mediacom LLC. Mr. Morris has served as the Chairman and Chief
Executive Officer of Morris Communications for more than the past five years.
He is the Chairman of the board of directors of the Newspapers Association of
America.
Craig S. Mitchell is a nominee to become a member of our board of directors
upon the completion of this offering. He is a member of the executive committee
of Mediacom LLC. Mr. Mitchell has held various management positions with Morris
Communications for more than the past five years. He currently serves as its
Vice President, Finance and Treasurer and is also a member of its board of
directors.
Thomas V. Reifenheiser is a nominee to become a member of our board of
directors upon the completion of this offering. Mr. Reifenheiser has been a
Managing Director and Group Executive for the Global Media and Telecom Group of
Chase Securities Inc. for more than the past five years. He joined Chase in
1963 and has been the Global Media and Telecom Group Executive since 1977.
Natale S. Ricciardi is a nominee to become a member of our board of
directors upon the completion of this offering. Mr. Ricciardi has held various
management positions with Pfizer Inc. for more than the past five years. He
joined Pfizer in 1972 and currently serves as Vice President of Pfizer Global
Manufacturing with responsibility for all of Pfizer's U.S. manufacturing
plants.
Robert L. Winikoff is a nominee to become a member of our board of directors
upon the completion of this offering. He is a member of the executive committee
of Mediacom LLC. Mr. Winikoff has been a partner of the New York City law firm
of Cooperman Levitt Winikoff Lester & Newman, P.C. for more than the past five
years, which has served as our general outside counsel since 1995. He is a
member of the board of directors of Young Broadcasting Inc., an owner and
operator of broadcast television stations.
Key Employees
The table below sets forth our key employees as of the date of this
prospectus.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Calvin G. Craib............. 45 Vice President, Business Development
Bruce J. Gluckman........... 46 Vice President, Legal and Regulatory Affairs
Richard L. Hale............. 50 Vice President, Midwest Region
Dale E. Ordoyne............. 49 Vice President, Southern Region
John G. Pascarelli.......... 38 Vice President, Marketing
Brian M. Walsh.............. 33 Vice President and Controller
William D. Wegener.......... 38 Vice President, Network Development
Arnold P. Cool.............. 51 Regional Director, Central Region
Louis Gentile............... 39 Regional Director, Western Region
Richard P. Hanson........... 45 Regional Director, North Central Region
Donald E. Zagorski.......... 40 Regional Director, Mid-Atlantic Region
</TABLE>
Calvin G. Craib has 17 years experience in the cable television industry.
Before joining us in April 1999, Mr. Craib served as Vice President, Finance
and Administration for Interactive Marketing Group from June 1997 to December
1998. Mr. Craib served as Senior Vice President, Operations, and Chief
Financial Officer for Douglas Communications from January 1990 to May 1997.
Prior to that time, Mr. Craib served in various financial management capacities
at Warner Amex Cable and Tribune Cable.
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Bruce J. Gluckman has seven years of experience in the cable television
industry. Before joining us as Director of Legal Affairs in February 1998, Mr.
Gluckman was in private law practice from January 1996 to October 1997. From
June 1993 to January 1996, he served as a Staff Attorney for Cablevision
Industries. Mr. Gluckman has 20 years of experience in the practice of law.
Richard L. Hale has 15 years of experience in the cable television industry.
Before joining us as Regional Manager for the Central Region in January 1998,
Mr. Hale served as Regional Manager of Cablevision Systems' Kentucky/Missouri
region and as Sales and Marketing Director from 1988 to 1998. Mr. Hale began
his career in the cable television industry in 1984 as Regional Sales and
Marketing Director for Adams-Russell Cable.
Dale E. Ordoyne has 17 years of experience in the cable television industry.
Before joining us in October 1999, Mr. Ordoyne served as Vice President,
Marketing for MediaOne Group from 1995, where he was responsible for all
marketing activities for the Atlanta cluster comprised of 500,000 basic
subscribers. Prior to that time, Mr. Ordoyne served in various marketing and
system management capacities for Cablevision Industries and Cox Communications.
John G. Pascarelli has 19 years of experience in the cable television
industry. Before joining us in March 1998, Mr. Pascarelli served as Vice
President, Marketing for Helicon from January 1996 to February 1998 and as
Corporate Director of Marketing for Cablevision Industries from 1988 to 1995.
Prior to that time, Mr. Pascarelli served in various marketing and system
management capacities for Continental Cablevision, Cablevision Systems and
Storer Communications.
Brian M. Walsh has 11 years of experience in the cable television industry.
Before joining us in April 1996 as Director of Accounting, Mr. Walsh served as
financial analyst for Helicon from January 1996 to March 1996. Prior to that
time, Mr. Walsh served in various financial management capacities for
Cablevision Industries, including Business Manager from January 1992 to
December 1995. Mr. Walsh began his career in the cable television industry in
1988 when he joined Cablevision Industries as a staff accountant.
William D. Wegener has 18 years of experience in the cable television
industry. Before joining us in February 1998, Mr. Wegener served as Senior
Sales Engineer for C-Cor Electronics from October 1995 to October 1997. Prior
to that time, Mr. Wegener served in various engineering capacities for
Cablevision Industries. He is a member of the Society of Cable
Telecommunications Engineers.
Arnold P. Cool has 21 years of experience in the cable television industry.
Before joining us in January 1998, he served in various capacities for
Cablevision Systems' cable television systems in Kentucky and Missouri from
April 1993. Prior to that time, Mr. Cool held various technical and supervisory
responsibilities for Cablevision Systems and for smaller cable television
companies.
Louis Gentile has 10 years of experience in the cable television industry.
Before joining us as Divisional Business Manager in January 1998, Mr. Gentile
served in various financial management capacities for Cablevision Systems from
January 1992. Mr. Gentile began his career in the cable television industry in
1989 when he joined MultiVision Cable as a financial analyst.
Richard P. Hanson has 21 years of experience in the cable television
industry. Mr. Hanson joined us upon the closing of the Triax acquisition on
November 5, 1999. Before joining us, Mr. Hanson served in various capacities
for Triax, most recently as Director of Operations, from March 1988 to October
1999. Prior to joining Triax, he served as Manager for Combined Cable and for
Star Cablevision.
Donald E. Zagorski has 18 years of experience in the cable television
industry. Before joining us in June 1997, Mr. Zagorski served as System and
Regional Manager for Tele-Media Company from March 1990. Prior to that time,
Mr. Zagorski held various technical and supervisory positions with Outer Banks
Cablevision and Group W Cable.
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All directors hold office until the next annual meeting of stockholders and
until their successors have been elected and qualify. All executive officers
and key employees serve at the discretion of the board of directors. Mr.
Commisso has agreed to cause the election of two directors designated by Morris
Communications so long as Morris Communications continues to own at least 20%
of our outstanding common stock, and one such director so long as it continues
to own at least 10% of our outstanding common stock. In accordance with this
agreement, Mr. Morris and Mr. Mitchell have been designated as directors by
Morris Communications and will be appointed to our board of directors upon
completion of this offering.
Committees of the Board of Directors
Upon closing of this offering, we will appoint an audit committee, a
compensation committee and a stock option committee.
Audit Committee
The members of the audit committee will be Craig S. Mitchell, Thomas V.
Reifenheiser and Natale S. Ricciardi. The responsibilities of the audit
committee include:
. recommending the appointment of independent accountants;
. reviewing the arrangements for and scope of the audit by independent
accountants;
. reviewing the independence of the independent accountants;
. considering the adequacy of the system of internal accounting controls
and review any proposed corrective actions;
. reviewing and monitoring our policies regarding business ethics and
conflicts of interest;
. discussing with management and the independent accountants our draft
annual financial statements and key accounting and reporting matters;
and
. reviewing the activities and recommendations of our accounting
department.
Compensation Committee
The members of the compensation committee will be Rocco B. Commisso, William
S. Morris III and Robert L. Winikoff. The compensation committee has authority
to review and make recommendations to our board of directors with respect to
the compensation of our executive officers.
Stock Option Committee
The members of the stock option committee will be Thomas V. Reifenheiser,
Natale S. Ricciardi and Robert L. Winikoff. The stock option committee
administers our 1999 stock option plan and determines, among other things, the
time or times at which options will be granted, the recipients of grants,
whether a grant will consist of incentive stock options, nonqualified stock
options or stock appreciation rights, which may be in tandem with an option or
free-standing, or a combination thereof, the option periods, whether an option
is exercisable for Class A common stock or Class B common stock, the
limitations on option exercise and the number of shares to be subject to such
options, taking into account the nature and value of services rendered and
contributions made to our success. The stock option committee also has
authority to interpret the plan and, subject to certain limitations, to amend
provisions of the plan as it deems advisable.
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Director Compensation
Those directors who are not also our employees will not receive annual
compensation. Upon completion of this offering, we will grant each of Craig S.
Mitchell and Robert L. Winikoff options to purchase 30,000 shares of Class A
common stock, and we will grant each of William S. Morris III, Thomas V.
Reifenheiser and Natale S. Ricciardi options to purchase 20,000 shares of Class
A common stock at an exercise price equal to the public offering price set
forth on the cover page of this prospectus. Non-employee directors will also
receive reimbursement of out-of-pocket expenses incurred for each board meeting
or committee meeting attended.
Executive Compensation
Prior to the consummation of this offering, excluding James M. Carey, we did
not make any payment in respect of compensation to any of our executive
officers. These executive officers received compensation from Mediacom
Management, which was entitled to receive management fees from our
subsidiaries. Mr. Carey received his compensation from one of our operating
subsidiaries, Mediacom Southeast LLC, prior to the completion of this offering.
For more information regarding the management fees paid by our subsidiaries to
Mediacom Management, see "Certain Relationships and Related Transactions--
Management Agreements." Following the consummation of this offering, we will
pay compensation to our executive officers.
Except where otherwise indicated, the following table summarizes the
compensation paid in 1999 and 1998 by Mediacom Management to our Chief
Executive Officer and our four other most highly compensated executive officers
who received total compensation in excess of $100,000:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------
Other Annual
Name and Principal Position Year Salary($) Bonus($) Compensation($)
- --------------------------- ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Rocco B. Commisso...................... 1999 100,000 -- --
Chairman and Chief Executive Officer 1998 100,000 -- --
Mark E. Stephan........................ 1999 200,000 -- --
Senior Vice President, Chief Financial 1998 190,769 132,034 --
Officer, Treasurer and Director
James M. Carey(1)...................... 1999 140,769 20,000 --
Senior Vice President, Operations 1998 106,154 15,000 35,500(2)
Joseph Van Loan........................ 1999 200,000 -- --
Senior Vice President, Technology 1998 190,769 132,034 --
Italia Commisso Weinand................ 1999 136,923 -- --
Senior Vice President, Programming and 1998 130,693 99,026 --
Human Resources and Secretary
</TABLE>
- ------------
(1) Mr. Carey's compensation was paid by one of our operating subsidiaries,
Mediacom Southeast LLC.
(2) Represents consulting fees from January 1, 1998 to February 2, 1998.
The amounts set forth in the above table do not include the receipt by Mark
E. Stephan, James M. Carey, Joseph Van Loan and Italia Commisso Weinand of
membership units in Mediacom LLC from Rocco B. Commisso as described in "--
Employment Arrangements" below.
Employment Arrangements
Mark E. Stephan, James M. Carey, Joseph Van Loan, Italia Commisso Weinand
and several of our other employees have entered into employment arrangements
setting forth the terms of their at-will employment with us. Pursuant to the
employment arrangements, Rocco B. Commisso delivered to each of these employees
a specified number of membership units in Mediacom LLC, which were owned by Mr.
Commisso. Approximately 55% of the membership units were fully vested and
nonforfeitable on the date of grant. During
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the fourth quarter of 1999, we will record a one-time $13.5 million non-
recurring, non-cash compensation charge relating to these vested and
nonforfeitable membership units based on an initial public offering price of
$17.50. We will also record deferred compensation for $11.1 million relating to
the nonvested and forfeitable membership interests and will record this
compensation in expense over a period of five to eight years.
In connection with this offering, such membership units are being exchanged
for an aggregate of 1,406,346 shares of our Class B common stock and options to
acquire an aggregate of 348,892 shares of our Class B common stock at an
exercise price equal to the initial public offering price set forth on the
cover page of this prospectus. Such shares and options initially are subject to
vesting in five equal annual installments, which vesting period is deemed to
have commenced for each officer on various dates prior to this offering. All
such shares and options which vest initially are nonetheless subject to
potential forfeiture during the first three years after vesting under the
circumstances described below. If the employee desires to sell the vested
shares and options, or if the employee's employment with us is terminated for
any reason, Mr. Commisso will have the option to purchase such shares or
options at their fair market value. In the event that Mr. Commisso exercises
this purchase option, a portion of the shares or options vested for less than
three years will nonetheless be forfeited to Mr. Commisso if, during such three
year period, such employee voluntarily terminates his employment with us or
elects to sell such shares or exercise such options, or if such employee's
employment with us is terminated for cause. No forfeiture of vested shares or
options will occur if Mr. Commisso elects not to exercise his purchase option,
or if the employee is terminated by us without cause or as a result of death or
disability. Upon a change of control, all such shares will vest and not be
subject to forfeiture. Each of the employees has granted to Mr. Commisso an
irrevocable proxy with respect to all voting rights relating to their shares of
common stock following the exchange. At the request of any of these employees,
Mr. Commisso will make a loan to the employee in the amount of any tax
liability resulting from such employee's receipt of our options in exchange for
membership units in Mediacom LLC. Such loan would be secured by such employee's
shares of common stock and options. Each of the employment arrangements also
provides that if we terminate the employee's employment without cause, the
employee is entitled to a severance payment equal to six months of base salary
and precludes the employee from competing with us for a period of three years
following termination.
1999 Stock Option Plan
Our board of directors adopted our 1999 stock option plan which became
effective as of December 20, 1999. We have reserved 9,000,000 shares of common
stock, or 9,300,000 shares if the underwriters' over-allotment option is
exercised in full, with respect to which options and stock appreciation rights
may be granted under the plan. Regardless of whether the underwriters' over-
allotment option is exercised, a maximum of 7,000,000 shares of our common
stock reserved under the plan may be granted as incentive stock options
qualified for favorable tax treatment to the holder under Internal Revenue Code
Section 422. The purpose of the plan is to promote our interests and the
interests of our stockholders by strengthening our ability to attract and
retain competent employees, to make service on our board of directors more
attractive to present and prospective non-employee directors and to provide a
means to encourage stock ownership and proprietary interest in us by our
officers, non-employee directors and valued employees and other individuals
upon whose judgment, initiative and efforts our financial success and growth
largely depend.
The plan may be administered by either the entire board of directors or a
committee consisting of two or more members of the board of directors, each of
whom is a non-employee director. The plan will be administered by the stock
option committee which will consist solely of non-employee directors.
Incentive stock options may be granted only to our officers and key
employees and the officers and key employees of our subsidiaries. Nonqualified
stock options and stock appreciation rights may be granted to our officers, key
employees, directors, agents and consultants and the officers and employees of
our subsidiaries. In determining the eligibility of an individual for grants
under the plan, as well as in determining the number of shares to be optioned
to any individual, the stock option committee takes into account the
recommendations of our Chairman of the Board, Mr. Commisso, the position and
responsibilities of the individual being considered, the length of such
individual's employment with us or our subsidiaries, the nature and value to us
or our
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subsidiaries of his or her service or accomplishments, his or her present or
potential contribution to the success of us or our subsidiaries and such other
factors as the stock option committee may deem relevant. In making
recommendations to the stock option committee, Mr. Commisso expects to focus
upon individuals who would be motivated by a direct economic stake in us.
Options may provide for their exercise into shares of any class of our common
stock.
The plan provides for the granting of incentive stock options to purchase
our common stock at not less than the fair market value on the date of the
option grant and the granting of nonqualified options with any exercise price.
Stock appreciation rights may be granted with an exercise price equal to the
fair market value of a share of our common stock on the date of grant of the
stock appreciation right. Stock appreciation rights granted in tandem with an
option have the same exercise price as the related option. Upon completion of
this offering, options for an aggregate of 2,920,000 shares of our common
stock, comprised of 1,971,108 shares of Class A common stock and 948,892 shares
of Class B common stock, or 3,013,334 shares of our common stock, comprised of
1,959,479 shares of Class A common stock and 1,053,855 shares of Class B common
stock, if the underwriters' over-allotment option is exercised in full, will
have been granted under the plan to various individuals at an exercise price
equal to the public offering price set forth on the cover page of this
prospectus. Such options will vest at various times over five years. Vesting is
contingent on continuous employment with us. Options that do not vest will be
forfeited.
The plan also contains limitations applicable only to incentive stock
options granted thereunder. To the extent that the aggregate fair market value,
as of the date of grant, of the shares to which incentive stock options become
exercisable for the first time by an optionee during the calendar year exceeds
$100,000, the option will be treated as a nonqualified option. In addition, if
an optionee owns more than 10% of the total combined voting power of all
classes of our capital stock or that of our parent or any of our subsidiaries
at the time the individual is granted an incentive stock option, the option
price per share of the incentive stock option cannot be less than 110% of the
fair market value per share as of the date of grant and the term of the
incentive stock option cannot exceed five years. No option or stock
appreciation right may be granted under the plan after December 19, 2009, and
no option or stock appreciation right may have a term of more than ten years
after the date of its grant.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash, check or, under certain
circumstances, in shares of our common stock having a fair market value equal
to the exercise price of the options, or any combination thereof. Stock
appreciation rights, which give the holder the privilege of surrendering such
rights for the appreciation in the underlying common stock between the time of
the grant and the surrender, may be settled, in the discretion of the stock
option committee in cash, in shares of our common stock valued at their fair
market value on the date of exercise of the stock appreciation right, or in any
combination thereof. The exercise of a stock appreciation right granted in
tandem with an option cancels the option to which it relates with respect to
the same number of shares as to which the stock appreciation right was
exercised. The exercise of an option cancels any related stock appreciation
right with respect to the same number of shares as to which the option was
exercised. Generally, options and stock appreciation rights may be exercised
while the recipient is performing services for us and within three months after
termination of such services.
The plan may be terminated at any time by the board of directors, which may
also amend the plan, except that without stockholder approval, it may not
increase the number of shares subject to the plan or change the class of
persons eligible to receive options under the plan.
1999 Employee Stock Purchase Plan
Our board of directors adopted our 1999 employee stock purchase plan which
became effective as of December 20, 1999. Our employee stock purchase plan is
intended to qualify under Section 423 of the Internal Revenue Code of 1986, as
amended. We have reserved 1,000,000 shares of our Class A common stock for
issuance under the plan. The plan may be administered by either the entire
board of directors or a committee of the board of directors. The plan will be
administered by the compensation committee.
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All persons employed by us or any of our subsidiaries on the date of this
offering are eligible to participate in the employee stock purchase plan
provided they customarily perform for us at least 20 hours of services per week
and for more than five months in any calendar year. The plan covers four
offering periods, each lasting six months. The offering periods commence on
February 1 and August 1 of each year covered by the plan, except that the first
offering period will start on the date of this prospectus and end on July 31,
2000. Eligible employees on the date of this offering will automatically
participate in the plan unless they fail to enroll in payroll deductions within
30 days following the date of this prospectus.
Our employee stock purchase plan allows for each participating employee to
purchase common stock through payroll deductions. Each employee's payroll
deductions for any period may not exceed 15% of the employee's compensation for
such period up to a maximum aggregate deduction of $21,250 for each period.
Purchases of our common stock will occur on the final trading day of each
offering period. No employee may be granted an option under the plan if
immediately after the grant the employee would own our capital stock and/or
options to purchase our common stock possessing 5% or more of the total
combined voting power or value of all classes of capital stock of us or any of
our subsidiaries. In addition, the total value of the shares purchased by a
participant in any calendar year, measured as of the beginning of the offering
period, may not exceed $25,000.
The price of each share of common stock purchased under our employee stock
purchase plan will be 85% of the lower of:
. the fair market value per share of common stock on the date of this
prospectus; or
. the fair market value per share of common stock on the final trading day
of each applicable offering period.
Employees may end their participation in the employee stock purchase plan at
any time. Participation ends automatically upon termination of employment with
us. Our board of directors may amend or terminate the employee stock purchase
plan at any time. If our board increases the number of shares of common stock
reserved for issuance under the plan, it must seek the approval of our
stockholders.
401(k) Plan
We maintain a retirement plan established in conformity with Section 401(k)
of the Internal Revenue Code of 1986, covering all of our eligible employees.
In accordance with the 401(k) plan, employees may elect to defer up to 15% of
their current pre-tax compensation and have the amount of the deferral
contributed to the 401(k) plan. The maximum elective deferral contribution was
$10,000 in each of 1998 and 1999 subject to adjustment for cost-of-living in
subsequent years. Certain highly compensated employees may be subject to a
lesser limit on their maximum elective deferral contribution. The 401(k) plan
permits, but does not require, us to make matching contributions and non-
matching, profit sharing, contributions up to a maximum dollar amount or
maximum percentage of participant or employee contributions. Our contributions
under the plan totaled approximately $10,000, $14,000, $264,000 and $241,000
for the period ended December 31, 1996, the years ended December 31, 1997 and
1998, and for the period ended September 30, 1999, respectively.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following discussion sets forth certain relationships and related
transactions of us and our subsidiary, Mediacom LLC, and its operating
subsidiaries.
Management Agreements
Each of our operating subsidiaries is a party to a management agreement with
Mediacom Management, which is owned by Mr. Commisso. Under these agreements,
Mediacom Management provides management services to our operating subsidiaries
and is paid annual management fees. Until November 19, 1999, the management fee
was 5.0% of the first $50.0 million of our annual gross operating revenues,
4.5% of annual gross operating revenues in excess of $50.0 million, up to $75.0
million, and 4.0% of annual gross operating revenues in excess of $75.0
million. For the period ended December 31, 1996, for the years ended
December 31, 1997 and 1998 and for the nine months ended September 30, 1999,
management fees paid to Mediacom Management were approximately $235,000,
$812,000, $4.9 million and $4.2 million. The management agreements were amended
effective November 19, 1999 in connection with an amendment to Mediacom LLC's
operating agreement to provide for annual management fees equal to 2% of annual
gross operating revenues. In addition, Mediacom Management agreed to waive all
management fees accrued from July 1, 1999 through November 19, 1999. Each of
the management agreements will be terminated upon completion of this offering,
and employees of Mediacom Management will become our employees.
Transaction Fees and Expense Reimbursement
Mediacom LLC's operating agreement was amended effective November 19, 1999.
Prior to the amendment, the operating agreement provided that Mediacom
Management be paid a fee of 1.0% of the purchase price of acquisitions made by
Mediacom LLC until its pro forma annual consolidated operating revenues equaled
$75.0 million, and thereafter 0.5% of the purchase price. For the period ended
December 31, 1996 and for the years ended December 31, 1997 and 1998,
acquisition fees paid to Mediacom Management were approximately $453,000,
$544,000 and $3.3 million. No acquisition fees were required to be paid during
the nine months ended September 30, 1999 because there were no acquisitions
completed during the period. Acquisition fees in the aggregate amount of
approximately $3.8 million in connection with the Triax and Zylstra
acquisitions have been waived by Mediacom Management. In accordance with the
amended operating agreement, no further acquisition fees will be payable after
November 19, 1999.
The operating agreement also provides for reimbursement of reasonable out-
of-pocket expenses incurred by Mediacom Management in connection with the
operation of the business of Mediacom LLC and acting on behalf of Mediacom LLC
in connection with any potential acquisition of a cable system. Mediacom LLC
reimbursed Mediacom Management approximately $529,000, $59,000, $53,000 and $0
for the period ended December 31, 1996, for the years ended December 31, 1997
and 1998 and for the nine months ended September 30, 1999.
Purchase of Assets
We have entered into an agreement with Mediacom Management to purchase all
of its assets upon the completion of this offering. We will pay Mediacom
Management approximately $700,000 for the furniture, computers and other office
equipment that Mediacom Management purchased to conduct its operations. The
purchase price to be paid to Mediacom Management for such assets will
approximate their carrying value.
Other Relationships
Prior to the issuance of our common stock in exchange for all membership
interests in Mediacom LLC, Chase Manhattan Capital, LLC and CB Capital
Investors, LLC were members of Mediacom LLC. Chase Manhattan Capital, LLC and
CB Capital Investors, LLC are parties related to Chase Securities Inc. and The
Chase Manhattan Bank. For the years ended December 31, 1997 and 1998, Chase
Securities Inc. received fees of approximately $1.4 million and $444,000 for
its role as placement agent in connection with the original
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placement of membership interests in Mediacom LLC. In addition, for the year
ended December 31, 1998, Chase Securities Inc. received a fee of approximately
$1.8 million for its role as advisor in connection with our acquisition of the
Cablevision systems. For the year ended December 31, 1998, The Chase Manhattan
Bank received fees of $200,000 in connection with the provision of a letter of
credit in favor of the sellers of the Cablevision systems to secure our
performance of certain obligations under the acquisition agreement.
Chase Securities Inc. was the arranger and The Chase Manhattan Bank served
as the administrative agent and a lender under each of our former subsidiary
credit facilities. For the period ended December 31, 1996, and for the years
ended December 31, 1997 and 1998, Chase Securities Inc. and The Chase Manhattan
Bank received aggregate fees of approximately $600,000, $375,000 and $2.9
million for these services. In addition, Chase Securities Inc. was the arranger
and The Chase Manhattan Bank is the administrative agent and a lender under
each of our subsidiary credit facilities. For these services, Chase Securities
Inc. and The Chase Manhattan Bank received aggregate fees of $1.0 million to
date in 1999. We expect to use the net proceeds from this offering to repay
outstanding indebtedness under our subsidiary credit facilities. The Chase
Manhattan Bank will receive its proportionate share of the repayment. In 1998,
we repaid promissory notes held by The Chase Manhattan Bank in the aggregate
principal amount of $20.0 million, plus accrued interest in the amount of
$300,000.
Chase Securities Inc. acted as an initial purchaser in connection with the
offering of our 8 1/2% senior notes in 1998 and our 7 7/8% senior notes in
1999. Chase Securities Inc. received fees in the amount of approximately $5.5
million in 1998 and $3.1 million in 1999 in connection with the offerings.
Chase Securities Inc. acted as an advisor in connection with our acquisition
of the Triax systems. For these services, Chase Securities Inc. received a fee
in the amount of $3.0 million. Upon completion of this offering, one individual
associated with Chase Securities Inc., Thomas V. Reifenheiser, will become a
member of our board of directors.
Prior to the issuance of our common stock in exchange for all membership
interests in Mediacom LLC, Morris Communications was a member of Mediacom LLC.
Morris Communications received commitment fees of approximately $2.0 million in
1998 and $268,000 in 1999 in connection with its capital contributions to
Mediacom LLC. Upon completion of this offering, two individuals associated with
Morris Communications, William S. Morris III and Craig S. Mitchell, will become
members of our board of directors.
Prior to the issuance of our common stock in exchange for all membership
interests in Mediacom LLC, U.S. Investor, Inc. was a member of Mediacom LLC. In
connection with its purchase of a cable television system in Kern County,
California from Booth American Company, the parent of U.S. Investor, one of our
subsidiaries issued to Booth American Company an unsecured senior subordinated
note in the original amount of $2.8 million. Interest on the note was deferred
throughout the term and was payable on prepayment or at maturity on June 28,
2006. In 1998, the annual interest rate on the note was 9.0%. The note,
together with all accrued interest, was repaid on September 24, 1999.
Until November 3, 1999, Mediacom LLC's operating agreement obligated its
members to make capital contributions to Mediacom LLC. The following table sets
forth the capital contributions made since January 1, 1997 by those members of
Mediacom LLC who owned more than 5% of its membership interests. The capital
contributions made by those members on November 3, 1999 are part of the $10.5
million equity contribution made by the members of Mediacom LLC in connection
with the acquisition of the Triax systems.
<TABLE>
<CAPTION>
Date of Capital Contribution
----------------------------------------------
June 22, September 18, January 22, November 3,
Member 1997 1997 1998 1999
- ------ -------- ------------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Investor, Inc. ........... $1,950.0 $ 500.0 $ 2,293.8 $ 256.2
Morris Communications
Corporation................... 9,750.0 2,500.0 79,832.5 8,917.5
CB Capital Investors, LLC...... 3,900.0 1,000.0 4,587.6 512.4
</TABLE>
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Robert L. Winikoff, one of our director nominees, is a partner at the law
firm of Cooperman Levitt Winikoff Lester & Newman, P.C., that has served as our
general outside counsel on various matters. Cooperman Levitt Winikoff Lester &
Newman, P.C. received fees from Mediacom LLC in the amount of $409,000 in 1996,
$462,000 in 1997 and $807,000 in 1998.
Changes to Organizational Structure
We are a newly formed Delaware corporation. Immediately prior to this
offering, we will issue 40,977,562 shares of our Class A common stock and
29,022,438 shares of our Class B common stock in exchange for all of the
outstanding membership interests of Mediacom LLC, which currently serves as the
holding company for our operating subsidiaries. As a result, we will become the
parent company of Mediacom LLC, which will continue to serve as the holding
company of our subsidiaries.
Mediacom LLC's amended operating agreement provides that upon the occurrence
of certain events, including this offering, the executive committee of Mediacom
LLC will make a determination of the aggregate equity value of Mediacom LLC.
Based on this determination, Mediacom LLC will issue additional membership
interests to its members, each having a value upon issuance of $1,000. Giving
effect to this offering at an initial public offering price of $17.50 per share
and a determination of the aggregate equity value of Mediacom LLC of $1.225
billion, Mediacom LLC will issue additional membership interests to its members
based upon such determination immediately prior to this offering. These newly
issued membership interests will be exchanged for our common stock.
Mediacom LLC's amended operating agreement contains provisions relating to a
special allocation of membership interests to Mr. Commisso, our executive
officers and some of our non-executive officers under certain circumstances. In
accordance with these special allocation provisions, Mr. Commisso was issued
additional membership interests that had a value upon issuance of $600,000,
$3.7 million and $57.9 million in 1997, 1998 and 1999. Upon completion of this
offering, Mediacom LLC's amended operating agreement will be further amended to
remove these special allocation provisions. In connection with the amendment
and the removal of a portion of the special allocation provisions of the
operating agreement and the amendments to our management agreements with
Mediacom Management on November 19, 1999, Mr. Commisso and such executive and
non-executive officers will be issued new membership interests representing
16.5% of the aggregate equity value of Mediacom LLC, which amount is then
adjusted to give effect to the dilution of the equity interests of Mr. Commisso
and related parties resulting from the issuance of such new membership
interests. These newly issued membership interests, as adjusted for such
dilution effect, will be exchanged for 7,295,025 shares of our Class B common
stock, which will have an aggregate value of approximately $127.7 million at
$17.50 per share.
In addition, in connection with the amendment and the removal of the
remainder of the special allocation provisions of the operating agreement,
Rocco Commisso, Mark Stephan, James Carey, Joseph Van Loan, Italia Commisso
Weinand and nine of our non-executive officers will receive options to purchase
6,851,108, 95,014, 53,208, 64,610, 64,610 and an aggregate of 71,451 shares of
our Class B common stock, or 7,079,479, 98,181, 54,981, 66,763, 66,763 and an
aggregate of 73,832 shares of our Class B common stock, if the underwriters'
over-allotment option is exercised in full. These options have a term of five
years and are exercisable, commencing six months after the date of this
prospectus, at a price equal to the initial public offering price set forth on
the cover page of this prospectus. Except for shares of common stock and
options held by Mr. Commisso, the shares and options initially are subject to
vesting in five equal annual installments, which vesting period is deemed to
have commenced for each officer on various dates prior to this offering. All
such shares and options which vest initially are nonetheless subject to
potential forfeiture during the first three years after vesting under the
circumstances described below. If a beneficial owner other than Mr. Commisso
desires to sell such vested shares or exercise such options, or if such
beneficial owner's employment with us is terminated for any reason, Mr.
Commisso will have the option to purchase such shares or options at their fair
market value. In the event that Mr. Commisso exercises this purchase option, a
portion of the shares or options
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vested for less than three years will nonetheless be forfeited to Mr. Commisso
if, during such three year period, such owner voluntarily terminates his
employment with us or elects to sell such shares or exercise such options,
or if such owner's employment with us is terminated for cause. No forfeiture of
vested shares or options will occur if Mr. Commisso elects not to exercise his
purchase option, or if the employee is terminated by us without cause or as a
result of death or disability. Upon a change of control, all such shares will
vest and not be subject to forfeiture.
Registration Rights
We and Rocco B. Commisso, Morris Communications, CB Capital Investors, Chase
Manhattan Capital, U.S. Investor, Private Market Fund and our less than 5%
stockholders have entered into a registration rights agreement with respect to
their shares of common stock. For additional information concerning the
registration rights agreement, see "Shares Eligible for Future Sale--
Registration Rights."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock, after giving effect to the issuance
of our common stock in exchange for all membership interests in Mediacom LLC,
by:
. each person known by us to beneficially own more than 5% of any class of
our common stock;
. each of our directors and director nominees;
. our Chief Executive Officer and our four other most highly compensated
executive officers; and
. all of our directors, director nominees and executive officers as a
group.
The amounts and percentages of common stock beneficially owned are reported
on the basis of regulations of the Securities and Exchange Commission governing
the determination of beneficial ownership of securities. Under the rules of the
Securities and Exchange Commission, a person is deemed to be a beneficial owner
of a security if that person has or shares voting power, which includes the
power to vote or to direct the voting of such security, or investment power,
which includes the power to dispose of or to direct the disposition of such
security. Unless otherwise indicated below, each beneficial owner named in the
table below has sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where applicable.
Holders of Class A common stock are entitled to one vote per share, while
holders of Class B common stock are entitled to ten votes per share. Holders of
both classes of common stock will vote together as a single class on all
matters presented for a vote, except as otherwise required by law. The
information set forth in the following table excludes any shares of our common
stock purchased in this offering by the respective beneficial owner. Percentage
of beneficial ownership of Class A common stock is based on 40,977,562 shares
of Class A common stock outstanding immediately prior to this offering and
60,977,562 shares of Class A common stock outstanding immediately after this
offering. Percentage of beneficial ownership of Class B common stock is based
on 29,022,438 shares of Class B common stock outstanding both immediately
before and after this offering. Unless otherwise indicated, the address of each
beneficial owner of more than 5% of Class A or Class B common stock is Mediacom
Communications Corporation, 100 Crystal Run Road, Middletown, New York 10941.
<TABLE>
<CAPTION>
Percent of Vote
as a Single Class
-----------------
Class A Common Stock
------------------------------------- Class B
Before Offering After Offering Common Stock
------------------ ------------------ ------------------------- Before After
Name of Beneficial Owner Number Percent Number Percent Number Percent Offering Offering
- ------------------------ ------ ------- ------ ------- ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rocco B. Commisso....... -- -- % -- -- % 29,022,438(7) 100% 87.6% 82.6%
Morris Communications
Corporation(1)......... 28,532,875 69.6 28,532,875 46.8 -- -- 8.6 8.1
CB Capital Investors,
LLC(2)................. 4,256,834 10.4 4,256,834 7.0 -- -- 1.3 1.2
U.S. Investor, Inc.(3).. 3,075,226 7.5 3,075,226 5.0 -- -- * *
Private Market Fund,
L.P.(4)................ 2,385,768 5.8 2,385,768 3.9 -- -- * *
Mark E. Stephan......... -- -- -- -- 382,992(8)(9) 1.3 -- --
William S. Morris
III(1)(5).............. 28,532,875 69.6 28,532,875 46.8 -- -- 8.6 8.1
Craig S.
Mitchell(1)(6)......... 28,622,264 69.9 28,622,264 46.9 -- -- 8.6 8.1
Thomas V. Reifenheiser.. -- -- -- -- -- -- -- --
Natale S. Ricciardi..... -- -- -- -- -- -- -- --
Robert L. Winikoff...... -- -- -- -- -- -- -- --
James M. Carey.......... -- -- -- -- 214,475(9)(10) * -- --
Joseph Van Loan......... -- -- -- -- 260,434(9)(11) * -- --
Italia Commisso
Weinand................ -- -- -- -- 260,434(9)(12) * -- --
All executive officers,
directors and director
nominees as a group (8
persons)............... 28,622,264 69.9 28,622,264 46.9 29,022,438 100.0 96.3 90.8
</TABLE>
- -------------------
* Represents beneficial ownership of less than 1%.
(1) The address of the beneficial owner is 725 Broad Street, Augusta, Georgia
30901.
(2) Includes approximately 862,950 shares of Class A common stock owned by its
affiliate, Chase Manhattan Capital, LLC. The address of the beneficial
owner is c/o Chase Capital Partners, 380 Madison Avenue, New York, New
York 10017.
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(3) A party related to Booth American Company. The address of the beneficial
owner is 333 West Fort Street, Detroit, Michigan 48226.
(4) The address of the beneficial owner is c/o Pacific Corporate Group, 1200
Prospect Street, Suite 200, La Jolla, California 92037.
(5) Represent shares held by Morris Communications. Mr. Morris is the Chairman
and Chief Executive Officer of Morris Communications and is deemed to be
in control of Morris Communications.
(6) Includes 28,532,875 shares held by Morris Communications. Mr. Mitchell is
a director and the Vice President, Finance and Treasurer of Morris
Communications. Mr. Mitchell disclaims any beneficial ownership of the
shares held by Morris Communications.
(7) Also includes 1,406,346 shares of Class B common stock owned of record by
other stockholders, for which Mr. Commisso holds an irrevocable proxy,
representing all remaining shares of Class B common stock outstanding.
(8) All of these shares are subject to vesting in five equal annual
installments, which vesting period is deemed to have commenced on March
18, 1997. 229,795 of these shares are currently vested.
(9) If such beneficial owner desires to sell vested shares, or if such
beneficial owner's employment with us is terminated for any reason, Mr.
Commisso will have the option to purchase such shares. In the event that
Mr. Commisso exercises this purchase option, a portion of the vested
shares vested for less than three years will nonetheless be forfeited to
Mr. Commisso if, during such three year period, such beneficial owner
voluntarily terminates his employment with us or elects to sell such
shares or if such beneficial owner's employment with us is terminated for
cause. Such forfeiture of vested shares will not occur if Mr. Commisso
does not exercise his purchase option or if the beneficial owner is
terminated by us without cause or as a result of death or disability. Upon
a change of control, all such shares will vest and not be subject to
forfeiture. In addition, such beneficial owner has granted Mr. Commisso an
irrevocable proxy which may be exercised by Mr. Commisso in connection
with any action to be taken by our stockholders.
(10) All of these shares are subject to vesting in five equal annual
installments, which vesting period is deemed to have commenced on
September 15, 1998. 85,790 of these shares are currently vested.
(11) All of these shares are subject to vesting in five equal annual
installments, which vesting period is deemed to have commenced on November
4, 1997. 156,260 of these shares are currently vested.
