<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 1997
REGISTRATION NO. 33-93808; 33-93808-01
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
MARCUS CABLE COMPANY, L.P.
MARCUS CABLE CAPITAL CORPORATION III
(Exact names of Registrants as specified in their charters)
<TABLE>
<S> <C> <C>
DELAWARE 4841 75-2337471
DELAWARE 4841 75-2599586
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2911 TURTLE CREEK BOULEVARD, SUITE 1300
DALLAS, TEXAS 75219
(214) 521-7898
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JEFFREY A. MARCUS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MARCUS CABLE PROPERTIES, INC.
2911 TURTLE CREEK BOULEVARD, SUITE 1300
DALLAS, TEXAS 75219
(214) 521-7898
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
------------------------------
COPIES TO:
MICHAEL A. SASLAW ROBERT E. BUCKHOLZ
BAKER & BOTTS, L.L.P. SULLIVAN & CROMWELL
2001 ROSS AVENUE 125 BROAD STREET
DALLAS, TEXAS 75201 NEW YORK, NEW YORK 10004
------------------------------
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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
MARCUS CABLE COMPANY, L.P.
MARCUS CABLE CAPITAL CORPORATION III
CROSS-REFERENCE SHEET
CROSS-REFERENCE SHEET PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM AND CAPTION LOCATION IN PROSPECTUS
---------------- ----------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................................. Front Cover Page of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................................... Inside Front Cover Page of Prospectus; Outside
Back Cover Page of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.................................. Prospectus Summary; Risk Factors; The Company;
Selected Financial Data
4. Terms of the Transaction............................................ Prospectus Summary; Risk Factors; Description
of Exchange Notes
5. Material Contacts with the Company Being
Acquired....................................................... *
6. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters................................................... Plan of Distribution
7. Interests of Named Experts and Counsel.............................. Validity of Exchange Notes; Experts
8. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................................... *
B. INFORMATION ABOUT THE REGISTRANTS
9. Information with Respect to S-3 Registrants......................... *
10. Incorporation of Certain Information by
Reference...................................................... *
11. Information with Respect to S-2 or S-3
Registrants.................................................... *
12. Incorporation of Certain Information by
Reference...................................................... *
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
13. Information with Respect to Registrants Other Prospectus Summary; Risk Factors; Recent Transactions;
Than S-3 or S-2 Registrants.................................... The Company; Use of Proceeds; Capitalization; Selected
Financial Data; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Business; Management; Certain Relationships and
Related Transactions; The MCC Partnership Agreement;
Senior Credit Facility
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
14. Information with Respect to S-3 Companies........................... *
15. Information with Respect to S-2 or S-3
Companies...................................................... *
16. Information with Respect to Companies Other
Than S-3 or S-2 Companies...................................... *
D. VOTING AND MANAGEMENT INFORMATION
17. Information if Proxies, Consents or Authorizations
are to be Solicited............................................ *
18. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an
Exchange Offer................................................. Management
</TABLE>
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* Item is omitted because response is negative or item is inapplicable.
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<PAGE> 4
EXPLANATORY NOTE
This Post-Effective Amendment No. 2 to the Registration Statement on Form
S-4 contains an updated Prospectus relating to offers and sales of the 14 1/4%
Senior Discount Notes due December 15, 2005 by Goldman, Sachs & Co. in market-
making transactions.
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<PAGE> 5
MARCUS CABLE COMPANY, L.P.
MARCUS CABLE CAPITAL CORPORATION III
14 1/4% SENIOR DISCOUNT NOTES DUE DECEMBER 15, 2005
---------------
The 14 1/4% Senior Discount Notes due December 15, 2005 (the "Exchange
Notes") were issued in exchange for the 14 1/4% Senior Discount Notes due
December 15, 2005 (the "14 1/4% Notes") by Marcus Cable Company, L.P. ("MCC"),
a Delaware limited partnership, and Marcus Cable Capital Corporation III
("Capital III"), a Delaware corporation and a wholly owned subsidiary of Marcus
Cable Company, L.P. The Exchange Notes are the joint and several obligations of
the Issuers. In serving as co-issuer, Capital III is acting as an agent of MCC.
Capital III has nominal assets, does not conduct any operations and does not
provide additional security for the Exchange Notes. See "Description of
Exchange Notes."
The Exchange Notes will bear interest from June 9, 1995, the date of
issuance of the 14 1/4% Notes that are tendered in exchange for the Exchange
Notes (or the most recent Interest Payment Date (as defined) to which interest
on such 14 1/4% Notes has been paid), at a rate equal to 14 1/4% per annum.
Interest on the Exchange Notes will be payable semiannually on June 15 and
December 15 of each year commencing December 15, 2000. The Exchange Notes are
redeemable at the option of the Issuers, in whole or in part, at any time on or
after June 15, 2000, at the redemption prices set forth herein, plus accrued
interest to the date of redemption. In the event that on or before June 9,
1998, MCC consummates a sale of any of its Capital Stock pursuant to a
registered public offering, resulting in net proceeds to MCC of at least
$25,000,000, the Issuers may, at the option of MCC, apply such proceeds to
redeem up to 25% of the Exchange Notes then outstanding at a Redemption Price
of 110% of the Accreted Value thereof on the repurchase date. In the event of a
Change of Control, the Issuers are required to offer to purchase outstanding
Exchange Notes at a redemption price of 101% of the Accreted Value thereof on
any repurchase date prior to June 15, 2000 or 101% of the principal amount
thereof plus accrued interest to any repurchase date on or after June 15, 2000.
It is unlikely, however, that the Issuers will have sufficient funds to
purchase the Exchange Notes upon the occurrence of a Change of Control. See
"Summary -- Summary of Terms of Exchange Notes" and "Risk Factors -- Purchase
of Exchange Notes Upon a Change of Control."
The Exchange Notes are unsecured obligations of the Issuers and rank pari
passu with all unsubordinated indebtedness of the Issuers and senior in right
of payment to all existing and future subordinated indebtedness of the Issuers.
The claims of holders of the Exchange Notes are effectively subordinated to the
claims of the creditors of Marcus Cable Operating Company, L.P., including the
lenders under the Senior Credit Facility. At February 28, 1997, MCC had
outstanding $190,325,000 accreted value of the Exchange Notes and $100,000,000
of 11 7/8% Senior Debentures due October 1, 2005 that rank pari passu with the
Exchange Notes and Marcus Cable Operating Company, L.P. and its subsidiaries had
an aggregate of approximately $1,154,000,000 of outstanding debt, which has been
guaranteed by MCC on a pari passu basis with the Exchange Notes. See
"Description of Exchange Notes."
---------------
SEE "RISK FACTORS," COMMENCING ON PAGE 13, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF THE EXCHANGE NOTES. THE
EXCHANGE NOTES ARE OBLIGATIONS SOLELY OF THE ISSUERS. NEITHER THE GENERAL
PARTNER OF MARCUS CABLE COMPANY, L.P. NOR THE LIMITED PARTNERS THEREOF, AMONG
OTHERS, ARE LIABLE FOR THE OBLIGATIONS OF THE ISSUERS UNDER THE EXCHANGE NOTES
PURSUANT TO THE TERMS OF THE NOTE INDENTURE GOVERNING THE EXCHANGE NOTES.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
---------------
This Prospectus has been prepared for and is to be used by Goldman, Sachs
& Co. in connection with offers and sales in market-making transactions of the
Exchange Notes. The Issuers will not receive any of the proceeds of such sales.
Goldman, Sachs & Co. may act as a principal or agent in such transactions. The
Exchange Notes may be offered in negotiated transactions or otherwise. Sales
will be made at prices related to prevailing market prices at the time of sale.
--------------
The date of this Prospectus is April 25, 1997
<PAGE> 6
No dealer, salesperson or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Issuers or Goldman Sachs. This Prospectus
does not constitute an offer to sell or the solicitation of an offer to buy any
security other than the Exchange Notes offered hereby, nor does it constitute
an offer to sell or the solicitation of an offer to buy any of the Exchange
Notes to any person in any jurisdiction in which it is unlawful to make such an
offer or solicitation to such person. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create any
implication that the information contained herein is correct as of any date
subsequent to the date hereof.
AVAILABLE INFORMATION
The Issuers have filed with the Securities and Exchange Commission ("SEC")
a Registration Statement (of which this Prospectus is a part and which term
shall encompass any amendments thereto) on Form S-4 under the Securities Act of
1933, as amended (the "Act") for the registration of the Exchange Notes offered
hereby (the "Registration Statement"). This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement, certain items of which are contained in
exhibits and schedules to the Registration Statement as permitted by the rules
and regulations of the SEC. For further information with respect to the Issuers
or the Exchange Notes offered hereby, reference is made to the Registration
Statement, including the exhibits and financial statement schedules thereto,
which may be inspected without charge at the public reference facility
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of which may be obtained from the SEC at prescribed rates. Statements
made in this Prospectus concerning the contents of any document referred to
herein are not necessarily complete. With respect to each such document filed
with the SEC as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Issuers are subject to the information requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith, file
reports and other information with the SEC. Such reports and other information
filed by the Issuers can be inspected and copied at the public reference
facilities of the SEC at 450 Fifth Street, Judiciary Plaza N.W., Washington,
D.C. 20549 and the regional offices of the SEC located at 7 World Trade Center,
New York, New York 10048 and 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661. Copies of such materials may be obtained from the Public
Reference Section of the SEC, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at its public reference facilities in New York, New
York and Chicago, Illinois at prescribed rates. The SEC maintains a World Wide
Web site on the Internet that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. The address of this site on the Internet is http://www.sec.gov.
So long as the Issuers are subject to the periodic reporting requirements
of the Exchange Act, they are required to furnish the information required to
be filed with the SEC to (i) Norwest Bank Minnesota, National Association, as
trustee (the "Trustee"), under the Indenture dated as of June 9, 1995 (the
"Note Indenture") among MCC, Capital III and the Trustee, pursuant to which the
outstanding Exchange Notes were issued and (ii) the holders of the Exchange
Notes. The Issuers have agreed that, even if they are entitled under the
Exchange Act not to furnish such information to the SEC, they will nonetheless
continue to furnish information that would be required to be furnished by the
Issuers by Section 13 of the Exchange Act to the Trustee and the holders of the
Exchange Notes as if they were subject to such periodic reporting requirements.
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<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. As used in this Prospectus, "MCC" refers to Marcus Cable
Company, L.P., a Delaware limited partnership, "Capital " refers to Marcus
Cable Capital Corporation , a Delaware corporation, "Capital II" refers to
Marcus Cable Capital Corporation II, a Delaware corporation, and "Capital III"
refers to Marcus Cable Capital Corporation III, a Delaware corporation. Capital
III is a wholly owned subsidiary of MCC. MCC and Capital III are collectively
referred to as the "Issuers." "Operating" refers to Marcus Cable Operating
Company, L.P., a Delaware limited partnership that is the sole general partner
or sole stockholder of each of the Company's operating subsidiaries which own
the Company's cable assets (the "Operating Partnerships"). MCC is the sole
general partner of Operating and the sole limited partner of Operating is
Marcus Cable Properties, L.P., a Delaware limited partnership, which is also
the sole general partner of MCC. Marcus Cable Properties, L.P. is referred to
as "Properties" or the "General Partner." "Company" refers to MCC and its
subsidiaries, unless the context otherwise requires. See "Risk Factors" for a
discussion of certain risks associated with an investment in the Exchange
Notes.