(12) All of these shares are subject to vesting in five equal annual
installments, which vesting period is deemed to have commenced on April
21, 1997. 156,260 of these shares are currently vested.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Credit Facilities
Our operating subsidiaries, through two separate borrowing groups we refer
to as the Mediacom USA Group and the Mediacom Midwest Group, currently obtain
bank financing through two separate credit facilities. The credit facilities
for each borrowing group have no cross-default provisions relating directly to
each other, have different revolving credit periods and contain separately
negotiated covenants tailored for each borrowing group. The credit facilities
restrict the ability of each borrowing group to make distributions to Mediacom
LLC, subject to limited exceptions.
Financing for the operations of the Mediacom USA Group is provided by a
credit agreement among the operating subsidiaries comprising the Mediacom USA
Group, the lenders party thereto and The Chase Manhattan Bank, as
administrative agent. The Mediacom USA credit facility is a $550.0 million
credit facility, consisting of a $450.0 million reducing revolving credit
facility and a $100.0 million term loan. The revolving credit facility expires
March 31, 2008, subject to earlier repayment on June 30, 2007 if we do not
refinance our 8 1/2% senior notes prior to March 31, 2007. Principal on the
outstanding term loan is payable in quarterly installments of $250,000 with the
balance due and payable on September 30, 2008, and is also subject to earlier
repayment on September 30, 2007 if we do not refinance our 8 1/2% senior notes
prior to March 31, 2007. At January 10, 2000, there was $443.5 million of
indebtedness outstanding under the Mediacom USA credit facility. The Mediacom
USA credit facility provides us with two interest rate options, at our
election, to which a margin is added: a base rate, the higher of the overnight
rate plus 1/2 of 1% and the prime commercial lending rate, and a eurodollar
rate, based on the interbank eurodollar interest rate. Interest rate margins
for the Mediacom USA credit facility depend upon the performance of the
Mediacom USA Group measured by its leverage ratio, or the ratio of indebtedness
to the immediately preceding quarter's operating cash flow, multiplied by four.
The interest rate margins for the Mediacom USA credit facility are as follows:
. interest on outstanding revolving loans is payable at either the
eurodollar rate plus a floating percentage ranging from 0.75% to 2.25%
depending on the leverage ratio or the base rate plus a floating
percentage ranging from 0% to 1.25% depending on the leverage ratio; and
. interest on term loans is payable at either the eurodollar rate plus a
floating percentage tied to the leverage ratio ranging from 2.50% to
2.75% or the base rate plus a floating percentage tied to the leverage
ratio ranging from 1.50% to 1.75%.
The weighted average interest rate at January 10, 2000 on the outstanding
borrowings under the Mediacom USA credit facility was 8.0%. As of January 10,
2000, interest rate swap agreements had been entered into to hedge the
underlying eurodollar rate exposure in the amount of $50.0 million with an
expiration date ranging from 2000 to 2002.
The reducing revolving credit facility is available to the Mediacom USA
Group to fund acquisitions, to make payments to us under limited circumstances,
to pay management fees, to make investments and to finance capital expenditures
and working capital needs. Up to $100.0 million of the revolving credit
facility is available for letters of credit.
Financing for the operations of the Mediacom Midwest Group is provided by a
credit agreement among the operating subsidiaries comprising the Mediacom
Midwest Group, the lenders party thereto and The Chase Manhattan Bank, as
administrative agent. The Mediacom Midwest credit facility is a $550.0 million
credit facility, consisting of a $450.0 million reducing revolving credit
facility and a $100.0 million term loan. The $450.0 million revolving credit
facility expires June 30, 2008, subject to earlier repayment on September 30,
2007 if we do not refinance our 8 1/2% senior notes prior to March 31, 2007.
Principal on the outstanding term loan is payable in quarterly installments of
between $125,000 and $250,000 with the balance due and payable on December 31,
2008, and is also subject to earlier repayment on December 31, 2007 if we do
not refinance our 8 1/2% senior notes prior to March 31, 2007. At January 10,
2000, there was $372.5 million of indebtedness
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outstanding under the Mediacom Midwest credit facility. The Mediacom Midwest
credit facility provides us with two interest rate options, at our election, to
which a margin is added: a base rate, the higher of the overnight rate plus 1/2
of 1% and the prime commercial lending rate, and a eurodollar rate based on the
interbank eurodollar interest rate. Interest rate margins for the Mediacom
Midwest credit facility depend upon performance measured by the leverage ratio
of the Mediacom Midwest Group. The interest rate margins for the Mediacom
Midwest credit facility are as follows:
. interest on outstanding revolving loans is payable at either the
eurodollar rate plus a floating percentage ranging from 0.75% to 2.25%
depending on the leverage ratio or the base rate plus a floating
percentage ranging from 0% to 1.25% depending on the leverage ratio; and
. interest on term loans is payable at either the eurodollar rate plus a
floating percentage tied to the leverage ratio ranging from 2.50% to
2.75% or the base rate plus a floating percentage tied to the leverage
ratio ranging from 1.50% to 1.75%.
The weighted average interest rate at January 10, 2000 on the outstanding
borrowings under the Mediacom Midwest credit facility was 8.1%.
The reducing revolving credit facility is available to the Mediacom Midwest
Group to make restricted payments to us, to pay management fees, to make
investments and to finance capital expenditures, working capital needs and
acquisitions. Up to $100.0 million of the revolving credit facility is
available for letters of credit.
In general, each credit facility requires the borrowing groups to use the
proceeds from specified debt issuances and asset dispositions to prepay
borrowings under the relevant borrowing group's credit facility and to reduce
permanently commitments thereunder. Each facility also requires mandatory
prepayments of amounts outstanding and permanent reductions in the commitments
thereunder, beginning in 2002, based on a percentage of excess cash flow.
Each credit facility is secured by a pledge of Mediacom LLC's ownership
interests in the subsidiaries forming the relevant borrowing group, and is
guaranteed by Mediacom LLC on a limited recourse basis to the extent of such
ownership interests.
Each credit facility contains covenants, including:
. limitations on mergers and acquisitions, consolidations and sales of
assets;
. limitations on liens;
. incurrence of additional indebtedness;
. investments;
. restricted payments;
. maintenance of specified financial ratios;
. payment of management fees;
. capital expenditures; and
. restrictions on transactions with related parties.
In addition, an event of default will occur under each credit facility if,
among other things:
. Mr. Commisso ceases to be our Chairman and Chief Executive Officer and,
in the case of the Mediacom Midwest credit facility, the Chairman and
Chief Executive Officer of Zylstra;
. we or Mediacom LLC shall cease to act as manager of our subsidiaries;
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. we or Mediacom LLC shall cease to own 50.1% or more of the aggregate
voting rights of the equity interests of our subsidiaries;
. specified change of control events occur and are continuing; or
. Mr. Commisso, his family members, his affiliates and our officers and
employees collectively cease to own at least 50.1% of the combined
voting power of our common stock on a fully-diluted basis.
Senior Notes
The following is a summary of the 8 1/2% senior notes and the 7 7/8% senior
notes:
. Aggregate Principal Amount
-- 8 1/2% senior notes: $200,000,000
-- 7 7/8% senior notes: $125,000,000
. Maturity
-- 8 1/2% senior notes: April 15, 2008
-- 7 7/8% senior notes: February 15, 2011
. Interest Rate and Payment Dates
-- 8 1/2% senior notes: Bear interest at a rate of 8 1/2% per annum,
payable semi-annually on April 15 and October 15 of each year.
-- 7 7/8% senior notes: Bear interest at the rate of 7 7/8% per annum,
payable semi-annually on February 15 and August 15 of each year.
. Optional Redemption. On or after April 15, 2003 with respect to the 8
1/2% senior notes and on or after February 15, 2006 with respect to the
7 7/8% senior notes, Mediacom LLC and Mediacom Capital Corporation may
redeem the notes. On or before April 15, 2001 with respect to the 8 1/2%
senior notes and on or before February 15, 2002 with respect to the 7
7/8% senior notes, Mediacom LLC and Mediacom Capital may redeem up to
35% of the aggregate principal amount of the notes originally issued at
the price specified in the relevant indenture relating to the notes:
-- only with the proceeds of one or more equity offerings; and
-- only if at least 65% of the aggregate principal amount of the notes
originally issued remains outstanding after each redemption.
. Change of Control. If Mediacom LLC and Mediacom Capital sell specified
assets or if Mediacom LLC and Mediacom Capital experience specific kinds
of changes of control, holders of the 8 1/2% senior notes and the 7 7/8%
senior notes will have the opportunity to sell their notes to Mediacom
LLC and Mediacom Capital at 101% of the principal amount of such notes
plus accrued and unpaid interest and liquidated damages, if any, to the
date of purchase.
. Ranking. The 8 1/2% senior notes and the 7 7/8% senior notes:
-- are general unsecured obligations of Mediacom LLC and Mediacom
Capital;
-- rank on the same level with the existing and future senior
indebtedness of Mediacom LLC and Mediacom Capital; and
-- are subordinated to all indebtedness and other liabilities and
commitments of the subsidiaries of Mediacom LLC and Mediacom
Capital, including their credit facilities and trade payables.
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. Covenants. The indentures governing the 8 1/2% senior notes and the 7
7/8% senior notes limit the activities of Mediacom LLC and Mediacom
Capital and the activities of their restricted subsidiaries. The
provisions of the indentures limit their ability, subject to important
exceptions:
-- to incur additional indebtedness;
-- to pay dividends or make other restricted payments;
-- to sell assets or subsidiary stock;
-- to enter into transactions with related parties;
-- to create liens;
-- to enter into agreements that restrict dividends or other payments
from restricted subsidiaries;
-- to merge, consolidate or sell all or substantially all of our
assets; and
-- with respect to restricted subsidiaries, to issue capital stock.
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DESCRIPTION OF CAPITAL STOCK
General
Our authorized capitalization consists of 300,000,000 shares of Class A
common stock, par value $.01 per share, 100,000,000 shares of Class B common
stock, par value $.01 per share, and 100,000,000 shares of preferred stock, par
value $.01 per share.
Concurrently with the completion of this offering, the holders of the
membership interests of Mediacom LLC will exchange all of their membership
interests for shares of our common stock in accordance with the relative
ownership percentages of membership interests in Mediacom LLC immediately prior
to the completion of this offering. As a result of the exchange, Mediacom LLC
will become our wholly-owned subsidiary and will continue to serve as the
holding company for our operating subsidiaries.
Upon completion of the exchange of membership interests for shares of our
common stock and without giving effect to this offering, 40,977,562 shares of
Class A common stock and 29,022,438 shares of Class B common stock will be
outstanding. No shares of preferred stock will be outstanding.
Common Stock
The rights of the holders of Class A and Class B common stock are
substantially identical in all respects, except for voting and conversion
rights. Only certain directors, officers and other members of our management
group and certain other permitted holders, including relatives and affiliates
of these persons, as described in our certificate of incorporation, may hold
Class B common stock. There is no limitation on who may hold Class A common
stock. Holders of Class A common stock are entitled to one vote per share.
Holders of Class B common stock are entitled to ten votes per share. Holders of
all classes of common stock entitled to vote will vote together as a single
class on all matters presented to the stockholders for their vote or approval,
except as otherwise required by the Delaware General Corporation Law. Under
Delaware law, the holders of each class of common stock are entitled to vote as
a separate class with respect to any amendment to our certificate of
incorporation that would increase or decrease the aggregate number of
authorized shares of such class, increase or decrease the par value of such
class, or modify or change the powers, preferences or special rights of the
shares of such class so as to affect such class adversely. Our certificate of
incorporation does not provide for cumulative voting for the election of our
directors, with the result that stockholders owning or controlling more than
50% of the total votes cast for the election of directors can elect all of the
directors. See "Risk Factors-- Our Chairman and Chief Executive Officer has the
ability to control all major corporate decisions, which could inhibit or
prevent a change of control or a change in management."
Subject to the dividend rights of holders of preferred stock, holders of
common stock are entitled to receive dividends when, as and if declared by the
board of directors out of funds legally available for this purpose. In the
event of our liquidation, dissolution or winding up, the holders of both
classes of common stock are entitled to receive on a proportional basis any
assets remaining available for distribution after payment of our liabilities
and after provision has been made for payment of liquidation preferences to all
holders of preferred stock. Holders of common stock have no conversion,
redemption or sinking fund provisions or preemptive or other subscription
rights, except that:
. in the event any shares of Class B common stock are transferred to
persons other than certain directors, officers and other members of our
management group, or certain other permitted holders, such shares will
be converted automatically into shares of Class A common stock on a one-
for-one basis; and
. each share of Class B common stock is convertible into one share of
Class A common stock at the option of the holder at any time.
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Preferred Stock
Our certificate of incorporation authorizes us to issue 100,000,000 shares
of blank check preferred stock having rights senior to our common stock. Our
board of directors is authorized, without further stockholder approval, to
issue preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, redemption terms and liquidation preferences, and to fix
the number of shares constituting any series and the designations of these
series.
The issuance of preferred stock may have the effect of delaying or
preventing a change of control of us. The issuance of preferred stock could
decrease the amount of earnings and assets available for distribution to the
holders of common stock or could adversely affect the voting power or other
rights of the holders of common stock. We currently have no plans to issue any
shares of preferred stock.
Limitations on Liability
As permitted by Delaware law, our certificate of incorporation provides that
our directors shall not be personally liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, relating to
unlawful payment of dividends or unlawful stock purchases or redemption;
or
. for any transaction from which the director derives an improper personal
benefit.
As a result of this provision, we and our stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Our certificate of incorporation and by-laws provide for the indemnification
of our directors and officers, and, to the extent authorized by the board of
directors in its sole and absolute discretion, employees and agents, to the
fullest extent authorized by, and subject to the conditions set forth in
Delaware law, except that we will indemnify a director or officer in connection
with a proceeding or part thereof, initiated by such person, only if the
proceeding or part thereof was authorized by our board of directors. The
indemnification provided under the certificate of incorporation and by-laws
includes the right to be paid the expenses, including attorneys's fees, in
advance of any proceeding for which indemnification may be had, provided that
the payment of these expenses, including attorneys' fees, incurred by a
director, officer, employee or agent in advance of the final disposition of a
proceeding may be made only upon delivery to us of an undertaking by or on
behalf of the director, officer, employee or agent to repay all amounts so paid
in advance if it is ultimately determined that the director or officer is not
entitled to be indemnified.
Under the by-laws, we have the power to purchase and maintain insurance on
behalf of any person who is or was one of our directors, officers, employees or
agents, against any liability asserted against the person or incurred by the
person in any such capacity, or arising out of the person's status as such, and
related expenses, whether or not we would have the power to indemnify the
person against such liability under the provisions of Delaware law. We
currently have no plans to purchase director and officer liability insurance on
behalf of our directors and officers.
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Delaware Anti-Takeover Law
We will be subject to the provisions of Section 203 of Delaware law. Section
203 prohibits publicly held Delaware corporations from engaging in a business
combination with an interested stockholder for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless:
. prior to the business combination our board of directors approved either
the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; or
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, such stockholder owned at least 85%
of our outstanding voting stock at the time such transaction commenced,
excluding for the purpose of determining the number of shares
outstanding those shares owned:
-- by our officers and directors and
-- by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer; or
. at or subsequent to such time the business combination is approved by
our board of directors and authorized at an annual or special meeting of
our stockholders, and not by written consent, by the affirmative vote of
at least 66 2/3% of our outstanding voting stock which is not owned by
the interested stockholder.
A business combination includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an interested stockholder is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock. These provisions could have the effect of
delaying, deferring or preventing a change of control of us or reducing the
price that certain investors might be willing to pay in the future for shares
of our Class A common stock.
Transfer Agent and Registrar
The transfer agent and registrar for our Class A common stock will be
ChaseMellon Shareholder Services, L.L.C.
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SHARES ELIGIBLE FOR FUTURE SALE
General
Upon the completion of this offering, we will have 90,000,000 shares of
common stock issued and outstanding, including 60,977,562 shares of Class A
common stock and 29,022,438 shares of Class B common stock. All outstanding
shares of common stock other than those issued in this offering will be
restricted securities as that term is defined in Rule 144 and also subject to
certain restrictions on disposition. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 under the Securities Act. Sales of
restricted securities in the public market, or the availability of such shares
for sale, could have an adverse effect on the price of the Class A common
stock. See "Dilution."
Registration Rights
We and Rocco Commisso, Morris Communications, CB Capital Investors, Chase
Manhattan Capital, U.S. Investor, Private Market Fund and our less than a 5%
stockholders have entered into a registration rights agreement, in accordance
with which we have granted to such persons as long as such persons hold common
stock received in exchange for their membership interests in Mediacom LLC
various demand rights commencing 180 days after the completion of this offering
to cause us to file a registration statement under the Securities Act covering
resales of all shares of common stock held by such persons, and to use our best
efforts to cause such registration statement to become effective. The
registration rights agreement also grants piggyback registration rights which
permit such persons to include their registrable securities in a registration
of securities by us. We are obligated to pay the expenses of such
registrations.
Rule 144
In general, under Rule 144, as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares of our Class A common stock for at least one year would be entitled to
sell within any three month period a number of shares that does not exceed the
greater of either of the following:
. 1% of the number of shares of Class A common stock then outstanding,
which will equal 609,776 shares immediately after this offering; and
. the average weekly trading volume of the Class A common stock on The
Nasdaq Stock Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at the time of or at any time during the three months preceding a
sale, and who has beneficially owned the restricted shares proposed to be sold
for at least two years, including the holding period of any prior owner other
than an affiliate, is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Therefore, unless otherwise restricted, shares covered by Rule 144(k)
may be sold immediately upon the completion of this offering. The sale of such
shares, or the perception that sales will be made, could adversely effect the
price of our Class A common stock after this offering because a greater supply
of shares would be, or would be perceived to be, available for sale in the
public market.
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Further Restrictions on Transfer for Certain Persons
Our officers, directors and stockholders have agreed to enter into lock-up
agreements with the underwriters of this offering generally providing that they
will not offer, sell, contract to sell, pledge or otherwise dispose of any
shares of our Class A common stock or securities convertible into or
exchangeable or exercisable for any of our Class A common stock, or publicly
disclose the intention to make any offer, sale, pledge, disposition or filing,
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this prospectus, subject to certain
exceptions. As a result of these contractual restrictions, notwithstanding the
possible earlier eligibility for sale under the provisions of Rules 144 and
144(k), shares subject to lock-up agreements may not be sold until such
agreements expire or are waived by Credit Suisse First Boston Corporation. In
addition, we have agreed that we will not offer, sell, contract to sell, pledge
or otherwise dispose of or file with the Securities and Exchange Commission a
registration statement under Securities Act relating to any shares of our Class
A common stock or securities convertible into or exchangeable or exercisable
for any of our Class A common stock, or publicly disclose the intention to make
any offer, sale, pledge, disposition or filing, without the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days
after the date of this prospectus, subject to certain exceptions.
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UNDERWRITERS
Credit Suisse First Boston Corporation and Salomon Smith Barney Inc. are
acting as joint book-running managers for this offering. Credit Suisse First
Boston Corporation, Salomon Smith Barney Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation are acting as co-lead managers, and Goldman, Sachs &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase Securities Inc.,
CIBC World Markets Corp. and First Union Securities, Inc. are acting as co-
managers.
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Salomon Smith
Barney Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Goldman,
Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase
Securities Inc., CIBC World Markets Corp. and First Union Securities, Inc. are
acting as representatives, the following respective numbers of shares of our
Class A common stock:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ----------
<S> <C>
Credit Suisse First Boston Corporation............................
Salomon Smith Barney Inc..........................................
Donaldson, Lufkin & Jenrette Securities Corporation...............
Goldman, Sachs & Co...............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................
Chase Securities Inc..............................................
CIBC World Markets Corp...........................................
First Union Securities, Inc.......................................
----------
Total........................................................... 20,000,000
==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of our Class A common stock offered in this offering if
any are purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an
underwriter defaults, the purchase commitments of non-defaulting underwriters
may be increased or this offering of Class A common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a
proportional basis up to 3,000,000 additional shares of our Class A common
stock at the initial public offering price less the underwriting discounts and
commissions. This option may be exercised only to cover any over-allotments of
our Class A common stock.
The underwriters propose to offer the shares of our Class A common stock
initially at the public offering price on the cover page of this prospectus and
to selling group members at that price less a concession of $ per share.
The underwriters and selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to broker/dealers may be
changed by the representatives.
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The following table summarizes the compensation and estimated expenses we
will pay. The compensation that we will pay to the underwriters will consist
solely of the underwriting discounts, which are equal to the public offering
price per share of Class A common stock less the amount the underwriters pay to
us per share of Class A common stock, and commissions. The underwriters have
not received and will not receive from us other items of compensation or
expense in connection with this offering considered by the National Association
of Securities Dealers, Inc. to be underwriting compensation under its Conduct
Rules.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-Allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions paid by
us..................... $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
We intend to use more than 10% of the net proceeds from the sale of the
Class A common stock to repay indebtedness owed by us to Credit Suisse First
Boston, New York branch, Citibank, N.A., The Chase Manhattan Bank, CIBC Inc.
and First Union National Bank, each an affiliate of one of the underwriters.
Accordingly, the offering is being made in compliance with the requirements of
Rule 2710(c)(8) of the National Association of Securities Dealers, Inc. Conduct
Rules. This rule provides generally that if more than 10% of the net proceeds
from the sale of stock, not including underwriting compensation, is paid to the
underwriters or their affiliates, the initial public offering price of the
stock may not be higher than that recommended by a qualified independent
underwriter meeting certain standards. Accordingly, Donaldson, Lufkin &
Jenrette Securities Corporation is assuming the responsibilities of acting as
the qualified independent underwriter in pricing the offering and conducting
due diligence. The initial public offering price of the shares of common stock
is no higher than the price recommended by Donaldson, Lufkin & Jenrette
Securities Corporation. We have agreed to pay $5,000 to Donaldson, Lufkin &
Jenrette Securities Corporation as compensation for its services as qualified
independent underwriter in this offering.
We and our officers, directors and stockholders have agreed that we and they
will not offer, sell, contract to sell, pledge or otherwise dispose of or file
with the Securities and Exchange Commission a registration statement under the
Securities Act relating to, any shares of our Class A common stock or
securities convertible into or exchangeable or exercisable for any of our Class
A common stock, or publicly disclose the intention to make any offer, sale,
pledge, disposition or filing, without the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus, except in our case for grants of employee stock options in
accordance with the terms of a plan in effect on the date hereof, issuances of
securities in accordance with the exercise of such options or the exercise of
any other employee stock options outstanding on the date hereof.
At our request, the underwriters will reserve up to 1,000,000 shares of our
Class A common stock to be sold, at the initial public offering price, to our
directors, officers and employees, as well as to some of our business
associates and individuals associated or affiliated with our directors. This
directed share program will be administered by Salomon Smith Barney Inc. The
number of shares of Class A common stock available for sale to the general
public will be reduced to the extent these individuals purchase reserved
shares. Any reserved shares of Class A common stock which are not so purchased
will be offered by the underwriters to the general public on the same basis as
the other shares of Class A common stock offered by this prospectus. We have
agreed to indemnify the underwriters against certain liabilities and expenses,
including liabilities under the Securities Act, in connection with sales of the
directed shares.
We and Mediacom LLC have agreed to indemnify the underwriters against
liabilities under the Securities Act, or contribute to payments which the
underwriters may be required to make in that respect.
Our Class A common stock has been approved for listing on The Nasdaq Stock
Market's National Market under the symbol "MCCC."
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Prior to this offering, there has been no public market for our Class A
common stock. The initial public offering price will be determined by
negotiation between us and the representatives, and does not reflect the market
price for our Class A common stock following this offering. The principal
factors to be considered in determining the initial public offering price
include:
. the information in this prospectus and otherwise available to the
representatives;
. the history of and prospects for the industry in which we will compete;
. our past and present operations;
. our past and present earnings and current financial position;
. the ability of our management;
. our prospects for future earnings;
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies;
. the general condition of the securities markets at the time of this
offering; and
. other relevant factors.
We can offer no assurance that the initial public offering price will
correspond to the price at which the Class A common stock will trade in the
public market subsequent to this offering or that an active trading market for
the Class A common stock will develop and continue after this offering.
Individuals affiliated with Credit Suisse First Boston Corporation will
beneficially own an aggregate of 0.2% of our Class A common stock after giving
effect to this offering. These individuals purchased an aggregate of 50.2
membership interests in Mediacom LLC for a total purchase price of $50,240 on
November 3, 1999. Chase Manhattan Capital, LLC and CB Capital Investors, LLC,
each an affiliate of Chase Securities Inc., will beneficially own an aggregate
of 7.0% of our Class A common stock after giving effect to this offering. CB
Capital Investors, LLC purchased an aggregate of 512.4 membership interests in
Mediacom LLC for a total purchase price of $512,440 on November 3, 1999.
Entities affiliated with Credit Suisse First Boston Corporation, Salomon Smith
Barney Inc., Chase Securities Inc., CIBC World Markets Corp. and First Union
Securities, Inc. are lenders under our subsidiary credit facilities, a portion
of which will be repaid with the net proceeds of this offering. Chase
Securities Inc. and its affiliates engage from time to time in various general
financing and banking transactions with us and our affiliates. Chase Securities
Inc. was the arranger and The Chase Manhattan Bank is the administrative agent
and a lender under each of our subsidiary credit facilities. Chase Securities
Inc. acted as an advisor to us in connection with the acquisition of the Triax
systems. In addition, certain investment affiliates of Donaldson, Lufkin &
Jenrette Securities Corporation previously owned an interest in the Triax
systems. Upon completion of this offering, Thomas V. Reifenheiser, a Managing
Director and Group Executive for the Global Media and Telecom Group of Chase
Securities Inc., will become a member of our board of directors.
The representatives, on behalf of the underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
. Over-allotment involves syndicate sales in excess of this offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the Class A common
stock in the open market after the distribution has been completed in
order to cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the Class A common stock originally sold by
such syndicate member is purchased in a stabilizing transaction or a
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of our Class A common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
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LEGAL MATTERS
The validity of the shares of Class A common stock offered hereby will be
passed upon for us by Cooperman Levitt Winikoff Lester & Newman, P.C., New
York, New York. Robert L. Winikoff, one of our director nominees, is a partner
of Cooperman Levitt Winikoff Lester & Newman, P.C. Cahill Gordon & Reindel, New
York, New York, will pass upon certain legal matters in connection with this
offering.
EXPERTS
The audited consolidated financial statements of Mediacom LLC and
subsidiaries included in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
The following audited consolidated financial statements of U.S. Cable
Television Group, L.P. and subsidiaries, appearing elsewhere herein, have been
included in this prospectus and in the registration statement in reliance upon
the reports of KPMG LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing:
. the consolidated balance sheets of U.S. Cable Television Group, L.P. and
subsidiaries 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 U.S. Cable Television Group, L.P. and
subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, partners' capital (deficiency)
and cash flows for the periods January 1, 1996 to August 12, 1996, and
August 13, 1996 to December 31, 1996 and for the years ended December
31, 1995 and 1994.
The reports of KPMG LLP include an explanatory paragraph relating to a change
in cost basis of the consolidated financial information as a result of a
redemption of certain limited and general partnership interests effective
August 13, 1996.
The audited financial statements of Triax Midwest Associates, L.P. 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.
99
<PAGE>
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including all amendments, exhibits, schedules and
supplements thereto, under the Securities Act and the rules and regulations
thereunder, for the registration of the Class A Common Stock offered hereby.
Although this prospectus, which forms a part of the registration statement,
contains all material information included in the registration statement, parts
of the registration statement have been omitted as permitted by the rules and
regulations of the Securities and Exchange Commission. For further information
about us and the Class A common stock offered in this prospectus, you should
refer to the registration statement and its exhibits. You may read and copy any
document we file with the Securities and Exchange Commission at the public
reference facilities maintained by the Securities and Exchange Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Securities and Exchange Commission's regional offices at 3475 Lenox Road, N.E.,
Suite 1000, Atlanta, Georgia 30326-1232. Copies of such material may be
obtained from the Public Reference Section of the Securities and Exchange
Commission at 450 Fifth Street, NW, Washington, D.C. 20549, at prescribed
rates. The public may obtain information regarding the Washington, D.C. Public
Reference Room by calling the SEC at 1-800-SEC-0330. You can also review such
material by accessing the Securities and Exchange Commission's Internet web
site at http://www.sec.gov. This site contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the Securities and Exchange Commission.
We intend to furnish to each of our stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited
financial information for the first three-quarters of each fiscal year. We will
also furnish to each of our stockholders such other reports as may be required
by law.
100
<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 Redeemable Members' Equity for the
Years Ended December 31, 1998 and 1997, and for the Period from
Commencement of Operations (March 12, 1996) through December 31, 1996.... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998 and 1997, for the Period from Commencement of Operations (March 12,
1996) through December 31, 1996, and for the Period from January 1, 1996
through March 11, 1996................................................... F-7
Notes to Consolidated Financial Statements................................ F-8
Consolidated Balance Sheets as of September 30, 1999 (unaudited) and
December 31, 1998........................................................ F-21
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1999 and 1998 (unaudited).................................. F-22
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 1999 and 1998 (unaudited)............................................ F-23
Notes to Consolidated Financial Statements (unaudited).................... F-24
</TABLE>
U.S. CABLE TELEVISION GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Contents Page
-------- ----
<S> <C>
Independent Auditor's Report............................................. F-32
Consolidated Balance Sheets as of December 31, 1997 and 1996............. F-33
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-34
Consolidated Statements of Cash Flows, Year Ended December 31, 1997,
Period from August 13, 1996 to December 31, 1996 and January 1, 1996 to
August 12, 1996......................................................... F-35
Notes to Consolidated Financial Statements............................... F-36
Independent Auditor's Report............................................. F-42
Consolidated Balance Sheets as of December 31, 1996 and 1995............. F-43
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-44
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-45
Notes to Consolidated Financial Statements............................... F-46
</TABLE>
F-1
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Contents Page
-------- ----
<S> <C>
Report of Independent Public Accountants................................. F-52
Balance Sheets as of December 31, 1997 and 1998 and September 30, 1999
(unaudited)............................................................. F-53
Statements of Operations for the Years Ended December 31, 1996, 1997 and
1998 and for the Nine Months Ended September 30, 1998 and 1999
(unaudited)............................................................. F-54
Statements of Partners' Deficit for the Years Ended December 31, 1996,
1997 and 1998 and for the Nine Months Ended September 30, 1999
(unaudited)............................................................. F-55
Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and
1998 and for the Nine Months Ended September 30, 1998 and 1999
(unaudited)............................................................. F-56
Notes to Financial Statements............................................ F-57
</TABLE>
Note--Upon completion of this offering and the exchange of membership
interests in Mediacom LLC for our common stock, Mediacom LLC will become our
wholly-owned subsidiary. Prior to such time, Mediacom Communications
Corporation had no assets, liabilities, contingent liabilities or operations.
F-2
<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 redeemable 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 and their cash flows for the years ended December 31, 1998 and
1997, and for the period from commencement of operations (March 12, 1996)
through December 31, 1996 and the statements of operations and cash flows from
the period January 1, 1996 through March 11, 1996 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II--Valuation and
Qualifying Accounts is presented for purposes of complying with the Securities
and Exchange Commissions rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
Arthur Andersen LLP
Stamford, Connecticut
March 5, 1999
(except with respect to the
matter discussed in note 15,
as to which the date
is February 2, 2000
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 REDEEMABLE 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
REDEEMABLE MEMBERS' EQUITY
Capital contributions...................................... 124,990 30,990
Accumulated deficit........................................ (46,339) (6,549)
-------- --------
Total redeemable members' equity....................... 78,651 24,441
-------- --------
Total liabilities and redeemable 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)
========== ======= ======= ======
Pro forma net loss and loss
per share:
Historical net loss before
income taxes.............. $ (39,790)
Pro forma income tax
effects (note 15)......... --
----------
Pro forma net loss........... $ (39,790)
==========
Pro forma basic and diluted
loss per share.............. $ (0.57)
Pro forma common shares
outstanding (note 15)....... 70,000,000
</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 REDEEMABLE 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 Rocco Commisso, the current Chief Executive Officer of the
Company, 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 Mr. Commisso 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 Mr. Commisso; second, to the member owning the largest
number of membership units in Mediacom; and third, to the members, other than
Mr. Commisso, 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 Mr. Commisso) until they receive an
8% preferred return on their preferred capital (the "Preferred Return");
fourth, to Mr. Commisso until Mr. Commisso 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 Mr. Commisso) in proportion to their
respective membership units and 20% to Mr. Commisso. 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 Mr. Commisso) in
proportion to their respective membership units until they receive amounts
equal to their preferred capital; second, to the members (including Mr.
Commisso) in proportion to their percentage interests until all members receive
the Preferred Return; third, to Mr. Commisso until Mr. Commisso receives 25% of
the amount provided to deliver the Preferred Return; the balance, 80% to the
members (including Mr. Commisso) in proportion to their percentage interests
and 20% to Mr. Commisso.
Revaluation
Mediacom's amended Operating Agreement provides that upon the occurrence
of certain events such as an acquisition or an initial public offering, the
Executive Committee of Mediacom will make a determination of the aggregate
equity value of Mediacom. Based on this determination, Mediacom will issue
additional membership interests to its members, each having a value upon
issuance of $1,000.
Mediacom's amended operating agreement also contains provisions relating
to a special allocation of membership interests to Rocco Commisso. In
accordance with these special allocation provisions, Mr. Commisso was issued
additional membership interests that increased his ownership interest in the
Company by % and % in 1998 and 1997, respectively. These special
allocations are reflected as equity transactions among the members.
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.
F-9
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
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--1
<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 include subscriber service revenues and charges for
installations and connections and are recognized in the period in which the
related services are provided to the Company's customers. Other revenues are
recognized as services are provided. Revenues obtained from the connection and
installation of customers are recognized as revenue to the extent of direct
selling costs incurred. The balance, if any, is deferred and amortized to
income over the estimated average period that customers are expected to remain
connected to the systems.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
The Company's accounts receivable is comprised of amounts due from
subscribers in varying regions throughout the United States. Concentration of
credit risk with respect to these receivables is limited due to the large
number of customers comprising the Company's customer base and their geographic
dispersion.
Property, Plant and Equipment
Property, plant and equipment is recorded at purchased and capitalized
cost. Repairs and maintenance are charged to operations, and replacements,
renewals and additions are capitalized. The Company capitalized a portion of
salaries and overhead related to the installation of property, plant and
equipment of approximately $6,548 and $681 in 1998 and 1997, respectively.
The Company capitalizes interest on funds borrowed for projects under
construction. Such interest is charged to property, plant and equipment and
amortized over the approximate life of the related assets. Capitalized interest
was approximately $1,014 in 1998.
Depreciation is calculated on a straight-line basis over the following
useful lives:
<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.
F-11
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
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, 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 2001 but has not quantified the impact or not yet determined the
timing or method of the adoption. SOP 98-5 provides guidance on accounting for
the costs of start-up activities, which include preopening costs, preoperating
costs, organization costs, and start-up costs. The Company will adopt SOP 98-5
in fiscal 1999, but does not expect any impact on the financial statements.
(6) Property, Plant and Equipment:
As of December 31, 1998 and 1997, property, plant and equipment consisted
of:
<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 ratios and for commitment fees of 3/8% to 1/2% per annum
on the unused portion of available credit under the reducing revolver credit
lines. The effective interest rates on outstanding debt under the Bank
Credit Facilities were 7.2% and 8.8% for the three months ending December
31, 1998 and December 31, 1997, respectively, after giving effect to the
interest rate swap agreements discussed below.
The applicable margins for the respective borrowing rate options have
the following ranges:
<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 $529 for the years ended 1998 and 1997, and for the period ended
December 31, 1996, respectively.
Rocco B. Commisso, the Company's Chief Executive Officer and sole owner
of Mediacom Management, has substantial control over the operations of the
Company. Mr. Commisso has the authority to appoint 3 of the 5 members of the
Company's Executive Committee. As indicated above, the Company incurs fees and
expenses from Mediacom Management which is controlled by Mr. Commisso.
(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.
F-17
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
State and Local Regulation
Cable television systems generally operate pursuant to non-exclusive
franchises, permits or licenses granted by a municipality or other state or
local governmental entity. The terms and conditions of franchises vary
materially from jurisdiction to jurisdiction. A number of states subject cable
television systems to the jurisdiction of centralized state government
agencies. To date, other than Delaware, no state in which the Company currently
operates has enacted state level regulation. The Company cannot predict whether
any of the states in which currently operates will engage in such regulation in
the future.
(12) Disclosures about Fair Value of Financial Instruments:
Debt
The fair value of the Company's debt is estimated based on the current
rates offered to the Company for debt of the same remaining maturities. The
fair value of the senior bank debt and the Seller Note approximates the
carrying value. The fair value at December 31, 1998 of the 8 1/2% Senior Notes
was approximately $204,500.
Interest Rate Exchange Agreements
The fair value of the Swaps is the estimated amount that the Company
would receive or pay to terminate the Swaps, taking into account current
interest rates and the current creditworthiness of the Swap counterparties. At
December 31, 1998, the Company would have paid approximately $1,464 to
terminate the Swaps, inclusive of accrued interest.
(13) FASB 131--Disclosure about Segments of an Enterprise and Related
Information:
During the fourth quarter of fiscal year 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosure about
Segments of an Enterprise and Related Information". This statement requires the
Company to report segment financial information consistent with the
presentations made to the Company's management for decision-making purposes.
All revenues of the Company are derived solely from cable television operations
and related activities. When allocating capital and operational resources to
the cable television systems, the Company's management evaluates such factors
as the bandwidth capacity and other cable plant characteristics, the offered
programming services, and the rate structure. The decision making of the
Company's management is based primarily on the impact of such resource
allocations on the Company's consolidated system cash flow (defined as
operating income before management fee expense, and depreciation and
amortization). For the years ended 1998 and 1997, and for the period ended
December 31, 1996, the Company's consolidated system cash flow was
approximately $59,850, $9,390, and $2,960, respectively.
(14) Recent Events:
On February 26, 1999, Mediacom and Mediacom Capital, a New York
corporation wholly-owned by Mediacom, jointly issued $125,000 aggregate
principal amount of 7 7/8% Senior Notes due on February 15, 2011. The net
proceeds from this offering of approximately $121,900 were used to repay a
substantial portion of outstanding indebtedness under the Company's bank credit
facilities. Interest on the 7 7/8% Senior Notes will be payable semi-annually
on February 15 and August 15 of each year, commencing on August 15, 1999.
The Company is regularly presented with opportunities to acquire cable
television systems that are evaluated on the basis of the Company's acquisition
strategy. Although the Company presently does not have any definitive
agreements to acquire or sell any of its cable television systems, it is
negotiating with prospective sellers to acquire additional cable television
systems. If definitive agreements for all such potential acquisitions are
executed, and if such acquisitions are then consummated, the Company's customer
base would
F-18
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
approximately double in size. These acquisitions are subject to the negotiation
and completion of definitive documentation, which will include customary
representations and warranties and will be subject to a number of closing
conditions. Financing for these potential transactions has not been determined;
however, if such acquisitions are consummated, the Company believes its total
indebtedness would substantially increase. No assurance can be given that such
definitive documents will be entered into or that, if entered into, the
acquisitions will be consummated.