THE COMPANY
At December 31, 1996, the Company owned or managed cable television
systems in 18 states, serving 1,267,520 basic customers . Since its formation
in 1990, the Company has grown internally and through acquisitions, and is now
the ninth largest cable television operator in the United States. The Company's
customers were clustered as follows as of December 31, 1996.
<TABLE>
<CAPTION>
Basic
Customers
---------
<S> <C>
North Central Region (MN, WI) ......................... 385,303
Southeast Region (AL, GA, NC, TN, KY, LA, MS) ......... 252,466
Southwest Region (TX, OK) ............................. 187,761
East Region (DE, MD, VA, CT) ........................ 175,140(1)
Midwest Region (IN, IL) ............................... 139,138
West Region (CA) ...................................... 127,712
---------
Total ................................................. 1,267,520
=========
</TABLE>
(1) Includes 86,227 basic customers in a cable television system managed
by the Company. Such systems were sold on January 31, 1997. See "Recent
Developments -- Divestitures -- Maryland Cable Systems".
As of December 31, 1996, the cable television systems owned by the Company
(the "Systems") passed 1,863,299 homes and served 1,181,293 basic customers who
subscribed for 666,702 premium units. The President and Chief Executive Officer
of MCC is Jeffrey A. Marcus. Mr. Marcus has successfully acquired, developed
and managed cable television systems since 1979.
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<PAGE> 8
RECENT DEVELOPMENTS
ACQUISITIONS
Harron Acquisition. On March 4, 1997, the Company entered into an
acquisition agreement with Harron Cablevision of Texas, Inc. ("Harron")
pursuant to which the Company will purchase from Harron substantially all of
the assets of cable television systems in Texas (the "Harron Acquisition"). The
communities served by these systems are located in and around the Company's
operations in Texas. The Harron Acquisition is subject to certain closing
conditions and is expected to close in the second quarter of 1997.
Frankfort Acquisition. On July 31, 1996, the Company purchased certain
cable television systems (the "Frankfort System") from Frankfort Cable
Communications, Inc. for an aggregate purchase price of approximately
$6,700,000 (the "Frankfort Acquisition"). The Frankfort System provides service
to customers in and around Frankfort, Indiana, located near the Company's other
operations in Indiana. As of the date of the acquisition, the former Frankfort
System served approximately 5,600 basic customers. The purchase price for the
Frankfort Acquisition represented, as of the date of the acquisition, a price
of approximately $1,200 per basic customer. See "Recent Transactions --
Frankfort Acquisition."
Futurevision Acquisition. On July 8, 1996, the Company acquired certain
cable television systems (the "Futurevision System") from Futurevision Cable
Systems of Brookhaven for an aggregate purchase price of approximately
$2,600,000 (the "Futurevision Acquisition"). The communities served by the
Futurevision System are located in and around the Company's operations in
Mississippi. As of the date of the acquisition, the former Futurevision System
served approximately 2,500 basic customers. The purchase price for the
Futurevision Acquisition represented, as of the date of the acquisition, a
price of approximately $1,040 per basic customer. See "Recent Transactions --
Futurevision Acquisition."
Weatherford Acquisition. On January 11, 1996, the Company purchased
certain cable television systems (the "Weatherford System") from C & R Cable
Investments Corporation for an aggregate purchase price of approximately
$875,000 (the "Weatherford Acquisition"). The Weatherford System provides
service to customers contiguous to the Company's existing systems in
Weatherford, Texas. As of the date of the acquisition, the former Weatherford
System served approximately 700 basic customers. The purchase price for the
Weatherford Acquisition represented, as of the date of the acquisition, a price
of approximately $1,250 per basic customer. See "Recent Transactions --
Weatherford Acquisition."
Sammons Acquisition. On November 1, 1995, the Company acquired certain
cable television systems (the "Sammons Systems") owned by Sammons
Communications, Inc. and certain of its subsidiaries ("Sammons") operating in
15 states for approximately $961,701,000 plus direct acquisition costs of
$31,187,000, and assumed liabilities of $4,524,000 (the "Sammons Acquisition").
As of the date of acquisition, the former Sammons Systems passed 1,038,609
homes and served 664,796 basic customers who subscribed for 345,353 premium
service units. The purchase price for the Sammons Acquisition represented, as
of the date of the acquisition, a price of approximately $1,453 per basic
customer. The basic customers of the Sammons Systems were clustered as follows
as of the date of the acquisition:
<TABLE>
<CAPTION>
Basic
Customers
---------
<S> <C>
Dallas/Ft. Worth.............................................. 150,003
Indiana/Illinois.............................................. 132,490
California.................................................... 123,978
Tennessee/Kentucky/North Carolina............................. 93,069
Connecticut................................................... 44,876
Mississippi................................................... 42,800
Other......................................................... 77,580
-------
664,796
=======
</TABLE>
See "Recent Transactions -- Sammons Acquisition."
CALP Acquisition. The Company acquired the general partnership interest
and certain of the ordinary limited partnership interests in Cencom of Alabama,
L.P. ("CALP") in September 1994 and January 1995, respectively. On August 31,
1995, the Company acquired all remaining ordinary limited partnership interests
in CALP owned by affiliates of Goldman, Sachs & Co. ("Goldman Sachs") in
exchange for convertible preference units of MCC (the "Convertible Preference
Units") with
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<PAGE> 9
a $15,000,000 distribution preference, and caused the redemption and
retirement for cash of the outstanding special limited partnership interests
(the "Special Limited Partnership Units") in CALP (16.3% of which were owned by
Mr. Marcus and affiliates of Goldman Sachs) and the repayment of the
outstanding bank debt of CALP for an aggregate consideration of approximately
$138,280,000 ("the CALP Acquisition"). On such date, CALP was renamed Marcus
Cable of Alabama, L.P. ("MCALP"). MCALP owns and operates cable television
systems (the "Alabama Systems") in areas surrounding Birmingham, Alabama. As of
the date of the acquisition, the Alabama Systems passed 122,301 homes and
served 84,955 basic customers who subscribed for 37,726 premium service units.
The purchase price for the CALP Acquisition represented, as of the date of the
acquisition, a price of approximately $1,816 per basic customer. See "Recent
Transactions -- CALP Acquisition."
Crown Acquisition. Effective January 1, 1995, the Company completed the
acquisition from Crown Media, Inc. ("Crown") of certain cable television
systems (the "Crown Systems") in Wisconsin and Minnesota for an aggregate
purchase price of $331,717,000 in cash (the "Crown Acquisition"). The
communities served by the Crown Systems are adjacent to the Company's original
operations in Wisconsin, and those acquired in the Star Acquisition described
below (collectively, the "Wisconsin Systems"). At the date of the acquisition,
the former Crown Systems passed 294,032 homes and served 193,325 basic
customers who subscribed for 100,218 premium service units. The purchase price
for the Crown Systems represented, as of the date of acquisition, a price of
$1,716 per basic customer. Since acquisition, the former Crown Systems and Star
Systems have been combined. See "Recent Transactions -- Crown Acquisition."
Star Acquisition. On July 29, 1994, the Company purchased from Star
Cablevision Group and affiliates (collectively, "Star") certain cable
television systems (the "Star Systems") located in Wisconsin and Minnesota for
an aggregate purchase price of $139,232,000. The communities served by the Star
Systems are adjacent to the Company's original operations in Wisconsin. At the
date of the acquisition, the former Star Systems passed 109,507 homes and
served 70,794 basic customers who subscribed for 48,703 premium service units.
The purchase price for the Star Systems represented, as of the date of the
acquisition, a price of $1,966 per basic customer. See "Recent Transactions --
Star Acquisition."
DIVESTITURES
Maryland Cable Systems. Effective January 31, 1997, the Maryland Cable
Partners, L.P. ("Maryland Cable ") systems (the "Maryland Cable Systems") were
sold to Jones Communications of Maryland, Inc. Under the management agreement
between Operating and Maryland Cable (the "Maryland Cable Agreement"),
Operating was entitled to an incentive management fee if the Maryland Cable
Systems sold above certain threshold amounts. In conjunction with the sale,
Operating recognized an incentive management fee of $4,083,000 in January 1997.
Additional incentive management fees may be recognized upon finalization of the
purchase price adjustment, anticipated to occur during the second quarter of
1997 and upon dissolution of Maryland Cable, anticipated to occur during the
first quarter of 1998. There is no assurance that any of such fees will be
realized. Although Operating is no longer involved in the active management of
those cable television systems, Operating has entered into an agreement with
Maryland Cable to oversee the activities, if any, of Maryland Cable through the
liquidation of the partnership. Pursuant to such agreement, Operating will earn
a monthly fee ranging from $25,000 to $50,000. See "Recent Transactions--
Divestitures-- Maryland Cable Systems."
Moses Lake Disposition. On October 11, 1996, the Company completed the
sale of its cable television system serving approximately 12,700 customers in
the state of Washington (the "Moses Lake System") for a sales price of
approximately $21,000,000, less selling costs of $320,000 (the "Moses Lake
Disposition"). As of the date of sale, the Moses Lake System passed
approximately 15,200 homes and served approximately 12,800 basic customers who
subscribed for approximately 5,300 premium service units. The gross sales price
of the Moses Lake System represented, as of the date of sale, a price of
approximately $1,646 per basic customer. The sales price resulted in a gain on
the sale of approximately $6,442,000. See "Recent Transactions -- Divestitures
- -- Moses Lake Disposition."
San Angelo Divestiture. On June 30, 1995, the Company sold the assets of
certain cable television systems in west Texas (the "San Angelo Systems") to
Teleservice Corporation of America for approximately $65,037,000 in cash (net
of selling costs of $809,000) (the "San Angelo Divestiture"). As of the date of
sale, the San Angelo Systems passed 45,838 homes and served 32,515 basic
customers who subscribed for 21,528 premium service units. The gross sales
price of the San Angelo Systems represented, as of the date of sale, a price of
approximately $2,025 per basic customer. The sales price resulted in a gain on
the sale of approximately $26,409,000. See "Recent Transactions -- Divestitures
- -- San Angelo Divestiture."
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<PAGE> 10
BUSINESS STRATEGY
The Company's business strategy focuses on three principles: (i) forming
regional clusters of cable television systems through strategic acquisitions,
internal growth and divestitures of non-strategic assets, (ii) promoting
internal growth and enhanced operating and financial performance by
streamlining operations in newly clustered systems and applying innovative
marketing techniques and (iii) upgrading systems and employing state-of-the-art
technology to enhance existing service and to develop, on a cost-effective
basis, ancillary revenue streams. This strategy was first employed by expanding
the originally acquired cable television systems in Wisconsin through strategic
acquisitions and internal growth. Upon completing the Star and Crown
Acquisitions and successfully integrating their operations, the Company has
more than tripled in size to become the largest cable operator in Wisconsin.
The Company believes that its Wisconsin experience demonstrates the significant
benefits of regional clusters, including increased opportunities to develop
ancillary revenue streams and greater operating efficiencies, such as larger
volume discounts on programming, materials and supplies, lock box fees and
billing and data processing costs. Clustering also permits elimination of
duplicative positions and certain office and other locations.
Having established its Wisconsin cluster, the Company has broadened its
geographic focus. The Company, which is now the ninth largest cable television
operator in the United States, is employing a similar strategy of enhanced
regional clustering with the Sammons Systems and the Alabama Systems. Future
expansion efforts are expected to focus on acquiring systems in close proximity
to existing systems and clusters, in order to expand system clusters to permit
the operating efficiencies and economies of scale the Company has achieved in
the Wisconsin Systems. Opportunistic divestitures, in areas where the Company
does not perceive sufficient consolidation opportunities, will also be
considered.
Upon completion of an acquisition, the Company generally implements
extensive management, operational and organizational changes designed to
enhance operating cash flow and operating margins, while promoting superior
customer service and strong community relations. Since 1990, the Company has
successfully assimilated five separate management structures and has recognized
the benefits of consolidation through the elimination of duplicative positions
and excess office locations, the creation of regional customer service centers
and the centralization of signal distribution facilities and of corporate
support functions, including accounting, billing, marketing, technical and
administration services. Ancillary benefits of the Company's increased size
include reduced overall programming costs and increased discounts on equipment
purchases.
In addition to the above synergies, the Company selectively upgrades the
cable plant of acquired systems to allow for the offering of additional
programming and services. The Company then seeks to add customers and increase
revenue per customer by aggressively marketing innovative basic, tier and
premium cable service packages and by developing ancillary sources of revenue,
such as local spot advertising sales and pay-per-view programming. The Company
has been particularly successful in increasing revenues in acquired systems
through the introduction of multiple premium service packages that emphasize
customer value and enable the Company to take advantage of programming
agreements offering cost incentives based on premium service unit growth. The
Company's customer and revenue growth, in combination with economies of scale
and other operating efficiencies associated with regional clusters of systems,
has enabled the Company to increase operating cash flow and operating margins
of its existing systems. At the same time, the Company has a decentralized and
locally responsive management structure which provides significant management
experience and stability and allows the Company to respond more effectively to
the specific needs of the communities it serves.
Through the upgrade of its cable television plant, including the
utilization of addressable technology and fiber optic cable on a selective,
cost-effective basis, the Company seeks to position itself to benefit from the
further development of advertising, pay-per-view and home shopping services, as
well as anticipated future services such as video-on-demand and other
interactive applications. This advanced broadband platform has allowed the
Company to enter into arrangements to provide video and data transmission
services to various educational institutions and to pursue similar arrangements
with utility providers (e.g., load management and system monitoring). In
addition to expanding revenue opportunities, upgrading network architecture
serves to enhance picture quality and system reliability, reduce operating
costs and improve overall customer satisfaction. As of December 31, 1996, the
average channel capacity of the Systems was approximately 65 analog channels
with approximately 25% of its customers served by systems with 550 MHz or
greater bandwidth capacity, and approximately 76% of its customers were served
by systems that utilize addressable technology. The Company's current plan
contemplates that by the end of 1997, its systems will have (i) an average
capacity of approximately 78 analog channels with approximately 43% of its
customers being served by systems with 550 MHz or greater bandwidth capacity,
(ii) warehoused digital spectrum of up to 200 MHz in systems serving
approximately 28% of its customers and (iii) systems that utilize addressable
technology serving approximately 83% of its customers.
In addition to allowing for increased channel offerings, the expanded
bandwidth of the upgraded systems creates the optimal medium for transmitting
vast amounts of information at high speed. Cable modem technology enables data
traffic
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<PAGE> 11
to be carried at rates up to 100 times faster than current telephone
modems. Most current Internet users are accessing the network through narrow
band telephony technology. This telephony technology severely limits the types
of content and services that can be effectively utilized. The high speed
capabilities of cable modems eliminate the current data bottle necks and will
"free up" users. The Company currently is testing the capabilities of cable
modems and its Hybrid Fiber Coax ("HFC") network in one of its Dallas area
systems. This test is utilizing a 750 MHz system to provide high speed Internet
access to several customers. In addition to implementing the technical and
operational steps in deploying high speed data modems utilizing HFC plant, the
Company plans to explore various products and services that can be offered
utilizing the high speed data modems. It is anticipated that commercial
deployment of the service in this system will begin in late 1997 with expanding
deployment in other systems in 1998. There is no assurance, however, that such
deployment will occur, and if it occurs, that it will be successful.
THE ISSUERS
MCC was organized as a Delaware limited partnership in 1990. MCC's sole
general partner is Properties and MCC's limited partners (the "Investors")
consist primarily of institutional investors. Properties' sole general partner
is Marcus Cable Properties, Inc. ("MCPI"), which is owned by Jeffrey A. Marcus
and his wife, Nancy C. Marcus. Affiliates of Goldman Sachs comprise the largest
group of Investors. Capital III is a Delaware corporation formed in 1995 solely
for the purpose of serving as a co-issuer of MCC indebtedness, including the
Exchange Notes. In serving as a co-issuer of the Exchange Notes, Capital III is
acting as an agent of MCC. See "Management" and "Certain Relationships and
Related Transactions."
SUMMARY OF TERMS OF EXCHANGE NOTES
The Exchange Notes were issued in exchange for the 14 1/4% Notes of the
Issuers. The form and terms of the Exchange Notes are the same as the form and
terms of the 14 1/4 Notes (which they have replaced), except that the Exchange
Notes have been registered under the Act and, therefore, do not bear legends
restricting the transfer thereof. Holders of the 14 1/4 Notes formerly had
registration rights under a Registration Rights Agreement with the Issuers
dated as of June 9, 1995 (the "Registration Rights Agreement"). The
registration obligations of the Issuers under the Registration Rights Agreement
were satisfied when the exchange of the Exchange Notes for the formerly
outstanding 14 1/4% Notes (the "Exchange Offer") was consummated, so the
holders of the Exchange Notes do not have registration rights under the
Registration Rights Agreement. The Exchange Notes evidence the same debt as the
14 1/4 Notes and are entitled to the benefits of the Note Indenture. See
"Description of Exchange Notes."
<TABLE>
<S> <C>
SECURITIES OFFERED....................... $299,228,000 principal amount of 14
1/4% Senior Discount Notes due
December 15, 2005.
ISSUERS.................................. The Exchange Notes are the joint and
several obligations of MCC and
Capital III. Capital III is acting as
agent of MCC, has nominal assets,
does not conduct any operations and
will not provide additional security
for the Exchange Notes.
YIELD TO MATURITY........................ 14 1/4%, calculated on a semiannual
bond-equivalent basis from June 9,
1995.
INTEREST PAYMENT DATES................... The Exchange Notes were issued,
pursuant to the Exchange Offer, in
exchange for the 14 1/4% Notes (that
were issued at a discount from their
principal amount) and no cash
interest will accrue on the Exchange
Notes prior to June 15, 2000.
Thereafter, cash interest will accrue
and will be payable on each June 15
and December 15, commencing December
15, 2000. The Exchange Notes bear
original issue discount, and the
Holders of the Exchange Notes
(including cash basis holders) will
be required to include such original
issue discount in gross income for
Federal income tax purposes, as
interest, on a constant yield to
maturity basis in advance of the
receipt of cash payments of such
interest.
MATURITY DATE............................ December 15, 2005.
</TABLE>
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<PAGE> 12
<TABLE>
<S> <C>
OPTIONAL REDEMPTION...................... The Exchange Notes are redeemable, in
whole or in part, at the option of
the Issuers, at any time on or after
June 15, 2000, at the redemption
prices set forth elsewhere herein,
plus accrued interest to the
redemption date. Up to 25% of the
outstanding Exchange Notes are also
redeemable at the option of the
Issuers prior to June 15, 1998 from
the proceeds of certain registered
offerings of the Company, at 110% of
the Accreted Value (as defined
herein) thereof on the date of
redemption. See "Description of
Exchange Notes."
MANDATORY SINKING FUND................... None.
FORM AND DENOMINATION.................... The Exchange Notes are fully
registered as to principal and
interest in minimum denominations of
$1,000 and integral multiples
thereof. Exchange Notes will not be
issued in certificated, fully
registered form, except in the
circumstances provided for in the
Note Indenture. See "Description of
Exchange Notes - Form, Denomination
and Book-Entry Procedures."
CHANGE OF CONTROL........................ In the event of a Change of Control
(as defined herein), the Issuers are
required to offer to purchase the
outstanding Exchange Notes at a
redemption price of 101% of the
Accreted Value thereof on any
repurchase date prior to June 15,
2000, or 101% of the principal amount
thereof, plus accrued interest to,
any repurchase date on or after June
15, 2000. In the event of a Change of
Control (as defined in the Indenture
governing the 117/8% Senior
Debentures due October 1, 2005 (the
"117/8% Debentures")), MCC and Marcus
Cable Capital Corporation are
required to offer to purchase the
outstanding 117/8% Debentures at 101%
of the principal amount t of the
purchase. In the event of a Change in
Control (as defined in the Indenture
governing the 13 1/2% Senior
Subordinated Guaranteed Discount
Notes due August 1, 2004 (the "13
1/2% Notes")), Operating and Capital
II are required to offer to purchase
the outstanding 13 1/2% Notes at a
redemption price of 101% of the
Accreted Value (as defined therein)
thereof on any repurchase date prior
to August 1, 1999, or 101% of the
principal amount thereof, plus
accrued interest to, any repurchase
date on or after August 1, 1999. The
source of funds for such purchases
will be the Company's available cash
or cash generated from the operations
of the Operating Partnerships or
other sources, including borrowings,
sales of assets, sales of equity or
other funds provided by a new
controlling person. If a Change of
Control were to occur today, the
Company would not have sufficient
funds to purchase all of the
outstanding Exchange Notes , 11 7/8%
Debentures and 13 1/2% Notes were
they to be tendered in response to an
offer made as a result of Change of
Control. In addition, the Company's
Senior Credit Facility (the "Senior
Credit Facility") includes "change of
control" provisions that permit the
bank lenders thereunder to accelerate
the repayment by Operating of
indebtedness under the Senior Credit
Facility (which is effectively senior
in right of payment to the Exchange
Notes), as well as other provisions
that restrict the ability of the
Operating Partnerships to make
available to the Issuers funds
necessary to consummate an offer to
purchase outstanding Exchange Notes
in connection with a Change of
Control. See "Risk Factors --Purchase
of Exchange Notes Upon a Change of
Control," "--Dependence Upon
Distributions from Operating
Partnerships," "The Senior Credit
Facility" and "Description of
Exchange Notes."
CERTAIN COVENANTS........................ The Note Indenture contains covenants
that, among other things, limit the
ability of the Issuers and certain of
their subsidiaries to incur
indebtedness and issue preferred
equity, create liens, make certain
restricted payments, engage in
transactions with affiliates, merge
or consolidate with other entities
and sell assets or capital stock of
subsidiaries. See "Description of the
Exchange Notes -- Covenants."