(15) Subsequent events:
The Company has filed a registration statement with the Securities and
Exchange Commission with the intent of having an initial public offering of its
common stock. In connection therewith, the members of the limited liability
company will exchange their membership interests for shares in a C corporation
and will become subject to federal and state income taxes. As of December 31,
1998, had the Company been a C corporation, the Company would have recognized a
non-recurring non-cash benefit to earnings of approximately $900 to record a
net deferred tax asset.
Pro forma earnings per share is calculated in accordance with SFAS No.
128 "Earnings Per Share" and is presented on a pro forma basis as if the shares
issued to effect the exchange of membership interests of Mediacom LLC for
shares in a C corporation were outstanding for all periods presented. The pro
forma common shares outstanding reflect the 40,977,562 Class A shares and
29,022,438 Class B shares issued to effect the exchange of membership interests
of Mediacom LLC as if these shares were outstanding for the period January 1,
1998 through December 31, 1998. These shares are based upon the relative
ownership percentages of membership interests in Mediacom LLC immediately prior
to the completion of this offering and are based on an initial public offering
price of $17.50, the mid-point of the range set forth in the registration
statement. The calculation does not include the effect of any stock or stock
options that may be granted as part of the IPO. The Company has operating
losses for the periods presented and has not reflected any income tax benefit
as part of the pro forma loss.
At the time of the offering, the Company will terminate the management
services agreement with Mediacom Management and all employees of Mediacom
Management will become employees of the new C corporation.
F-19
<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-20
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All dollar amounts in 000's)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents.......................... $ 3,700 $ 2,212
Subscriber accounts receivable, net of allowance
for doubtful accounts of $408 in 1999 and $298 in
1998.............................................. 2,269 2,512
Prepaid expenses and other assets.................. 2,947 1,712
Investment in cable television systems:
Inventory........................................ 11,606 8,240
Property, plant and equipment, at cost........... 369,100 314,627
Less--accumulated depreciation................... (82,200) (45,423)
--------- --------
Property, plant and equipment, net............. 286,900 269,204
Intangible assets, net of accumulated
amortization of $45,103 in 1999 and $26,307 in
1998............................................ 134,768 150,928
--------- --------
Total investment in cable television systems... 433,274 428,372
Other assets, net of accumulated amortization of
$4,773 in 1999 and $3,854 in 1998................. 12,965 16,344
--------- --------
Total assets................................... $ 445,155 $451,152
========= ========
LIABILITIES AND REDEEMABLE MEMBERS' EQUITY
LIABILITIES
Debt............................................. $ 377,500 $337,905
Accounts payable................................. 1,662 2,678
Accrued expenses................................. 31,621 29,446
Subscriber advances.............................. 1,857 1,510
Management fees payable.......................... 1,881 962
--------- --------
Total liabilities.............................. 414,521 372,501
--------- --------
COMMITMENTS AND CONTINGENCIES...................... -- --
REDEEMABLE MEMBERS' EQUITY
Capital contributions............................ 124,990 124,990
Accumulated deficit.............................. (84,356) (46,339)
--------- --------
Total redeemable members' equity............... 40,634 78,651
--------- --------
Total liabilities and redeemable members'
equity........................................ $ 455,155 $451,152
========= ========
</TABLE>
See accompanying notes to consolidated financial statements
F-21
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All dollar amounts in 000's)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended Nine Months Ended
September 30, September 30,
----------------- --------------------
1999 1998 1999 1998
-------- ------- ---------- --------
<S> <C> <C> <C> <C>
Revenues.............................. $ 39,052 $34,306 $ 113,230 $ 94,374
Costs and expenses:
Service costs....................... 12,396 11,411 36,571 32,873
Selling, general and administrative
expenses........................... 7,314 6,562 21,816 18,101
Management fee expense.............. 1,562 1,557 5,150 4,340
Depreciation and amortization....... 24,723 16,915 66,154 44,338
-------- ------- ---------- --------
Operating loss........................ (6,943) (2,139) (16,461) (5,278)
-------- ------- ---------- --------
Interest expense, net................. 7,185 6,048 20,577 17,786
Other expenses........................ 245 270 979 3,838
-------- ------- ---------- --------
Net loss.............................. $(14,373) $(8,457) $ (38,017) $(26,902)
======== ======= ========== ========
Pro forma net loss and loss per share:
Historical net loss before income
taxes.............................. $ (38,017)
Pro forma income tax effects
(note 6)........................... --
----------
Pro forma net loss.................... $ (38,017)
==========
Pro forma basic and diluted loss per
share................................ $ (0.54)
Pro forma common shares outstanding
(note 6)............................. 70,000,000
</TABLE>
See accompanying notes to consolidated financial statements
F-22
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts in 000's)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $ (38,017) $ (26,902)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Accretion of interest on seller note................. 225 205
Depreciation and amortization........................ 66,154 44,338
Decrease (increase) in subscriber accounts
receivable.......................................... 243 (1,389)
Increase in prepaid expenses and other assets........ (1,235) (1,603)
(Decrease) increase in accounts payable.............. (1,016) 4,003
Increase in accrued expenses......................... 2,175 28,695
Increase in subscriber advances...................... 347 40
Increase in management fees payable.................. 919 409
--------- ---------
Net cash flows from operating activities........... 29,795 47,796
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures................................... (60,245) (35,430)
Acquisitions of cable television systems............... -- (336,994)
Other, net............................................. (387) (28)
--------- ---------
Net cash flows used in investing activities........ (60,632) (372,452)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings......................................... 224,700 466,225
Repayment of debt...................................... (185,330) (221,800)
Capital contributions.................................. -- 94,000
Financing costs........................................ (7,045) (13,828)
--------- ---------
Net cash flows from financing activities........... 32,325 324,597
--------- ---------
Net increase (decrease) in cash and cash
equivalents....................................... 1,488 (59)
CASH AND CASH EQUIVALENTS, beginning of period........... 2,212 1,027
--------- ---------
CASH AND CASH EQUIVALENTS, end of period................. $ 3,700 $ 968
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest............... $ 16,438 $ 9,420
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-23
<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 September
30, 1999, the Company had acquired and was operating cable television systems
in fourteen states, principally Alabama, California, Florida, Kentucky,
Missouri and North Carolina.
Mediacom Capital Corporation ("Mediacom Capital"), a New York corporation
wholly-owned by Mediacom, was organized in March 1998 for the sole purpose of
acting as co-issuer with Mediacom of $200,000 aggregate principal amount of 8
1/2% senior notes due 2008 (the "8 1/2% Senior Notes") and of $125,000
aggregate principal amount of 7 7/8% senior notes due 2011 (the "7 7/8% Senior
Notes" and collectively with the 8 1/2% Senior Notes, the "Senior Notes") (see
Note 3). Mediacom Capital has nominal assets and does not conduct operations of
its own. The Senior Notes are joint and several obligations of Mediacom and
Mediacom Capital, although Mediacom received all the net proceeds of the Senior
Notes.
The consolidated financial statements include the accounts of Mediacom
and its subsidiaries and have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted.
The consolidated financial statements as of September 30, 1999 and 1998
are unaudited; however, in the opinion of management, such statements include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the results for the periods presented. The accounting
policies followed during such interim periods reported are in conformity with
generally accepted accounting principles and are consistent with those applied
during annual periods. For additional disclosures, including a summary of the
Company's accounting policies, the interim financial statements should be read
in conjunction with the Company's Annual Report on Form 10-K, as amended (File
Nos. 333-57285-01 and 333-57285). The results of operations for the interim
periods are not necessarily indicative of the results that might be expected
for future interim periods or for the full year ending December 31, 1999.
(2) Acquisitions
The Company completed the undernoted acquisitions in 1998 (the "1998
Acquisitions"). These acquisitions were accounted for using the purchase method
of accounting and accordingly, the purchase price of these acquisitions has
been allocated to the assets acquired and liabilities assumed at their
estimated fair values at their respective date of acquisition. The results of
operations of the 1998 Acquisitions have been included with those of the
Company since the dates of acquisition.
On January 9, 1998, the Company acquired the assets of a cable television
system serving approximately 17,200 basic subscribers in Clearlake, California
and surrounding communities (the "Clearlake System") for a purchase price of
$21,400. The purchase price has been allocated based on an independent
appraisal as follows: approximately $5,973 to property, plant and equipment,
and approximately $15,427 to intangible assets. Additionally, approximately
$226 of direct acquisition costs has been allocated to other assets. In the
first quarter of 1998, the Company recorded acquisition reserves related to
this acquisition in the amount of approximately $370, which are included in
accrued expenses. The acquisition of the Clearlake System and related closing
costs and adjustments were financed with borrowings under the Company's bank
credit facilities (see Note 3).
F-24
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
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") for a purchase price of
approximately $308,200. The purchase price has been allocated based on an
independent appraisal as follows: approximately $205,500 to property, plant and
equipment, and approximately $102,700 to intangible assets. Additionally,
approximately $3,500 of direct acquisition costs has been allocated to other
assets. In the first quarter of 1998, the Company recorded acquisition reserves
related to this acquisition in the amount of approximately $3,750, which are
included in accrued expenses. The acquisition of the Cablevision Systems and
related closing costs and adjustments were financed with equity contributions
and borrowings under the Company's bank credit facilities (see Note 3).
On October 1, 1998, the Company acquired the assets of a cable television
system serving approximately 3,800 basic subscribers in Caruthersville,
Missouri (the "Caruthersville System") for a purchase price of $5,000. The
purchase price has been allocated as follows: approximately $2,300 to property,
plant and equipment, and approximately $2,700 to intangible assets. The
acquisition of the Caruthersville System and related closing costs and
adjustments were financed with borrowings under the Company's bank credit
facilities (see Note 3).
(3) Debt
As of September 30, 1999 and December 31, 1998, debt consisted of:
<TABLE>
<CAPTION>
September 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)..................... 52,500 134,425
Seller Note(d)................................ -- 3,480
-------- --------
$377,500 $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
F-25
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
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.
(c) On June 24, 1997, the Company entered into an eight and one-half
year $100,000 reducing revolver and term loan agreement (the
"Western Credit Agreement"). On January 23, 1998, the Company
entered into a separate eight and one-half year $225,000 reducing
revolver and term loan agreement (the "Southeast Credit Agreement"
and together with the Western Credit Agreement, the "Bank Credit
Agreements"). By separate amendments dated as of January 26, 1999 to
each of the Bank Credit Agreements, the term loans were converted
into additional revolving credit loans.
On September 30, 1999, the Company refinanced the Bank Credit
Agreements with $550,000 of credit facilities, consisting of a
$450,000 reducing revolving credit facility and a $100,000 term loan
(the "Mediacom USA Credit Agreement"). The revolving credit facility
expires March 31, 2008, subject to repayment on June 30, 2007 if
Mediacom does not refinance the 8 1/2% Senior Notes. The term loan
is due and payable on September 30, 2008, and is also subject to
repayment on September 30, 2007 if Mediacom does not refinance the 8
1/2% Senior Notes. The reducing revolving credit facility makes
available a maximum commitment amount for a period of up to eight
and one-half years, which is subject to quarterly reductions,
beginning September 30, 2002, ranging from 1.25% to 17.50% of the
original commitment amount of the reducing revolver. The Mediacom
USA Credit Agreement requires mandatory reductions of the reducing
revolver facility from excess cash flow, as defined, beginning
December 31, 2002. The Mediacom USA Credit Agreement provides for
interest at varying rates based upon various borrowing options and
the attainment of certain financial ratios, and for commitment fees
of 1/4% to 3/8% per annum on the unused portion of available credit
under the reducing revolver credit facility. The average interest
rate on outstanding bank debt was 6.7% and 6.9% for the three months
ended September 30, 1999 and December 31, 1998, respectively, before
giving effect to the interest rate swap agreements discussed below.
The Mediacom USA Credit Agreement requires the Company to maintain
compliance with certain financial covenants including, but not
limited to, the leverage ratio, the interest coverage ratio, and the
pro forma debt service coverage ratio, as defined therein. The
Mediacom USA Credit Agreement also requires the Company to maintain
compliance with other covenants including, but not limited to,
limitations on mergers and acquisitions, consolidations and sales of
certain assets, liens, the incurrence of additional indebtedness,
certain restrictive payments, and certain transactions with
affiliates. The Company was in compliance with all covenants of the
Mediacom USA Credit Agreement as of September 30, 1999.
The Mediacom USA Credit Agreement is secured by Mediacom's pledge of
all its ownership interests in its operating subsidiaries and is
guaranteed by Mediacom on a limited recourse basis to the extent of
such ownership interests. At September 30, 1999, the Company had
$497,500 of unused bank commitments under the Mediacom USA Credit
Agreement, of which approximately $384,500 could have been borrowed
by the operating subsidiaries for purposes of distributing such
borrowed proceeds to Mediacom under the most restrictive covenants.
F-26
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
As of September 30, 1999, the Company had entered into interest rate
exchange agreements (the "Swaps") with various banks pursuant to
which the interest rate on $50,000 is fixed at a weighted average
swap rate of approximately 6.2%, plus the average applicable margin
over the Eurodollar Rate option under the Mediacom USA Credit
Agreement. Under the terms of the Swaps, which expire from 2000
through 2002, the Company is exposed to credit loss in the event of
nonperformance by the other parties to the Swaps. However, the
Company does not anticipate nonperformance by the counterparties.
(d) In connection with an acquisition completed in 1996, certain
subsidiaries of Mediacom issued to the seller an unsecured senior
subordinated note (the "Seller Note") in the amount of $2,800, with
a final maturity of June 28, 2006. Interest is deferred throughout
the term of the Seller Note and is payable at maturity or upon
prepayment. The Seller Note was prepaid in full on September 24,
1999 with no penalties associated with such prepayment.
The stated maturities of all debt outstanding as of September 30, 1999
are as follows:
<TABLE>
<S> <C>
2000................................ $ --
2001................................ --
2002................................ 500
2003................................ 1,000
2004................................ 1,000
Thereafter ......................... 375,000
--------
$377,500
========
</TABLE>
(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
F-27
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
the appropriate level and refund the excess portion of rates received for up to
one year prior to the implementation of any increase in rates for Regulated
Services.
The Company's agreements with franchise authorities require the payment
of fees of up to 5% of annual revenues. Such franchises are generally
nonexclusive and are granted by local governmental authorities for a specified
term of years, generally for periods of up to fifteen years.
On April 29, 1999, a bank issued two irrevocable letters of credit in the
aggregate amount of $30,000 in favor of the seller of the Triax systems
(defined below) to secure the Company's performance under the related
definitive agreement. On November 5, 1999, the Company completed the
acquisition of the Triax systems and accordingly such letters of credit were
cancelled.
(5) FASB 131--Disclosure about Segments of an Enterprise and Related
Information
As of December 31, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 131, "Disclosure about Segments of an
Enterprise and Related Information". This statement requires the Company to
report segment financial information consistent with the presentations made to
the Company's management for decision-making purposes. All revenues of the
Company are derived solely from cable television operations and related
activities. The decision making of the Company's management is based primarily
on the impact of capital and operational resource allocations on the Company's
consolidated system cash flow (defined as operating income (loss) before
management fee expense, and depreciation and amortization). The Company's
management evaluates such factors as the bandwidth capacity and other cable
plant characteristics, the offered programming services, and the customer
rates, when allocating capital and operational resources. The Company's
consolidated system cash flow for the three months ended September 30, 1999 and
1998 was approximately $19,300, and $16,300, respectively, and for the nine
months ended September 30, 1999 and 1998 was approximately $54,800 and $43,400
respectively.
(6) Recent Developments
Acquisitions and Financings
On October 15, 1999, the Company acquired the stock of Zylstra
Communications Corporation ("Zylstra") for a purchase price of approximately
$19,500, subject to certain adjustments. Zylstra owns and operates cable
television systems serving approximately 14,000 subscribers in Iowa, Minnesota
and South Dakota. The Zylstra acquisition was financed with borrowings under
the Mediacom USA Credit Agreement.
On November 5, 1999, the Company entered into credit facilities of
$550,000, consisting of a $450,000 reducing revolver credit facility expiring
on June 2008 and a $100,000 term loan due December 2008 (the "Mediacom Midwest
Credit Agreement"). The terms of the Mediacom Midwest Credit Agreement are
substantially similar to the terms of the Mediacom USA Credit Agreement.
On November 5, 1999, the Company acquired the assets of cable television
systems owned by Triax Midwest Associates, L.P. ("Triax") for a purchase price
of approximately $740,100, subject to certain adjustments. The Triax systems
serve approximately 344,000 subscribers primarily in Illinois, Indiana, and
Minnesota. This acquisition was financed with $10,500 of additional equity
contributions from the Company's members and borrowings under the Mediacom USA
Credit Agreement and Mediacom Midwest Credit Agreement.
F-28
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
SoftNet Agreement
On November 4, 1999, the Company completed an agreement with SoftNet
Systems, Inc. ("SoftNet") a high-speed broadband Internet access and content
services company, to deploy SoftNet's high-speed Internet access services
throughout the Company's cable television systems. In addition to a revenue
sharing arrangement that has a term of ten years, the Company received 3.5
million shares of SoftNet's common stock, representing a fair value of
approximately $82,000 as of January 10, 2000, in exchange for SoftNet's long-
term rights to deliver high-speed Internet access services to the Company's
customers. Under the terms of this agreement, over a period of three years the
Company is required to upgrade its cable network to provide two-way
communications capability in cable systems passing 900,000 homes, including the
Triax and Zylstra systems, and make available such homes to SoftNet. Of the
issued shares, 90% are subject to forfeiture in the event the Company does not
perform subject to the schedule set forth in this agreement calling for the
delivery by the Company of two-way capable homes.
The Company received 628,271 shares and 2,871,729 shares of SoftNet on
November 4, 1999 and December 30, 1999, respectively. Ten percent of the 3.5
million shares (or 350,000 shares) are vested and nonforfeitable upon date of
receipt. The Company will amortize the value of these shares of $8,533 into
income over the term of the agreement. Furthermore, the Company is required by
this agreement to deliver a certain number of committed homes passed over the
initial three-year period as it upgrades its cable network to provide two-way
communications capability in the Company's cable systems. As it delivers these
committed homes passed, a certain number of the shares will become vested and
non forfeitable. The Company will also recognize the remaining 3,150,000 shares
as income over the term of this agreement.
Management Agreements
Each of the Company's operating subsidiaries is a party to a management
agreement with Mediacom Management Corporation ("Mediacom Management"). Under
these agreements, Mediacom Management provides management services to the
Company's operating subsidiaries and is paid annual management fees of 5.0% of
the first $50,000 of annual gross operating revenues, 4.5% of revenues in
excess of $50,000 up to $75,000 and 4.0% of revenues in excess of $75,000.
Mediacom Management utilized such fees to compensate its employees as well as
fund its corporate overhead. The management agreements were revised effective
November 19, 1999 in connection with an amendment to Mediacom's operating
agreement, to provide for management fees equal to 2.0% of annual gross
revenues. In addition, Mediacom Management has agreed to waive the management
fees accrued from July 1, 1999 through November 19, 1999.
During the fourth quarter of fiscal 1999, the Company will record a
$25,100 deferred charge associated with the amendments to the management
agreements of Mediacom Management for which additional membership interests
will be issued to an existing member of Mediacom upon occurrence of a future
valuation of Mediacom including an initial public offering. The deferred charge
represents the future benefit of reduced management fees. This charge will be
amortized over the expected future term of the management agreements. During
the fourth quarter of fiscal 1999, the Company will reflect $628,000 as
additional operating expenses.
The operating agreement of Mediacom provides that Mediacom Management is
paid an acquisition fee of 1.0% of the purchase price of acquisitions made by
Mediacom until its pro forma consolidated annual revenues equals $75,000, and
thereafter 0.5% of such purchase price. No such fees were paid during the nine
months ended September 30, 1999 since there were no acquisitions completed
during this period. Pursuant to the amendment to Mediacom's operating
agreement, no further acquisition fees will be payable.
F-29
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
Employment Arrangements
On November 19, 1999, a certain member granted a specified number of
membership units to certain members of management for past and future services.
These units will vest over five years and will be subject to forfeiture
penalties based on a three year period between the date the membership units
become vested and the date the employee leaves Mediacom. Forfeited units will
revert to the member that granted the units. Approximately 55% of membership
interests will be fully vested and non-forfeitable on the date of grant. During
the fourth quarter, Mediacom will record a one-time $13,483 non-recurring, non-
cash compensation charge relating to these vested and non-forfeitable
membership interests based on an initial public offering price of $17.50, the
mid-point of the range set forth in the registration statement as discussed
below. Mediacom will also record deferred compensation for $11,128 relating to
the nonvested and forfeitable membership interests and will record this
compensation in expense over a period of five to eight years.
Initial Public Offering
On November 12, 1999, a registration statement was filed with the
Securities and Exchange Commission for an initial public offering ("IPO") of
shares of Class A common stock. In connection therewith, Mediacom
Communications Corporation ("MCC"), a Delaware Corporation, was formed.
Immediately prior to the IPO, MCC will issue shares of common stock in exchange
for all the outstanding membership interests of Mediacom, which currently
serves as the holding company for the operating subsidiaries. As a result, MCC
will become the parent company of Mediacom, which will continue to serve as the
holding company of the subsidiaries.
Immediately prior to the IPO, additional membership interests will be
issued to all members of Mediacom in accordance with a formula set forth in
Mediacom's amended operating agreement which is based upon a valuation of
Mediacom established at the time of the IPO. Effective upon completion of the
IPO, a provision in the amended operating agreement providing for a special
allocation of membership interests to certain members based upon valuations of
Mediacom performed from time to time shall be removed. In connection with the
amendment and removal of a portion of the special allocation provisions of the
operating agreement and the amendments to Mediacom's management agreements with
Mediacom Management effective November 19, 1999, certain members will be issued
new membership interests representing 16.5% of the equity in Mediacom in
accordance with a formula based upon the valuation established immediately
prior to the IPO. These newly issued membership interests will be exchanged for
shares of MCC's common stock in the IPO.
In addition, certain members of management will receive options to
purchase 7.2 million shares of common stock in exchange for the removal of the
balance of the provision providing for a special allocation of membership
interests. These options are for a term of five years and are exercisable,
commencing six months after the completion of the IPO, at a price equal to the
initial public offering price. With the exception of options to purchase
approximately 6.9 million shares of Class B common stock to be held by a
certain member of management, such options will be subject to forfeiture
penalties based on a three year period between the date the options become
vested and the date the employee leaves Mediacom.
F-30
<PAGE>
MEDIACOM LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in 000's)
(Unaudited)
The management agreements between Mediacom Management and each of the
operating subsidiaries will be terminated upon completion of the IPO, and
Mediacom Management's employees will become MCC's employees and its corporate
overhead will become MCC's corporate overhead. These expenses will be reflected
as a corporate expense in the consolidated statement of operations.
As of December 20, 1999, the Board of Directors of MCC adopted a stock
option plan for officers and key employees. Upon completion of the IPO, options
for an aggregate of 2.8 million shares of Class A and Class B common stock will
have been granted to employees at an exercise price equal to the initial public
offering price. Such options will vest in equal annual installments over five
years. Vesting is contingent on continuous employment. Options that do not vest
will be forfeited.
MCC has entered into an agreement with Mediacom Management to purchase
all of its assets upon the completion of this offering. MCC will pay Mediacom
Management approximately $700 for the furniture, computers and other office
equipment that Mediacom Management purchased to conduct its operations. The
purchase price to be paid to Mediacom Management for such assets will
approximate their carrying value.
The Company is currently a limited liability company and its members are
required to report their share of income or loss in their respective income tax
returns. After the completion of the IPO and the exchange of membership
interests in Mediacom for shares of MCC's common stock, the results of MCC will
be included in MCC's corporate tax returns. MCC will also record a one-time non
recurring charge to earnings to record a net deferred tax liability. If the
Company had been a C corporation as of September 30, 1999, this charge would
have been $1,937.
Pro forma earnings per share is calculated in accordance with SFAS No.
128 "Earnings Per Share" and is presented on a pro forma basis as if the shares
issued to effect the exchange of membership interests of Mediacom LLC for
shares in a C corporation were outstanding for all periods presented. The pro
forma common shares outstanding reflect the 40,977,562 Class A shares and
29,022,438 Class B shares issued to effect the exchange of membership interests
of Mediacom LLC as if these shares were outstanding for the period January 1,
1998 through December 31, 1998. These shares are based upon the relative
ownership percentages of membership interests in Mediacom LLC immediately prior
to the completion of this offering and are based on an initial public offering
price of $17.50, the mid-point of the range set forth in the registration
statement. The calculation does not include the effect of any stock or stock
options that may be granted as part of the IPO. The Company has operating
losses for the periods presented and has not reflected any income tax benefit
as part of the pro forma loss.
F-31
<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 LLP
Jericho, New York
March 20, 1998
F-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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 LLP
Jericho, New York
April 1, 1997, except as to Note 11,
which is as of January 23, 1998
F-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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.
F-50
<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 periods from January 1, 1996 to August 12, 1996 and from August 13, 1996 to
December 31, 1996, the Company was charged $2,274 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-51
<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-52
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
BALANCE SHEETS
As of December 31, 1997 and 1998 and September 30, 1999 (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
September 30,
1997 1998 1999
-------- -------- --------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash....................................... $ 3,297 $ 2,327 $ --
Receivables, net of allowance of $554, $331
and $353, respectively.................... 2,555 2,303 2,043
Property, plant and equipment, net......... 124,616 153,224 168,588
Purchased intangibles, net................. 157,671 185,268 153,604
Deferred costs, net........................ 5,980 6,995 5,364
Other assets............................... 2,202 2,911 2,086
-------- -------- --------
$296,321 $353,028 $331,685
======== ======== ========
LIABILITIES AND PARTNERS' DEFICIT
Accrued interest expense................... $ 6, 057 $ 5,383 $ --
Accounts payable and other accrued
expenses.................................. 11,582 11,714 12,769
Subscriber prepayments and deposits........ 695 828 782
Payables to affiliates..................... 359 348 339
Debt....................................... 323,604 404,418 418,810
-------- -------- --------
342,297 422,691 432,700
Partners' deficit.......................... (45,976) (69,663) (101,015)
-------- -------- --------
$296,321 $353,028 $331,685
======== ======== ========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these balance sheets.
F-53
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1997 and 1998
and for the Nine Months Ended September 30, 1998 and 1999 (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the
Nine
Months Ended
For the Years Ended December 31, September 30,
---------------------------------- ------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 60,531 $ 101,521 $ 119,669 $ 87,129 $101,654
Operating expenses:
Programming........... 12,934 20,066 25,275 18,262 22,990
Operating, selling,
general and
administrative....... 16,459 26,050 32,241 21,658 25,407
Management fees....... 2,667 3,573 4,048 2,944 3,331
Administration fees
paid to an
affiliate............ 444 1,482 1,826 1,307 1,566
Depreciation and
amortization......... 26,492 48,845 65,391 43,276 54,111
---------- ---------- ---------- -------- --------
58,996 100,016 128,781 87,447 107,405
---------- ---------- ---------- -------- --------
Operating income
(loss)................. 1,535 1,505 (9,112) (318) (5,751)
Other expenses:
Interest.............. 18,311 26,006 29,358 21,358 24,941
---------- ---------- ---------- -------- --------
Net loss before
cumulative effect of
accounting change...... (16,776) (24,501) (38,470) (21,676) (30,692)
Cumulative effect of
accounting change...... -- -- -- -- (660)
---------- ---------- ---------- -------- --------
Net loss................ $ (16,776) $ (24,501) $ (38,470) $(21,676) $(31,352)
========== ========== ========== ======== ========
</TABLE>
The accompanying notes in the financial statements are an integral part of
these statements.
F-54
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
STATEMENTS OF PARTNERS' DEFICIT
For the Years Ended December 31, 1996, 1997 and 1998
and for the Nine Months Ended September 30, 1999 (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Pre Recapitalization Limited
Partners (Note 1) Post
------------------------------- Recapitalization
Residual Special Limited
Non-Managing Managing Equity Interest Limited Cavalier Partners
General Partner General Partner Held by TTC Partner Cable, L.P. All Others (Note 1) Total
--------------- --------------- --------------- ------- ----------- ---------- ---------------- ---------
(Effective (Effective
August 30, August 30,
1996) 1996)
<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
(Unaudited)..... (92,571) -- -- -- -- -- -- (92,571)
Cash redemption
of partnership
interests....... -- -- -- (6,680) (12,071) (19,500) -- (38,251)
Allocation of
partners'
capital in
connection with
recapitalization.. -- -- -- 6,680 12,071 19,500 (38,251) --
Accretion on
residual equity
interest held by
TTC through a
charge to
accumulated
deficit......... (62) -- 62 -- -- -- -- --
Cash
contributions... 1,100 -- -- -- -- -- 50,250 51,350
Issuance of
limited
partnership
units in
connection with
acquisition of
cable
properties...... -- -- -- -- -- -- 59,765 59,765
Cash
distributions to
DD Cable
Partners........ -- -- -- -- -- -- (4,200) (4,200)
Syndication
costs........... (26) -- -- -- -- -- (2,578) (2,604)
Net loss for the
four month
period ending
December 31,
1996............ (78) -- -- -- -- -- (7,676) (7,754)
--------- ----- ------ ------- -------- -------- -------- ---------
BALANCES,
December 31,
1996............ (91,637) -- 62 -- -- -- 57,310 (34,265)
Accretion of
residual equity
interest held by
TTC through a
charge to
accumulated
deficit......... (488) -- 488 -- -- -- -- --
Cash
contributions... -- -- -- -- -- -- 13,043 13,043
Syndication
costs........... -- -- -- -- -- -- (253) (253)
Net loss for the
year ended
December 31,
1997............ (245) -- -- -- -- -- (24,256) (24,501)
--------- ----- ------ ------- -------- -------- -------- ---------
BALANCES,
December 31,
1997............ (92,370) -- 550 -- -- -- 45,844 (45,976)
Accretion of
residual equity
interest held by
TTC through a
charge to
accumulated
deficit......... (738) -- 738 -- -- -- -- --
Cash
contributions... -- -- -- -- -- -- 15,000 15,000
Syndication
costs........... -- -- -- -- -- -- (217) (217)
Net loss for the
year ended
December 31,
1998............ (385) -- -- -- -- -- (38,085) (38,470)
--------- ----- ------ ------- -------- -------- -------- ---------
BALANCES,
December 31,
1998............ (93,493) -- 1,288 -- -- -- 22,542 (69,663)
Accretion of
residual equity
interest held by
TTC through a
charge to
accumulated
deficit
(Unaudited)..... (735) -- 735 -- -- -- -- --
Net loss for the
nine months
ended September
30, 1999
(Unaudited)..... (8,810) -- -- -- -- -- (22,542) (31,352)
--------- ----- ------ ------- -------- -------- -------- ---------
BALANCES,
September 30,
1999 $
(Unaudited)..... $(103,038) $ -- $2,023 $ -- $ -- $ -- -- $(101,015)
========= ===== ====== ======= ======== ======== ======== =========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these statements.
F-55
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
and For the Nine Months Ended September 30, 1998 and 1999 (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the Years Ended December For the Nine Months
31, Ended September 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) $(21,676) $(31,352)
Adjustments to
reconcile net loss to
net cash flows from
operating
activities--
Depreciation and
amortization......... 26,492 48,845 65,391 43,276 54,111
Accretion of interest
on preferred stock
obligation........... 90 -- -- -- --
Amortization of
deferred loan
costs................ 370 651 790 567 669
Cumulative effect of
accounting change.... -- -- -- -- 660
Write-off retired
plant................ -- -- 1,732 (492) --
Decrease (increase)
in subscriber
receivables, net..... 1,926 (503) 93 (147) 265
(Increase) decrease
in other assets...... (7) (556) (623) (1,270) 881
Increase (decrease)
in accrued interest
expense.............. 181 1,312 (674) (1,299) (5,403)
Increase (decrease)
in accounts payable
and other accrued
expenses............. 4,502 525 (452) (1,040) 828
(Decrease) increase
in subscriber
prepayments and
deposits............. (2,684) 13 129 55 (52)
Write-off loan costs.. 174 -- -- -- 20
(Decrease) increase in
payables to
affiliates........... (31) 113 (11) (56) (10)
--------- -------- --------- -------- --------
Net cash flows from
operating
activities......... 14,237 25,899 27,905 17,918 20,617
--------- -------- --------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property,
plant and equipment.. (10,275) (23,101) (36,122) (25,222) (31,830)
Acquisition of
properties, including
purchased
intangibles.......... -- (71,850) (86,255) (83,993) (3,913)
Proceeds from exchange
of properties,
including
intangibles.......... -- -- 1,594 1,594 --
Proceeds from sale of
properties, including
intangibles.......... -- -- 1,674 1,674 367
Cash paid for
franchise costs...... (582) (776) (2,122) (1,165) (917)
Cash paid for other
intangibles.......... (823) (37) -- -- (19)
--------- -------- --------- -------- --------
Net cash flows from
investing
activities......... (11,680) (95,764) (121,231) (107,112) (36,312)
--------- -------- --------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from
borrowings........... 275,000 67,000 399,000 391,000 26,000
Repayment of debt..... (268,477) (14,000) (319,000) (315,000) (12,000)
Contributions from
partners............. 51,350 13,043 15,000 15,000 --
Cash redemptions of
partnership
interests............ (38,251) -- -- -- --
Cash distributions to
DD Cable Partners.... (4,200) -- -- -- --
Payments on capital
leases............... (314) (322) (703) (456) (625)
Cash paid for loan
costs................ (5,683) (80) (1,724) (1,597) (7)
Cash paid for
syndication costs.... (2,604) (253) (217) -- --
Repayment of preferred
stock obligations.... (2,760) -- -- -- --
--------- -------- --------- -------- --------
Net cash flows from
financing
activities......... 4,061 65,388 92,356 88,947 13,368
--------- -------- --------- -------- --------
NET INCREASE (DECREASE)
IN CASH............... 6,618 (4,477) (970) (247) (2,327)
CASH, beginning of
period................ 1,156 7,774 3,297 3,297 2,327
--------- -------- --------- -------- --------
CASH, end of period.... $ 7,774 $ 3,297 $ 2,327 $ 3,050 $ --
========= ======== ========= ======== ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
period for interest.. $ 16,848 $ 24,043 $ 29,209 $ 22,090 $ 29,655
========= ======== ========= ======== ========
SUPPLEMENTAL SCHEDULE
OF NON CASH INVESTING
AND FINANCING
ACTIVITIES:
Acquisitions with
capital leases....... $ 391 $ 1,313 $ 1,517 $ 1,054 $ 1,217
========= ======== ========= ======== ========
Net book value of
assets divested in
exchange............. -- -- $ 4,404 $ 4,404 --
========= ======== ========= ======== ========
Net book value of non-
monetary assets
acquired in
exchange............. -- -- $ 2,958 $ 2,958 --
========= ======== ========= ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-56
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
(1) THE PARTNERSHIP
Organization and Capitalization
Triax Midwest Associates, L.P. (the "Partnership") is a Missouri limited
partnership originally formed for the purpose of acquiring, constructing and
operating cable television properties, located primarily in Indiana, Illinois,
Iowa, Minnesota and Wisconsin. The Partnership was capitalized and commenced
operations on June 1, 1988. The non-managing general partner is Triax Cable
General Partner, L.P. ("Triax Cable GP"), a Missouri limited partnership. The
general partner of Triax Cable GP is Midwest Partners, L.L.C. The managing
general partner of the Partnership is Triax Midwest General Partner, L.P., a
Delaware limited partnership, and its general partner is Triax Midwest, L.L.C.
Partnership Recapitalization
On August 30, 1996 (the "Contribution Date"), the Partnership completed a
recapitalization of the Partnership in which new credit facilities were put in
place (Note 4), additional partnership interests were issued and selected
partnership interests were redeemed. Under the terms of a partnership amendment
and other related documents, the Partnership received approximately $50.3
million in cash from new limited partners in exchange for limited partnership
interests ("New Cash Partners"). Approximately $38.3 million in cash was then
utilized to redeem the special limited partnership interest and certain other
existing limited partnership interests. For financial reporting purposes, this
portion of the Partnership Recapitalization was accounted for as an equity
transaction with no effect on the carrying value of the Partnership's assets.
However, for tax purposes, even though the New Cash Partners acquiesced to the
redeemed limited partners' tax basis capital accounts, they will be entitled to
additional outside tax basis reflecting the amount invested.
In addition, the Partnership purchased certain net assets of DD Cable Partners,
L.P. and DD Cable Holdings, Inc. ("DD Cable") through the net issuance of
approximately $55.6 million in limited partnership interests. For financial
reporting purposes, the acquisition was accounted for under the purchase method
of accounting at fair market value. For tax purposes, the basis in the acquired
net assets was recorded at DD Cable's historical tax basis. This results in a
built-in gain on these assets based on the difference between the fair market
value and tax basis of the assets at August 30, 1996.
In connection with the Partnership Recapitalization, the general partnership
interest of Triax Cable GP was converted to a non-managing general partnership
interest. Triax Cable GP then contributed an additional $1.1 million to
maintain its approximate 1% proportionate interest in the Partnership. Triax
Midwest General Partner, L.P. ("Midwest GP" or the "Managing General Partner")
was appointed the managing general partner. The general partner of Midwest GP
is Triax Midwest, L.L.C., a wholly-owned subsidiary of Triax Telecommunications
Company, L.L.C. ("TTC"). Midwest GP made no partnership equity contributions to
the Partnership and received only a residual interest in the Partnership, as
discussed below under "Allocations of Profits, Losses, Distributions and
Credits Subsequent to Partnership Recapitalization".
As provided for in the Partnership Agreement, as amended, certain of the New
Cash Partners (the "Committed Partners") committed to fund additional monies
totaling $50.0 million for future acquisitions of the Partnership through
August 1999. In conjunction with the Partnership's acquisitions of the Indiana
and Illinois Acquisitions during 1997 and the Illinois acquisition of September
30, 1998 (Note 3), certain limited partners contributed approximately $13.0
million and $15.0 million, respectively. Of these total contributions,
approximately $27.0 million was contributed by the Committed Partners, which
reduced their total funding commitment to approximately $23.0 million.
F-57
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
During 1997, TTC and certain officers of TTC (the "Officers") purchased limited
partner interests in Triax Investors Midwest, L.P. ("Investors Midwest"), which
holds a limited partner interest in the Partnership. Subsequent to TTC's and
the Officers' purchase of these Investors Midwest interests, Investors Midwest
elected to distribute its interest in the Partnership to certain of its
partners, resulting in TTC owning a direct limited partner interest in the
Partnership.