</TABLE>
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<PAGE> 13
<TABLE>
<S> <C>
RANKING.................................. The Exchange Notes are unsecured
obligations of the Issuers and rank
pari passu with all unsubordinated
indebtedness of the Issuers and
senior in right of payment to all
existing and future subordinated
indebtedness of the Issuers. At
February 28, 1997, MCC had
outstanding $100,000,000 of 117/8%
Debentures which, together with MCC's
guarantees of the 13 1/2% Notes and
the Senior Credit Facility, rank pari
passu with the Exchange Notes. The
Issuers do not have any outstanding
indebtedness that ranks senior to the
Exchange Notes. However, the
operations of MCC are conducted
through Operating and the Operating
Partnerships and, therefore, MCC is
dependent on the earnings and cash
flow of, and distributions from,
Operating and the Operating
Partnerships to meet its debt
obligations, including MCC's
obligations with respect to the
Exchange Notes and the 117/8%
Debentures and its guarantees with
respect to the 13 1/2% Notes and the
Senior Credit Facility. Because the
assets of Operating and the Operating
Partnerships constitute substantially
all of the assets of MCC and because
Operating and the Operating
Partnerships will not guarantee the
payment of principal and interest on
the Exchange Notes, the claims of
holders of the Exchange Notes will be
effectively subordinated to the
claims of creditors of Operating and
the Operating Partnerships, including
the holders of 13 1/2% Notes and the
lenders under the Senior Credit
Facility. At February 28, 1997,
Operating had an aggregate of
approximately $830,000,000 and
$20,000,000 of outstanding debt under
the Senior Credit Facility and
through other lending institutions,
respectively, and approximately
$301,618,000 accreted value of 13
1/2% Notes. The Note Indenture
prohibits Operating and the Operating
Partnerships from placing limitations
on their ability to pay dividends or
make other payments to MCC or
Operating or any Affiliate (as
defined in the Indenture governing
the 13 1/2% Notes) thereof, subject
to certain exceptions. See "Risk
Factors - Dependence Upon
Distributions from Operating and
Operating Partnerships," "The Senior
Credit Facility" and "Description of
Exchange Notes."
</TABLE>
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<PAGE> 14
The Prospectus includes a chart which sets forth the following information
regarding the Corporate Structure of the Company and its affiliates.
Listed below are the names of certain subsidiaries, owned directly or
indirectly, comprising the Company's corporate structure at December 31, 1996.
Indented subsidiaries are direct subsidiaries of the company under which they
are indented.
<TABLE>
<CAPTION>
Percentage Percentage
Owned By Owned By
General Partner Limited Partner(s)
--------------- ------------------
<S> <C> <C>
Marcus Cable Properties, Inc.
Marcus Cable Properties, L.P. 66.2% 33.8%(4)
Marcus Cable Company, L.P. (Registrant): 14.3%(1) 85.7%(5)
Marcus Cable Capital Corporation 100.0% --
Marcus Cable Capital Corporation III 100.0% --
Marcus Cable Operating Company, L.P. 99.8% .2%(6)
Marcus Cable Capital Corporation II 100.0% --
Marcus Cable Associates, L.P. 99.8% .2%(7)
Marcus Cable Partners, L.P. 99.6% .4%(6)
Marcus Cable, Inc. 100.0% --
Marcus Cable of Alabama, Inc. (3) 100.0% --
Marcus Cable of Alabama, L.P. 99.0% 1%(3)
Marcus Cable of Delaware and Maryland, L.P. 99.9% .1%(6)
Marcus Fiberlink, L.L.C 99.0% 1%(2)
</TABLE>
- ---------------------
(1) Inclusive of interests owned by the General Partner and up to 31,517
Employee Units issued or issuable by MCC at the sole discretion of the
General Partner to the General Partner or key individuals providing
services to MCC or any of its subsidiaries. See "Management--
Incentive Performance Plans-- Employee Unit Plan." As of March 31,
1997, 27,787.2 Employee Units had been issued, none of which were
issued to the General Partner. Mr. Marcus is the record owner of
16,600 issued Employee Units and has been granted irrevocable proxies
to exercise all voting rights with respect to all other issued
Employee Units.
(2) Marcus Cable Partners, L.P. holds a 1% limited partner interest in
Marcus Fiberlink, L.L.C.
(3) Marcus Cable of Alabama, Inc. holds 1% general partner interest in
Marcus Cable of Alabama, L.P.
(4) Held by certain employees of Marcus Cable Operating Company, L.P.
(5) Held by Goldman Sachs and other investors.
(6) Held by Marcus Cable Properties, L.P.
(7) Held by Marcus Cable Company, L.P.
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<PAGE> 15
SUMMARY FINANCIAL AND OPERATING DATA
The summary financial data of the Company presented below are derived from
the audited historical consolidated financial statements of the Company.
Acquisitions of cable television systems during the periods for which the
summary data are presented below materially affect the comparability of such
data from one period to another. The data presented below should be read in
conjunction with the historical financial statements and the related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
FINANCIAL DATA AND RATIOS OF MARCUS CABLE COMPANY, L.P.
(IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Statement of Operations Data:
Revenues (1) ......................... $ 434,507 $ 198,294
Costs and expenses ................... 230,214 102,024
Depreciation and amortization ........ 166,429 83,723
Operating income .................... 37,864 12,547
Interest expense .................... 144,681 82,911
Net loss ............................ (100,070) (52,816)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ ------------------
<S> <C> <C>
Balance Sheet Data:
Total assets ............................ $ 1,687,550 $ 1,760,054
Total debt (including current maturities) 1,438,471 1,407,890
Subsidiary limited partner interests .... (246) (246)
Partners' capital ....................... 189,256 289,326
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1996 As of December 31, 1995
----------------------- -----------------------
<S> <C> <C>
Operating Data:
Homes passed(2) ................................ 1,863,299 1,833,401
Basic customers(3) ............................. 1,181,293 1,154,718
Basic penetration(4) ........................... 63.4% 63.0%
Premium units(5) ............................. 666,702 651,121
Premium penetration(6) ......................... 56.4% 56.4%
Average monthly revenue per basic customer(7) .. $ 30.83 $ 28.65
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
----- -----
<S> <C> <C>
Financial Ratios:
Total debt to EBITDA(8) .................. 7.04x 14.62x
EBITDA to total interest expense ........ 1.41 1.16
EBITDA to total cash interest expense ... 2.51 2.58
OTHER DATA:
EBITDA (9) ............................... $204,293 $ 96,270
Total cash interest expense ............. 81,403 37,354
EBITDA to revenue margin(10) ............. 47% 49%
</TABLE>
(1) The increase in revenues in 1996 resulted mainly from the CALP and
Sammons Acquisitions on August 31, 1995 and November 1, 1995,
respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Fiscal 1996 Compared to Fiscal
1995".
(2) Homes passed refers to estimates by the Company of the approximate number
of dwelling units in a particular community that can be connected to the
Company's cable television distribution system without any further
extension of principal transmission lines.
(3) A home with one or more television sets connected to a cable system is
counted as one basic customer. Bulk accounts are included on a "basic
customer equivalent" basis in which the total monthly bill for the account
is divided by the basic monthly charge for a single outlet in the area.
(4) Basic customers as a percentage of homes passed.
(5) Premium service units include single channel services offered for a
monthly fee per channel. A customer may purchase more than one premium
service, each of which is counted as a separate premium service unit.
(6) Premium service units as a percentage of basic customers. This ratio may
be greater than 100% if the average customer subscribes to more than one
premium service.
(7) Average monthly revenue per basic customer equals combined revenues of
systems owned or acquired during the respective period (exclusive of
management fees) for the 12-month periods ended December 31, 1996 and 1995
divided by the total number of weighted average basic customers of the
Company during the period ended December 31, 1996 and 1995.
(8) The decrease in total debt to EBITDA (as defined herein) in 1996 resulted
mainly from the earnings of the CALP and Sammons Systems being included in
EBITDA for the full year of 1996 and only for the four and two months of
1995, respectively, while debt levels remained consistent from 1995 to
1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Fiscal 1996 Compared to Fiscal 1995".
(9) Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")
is equal to operating loss plus depreciation and amortization. The Company
believes that EBITDA is a meaningful measure of performance because it is
commonly used in the cable television industry to analyze and compare
cable television companies on the basis of operating performance, leverage
and liquidity. In addition, the Indentures for the Exchange Notes, the
117/8% Debentures and the 13 1/2% Notes and the Senior Credit Facility
contain certain covenants measured by computations substantially similar
to those used in determining EBITDA. However, 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 cash flows as a measure of liquidity, as determined in accordance with
generally accepted accounting principles.
(10) Reduced EBITDA is a direct reflection of higher selling, service and
system management costs and the resulting lower operating margins of
certain systems acquired in 1995.
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<PAGE> 17
RISK FACTORS
Prospective Holders of the Exchange Notes should pay careful attention to
the following considerations, together with the information contained herein.
LEVERAGE/DEFICIENCY OF EARNINGS TO FIXED CHARGES
The Company is, and will continue to be, highly leveraged as a result of
the substantial indebtedness it has incurred, and may incur in the future, to
finance acquisitions and expand its operations. At February 28, 1997, the
Company's aggregate consolidated indebtedness was approximately $1,444,325,000.
In addition, the Company may incur other indebtedness to make additional
acquisitions in the future. The Company anticipates that, in light of the
amount of its existing indebtedness, it will continue to have substantial
leverage for the foreseeable future. Substantial leverage poses the risks that
(i) a significant portion of the Company's cash flow from operations must be
dedicated to servicing the Company's indebtedness; (ii) the Company may not be
able to generate sufficient cash flow to service the Exchange Notes, the 117/8%
Debentures, the 13 1/2% Notes and the debt incurred under the Senior Credit
Facility and to adequately fund the Company's planned capital expenditures and
operations; (iii) the Company could be more vulnerable to changes in general
economic conditions; (iv) the Company's ability to obtain additional financing
for working capital, capital expenditures, acquisitions, general corporate
purposes or other purposes may be impaired; (v) the Company's operating and
financial ability may be impaired by restrictions imposed by various debt
instruments on the payment of dividends and on operations; and (vi) because
certain of the Company's borrowings are and will continue to be at variable
rates of interest, higher interest expenses could result in the event of
increases in interest rates. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company's consolidated earnings were insufficient to cover its fixed
charges by approximately $100,070,000 for the year ended December 31, 1996.
Substantial amounts of depreciation and amortization expense and accretion
of non-cash interest expenses have contributed (and will continue to
contribute) to the net losses experienced by the Company. These expenses,
however, do not result in an outflow of cash on the Company's current statement
of operations. Management believes that EBITDA provides a more meaningful
measure of fixed cost coverage. EBITDA was approximately $204,293,000 for the
year ended December 31, 1996 and would have been sufficient to cover fixed
charges by approximately $59,612,000. Although there can be no assurances, the
Company expects that it will continue to generate funds and obtain financing
sufficient to meet its obligations for the next 12 months.
Periods of high interest rates could have an adverse effect on the Company
to the extent that increased borrowing costs for floating rate debt may not be
offset by increases in revenues. As of February 28, 1997, the Company had
$180,000,000 (or 16%) of outstanding borrowings subject to floating interest
rates. These rates are based on the London InterBank Offered Rate (" LIBOR") or
the prime rate plus applicable margins, based on certain financial ratios.
RISKS RELATING TO ACQUISITION STRATEGY
A significant element of the Company's growth strategy is to expand by
acquiring cable television systems located in reasonable proximity to existing
systems or of a sufficient size to enable the acquired system to serve as the
basis for a regional cluster. There can be no assurance that the Company will
be able to identify and acquire such systems or that it will be able to finance
significant acquisitions in the future. Furthermore, any acquisition may
initially have an adverse effect upon the Company's operating results while the
acquired systems are being assimilated into the Company's operations. In
addition, there can be no assurance that the Company will be able to establish,
maintain or increase profitability of any acquisition once it has been made.
See "Business -- Business Strategy."