The Partnership Agreement, as amended, provides that on August 30, 2001 each
limited partner has the option to sell its interest to the Partnership for fair
market value at the time of the sale. The fair market value is to be determined
by appraised value approved by a majority vote of the Advisory Committee. In
accordance with the Partnership Agreement, if the Partnership is unable to
finance the acquisition of such interests, such selling limited partners can
cause the liquidation of the Partnership.
Allocation of Profits, Losses, Distributions and Credits Subsequent to
Partnership Recapitalization
Distributions
Cash distributions are to be made to both the limited partners and Triax Cable
GP equal to their adjusted capital contributions, then to the limited partners
and Triax Cable GP in an amount sufficient to yield a return of 13% per annum,
compounded annually (the "Priority Return"), then varying rates of distribution
to the Managing General Partner (17% to 20%) and to the limited partners and
Triax Cable GP (83% to 80%) based on internal rates of return earned by the New
Cash Partners, as set forth in the Amended and Restated Partnership Agreement,
on their adjusted capital contributions.
Losses from Operations
The Partnership will allocate its losses to the limited partners and Triax
Cable GP according to their proportionate interests in the book value of the
Partnership, except losses will not be allocated to any limited partner which
would cause the limited partner's capital account to become negative by an
amount greater than an amount which the limited partners are obligated to
contribute to the Partnership.
Profits and Gains
Generally, the Partnership will allocate its profits according to the limited
partners' and Triax Cable GP's proportionate interests in the book value of the
Partnership until profits allocated to limited partners equal losses previously
allocated to them. A special allocation of gain equal to the difference between
the fair value and tax basis of contributed property will be made, with respect
to partners contributing property to the Partnership, upon the sale of the
contributed Partnership assets.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-58
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
The financial statements as of September 30, 1999 and 1998 are unaudited;
however, in the opinion of management, the financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the periods presented. The accounting
policies followed during such interim periods reported are in conformity with
generally accepted accounting principles and are consistent with those applied
during annual periods. The results of operations for the interim periods are
not necessarily indicative of the results that might be expected for the full
year ending December 31, 1999.
Revenue Recognition
Revenues are recognized in the period the related services are provided to the
subscribers.
Income Taxes
No provision has been made for federal, state or local income taxes because
they are the responsibility of the individual partners. The principal
difference between tax and financial reporting results from different
depreciable tax basis in various assets acquired (Note 1).
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Replacements, renewals and
improvements are capitalized and costs for repairs and maintenance are charged
directly to expense when incurred. The Partnership capitalized a portion of
technician and installer salaries to property, plant and equipment, which
amounted to $1,134,000 in 1996, $1,196,132 in 1997, $1,333,296 in 1998 and
$980,140 and $994,469 for the nine months ended September 30, 1998 and 1999,
respectively. Depreciation and amortization are computed using the straight-
line method over the following estimated useful lives (amounts in thousands):
<TABLE>
<CAPTION>
September 30,
1997 1998 1999 Life
--------- --------- -------------- -------------
<S> <C> <C> <C> <C>
Predominantly
Property, plant and
equipment.............. $ 217,561 $ 266,965 $ 301,880 10 years
Less-- Accumulated
depreciation........... (92,945) (113,741) (133,292)
--------- --------- ---------
$ 124,616 $ 153,224 $ 168,588
========= ========= =========
Purchased Intangibles
Purchased intangibles are being amortized using the straight-line method over
the following estimated useful lives (amounts in thousands):
<CAPTION>
September 30,
1997 1998 1999 Life
--------- --------- -------------- -------------
<S> <C> <C> <C> <C>
Franchises.............. $ 245,028 $ 310,544 $ 312,930 5-11.5 years
Noncompete.............. 400 1,595 1,795 3 years
Goodwill................ 12,804 12,804 12,804 20 years
--------- --------- ---------
258,232 324,943 327,529
Less-- Accumulated
amortization........... (100,561) (139,675) (173,925)
--------- --------- ---------
$ 157,671 $ 185,268 $ 153,604
========= ========= =========
</TABLE>
F-59
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable from future undiscounted cash flows. Impairment losses are
recorded for the difference between the carrying value and fair value of the
long-lived asset.
Deferred Costs
Deferred costs are being amortized using the straight-line method over the
following estimated useful lives (amounts in thousands):
<TABLE>
<CAPTION>
September 30,
1997 1998 1999 Life
------- ------- ------------- ----------
<S> <C> <C> <C> <C>
Deferred loan costs........... $ 5,763 $ 7,488 $ 7,494 2-7 years
Organizational costs.......... 858 858 -- 5-10 years
Other......................... 500 500 500
Less--Accumulated
amortization................. (1,141) (1,851) (2,630)
------- ------- -------
$ 5,980 $ 6,995 $ 5,364
======= ======= =======
</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-60
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
The purchase price was allocated to the acquired assets and liabilities as
follows (amounts in thousands):
<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
=========
On June 30, 1997, the Partnership acquired certain cable television system
assets, located in Indiana, including certain liabilities of the acquired
business, from Triax Associates I, L.P. (the "Indiana Acquisition"). The
purchase price of $52.0 million was accounted for by the purchase method of
accounting and was allocated to the acquired assets and liabilities as follows
(amounts in thousands):
Current assets.................................................. $ 316
Property, plant and equipment................................... 18,793
Franchise costs................................................. 33,007
Non-compete..................................................... 200
---------
Subtotal...................................................... 52,316
Less--current liabilities assumed............................... (403)
---------
Total cash paid for acquisition............................... $ 51,913
=========
</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 June 30, 1998, the Partnership purchased certain cable television system
assets, located in Illinois, from an unrelated third party ("Marcus"),
including the assumption of certain liabilities of the acquired business. The
acquisition was financed by partners' contributions of $15.0 million and
proceeds of approximately $45.8 million from the revolving credit facility.
F-61
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
The purchase price was allocated to the acquired assets and liabilities as
follows (amounts in thousands):
<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-62
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
On June 30, 1998, the Partnership purchased certain cable television system
assets, located in Indiana, from an unrelated third party, including the
assumption of certain liabilities of the acquired business. The acquisition was
financed by proceeds of approximately $22.8 million from the revolving credit
facility. The purchase price was allocated to the acquired assets and
liabilities as follows (amounts in thousands):
<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.
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-63
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
(4) DEBT
Debt consists of the following at December 31, 1997, 1998 and September 30,
1999 (amounts in thousands):
<TABLE>
<CAPTION>
September 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 $111,000
Term A Loan, due June 30, 2006, interest
payable at rates based on varying
interest rate options................... 180,000 220,000 220,000
Term B Loan, due June 30, 2007, interest
payable at rates based on varying
interest rate options................... 35,000 60,000 60,000
Term C Loan, due June 30, 2007, interest
payable at 9.48%........................ 25,000 25,000 25,000
Various equipment loans and vehicle
leases.................................. 1,604 2,418 2,810
-------- -------- --------
$323,604 $404,418 $418,810
======== ======== ========
</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 $104
million at 7.51% for the period from September 30, 1999 to October 29, 1999 and
on $4 million at 7.53% for the period from October 1, 1999 to October 29, 1999.
The Term A Loan and Term B Loans are fixed at 7.51% and 7.88%, respectively,
for the period from September 30, 1999 to October 29, 1999. In addition, the
Partnership has entered into various interest rate swap transactions covering
$195 million in notional amount as of September 30, 1999, which fixes the
weighted average three-month variable rate at 5.6%. These swap transactions
expire at various dates through October 2000.
The Term A Loan requires principal payments to be made quarterly, beginning in
September 2000. The quarterly payments begin at $1,375,000 per quarter and
increase each September 30th thereafter. The Term B and Term C Loans require
total quarterly principal payments of $177,083 for the quarters ending
September 2000 and December 2000. Quarterly principal payments totaling $88,542
are then required through December 31, 2005, at which time the quarterly
payments increase to $3,187,500 through December 31, 2006 and $35,062,500 at
March 31, 2007. The Loans are due in full on June 30, 2007.
F-64
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
The loan agreements contain various covenants, the most restrictive of which
relate to maintenance of certain debt coverage ratios, meeting cash flow goals
and limitations on indebtedness.
Debt maturities required on all debt as of December 31, 1998 are as follows
(amounts in thousands):
<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, TCC provided management
services to the Partnership for a fee equal to 5% of gross revenues, as
defined. Charges for such management services amounted to approximately
$1,567,000. TCC also allocated certain overhead expenses to the Partnership
which primarily relate to employment costs. These overhead expenses amounted to
approximately $371,000 for the eight months ended August 31, 1996.
Commencing August 30, 1996, the Partnership entered into an agreement with TTC
to provide management services to the Partnership for a fee equal to 4% of
gross revenues, as defined. The agreement also states the Partnership will only
be required to pay a maximum fixed monthly payment of $275,000, which can be
adjusted for any acquisitions or dispositions by the Partnership at a rate of
$.8333 per acquired/disposed subscriber. Charges for such management services
provided by TTC amounted to approximately $1,100,000, $3,573,000 and $4,048,000
in 1996, 1997 and 1998, respectively, and $2,944,000 and $3,331,000 for the
nine months ended September 30, 1998 and 1999, respectively. The remainder of
the management fees earned but unpaid will be distributable to TTC only after
Triax Cable GP and the limited partners have been distributed their original
capital investments and then the deferred and unpaid portion of the management
fee will be paid pari passu with the first 7.5% of the Priority Return, as
defined. The earned but unpaid fees totaled approximately $62,000, $488,000 and
$738,000 in 1996, 1997 and 1998, respectively, and $541,000 and $735,000 for
the nine months ended September 30, 1998 and 1999, respectively. The cumulative
unpaid fees totaled approximately $62,000, $550,000, 1,288,000 and $2,023,000
as of December 31, 1996, 1997, 1998 and September 30, 1999, respectively. These
amounts have been reflected in the statement of partners' deficit as "residual
equity interest held by TTC through a charge to accumulated deficit", which has
been allocated to the non-managing General Partner.
Commencing August 30, 1996, the Partnership entered into a programming
agreement with InterMedia Capital Management II, L.P. ("InterMedia"), an
affiliate of DD Cable, to purchase programming at InterMedia's cost, which
includes volume discounts InterMedia might earn. Included in this agreement is
a provision that requires the Partnership to remit to InterMedia an
administrative fee, based on a calculation stipulated in the agreement, which
amounted to approximately $444,000, $1,482,000 and $1,826,000 in 1996, 1997 and
1998, respectively, and $1,307,000 and $1,566,000 for the nine months ended
September 30, 1998 and 1999, respectively.
F-65
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
(6) LEASES
The Partnership leases office facilities, headend sites and other equipment
under noncancelable operating lease agreements, some of which contain renewal
options. Total rent expense, including month-to-month rental arrangements, was
approximately $364,000, $583,000 and $737,000 in 1996, 1997 and 1998,
respectively, and $523,000 and $724,000 for the nine months ended September 30,
1998 and 1999, respectively. Pole attachment fees totaled approximately
$496,000, $798,000 and $970,000 in 1996, 1997 and 1998, respectively, and
$721,000 and $792,000 for the nine months ended September 30, 1998 and 1999,
respectively.
Future minimum rental commitments under noncancelable operating leases
subsequent to December 31,1998 are as follows (amounts in thousands):
<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.
F-66
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
On November 10, 1994, the FCC adopted "going forward" rules that provided cable
operators with the ability to offer new product tiers priced as operators
elect, provided certain limited conditions are met, permit cable operators to
add new channels at reasonable prices to existing cable programming service
tiers, and created an additional option pursuant to which small cable operators
may add channels to cable programming service tiers
In May 1995, the FCC adopted small company rules that provided small systems
regulatory relief by implementing an abbreviated cost of service rate
calculation method. Using this methodology, for small systems seeking to
establish rates no higher than $1.24 per channel, the rates are deemed to be
reasonable.
In February 1996, the Telecommunications Act of 1996 (1996 Act) was enacted
which, among other things, deregulated cable rates for small systems on their
programming tiers.
Federal law is expected to eliminate the regulation of rates for non-basic
cable programming service tiers after March 31, 1999
Management of the Partnership believes they have complied in all material
respects with the provisions of the 1992 Cable Act and the 1996 Act, including
rate setting provisions. To date, the FCC's regulations have not had a material
adverse effect on the Partnership due to the lack of certifications by the
local franchising authorities. Several rate complaints have been filed against
the Partnership with the FCC. However, management does not believe this matter
will have a material adverse impact on the Partnership.
(9) COMMITMENTS AND CONTINGENCIES
The Partnership has been named as a defendant in a class action lawsuit in the
state of Illinois, challenging the Partnership's policy for charging late
payment fees when customers fail to pay for subscriber services in a timely
manner. The Partnership is currently in settlement negotiations with the
plaintiffs and expects the litigation to be settled by the end of the year.
However, management does not believe the ultimate outcome of this matter will
have a material adverse effect on its financial condition.
(10) EVENTS SUBSEQUENT TO DATE OF AUDITOR'S REPORT (UNAUDITED)
On April 29, 1999, the Partnership entered into a definitive agreement to sell
its cable television system assets to Mediacom LLC for $740 million, subject to
adjustment for subscriber benchmarks and other pro-rations in the normal
course. The sale closed effective November 4, 1999.
On July 31, 1999, the Partnership acquired certain cable television system
assets, located in Genesco, Illinois, including certain liabilities of the
acquired business, from an unrelated third party. The purchase price of
approximately $4.0 million was accounted for by the purchase method of
accounting.
On October 4, 1999, the Partnership acquired certain cable television system
assets, located in Watseka, Illinois, including certain liabilities of the
acquired business, from an unrelated third party. The purchase price of $1.1
million was accounted for by the purchase method of accounting.
These acquisitions were financed by proceeds on the revolving credit facility.
In September 1999, the Partnership's independent billing company notified the
Partnership of its intent to assess additional charges should the Partnership
terminate the existing contract between the parties prior to the contractual
termination date of June 24, 2004. Management of the Partnership understands
that Mediacom LLC intends to change the billing service provider for
subscribers obtained in connection with its asset purchase
F-67
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998 and September 30, 1999
(All amounts related to the September 30, 1998 and 1999 periods are unaudited)
from the Partnership as Mediacom LLC did not assume the contract with the
billing company in conjunction with the asset purchase. The Partnership intends
to vigorously defend against any claims by the billing company, and believes
the ultimate resolution of this matter will not have a material adverse impact
on its financial position or results of operations.
On November 29, 1999, the Partnership received the final approval for
settlement in the class action lawsuit discussed in Note 9. The Partnership has
agreed to adjust its late fee charges in the future. In addition for
restitution for prior late fee payments, the Partnership has agreed to provide
additional programming services at a discount valued at $8 to current eligible
subscribers or a cash refund of $8 to former eligible subscribers. To be
eligible, a subscriber must have had a late fee in the past. Management does
not believe that the ultimate payments related to this matter will have a
material adverse effect on its financial position. The Partnership will also
pay the plaintiffs' attorneys fees.
F-68
<PAGE>
[LOGO] Mediacom
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth various expenses, other than underwriting
discounts, which will be incurred in connection with this offering:
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 126,270
Nasdaq National Market listing fee............................ 95,000
NASD filing fee............................................... 30,500
Blue sky fees and expenses.................................... 5,000
Printing and engraving expenses............................... 900,000
Legal fees and expenses....................................... 650,000
Accounting fees and expenses.................................. 500,000
Transfer Agent fees........................................... 15,000
Miscellaneous expenses........................................ 478,230
----------
Total....................................................... $2,800,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee of or agent to the Registrant. The
statute provides that it is not exclusive of other rights to which those
seeking indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise. The Registrant's by-laws
provides for indemnification by the Registrant of any director or officer (as
such term is defined in the by-laws) of the Registrant who is or was a director
of any of its subsidiaries, or, at the request of the Registrant, is or was
serving as a director or officer of, or in any other capacity for, any other
enterprise, to the fullest extent permitted by law. The by-laws also provide
that the Registrant shall advance expenses to a director or officer and, if
reimbursement of such expenses is demanded in advance of the final disposition
of the matter with respect to which such demand is being made, upon receipt of
an undertaking by or on behalf of such director or officer to repay such amount
if it is ultimately determined that the director or officer is not entitled to
be indemnified by the Registrant. To the extent authorized from time to time by
the board of directors of the Registrant, the Registrant may provide to any one
or more employees of the Registrant, one or more officers, employees and other
agents of any subsidiary or one or more directors, officers, employees and
other agents of any other enterprise, rights of indemnification and to receive
payment or reimbursement of expenses, including attorneys' fees, that are
similar to the rights conferred in the by-laws of the Registrant on directors
and officers of the Registrant or any subsidiary or other enterprise. The by-
laws do not limit the power of the Registrant or its board of directors to
provide other indemnification and expense reimbursement rights to directors,
officers, employees, agents and other persons otherwise than pursuant to the
by-laws. The Registrant intends to enter into agreements with certain
directors, officers and employees who are asked to serve in specified
capacities at subsidiaries and other entities.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for payments of
II-1
<PAGE>
unlawful dividends or unlawful stock repurchases or redemptions, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Registrant's certificate of incorporation provides for such limitation of
liability.
The Registrant intends to maintain policies of insurance under which its
directors and officers will be insured, within the limits and subject to the
limitations of the policies, against certain expenses in connection with the
defense of, and certain liabilities which might be imposed as a result of,
actions, suits or proceedings to which they are parties by reason of being or
having been such directors or officers.
Reference is also made to Section 7 of the underwriting agreement filed as
Exhibit 1.1 to the registration statement for information concerning the
underwriters' obligation to indemnify the Registrant and its officers and
directors in certain circumstances.
Item 15. Recent Sales of Unregistered Securities
The Registrant has not issued any common stock since its formation on
November 8, 1999. Concurrently with the consummation of the offering to which
this registration statement relates, the Registrant will issue shares of common
stock in exchange for outstanding membership interests in Mediacom LLC in
accordance with the relative ownership percentages of membership interests in
Mediacom LLC immediately prior to this offering. The exchange of membership
interests for shares of common stock will not be registered under the
Securities Act of 1933 because the offering and sale will be made in reliance
on the exemption provided by Section 4(2) of the Securities Act of 1933 and
Rule 506 thereunder for transactions by an issuer not involving a public
offering (with the recipients representing their intentions to acquire the
securities for their own accounts and not with a view to the distribution
thereof and acknowledging that the securities will be issued in a transaction
not registered under the Securities Act of 1933).
II-2
<PAGE>
The following table sets forth the membership interests issued by Mediacom
LLC to various persons during the past three years:
<TABLE>
<CAPTION>
Amount of
Membership
Name of Person Date Interests Issued* Consideration
- -------------- ------- ----------------- -------------
<S> <C> <C> <C>
Chase Manhattan Capital, LLC........... 3/31/97 401.8909 **
1/15/98 864.5288 **
11/3/99 4,540.8503 **
U.S. Investor, Inc. ................... 3/31/97 641.8909 **
6/22/97 1,950.0000 $ 1,950,000
9/18/97 500.0000 $500,000
1/15/98 2,319.5476 **
1/15/98 2,293.7799 $ 2,293,780
11/3/99 256.2200 $ 256,220
11/3/99 16,026.3555 **
Morris Communications Corp. ........... 6/22/97 9,750.0000 $ 9,750,000
9/18/97 2,500.0000 $ 2,500,000
1/15/98 4,693.7111 **
1/15/98 79,832.5359 $79,832,536
11/3/99 8,917.4640 $ 8,917,464
11/3/99 149,422.5253 **
CB Capital Investors, LLC.............. 6/22/97 3,900.0000 $ 3,900,000
9/18/97 1,000.0000 $ 1,000,000
1/15/98 1,877.4844 **
1/15/98 4,587.5598 $ 4,587,560
11/3/99 512.4400 $ 512,440
11/3/99 17,547.6283 **
Private Market Fund, L.P............... 6/22/97 1,950.0000 $ 1,950,000
9/18/97 500.0000 $ 500,000
1/15/98 938.7422 **
1/15/98 4,542.5837 $ 4,542,584
11/3/99 507.4160 $ 507,416
11/3/99 12,245.9673 **
Rocco B. Commisso...................... 3/31/97 1,956.2182 **
1/15/98 6,867.2437 **
11/3/99 80,248.4288 **
Aggregate of less than 5% holders...... 6/22/97 1,950.0000 $1,950,000
9/18/97 500.0000 $ 500,000
1/15/98 938.7422 **
1/15/98 2,743.5407 $ 2,743,540
11/3/99 306.4600 $ 306,460
11/3/99 9,468.2445 **
</TABLE>
- ---------------------
* Each membership interest has a value upon issuance of $1,000.
** Such person received additional membership interests based upon a
determination by the executive committee of Mediacom LLC that the aggregate
equity value of Mediacom LLC increased because of the occurrence of a
certain event.
The issuance of the membership interests was not registered under the
Securities Act of 1933 because the issuance was made in reliance on the
exemption provided by Section 4(2) of the Securities Act of 1933 for
transactions by an issuer not involving a public offering.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement between Registrant and the underwriters
2.1 Asset Purchase and Sale Agreement, dated as of May 23, 1996, by and
between Mediacom California LLC and Booth American Company (1)
2.2 Asset Purchase Agreement, dated as of August 29, 1996, between
Mediacom LLC and Saguaro Cable TV Investors, L.P. (1)
2.3 Asset Purchase Agreement, dated as of August 29, 1996, between
Mediacom California LLC and Valley Center Cablesystems, L.P. (1)
2.4 Asset Purchase Agreement, dated as of December 24, 1996, by and
between Mediacom LLC and American Cable TV Investors 5, Ltd. (1)
2.5 Asset Purchase Agreement, dated May 22, 1997, between Mediacom
California LLC and CoxCom, Inc. (1)
2.6 Asset Purchase Agreement, dated September 17, 1997, between Mediacom
California LLC and Jones Cable Income Fund 1-B/C Venture (1)
2.7 Asset Purchase Agreement, dated August 29, 1997, among Mediacom LLC,
U.S. Cable Television Group, L.P., ECC Holding Corporation, Missouri
Cable Partners, L.P. and Cablevision Systems Corporation (1)
2.8 Asset Purchase Agreement, dated June 24, 1998, among Mediacom
Southeast, Mediacom LLC, Bootheel Video, Inc. and CSC Holdings (2)
2.9 Asset Purchase Agreement, dated April 29, 1999 between Mediacom LLC
and Triax Midwest Associates, L.P. (3)
2.10 Stock Purchase Agreement, dated May 25, 1999 among Mediacom LLC,
Charles D. Zylstra, Kara M. Zylstra and Trusts created under the Will
dated June 3, 1982 of Roger E. Zylstra, deceased, for the benefit of
Charles D. Zylstra and Kara M. Zylstra (4)
3.1* Certificate of Incorporation of Registrant prior to the effective date
of this registration statement
3.2 Form of Restated Certificate of Incorporation of Registrant to be
filed on the effective date of this registration statement
3.3* By-laws of Registrant
4.1 Form of certificate evidencing shares of Class A common stock
5.1 Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C.
10.1 Management Agreement dated as of December 27, 1996 by and between
Mediacom Arizona LLC and Mediacom Management (1)
10.2 First Amended and Restated Management Agreement dated December 27,
1996 by and between Mediacom California LLC and Mediacom Management
(1)
10.3 Management Agreement dated June 24, 1997 by and between Mediacom
Delaware LLC and Mediacom Management (1)
10.4 Management Agreement dated January 23, 1998 by and between Mediacom
Southeast LLC and Mediacom Management (1)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
10.5* Credit Agreement dated as of September 30, 1999 for the Mediacom USA
Credit Facility
10.6* Credit Agreement dated as of November 5, 1999 for the Mediacom Midwest
Credit Facility
10.7 1999 Stock Option Plan
10.8 Form of Amended and Restated Registration Rights Agreement by and
among Mediacom Communications Corporation, Rocco B. Commisso, BMO
Financial, Inc., CB Capital Investors, L.P., Chase Manhattan Capital,
L.P., Morris Communications Corporation, Private Market Fund, L.P. and
U.S. Investor, Inc.
10.9 1999 Employee Stock Purchase Plan
10.10* Stock Purchase Agreement, dated as of November 4, 1999, between
SoftNet Systems, Inc. and Mediacom LLC. THIS DOCUMENT HAS BEEN
SUBMITTED TO THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION
FOR APPLICATION FOR "CONFIDENTIAL TREATMENT."
21.1* Subsidiaries of Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of KPMG LLP
23.4 Consent of Cooperman Levitt Winikoff Lester & Newman, P.C. (contained
in their opinion included under Exhibit 5.1)
23.5* Consent of William S. Morris III
23.6* Consent of Craig S. Mitchell
23.7* Consent of Thomas V. Reifenheiser
23.8* Consent of Natale S. Ricciardi
23.9* Consent of Robert L. Winikoff
Powers of Attorney (included on the signature page of this
24.1* registration statement)
27.1 Financial Data Schedule of Mediacom LLC (5)
</TABLE>
- ------------
* Previously filed with this Registration Statement.
(1) Filed as an exhibit to the Registration Statement on Form S-4 (File No.
333-57285) of Mediacom LLC and Mediacom Capital Corporation and
incorporated herein by reference.
(2) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 of Mediacom LLC and Mediacom Capital Corporation
and incorporated herein by reference.
(3) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1999 of Mediacom LLC and Mediacom Capital
Corporation and incorporated herein by reference.
(4) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1999 of Mediacom LLC and Mediacom Capital
Corporation and incorporated herein by reference.
(5) Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1999 of Mediacom LLC and Mediacom Capital
Corporation and incorporated herein by reference.
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts--Reference is made to page
F-20 of the prospectus that is a part of this Registration Statement.
II-5
<PAGE>
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
(2) That for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(3) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
Registrant pursuant to Item 14 of this Part II to the registration statement,
or otherwise, Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a director, officer or
controlling person of Registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Middletown, State of New
York, on January 31, 2000.
Mediacom Communications Corporation
By: /s/ Rocco B. Commisso
-----------------------------------
Rocco B. Commisso, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Rocco B. Commisso Chairman and Chief January 31, 2000
___________________________________________ Executive Officer
Rocco B. Commisso (principal executive
officer)
/s/ Mark E. Stephan Senior Vice President, January 31, 2000
___________________________________________ Chief Financial Officer,
Mark E. Stephan Treasurer and Director
(principal financial
officer and principal
accounting officer)
</TABLE>
II-7
<PAGE>
EXHIBIT 1.1
20,000,000 Shares
MEDIACOM COMMUNICATIONS CORPORATION
Class A Common Stock
UNDERWRITING AGREEMENT
----------------------
February [ ], 2000
Credit Suisse First Boston Corporation
Salomon Smith Barney Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Chase Securities Inc.
CIBC World Markets Corp.
First Union Securities, Inc.,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Mediacom Communications Corporation, a Delaware
corporation (the "Company"), proposes to issue and sell to the Underwriters
named in Schedule A hereto (the "Underwriters") 20,000,000 shares ("Firm
Securities") of its Class A Common Stock, par value $.01 per share
("Securities"), and also proposes to issue and sell to the Underwriters, at the
option of the Underwriters, an aggregate of not more than 3,000,000 additional
shares ("Optional Securities") of its Securities as set forth below. The Firm
Securities and the Optional Securities are herein collectively called the
"Offered Securities". As part of the offering contemplated by this Agreement,
Salomon Smith Barney Inc. (the "Designated Underwriter") has agreed to reserve
out of the Firm Securities purchased by it under this Agreement, up to 1,000,000
shares, for sale to the Company's directors, officers, employees and other
parties associated with the Company (collectively, "Participants"), as set forth
in the Prospectus (as defined herein) under the heading "Underwriting" (the
"Directed Share Program"). The Firm Securities to be sold by the Designated
Underwriter pursuant to the Directed Share Program (the "Directed Shares") will
be sold by the Designated Underwriter pursuant to this Agreement at the public
offering price. Any Directed Shares not orally confirmed for purchase by a
Participant by the end of the business day on which this Agreement is executed
will be offered to the public by the Underwriters as set forth in the
Prospectus.
<PAGE>
-2-
The Company is a recently organized Delaware corporation. Immediately prior
to the First Closing Date (as defined below), the holders of all of the
outstanding membership interests (the "Membership Interests") in Mediacom LLC, a
limited liability company organized under the laws of the State of New York
("Mediacom"), will exchange all such Membership Interests in Mediacom for all of
the outstanding capital stock of the Company (the "Exchange Transaction"). As a
result of this transaction, Mediacom will become a wholly owned subsidiary of
the Company. The Company and Mediacom are collectively referred to herein as the
"Mediacom Companies".
The Mediacom Companies hereby agree with the several Underwriters as
follows:
2. Representations and Warranties of the Mediacom Companies. The Mediacom
Companies jointly and severally represent and warrant to, and agree with, the
several Underwriters that:
(a) A registration statement (No. 333-90879) relating to the Offered
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission (the "Commission") and either (i) has
been declared effective under the Securities Act of 1933 (the "Act") and is
not proposed to be amended or (ii) is proposed to be amended by amendment
or post-effective amendment. If such registration statement ("initial
registration statement") has been declared effective, either (i) an
additional registration statement ("additional registration statement")
relating to the Offered Securities may have been filed with the Commission
pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so filed, has
become effective upon filing pursuant to such Rule and the Offered
Securities all have been duly registered under the Act pursuant to the
initial registration statement and, if applicable, the additional
registration statement or (ii) such an additional registration statement is
proposed to be filed with the Commission pursuant to Rule 462(b) and will
become effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (i) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (ii) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may
<PAGE>
-3-
be, is declared effective by the Commission. If an additional registration
statement has not been filed prior to the execution and delivery of this
Agreement but the Company has advised the Representatives that it proposes
to file one, "Effective Time" with respect to such additional registration
statement means the date and time as of which such registration statement
is filed and becomes effective pursuant to Rule 462(b). "Effective Date"
with respect to the initial registration statement or the additional
registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective
Time, including all information contained in the additional registration
statement (if any) and deemed to be a part of the initial registration
statement as of the Effective Time of the additional registration statement
pursuant to the General Instructions of the Form on which it is filed and
including all information (if any) deemed to be a part of the initial
registration statement as of its Effective Time pursuant to Rule 430A(b)
("Rule 430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement, as amended
at its Effective Time, including the contents of the initial registration
statement incorporated by reference therein and including all information
(if any) deemed to be a part of the additional registration statement as of
its Effective Time pursuant to Rule 430A(b), is hereinafter referred to as
the "Additional Registration Statement". The Initial Registration Statement
and the Additional Registration Statement are herein referred to
collectively as the "Registration Statements" and individually as a
"Registration Statement". The form of prospectus relating to the Offered
Securities, as first filed with the Commission pursuant to and in
accordance with Rule 424(b) ("Rule 424(b)") under the Act or (if no such
filing is required) as included in a Registration Statement, is hereinafter
referred to as the "Prospectus". No document has been or will be prepared
or distributed in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the Effective
Date of the Initial Registration Statement, the Initial Registration
Statement conformed in all material respects to the requirements of the Act
and the rules and regulations of the Commission under the Act (the "Rules
and Regulations") and did not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) on the
Effective Date of the Additional Registration Statement (if any), each
Registration Statement conformed, or will conform, in all material respects
to the requirements of the Act and the Rules and Regulations and did not
include, or will not include, any untrue statement of a material fact and
did not omit, or will not omit, to state any material fact required to be
stated therein or necessary to make the statements therein not misleading
and (iii) on the date of this Agreement, the Initial Registration Statement
and, if the Effective Time of the Additional Registration Statement is
prior to the execution and delivery of this Agreement, the Additional
Registration Statement each conforms, and at the time of filing of the
Prospectus pursuant to Rule 424(b) or (if no such filing is required) at
the Effective Date of the Additional Registration Statement in which the
Prospectus is included, each Registration Statement and the Prospectus will
conform, in all material respects to the requirements of the Act and the
Rules and Regulations, and neither of such documents includes, or will
include, any untrue statement of a material fact or omits, or will omit, to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading. If the Effective Time of the Initial
Registration
<PAGE>
-4-
Statement is subsequent to the execution and delivery of this Agreement: on
the Effective Date of the Initial Registration Statement, the Initial
Registration Statement and the Prospectus will conform in all material
respects to the requirements of the Act and the Rules and Regulations,
neither of such documents will include any untrue statement of a material
fact or will omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and no
Additional Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only
such information is that described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, and
after giving effect to the Exchange Transaction, the Company will have the
corporate power and authority to own its properties and conduct its
business as described in the Prospectus; and the Company is, and after
giving effect to the Exchange Transaction the Company will be, duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except where the
failure to be so qualified would not have, individually or in the
aggregate, a material adverse effect on the condition (financial or other),
business, properties or results of operations of the Company, Mediacom and
Mediacom's subsidiaries taken as a whole ("Material Adverse Effect").
(d) Mediacom has been duly organized and is an existing limited
liability company in good standing under the laws of the State of New York,
with limited liability company power and authority to own its properties
and conduct its business as described in the Prospectus; and Mediacom is
duly qualified to do business as a foreign limited liability company in
good standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification, except
where the failure to be so qualified would not have, individually or in the
aggregate, a Material Adverse Efect.
(e) Each of Mediacom's subsidiaries has been duly incorporated or
organized, as the case may be, and is an existing corporation or limited
liability company, as the case may be, in good standing under the laws of
the jurisdiction of its incorporation or organization, as the case may be,
with corporate or limited liability company power and authority, as the
case may be, to own its properties and conduct its business as described in
the Prospectus; and each of Mediacom's subsidiaries is duly qualified to do
business as a foreign corporation or limited liability company, as the case
may be, in good standing in all other jurisdictions in which its ownership
or lease of property or the conduct of its business requires such
qualification, except where the failure to be so qualified would not have,
individually or in the aggregate, a Material Adverse Effect; all of the
issued and outstanding capital stock or membership interests, as the case
may be, of each of Mediacom's subsidiaries has been duly authorized and
validly issued and is fully paid and nonassessable; before giving effect to
the Exchange Transaction, all of the issued and outstanding capital stock
or membership interests, as the case may be, of each subsidiary of Mediacom
is owned by Mediacom, directly or through subsidiaries, except that 1% of
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Mediacom California LLC is owned by Mediacom Management Corporation, in
each case free of all liens, encumbrances and defects, except as disclosed
in the Prospectus; after giving effect to the Exchange Transaction, all of
the issued and outstanding capital stock or membership interests, as the
case may be, of each subsidiary of the Company will be owned by the
Company, directly or through subsidiaries, except that 1% of Mediacom
California LLC is owned by Mediacom Management Corporation, in each case
free from liens, encumbrances and defects, except as disclosed in the
Prospectus; and before giving effect to the Exchange Transaction, the
Company does not have any subsidiaries.
(f) After giving effect to the Exchange Transaction, all of the issued
and outstanding capital stock of the Company will have been, and on each
Closing Date (as defined below), all of the issued and outstanding capital
stock of the Company will be, duly authorized and validly issued and will
be fully paid and nonassessable and will conform in all material respects
to the description thereof in the Prospectus.
(g) The Offered Securities have been duly authorized and, when the
Offered Securities have been delivered and paid for in accordance with this
Agreement on each Closing Date, such Offered Securities will have been
validly issued and will be fully paid and nonassessable and will conform to
the description thereof in the Prospectus; and after giving effect to the
Exchange Transaction, the stockholders of the Company will have no
preemptive rights with respect to the Securities.
(h) There are no contracts, agreements or understandings between
either of the Mediacom Companies and any person that would give rise to a
valid claim against either of the Mediacom Companies or any Underwriter for
a brokerage commission, finder's fee or other like payment in connection
with the offering contemplated by this Agreement.
(i) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company owned
or to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act.
(j) The Offered Securities have been approved for listing on the
Nasdaq Stock Market's National Market subject to notice of issuance.
(k) No consent, approval, authorization, or order of, or filing or
registration with, any governmental agency or body or any court is required
for the consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company or the consummation of the Exchange Transaction, except such as
have been obtained and made under the Act, such as have been obtained under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), such as may be required under state securities laws and such as
have been obtained and made under the Communications
<PAGE>
-6-
Act of 1934, as amended (the "Communications Act"), the Cable
Communications Policy Act of 1984, as amended (the "1984 Cable Act"), the
Cable Television Consumer Protection and Competition Act of 1992, as
amended (the "1992 Cable Act"), the Telecommunications Act of 1996 (the
"1996 Telecom Act" and, together with the Communications Act, the 1984
Cable Act and the 1992 Cable Act, the "Cable Acts") and any order, rule or
regulation of the Federal Communications Commission ("FCC").
(l) The execution, delivery and performance of this Agreement, the
issuance and sale of the Offered Securities and the consummation of the
Exchange Transaction, will not (i) result in a breach or violation of any
of the terms and provisions of, or constitute a default under, (a) any
agreement or instrument to which the Company, Mediacom or any of Mediacom's
subsidiaries is a party or by which the Company, Mediacom or any of
Mediacom's subsidiaries is bound or to which any of the properties of the
Company, Mediacom or any of Mediacom's subsidiaries is subject, including,
without limitation, any franchise or license, or (b) the charter, by-laws,
certificate of formation, operating agreement or similar organizational
documents of the Company, Mediacom or any of Mediacom's subsidiaries, or
(ii) result in a violation of any statute, any rule, regulation or order of
any governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company, Mediacom or any of Mediacom's subsidiaries
or any of their respective properties, including, without limitation, the
Cable Acts, except, in the case of each of clauses (i) and (ii), where such
breach, violation or default would not individually or in the aggregate
have a Material Adverse Effect; and the Company has the corporate power and
authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement.
(m) This Agreement has been duly authorized, executed and delivered by
each of the Mediacom Companies.
(n) Except as disclosed in the Prospectus, the Company, Mediacom and
Mediacom's subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them, in each case
free from liens, encumbrances and defects that would materially affect the
value thereof or materially interfere with the use made or to be made
thereof by them; and except as disclosed in the Prospectus, the Company,
Mediacom and Mediacom's subsidiaries hold any leased real or personal
property under valid and enforceable leases with no exceptions that would
materially interfere with the use made or to be made thereof by them.
(o) Except as disclosed in the Prospectus, the Company, Mediacom and
Mediacom's subsidiaries possess adequate franchises, licenses,
certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by them
and have not received any notice of proceedings relating to the revocation
or modification of any such franchise, license, certificate, authority or
permit that, if determined adversely to the Company, Mediacom or any of
Mediacom's subsidiaries, would individually or in the aggregate have a
Material Adverse Effect.
<PAGE>
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(p) No labor dispute with the employees of the Company, Mediacom or
any of Mediacom's subsidiaries exists or, to the knowledge of either of the
Mediacom Companies, is imminent that might have a Material Adverse Effect;
or to the knowledge of either of the Mediacom Companies, no labor dispute
exists or is imminent by the employees of any of the principal suppliers,
contractors or customers of the Mediacom Companies that might have a
Material Adverse Effect.