LIQUIDITY AND CAPITAL RESOURCES
The Investors, as of February 28, 1997, have contributed approximately
$493,327,000 to MCC. As of February 28, 1997, the Company had an aggregate of
$1,444,325,000 in consolidated indebtedness outstanding and had an additional
$268,209,000 of borrowing capacity under the Senior Credit Facility's revolving
credit facility. The Company's cash generated from operating and financing
activities has been sufficient to meet the Company's debt service, working
capital and capital expenditure requirements. The Company believes that it will
continue to generate cash and obtain financing sufficient to meet such
requirements in the future. If the Company were unable to do so, however, it
would have to refinance its indebtedness or obtain new financing. Although in
the past the Company has been able to obtain financing through equity
investments, debt issuances and bank borrowings, there can be no assurance that
the Company will be able to do so in the future or that, if the Company were
able to do so, the terms available would be favorable to the Company.
DEPENDENCE UPON DISTRIBUTIONS FROM OPERATING PARTNERSHIPS
MCC is a holding company which has no significant assets other than its
investments in Operating. MCC, therefore, derives all of its operating income
and cash flow from Operating and the Operating Partnerships. Capital III, which
is wholly owned by MCC, is a corporation that was formed solely for the purpose
of serving as an issuer of certain debt of MCC, including the Exchange Notes.
Capital III has no operations or assets from which it will be able to repay the
Exchange Notes. Accordingly, MCC must rely entirely upon distributions from
Operating and the Operating Partnerships to generate the funds necessary to
meet its obligations, including the payment of principal and interest on the
Exchange Notes, the 11 7/8% Debentures and its guarantee of the 13 1/2% Notes
and the Senior Credit Facility. See "Management's Discussion and
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<PAGE> 18
Analysis of Financial Condition and Results of Operations," "The Senior
Credit Facility" and "Description of Exchange Notes."
EFFECTIVE SUBORDINATION OF EXCHANGE NOTES
The Exchange Notes are unsecured obligations of the Issuers that, while
ranking pari passu with all other senior debt of the Issuers, will be
effectively subordinated to any debt of Operating and the Operating
Partnerships. At February 28, 1997, Operating and its subsidiaries had an
aggregate of approximately $1,154,000,000 of outstanding debt. The Exchange
Notes are effectively subordinated to the 13 1/2% Notes, which will have an
outstanding principal amount of $413,461,000 at maturity, and the Exchange
Notes rank pari passu with the $100,000,000 of the 117/8% Debentures and with
MCC's guarantees of the 13 1/2% Notes and the Senior Credit Facility. The
borrowings under the Senior Credit Facility are secured by a pledge of the
partnership interests or common stock in the Operating Partnerships held by
Operating and are guaranteed by MCC on an unsecured basis. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations," "The
Senior Credit Facility" and "Description of Exchange Notes."
PURCHASE OF EXCHANGE NOTES UPON A CHANGE OF CONTROL
In the event of a Change of Control (as defined in the Note Indenture),
the Issuers are required to offer to purchase the outstanding Exchange Notes at
101% of the Accreted Value (as defined in the Note Indenture) thereof on any
repurchase date prior to June 15, 2000 or 101% of the principal amount thereof,
plus accrued interest at any repurchase date on or after June 15, 2000. In the
event of a Change of Control (as defined in the Indenture governing the 117/8%
Debentures), MCC and Capital are required to offer to purchase the outstanding
117/8% Debentures at 101% of the principal amount thereof, plus accrued
interest to the date of purchase. In the event of a Change of Control (as
defined in the Indenture governing the 13 1/2% Notes), Operating and Capital II
are required to offer to purchase the outstanding 13 1/2% Notes at a redemption
price of 101% of the Accreted Value (as defined in the Indenture governing the
13 1/2% Notes) thereof on any repurchase date prior to August 1, 1999 or 101%
of the principal amount thereof, plus interest accrued to any repurchase date
on or after August 1, 1999. The source of funds for any such purchases will be
the Company's available cash or cash generated from the operations of the
Operating Partnerships or other sources, including borrowings, sales of assets,
sales of equity or funds provided by a new controlling person. If a Change of
Control were to occur today, the Company would not have sufficient funds to
purchase all of the outstanding Exchange Notes, 117/8% Debentures and 13 1/2%
Notes were they to be tendered in response to an offer made as a result of a
Change of Control. In addition, the Senior Credit Facility includes "change of
control" provisions that permit the lenders thereunder to accelerate the
repayment by Operating of indebtedness thereunder, as well as other provisions
that will restrict the ability of the Operating Partnerships to make available
to the Issuers funds necessary to consummate an offer to purchase outstanding
Exchange Notes in connection with a Change of Control. The Senior Credit
Facility is effectively senior in right of payment to the Exchange Notes. See
"The Senior Credit Facility" and "Description of Exchange Notes."
NONRECOURSE NATURE OF EXCHANGE NOTES AS TO THE GENERAL PARTNER, MCPI AND OTHERS
The Exchange Notes have been issued solely by the Issuers. None of the
General Partner, MCPI, the Investors or any of their respective directors,
officers, partners, stockholders, employees or affiliates will be an obligor
under the Exchange Notes, and the Note Indenture governing the Exchange Notes
expressly provides that the General Partner, MCPI and the Investors, together
with their respective directors, officers, partners, stockholders and
employees, shall not have any liability for any obligations of the Issuers
under the Exchange Notes or such Note Indenture or any claim based on, in
respect of or by reason of, such obligations, and that by accepting the
Exchange Notes, each holder of Exchange Notes waives and releases all such
liability, which waiver and release are part of the consideration for issuance
of the Exchange Notes. There is no assurance and there should be no expectation
that the General Partner, MCPI or the Investors will, in the future, fund the
operations or deficits of the Issuers. See "Description of the Exchange
Notes--Release From Liability."
LEGISLATION AND REGULATION IN THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation at the
federal, state and local levels. The Cable Communications Policy Act of 1984
(the "1984 Cable Act"), the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act" and, with the 1984 Cable Act, the
"Cable Acts") and the Telecommunications Act of 1996 (the "1996 Telecom Act"),
which together amend the Communications Act of 1934 (the "Communications Act"),
establish a national policy to guide the development and regulation of cable
television systems. Principal responsibility for implementing the policies of
the Cable Acts and the 1996 Telecom Act is allocated between the Federal
Communications Commission ("FCC") and state or local franchising authorities.
The FCC and state regulatory agencies are required to conduct numerous
rulemaking and regulatory proceedings to implement the 1996 Telecom Act and
such proceedings may affect the cable television industry.
Cable Acts, 1996 Telecom Act and FCC Regulation. The Cable Acts, the 1996
Telecom Act and existing FCC rules establish, among other things, (i) rate
regulations, (ii) "anti-buy through" provisions, (iii) "must carry" and
"retransmission" consent requirements, (iv) rules for franchise renewals and
transfer, and (v) other regulations covering a variety of operational areas.
See "Business -- Legislation and Regulation in the Cable Television Industry."
Telephone Company Ownership of Cable Television Systems. The 1984 Cable
Act, FCC regulations and the 1982 federal court consent decree that settled the
AT&T antitrust suit regulated the provision of video programming and other
information services by telephone companies. The statutory provision and
corresponding FCC regulations are of particular importance because telephone
companies already own much of the plant necessary for cable communications
operations.
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<PAGE> 19
The 1996 Telecom Act eliminates current legal barriers to competition in
the local telephone and cable communications businesses, preempts legal
barriers to competition that previously existed in state and local laws and
regulations and sets basic standards for relationships between
telecommunications providers. The FCC, and, in some cases, states are required
to conduct numerous proceedings to implement the 1996 Telecom Act. The ultimate
outcome of these rulemakings, and the ultimate impact of the 1996 Telecom Act
cannot be determined at this time.
Rate Regulation. The Cable Acts and FCC regulations have imposed rate
requirements for basic services and equipment. Under the 1992 Cable Act, a
local franchising authority in a community not subject to "effective
competition" (as defined in the 1992 Cable Act) generally is authorized to
regulate basic cable service rates after certifying to the FCC that, among
other things, it will adopt and administer rate regulations consistent with FCC
rules, and in a manner that will provide a reasonable opportunity to consider
the views of interested parties. In regulating the basic service rates,
certified local franchise authorities have the authority to order a rate refund
of previously paid rates determined to be in excess of the permitted reasonable
rates. During the year ended December 31, 1994, the Company paid total
cumulative rate refunds of approximately $944,000 for 1993 and 1994 to its
cable customers as a result of rate orders issued by certain franchise
authorities within certain cable systems which have subsequently been sold.
During 1995, a total of $25,000 was paid for rate refunds. Additionally, there
are rate complaints pending at the FCC concerning certain of the Company's
cable programming service tiers that have not yet been resolved by the FCC. If
the FCC determines that the Company's cable programming service tier rates are
unreasonable, it has the authority to order the Company to reduce cable
programming service tier rates and to refund to customers any overcharges
occurring from the filing date of the rate complaint at the FCC. While the
Company believes that it has materially complied with the rate provisions of
the 1992 Cable Act, in jurisdictions that have not yet chosen to certify,
refunds covering a one-year period on basic service may be ordered upon future
certification if the Company is unable to justify its rates. The Company is
unable to estimate at this time the amount of refunds that may be payable by
the Company in the event the Systems' rates are successfully challenged by
franchising authorities or found to be unreasonable by the FCC. The 1996
Telecom Act deregulates rates for cable programming service tiers in 1999 for
large multiple system operators (including the Company) and immediately for
certain small cable operators.
"Anti-Buy Through" Provisions. The 1992 Cable Act and corresponding FCC
regulations have established requirements for customers to be able to purchase
video programming on a per channel or per program basis without having to
subscribe to any tier of service (other than the basic tier), subject to
available technology. Most of the Company's cable television systems do not
have the technological capability to offer programming in the manner required
by the 1992 Cable Act and currently are exempt from complying with the
requirement. The Company cannot predict the extent to which this provision of
the 1992 Cable Act and the corresponding FCC rules may cause customers to
discontinue optional nonbasic service tiers in favor of the less expensive
basic cable service.
"Must Carry" Requirements/"Retransmission" Consents. Cable television
operations are subject to mandatory broadcast signal carriage requirements that
allow local commercial and non-commercial television broadcast stations to
elect to require a cable system to carry the station, subject to certain
exceptions, or, in the case of commercial stations, to negotiate for
"retransmission consent" to carry the station. In addition, there are
requirements for cable systems to obtain retransmission consent for all
"distant" commercial television stations (except for
commercial/satellite-delivered independent "superstations" such as WTBS),
commercial radio stations and certain low power television stations carried by
such systems after October 6, 1993. As a result of the mandatory carriage
rules, some of the Company's systems have been required to carry television
broadcast stations that otherwise would not have been carried, thereby causing
displacement of possibly more attractive programming. The retransmission
consent rules have resulted in the deletion of certain local and distant
television broadcast stations which various systems were carrying. To the
extent retransmission consent fees must be paid for the continued carriage of
certain television stations, the Company's cost of doing business will increase
with no assurance that such fees can be recovered through rate increases.
Franchise Matters. The 1984 Cable Act contains franchise renewal
procedures designed to protect against arbitrary denials of renewal. The 1992
Cable Act made several changes to the renewal process that could make it easier
for a franchising authority to deny renewal. Moreover, even if a franchise is
renewed, a franchising authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees. If a franchising authority's consent is required for
the purchase or sale of a cable television system, the franchising authority
may also seek to impose new and more onerous requirements as a condition to the
transfer. Historically, franchises have been renewed for cable operators that
have provided satisfactory services and have complied with the terms of their
franchises. Although the Company believes that it has generally met the terms
of its franchises and has provided quality levels of service, and anticipates
that its future franchise renewal prospects generally will be favorable, there
can be no assurance that this will be the case.