(q) Except as disclosed in the Prospectus, the Company, Mediacom and
Mediacom's subsidiaries own, possess or can acquire on reasonable terms,
adequate trademarks, trade names and other rights to inventions, know-how,
patents, copyrights, confidential information and other intellectual
property (collectively, "intellectual property rights") necessary to
conduct the business now operated by them, or presently employed by them,
and have not received any notice of infringement of or conflict with
asserted rights of others with respect to any intellectual property rights
that, if determined adversely to the Company, Mediacom or any of Mediacom's
subsidiaries, would individually or in the aggregate have a Material
Adverse Effect.
(r) None of the Company, Mediacom or any of Mediacom's subsidiaries is
in violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to
the use, disposal or release of hazardous or toxic substances or relating
to the protection or restoration of the environment or human exposure to
hazardous or toxic substances (collectively, "environmental laws"), owns or
operates any real property contaminated with any substance that is subject
to any environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any
claim relating to any environmental laws, which violation, contamination,
liability or claim would individually or in the aggregate have a Material
Adverse Effect; and neither of the Mediacom Companies is aware of any
pending investigation which might lead to such a claim.
(s) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings (including, without limitation, by the FCC or
any franchising authority) against or affecting the Company, Mediacom or
any of Mediacom's subsidiaries or any of their respective properties that,
if determined adversely to the Company, Mediacom or any of Mediacom's
subsidiaries, would individually or in the aggregate have a Material
Adverse Effect, or would materially and adversely affect the ability of the
Mediacom Companies to perform their obligations under this Agreement, or
which are otherwise material in the context of the sale of the Offered
Securities; and except as disclosed in the Prospectus no such actions,
suits or proceedings are threatened or, to the knowledge of either of the
Mediacom Companies, contemplated.
(t) The financial statements included in each Registration Statement
and the Prospectus present fairly the financial position of (i) Mediacom
and its consolidated subsidiaries, (ii) U.S. Cable Television Group, L.P.
and its consolidated subsidiaries and (iii) Triax Midwest Associates, L.P.,
in each case as of the dates shown and their respective results of
operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with the generally accepted
accounting principles in the United States applied on a consistent basis;
the schedules included in each Registration Statement present fairly the
information
<PAGE>
-8-
required to be stated therein; the summary and selected financial and
operating data included in each Registration Statement and the Prospectus
present fairly the information shown therein and have been prepared and
compiled on a basis consistent with the audited financial statements
included therein; the pro forma financial statements included in each
Registration Statement and the Prospectus comply as to form in all material
respects with the applicable requirements of Regulation S-X under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and the
assumptions used in preparing the pro forma financial statements included
in each Registration Statement and the Prospectus provide a reasonable
basis for presenting the significant effects directly attributable to the
transactions or events described therein, the related pro forma adjustments
give appropriate effect to those assumptions and the pro forma columns
therein reflect the proper application of those adjustments to the
corresponding historical financial statement amounts.
(u) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has
been no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company, Mediacom and
Mediacom's subsidiaries taken as a whole, and, except as disclosed in or
contemplated by the Prospectus, there has been no dividend or distribution
of any kind declared, paid or made by either of the Mediacom Companies on
any class of its capital stock.
(v) The statistical and market-related data included in the Prospectus
are based on or derived from sources that the Mediacom Companies believe to
be accurate and reliable.
(w) The Company, Mediacom and Mediacom's subsidiaries (i) make and
keep accurate books and records and (ii) maintain internal accounting
controls that provide reasonable assurances that (A) transactions are
executed in accordance with management's authorization, (B) transactions
are recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets, (C) access to assets is permitted only in
accordance with management's authorization and (D) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(x) There are no contracts, agreements or other documents required to
be described in the Prospectus or to be filed as exhibits to any
Registration Statement by the Act or the Rules and Regulations which have
not been described or filed as required; the contracts so described in the
Prospectus are in full force and effect on the date hereof; and none of the
Company, Mediacom or Mediacom's subsidiaries and, to the best knowledge of
the Mediacom Companies, any other party is in breach of or default under
any such contracts, agreements or other documents, except for those
breaches or defaults that would not individually or in the aggregate have a
Material Adverse Effect.
(y) Except as disclosed in the Prospectus, there are no outstanding
options, warrants or other rights calling for the issuance of, and no
commitments, plans or arrangements to
<PAGE>
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issue, any securities of either of the Mediacom Companies or any securities
convertible into or exchangeable for securities of either of the Mediacom
Companies.
(z) Each of the franchises held by the Company, Mediacom and
Mediacom's subsidiaries that are material to the Company, Mediacom and
Mediacom's subsidiaries taken as a whole, is in full force and effect, with
no material restrictions or qualifications; to the best knowledge of the
Mediacom Companies, no event has occurred which permits, or with notice or
lapse of time or both would permit, the revocation or non-renewal of any
franchise, assuming the filing of timely renewal applications and the
timely payment of all applicable filing and regulatory fees to the
applicable franchising authority, or which might result, individually or in
the aggregate, in any other material impairment of the rights of the
Company, Mediacom or Mediacom's subsidiaries in the franchises; and neither
of the Mediacom Companies has any reason to believe that any franchise that
is required for the operation of the Company, Mediacom or Mediacom's
subsidiaries will not be renewed in the ordinary course.
(aa) The Company, Mediacom and Mediacom's subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns
required to be filed as of the date hereof, except where the failure to so
file would not individually or in the aggregate have a Material Adverse
Effect, and have paid all taxes shown as due thereon; and there is no tax
deficiency that has been asserted against the Company, Mediacom or any of
Mediacom's subsidiaries that could reasonably be expected to result
individually or in the aggregate in a Material Adverse Effect.
(bb) Each of the Company, Mediacom and Mediacom's subsidiaries carries
insurance (including self-insurance) in such amounts and covering such
risks as in the reasonable determination of the Mediacom Companies is
adequate for the conduct of its business and the value of its properties;
each of the Company, Mediacom and Mediacom's subsidiaries are in compliance
with the terms of such policies and instruments in all material respects;
and there are no claims by the Mediacom Companies under any such policies
and instruments as to which the insurer thereunder is denying liability or
defending under a reservation of rights clause; the Mediacom Companies have
not been refused any insurance coverage sought or applied for; and neither
of the Mediacom Companies has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary at a cost that would not result individually or in the aggregate
in a Material Adverse Effect.
(cc) The statements set forth in the Prospectus under the captions
"Risk Factors -- Our Industry", "Business -- Products and Services -- High
Speed Internet Access", "--Programming Supply", "-- Customer Rates", "--
Franchises", "-- Competition", "Legislation and Regulation", "Management",
"Certain Relationships and Related Transactions", "Description of Certain
Indebtedness", "Description of Capital Stock" and "Shares Eligible for
Future Sale", insofar as they purport to describe the provisions of the
laws, documents and arrangements referred to therein, are accurate in all
material respects.
<PAGE>
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(dd) Each of the following firms are independent public accountants
within the meaning of the Act and the Rules and Regulations: (i) Arthur
Andersen LLP who have certified certain financial statements of Mediacom
and Triax Midwest Associates, L.P. included in the Registration Statements
and (ii) KPMG LLP who have certified certain financial statements of U.S.
Cable Television Group, L.P. included in the Registration Statements.
(ee) Neither of the Mediacom Companies is, and after giving effect to
the Exchange Transaction and the offering and sale of the Offered
Securities and the application of the proceeds thereof as described in the
Prospectus, neither of the Mediacom Companies, will be, an "investment
company" or an entity "controlled" by an "investment company", as such
terms are defined in the Investment Company Act of 1940, as amended.
(ff) Neither of the Mediacom Companies has offered, or caused the
Underwriters to offer, any Offered Securities to any person pursuant to the
Directed Share Program with the specific intent to unlawfully influence (i)
a customer or supplier of the Company, Mediacom or any of Mediacom's
subsidiaries to alter the customer's or supplier's level or type of
business with the Company, Mediacom or any such subsidiary or (ii) a trade
journalist or publication to write or publish favorable information about
either of the Mediacom Companies or their products or services.
Furthermore, each of the Mediacom Companies represents and warrants to the
Underwriters that (i) the Registration Statement, the Prospectus and any
preliminary prospectus comply, and any further amendments or supplements thereto
will comply, in all material respects with any applicable laws or regulations of
foreign jurisdictions in which the Prospectus or any preliminary prospectus, as
amended or supplemented, if applicable, are distributed in connection with the
Directed Share Program, and (ii) no authorization, approval, consent, license,
order, registration or qualification of or with any government, governmental
instrumentality or court, other than such as have been obtained, is necessary
under the securities law and regulations of foreign jurisdictions in which the
Directed Shares are offered outside the United States.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $[ ] per share, the respective numbers
of shares of Firm Securities set forth opposite the names of the Underwriters in
Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives ,
through the facilities of The Depository Trust Company ("DTC"), for the accounts
of the Underwriters, against payment to the Company of the purchase price in
Federal (same day) funds by wire transfer to an account at a bank acceptable to
Credit Suisse First Boston Corporation ("CSFBC"), at 9:00 A.M., New York time,
on February [ ], 2000, or at such other time not later than seven full business
days thereafter as CSFBC and the Company determine, such time being herein
referred to as the "First Closing Date". For purposes of Rule 15c6-1 under the
Exchange Act, the First Closing Date (if later than the otherwise
<PAGE>
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applicable settlement date) shall be the settlement date for payment of funds
and delivery of securities for all the Offered Securities sold pursuant to the
offering. The certificates representing the Firm Securities will be made
available for checking and packaging at the above office of Cahill Gordon &
Reindel at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives through the facilities of the DTC, for the accounts of the
several Underwriters, against payment of the purchase price therefor in Federal
(same day) funds by wire transfer to an account at a bank acceptable to CSFBC.
The certificates for the Optional Securities being purchased on each Optional
Closing Date will be made available for checking and packaging at the above
office of Cahill Gordon & Reindel at a reasonable time in advance of such
Optional Closing Date.
The Company hereby confirms its engagement of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") as, and DLJ hereby confirms its agreement with
the Company to render services as, a "qualified independent underwriter", within
the meaning of Section (b)(15) of Rule 2720 of the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD") with respect to the
offering and sale of the Offered Securities. DLJ, solely in its capacity as
qualified independent underwriter and not otherwise, is referred to herein as
the "QIU". As compensation for the services of the QIU hereunder, the Mediacom
Companies agree to pay the QIU $5,000 on the First Closing Date. The price at
which the Offered Securities will be sold to the public shall not be higher than
the maximum price recommended by DLJ acting as QIU.
4. Offering by Underwriters. It is understood that the several Underwriters
propose to offer the Offered Securities for sale to the public as set forth in
the Prospectus.
<PAGE>
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5. Certain Agreements of the Mediacom Companies. The Mediacom Companies
jointly and severally agree with the several Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to Rule
424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later date
as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or
the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not
effect such amendment or supplementation without CSFBC's consent; and the
Company will also advise CSFBC promptly of the effectiveness of each
Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or the Prospectus and of the
institution by the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will promptly
notify CSFBC of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of,
any such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 6.
<PAGE>
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(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act
and Rule 158. For the purpose of the preceding sentence, "Availability
Date" means the 45th day after the end of the fourth fiscal quarter
following the fiscal quarter that includes such Effective Date, except
that, if such fourth fiscal quarter is the last quarter of the Company's
fiscal year, "Availability Date" means the 90th day after the end of such
fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (nine of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CSFBC reasonably requests. The Prospectus shall
be so furnished on or prior to 3:00 P.M., New York time, on the business
day following the later of the execution and delivery of this Agreement or
the Effective Time of the Initial Registration Statement. All other
documents shall be so furnished as soon as available. The Company will pay
the expenses of printing and distributing to the Underwriters all such
documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution.
(g) During the period of five (5) years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Exchange Act or mailed to stockholders, and (ii)
from time to time, such other publicly available information concerning the
Company as CSFBC may reasonably request.
(h) The Mediacom Companies will pay all expenses incident to the
performance of their obligations under this Agreement, for any filing fees
and other expenses (including fees and disbursements of counsel) incurred
in connection with qualification of the Offered Securities for sale under
the laws of such jurisdictions as CSFBC designates and the printing of
memoranda relating thereto, for the filing fee incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the NASD of the Offered Securities, for any
travel expenses of the Mediacom Companies officers and employees and any
other expenses of the Mediacom Companies in connection with attending or
hosting meetings with prospective purchasers of the Offered Securities, for
expenses incurred in distributing preliminary prospectuses and the
Prospectus (including any amendments and supplements
<PAGE>
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thereto) to the Underwriters and for the fees and expenses of the QIU
(including the fees and disbursements of counsel to the QIU).
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities (i) the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Commission a registration statement under the Act relating
to, any additional Securities, any shares of the Company's Class B Common
Stock, par value $.01 per share (the "Class B Common Stock"), or any
securities convertible into or exchangeable or exercisable for any
Securities or shares of its Class B Common Stock, or publicly disclose the
intention to make any such offer, sale, pledge, disposition or filing, and
(ii) Mediacom will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Commission a
registration statement under the Act relating to, any Membership Interests
or any securities of Mediacom that are substantially similar to its
Membership Interests, including, but not limited to, securities convertible
into or exchangeable or exercisable for Membership Interests or
substantially similar securities, or publicly disclose the intention to
make such an offer, sale, pledge, disposition or filing, in each case,
without the prior written consent of CSFBC, except, in the case of the
Company, for (w) grants of employee stock options pursuant to the terms of
the Company's 1999 Stock Option Plan, (x) issuances of Securities and
shares of Class B Common Stock pursuant to the exercise of options granted
under the 1999 Stock Option Plan, (y) the filing of a registration
statement or registration statements on Form S-8 covering Securities and
shares of Class B Common Stock that may be issued pursuant to the exercise
of options under the Company's 1999 Stock Option Plan and Securities that
may be issued pursuant to the Company's 1999 Employee Stock Purchase Plan
and (z) issuances of Securities, shares of Class B Common Stock and options
to purchase Securities and shares of Class B Common Stock pursuant to the
Exchange Transaction.
(j) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required
by the NASD, or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. The Designated Underwriter
will notify the Company as to which Participants will need to be so
restricted. The Company will direct the transfer agent to place stop
transfer restrictions upon such securities for such period of time.
(k) The Mediacom Companies will pay all fees and disbursements of
counsel incurred by the Underwriters in connection with the Directed Share
Program and stamp duties, similar taxes or duties or other taxes, if any,
incurred by the Underwriters in connection with the Directed Share Program.
Furthermore, the Company covenants with the Underwriters that the Company
will comply with all applicable securities and other applicable laws, rules and
regulations in each foreign jurisdiction in which the Directed Shares are
offered in connection with the Directed Share Program.
<PAGE>
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6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of each of the Mediacom Companies herein, to the accuracy
of the statements of Company officers made pursuant to the provisions of Section
6(j), to the performance by each of the Mediacom Companies of its obligations
hereunder and to the following additional conditions precedent:
(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement to
be filed shortly prior to such Effective Time), of Arthur Andersen LLP
confirming that they are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations and stating
to the effect that:
(i) in their opinion the financial statements and financial
statement schedules examined by them and included in the Registration
Statements comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published Rules and Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards
No. 71, Interim Financial Information, on the unaudited financial
statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial statements
of Mediacom, inquiries of officials of Mediacom who have
responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused them
to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act
and the related published Rules and Regulations or any material
modifications should be made to such unaudited financial
statements for them to be in conformity with generally accepted
accounting principles;
(B) at the date of the latest available balance sheet read by
such accountants, there was any change in the members' capital or
any increase in long-term debt of Mediacom and its consolidated
subsidiaries or, at the date of the latest available balance
sheet read by such accountants, there was any decrease in
consolidated net current assets or net assets, as compared with
amounts shown on the latest balance sheet included in the
Prospectus; or
<PAGE>
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(C) for the period from the closing date of the latest income
statement included in the Prospectus to the closing date of the
latest available income statement read by such accountants, there
were any decreases, as compared with the corresponding period of
the preceding year and with the period of corresponding length
ended the date of the latest income statement included in the
Prospectus, in consolidated net sales or net income,
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter;
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of Mediacom and its
subsidiaries subject to the internal controls of Mediacom's accounting
system or are derived directly from such records by analysis or
computation) with the results obtained from inquiries, a reading of
such general accounting records and other procedures specified in such
letter and have found such dollar amounts, percentages and other
financial information to be in agreement with such results, except as
otherwise specified in such letter; and
(v) on the basis of a reading of the unaudited pro forma
consolidated financial statements included in the Registration
Statement and the Prospectus, inquiries of certain officials of
Mediacom and its consolidated subsidiaries who have responsibility for
financial and accounting matters and proving the arithmetic accuracy
of the application of the pro forma adjustments to the historical
amounts in the unaudited pro forma consolidated financial statements,
nothing came to their attention that caused them to believe that the
unaudited pro forma consolidated financial statements do not comply as
to form in all material respects with the applicable accounting
requirements of rule 11-02 of Regulation S-X under the Exchange Act or
that the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of such statements.
For purposes of this subsection and subsections (b) and (c) below, (i) if
the Effective Time of the Initial Registration Statement is subsequent to
the execution and delivery of this Agreement, "Registration Statements"
shall mean the initial registration statement as proposed to be amended by
the amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement but the
Effective Time of the Additional Registration is subsequent to such
execution and delivery, "Registration Statements" shall mean the Initial
Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"Prospectus" shall mean the prospectus included in the Registration
Statements.
<PAGE>
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(b) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement to
be filed shortly prior to such Effective Time), of KPMG LLP confirming that
they are independent public accountants within the meaning of the Act and
the applicable published Rules and Regulations and stating to the effect
that in their opinion the consolidated financial statements examined by
them and included in the Registration Statements comply as to form in all
material respects with the applicable accounting requirements of the Act
and the related Rules and Regulations adopted by the Commission.
(c) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement to
be filed shortly prior to such Effective Time), of Williams & Company
confirming that they are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations and stating
to the effect that:
(i) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of Zylstra
Communications Corporation ("Zylstra") subject to the internal
controls of Zylstra's accounting system or are derived directly from
such records by analysis or computation) with the results obtained
from inquiries, a reading of such general accounting records and other
procedures specified in such letter and have found such dollar
amounts, percentages and other financial information to be in
agreement with such results, except as otherwise specified in such
letter; and
(ii) on the basis of a reading of the unaudited pro forma
consolidated financial statements included in the Registration
Statement and the Prospectus, inquiries of certain officials of
Zylstra and Mediacom who have responsibility for financial and
accounting matters and proving the arithmetic accuracy of the
application of the pro forma adjustments relating to Zylstra to the
historical amounts in the unaudited pro forma consolidated financial
statements, nothing came to their attention that caused them to
believe that the unaudited pro forma consolidated financial statements
do not comply as to form in all material respects with the applicable
accounting requirements of rule 11-02 of Regulation S-X under the
Exchange Act or that the pro forma adjustments
<PAGE>
-18-
have not been properly applied to the historical amounts in the
compilation of such statements.
(d) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or such later date as shall have been consented to by
CSFBC. If the Effective Time of the Additional Registration Statement (if
any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time the Prospectus
is printed and distributed to any Underwriter, or shall have occurred at
such later date as shall have been consented to by CSFBC. If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with the
Commission in accordance with the Rules and Regulations and Section 5(a) of
this Agreement. Prior to the Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of either of the Mediacom Companies or the Representatives, shall
be contemplated by the Commission.
(e) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company, Mediacom and
Mediacom's subsidiaries taken as one enterprise which, in the judgment of a
majority in interest of the Underwriters including the Representatives, is
material and adverse and makes it impractical or inadvisable to proceed
with completion of the public offering or the sale of and payment for the
Offered Securities; (ii) any downgrading in the rating of any debt
securities of Mediacom by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Act), or
any public announcement that any such organization has under surveillance
or review its rating of any debt securities of Mediacom (other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); (iii) any material
suspension or material limitation of trading in securities generally on the
New York Stock Exchange or any setting of minimum prices for trading on
such exchange, or any suspension of trading of any securities of Mediacom
on any exchange or in the over-the-counter market; (iv) any banking
moratorium declared by U.S. Federal or New York authorities; or (v) any
outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment of a
majority in interest of the Underwriters including the Representatives, the
effect of any such outbreak, escalation, declaration, calamity or emergency
makes it impractical or inadvisable to proceed with completion of the
public offering or the sale of and payment for the Offered Securities.
(f) The Representatives shall have received an opinion, dated such
Closing Date, of Cooperman Levitt Winikoff Lester & Newman, P.C., counsel
for the Mediacom Companies, to the effect that:
<PAGE>
-19-
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct
its business as described in the Prospectus; the Company is duly
qualified to do business as a foreign corporation in good standing in
the State of New York; and based solely upon a certificate of an
officer of the Company as to where the Company presently owns or
leases property or conducts business, we know of no other jurisdiction
where the failure to be so qualified or to be in good standing would
have a Material Adverse Effect;
(ii) Each subsidiary of the Company listed in Exhibit A to such
counsel's opinion (the "Subsidiaries") has been duly incorporated or
organized, as the case may be, and is an existing corporation or
limited liability company, as the case may be, in good standing under
the laws of the jurisdiction of its incorporation or organization, as
the case may be, with corporate or limited liability company power and
authority, as the case may be, to own its properties and conduct its
business as described in the Prospectus; each Subsidiary is duly
qualified to do business as a foreign corporation or limited liability
company, as the case may be, in good standing in the jurisdictions set
forth in Exhibit A to such counsel's opinion; based solely upon a
certificate of an officer of the Company as to where the Subsidiaries
presently own or lease property or conduct business, we know of no
other jurisdiction where the failure to be so qualified or to be in
good standing would have a Material Adverse Effect; all of the issued
and outstanding capital stock or membership interests, as the case may
be, of each Subsidiary has been duly authorized and validly issued and
is fully paid and nonassessable; to such counsel's knowledge, the
capital stock or membership interests, as the case may be, of each
Subsidiary owned by the Company, directly or through Subsidiaries, is
owned free from liens, encumbrances and defects other than as set
forth in the Prospectus; and such counsel knows of no subsidiaries of
the Company other the Subsidiaries;
(iii) The Offered Securities delivered on such Closing Date have
been duly authorized and, when issued and delivered to the
Underwriters against payment therefore as provided by this Agreement,
will be validly issued, fully paid and nonassessable; all other
outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable;
the Offered Securities and all other outstanding shares of capital
stock of the Company conform, in all material respects, to the
description thereof contained in the Prospectus; and, to such
counsel's knowledge, the stockholders of the Company have no
preemptive rights with respect to the Securities;
(iv) To the knowledge of such counsel, except as disclosed in the
Prospectus, there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act
with respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities in
the securities
<PAGE>
-20-
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Act;
(v) Neither of the Mediacom Companies is, and after giving effect
to the offering and sale of the Offered Securities and the application
of the proceeds thereof as described in the Prospectus, neither of the
Mediacom Companies will be, an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in
the Investment Company Act of 1940, as amended;
(vi) No consent, approval, authorization, or order of, or filing
or registration with, any governmental agency or body or any court is
required for the consummation of the transactions contemplated by this
Agreement in connection with the issuance and sale of the Offered
Securities by the Company or the consummation of the Exchange
Transaction, except such as have been obtained and made under the Act,
such as have been obtained under the HSR Act, such as may be required
under state securities laws, such as may be required by the FCC or the
U.S. Copyright Office under any of the Cable Acts or Section 111 of
the Copyright Act of 1976, as amended (the "Copyright Act"), or the
published orders, rules and regulations of the FCC or the U.S.
Copyright Office, and such as may be required under any statute, rule
or regulation of any state or local governmental agency or body
relating to cable television franchising matters;
(vii) The execution, delivery and performance of this Agreement,
the issuance and sale of the Offered Securities and the consummation
of the Exchange Transaction, will not (i) result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, (a) any agreement or instrument known to such counsel
to which the Company or any such subsidiary is a party or by which the
Company or any such subsidiary is bound or to which any of the
properties of the Company or any such subsidiary is subject, or (b)
the charter, by-laws, certificate of formation, operating agreement or
similar organizational documents of the Company or any such
subsidiary, or (ii) result in the violation of any statute, any rule,
regulation or, to such counsel's knowledge, order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction
over the Company or any of its subsidiaries or any of their
properties, excluding the Cable Acts, Section 111 of the Copyright
Act, any order, rule or regulation of the FCC or the U.S. Copyright
office and any statute, rule or regulation of any state or local
governmental agency or body relating to cable television franchising
matters, except, in the case of each of clauses (i) and (ii), where
such breach, violation or default would not individually or in the
aggregate have a Material Adverse Effect; and the Company has the
corporate power and authority to authorize, issue and sell the Offered
Securities as contemplated by this Agreement;
(viii) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, the Prospectus either was filed with the
Commission
<PAGE>
-21-
pursuant to the subparagraph of Rule 424(b) specified in such opinion
on the date specified therein or was included in the Initial
Registration Statement or the Additional Registration Statement (as
the case may be), and, to the knowledge of such counsel, no stop order
suspending the effectiveness of a Registration Statement or any part
thereof has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act, and each
Registration Statement and the Prospectus, and each amendment or
supplement thereto, as of their respective effective or issue dates,
complied as to form in all material respects with the requirements of
the Act and the Rules and Regulations; such counsel have no reason to
believe that any part of a Registration Statement or any amendment
thereto, as of its effective date or as of such Closing Date,
contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus or any
amendment or supplement thereto, as of its issue date or as of such
Closing Date, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; the statements in the Registration
Statements and Prospectus under the captions "Risk Factors -- Our
Industry", "Business -- Products and Services -- High Speed Internet
Access", "-- Programming Supply", "-- Franchises", "-- Legal
Proceedings", "Management", "Certain Relationships and Related
Transactions", "Description of Certain Indebtedness", "Description of
Capital Stock" and "Shares Eligible for Future Sale", insofar as such
statements summarize statutes, legal and governmental proceedings and
contracts and other documents, excluding any summaries of the
provisions of the Cable Acts, orders, rules and regulations of the FCC
and statutes, rules and regulations of state and local governmental
agencies and bodies relating to cable television franchising matters,
are accurate and fairly present, in all material respects, the
information required to be shown under such captions; and such counsel
do not know of any legal or governmental proceedings required to be
described in a Registration Statement or the Prospectus which are not
described as required or of any contracts or documents of a character
required to be described in a Registration Statement or the Prospectus
or to be filed as exhibits to a Registration Statement which are not
described and filed as required; it being understood that in each case
as described above, such counsel need express no opinion as to the
financial statements, schedules or other financial data and
statistical data contained in the Registration Statements or the
Prospectus; and
(ix) This Agreement has been duly authorized, executed and
delivered by each of the Mediacom Companies.
(g) The Representatives shall have received an opinion, dated such
Closing Date, of Fleischman & Walsh L.L.P., regulatory counsel for the
Mediacom Companies, to the effect that:
(i) The communities listed in Attachment 1 to such counsel's
opinion have been registered with the FCC in connection with the
operation of the cable television
<PAGE>
-22-
systems (the "Systems") operated by the Company and its subsidiaries.
The filing of a registration statement constitutes initial FCC
authorization for the commencement of cable television operations in
the community registered;
(ii) The Company's subsidiaries hold certain FCC licenses (as
defined below). All FCC Licenses and receive-only earth station
registrations held by such subsidiaries in connection with the
operation of the Systems are listed on such Attachment 1. To
knowledge of such counsel, all such FCC Licenses have been validly
issued or assigned to the present licensee and are currently in full
force and effect according to the terms of such FCC Licenses and the
FCC regulations and policies. Such counsel has no knowledge of any
event which would allow, or after notice or lapse of time which would
allow, revocation or termination of any FCC License held by such
subsidiaries or would result in any other material impairment of the
rights of the holder of such license. To the knowledge of such
counsel, no other FCC Licenses are required in connection with the
operation of the Systems by such subsidiaries in the manner such
counsel has been advised they are presently being operated. For the
purposes of such counsel's opinion, an "FCC License" is defined as an
authorization, or renewal thereof, issued by the FCC authorizing the
transmission of radio energy through the airwaves;
(iii) Other than proceedings affecting the cable television
industry generally, there is no action, suit or proceeding pending
before or, to the knowledge of such counsel, threatened by the FCC
which is reasonably likely to have a Material Adverse Effect;
(iv) All material Statements of Account required by Section 111
of the Copyright Act, have been filed, together with royalty payments
accompanying said Statements of Account (collectively, the "Copyright
Filings"), with the U.S. Copyright Office for the Systems covering
each of the accounting beginning with the January 1 through June 30,
1996 accounting period and ending with the January 1 through June 30,
1999 accounting period during which such Systems have been operated by
the Company's subsidiaries. Such counsel has not reviewed the
information or calculations contained in the Copyright Filings, and
expresses no opinion with respect to the accuracy thereof. To the
best of such counsel's knowledge, based solely on counsel's review of
its files and on the information and representations provided by the
Company, there is no Copyright Office inquiry, nor any pending or
threatened claim by a third party against the Company or any of its
subsidiaries, relating to the Copyright Filings or for copyright
infingement or for non-payment of royalty fees which is reasonable
likely to have a Material Adverse Effect;
(v) No consent, approval, authorization or order of, or filing or
registration with the FCC or the U.S. Copyright Office under any of
the Cable Acts or Section 111 of the Copyright Act, or the published
orders, rules and regulations of the FCC or the U.S. Copyright Office
is required for the consummation of the transactions contemplated by
this Agreement in connection with the issuance or sale of the Offered
Securities
<PAGE>
-23-
by the Company or the consummation of the Exchange Transaction, except
such as have been obtained under the Cable Acts or any order, rule or
regulation of the FCC;
(vi) The execution, delivery and performance of this Agreement,
the issuance and sale of the Offered Securities and the consummation
of the Exchange Transaction will not result in a breach or violation
of any of the terms and provisions of or conflict with any of the
Cable Acts or Section 111 of the Copyright Act or any order, rule or
regulation of the FCC or the U.S. Copyright Office;
(vii) The statements in the Registration Statements and the
Prospectus under the captions "Risk Factors -- Our Industry",
"Business -- Franchises", "-- Competition" and "Legislation and
Regulation", insofar as such statements summarize applicable
provisions of the Cable Acts and the orders, rules and regulations of
the FCC, are accurate summaries in all material respects of the
provisions purported to be summarized under such captions in the
Registration Statements and the Prospectus; and the FCC statutes and
regulations summarized under such captions are the FCC statutes and
regulations that are material to the business of the Company and its
subsidiaries as described in Registration Statements and the
Prospectus; and
(viii) In the course of such counsel's representation of the
Mediacom Companies and their subsidiaries, no matters have come to
such counsel's attention, other than matters affecting the cable
television industry generally, which would reasonably be expected to
have a Material Adverse Effect.
(h) The Representatives shall have received an opinion dated such
Closing Date, of Bruce Gluckman, Esq., counsel for the Mediacom Companies,
to the effect that:
(i) No consent, approval, authorization, or order of, or filing
or registration with any state or local franchising authority is
required for the consummation of the transactions contemplated by this
Agreement in connection with the issuance or sale of the Offered
Securities by the Company or the consummation of the Exchange
Transaction, except such as have been obtained under any statutes,
rules or regulations of state or local governmental agencies or bodies
relating to cable television franchising matters and except where the
failure to receive any such approval, authorization or order would not
individually or in the aggregate have a Material Adverse Effect;
(ii) The execution, delivery and performance of this Agreement,
the issuance and sale of the Offered Securities and the consummation
of the Exchange Transaction will not result in a breach or violation
of any of the terms and provisions of, or conflict with any statute,
rule or regulation of state or local governmental agency or body
relating to cable television franchising matters, except where such
breach, violation or default would not individually or in the
aggregate have a Material Adverse Effect; and
(iii) The statements in the Registration Statements and the
Prospectus under the captions "Business -- Franchises", "--
Competition" and "Legislation and Regulation --
<PAGE>
-24-
Franchise Matters", insofar as such statements summarize applicable
provisions of statutes, rules and regulations of state and local
governmental agencies and bodies relating to cable television
franchising matters, are accurate summaries in all material respects
of the provisions purported to be summarized under such captions in
the Registration Statements and the Prospectus; and such statutes,
rules and regulations summarized under such captions are the statutes,
rules and regulations of state and local governmental agencies and
bodies relating to cable television franchising matters that are
material to the business of the Company and its subsidiaries as
described in Registration Statements and the Prospectus.
(i) The Representatives shall have received from Cahill Gordon &
Reindel, counsel for the Underwriters, such opinion or opinions, dated such
Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Mediacom Companies shall have
furnished to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(j) The Representatives shall have received a certificate, dated such
Closing Date, of the Chief Executive Officer and the Chief Financial
Officer of the Company in which such officers, to the best of their
knowledge after reasonable investigation, shall state that: the
representations and warranties of the Mediacom Companies in this Agreement
are true and correct; the Mediacom Companies have complied with all
agreements and satisfied all conditions on their part to be performed or
satisfied hereunder at or prior to such Closing Date; no stop order
suspending the effectiveness of any Registration Statement has been issued
and no proceedings for that purpose have been instituted or are
contemplated by the Commission; the Additional Registration Statement (if
any) satisfying the requirements of subparagraphs (1) and (3) of Rule
462(b) was filed pursuant to Rule 462(b), including payment of the
applicable filing fee in accordance with Rule 111(a) or (b) under the Act,
prior to the time the Prospectus was printed and distributed to any
Underwriter; and, subsequent to the dates of the most recent financial
statements in the Prospectus, there has been no material adverse change,
nor any development or event involving a prospective material adverse
change, in the condition (financial or other), business, properties or
results of operations of the Company and its subsidiaries taken as a whole
except as set forth in or contemplated by the Prospectus or as described in
such certificate.
(k) The Representatives shall have received a letter, dated such
Closing Date, of Arthur Andersen LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to
in such subsection will be a date not more than three days prior to such
Closing Date for the purposes of this subsection.
(l) The Exchange Transaction shall have occurred.
(m) The "lock-up" agreements, each substantially in the Form of
Exhibit A hereto, between the Representatives and the directors, officers
and all of the stockholders of the Company
<PAGE>
-25-
(following the Exchange Transaction) relating to sales and certain other
dispositions of Securities and certain other securities, delivered to the
Representatives on or before the date hereof, shall be in full force and
effect.
The Mediacom Companies will furnish the Representatives with such conformed
copies of such opinions, certificates, letters and documents as the
Representatives reasonably request. CSFBC may in its sole discretion waive on
behalf of the Underwriters compliance with any conditions to the obligations of
the Underwriters hereunder, whether in respect of an Optional Closing Date or
otherwise.
7. Indemnification and Contribution. (a) Each of the Mediacom
Companies will jointly and severally indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal
or other expenses reasonably incurred by such Underwriter in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the Mediacom
Companies will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission
from any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and
agreed that the only such information furnished by any Underwriter consists
of the information described as such in subsection (b) below.
Each of the Mediacom Companies agrees jointly and severally to
indemnify and hold harmless the Designated Underwriter, its partners,
directors and officers and each person, if any, who controls the Designated
Underwriter within the meaning of Section 15 of the Act (the "Designated
Entities"), against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action or
claim) (i) caused by any untrue statement or alleged untrue statement of a
material fact contained in any material prepared by or with the consent of
the Company for distribution to Participants in connection with the
Directed Share Program or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; (ii) caused by the failure of
any Participant to pay for and accept delivery of Directed Shares that the
Participant agreed to purchase; or (iii) related to, arising out of, or in
connection with the Directed Share Program, other than losses, claims,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross
negligence of the Designated Entities.
<PAGE>
-26-
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless each of the Mediacom Companies against any losses, claims, damages
or liabilities to which the Mediacom Companies may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or any amendment
or supplement thereto, or any related preliminary prospectus, or arise out
of or are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity
with written information furnished to the Company by such Underwriter
through the Representatives specifically for use therein, and will
reimburse each of the Mediacom Companies for any legal or other expenses
reasonably incurred by the Mediacom Companies in connection with
investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred, it being understood and agreed that
the only such information furnished by any Underwriter consists of the
following information in the Prospectus furnished on behalf of each
Underwriter: (i) the concession and reallowance figures appearing in the
fifth paragraph; (ii) the information regarding discretionary sales in the
seventh paragraph; (iii) the information contained in the ninth sentence of
the fifteenth paragraph, and (iv) the overallotment and stabilization
information in the sixteenth paragraph, in each case under the caption
"Underwriting".
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under subsection (a) or (b) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under subsection (a) or (b) above. In case any such
action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to
the indemnifying party), and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof,
the indemnifying party will not be liable to such indemnified party under
this Section, for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation. Notwithstanding anything contained
herein to the contrary, if indemnity may be sought pursuant to the last
paragraph in Section 7(a) hereof in respect of such action or proceeding,
then in addition to such separate firm for the indemnified parties, the
indemnifying party shall be liable for the reasonable fees and expenses of
not more than one separate firm (in addition to any local counsel) for the
Designated Entities for the defense of any losses, claims, damages and
liabilities arising out of the Directed Share Program. No indemnifying
party shall, without the prior written consent of the indemnified party,
effect any settlement of any pending or threatened action in respect of
which any indemnified party is
<PAGE>
-27-
or could have been a party and indemnity could have been sought hereunder
by such indemnified party unless such settlement (i) includes an
unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action and (ii) does not include
a statement as to, or an admission of, fault, culpability or a failure to
act by or on behalf of an indemnified party.
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a)
or (b) above, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Mediacom Companies on the one hand and the Underwriters on
the other from the offering of the Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Mediacom
Companies on the one hand and the Underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims,
damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Mediacom Companies on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Mediacom Companies or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the
first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any action or claim which is the
subject of this subsection (d). Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount
in excess of the amount by which the total price at which the Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this
subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Mediacom Companies under this Section shall
be in addition to any liability which the Mediacom Companies may otherwise
have and shall extend, upon the same terms and conditions, to each partner,
officer and director of each underwriter and to each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act; and
the obligations of the Underwriters under this Section shall be in addition
to any liability which the respective Underwriters may otherwise have and
shall extend, upon the same
<PAGE>
-28-
terms and conditions, to each director of the Mediacom Companies, to each
officer of the Mediacom Companies who has signed a Registration Statement
and to each person, if any, who controls the Mediacom Companies within the
meaning of Section 15 of the Act.
8. Indemnification of QIU. (a) Each of the Mediacom Companies jointly
and severally agrees to indemnify and hold harmless the QIU, its directors,
its officers and each person, if any, who controls the QIU within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from
and against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with defending or investigating any matter, including any action
that could give rise to any such losses, claims, damages, liabilities or
judgments) related to, based upon or arising out of (i) any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, the Prospectus (or any amendment or supplement
thereto) or any preliminary prospectus, or any omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading or (ii) the QIU's activities
as QIU under its engagement pursuant to Section 3 hereof, except in the
case of this clause (ii) insofar as any such losses, claims, damages,
liabilities or judgments are found in a final judgment by a court of
competent jurisdiction, not subject to further appeal, to have resulted
solely from the willful misconduct or gross negligence of the QIU.
(b) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to paragraph (a) of this
Section (the "QIU Indemnified Party"), the QIU Indemnified Party shall
promptly notify the Company in writing and the Mediacom Companies shall
assume the defense of such action, including the employment of counsel
reasonably satisfactory to the QIU Indemnified Party and the payment of all
fees and expenses of such counsel, as incurred. Any QIU Indemnified Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the QIU Indemnified Party unless (i) the
employment of such counsel shall have been specifically authorized in
writing by the Company, (ii) the Mediacom Companies shall have failed to
assume the defense of such action or employ counsel reasonably satisfactory
to the QIU Indemnified Party or (iii) the named parties to any such action
(including any impleaded parties) include the QIU Indemnified Party and
either of the Mediacom Companies, and the QIU Indemnified Party shall have
been advised by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those available
to such Mediacom Company (in which case the Mediacom Companies shall not
have the right to assume the defense of such action on behalf of the QIU
Indemnified Party). In any such case, the Mediacom Companies shall not, in
connection with any one action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more
than one separate firm of attorneys (in addition to any local counsel) for
all QIU Indemnified Parties, which firm shall be designated by the QIU, and
all such fees and expenses shall be reimbursed as they are incurred. Each
of the Mediacom Companies shall jointly and severally indemnify and hold
harmless the QIU Indemnified Party from and against any and all losses,
claims, damages, liabilities and judgments by reason of any settlement of
any action (i) effected
<PAGE>
-29-
with the Company's written consent or (ii) effected without the Company's
written consent if the settlement is entered into more than ten business
days after the Company shall have received a request from the QIU
Indemnified Party for reimbursement for the fees and expenses of counsel
(in any case where such fees and expenses are at the expense of the
Mediacom Companies) and, prior to the date of such settlement, the Mediacom
Companies shall have failed to comply with such reimbursement request. The
Mediacom Companies shall not, without the prior written consent of the QIU
Indemnified Party, effect any settlement or compromise of, or consent to
the entry of judgment with respect to, any pending or threatened action in
respect of which the QIU Indemnified Party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by
the QIU Indemnified Party, unless such settlement, compromise or judgment
(i) includes an unconditional release of the QIU Indemnified Party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of
fault, culpability or a failure to act by or on behalf of the QIU
Indemnified Party.
(c) To the extent the indemnification provided for in this Section is
unavailable to a QIU Indemnified Party or insufficient in respect of any
losses, claims, damages, liabilities or judgments referred to therein, then
the Mediacom Companies, in lieu of indemnifying such QIU Indemnified Party,
shall contribute to the amount paid or payable by such QIU Indemnified
Party as a result of such losses, claims, damages, liabilities and
judgments (i) in such proportion as is appropriate to reflect the relative
benefits received by the Mediacom Companies on the one hand and the QIU on
the other hand from the offering of the Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Mediacom Companies and the QIU in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The
relative benefits received by the Mediacom Companies and the QIU shall be
deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company as set forth
in the table on the cover page of the Prospectus, and the fee received by
the QIU pursuant to Section 3 hereof, bear to the sum of such total net
proceeds and such fee. The relative fault of the Mediacom Companies and the
QIU shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied
by the Mediacom Companies or the QIU and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission and whether the QIU's activities as QIU under its
engagement pursuant to Section 3 hereof involved any willful misconduct or
gross negligence on the part of the QIU.
The Company and the QIU agree that it would not be just and equitable
if contribution pursuant to this Section 8(c) were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by a QIU Indemnified Party as a
result of the losses, claims, damages, liabilities or judgments referred to
in the immediately preceding
<PAGE>
-30-
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses incurred by such QIU Indemnified Party
in connection with investigating or defending any matter that could have
given rise to such losses, claims, damages, liabilities or judgments. In no
event shall any QIU Indemnified Party be required to contribute in the
aggregate an amount exceeding the fee received by DLJ pursuant to Section 3
hereof. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(d) The remedies provided for in this Section are not exclusive and
shall not limit any rights or remedies which may otherwise be available to
any QIU Indemnified Party at law or in equity.
9. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 10 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
10. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Mediacom Companies or their respective officers and of the several Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, any QIU Indemnified Party, the Mediacom
Companies or any of their respective representatives, officers or directors or
any controlling person, and will survive delivery of and payment for the Offered
Securities. If this Agreement is terminated pursuant to Section 9 or if for any
reason the purchase of the Offered Securities by the Underwriters is not
consummated, the Mediacom Companies shall remain responsible for the expenses to
be paid or reimbursed by them pursuant to Section 5 and the respective
obligations of the Mediacom Companies and the Underwriters pursuant
<PAGE>
-31-
to Section 7 and the obligations of the Mediacom Companies pursuant to Section 9
shall remain in effect, and if any Offered Securities have been purchased
hereunder, the representations and warranties in Section 2 and all obligations
under Section 5 shall also remain in effect. If the purchase of the Offered
Securities by the Underwriters is not consummated for any reason other than
solely because of the termination of this Agreement pursuant to Section 9 or the
occurrence of any event specified in clause (iii), (iv) or (v) of Section 6(d),
the Mediacom Companies will reimburse the Underwriters for all out-of-pocket
expenses (including fees and disbursements of counsel) reasonably incurred by
them in connection with the offering of the Offered Securities.
11. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed by overnight mail, delivered by hand or sent
by facsimile transmission and confirmed to the Representatives, c/o Credit
Suisse First Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010-
3629, Attention: Investment Banking Department--Transactions Advisory Group, or,
if sent to the Mediacom Companies, will be mailed, delivered or telegraphed and
confirmed to it at 100 Crystal Run Road, Middletown, N.Y. 10941, Attention:
Rocco B. Commisso, with a copy to Cooperman Levitt Winikoff Lester & Newman,
P.C., 800 Third Ave., New York, N.Y. 10022, Attention: Robert L. Winikoff, Esq.;
provided, however, that any notice to an Underwriter pursuant to Section 7 will
be so mailed, delivered or sent by facsimile transmission and confirmed to such
Underwriter.
12. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the partners,
officers and directors and controlling persons referred to in Section 7 and 8,
and no other person will have any right or obligation hereunder.
13. Representation of Underwriters. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
15. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
The Mediacom Companies hereby submit to the non-exclusive jurisdiction of
the Federal and state courts in the Borough of Manhattan in The City of New York
in any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
<PAGE>
-32-
If the foregoing is in accordance with the Representatives' understanding
of our agreement, kindly sign and return to the Mediacom Companies one of the
counterparts hereof, whereupon it will become a binding agreement among the
Mediacom Companies and the several Underwriters in accordance with its terms.
Very truly yours,
MEDIACOM COMMUNICATIONS
CORPORATION
By ...............................
[Title]
MEDIACOM LLC
By ...............................
[Title]
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
Credit Suisse First Boston Corporation
Salomon Smith Barney Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Chase Securities Inc.
CIBC World Markets Corp.
First Union Securities, Inc.,
Acting on behalf of themselves and as
the Representatives of the several
Underwriters.
By CREDIT SUISSE FIRST BOSTON CORPORATION
By ...............................
[Title]
<PAGE>
-33-
In its capacity as qualified independent underwriter:
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By ...............................
[Title]
<PAGE>
SCHEDULE A
Number of
Underwriter Firm Securities
----------- ---------------
Credit Suisse First Boston Corporation.....................
Salomon Smith Barney Inc...................................
Donaldson, Lufkin & Jenrette Securities Corporation........
Goldman, Sachs & Co........................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated.........
Chase Securities Inc.......................................
CIBC World Markets Corp....................................
First Union Securities, Inc................................
---------------
Total....................................... 20,000,000
===============
<PAGE>
EXHIBIT A
Form of Lock-Up Agreement
<PAGE>
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF
MEDIACOM COMMUNICATIONS CORPORATION
Mediacom Communications Corporation, a corporation organized and
existing under the Delaware General Corporation Law (the "Corporation"), does
hereby certify:
1. The Corporation has not received any payment for any of its stock.
2. The Corporation's original certificate of incorporation was filed on
November 8, 1999 with the Secretary of State of the State of Delaware under the
name Mediacom Communications Corporation.
3. The following amendment and restatement of the Corporation's
Certificate of Incorporation was approved and duly adopted by a majority of the
Corporation's Board of Directors in accordance with the provisions of Sections
241 and 245 of the Delaware General Corporation Law:
"ARTICLE ONE
NAME
The name of the corporation (hereinafter the "Corporation") is
Mediacom Communications Corporation
ARTICLE TWO
REGISTERED OFFICE
The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 30 Old Rudnick
Lane, Suite 100, Dover, Delaware 19901, County of Kent; and the name of the
registered agent of the Corporation in the State of Delaware at such address is
LEXIS Document Services Inc.
ARTICLE THREE
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
<PAGE>
ARTICLE FOUR
CAPITAL STRUCTURE
The total number of shares of capital stock which the Corporation shall
have the authority to issue is 500,000,000 shares, consisting of three classes
of capital stock:
(a) 300,000,000 shares of Class A Common Stock, par value $0.01 per
share (the "Class A Common Stock");
(b) 100,000,000 shares of Class B Common Stock, par value $0.01 per
share (the "Class B Common Stock," and together with the Class A Common Stock,
the "Common Stock"); and
(c) 100,000,000 shares of Preferred Stock, par value $0.01 per share
(the "Preferred Stock").
ARTICLE FIVE
COMMON STOCK
5.1 Identical Rights. Except as otherwise set forth in this ARTICLE
FIVE, each share of Common Stock shall be identical, including, without
limitation, the right to participate ratably in dividends and other
distributions (including distributions upon liquidation, dissolution or other
winding up of the Corporation), payable in cash, stock or property, except that
in the case of dividends or distributions payable in shares of a class of Common
Stock, only shares of Class A Common Stock may be distributed with respect to
Class A Common Stock and only shares of Class B Common Stock may be distributed
with respect to Class B Common Stock, and the number of shares of Common Stock
payable per share will be equal for each class. In addition, neither the shares
of Class A Common Stock nor the shares of Class B Common Stock may be
subdivided, consolidated, reclassified or otherwise changed unless concurrently
the shares of the other class of Common Stock are subdivided, consolidated,
reclassified or otherwise changed in the same proportion and the same manner.
The Corporation may not make any dividend or distribution with respect to any
class of Common Stock unless at the same time the Corporation makes a ratable
dividend or distribution with respect to each outstanding share of Common Stock
regardless of class. The rights of holders of Class A Common Stock and Class B
Common Stock are subject to the rights of holders of shares of any series of
Preferred Stock that the Corporation may designate and issue from time to time.
<PAGE>
5.2 Voting Rights. The holders of the Common Stock shall vote as a
single class on all matters submitted to a vote of the stockholders to which the
holders of Common Stock are entitled to vote, except as may be required by the
Delaware General Corporation Law or as otherwise expressly specified in this
Restated Certificate of Incorporation. Each share of Class A Common Stock shall
be entitled to one vote and each share of Class B Common Stock shall be entitled
to ten votes. The Corporation, by action of its Board of Directors and the
affirmative vote of the holders of a majority of the voting power of the capital
stock of the Corporation entitled to vote, may increase or decrease the number
of authorized shares of Common Stock or Preferred Stock of the Corporation (but
not below the number of shares of Common Stock or Preferred Stock, respectively,
then outstanding or reserved for issuance upon the conversion of shares of Class
B Common Stock) irrespective of the provisions of Section 242(b)(2) of the
Delaware General Corporation Law; provided, however, that any increase or
decrease to the number of authorized shares of Class B Common Stock shall in
addition to the foregoing, require the affirmative vote of the holders of a
majority of the voting power of the Class B Common Stock, voting as a separate
class.
5.3 Holders of Class B Common Stock. Shares of Class B Common Stock
from time to time outstanding shall be held of record by members of the
Management Group (as defined below), and by no other person or persons. For
purposes of this Section 5.3, the term "Management Group" shall mean any and all
of (a) the directors and officers of the Corporation on the day that the
Corporation's initial public offering pursuant to the Securities Act of 1933, as
amended, is consummated; (b) directors and officers of the Corporation or a
subsidiary of the Corporation and such other persons employed in a management
capacity by the Corporation or a subsidiary of the Corporation and designated by
the Board of Directors of the Corporation from time-to-time as members of the
Management Group; (c) Rocco B. Commisso; (d) a Controlled Affiliate (as defined
below) of any of the persons identified in (a), (b) and (c) of this sentence (an
"Identified Person"); and (e) a Relative (as defined below) of any of the
Identified Persons and a Controlled Affiliate of any such Relative, in each case
as designated by the Board of Directors of the Corporation from time-to-time as
a member of the Management Group. For purposes of this Section 5.3, the term
"Controlled Affiliate" shall mean, with respect to an Identified Person or
Relative, any entity that is controlled directly or indirectly (by ownership of
voting securities, contract or otherwise) by such Identified Person or Relative.
For purposes of this Section 5.3, the term "Relative" shall mean an Identified
Person's spouse, any of an Identified Person's ancestors, descendants, including
any such relationship by legal adoption, siblings, descendants of any such
siblings or the spouse of any of the foregoing, an Identified Person's legal
representative, conservator or guardian if the Identified Person becomes
mentally incompetent, and an Identified Person's estate and heirs; provided,
however, that an Identified Person, by written notice given to the Board of
Directors of the Corporation, may exclude from the definition of Relative any
relative or member of the family of such Identified Person even if such person
was previously included in the definition of Relative.
5.4 Conversion Rights.
(a) Voluntary Conversion of Class B Common Stock. Each share of Class B
Common Stock is convertible into one fully paid and non-assessable share of
Class A Common Stock at any time at the option of the holder. In order to
exercise the conversion privilege, the holder of
<PAGE>
any shares of Class B Common Stock to be converted shall present and surrender
the certificate or certificates representing such shares during usual business
hours at the principal executive offices of the Corporation, or if any agent for
the registration of transfer of shares of Class B Common Stock is then duly
appointed and acting (said agent being hereinafter called the "Transfer Agent"),
then at the office of the Transfer Agent, accompanied by written notice that the
holder elects to convert the shares of Class B Common Stock represented by such
certificate or certificates, to the extent specified in such notice. Such notice
shall also state the name or names (with addresses) in which the certificate or
certificates for shares of Class A Common Stock which shall be issuable on such
conversion shall be issued. If required by the Corporation, any certificate for
shares of Class B Common Stock surrendered for conversion shall be accompanied
by instruments of transfer, in form satisfactory to the Corporation and the
Transfer Agent, duly executed by the holder of such shares or his or her duly
authorized representative. As promptly as practicable after the receipt of such
notice and the surrender of the certificate or certificates representing such
shares of Class B Common Stock as aforesaid, the Corporation shall issue and
deliver at such office to such holder, or on his or her written order, a
certificate or certificates for the number of full shares of Class A Common
Stock issuable upon the conversion of such shares. Each conversion of shares of
Class B Common Stock shall be deemed to have been effected on the date on which
such notice shall have been received by the Corporation or the Transfer Agent,
as applicable, and the certificate or certificates representing such shares
shall have been surrendered (subject to receipt by the Corporation or the
Transfer Agent, as applicable, within thirty (30) days thereafter of any
required instruments of transfer as aforesaid), and the person or persons in
whose name or names any certificate or certificates for shares of Class A Common
Stock shall be issuable upon such conversion shall be deemed to have become on
said date the holder or holders of record of the shares represented thereby.
(b) Automatic Conversion of Class B Common Stock. Upon any transfer of
shares of Class B Common Stock to any person other than a member of the
Management Group, said shares shall be deemed automatically to convert,
effective as of the date of transfer thereof, into the same number of shares of
Class A Common Stock. If an Identified Person informs the Board of Directors of
the Corporation that a relative or family member should not be included in the
definition of Relative as set forth in Section 5.3 herein, any shares of Class B
Common Stock held by such relative or family member shall be deemed
automatically to convert, effective as of the date the Board of Directors of the
Corporation receives written notice from the Identified Person, into the same
number of shares of Class A Common Stock.
(c) Unconverted Shares. If less than all of the shares of Class B
Common Stock evidenced by a certificate or certificates surrendered to the
Corporation (in accordance with such procedures as the Board of Directors of the
Corporation may determine) are converted, the Corporation shall execute and
deliver to or upon the written order of the holder of such certificate or
certificates a new certificate or certificates evidencing the number of shares
of Class B Common Stock which are not converted without charge to the holder.
(d) No Conversion Rights of Class A Common Stock. The Class A Common
Stock has no conversion rights.
5.5 Reservation. The Corporation hereby reserves, and shall at all
times reserve and keep
<PAGE>
available, out of its authorized and unissued shares of Class A Common Stock,
for the purposes of effecting conversions, such number of duly authorized shares
of Class A Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Class B Common Stock. The Corporation
covenants that all the shares of Class A Common Stock so issuable shall, when so
issued, be duly and validly issued, fully paid and non-assessable. The
Corporation shall take all such action as may be necessary to assure that all
such shares of Class A Common Stock may be so issued without violation of any
applicable law or regulation.
5.6 Merger. Upon the merger or consolidation of the Corporation,
holders of each class of Common Stock will be entitled to receive equal per
share payments or distributions, except that in any transaction in which shares
of capital stock are distributed, such shares may differ to the extent that the
Class A Common Stock and the Class B Common Stock differ as provided in this
Restated Certificate of Incorporation.
5.7 Liquidation. Upon any dissolution or liquidation of the
Corporation, the holders of the Class A Common Stock and Class B Common Stock
will be entitled to receive ratably all assets of the Corporation available for
distribution to stockholders, subject to any preferential rights of any then
outstanding shares of Preferred Stock.
ARTICLE SIX
PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time in one or
more series, each of such series to have such terms as stated in the resolution
or resolutions providing for the establishment of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Except as
otherwise expressly stated in the resolution or resolutions providing for the
establishment of a series of Preferred Stock, any shares of Preferred Stock
which may be redeemed, purchased or acquired by the Corporation may be reissued
except as otherwise expressly provided by law.
Authority is hereby expressly granted to the Board of Directors of the
Corporation to issue, from time to time, shares of Preferred Stock in one or
more series, and, in connection with the establishment of any such series by
resolution or resolutions, to determine and fix such voting powers, full or
limited, or no voting powers, and such other powers, designations, preferences
and relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof, if any including, without
limitation, dividend rights, conversion rights, redemption and sinking fund
privileges, and liquidation preferences, as shall be stated in such resolution
or resolutions, all to the fullest extent permitted by the Delaware General
Corporation Law. Without limiting the generality of the foregoing, the
resolution or resolutions providing for the establishment of any series of
Preferred Stock may, to the extent permitted by law, provide that such series
shall be superior to, rank equally with or be junior to the Preferred Stock of
any other series. Except as otherwise expressly provided in the resolution or
resolutions providing for the establishment of any series of Preferred Stock, no
vote of the holders of shares of Preferred Stock or Common Stock shall be a
prerequisite to the issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions
<PAGE>
of this Restated Certificate of Incorporation.
ARTICLE SEVEN
BOARD OF DIRECTORS
(a) The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of subsection
(b) of Section 102 of the Delaware General Corporation Law, as the same may be
amended and supplemented.
(b) The Corporation shall, to the fullest extent permitted by Section
145 of the Delaware General Corporation Law, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(c) If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
(d) No amendment to or repeal of this ARTICLE SEVEN shall apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
ARTICLE EIGHT
CORPORATE GOVERNANCE
The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation and for the further
definition of the powers of the Corporation and its directors and stockholders:
(a) The Board of Directors shall have the power to adopt, amend or
repeal the by-laws of the Corporation.
(b) The stockholders may adopt, amend or repeal the by-laws of the
Corporation only with, in addition to any other vote required by-law, the
affirmative vote of the holders of not less than 66 2/3% of the total voting
power of all outstanding securities of the Corporation then entitled to vote
generally in the election of directors, voting together as a single class.
(c) Elections of directors need not be by written ballot unless the
by-laws of the
<PAGE>
Corporation so provide.
(d) Special meetings of stockholders may be called by the Board of
Directors, the Chairman of the Board of Directors or the President of the
Corporation and may not be called by any other person. Notwithstanding the
foregoing, whenever holders of one or more series of Preferred Stock shall have
the right, voting separately as a series, to elect directors, such holders may
call special meetings of such holders pursuant to the certificate of designation
for such series.
ARTICLE NINE
AMENDMENT
The Corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in this Restated
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Restated Certificate of Incorporation in its
present form or as hereafter amended are granted subject to the rights reserved
in this ARTICLE NINE.
<PAGE>
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which
restates and amends the provisions of the Certificate of Incorporation of the
Corporation, and which has been duly adopted in accordance with Sections 241 and
245 of the General Corporation Law, has been executed by its duly authorized
officer this ____ day of January, 2000.
MEDIACOM COMMUNICATIONS CORPORATION
By: __________________________
Name: Rocco B. Commisso
Title: Chairman and Chief Executive Officer
<PAGE>
EXHIBIT 4.1
[SEAL] [LOGO OF MEDIACOM] [SEAL]
MEDIACOM COMMUNICATIONS CORPORATION
CLASS A INCORPORATED UNDER THE LAWS SEE REVERSE FOR
COMMON STOCK OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 58446K 10 5
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
======================MEDIACOM COMMUNICATIONS CORPORATION=======================
(hereinafter, referred to as the "Corporation"), transferable on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed. This Certificate and the
shares represented hereby are issued and shall be held subject to all provisions
of the Certificate of Incorporation and By-Laws of the Corporation and any
amendments thereto, to all of which the holder of this Certificate by acceptance
hereof assents.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ [SEAL] /s/
SECRETARY CHAIRMAN and EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
ChaseMellon Shareholder Services, L.L.C.
TRANSFER AGENT AND REGISTRAR,
BY
AUTHORIZED SIGNATURE
<PAGE>
MEDIACOM COMMUNICATIONS CORPORATION
The Corporation will furnish without charge to each stockholder who so
requests, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof of
the Corporation and the qualifications, limitations, or restrictions of such
preferences and/or rights. Such request may be made to the Corporation or the
Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ________ Custodian _________
(Cust) (Minor)
under Uniform Gifts to Minors
Act __________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, _____________________________________________ hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________
__________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
of the Class A Common Stock represented by the within Certificate, and does
hereby irrevocably constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated___________________
______________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THIS CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed:
______________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
[Letterhead of Cooperman Levitt Winikoff Lester & Newman, P.C.]
January 28, 2000
Mediacom Communications Corporation
100 Crystal Run Road
Middletown, New York 10941
Re: Registration Statement on Form S-1
Under the Securities Act of 1933
--------------------------------
Ladies and Gentlemen:
In our capacity as counsel to Mediacom Communications Corporation, a
Delaware corporation (the "Company"), we have been asked to render this opinion
in connection with a Registration Statement on Form S-1, as amended (File
Number: 333-90879), heretofore filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Registration Statement"), covering up to 23,000,000 shares of Class A Common
Stock (the "Shares").
In that connection, we have examined the Restated Certificate of
Incorporation and the By- Laws of the Company, the Registration Statement,
corporate proceedings of the Company relating to the issuance of the Shares and
such other instruments and documents as we have deemed relevant under the
circumstances.
In making the aforesaid examinations, we have assumed the genuineness
of all signatures and the conformity to original documents of all copies
furnished to us as original or photostatic copies. We have also assumed that the
corporate records furnished to us by the Company include all corporate
proceedings taken by the Company to date.
Based upon and subject to the foregoing, we are of the opinion that:
(1) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(2) The Shares have been duly and validly authorized and, when issued
and paid for as described in the Registration Statement, will be duly
and validly issued, fully paid and non- assessable.
<PAGE>
Mediacom Communications Corporation
January 28, 2000
Page 2
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the prospectus forming a part of the Registration
Statement.
Very truly yours,
COOPERMAN LEVITT WINIKOFF
LESTER & NEWMAN, P.C.
By: /s/Harris S. Jaffe
--------------------
A Member of the Firm
<PAGE>
Exhibit 10.7
MEDIACOM COMMUNICATIONS CORPORATION
1999 STOCK OPTION PLAN
----------------------
1. Purpose of the Plan.
The purpose of the Mediacom Communications Corporation 1999 Stock Option
Plan (the "Plan") is to promote the interests of Mediacom Communications
Corporation, a Delaware corporation (the "Company"), and its stockholders by
strengthening the Company's ability to attract and retain competent employees,
to make service on the Board of Directors of the Company (the "Board") more
attractive to present and prospective non-employee directors of the Company and
to provide a means to encourage stock ownership and proprietary interest in the
Company by officers, non-employee directors and valued employees and other
individuals upon whose judgment, initiative and efforts the financial success
and growth of the Company largely depend.
2. Options Granted under the Plan.
(a) The Company is authorized under this Plan to grant (i) incentive stock
options ("qualified incentive options") that are intended to satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), (ii) non-qualified stock options ("non-qualified options") that
are not intended to satisfy the requirements of Section 422 of the Code and
(iii) stock appreciation rights ("SARs"), in each case, with respect to shares
of the Company's Class A and/or Class B common stock, $0.01 par value per share
("Common Stock")
(b) Options granted pursuant to the Plan shall be authorized by action of
the Board (or a committee designated by the Board) and may be designated as
either qualified incentive stock options that are intended to satisfy the
requirements of Section 422 of the Code, or non-qualified options that are not
intended to satisfy the requirements of Section 422 of the Code. Such
designation shall be in the sole discretion of the Board. Options designated as
qualified incentive stock options that fail to satisfy, or fail to continue to
satisfy, the requirements of Section 422 of the Code by reason of the transfer,
exercise or failure to exercise such options or as otherwise provided in Section
422 of the Code shall be redesignated as non-qualified options automatically on
the date of such failure without further action by the Board.
3. Stock Subject to the Plan.
(a) The total number of shares (the "Total Authorized Plan Shares") of the
authorized but unissued or treasury shares of Common Stock for which the Company
is authorized under this Plan to grant qualified incentive stock options, non-
qualified options and SARs shall be equal, in the aggregate, to the greater of
----------
(x) seven million (7,000,000) shares of Common Stock or, (y) in the event of an
initial public offering of Common Stock of the Company during the term of this
Plan, an amount of shares of Common Stock determined as follows:
<PAGE>
(A) 300,000; plus
----
(B) an amount equal to (i) the total number of shares of Common Stock
outstanding upon the completion of the Company's initial public offering,
including any shares issued by the Company pursuant to the underwriters'
over-allotment option (collectively, the "Outstanding Shares"), divided by
0.85, reduced by (ii) the total number of Outstanding Shares; minus
---------- -----
(C) an amount equal to (i) 7.2% of (ii) the total number of
Outstanding Shares divided by 0.9; and
(D) which aggregate number of shares of Common Stock derived from
clauses (A), (B) and (C) above shall be rounded to the next highest 100,000
shares to arrive at the Total Authorized Plan Shares.
(b) Notwithstanding the number of Total Authorized Plan Shares determined
as set forth in clauses (A) - (D) of subsection (a)(y) above, the total number
of shares of Common Stock for which the Company is authorized under this Plan to
grant qualified incentive stock options shall not exceed seven million
(7,000,000) shares of Common Stock (the "Total Authorized QSO Shares"), and the
amount, if any, of the Total Authorized Plan Shares in excess of the Total
Authorized ISO Shares may only be applied in respect of non-qualified options
and SARs.
(c) The number of Total Authorized Plan Shares and Total Authorized ISO
Shares, as the case may be, shall be subject to adjustment as provided in
Section 14 hereof and may be shares of any class of Common Stock as determined
by the Board; provided, however, that, in either case, such number of shares may
from time to time be reduced by the Board to the extent that a corresponding
number of issued and outstanding shares of Common Stock are purchased by the
Company and set aside for issue upon the exercise of options hereunder.
(d) If an option granted or assumed hereunder shall expire, terminate or
be cancelled for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for subsequent
option grants under the Plan; provided, however, that shares as to which an
option has been surrendered in connection with the exercise of a related SAR
will not again be available for subsequent option or SAR grants under the Plan.
(e) Stock issuable upon exercise of an option or SAR granted under the
Plan may be subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board.
4. Administration of the Plan.
The Plan shall be administered by the Board. No member of the Board shall
act upon any matter exclusively affecting an option or SAR granted or to be
granted to himself or herself under the Plan. A majority of the members of the
Board shall constitute a quorum, and any action may be taken by a majority of
those present and voting at any meeting. The decision of the Board as to all
questions of interpretation and application of the Plan shall be final, binding
and conclusive on all
-2-
<PAGE>
persons. The Board may, in its sole discretion, grant options to purchase shares
of Common Stock, grant SARs and issue shares upon exercise of such options and
SARs, as provided in the Plan. The Board shall have authority, subject to the
express provisions of the Plan, to construe the respective option and SAR
agreements and the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the terms and provisions of the respective
option and SAR agreements, which may but need not be identical, and to make all
other determinations in the judgment of the Board necessary or desirable for the
administration of the Plan. The Board may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any option or SAR
agreement in the manner and to the extent it shall deem expedient to carry the
Plan into effect and shall be the sole and final judge of such expediency. No
director shall be liable for any action or determination made in good faith. The
Board may, in its discretion, delegate its power, duties and responsibilities to
a committee, consisting of two or more members of the Board, all of whom are
"Non-Employee Directors" (as hereinafter defined). If a committee is so
appointed, all references to the Board herein shall mean and relate to such
committee, unless the context otherwise requires. For the purposes of the Plan,
a director or member of such committee shall be deemed to be a "Non-Employee
Director" only if such person qualifies as a "Non-Employee Director" within the
meaning of paragraph (b)(3)(i) of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as such term is
interpreted from time to time.
5. Eligibility.
(a) Options designated as qualified incentive stock options may be granted
only to officers and key employees of the Company or of any subsidiary (herein
called "subsidiary" or "subsidiaries"), as defined in Section 424 of the Code
and the Treasury Regulations promulgated thereunder (the "Regulations").
Directors who are not otherwise employees of the Company or a subsidiary shall
not be eligible to be granted qualified incentive stock options pursuant to the
Plan. SARs and options designated as non-qualified options may be granted to (i)
officers and key employees of the Company or of any of its subsidiaries, or (ii)
agents and directors of and consultants to the Company, whether or not otherwise
employees of the Company.
(b) In determining the eligibility of an individual to be granted an
option or SAR, and in determining the number of shares to be optioned to any
individual, the Board shall take into account the recommendation of the
Company's Chairman of the Board, the position and responsibilities of the
individual being considered, the length of such individual's employment with or
services to the Company or the subsidiaries, the nature and value to the Company
or its subsidiaries of his or her service and accomplishments, his or her
present and potential contribution to the success of the Company or its
subsidiaries, and such other factors as the Board may deem relevant.
6. Restrictions on Qualified Incentive Stock Options.
Qualified incentive stock options (but not non-qualified options) granted
under this Plan shall be subject to the following restrictions:
(a) Limitation on Number of Shares. The aggregate fair market value of
the shares of Common Stock with respect to which qualified incentive stock
options are granted, determined as of the date the qualified incentive stock
options are granted, exercisable for the first time by an
-3-
<PAGE>
individual during any calendar year shall not exceed $100,000. If a qualified
incentive stock option is granted pursuant to which the aggregate fair market
value of shares with respect to which it first becomes exercisable in any
calendar year by an individual exceeds such $100,000 limitation, the portion of
such option which is in excess of the $100,000 limitation, and any such options
issued subsequently which first becomes exercisable in the same such calendar
year, shall be treated as a non-qualified option pursuant to section 422(d)(1)
of the Code. In the event that an individual is eligible to participate in any
other stock option plan of the Company or any parent or subsidiary of the
Company which is also intended to comply with the provisions of Section 422 of
the Code, such $100,000 limitation shall apply to the aggregate number of shares
for which qualified incentive stock options may be granted under this Plan and
all such other plans.
(b) Ten Percent (10%) Stockholder. If any employee to whom a qualified
incentive stock option is granted pursuant to the provisions of this Plan is on
the date of grant the owner of stock (as determined under Section 424(d) of the
Code) possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any parent or subsidiary of the Company, then the
following special provisions shall be applicable to the qualified incentive
stock options granted to such individual:
(i) The option price per share subject to such qualified incentive
stock options shall not be less than 110% of the fair market value of the
stock determined at the time such option was granted. In determining the
fair market value under this clause (i), the provisions of Section 8 hereof
shall apply.
(ii) The qualified incentive stock option shall have a term expiring
not more than five (5) years from the date of the granting thereof.
7. Option Agreement.
Each option and SAR shall be evidenced by a written agreement (the
"Agreement") duly executed on behalf of the Company and by the grantee to whom
such option or SAR is granted, which Agreement shall comply with and be subject
to the terms and conditions of the Plan. The Agreement may contain such other
terms, provisions and conditions which are not inconsistent with the Plan as may
be determined by the Board, provided that options designated as qualified
incentive stock options shall meet all of the conditions for qualified incentive
stock options as defined in Section 422 of the Code. No option or SAR shall be
granted within the meaning of the Plan and no purported grant of any option or
SAR shall be effective until the Agreement shall have been duly executed on
behalf of the Company and the optionee. More than one option and SAR may be
granted to an individual.
8. Option Price.
(a) The option price or prices of shares of Common Stock for options
designated as non-qualified stock options shall be as determined by the Board.
(b) Subject to the conditions set forth in Section 6(b) hereof, the option
price or prices of shares of Common Stock for options designated as qualified
incentive stock options shall be at least
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the fair market value of such Common Stock at the time the option is granted as
determined by the Board in accordance with subsection (c) below.
(c) The fair market value of Common Stock shall be determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its fair market value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day on the date of such determination,
as reported in The Wall Street Journal or such other source as the Board
deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its fair market
value shall be the mean of the closing bid and asked prices for the Common
Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable;
(iii) In the absence of an established market for the Common Stock,
the fair market value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of determining the fair market value of Common
Stock in connection with the grant of a qualified incentive stock option at
the time of the initial public offering of the Company's Common Stock, the
fair market value shall be the initial price to the public as set forth in
the final prospectus included within the registration statement in Form S-1
filed with the Securities and Exchange Commission for such initial public
offering.
9. Manner of Payment; Manner of Exercise.
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such options, (ii) shares of
Common Stock owned by the optionee having a fair market value equal in amount to
the exercise price of such options, or (iii) any combination of (i) and (ii);
provided, however, that payment of the exercise price by delivery of shares of
Common Stock owned by such optionee may be made only upon the condition that
such payment does not result in a charge to earnings for financial accounting
purposes as determined by the Board, unless such condition is waived by the
Board. The fair market value of any shares of Common Stock which may be
delivered upon exercise of an option shall be determined by the Board in
accordance with Section 8 hereof.
(b) To the extent that the right to purchase shares under an option has
accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares as provided in subparagraph (a) above. Upon such exercise,
delivery of a certificate for paid-up non-assessable shares shall be made at the
principal office of the Company to the person or persons exercising the option
at such time, or as shall be designated in such notice, during ordinary
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business hours, after three (3) days but not more than ninety (90) days from the
date of receipt of the notice by the Company, or at such time, place and manner
as may be agreed upon by the Company and the person or persons exercising the
option.
10. Exercise of Options and SARs.
Each option and SAR granted under the Plan shall, subject to Section 11 and
Section 13 hereof, be exercisable at such time or times and during such period
as shall be set forth in the Agreement; provided, however, that no option or SAR
granted under the Plan shall have a term in excess of ten (10) years from the
date of grant. To the extent that an option or SAR is not exercised when it
becomes initially exercisable, such option or SAR shall not expire but shall be
carried forward and shall be exercisable, on a cumulative basis, until the
expiration of the exercise period provided in the Agreement unless and until
such option or SAR sooner terminates or is cancelled pursuant to Section 11 or
Section 13 hereof. No partial exercise may be made for less than twenty
(20) full shares of Common Stock. The exercise of an option shall result in
the cancellation of the SAR to which it relates with respect to the same number
of shares of Common Stock as to which the option was exercised.
11. Term, Expiration, Exercisability and Rescission of Options and SARs.
(a) Term and Expiration.
(i) Except as otherwise expressly provided by Section 6(b) of this
Plan, each option and SAR granted under the Plan shall expire ten (10)
years from the date of the granting thereof unless sooner terminated or
cancelled as provided in this Section 11 or in the Agreement.
(ii) The term of any option or SAR granted to any grantee who ceases
for any reason to perform services for the Company or one of its
subsidiaries shall automatically expire, terminate and be cancelled to the
extent such option is not then vested, accrued or otherwise exercisable
under the Agreement and this Plan on the earlier of (A) the date such
grantee ceases to perform services for the Company or one of its
subsidiaries or (B) the date on which the option or SAR expires by its
terms; provided, however, that the Chairman of the Board, in his sole
discretion, may at any time (x) permit the option or SAR to continue in
effect in accordance with the terms of the Agreement and this Plan after
the grantee ceases to perform services for the Company or a subsidiary
and/or (y) accelerate the vesting and exercisability of such option or SAR
with respect to shares that are not vested or otherwise exercisable under
the provision of the Agreement or this Plan at the time the grantee ceases
to perform such services.
(b) Limitations on Exercise.
(i) Except as provided in the Agreement or under this Plan, in the
event a grantee of an option or SAR ceases for any reason to perform
services for the Company or one of its subsidiaries, any option or SAR
granted to such grantee that is vested, accrued and otherwise exercisable
and in effect under this Plan on the date such grantee ceases to perform
such services shall automatically terminate and be cancelled unless such
option or SAR, as the
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case may be, is exercised in accordance with the Agreement and this Plan
within 90 days after the grantee ceases to perform such services; provided,
however, that the Chairman of the Board, in his sole discretion, may at any
time extend the period within which such option or SAR may be exercised
beyond such 90 day period, subject to earlier cancellation pursuant to
clause (ii) of this subsection 11(b) and/or rescission pursuant to
subsection 11(c) hereof.
(ii) Notwithstanding any provisions of the Agreement or under this
Plan, in the event the Company or a subsidiary terminates the employment of
any grantee of an option or SAR on the grounds that such grantee engaged in
any of the following activities ("Wrongful Activities"), or if at any time
it is determined by the Board that the grantee engaged in any Wrongful
Activity either during or after his or her employment with the Company or a
subsidiary, then, in either of such events, any and all options or SARs
granted to such grantee hereunder shall automatically terminate and be
cancelled upon such termination of employment or determination by the
Board, as the case may be, regardless of the extent to which such options
and/or SARs are or were otherwise vested, accrued and exercisable:
(A) the commission by the grantee of a criminal act punishable
as a felony with respect to his or her employment with the Company or
any subsidiary; or
(B) the unlawful taking or use by the grantee of any asset or
property of the Company or of any subsidiary; or
(C) the breach by the grantee of the terms of the Agreement or
of any other written agreement between the employee and the Company or
a subsidiary (which for these purpose shall include any predecessor
entity or equity owner of such entity) insofar as such terms prohibit
or otherwise restrict the grantee from (x) using or disclosing any
confidential information of the Company or any subsidiary, (y)
competing with, or rendering services to any competitor of, the
Company or any subsidiary or (iii) making or publishing any statement
(oral or written) that is negative or derogatory in any way to the
Company, any subsidiary or any of their respective executive officers.