Other FCC Regulations. The Company is subject to a variety of other FCC
rules, covering such diverse areas as equal employment opportunity,
programming, maintenance of records and public inspection files, technical
standards, customer service and competition. The FCC has authority to enforce
its regulations through the imposition of substantial 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 certain
transmission facilities often used in connection with cable operations.
Although the Company believes it is in material compliance with all applicable
FCC requirements, there can be no assurance that the FCC would not find a
violation and impose sanctions that could affect the Company's operations.
-15-
<PAGE> 20
Copyright. Cable television systems are subject to federal copyright
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool, cable operators can obtain
blanket permission to retransmit broadcast signals. The nature and amount of
future copyright payments for broadcast signal carriage cannot be predicted at
this time. The possible simplification, modification or elimination of the
compulsory copyright license is the subject of continuing legislative review.
The elimination or substantial modification of the cable compulsory license
could adversely affect the Company's ability to obtain suitable programming and
could substantially increase the cost of programming that remained available
for distribution to the Company's customers. The Company cannot predict the
outcome of this legislative activity or the effect of such activity on the
Company's business. See "Business-- Legislation and Regulation in the Cable
Television Industry".
State and Local Regulation. Cable television systems generally are
operated pursuant to nonexclusive franchises, permits or licenses granted by a
municipality or other state or local government entity. Franchises generally
are granted for fixed terms and in many cases are terminable if the franchisee
fails to comply with material provisions. 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 governmental agencies, some of which impose regulation of a character
similar to that of a public utility. In the event that a state government
agency certifies and regulates basic rates, the agency must adopt and
administer regulations with respect to the rates for the basic service tier
that are consistent with the regulations prescribed by the FCC under the 1992
Cable Act. Because the state governmental agencies are required to follow FCC
rules when prescribing rate regulation, the state regulation is no more
restrictive than the federal. Attempts in other states to regulate cable
television systems are continuing and can be expected to increase. To date,
Delaware and Connecticut are the only states in which the Company currently
operates which have enacted such state level regulation. The Company cannot
predict whether any of the states in which it now operates will engage in such
regulation in the future. State and local franchising jurisdiction is not
unlimited, however, and must be exercised consistently with federal law. The
1992 Cable Act immunizes franchising authorities from monetary damage awards
arising from regulation of cable television systems or decisions made on
franchise grants, renewals, transfers and amendments. See "Business--
Legislation and Regulation in the Cable Television Industry."
COMPETITION IN THE CABLE TELEVISION BUSINESS
Cable television systems face competition from alternative methods of
receiving and distributing television signals and from other sources of news,
information and entertainment such as off-air television broadcast programming,
newspapers, movie theaters, live sporting events, interactive computer programs
and home video products, including videotape cassette recorders. Within the
home video programming market, the Company competes with other cable franchise
holders and with satellite and wireless cable providers. In addition, the 1996
Telecom Act and recent FCC and judicial decisions enable local telephone
companies to provide a wide variety of video services competitive with services
provided by cable systems and to provide cable services directly to customers.
The Company cannot predict the extent to which competition will materialize
from other cable television operators, other distribution systems for
delivering video programming to the home or other potential competitors, or, if
such competition materializes, the extent of its effect on the Company. See
"Business -- Competition" and "-- Legislation and Regulation in the Cable
Television Industry."
Other new technologies may become competitive with non-entertainment
services that cable television systems can offer. 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 effect that ongoing or future developments might have on the cable
industry.
POTENTIAL CONFLICTS OF INTEREST
Goldman Sachs is subject to potential conflicts of interest arising out of
investments by certain of its affiliates in MCC and certain other cable
entities and its provision of investment banking services for the Company.
Currently, the Investors that are affiliates of Goldman Sachs collectively own
approximately 36% of the partnership interests in MCC on a fully diluted basis.
There have been no significant transactions, new relationships or
indebtedness between the Company and related parties during 1996.
Transaction Fees
Transaction fees for services relating to the planning and negotiation of
acquisitions have been paid by the Company upon the closing of certain
transactions. In January 1995, MCPI received a transaction fee of $1,250,000 in
connection with the Crown Acquisition. In November 1995, MCPI received a
transaction fee of $4,000,000 in connection with the Sammons Acquisition.
In addition, certain equity investors received equity commitment and
merger advisory fees, respectively, in connection with the closing of the
Sammons Acquisitions as follows: Goldman Sachs, $1,251,000 and $4,804,000;
Freeman Spogli & Co., Incorporated, $1,788,000 and $2,189,000; Greenwich Street
Capital Partners, Inc., $650,000 and $1,049,000; First Union Corporation,
$488,000 (merger advisory fee only); Weiss, Peck & Greer, $211,000 and
$508,000; and State of Wisconsin Investment Board, $325,000 (equity commitment
fee only). In addition, Hicks Muse, Tate & Furst, Incorporated will receive
financial monitoring fees totaling $4,998,000 (payable in six annual
installments commencing with the closure of the Sammons Acquisition) and has
received a merger advisory fee of $5,000,000.
-16-
<PAGE> 21
Senior Credit Facility
Goldman Sachs and Goldman Sachs Credit Partners, L.P., formerly Pearl
Street, L.P., ("GS Credit Partners") an affiliate of Goldman Sachs , are part
of the lending syndicate under the Senior Credit Facility and made an initial
aggregate commitment of $183,333,333. In connection with this financing,
Goldman Sachs and GS Credit Partners received fees of approximately $3,300,000.
CALP
At the time of the CALP Acquisition, all of the outstanding CALP ordinary
limited partnership interests which were owned by affiliates of Goldman Sachs
were exchanged for Convertible Preference Units in MCC having a distribution
preference of $15,000,000. In addition, Special Limited Partnership Units
(including those owned by Mr. Marcus and affiliates of Goldman Sachs) were
redeemed and retired in connection with the CALP Acquisition. Mr. Marcus and
affiliates of Goldman Sachs received $2,100,000 and $7,800,000, respectively,
in respect of their Special Limited Partnership Units.
Investment Banking Agreement
MCC, MCPI, Mr. Marcus and Goldman Sachs have entered into an agreement
pursuant to which the parties have agreed that, for so long as Goldman Sachs
holds at least 30% of the total outstanding partnership interests of MCC, no
person or entity other than Goldman Sachs or its affiliates are to provide
investment banking, financial advisory, or underwriting or placement agent
services on behalf of the Company. Goldman Sachs received discounts and fees
aggregating $7,332,000 in connection with the offering of the Exchange Notes.
MCC Partnership Agreement
Although the MCC Partnership Agreement (as defined under the "The MCC
Partnership Agreement") contains conflict of interest provisions, there are
circumstances where the General Partner and its affiliates may directly or
indirectly participate in business opportunities (i.e., investment
opportunities within the partnership purpose of MCC involving acquisitions of
cable television franchises with fewer than 175,000 customers in the aggregate)
that the Company elects not to pursue. In those circumstances, neither the
Company nor, through it, the holders of the Exchange Notes will be entitled to
any of the benefits derived therefrom.
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
There can be no assurance regarding the future development of a market for
the Exchange Notes or the ability of the holders of the Exchange Notes to sell
their Exchange Notes or the price at which such holders may be able to sell
their Exchange Notes. Goldman Sachs currently makes a market in the Exchange
Notes. However, Goldman Sachs is not obligated to do so, and any such market
making may be discontinued at any time without notice (at the sole discretion
of Goldman Sachs.) Therefore, no assurance can be given as to the liquidity of
or whether, at any given time, there will be an active trading market for the
Exchange Notes. The Issuers have not applied, and do not intend to apply, for
listing of the Exchange Notes on any securities exchange. See "Plan of
Distribution".
Goldman Sachs may be deemed to be an affiliate of the Issuers and, as
such, may be required to deliver a prospectus in connection with its
market-making activities in the Exchange Notes. Pursuant to the Exchange and
Registration Rights Agreement, dated June 9, 1995, among MCC, Capital III and
Goldman Sachs, the Issuers agreed to file and maintain a registration statement
that would allow Goldman Sachs to engage in market-making transactions in the
Exchange Notes. The registration statement will remain effective for as long as
Goldman Sachs may be required to deliver a prospectus in connection with
secondary transactions in the Exchange Notes. The Issuers have agreed to bear
substantially all the costs and expenses related to such registration
statement.
-17-
<PAGE> 22
RECENT TRANSACTIONS
ACQUISITIONS
Harron Acquisition. On March 4, 1997, the Company entered into the Harron
Acquisition. The communities served by this system are located in and around
the Company's operations in Texas. The Harron Acquisition is subject to certain
closing conditions and is expected to close in the second quarter of 1997.
Frankfort Acquisition. On July 31, 1996, the Company purchased the
Frankfort System from Frankfort Cable Communications, Inc. for an aggregate
purchase price of approximately $6,700,000. The Frankfort System provides
service to customers in and around Frankfort, Indiana, located near the
Company's other operations in Indiana. As of the date of the acquisition, the
former Frankfort System served approximately 5,600 basic customers. The
purchase price for the Frankfort Acquisition represented, as of the date of the
acquisition, a price of approximately $1,200 per basic customer.
Futurevision Acquisition. On July 8, 1996, the Company acquired the
Futurevision System from Futurevision Cable Systems of Brookhaven for an
aggregate purchase price of approximately $2,600,000. The communities served by
the Futurevision System are located in and around the Company's operations in
Mississippi. As of the date of the acquisition, the former Futurevision System
served approximately 2,500 basic customers. The purchase price for the
Futurevision Acquisition represented, as of the date of the acquisition, a
price of approximately $1,040 per basic customer.
Weatherford Acquisition. On January 11, 1996, the Company purchased the
Weatherford System from C & R Cable Investments Corporation for an aggregate
purchase price of approximately $875,000. The Weatherford System provides
service to customers contiguous to the Company's existing systems in
Weatherford, Texas. As of the date of the acquisition, the former Weatherford
System served approximately 700 basic customers. The purchase price for the
Weatherford Acquisition represented, as of the date of the acquisition, a price
of approximately $1,250 per basic customer.
Sammons Acquisition. On November 1, 1995, the Company acquired the Sammons
Systems previously owned by Sammons Communications, Inc. and certain of its
subsidiaries operating in 15 states for approximately $961,701,000 plus direct
acquisition costs of $31,187,000, and assumed liabilities of $4,524,000. As of
the date of the acquisition, the Sammons Systems passed 1,038,609 homes and
served 664,796 basic customers who subscribed for 345,353 premium service
units. The purchase price for the former Sammons Acquisition represented, as of
the date of acquisition, a price of approximately $1,453 per basic customer.
The basic customers of the Sammons Systems were clustered as follows as of the
date of the acquisition:
<TABLE>
<CAPTION>
Basic
Customers
---------
<S> <C>
Dallas/Ft. Worth ....................... 150,003
Indiana/Illinois ....................... 132,490
California ............................. 123,978
Tennessee/Kentucky/North Carolina ...... 93,069
Connecticut ............................ 44,876
Mississippi ............................ 42,800
Other .................................. 77,580
-------
664,796
=======
</TABLE>
See "Recent Transactions -- Sammons Acquisition."