(c) Rescission. Upon the exercise of any option or SAR at any time during
or after the grantee's employment with the Company or a subsidiary, the grantee
shall certify on a form acceptable to the Board that the grantee is in
compliance with all of the terms and conditions of the Agreement and Plan and
has not engaged in any Wrongful Activities. If at any time following the
exercise of any option or SAR the Board determines that the grantee engaged in
any Wrongful Activities at any time either prior to or within one year after
such exercise, the exercise of such option or SAR, and any payment and delivery
in connection therewith, shall be cancelled and rescinded. The Company shall
notify the grantee in writing of any such rescission within two years after such
exercise. Within ten days after delivery of such notice to the grantee, the
grantee shall pay to the Company the amount of any gain realized or payment
received as a result of the rescinded exercise, payment or delivery. Such
payment shall be made, in the discretion of the Board, either in cash or by
returning to the Company the number of shares of common Stock received by the
grantee in connection with the rescinded exercise, payment or delivery. The
remedies contained in this Section 11 with respect to the rescission and/or
cancellation of any option or SAR granted to any
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<PAGE>
grantee who engages in any Wrongful Activity shall be in addition to, and shall
not be construed as a limitation of, any and all other remedies available to the
Company against such grantee by reason of such Wrongful Activity.
12. Options Not Transferable.
The right of any grantee to exercise any option or SAR granted to him or
her shall not be assignable or transferable by such grantee other than by will
or the laws of descent, and any such option or SAR shall be exercisable during
the lifetime of such grantee only by him; provided, that the Board may permit a
grantee, by expressly so providing in the related Agreement, to assign or
transfer, without consideration (and only without consideration), the right to
exercise any option or SAR granted to him or her to such grantee's children,
grandchildren or spouse, to trusts for the benefit of such family members and to
partnerships in which such family members are the only partners. Any option or
SAR granted under this Plan shall be null and void and without effect upon the
bankruptcy of the grantee to whom the option is granted, or upon any attempted
assignment or transfer except as herein provided, including without limitation,
any purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, attachment, trustee process or similar
process, whether legal or equitable, upon such option or SAR.
13. Terms and Conditions of SARs.
(a) An SAR may be granted separately or in connection with an option
(either at the time of grant or at any time during the term of the option).
(b) The exercise of an SAR granted in connection with an option shall
result in the cancellation of the option to which it relates with respect to the
same number of shares of Common Stock as to which the SAR was exercised.
(c) An SAR granted in connection with an option shall be exercisable or
transferable only to the extent that such related option is exercisable or
transferable.
(d) Upon the exercise of an SAR related to an option, the holder will be
entitled to receive payment of an amount determined by multiplying:
(i) the difference obtained by subtracting the purchase price of a
share of Common Stock specified in the related option from the fair market
value of a share of Common Stock on the date of exercise of such SAR (as
determined by the Board in accordance with Section 8 hereof), by
(ii) the number of shares as to which such SAR is exercised.
(e) An SAR granted without relationship to an option shall be exercisable
as determined by the Board, but in no event after ten years from the date of
grant.
(f) An SAR granted without relationship to an option will entitle the
holder, upon exercise of the SAR, to receive payment of an amount determined by
multiplying:
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<PAGE>
(i) the difference obtained by subtracting the fair market value of a
share of Common Stock on the date the SAR was granted from the fair market
value of a share of Common Stock on the date of exercise of such SAR (as
determined by the Board in accordance with Section 8 hereof), by
(ii) the number of shares as to which such SAR is exercised.
(g) Notwithstanding subsections (d) and (f) above, the Board may limit the
amount payable upon exercise of an SAR. Any such limitation shall be determined
as of the date of grant and noted on the instrument evidencing the SAR granted.
(h) At the discretion of the Board, payment of the amount determined under
subsections (d) and (f) above may be made either in whole shares of Common Stock
valued at their fair market value on the date of exercise of the SAR (as
determined by the Board in accordance with Section 8 hereof), or solely in cash,
or in a combination of cash and shares. If the Board decides to make full
payment in shares of Common Stock and the amount payable results in a fractional
share, payment for the fractional share shall be made in cash.
(i) Neither an SAR nor an option granted in connection with an SAR granted
to a person subject to Section 16(b) of the Exchange Act may be exercised before
six months after the date of grant.
14. Recapitalization, Reorganization and the Like.
(a) In the event that the outstanding shares of Common Stock are changed
into or exchanged for a different number or kind of shares or other securities
of the Company or of another corporation by reason of any reorganization,
merger, consolidation, recapitalization, reclassification, stock split-up,
combination of shares, or dividends payable in capital stock, appropriate
adjustment shall be made in accordance with Section 424(a) of the Code in the
number and kind of shares as to which options and SARs may be granted under the
Plan and as to which outstanding options and SARs or portions thereof then
unexercised shall be exercisable, to the end that the proportionate interest of
the grantee shall be maintained as before the occurrence of such event. Such
adjustment in outstanding options and SARs shall be made without change in the
total price applicable to the unexercised portion of such options and SARs and
with a corresponding adjustment in the exercise price per share.
(b) In addition, unless otherwise determined by the Board in its sole
discretion, in the case of any (i) sale or conveyance to another entity of all
or substantially all of the property and assets of the Company or (ii) Change in
Control (as hereinafter defined) of the Company, the purchaser(s) of the
Company's assets or stock may, in his, her or its discretion, deliver to the
optionee the same kind of consideration that is delivered to the stockholders of
the Company as a result of such sale, conveyance or Change in Control, or the
Board may cancel all outstanding options and SARs in exchange for consideration
in cash or in kind which consideration in both cases shall be equal in value to
the value of those shares of stock or other securities the optionee would have
received had the option been exercised (to the extent then exercisable) and no
disposition of the shares acquired
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<PAGE>
upon such exercise had been made prior to such sale, conveyance or Change in
Control, less the exercise price therefor. Upon receipt of such consideration,
the options and SARs shall immediately terminate and be of no further force and
effect. The value of the stock or other securities the grantee would have
received if the option had been exercised shall be determined in good faith by
the Board, and in the case of shares of Common Stock, in accordance with the
provisions of Section 8 hereof.
(c) The Board shall also have the power and right to accelerate the
exercisability of any options or SARs, notwithstanding any limitations in this
Plan or in the Agreement, upon such a sale, conveyance or Change in Control.
Upon such acceleration, any options or portion thereof originally designated as
qualified incentive stock options that no longer qualify as qualified incentive
stock options under Section 422 of the Code as a result of such acceleration
shall be redesignated as non-qualified stock options.
(d) A "Change in Control" shall be deemed to have occurred if any person,
or any two or more persons acting as a group, and all affiliates of such person
or persons, who prior to such time owned less than fifty percent (50%) of the
then outstanding Common Stock, shall acquire such additional shares of Common
Stock in one or more transactions, or series of transactions, such that
following such transaction or transactions, such person or group and affiliates
beneficially own fifty percent (50%) or more of the Common Stock outstanding.
(e) If by reason of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation, the Board shall
authorize the issuance or assumption of a stock option or stock options in a
transaction to which Section 424(a) of the Code applies, then, notwithstanding
any other provision of the Plan, the Board may grant an option or options upon
such terms and conditions as it may deem appropriate for the purpose of
assumption of the old option, or substitution of a new option for the old
option, in conformity with the provisions of such Section 424(a) of the Code and
the Regulations thereunder, and any such option shall not reduce the number of
shares otherwise available for issuance under the Plan.
(f) No fraction of a share shall be purchasable or deliverable upon the
exercise of any option or SAR, but in the event any adjustment hereunder in the
number of shares covered by the option or SAR shall cause such number to include
a fraction of a share, such fraction shall be adjusted to the nearest smaller
whole number of shares.
15. No Special Employment Rights.
Nothing contained in the Plan or in any option or SAR granted under the
Plan shall confer upon any grantee any right with respect to the continuation of
his or her employment by the Company (or any subsidiary) or interfere in any way
with the right of the Company (or any subsidiary), subject to the terms of any
separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the grantee from the
rate in existence at the time of the grant of an option or SAR. Whether an
authorized leave of absence, or absence in military or government service, shall
constitute termination of employment shall be determined in accordance with
Regulations Section 1.421-7(h)(2).
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<PAGE>
16. Withholding.
The Company's obligation to deliver shares upon the exercise of any non-
qualified option or SAR granted under the Plan shall be subject to the option
holder's satisfaction of all applicable Federal, state and local income and
employment tax withholding requirements. The Company and optionee may agree to
withhold shares of Common Stock purchased upon exercise of an option or SAR to
satisfy the above-mentioned withholding requirements; provided, however, that no
such agreement may be made by a grantee who is an "officer" or "director" within
the meaning of Section 16 of the Exchange Act, except pursuant to a standing
election to so withhold shares of Common Stock purchased upon exercise of an
option, such election to be made not less than six months prior to such exercise
and which election may be revoked only upon six months prior written notice.
17. Restrictions on Issuance of Shares.
(a) Notwithstanding the provisions of Section 9 hereof, the Company may
delay the issuance of shares covered by the exercise of an option or SAR and the
delivery of a certificate for such shares until one of the following conditions
shall be satisfied:
(i) The shares with respect to which such option or SAR has been
exercised are at the time of the issue of such shares effectively
registered or qualified under applicable Federal and state securities acts
now in force or as hereafter amended; or
(ii) Counsel for the Company shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld, that such shares
are exempt from registration and qualification under applicable Federal and
state securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options and SARs shall be
effective, and the Company shall use its best efforts to bring about compliance
with the above conditions, within a reasonable time, except that the Company
shall be under no obligation to qualify shares or to cause a registration
statement or a post-effective amendment to any registration statement to be
prepared for the purpose of covering the issue of shares in respect of which any
option may be exercised, except as otherwise agreed to by the Company in
writing.
18. Purchase for Investment; Rights of Holder on Subsequent Registration.
(a) Unless the shares to be issued upon exercise of an option or SAR
granted under the Plan have been effectively registered under the Securities Act
of 1933, as amended (the "1933 Act"), the Company shall be under no obligation
to issue any shares covered by any option or SAR unless the person who exercises
such option, in whole or in part, shall give a written representation and
undertaking to the Company which is satisfactory in form and scope to counsel
for the Company and upon which, in the opinion of such counsel, the Company may
reasonably rely, that he or she is acquiring the shares issued pursuant to such
exercise of the option or SAR for his or her own account as an investment and
not with a view to, or for sale in connection with, the distribution of any such
shares, and that he or she will make no transfer of the same except in
compliance with any rules and regulations in force at the time of such transfer
under the 1933 Act, or any other applicable law, and
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that if shares are issued without such registration, a legend to this effect may
be endorsed upon the securities so issued.
(b) In the event that the Company shall, nevertheless, deem it necessary
or desirable to register under the 1933 Act or other applicable statutes any
shares with respect to which an option or SAR shall have been exercised, or to
qualify any such shares for exemption from the 1933 Act or other applicable
statutes, then the Company may take such action and may require from each
grantee such information in writing for use in any registration statement,
supplementary registration statement, prospectus, preliminary prospectus or
offering circular as is reasonably necessary for such purpose and may require
reasonable indemnity to the Company and its officers and directors from such
holder against all losses, claims, damages and liabilities arising from such use
of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
19. Loans.
At the discretion of the Board, the Company may loan to the optionee some
or all of the purchase price of the shares acquired upon exercise of an option
granted under the Plan.
20. Modification of Outstanding Options and SARs.
Subject to limitations contained herein, the Board may authorize the
amendment of any outstanding option or SAR with the consent of the grantee when
and subject to such conditions as are deemed to be in the best interests of the
Company and in accordance with the purposes of the Plan.
21. Term of Plan.
The Plan shall become effective upon the earlier to occur of its adoption
by the Board of Directors or its approval by the shareholders of the Company.
It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 22 hereof. The Board may grant options and SARs under
the Plan prior to stockholder approval, but any such option shall become
effective as of the date of grant only upon such approval and, accordingly, no
such option may be exercisable prior to such approval.
22. Termination and Amendment of Plan.
The Board may at any time terminate the Plan or make such modification or
amendment thereof as it deems advisable; provided, however, that (i) the Board
may not, without approval by a majority vote of the stockholders of the Company,
increase the maximum number of shares for which options and SARs may be granted
or change the designation of the class of persons eligible to receive options
and SARs under the Plan, and (ii) any such modification or amendment of the Plan
shall be approved by a majority vote of the stockholders of the Company to the
extent that such stockholder approval is necessary to comply with applicable
provisions of the Code, rules promulgated pursuant to Section 16 of the Exchange
Act, applicable state law, or applicable National
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Association of Securities Dealers, Inc. or exchange listing requirements.
Termination or any modification or amendment of the Plan shall not, without the
consent of an optionee, affect his or her rights under an option or SAR
theretofore granted to him or her.
23. Limitation of Rights in the Underlying Shares.
A holder of an option or SAR shall not be deemed for any purpose to be a
stockholder of the Company with respect to such option or SAR except to the
extent that such option or SAR shall have been exercised with respect thereto
and, in addition, a stock certificate shall have been issued theretofore and
delivered to the holder.
24. Notices.
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and shall be deemed given and delivered when mailed by
registered or certified mail or delivered by hand and addressed, if to the
Company, at its principal place of business, attention: Chairman, and, if to the
grantee or holder of an option or SAR, at the address of the grantee or holder
appearing on the records of the Company.
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EXHIBIT 10.8
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT, dated as of , 2000 (this
"Agreement"), is made by and among Mediacom Communications Corporation, a
Delaware corporation (the "Company"), and the holders of shares of common stock
of the Company ("Shares") named on the signature pages hereof (collectively, the
"Holders").
RECITALS
--------
WHEREAS, Mediacom LLC, a New York limited liability company which has
become a wholly owned subsidiary of the Company, and certain of the Holders
previously entered into a Registration Rights Agreement dated as of March 12,
1996 (the "Original Agreement");
WHEREAS, as part of the reorganization pursuant to which Mediacom LLC
became a wholly-owned subsidiary of the Company, the Holders and certain
transferees of the Holders specified below (the "Existing Transferees") have
acquired Shares in exchange for their membership interests in Mediacom LLC;
WHEREAS, the Company and the Holders desire to afford to the Holders and
the Existing Transferees with respect to their Shares registration rights
comparable to those set forth in the Original Agreement with respect to their
membership interests in Mediacom LLC; and
WHEREAS, this Agreement is being entered into in order that all Holders
receive the registration rights set forth below and to supersede and replace, in
its entirety, the Original Agreement;
NOW, THEREFORE, in consideration of the premises, and of the mutual
covenants, representations, warranties and agreements herein contained, the
parties hereto agree as follows:
1. Certain Definitions.
As used in this Agreement, the following terms shall have the
following respective meanings:
"BMO Holder" shall mean, collectively, BMO Financial, Inc. and any
----------
transferee of any Shares from BMO Financial, Inc. (directly or indirectly
through one or more transferees).
"Booth Holder" shall mean, collectively, U.S. Investor, Inc. and any
------------
transferee of any Shares from U.S. Investor, Inc. (directly or indirectly
through one or more transferees).
<PAGE>
"Chase Holder" shall mean, collectively, Chase Manhattan Capital,
------------
L.P., CB Capital Investors, L.P. and any transferee of any Shares from Chase
Manhattan Capital L.P., CB Capital Investors, L.P. or Chase Manhattan Capital
Corporation (directly or indirectly through one or more transferees).
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act or the
Exchange Act.
"Commisso Holders" shall mean (i) Rocco B. Commisso, (ii) the Existing
----------------
Transferees of Rocco B. Commisso specified in Section 10(d)(ii) below, (iii) any
Person controlled by him and of which he, Holders of his immediate family or
trusts established for the benefit of any of the foregoing are 80% equity
holders, and (iv) any transferees of any Shares from any of the foregoing
(directly or indirectly through one or more transferees).
"Communications Act" shall mean the Communications Act of 1934, or any
------------------
federal statute then in effect which has replaced such statute, and the rules,
regulations, policies and orders of the FCC, as the same may be amended from
time to time.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any federal statute then in effect which has replaced such statute,
and the rules, regulations, policies and orders of the Commission, as the same
may be amended from time to time.
"FCC" means the Federal Communications Commission or any other federal
---
agency at the time administering the Communications Act.
"Holder" shall mean any party hereto (other than the Company) and each
------
of its respective successive successors and assigns who acquire Registrable
Securities, directly or indirectly, from any such party or from any successive
successor or assign of any such party.
"Initial Public Offering" shall mean the initial public offering and
-----------------------
sale of shares of class A common stock of the Company pursuant to a registration
statement on Form S-1 filed by the Company under the Securities Act with the
Commission.
"Investor Holder" shall mean, collectively, (i) BMO Financial, Inc.,
---------------
Chase Manhattan Capital L.P., CB Capital Investors, L.P., Morris Communications
Corporation, Private Market Fund, L.P., U.S. Investors, Inc., Thomas W. Keaveney
and Scott W. Seaton, (ii) a Holder which is not a Commisso Holder, and (iii) any
transferee of any Shares from any of the foregoing (directly or indirectly
through one or more transferees).
"Keaveney Holder" shall mean, collectively, Thomas W. Keaveney and any
---------------
transferee of any Shares from Thomas W. Keaveney (directly or indirectly through
one or more transferees).
"Morris Holder" shall mean, collectively, (i) Morris Communications
-------------
Corporation, (ii) the Existing Transferees of Morris Communications Corporation
specified in Section 10(d)(iii) below
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<PAGE>
and (iii) any transferee of any Shares from any of the foregoing (directly or
indirectly through one or more transferees).
"Person" shall mean an individual, company, partnership, limited
------
liability company, trust or unincorporated organization, a government or any
agency or political subdivision thereof or other entity.
"Private Market Holder" shall mean, collectively, Private Market Fund,
---------------------
L.P. and any transferee of any Shares from Private Market Fund, L.P. (directly
or indirectly through one or more transferees).
"Registrable Securities" shall mean the Shares now or hereafter issued
----------------------
to or held by the Holders, and any other equity securities of the Company issued
successively in exchange for or in respect of such Shares. As to any particular
Registrable Securities, such securities shall cease to be Registrable Securities
when (i) a registration statement registering such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (ii) such securities shall
have been sold under Rule 144 (or any successor provision) under the Securities
Act, (iii) such securities shall have been otherwise transferred pursuant to an
exemption from the registration requirements under the Securities Act and state
securities laws, if subsequent transfers of such securities will not require
registration or qualification of such securities under the Securities Act or any
state securities laws then in force or (iv) such securities shall have ceased to
be outstanding.
"Registration Expenses" shall have the meaning given in Section 5
---------------------
hereof.
"Seaton Holder" shall mean, collectively, Scott W. Seaton and any
-------------
transferee of any Shares from Scott W. Seaton (directly or indirectly through
one or more transferees).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any federal statute then in effect which has replaced such statute, and a
reference to a particular section thereof shall be deemed to include a reference
to the comparable section, if any, of any such replacement federal statute.
"Shares" shall have the meaning given in the preamble of this
------
Agreement.
2. Registration by Request.
(a) If, at any time after 180 days following the consummation of the
Initial Public Offering, the Company shall, upon the receipt of a written
request therefor from any one or more of (i) 50% or more of the BMO Holders,
(ii) 50% or more of the Booth Holders, (iii) 50% or more of the Chase Holders,
(iv) 50% or more of the Commisso Holders, (v) 50% or more of the Morris Holders,
(vi) 50% or more of the Private Market Holders, (vii) 50% or more of the
Keaveney Holders or (viii) 50% or more of the Seaton Holders (in each case to
the extent such Persons are holders of record of Registrable Securities),
prepare and file a registration statement under the Securities Act covering the
3
<PAGE>
Registrable Securities which are the subject of such request (the Holder or
Holders making the request are herein called the "Initiating Holders") and shall
use its best efforts to cause such registration statement to become effective
promptly thereafter; provided, however, that the Company shall be obligated to
-------- -------
prepare and file such registration statement only if the Registrable Securities
which are the subject of such request have a total market value of at least
$50,000,000. Market value, as used herein, shall mean the average per share
closing price of a share of common stock of the Company on the Nasdaq National
Market for the 10 trading days ending on the trading day prior to the date of
the Initiating Holders' request. In addition, upon the receipt of such request,
the Company shall promptly give written notice to all other holders of record of
Registrable Securities that such registration is to be effected. The Company
shall include in such registration statement such Registrable Securities for
which it has received written requests to register by such other holders of
record within 10 days after the Company's written notice to such other record
Holders. In any one calendar year, the Company shall not be obligated to
prepare, file and use its best efforts to cause to become effective pursuant to
this Section 2(a) more than one registration statement.
(b) In the event that the Initiating Holders of more than 50% of the
Registrable Securities for which registration has been requested pursuant to
Section 2(a) hereof determine for any reason (other than upon advice from a
managing underwriter that there has occurred with respect to the Company an
event that would materially affect the sale of such Registrable Securities) not
to proceed with such registration at any time before the registration statement
has been declared effective by the Commission, and such registration statement,
if theretofore filed with the Commission, is withdrawn with respect to the
securities covered thereby, and the Holders of such Registrable Securities agree
to bear their own expenses incurred in connection therewith and to reimburse the
Company for the out-of-pocket costs and expenses incurred by it attributable to
the registration of such Registrable Securities, then the Holders of such
Registrable Securities shall not be deemed to have exercised their right to
require the Company to register Registrable Securities pursuant to Section 2(a)
hereof.
(c) Without the written consent of the Initiating Holders of more than
50% of the Registrable Securities for which registration has been requested
pursuant to Section 2(a) hereof, neither the Company nor any other holder of
Shares or securities of the Company may (A) include Shares or securities in any
such registration to the extent that the managing underwriter of any public
offering contemplated by such registration shall advise such holders in writing
that the inclusion of such securities creates a significant risk that the price
per unit that such Holders of Registrable Securities or other holders will
derive will be adversely affected or that the number of Shares or securities
sought to be registered is too large a number to be reasonably sold (in which
case the number of Shares or securities sought to be included by the Company or
such other holders shall be reduced to the minimum extent so advised by such
managing underwriter to avoid such effect) or (B) require the exclusion of any
portion of the Registrable Securities so to be registered.
(d) The obligations of the Company under this Section 2 are subject to
the condition that the Company shall be entitled to postpone for up to six
months once in any twelve month period the filing of any registration statement
otherwise required to be prepared and filed by it pursuant to this Section 2 if,
at the time it receives requests for registration pursuant thereto, the Board of
Directors of the Company determines, in its judgment, that the filing of such
registration
4
<PAGE>
statement and the offering of Registrable Securities pursuant thereto would
materially interfere with any material financing, acquisition, reorganization or
other material transaction by the Company, and the Company promptly gives the
Holders requesting such registration written notice of such determination. If
the Company shall so postpone the filing of a registration statement, the
Holders requesting such registration shall have the right to withdraw the
requests for registration by giving written notice to the Company within fifteen
days after receipt of the Company's notice of postponement and, in the event of
such withdrawal, such requests shall not be counted as being requests for the
registration statement that the Company is obligated to prepare, file and cause
to become effective pursuant to Section 2(a) hereof.
3. "Piggy-Back" Registrations.
(a) If, at any time after 180 days following the consummation of the
Initial Public Offering, the Company proposes to register any of its Shares or
any other equity securities under the Securities Act on a registration statement
on Form S-1, Form S-2 or Form S-3 (or an equivalent general registration form
then in effect) for purposes of an offering or sale by or on behalf of the
Company of Shares or such equity securities for its own account (a "primary
offering") or upon the request or for the account of one or more holders (a
"Registering Holder") of Shares or any such equity securities (a "secondary
offering"), or for purposes of a combined primary and secondary offering (a
"combined offering"), then in each such case the Company shall, either prior to
or not later than 15 days after the time when any such registration statement is
filed with the Commission, give written notice thereof to each Holder of
Registrable Securities. Such notice shall specify, at a minimum, the number and
class, if any, of Shares or equity securities so proposed to be registered, the
estimated effective date of such registration statement, any proposed means of
distribution of such Shares or securities, any proposed managing underwriter or
underwriters of such units or securities and a good faith estimate by the
Company of the proposed maximum offering price thereof, as such price appears,
or is proposed to appear, on the facing page of such registration statement.
Upon the written direction of any such Holder of Registrable Securities, given
within 20 days of the receipt by such Holder of any such written notice (which
direction shall specify the number of Registrable Securities intended to be
disposed of by such Holder and the intended method of distribution thereof), the
Company shall include in such registration statement any or all of the
Registrable Securities then owned by such Holder requesting such registration (a
"Requesting Holder"), to the extent necessary to permit the sale or other
disposition of the securities constituting such number of Registrable Securities
as such Requesting Holder shall have so directed the Company to be so
registered. Any Requesting Holder shall have the right to withdraw such
direction by giving written notice to the Company to such effect within 5 days
after giving such direction. Notwithstanding the foregoing, no Holder of
Registrable Securities shall have any right hereunder if the registration
proposed to be effected by the Company relates solely to Shares or securities
which are issuable solely to officers or employees of the Company or any entity
wholly-owned by the Company or its affiliates pursuant to a bona fide employee
stock option, bonus or other employee benefit plan or arrangement.
(b) In the event that the Company proposes to register Shares or other
equity securities for purposes of a primary offering, and any managing
underwriter shall advise the Company and the Requesting Holders in writing that
the inclusion in the registration statement of
5
<PAGE>
some or all of the Registrable Securities sought to be registered by the
Requesting Holders creates a significant risk that the price per unit or share
the Company will derive from such registration will be adversely affected or
that the number of Shares or securities sought to be registered is too large a
number to be reasonably sold, then the Company will include in such registration
statement such number of Shares or securities as the Company and such Requesting
Holders are so advised can be sold in such offering without such an effect (the
"Primary Maximum Number"), as follows and in the following order of priority:
(i) first, such number of Shares or securities of the Company as the managing
underwriter shall have determined, and (ii) second, if the number of Shares or
securities to be registered under clause (i) is less than the Primary Maximum
Number, such number of Registrable Securities of each Requesting Holder pro rata
--- ----
in proportion to the number of Registrable Securities sought to be registered by
all the Requesting Holders, which, when added to the number of Shares or other
equity securities to be registered by the Company, equals the Primary Maximum
Number.
(c) In the event that the Company proposes to register Shares or other
equity securities for purposes of a secondary offering, upon the request or for
the account of any Registering Holder or Holders, and any managing underwriter
shall advise the Requesting Holder or Holders and the Registering Holders in
writing that the inclusion in the registration statement of some or all of the
Registrable Securities sought to be registered by the Requesting Holders creates
a significant risk that the price per unit or share that such Requesting Holder
or Holders and such Registering Holders will derive from such registration will
be adversely affected or that the number of Shares or securities sought to be
registered (including any securities sought to be registered at the instance of
the Requesting Holder or Holders and those sought to be registered by non-
Requesting Shareholders who are Registering Shareholders) is too large a number
to be reasonably sold, the Company will include in such registration statement
such number of Shares or securities as the Company, the Registering Holders and
the Requesting Holders are so advised can be sold in such offering without such
an effect (the "Secondary Maximum Number"), as follows and in the following
order of priority: (i) first, the number of Shares or securities sought to be
registered by non-Requesting Holders who are Registering Holders and (ii)
second, if the number of Shares or securities to be registered under clause (i)
is less than the Secondary Maximum Number, such Shares or securities sought to
be registered by such Requesting Holder or Holders pro rata in proportion to the
--- ----
number of Shares or securities sought to be registered by all the Requesting
Holders, which, when added to the number of Registrable Securities to be
registered by Registering Holders who are non-Requesting Holders, equals the
Secondary Maximum Number.
(d) In the event that the Company proposes to register Shares or other
equity securities for purposes of a combined offering, and any managing
underwriter shall advise the Company, the Requesting Holder or Holders and the
Registering Holders in writing that the inclusion in the registration statement
of some or all of the Registrable Securities sought to be registered by the
Requesting Holders creates a significant risk that the price per unit or share
the Company will derive from such registration will be adversely affected, then
the Company will include in such registration statement such number of Shares or
securities as the Company, the Requesting Holders and such Registering Holders
are so advised can be sold in such offering without such an effect (the
"Combined Maximum Number"), as follows and in the following order of priority:
(i) first, such number of Shares or securities of the Company as the managing
underwriter shall have determined, and (ii) second, if the number of Shares or
securities sought to be registered under clause (i) is less
6
<PAGE>
than the Combined Maximum Number, Shares or securities sought to be registered
by each other such party pro rata in proportion to the number of Shares or
--- ----
securities sought to be registered by all such parties, which, when added to the
number of Shares or securities to be registered by the Company, equals the
Combined Maximum Number.
4. Registration Procedures.
(a) Each registration statement filed pursuant to Section 2 hereof
shall provide for a firm commitment underwritten offering. The Company agrees
to use its best efforts to effect or cause such registration statement to permit
the sale of the Registrable Securities covered thereby by the Holders thereof in
accordance with the intended method or methods of distribution thereof described
in such registration statement. In connection with any registration of any
Registrable Securities pursuant to Section 2 or 3 hereof, the Company shall, as
soon as reasonably possible:
(i) use its best efforts to cause the registration statement
filed for purposes of such registration to become effective as soon as
reasonably possible thereafter;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus included
therein as may be necessary to effect and maintain the effectiveness of
such registration statement as may be required by the applicable rules and
regulations of the Commission and the instructions applicable to the form
of such registration statement, and furnish to the holders of the
Registrable Securities covered thereby copies of any such supplement or
amendment prior to its being used and/or filed with the Commission; and
comply with the provisions of the Securities Act with respect to the
disposition of all the Registrable Securities to be included in such
registration statement;
(iii) provide (A) the Holders of the Registrable Securities to be
included in such registration statement, (B) the underwriters (which term,
for purposes of this Agreement, shall include a person deemed to be an
underwriter within the meaning of Section 2(11) of the Securities Act), if
any, thereof, (C) the sales or placement agent, if any, therefor, (D) one
counsel for such underwriters or agent, and (E) not more than one counsel
for all the Holders of such Registrable Securities, the opportunity to
participate in the preparation of such registration statement, each
prospectus included therein or filed with the Commission, and each
amendment or supplement thereto;
(iv) for a reasonable period prior to the filing of such
registration statement, and throughout the period specified above, make
available for inspection by the parties referred to in Section 4(a)(iii)
above such financial and other information and books and records of the
Company, and cause the officers, directors, employees, counsel and
independent certified public accountants of the Company, to respond to such
inquiries, as shall be reasonably necessary, in the judgment of the
respective counsel referred to in such section, to conduct a reasonable
investigation within the meaning of the Securities Act, provided, however,
-------- -------
that each such party shall be required to maintain in confidence and not to
disclose to any other Person any information or records
7
<PAGE>
reasonably designated by the Company in writing as being confidential,
until such time as (a) such information becomes a matter of public record
(whether by virtue of its inclusion in such registration statement or
otherwise), or (b) such party shall be required so to disclose such
information pursuant to the subpoena or order of any court or other
governmental agency or body having jurisdiction over the matter, or (c)
such information is required to be set forth in such registration statement
or the prospectus included therein or in an amendment to such registration
statement or an amendment or supplement to such prospectus in order that
such registration statement, prospectus, amendment or supplement, as the
case may be, does not include an untrue statement of a material fact or
omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and provided,
--------
further, that the Company need not make such information available, nor
-------
need it cause any officer, director or employee to respond to such inquiry,
unless each such Holder of Registrable Securities to be included in a
registration statement hereunder and such counsel, upon the Company's
request, execute and deliver to the Company an undertaking to substantially
the same effect contained in the preceding proviso;
(v) promptly notify the Holders of Registrable Securities to be
included in a registration statement hereunder, the sales or placement
agent, if any, therefor and the managing underwriter of the securities
being sold and confirm such advice in writing, (A) when such registration
statement or the prospectus included therein or any prospectus amendment or
supplement or post-effective amendment has been filed, and, with respect to
such registration statement or any post-effective amendment, when the same
has become effective, (B) of any comments by the Commission and by the Blue
Sky or securities commissioner or regulator of any state with respect
thereto or any request by the Commission for amendments or supplements to
such registration statement or the prospectus or for additional
information, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of such registration statement or the
initiation of any proceedings for that purpose, (D) if at any time the
representations and warranties of the Company contemplated by Section 6
below cease to be true and correct in all material respects, (E) of the
receipt by the Company of any notification with respect to the suspension
of the qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, or (F) if it shall be the case, at any time when a prospectus is
required to be delivered under the Securities Act, that such registration
statement, prospectus, or any document incorporated by reference in any of
the foregoing contains an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing;
(vi) use its best efforts to obtain the withdrawal of any
order suspending the effectiveness of such registration statement or any
post-effective amendment thereto at the earliest practicable date;
8
<PAGE>
(vii) if requested by any managing underwriter or underwriters,
any placement or sales agent or any Holder of Registrable Securities to be
included in a registration statement, promptly incorporate in a prospectus,
prospectus supplement or post-effective amendment such information as is
required by the applicable rules and regulations of the Commission and as
such managing underwriter or underwriters, such agent or such Holder may
reasonably specify should be included therein relating to the terms of the
sale of the Registrable Securities included thereunder, including, without
limitation, information with respect to the number of Registrable
Securities being sold by such Holder or agent or to such underwriters, the
name and description of such Holder, the offering price of such Registrable
Securities and any discount, commission or other compensation payable in
respect thereof, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the offering of the
Registrable Securities to be sold in such offering; and make all required
filings of such prospectus, prospectus supplement or post-effective
amendment promptly after notification of the matters to be incorporated in
such prospectus, prospectus supplement or post-effective amendment;
(viii) furnish to each Holder of Registrable Securities to be
included in such registration statement hereunder, each placement or sales
agent, if any, therefor, each underwriter, if any, thereof and the counsel
referred to in Section 4(a)(iii) an executed copy of such registration
statement, each such amendment and supplement thereto (in each case
excluding all exhibits and documents incorporated by reference) and such
number of copies of the registration statement (excluding exhibits thereto
and documents incorporated by reference therein unless specifically so
requested by such holder, agent or underwriter, as the case may be) of the
prospectus included in such registration statement (including each
preliminary prospectus and any summary prospectus), in conformity with the
requirements of the Securities Act, as such Holder, agent, if any, and
underwriter, if any, may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Holder sold by such
agent or underwritten by such underwriter and to permit such Holder, agent
and underwriter to satisfy the prospectus delivery requirements of the
Securities Act; and the Company hereby consents to the use of such
prospectus and any amendment or supplement thereto by each such Holder and
by any such agent and underwriter, in each case in the form most recently
provided to such party by the Company, in connection with the offering and
sale of the Registrable Securities covered by the prospectus (including
such preliminary and summary prospectus) or any supplement or amendment
thereto;
(ix) use its best efforts to (A) register or qualify the
Registrable Securities to be included in such registration statement under
such other securities laws or blue sky laws of such jurisdictions (to be
limited to a maximum of 20) to be designated by the Holders of a majority
of such Registrable Securities and each placement or sales agent, if any,
therefor and underwriter, if any, thereof, as any Holder and each
underwriter, if any, of the securities being sold shall reasonably request,
(B) keep such registrations or qualifications in effect and comply with
such laws so as to permit the continuance of offers, sales and dealings
therein in such jurisdictions for so long as may be necessary
9
<PAGE>
to enable such Holder, agent or underwriter to complete its distribution of
the Registrable Securities pursuant to such registration statement and (C)
take any and all such actions as may be reasonably necessary or advisable
to enable such Holder, agent, if any, and underwriter to consummate the
disposition in such jurisdictions of such Registrable Securities; provided,
--------
however, that the Company shall not be required for any such purpose to (1)
-------
qualify generally to do business as a foreign company or a broker-dealer in
any jurisdiction wherein it would not otherwise be required to qualify but
for the requirements of this Section 4(a)(ix), (2) subject itself to
taxation in any such jurisdiction or (3) consent to general service of
process in any such jurisdiction; and provided, further, that the Company
-------- -------
may, at its option, use its best efforts to register or qualify such
Registrable Securities only in such jurisdictions, and to take only such
other actions, as may be required by the underwriting agreement relating to
such offering;
(x) use its best efforts to obtain the consent or approval of the
FCC and each other governmental agency or authority required to effect such
registration or the offering or sale in connection therewith or to enable
the Holder or Holders of Registrable Securities to be included in a
registration statement to offer, or to consummate the disposition of their
Registrable Securities;
(xi) cooperate with the Holders of the Registrable
Securities to be included in a registration statement hereunder and the
managing underwriters to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, which
certificates shall be printed, lithographed or engraved, or produced by any
combination of such methods, on steel engraved borders and which shall not
bear any restrictive legends; and enable such Registrable Securities to be
in such denominations and registered in such names as the managing
underwriters may request at least two business days prior to any sale of
the Registrable Securities;
(xii) provide a CUSIP number for all Registrable Securities, not
later than the effective date of the registration statement;
(xiii) enter into one or more underwriting agreements, engagement
letters, agency agreements, "best efforts" underwriting agreements or
similar agreements, as appropriate, and take such other actions in
connection therewith as the Requesting Holders of at least a majority of
the Registrable Securities being sold shall reasonably request in order to
expedite or facilitate the disposition of such Registrable Securities;
(xiv) whether or not an agreement of the type referred to in the
preceding subsection is entered into and whether or not any portion of the
offering contemplated by such registration statement is an underwritten
offering or is made through a placement or sales agent or any other entity,
(A) make such representations and warranties to the Requesting Holders of
such Registrable Securities and the placement or sales agent, if any,
therefor and the underwriters, if any, thereof in form, substance and scope
as are customarily made in connection with any offering of equity
securities
10
<PAGE>
pursuant to any appropriate agreement and/or to a registration statement
filed on the form applicable to such registration statement; (B) obtain an
opinion of counsel to the Company in customary form and covering such
matters, of the type customarily covered by such an opinion, as the
managing underwriters, if any, and as the Requesting Holders of at least a
majority of such Registrable Securities may reasonably request, addressed
to such Requesting Holders and the placement or sales agent, if any,
therefor and the underwriters, if any, thereof and dated the effective date
of such registration statement (and if such registration statement
contemplates an underwritten offering of a part or all of the Registrable
Securities, dated the date of the closing under the underwriting agreement
relating thereto) (it being agreed that the matters to be covered by such
opinion shall include, without limitation, the due organization of the
Company, and its subsidiaries, if any; the qualification of the Company,
and its subsidiaries, if any, to transact business as foreign companies;
the due authorization, execution and delivery of this Agreement and of any
agreement of the type referred to in Section 4(a)(xiii) hereof; the due
authorization, valid issuance, and the fully paid status of the Shares of
the Company; the absence of material legal or governmental proceedings
involving the Company; the absence to the knowledge of such counsel of a
breach by the Company or its subsidiaries of, or a default under,
agreements binding the Company or any subsidiary; the absence of
governmental approvals required to be obtained in connection with the
registration statement, the offering and sale of the Registrable
Securities, this Agreement or any agreement of the type referred to in
Section 4(a)(xiii) hereof; the compliance as to form of such registration
statement and any documents incorporated by reference therein with the
requirements of the Securities Act; the effectiveness of such registration
statement under the Securities Act; and, as of the date of the opinion and
of the registration statement or most recent post-effective amendment
thereto, as the case may be, the absence, to the knowledge of such counsel,
from such registration statement and the prospectus included therein, as
then amended or supplemented, and from the documents incorporated by
reference therein of an untrue statement of a material fact or the omission
to state therein a material fact necessary to make the statements therein
not misleading (in case of such documents, in the light of the
circumstances existing at the time that such documents were filed with the
Commission under the Exchange Act)); (C) obtain a "cold" comfort letter or
letters from the independent certified public accountants of the Company
addressed to the Requesting Holders and the placement or sales agent, if
any, therefor and the underwriters, if any, thereof, dated (I) the
effective date of such registration statement and (II) the effective date
of any prospectus supplement to the prospectus included in such
registration statement or post-effective amendment to such registration
statement which includes unaudited or audited financial statements as of a
date or for a period subsequent to that of the latest such statements
included in such prospectus (and, if such registration statement
contemplates an underwritten offering pursuant to any prospectus supplement
to the prospectus included in such registration statement or post-effective
amendment to such registration statement which includes unaudited or
audited financial statements as of a date or for a period subsequent to
that of the latest such statements included in such prospectus, dated the
date of the closing under the underwriting agreement relating
11
<PAGE>
thereto), such letter or letters to be in customary form and covering such
matters of the type customarily covered by letters of such type; (D)
deliver such documents and certificates, including officers' certificates,
as may be reasonably requested by Requesting Holders of at least a majority
of the Registrable Securities being sold and the placement or sales agent,
if any, therefor and the managing underwriters, if any, thereof to evidence
the accuracy of the representations and warranties made pursuant to clause
(A) above or those contained in Section 6 hereof and the compliance with or
satisfaction of any agreements or conditions contained in the underwriting
agreement or other agreement entered into by the Company; and (E) undertake
such obligations relating to expense reimbursement, indemnification and
contribution as are provided in Sections 5 and 7 hereof;
(xv) notify in writing each Holder of Registrable Securities
of any proposal by the Company to amend or waive any provision of this
Agreement pursuant to Section 10(g) hereof and of any amendment or waiver
effected pursuant thereto, each of which notices shall contain the text of
the amendment or waiver proposed or effected, as the case may be;
(xvi) in the event that any broker-dealer registered under the
Exchange Act shall be an "Affiliate" (as defined in Schedule E to the By-
Laws of the National Association of Securities Dealers, Inc. ("NASD")) of
the Company and such broker-dealer shall underwrite, participate as a
Holder of an underwriting syndicate or selling group or "assist in the
distribution" (within the meaning of such Schedule) of any Registrable
Securities, whether as a Requesting Holder of such Registrable Securities
or as an underwriter, a placement or sales agent or a broker or dealer in
respect thereof, or otherwise, or in the event that any such broker-dealer
shall participate in the offering contemplated by such registration
statement and in which it is intended that more than 10% of the net
offering proceeds, not including underwriting compensation, are to be paid
thereto or to associated or affiliated persons of such broker-dealer, or
Holders of the immediate families of such persons, assist such broker-
dealer in complying with the requirements of such Schedule, including,
without limitation, by (A) engaging a "qualified independent underwriter"
(as defined in such Schedule) to participate in the preparation of the
registration statement relating to such Registrable Securities, to exercise
usual standards of due diligence in respect thereto and, if any portion of
the offering contemplated by such registration statement is an underwritten
offering or is made through a placement or sales agent, to recommend a
price of such Registrable Securities, (B) indemnifying such qualified
independent underwriter to the extent of the indemnification of
underwriters provided in Section 7 hereof, and (C) providing such
information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the Rules of Fair Practice
of the NASD; and
(xvii) engage to act on behalf of the Company with respect to the
Registrable Securities to be so registered a registrar and transfer agent
having such duties and responsibilities (including, without limitation,
registration of transfers and
12
<PAGE>
maintenance of stock registers) as are customarily discharged by such an
agent, and to enter into such agreements and to offer such indemnities as
are customary in respect thereof; and
(xviii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its Holders,
as soon as practicable but in any event not later than 18 months after the
effective date of such registration statement, an earnings statement
covering a period of at least twelve months which shall satisfy the
provisions of Section 6(a) of the Securities Act (including, at the option
of the Company, pursuant to Rule 158 thereunder).
(b) In the event that the Company would be required, pursuant to
Section 4(a)(v)(F) above, to notify the Requesting Holders of Registrable
Securities included in a registration statement hereunder, the sales or
placement agent, if any, and the managing underwriters, if any, of the
securities being sold, the Company shall prepare and furnish to each such
Holder, to each such agent, if any, and to each underwriter, if any, a
reasonable number of copies of a prospectus supplemented or amended so that, as
thereafter delivered to the purchasers of Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
Each Requesting Holder agrees that upon receipt of any notice from the Company
pursuant to Section 4(a)(v)(F) hereof, such Requesting Holder shall forthwith
discontinue the distribution of Registrable Securities pursuant to the
registration statement applicable to such Registrable Securities until such
Requesting Holder shall have received copies of such amended or supplemented
registration statement or prospectus, and if so directed by the Company, such
Requesting Holder shall deliver to the Company (at the Company's expense) all
copies, other than permanent file copies, then in such Requesting Holder's
possession of the prospectus covering such Registrable Securities at the time of
receipt of such notice.
(c) The Company may require each Requesting Holder of Registrable
Securities as to which any registration is being effected to furnish to the
Company such information regarding such Requesting Holder and such Holder's
method of distribution of such Registrable Securities as the Company may from
time to time reasonably request in writing but only to the extent that such
information is required in order to comply with the Securities Act. Each such
Requesting Holder agrees to notify the Company as promptly as practicable of any
inaccuracy or change in information previously furnished by such Requesting
Holder to the Company or of the occurrence of any event in either case as a
result of which any prospectus relating to such registration contains or would
contain an untrue statement of a material fact regarding such Requesting Holder
or the distribution of such Registrable Securities or omits to state any
material fact regarding such Requesting Holder or the distribution of such
Registrable Securities required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing,
and promptly to furnish to the Company any additional information required to
correct and update any previously furnished information or required so that such
prospectus shall not contain, with respect to such Requesting Holder or the
distribution of such Registrable Securities, an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances then
existing.
13
<PAGE>
5. Registration Expenses.
The Company agrees to bear and to pay or cause to be paid promptly
upon request being made therefor all expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
(a) all Commission and any NASD registration and filing fees and expenses, (b)
all fees and expenses in connection with the qualification of the Registrable
Securities for offering and sale under the State securities and blue sky laws
referred to in Section 4(a)(ix) hereof, including reasonable fees and
disbursements of one counsel for the placement or sales agent or underwriters in
connection with such qualifications, (c) all expenses relating to the
preparation, printing, distribution and reproduction of each registration
statement required to be filed hereunder, each prospectus included therein or
prepared for distribution pursuant hereto, each amendment or supplement to the
foregoing, the certificates representing the Registrable Securities and all
other documents relating hereto, (d) messenger and delivery expenses, (e) fees
and expenses of any registrar and transfer agent, (f) internal expenses
(including without limitation, all salaries and expenses of the Company's
officers and employees performing legal or accounting duties), (g) fees,
disbursements and expenses of counsel and independent certified public
accountants of the Company (including the expenses of any opinions or "cold"
comfort letters required by or incident to such performance and compliance), (h)
with respect to primary and combined offerings, fees, disbursements and expenses
of any "qualified independent underwriter" engaged pursuant to Section 4(a)(xvi)
hereof, (i) fees, disbursements and expenses of one counsel (in an amount not to
exceed $15,000 for any one registration statement) for the Holders of
Registrable Securities retained in connection with such registration, as
selected by the Holders of at least a majority of the Registrable Securities
being registered (which counsel shall be reasonably satisfactory to the
Company), and (j) fees, expenses and disbursements of any other persons,
including special experts, retained by the Company in connection with such
registration (collectively, the "Registration Expenses"). To the extent that
any Registration Expenses are incurred, assumed or paid by any Requesting
Holders or any placement or sales agent or underwriter therefor, the Company
shall reimburse such person for the full amount of the Registration Expenses so
incurred, assumed or paid promptly after receipt of a request therefor.
Notwithstanding the foregoing, the Requesting Holders of the Registrable
Securities being registered shall pay all agency fees and commissions and
underwriting discounts and commissions attributable to the sale of such
Registrable Securities and the fees and disbursements of any counsel or other
advisors or experts retained by such holders (severally or jointly), other than
the counsel and experts specifically referred to above.
6. Representations and Warranties in
Connection With Registration Statements.
The Company represents and warrants to, and agrees with, each Holder
of Registrable Securities that:
(a) Each registration statement covering Registrable Securities and
each prospectus (including any preliminary or summary prospectus) contained
therein or furnished pursuant to Section 4(a)(viii) hereof and any further
amendments or supplements to any such
14
<PAGE>
registration statement or prospectus, when it becomes effective or is filed with
the Commission, as the case may be, and, in the case of an underwritten offering
of Registrable Securities, at the time of the closing under the underwriting
agreement relating thereto will conform in all material respects to the
requirements of the Securities Act and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at all times
subsequent to the effective date of any such registration statement when a
prospectus would be required to be delivered under the Securities Act, other
than from (i) such time as a notice has been given to Requesting Holders of
Registrable Securities pursuant to Section 4(a)(v)(F) hereof until (ii) such
time as the Company furnishes an amended or supplemented prospectus pursuant to
Section 4(b) hereof, each such registration statement, and each prospectus
(including any summary prospectus) contained therein or furnished pursuant to
Section 4(a)(viii) hereof, as then amended or supplemented, will conform in all
material respects to the requirements of the Securities Act and will not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing; provided, however, that this
-------- -------
representation and warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information furnished in writing to the
Company by a Requesting Holder of Registrable Securities expressly for use
therein.
(b) Any documents incorporated by reference in any prospectus referred
to in Section 6(a) hereof, when they become or became effective or are or were
filed with the Commission, as the case may be, will conform or conformed in all
material respects to the requirements of the Securities Act or the Exchange Act,
as applicable, and none of such documents will contain or contained an untrue
statement of a material fact or will omit or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty shall not
-------- -------
apply to statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by a Requesting Holder of
Registrable Securities expressly for use therein.
(c) The compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions herein contemplated will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company is a party or by
which the Company is bound or to which any of the property or assets of the
Company is subject, nor will such action result in any violation of the articles
of organization of the Company or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the Company
or any of its properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental agency
or body (including, but not limited to, the FCC) is required for the
consummation by the Company of the transactions contemplated by this Agreement,
except the registration under the Securities Act of the Registrable Securities,
and such consents, approvals, authorizations, registrations or qualifications as
may be required under State securities or blue sky laws in connection with the
offering and distribution of the Registrable Securities.
15
<PAGE>
(d) This Agreement has been duly authorized, executed and delivered by
the Company.
7. Indemnification.
(a) Indemnification by the Company. Upon the registration of the
------------------------------
Registrable Securities pursuant to Section 2 or 3 hereof, the Company shall, and
hereby agrees to, indemnify and hold harmless each of the Requesting Holders of
Registrable Securities to be included in such registration, and each person who
participates as a placement or sales agent or as an underwriter in the offering
or sale of such Registrable Securities, against any losses, claims, damages or
liabilities, joint or several, to which such Requesting Holder, agent or
underwriter may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any registration statement under which such
Registrable Securities were registered under the Securities Act, or any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company shall,
and hereby agrees to, reimburse such Requesting Holder and any such agent and
such underwriter for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such action or claim; provided,
--------
however, that the Company shall not be liable to any such person in any such
- -------
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, or preliminary, final or
summary prospectus, or amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any such person
expressly for use therein.
(b) Indemnification by the Holders and any Agents and Underwriters.
--------------------------------------------------------------
The Company shall require, as a condition to including any Registrable
Securities in any registration statement filed pursuant to Section 2 or 3 hereof
and to entering into any underwriting agreement with respect thereto, that the
Company shall have received an undertaking reasonably satisfactory to it from
the Holder of such Registrable Securities and from each underwriter named in any
such underwriting agreement, severally and not jointly, to (i) indemnify and
hold harmless the Company, and all other holders of Registrable Securities,
against any losses, claims, damages or liabilities to which the Company or such
other Holders of Registrable Securities may become subject, under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, or any preliminary, final or summary prospectus contained therein or
furnished by the Company to any such Holder, agent or
16
<PAGE>
underwriter, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Requesting Holder, agent or underwriter expressly for use
therein, and (ii) reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim; provided, however, that no such Requesting Holder
-------- -------
shall be required to undertake liability to any person under this Section 7(b)
for any amounts in excess of the dollar amount of the gross proceeds from the
sale of such Requesting Holder's Registrable Securities pursuant to such
registration.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
----------------------
party under subsection (a) or (b) above of written notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party pursuant to the indemnification provisions of
or contemplated by this Section 7, notify such indemnifying party in writing of
the commencement of such action; but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party other than under the indemnification provisions of or
contemplated by Subsection (a) or (b) hereof. In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying party
of the commencement thereof, such indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party and, after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, such indemnifying party shall not be liable to such
indemnified party for any legal expenses of other counsel or any other expenses,
in each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. An
indemnified party may nevertheless employ counsel to represent and defend it,
but the indemnifying party will not be required to pay the fees and
disbursements of more than one counsel in any jurisdiction in any proceeding
(unless by reason of potential conflicts of interest, representation by more
than one counsel is necessary). The right to control the defense of any action
shall not include the right to enter into a settlement with respect to such
action, unless such settlement is for money damages only (and the indemnifying
party first posts a bond or other security satisfactory to the indemnified party
sufficient to cover the full amount of the proposed settlement).
(d) Contribution. Each party hereto agrees that, if for any reason
------------
the indemnification provisions contemplated by Section 7(a) or Section 7(b) are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, claims,
damages or liabilities (or actions in respect thereof), in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and the
indemnified party in connection with the statements or omission which resulted
in such losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by such indemnifying party or by such indemnified party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The parties
hereto agree that it would not be just and equitable if contribution pursuant to
this Section 7(d) were determined by pro rata allocation
17
<PAGE>
(even if the Holders or any agents or underwriters or all of them were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in this Section
7(d). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, or liabilities (or actions in respect thereof) referred
to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7(d), no Requesting Holder shall be required to contribute any amount in
excess of the amount by which the dollar amount of the proceeds received by such
Requesting Holder with respect to the sale of any Registrable Securities (after
deducting any fees, discounts and commissions applicable thereto) exceeds the
amount of any damages which such holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission, and no underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 6(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Requesting Holders' and any underwriters' obligations in
this Section 7(d) to contribute shall be several in proportion to the principal
amount of Registrable Securities registered or underwritten, as the case may be,
by them and not joint.
(e) The indemnification, contribution and reimbursement of expenses
obligations set forth in Sections 5 and 7 hereof and each other provision set
forth in this Section 7 shall remain in full force and effect regardless of any
investigation (or statement as to the result thereof) made by or on behalf of
any Requesting Holder, any director, officer or partner or such Requesting
Holder, any underwriter, any director, officer or partner of such underwriter,
or any controlling person of any of the foregoing and shall survive the transfer
and registration of shares of Registrable Securities by such Requesting Holder.
(f) The obligations of the Company under this Section 7 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each officer, director and partner of
each Holder, agent and underwriter and each person, if any, who controls any
Requesting Holder, agent or underwriter within the meaning of the Securities
Act; and the obligations of the Requesting Holders and any agents or
underwriters contemplated by this Section 7 shall be in addition to any
liability which the respective Requesting Holder or underwriter may otherwise
have and shall extend, upon the same terms and conditions, to each officer and
director of the Company (including any person who, with his consent, is named in
any registration statement as about to become a director of the Company), and to
each person, if any, who controls the Company within the meaning of the
Securities Act.
8. Underwritten Offerings.
18
<PAGE>
(a) Selection of Underwriters. For each underwritten offering for the
-------------------------
sale of Registrable Securities pursuant to Section 2 hereof, the managing
underwriter or underwriters thereof shall be designated by the Holders of at
least a majority of the Registrable Securities to be included in such offering,
provided that such designated managing underwriter or underwriters is or are
reasonably acceptable to the Company.
(b) Participation by Requesting Shareholders. No Requesting Holder of
----------------------------------------
Registrable Securities may participate in any underwritten offering hereunder
unless such Requesting Holder (i) agrees to sell such Requesting Holder's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
9. Rule 144.
The Company covenants with the Holders of Registrable Securities that
during any period to the extent it shall be required to do so under the Exchange
Act, the Company shall timely file the reports required to be filed by it under
the Exchange Act or the Securities Act (including, but not limited to, the
reports under Sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c) (1) of Rule 144 adopted by the Commission under the Securities
Act) and the rules and regulations adopted by the Commission thereunder, and
shall take such further action as any such Holder may reasonably request, all to
the extent required from time to time during such period to enable such Holder
to sell Registrable Securities without registration under the Securities Act
within the limitations of the exemption provided by Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission. Upon the request of any
Holder of Registrable Securities, the Company shall deliver to such Holder a
written statement as to whether it has complied with such requirements.
10. Miscellaneous.
(a) No Inconsistent Agreements. The Company covenants and agrees that
--------------------------
it shall not grant registration rights with respect to any class of Shares or
any other securities, or enter into any other agreements, contracts or
understandings, which would be inconsistent with the terms contained in this
Agreement. The Company is not currently a party to any agreement with respect
to any of its equity or debt securities granting any registration rights to any
person.
(b) Specific Performance. The parties hereto and each party in
--------------------
interest in accordance with Section 10(d) hereof acknowledge that there may be
no adequate remedy at law if any party fails to perform any of its obligations
hereunder and that each party may be irreparably harmed by any such failure, and
accordingly agree that each party, in addition to any other remedy to which it
may be entitled at law or in equity, shall be entitled to compel specific
performance of the
19
<PAGE>
obligations of any other party under this Agreement in accordance with the terms
and conditions of this Agreement, in any court of the United States or any State
thereof having jurisdiction.
(c) Notices. All notices, requests, claims, demands, waivers and
-------
other communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand, if delivered personally or by courier
(including, without limitation by Federal Express or similar service), or three
days after being deposited in the mail (registered or certified mail, postage
prepaid, return receipt requested) or by telecopier facsimile when confirmation
of transmittal is received (provided that a copy of any such communication shall
also be delivered as soon as practicable by another means herein provided) as
follows: If to the Company, to it at 100 Crystal Run Road, Middletown, New York
10941, Attention: Manager; with copy to Cooperman Levitt Winikoff Lester &
Newman, P.C., 800 Third Avenue, New York, New York 10022, Attention: Robert L.
Winikoff, Esq.; and if to a Holder, to the address of such Holder set forth in
the records of the Company, or to such other address as any party may have
furnished to the others in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
(d) Parties in Interest. (i) All the terms and provisions of this
-------------------
Agreement shall be binding upon, shall inure to the benefit of and shall be
enforceable by the respective successors and assigns of the parties hereto,
including, without limitation, the Existing Transferees. If any transferee of
any Holder shall acquire shares of Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities, such person shall be entitled to receive the
benefits of and be conclusively deemed to have agreed to be bound by and to
perform all of the terms and provisions of this Agreement. If the Company shall
so request, any such successor or assign shall agree in writing to acquire and
hold the Registrable Securities, subject to all of the terms hereof.
(ii) The Existing Transferees of Rocco B. Commisso are: James Carey;
Calvin Craib; Lawrence Dema; Bruce Gluckman; Richard Hale; John Pascarelli;
Frank Rizzi; Mark Stephan; Elizabeth Terwilliger; Joseph Van Loan; Brian Walsh;
William Wegener; and Italia Commisso Weinand.
(iii) The Existing Transferees of Morris Communications
Corporation are: Susie Morris Baker; Craig S. Mitchell; J. Tyler Morris; and
Will S. Morris IV.
(e) Law Governing. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York.
(f) Headings. The descriptive headings of the several Sections and
--------
paragraphs of this Agreement are inserted for convenience only, do not
constitute a part of this Agreement and shall not affect in any way the meaning
or interpretation of this Agreement.
(g) Entire Agreement; Amendments. This Agreement and the other
----------------------------
writings referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with respect to its
subject matter. This Agreement supersedes all prior
20
<PAGE>
agreements and understandings between the parties or any of them with respect to
its subject matter, including, without limitation, the Original Agreement. This
Agreement may be amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument duly executed by the Company and the
Holders of at least a majority of the Registrable Securities at the time
outstanding (excluding as holders for purposes of such calculation Rocco B.
Commisso, the Company and each other person controlling, controlled by or under
common control with Rocco B. Commisso). Each Holder of any Registrable
Securities at the time or thereafter outstanding shall be bound by any amendment
or waiver authorized by this Section 10(h), whether or not such Registrable
Securities shall have been marked to indicate such consent.
(h) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(i) Inspection. For so long as this Agreement shall be in effect,
----------
this Agreement and a complete list of the names and addresses of all the Holders
of Registrable Securities shall be made available for inspection and copying on
any business day by any Holder of Registrable Securities at the offices of the
Company at the address thereof set forth in Section 10(c) above.
11. FCC Matters.
The parties to this Agreement hereby acknowledge that the Company is
subject to the regulatory jurisdiction of the FCC pursuant to which, inter alia,
----------
certain actions that may be taken pursuant to the provisions hereof may be
subject to obtaining the prior consent of the FCC; certain reports may be
required to be filed with the FCC; and certain other actions may be required to
be taken by the Company from time to time to assure the Company's compliance, at
all times, with the alien ownership and other requirements of the Communications
Act and the rules, regulations, policies and orders of the FCC. Accordingly,
notwithstanding anything to the contrary contained in this Agreement or any of
the documents executed pursuant hereto, the parties will not take any action
pursuant to this Agreement or any such related documents which would result in
an assignment of an FCC License or the transfer of control of the holder of an
FCC License, whether de facto or de jure, if such assignment of license or
transfer of control would require under then existing law, the prior approval
of the FCC, without first obtaining such approval. In addition, with respect to
any report, application, notice, response or other form or document which the
Company is required to file with the FCC, or any other actions which are
required to be taken by the Company or by the parties, the Company and each
party hereto agree to cooperate in good faith and use all reasonable efforts to
assure compliance by the Company with the Communications Act and all rules,
regulations, policies and orders of the FCC promulgated thereunder. Without
limiting the generality of the foregoing, the Company and each party hereto
agree to cooperate in good faith and use all reasonable efforts to make filings
with the FCC or any court of competent jurisdiction to procure interpretations,
waivers, orders or other action or advice from the FCC to satisfy the
requirements of the Communications Act and all rules, regulations, orders and
policies of the FCC. The Company agrees that all documents, records and other
information obtained from any party hereto in connection with any such filing
shall
21
<PAGE>
be held in strict confidence and that, except as necessary to be in compliance
with the Communications Act and all rules, regulations, policies and orders of
the FCC, such information shall not be disclosed to any third party or otherwise
used by the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed as of the date first written above.
MEDIACOM COMMUNICATIONS CORPORATION
By:____________________________________________________
Name: Rocco B. Commisso
Title: Chief Executive Officer
Holders:
BMO FINANCIAL, INC.
By:____________________________________________________
Name:
Title:
CB CAPITAL INVESTORS, L.P.
By:____________________________________________________
Name:
Title: General Partner
CHASE MANHATTAN CAPITAL, L.P.
By:____________________________________________________
Name:
Title: General Partner
-------------------------------------------------------
Rocco B. Commisso
22
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MORRIS COMMUNICATIONS CORPORATION
By:____________________________________________________
Name:
Title:
23
<PAGE>
PRIVATE MARKET FUND, L.P.
By:____________________________________________________
Name:
Title:
U.S. INVESTOR, INC.
By:____________________________________________________
Name: Ralph H. Booth II
Title: President
-------------------------------------------------------
Thomas W. Keaveney
-------------------------------------------------------
Scott W. Seaton
24
<PAGE>
Exhibit 10.9
MEDIACOM COMMUNICATIONS CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of Mediacom Communications Corporation.
1. Purpose
The purpose of the Plan is to provide employees of the Company and its
Designated Subsidiaries with an opportunity to purchase Common Stock of the
Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an Employee Stock Purchase Plan under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of
the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. Definitions
For purposes of this Plan, the following terms with initial capital letters
shall have the following meanings:
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall mean the Class A common stock of the Company, $0.01
par value per share.
"Company" shall mean Mediacom Communications Corporation and any of its
Designated Subsidiaries.
"Compensation" shall mean all gross earnings and commissions, and shall
include payments for overtime, shift premium, incentive compensation, incentive
payments, bonuses and other compensation, but in each case only to the extent
such compensation is paid in cash.
"Designated Subsidiary" shall mean any Subsidiary on the date this Plan is
adopted by the Board..
"Employee" shall mean any individual who is an Employee of the Company for
tax purposes whose customary employment with the Company is at least twenty (20)
hours per week and more than five (5) months in any calendar year. For purposes
of the Plan, the employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of absence approved by the
Company. Where the period of leave exceeds 90 days and the
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individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
"Enrollment Date" shall mean the date upon which an Employee duly elects to
participate in the Plan in accordance with the terms hereof, provided that such
Enrollment Date shall not be latter than 30 days following the first day of the
Initial Offering Period.
"Exercise Date" shall mean the last Trading Day of each Offering Period.
"Fair Market Value" shall mean, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair
Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day on the date of such determination,
as reported in The Wall Street Journal or such other source as the Board
deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean of the closing bid and asked prices for the Common
Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable;
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Participation Commencement Date , the Fair
Market Value shall be the initial price to the public as set forth in the
final prospectus included within the registration statement in Form S-1
filed with the Securities and Exchange Commission for the initial public
offering of the Company's Common Stock (the Registration Statement).
"Offering Periods" shall mean the four (4) consecutive periods of
approximately six (6) months, each Offering Period concluding on its Exercise
Date, during which an option granted pursuant to the Plan may be exercised. The
first Offering Period under the Plan shall commence with the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and end on the last Trading Day prior to August 1, 2000. The duration
and timing of Offering Periods may be changed pursuant to Section 4 of this
Plan.
"Participation Commencement Date" shall mean the commencement date of the
first Offering Period.
"Plan" shall mean this 1999 Employee Stock Purchase Plan.
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"Purchase Price" shall mean 85% of the Fair Market Value of a share of
Common Stock on the Participation Commencement Date or on the Exercise Date,
whichever is lower; provided however, that the Purchase Price may be adjusted by
the Board pursuant to Section 20.
"Reserves" shall mean the number of shares of Common Stock covered by each
option under the Plan which have not yet been exercised and the number of shares
of Common Stock which have been authorized for issuance under the Plan but not
yet placed under option.
"Subsidiary" shall mean a corporation or other entity, domestic or foreign,
of which not less than 50% of the voting shares or equity interests are held by
the Company or a Subsidiary, whether or not such corporation or entity now
exists or is hereafter organized or acquired by the Company or a Subsidiary.
"Trading Day" shall mean a day on which national stock exchanges and the
Nasdaq System are open for trading.
3. Eligibility
(a) Any Employee who shall be employed by the Company on the Participation
Commencement Date shall participate in the Plan unless such Employee fails to
enroll in the Plan in accordance with the terms hereof not later than 30 days
following the first day of the Initial Offering Period.
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee
shall be granted an option under the Plan
(i) to the extent that, immediately after the grant, such Employee (or
any other person whose stock would be attributed to such Employee pursuant
to Section 424(d) of the Code) would own capital stock of the Company
and/or hold outstanding options to purchase such stock possessing five
percent (5%) or more of the total combined voting power or value of all
classes of the capital stock of the Company or of any Subsidiary, or
(ii) to the extent that his or her rights to purchase stock under all
employee stock purchase plans of the Company and its subsidiaries accrues
at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such
option is granted) for each calendar year in which such option is
outstanding at any time.
4. Offering Periods
The Plan shall be implemented by consecutive Offering Periods with a new
Offering Period commencing approximately six months following the commencement
of the previous Offering Period, or on such other date as the Board shall
determine, and continuing thereafter until terminated in accordance with Section
20 hereof; provided, however, that the first Offering Period under the Plan
shall commence on the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and end on the last
Trading Day prior to
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August 1, 2000. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation
(a) All participants in the Plan shall confirm and continue their
participation by completing a Subscription Agreement/Enrollment Form authorizing
payroll deductions in the form provided by the Company and filing such form with
the Company's payroll office within 30 days after the Participation
Commencement Date. Any Employee who fails to complete and file with the
Company's payroll office a Subscription Agreement/Enrollment Form within such 30
day period shall no longer be able to participate in the Plan following the
expiration of such 30 day period.
(b) Payroll deductions for a participant shall commence on the first
payroll period ending on or after the fifth business day following the
participant's delivery to the Company's payroll office of a completed, executed
Subscription Agreement/Enrollment Form and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions
(a) At the time a participant files his or her Subscription Agreement/
Enrollment Form, he or she shall elect to have payroll deductions made on each
pay day during the Offering Period after the Enrollment Date in an amount not
less than 1% and not exceeding fifteen percent (15%) of the Compensation which
he or she receives on each pay day during the Offering Period up to a maximum
aggregate deduction of $21,250.
(b) All payroll deductions made for a participant shall be credited to his
or her account under the Plan and shall be withheld in whole percentages only,
unless the participant wishes to reduce his/her contribution to the minimum
amount of $10 and still remain in the Plan. A participant may not make any
additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan as
provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new Subscription Agreement/Enrollment Form authorizing a change in
his/her payroll deduction rate. A participant is limited to one (1)
participation rate change during any Offering Period. The Board may, in its
discretion, further limit the number of participation rate changes during any
Offering Period. The change in rate shall be effective with the first full
payroll period following five (5) business days after the Company's receipt of
the new subscription agreement unless the Company elects to process a given
change in participation more quickly. The minimum payroll deduction is $10.00 A
change in participation rate that reduces the payroll deduction below $10.00
will be deemed to be a withdrawal from the Plan as provided in Section 10
hereof. A participant's Subscription Agreement/
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Enrollment Form shall remain in effect for successive Offering Periods unless
terminated as provided in Section 10 hereof.
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(d) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll
deductions may be decreased to zero percent (0%) at any time during an Offering
Period, in which case the participant will no longer be eligible to participate
in the plan.
(e) At the time the option is exercised, in whole or in part, or at the
time some or all of the Company's Common Stock issued under the Plan is disposed
of, the participant must make adequate provision for the Company's federal,
state, or other tax withholding obligations, if any, which arise upon the
exercise of the option or the disposition of the Common Stock. At any time, the
Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option
On the Participation Commencement Date each eligible Employee shall be
granted an option to purchase on each Exercise Date during such Offering Period
(at the applicable Purchase Price) up to a number of shares of the Company's
Common Stock determined by dividing such Employee's payroll deductions
accumulated prior to such Exercise Date and retained in the Participant's
account as of the Exercise Date by the applicable Purchase Price; provided that
in no event shall an Employee be permitted to purchase during each Offering
Period more than 2,000 shares of the Company's Common Stock (subject to any
adjustment pursuant to Section 19), and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof.
The Board may, for future Offering Periods, increase or decrease, in its
absolute discretion, the maximum number of shares of the Company's Common Stock
an Employee may purchase during each Offering Period of such Offering Period.
Exercise of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The option shall expire
on the last day of the Offering Period.
8. Exercise of Option
(a) Unless a participant fails to enroll as provided in Section Section 5
hereof, or withdraws from the Plan as provided in Sections 6(c) or 10 hereof,
his or her option for the purchase of shares shall be exercised automatically on
the Exercise Date, and the maximum number of full and fractional shares subject
to option shall be purchased for such participant at the applicable Purchase
Price with the accumulated payroll deductions in his or her account. During a
participant's lifetime, a participant's option to purchase shares hereunder is
exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the number of
shares with respect to which options are to be exercised may exceed either (i)
the number of shares of Common stock that were available for sale under the Plan
on the Participation Commencement Date of the applicable Offering Period, or
(ii) the number of shares available for sale under the Plan on such Exercise
Date, the Board, in its sole discretion, may provide that
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(x) the Company shall make a pro rata allocation of the shares of
Common Stock available for purchase on such Participation Commencement Date
or Exercise Date, as applicable, in as uniform a manner as shall be
practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common
Stock on such Exercise Date, and continue all Offering Periods then in
effect, or
--
(y) the Company shall make a pro rata allocation of the shares
available for purchase on such Participation Commencement Date or Exercise
Date, as applicable, in as uniform a manner as shall be practicable and as
it shall determine in its sole discretion to be equitable among all
participants exercising options to purchase Common Stock on such Exercise
Date, and terminate any or all Offering Periods then in effect pursuant to
Section 20 hereof. The Company may make pro rata allocation of the shares
available on the Participation Commencement Date of any applicable Offering
Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the
Company's shareholders subsequent to such Participation Commencement Date.
9. Delivery
As promptly as practicable after each Exercise Date on which a purchase of
shares occurs, the Company shall arrange the delivery to each participant, as
appropriate, a confirmation representing the shares purchased upon exercise of
his or her option.
10. Withdrawal
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company on
a form made available to participants for such purpose. All of the
participant's payroll deductions credited to his or her account shall be paid to
such participant promptly after receipt of notice of withdrawal and such
participant's option for the current and future Offering Periods shall be
automatically terminated, and no further payroll deductions for the purchase of
shares shall be made for such Offering Periods.
(b) A participant's withdrawal from an Offering Period shall not have any
effect upon his or her eligibility to participate in any similar plan which may
hereafter be adopted by the Company.
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11. Termination of Employment
Upon a participant's ceasing to be an Employee, for any reason, he or she
shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest
No interest shall accrue on the payroll deductions of a participant in the
Plan.
13. Stock
(a) Subject to adjustment upon changes in capitalization of the Company as
provided in Section 19 hereof, the maximum number of shares of the Company's
Common Stock which shall be made available for sale under the Plan shall be one
million (1,000,000) shares of Class A of Common Stock.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse unless such shares are maintained in a Company account
maintained by Salomon Smith Barney ("SSB"). Such shares will be registered in
SSB's name but will be accounted for in the participant's name.
14. Administration
The Plan shall be administered by the Board or a committee of members of
the Board appointed by the Board. The Board or its committee shall have full and
exclusive discretionary authority to construe, interpret and apply the terms of
the Plan, to determine eligibility and to adjudicate all disputed claims filed
under the Plan. Every finding, decision and determination made by the Board or
its committee shall, to the full extent permitted by law, be final and binding
upon all parties.
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15. Designation of Beneficiary
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to an Exercise Date on
which the option is exercised but prior to delivery to such participant of such
shares and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under the
Plan in the event of such participant's death prior to exercise of the option.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or to receive shares under the
Plan may be assigned, transferred, pledged or otherwise disposed of in any way
(other than by will, the laws of descent and distribution or as provided in
Section 15 hereof) by the participant. Any such attempt at assignment,
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds from an Offering
Period in accordance with Section 10 hereof.
17. Use of Funds
All payroll deductions received or held by the Company under the Plan may
be used by the Company for any corporate purpose, and the Company shall not be
obligated to segregate such payroll deductions.
18. Reports
Account balances shall be maintained for each participant in the Plan.
Statements of account shall be given to participating Employees at least
annually, which statements shall set forth the amounts of payroll deductions,
the Purchase Price, the number of shares purchased and the remaining cash
balance, if any.
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19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
Merger or Sale of Assets of the Company
(a) Changes in Capitalization
Subject to any required action by the shareholders of the Company, the
Reserves, the maximum number of shares each participant may purchase each
Offering Period (pursuant to Section 7), as well as the price per share and the
number of shares of Common Stock covered by each option under the Plan which has
not yet been exercised shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been effected without receipt of consideration. Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
(b) Dissolution or Liquidation
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period then in progress shall be shortened by setting a new Exercise
Date (the New Exercise Date), and shall terminate immediately prior to the
consummation of such proposed dissolution or liquidation, unless provided
otherwise by the Board. The New Exercise Date shall be before the date of the
Company's proposed dissolution or liquidation. The Board shall notify each
participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for the participant's option has been
changed to the New Exercise Date and that the participant's option shall be
exercised automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.
(c) Merger or Sale of Asset
In the event of a proposed sale of all or substantially all of the assets
of the Company, or the merger of the Company with or into another corporation,
each outstanding option shall be assumed or an equivalent option substituted by
the successor corporation or a Parent or Subsidiary of the successor
corporation. In the event that the successor corporation refuses to assume or
substitute for the option, any Offering Periods then in progress shall be
shortened by setting a new Exercise Date (the New Exercise Date) and any
Offering Periods then in progress shall end on the New Exercise Date. The New
Exercise Date shall be before the date of the Company's proposed sale or merger.
The Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
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20. Amendment or Termination
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods, limit the
frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of the
Plan may result in unfavorable financial accounting consequences, the Board may,
in its discretion and, to the extent necessary or desirable, modify or amend the
Plan to reduce or eliminate such accounting consequence including, but not
limited to:
(i) altering the Purchase Price for any Offering Period including an
Offering Period underway at the time of the change in Purchase Price;
(ii) shortening any Offering Period so that Offering Period ends on a
new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require shareholder approval or the
consent of any Plan participants.
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21. Notices
All notices or other communications by a participant to the Company under
or in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares
(a) Shares shall not be issued with respect to an option unless the
exercise of such option and the issuance and delivery of such shares pursuant
thereto shall comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan
The Plan shall become effective upon the earlier to occur of its adoption
by the Board of Directors or its approval by the shareholders of the Company. It
shall continue in effect for a term of ten (10) years thereafter unless sooner
terminated under Section 20 hereof.
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Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Stamford, Connecticut
February 2, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Denver, Colorado
January 28, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Cablevision Systems Corporation
We consent to the inclusion of our report dated March 20, 1998, on the
consolidated balance sheets of U.S. Cable Television Group, L.P. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations and partners' capital (deficiency) and cash flows for
the year ended December 31, 1997, and for the periods from January 1, 1996 to
August 12, 1996, and August 13, 1996 to December 31, 1996, in the registration
statement on Amendment No. 3 to Form S-1 and related prospectus of Mediacom
Communications Corporation. We also consent to the inclusion of our report dated
April 1, 1997, except as to Note 11 which is as of January 23, 1998, on the
consolidated balance sheets of U.S. Cable Television Group, L.P. and
subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of operations and partners' capital (deficiency) and cash flows for
the periods from January 1, 1996 to August 12, 1996, and August 13, 1996 to
December 31, 1996, and for the years ended December 31, 1995 and 1994, in the
registration statement on Amendment No. 3 to Form S-1 and related prospectus of
Mediacom Communications Corporation and to the reference to our firm under the
heading "Experts" in the registration statement and related prospectus. Such
reports include an explanatory paragraph related to a change in cost basis of
the consolidated financial information as a result of a redemption of certain
limited and general partnership interests effective August 13, 1996.
/s/ KPMG LLP
Melville, New York
January 28, 2000