CALP Acquisition. The Company acquired the general partnership interest
and certain of the ordinary limited partnership interests in CALP in September
1994 and January 1995, respectively. On August 31, 1995, the Company acquired
all remaining ordinary limited partnership interests in CALP owned by
affiliates of Goldman Sachs in exchange for Convertible Preference Units of MCC
with a $15,000,000 distribution preference, and caused the redemption and
retirement for cash of the outstanding Special Limited Partnership Units in
CALP (16.3% of which were owned by Mr. Marcus and affiliates of Goldman Sachs)
and the repayment of the outstanding bank debt of CALP for an aggregate
consideration of approximately $138,280,000. On such date, CALP was renamed
MCALP . MCALP owns and operates the Alabama Systems in areas surrounding
Birmingham, Alabama. As of the date of the acquisition, the Alabama Systems
passed 122,301 homes and served 84,955 basic customers who subscribed for
37,726 premium service units. The purchase price for the CALP Acquisition
represented, as of the date of the acquisition, a price of approximately $1,816
per basic customer.
Crown Acquisition. Effective January 1, 1995, the Company completed the
acquisition from Crown of the Crown Systems in Wisconsin and Minnesota for an
aggregate purchase price of $331,717,000 in cash. The communities served by the
Crown Systems are adjacent to the Company's original operations in Wisconsin,
and those acquired in the Star Acquisition. At the date of the acquisition, the
former Crown Systems passed 294,032 homes and served 193,325 basic customers
who subscribed for 100,218 premium service units. The purchase price for the
Crown Systems represented, as of the date of acquisition, a price of $1,716 per
basic customer. Since acquisition, the former Crown Systems and Star Systems
have been combined.
-18-
<PAGE> 23
Star Acquisition. On July 29, 1994, the Company purchased from Star the
Star Systems located in Wisconsin and Minnesota for an aggregate purchase price
of $139,232,000. The communities served by the Star Systems are adjacent to the
Company's original operations in Wisconsin. At the date of the acquisition, the
former Star Systems passed 109,507 homes and served 70,794 basic customers who
subscribed for 48,703 premium service units. The purchase price for the Star
Systems represented, as of the date of the acquisition, a price of $1,966 per
basic customer.
DIVESTITURES
Maryland Cable Systems. Effective January 31, 1997, the Maryland Cable
Systems were sold to Jones Communications of Maryland, Inc. Under the Maryland
Cable Agreement, Operating was entitled to an incentive management fee if the
Maryland Cable Systems sold above certain threshold amounts. In conjunction
with the sale, Operating recognized an incentive management fee of $4,083,000
in January 1997. Additional incentive management fees may be recognized upon
finalization of the purchase price adjustment, anticipated to occur during the
second quarter of 1997 and upon dissolution of Maryland Cable, anticipated to
occur during the first quarter of 1998. There is no assurance that any of such
fees will be realized. Although Operating is no longer involved in the active
management of those cable television systems, Operating has entered into an
agreement with Maryland Cable to oversee the activities, if any, of Maryland
Cable through the liquidation of the partnership. Pursuant to such agreement,
Operating will earn a monthly fee ranging from $25,000 to $50,000.
Moses Lake Disposition. On October 11, 1996, the Company completed the
sale of the Moses Lake System serving approximately 12,700 customers in the
state of Washington for a sales price of approximately $21,000,000, less
selling costs of $320,000. As of the date of sale, the Moses Lake System passed
approximately 15,200 homes and served approximately 12,800 basic customers who
subscribed for approximately 5,300 premium service units. The gross sales price
of the Moses Lake System represented, as of the date of sale, a price of
approximately $1,646 per basic customer. The sales price resulted in a gain on
the sale of approximately $6,442,000.
San Angelo Divestiture. On June 30, 1995, the Company sold the assets of
the San Angelo Systems to Teleservice Corporation of America for approximately
$65,037,000 in cash (net of selling costs of $809,000). As of the date of sale,
the San Angelo Systems passed 45,838 homes and served 32,515 basic customers
who subscribed for 21,528 premium service units. The gross sales price of the
San Angelo Systems represented, as of the date of sale, a price of
approximately $2,025 per basic customer. The sales price resulted in a gain on
the sale of approximately $26,409,000.
THE COMPANY
At December 31, 1996, the Company owned or managed cable television
systems in 18 states, serving 1,267,520 basic customers . Since its formation
in 1990, the Company has grown internally and through acquisitions, and is now
the ninth largest cable television operator in the United States. The Company's
basic customers were clustered as follows as of December 31, 1996.
<TABLE>
<CAPTION>
Basic
Customers
---------
<S> <C>
North Central Region (MN, WI) .................... 385,303
Southeast Region (AL, GA, NC, TN, KY, LA, MS) .... 252,466
Southwest Region (TX, OK) ........................ 187,761
East Region (DE, MD, VA, CT) ................... 175,140(1)
Midwest Region (IN, IL) .......................... 139,138
West Region (CA) ................................. 127,712
---------
Total ............................................ 1,267,520
=========
</TABLE>
- ----------------
(1) Includes 86,227 basic customers in a cable television system managed
by the Company. Such systems were sold on January 31, 1997. See "Recent
Transactions -- Divestitures -- Maryland Cable Systems".
As of December 31, 1996, the Systems passed 1,863,299 homes and served
1,181,293 basic customers who subscribed for 666,702 premium units. The
President and Chief Executive Officer of MCC is Jeffrey A. Marcus. Mr. Marcus
has successfully acquired, developed and managed cable television systems since
1979.
MCC was organized as a Delaware limited partnership in 1990. Capital III
was organized as a Delaware corporation in 1995 for the purpose of serving as a
co-issuer of MCC's debt securities, including the Exchange Notes, and is wholly
owned by MCC. Capital III has nominal assets. In serving as a co-issuer of the
Exchange Notes, Capital III is acting as an agent of MCC. The principal offices
of the Issuers are located at 2911 Turtle Creek Boulevard, Suite 1300, Dallas,
Texas 75219, and their telephone number is (214) 521-7898.
-19-
<PAGE> 24
USE OF PROCEEDS
The Prospectus is delivered in connection with the sale of the Exchange
Notes by Goldman Sachs in market-making transactions. The Issuers will not
receive any of the proceeds from such transactions.
The net proceeds received by MCC from the offering of the 14 1/4% Notes
(the "Note Offering") were approximately $143,000,000 and were used by MCC,
together with cash on hand, to repay approximately $150,000,000 of indebtedness,
including accrual interest at a rate of 9.02%, under the prior credit agreement.
Such proceeds, together with the equity investments, proceeds from the sale of
the assets of the San Angelo Systems (the "San Angelo Divestiture"), issuance of
Convertible Preference Units and borrowings under the Senior Credit Facility,
collectively were used in connection with the Sammons Acquisition, CALP
Acquisition, San Angelo Divestiture and the Senior Credit Facility. See "Recent
Transactions," "Certain Relationships and Related Transactions" and "The Senior
Credit Facility."
The following table sets forth, as of March 31, 1995, the uses of the
funds received by the Company from the Note Offering and the other transactions
described herein, together with other cash on hand.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
SOURCES OF FUNDS:
14 1/4% Senior Discount Notes due December 15, 2005 ................... $ 150,003
Borrowings under MCC's previous credit facility ....................... 925,997
Additional Equity Investments ......................................... 250,000
Issuance of Convertible Preference Units .............................. 15,000
Proceeds from San Angelo Divestiture .................................. 65,500
----------
Total sources of funds ............................................. $1,406,500
==========
USES OF FUNDS:
CALP Acquisition(1) ................................................... $ 151,000
Sammons Acquisition ................................................... 962,500
Repayment of borrowings under MCC's previous credit facility .......... 230,950
Bank fees and other expenses .......................................... 54,000
Discounts, fees and expenses related to Note Offering and excess cash . 8,050
----------
Total uses of funds ................................................ $1,406,500
==========
</TABLE>
- ----------
(1) Amount includes the redemption of Special Limited Partnership Units in
CALP for approximately $64,000,000 in cash, the exchange of the
remaining ordinary limited partnership interests in CALP held by
affiliates of Goldman Sachs for $15,000,000 of Convertible Preference
Units in MCC and retirement of indebtedness under the CALP credit
facility of approximately $72,000,000.
-20-
<PAGE> 25
CAPITALIZATION
The following table sets forth the Company's consolidated
capitalization at December 31, 1996:
<TABLE>
<CAPTION>
Capitalization
(in thousands)
--------------
<S> <C>
Long-term debt, including current maturities(1):
Senior Credit Facility(2) ........................................ $ 855,000,000
13 1/2% Senior Subordinated Guaranteed Discount Notes due 2004(3) . 295,119,000
11 7/8% Senior Debentures due 2005(4) ............................. 100,000,000
14 1/4% Senior Discount Notes due 2005(4) ......................... 185,862,000
Capital lease obligations and other notes ........................ 2,490,000
--------------
Total long-term debt, including current
maturities ........................................................ 1,438,471,000
Partners' capital ....................................................... 189,256,000
--------------
Total capitalization .............................................. $1,627,727,000
==============
</TABLE>
- -----------
(1) Includes current maturities of $569,000 relating to capital lease
obligations and other notes. See "The Senior Credit Facility" and Note
6 to MCC and Subsidiaries' Consolidated Financial Statements for a
description of the Company's debt.
(2) The Senior Credit Facility is an obligation of Operating that is
guaranteed by MCC.
(3) The 13 1/2% Notes are obligations of Operating that are guaranteed by
MCC.
(4) The 11 7/8% Debentures and the Exchange Notes are obligations of MCC.
MCC has contributed funds provided by the issuance of the 11 7/8%
Debentures and the Exchange Notes to Operating in exchange for
preference partnership interests and Operating, in turn, has
distributed such funds to the Operating Partnerships in exchange for
intercompany notes.
-21-
<PAGE> 26
SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the
audited historical consolidated financial statements of the Company. The
Company's acquisitions of cable television systems during the periods for which
the selected data are presented below materially affect the comparability of
such data from one period to another. The data presented below should be read
in conjunction with the historical financial statements and the related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
FINANCIAL DATA AND RATIOS OF MARCUS CABLE COMPANY, L.P.
(IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues(1) ........................................ $ 434,507 $ 198,294 $ 64,747 $ 52,307 $ 38,310
Costs and expenses ................................. 230,214 102,024 31,453 21,849 16,104
Management fees and expenses(2) ................... -- -- 2,165 3,617 2,224
Depreciation and amortization ...................... 166,429 83,723 37,412 28,633 26,652
Operating income (loss) ............................ 37,864 12,547 (6,283) (1,792) (6,670)
Interest expense ................................... 144,681 82,911 28,105 13,443 11,114
Net loss ........................................... (100,070) (52,816) (30,610) (9,643) (21,323)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets ....................................... $ 1,687,550 $ 1,760,054 $ 315,217 $ 195,148 $ 206,641
Total debt (including current maturities) .......... 1,438,471 1,407,890 327,264 195,000 162,500
Subsidiary limited partner interests ............... (246) (246) (246) 5,788 34,608
Partners' capital (deficit) ........................ 189,256 289,326 (21,290) (11,670) 4,991
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Homes passed(3) ................................... 1,863,299 1,833,401 322,842 209,549 209,979
Basic customers(4) ................................ 1,181,293 1,154,718 222,735 141,323 138,274
Basic penetration(5) .............................. 63.4% 63.0% 69.0% 67.4% 65.8%
Premium units(6) .................................. 666,702 651,121 156,656 97,944 81,257
Premium penetration(7) ............................ 56.4% 56.4% 70.3% 69.3% 58.8%
Average monthly revenue per basic customer(8) ...... $ 30.83 $ 28.65 $ 29.30 $ 30.84 $ 28.84
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
FINANCIAL RATIOS:
Total debt to EBITDA ............................... 7.04x 14.62x 10.51x 7.27x 8.13x
EBITDA to total interest expense ................... 1.41 1.16 1.11 2.00 1.80
EBITDA to total cash interest expense .............. 2.51 2.58 2.02 1.91 1.92
OTHER DATA:
EBITDA(9) ......................................... $ 204,293 $ 96,270 $ 31,129 $ 26,841 $ 19,982
Total cash interest expense ........................ 81,403 37,354 15,438 14,046 10,409
EBITDA to revenue margin ........................... 47% 49% 48% 51% 52%
Deficiency of earnings available to cover fixed
charges (10) ....................................... $ (100,070) $ (52,816) $ (30,610) $ (9,643) $ (21,323)
</TABLE>
(1) All statement of operations data reflect the following acquisitions
and divestitures by the Company from the date of acquisition or sale:
(i) the May 1, 1992 acquisition of the San Angelo Systems; (ii) the
October 1, 1992 acquisition of certain systems located in Delaware and
Maryland ("the Delaware/Maryland Systems"); (iii) the July 29, 1994
acquisition of the Star Systems, (iv) the acquisition of the Crown
Systems effective January 1, 1995, (v) the June 30, 1995 divestiture
of the San Angelo Systems, (vi) the August 31, 1995 acquisition of the
CALP Systems, (vii) the November 1, 1995 acquisition of the Sammons
Systems, (viii) the January 11, 1996 acquisition of the Weatherford
System, (ix) the July 8, 1996 acquisition of the Futurevision System,
(x) the July 31, 1996 acquisition of the Frankfort System and (xi) the
October 11, 1996 divestiture of the Moses Lake System.
-22-
<PAGE> 27
(2) Each of the Operating Partnerships formerly entered into management
agreements, pursuant to which each Operating Partnership paid Marcus
Cable Management, Inc., a specified percentage of the revenues from
the systems owned and operated by such Operating Partnership, plus
certain reimbursable expenses. These agreements terminated July 29,
1994, in connection with the acquisition and financing of the Star
Systems.
(3) Homes passed refers to estimates by the Company of the approximate
number of dwelling units in a particular community that can be
connected to the Company's cable television distribution system
without any further extension of principal transmission lines.
(4) A home with one or more television sets connected to a cable system is
counted as one basic customer. Bulk accounts are included on a "basic
customer equivalent" basis in which the total monthly bill for the
account is divided by the basic monthly charge for a single outlet in
the area.
(5) Basic customers as a percentage of homes passed.
(6) Premium service units include single channel services offered for a
monthly fee per channel. A customer may purchase more than one premium
service, each of which is counted as a separate premium service unit.
(7) Premium service units as a percentage of basic customers. This ratio
may be greater than 100% if the average customer subscribes to more
than one premium service.
(8) Average monthly revenue per basic customer equals combined revenues of
systems owned or acquired during the respective 12-month period
(exclusive of management fees) divided by the total number of basic
customers of the Company at the end of such respective period. The
weighted average number of basic customers of the Company during the
period ended December 31, 1992, 1994, 1995 and 1996 was used in place
of basic customers at the end of the respective periods to give effect
to the impact of acquisitions.
(9) EBITDA is equal to operating loss plus depreciation and amortization.
The Company believes that EBITDA is a meaningful measure of
performance because it is commonly used in the cable television
industry to analyze and compare cable television companies on the
basis of operating performance, leverage and liquidity. In addition,
the Indentures for the 13 1/2% Notes, the 11 7/8% Debentures and the
Exchange Notes and the Senior Credit Facility contain certain
covenants measured by computations substantially similar to those used
in determining EBITDA. However, 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 cash flows as a measure of liquidity, as determined
in accordance with generally accepted accounting principles.
(10) For purposes of this computation, earnings are defined as income
(loss) before fixed charges. Fixed charges are defined as the sum of
(i) interest costs, (ii) amortization of deferred financing costs and
(iii) preferred returns on subsidiary limited partnership interests.
The interest portion of rental expense does not have a material impact
on this computation.
-23-
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL
The following discussion relates to the consolidated financial
condition and results of operations of MCC and its subsidiaries.
RESULTS OF OPERATIONS
In each of the past three years, the Company has generated substantially
all of its revenues from monthly customer fees for basic, premium and other
services (such as the rental of home terminal devices and remote control
devices) and from installation income. Additional revenues were generated from
pay-per-view programming, the sale of advertising and home shopping networks.
Beginning in September and October of 1994, revenues were also generated from
management fees earned in conjunction with the CALP Systems and the Maryland
Cable Systems, respectively. On August 31, 1995, the Company purchased the CALP
Systems and thus terminated the related management agreement. Effective January
31, 1997, the Maryland Cable Systems were sold. As a result of these two
transactions, the Company is no longer involved in the active management of
cable systems for third parties.
The Company has experienced significant increases in revenues and EBITDA
in each of the past three fiscal years. This growth was accomplished primarily
through acquisitions and through internal customer growth. During 1996, the
Company acquired systems serving approximately 700 basic customers in
Weatherford, Texas on January 11, 1996, 2,600 basic customers in Mississippi
with the Futurevision Acquisition on July 8, 1996 and 5,400 basic customers in
Indiana with the Frankfort Acquisition on July 31, 1996. Also during 1996, the
Company sold its cable television system serving approximately 12,600 customers
in the state of Washington. The significant increases in revenues and EBITDA
are primarily the result of the acquisitions during 1995 which increased MCC's
basic customer base by approximately 950,000 basic customers with the
significant portions of the increase resulting from the Crown Acquisition
(193,300 customers) effective January 1, 1995, the CALP Acquisition (85,000
customers) on August 31, 1995 and the Sammons Acquisition (664,700 customers)
on November 1, 1995.
Total selling, service and system management expenses, and general and
administrative expenses have also increased significantly due to the
acquisitions mentioned above, growth within the Company's existing systems,
increased marketing efforts and the continued development of advertising sales
efforts. Until July 29, 1994, certain general and administrative services were
performed on behalf of the Company by Marcus Cable Management, Inc. (the
"Management Company"), for which the Operating Partnerships, then in existence,
paid a management fee of 5.5% of gross revenues. After that date, the employees
and related expenses of the Management Company became a part of Operating, and
Operating now records all overhead expenses relating to the Dallas home office
and the Wisconsin regional office within selling, service and system management
and general and administrative expenses, instead of management fees.
Programming expenses have increased both in dollars and as a percentage of
revenue for the past three years due to system acquisitions, additional
programming being provided to customers and increased costs to produce or
purchase certain cable programming services. However, the increase in the
Company's size has allowed the Company to recognize certain volume discounts.
Effective April 1, 1996, the Company became a member of TeleSynergy, a cable
television cooperative buying venture representing over 5,000,000 customers.
Members of this cooperative benefit from lower programming costs per customer
through consolidated buying efforts. The TeleSynergy membership has partially
offset the increased programming costs noted above.
The significant increases in charges for depreciation and amortization are
due to acquisitions and capital expenditures related to continued construction
and upgrading of the systems. Similarly, interest expense has increased
significantly due to additional amounts outstanding under long-term obligations
which were necessary to finance the acquisitions.
-24-
<PAGE> 29
The following table sets forth for the periods indicated, certain income
statement items as a percentage of total revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE FOR
PERIODS ENDED
DECEMBER 31, (1)
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Selling, service and system management 36.2 34.7 33.4
General and administrative 16.8 16.8 15.1
Management fees and expenses 0.0 0.0 3.3
Depreciation and amortization 38.3 42.2 57.8
Operating income (loss) 8.7 6.3 (9.7)
Interest 33.3 41.8 43.4
Other (income) expense (1.6) (13.1) 0.0
Subsidiary limited partner interests (3) 0.0 0.0 (9.3)
-------- -------- --------
Net loss before extraordinary items (23.0)% (22.4)% (43.7)%
======== ======== ========
EBITDA (2) 47.0%(4) 48.5% 48.1%
======== ======== ========
</TABLE>
(1) All statement of operations data reflect the following acquisitions
and divestitures by the Company from the date of acquisition or sale:
(i) the July 29, 1994 acquisition of the Star Systems, (ii) the
acquisition of the Crown Systems effective January 1, 1995, (iii) the
June 30, 1995 divestiture of the San Angelo Systems, (iv) the August
31, 1995 acquisition of the CALP Systems, (v) the November 1, 1995
acquisition of the Sammons Systems, (vi) the January 11, 1996
acquisition of the Weatherford System, (vii) the July 8, 1996
acquisition of the Futurevision System, (viii) the July 31, 1996
acquisition of the Frankfort System and (ix) the October 11, 1996
divestiture of the Moses Lake System.
(2) EBITDA is equal to operating income (loss) plus depreciation and
amortization. The Company believes that EBITDA is a meaningful measure
of performance because it is commonly used in the cable television
industry to analyze and compare cable television companies on the
basis of operating performance, leverage and liquidity. In addition,
the indentures governing the 14 1/4% Notes, the 11 7/8% Debentures and
the 13 1/2% Notes and the Senior Credit Facility contain certain
covenants measured by computations substantially similar to those used
in determining EBITDA. However, 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 cash flows as a measure of liquidity, as determined
in accordance with generally accepted accounting principles. The
Company has substantial noncash charges to earnings from depreciation,
amortization and interest.
(3) Represents preferred returns and allocated net income or loss to
partners who are affiliated with, but not a part of, the Company.
Subsequent to July 29, 1994, remaining subsidiary limited partner
interests are not entitled to preferred returns.
(4) Reduced EBITDA is a direct reflection of higher selling, service and
system management costs and the resulting lower operating margins of
certain of the systems acquired in 1995.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues increased from $198,294,000 for the year ended December 31, 1995
to $434,507,000 for the year ended December 31, 1996. Approximately
$231,916,000 of such increase was the result of the CALP and Sammons
Acquisitions. This increase from acquisitions was partially offset by the
divestiture of the San Angelo Systems on June 30, 1995. The San Angelo Systems
generated reported revenues of $6,022,000 for the year ended December 31, 1995.
Management fees earned by Operating decreased by $955,000. Eight and twelve
months of such fees pursuant to the management agreement between Operating and
CALP (the "CALP Agreement") and the Maryland Cable Agreement respectively, were
recorded in 1995, compared to a full year of fees earned pursuant to just the
Maryland Cable Agreement in 1996. The CALP Agreement terminated upon the
completion of the CALP Acquisition on August 31, 1995. The revenues generated
from internal and continued customer growth account for the remaining increase.
The Company's basic customers and pay units for its Systems increased from
1,154,718 and 651,121, respectively, at December 31, 1995, to 1,181,293 and
666,702, respectively, at December 31, 1996. This customer and unit growth was
developed through the extension of existing plant infrastructure to pass
additional dwelling units, marketing promotions and continued implementation of
premium packaging, and was negatively affected by the net affect of the
Weatherford, Frankfort and Futurevision Acquisitions and Moses Lake Divestiture
(a net reduction in basic customers of 4,300).
Selling, service and system management expenses increased from $68,753,000
for the year ended December 31, 1995 to $157,197,000 for the year ended
December 31, 1996, primarily due to an $86,284,000 increase from the CALP
-25-
<PAGE> 30
and Sammons Acquisitions, offset by a $2,238,000 decrease from the divestiture
of the San Angelo Systems. The remaining increase resulted primarily from
growth within the Company's existing systems, increased marketing efforts, the
continued development of advertising sales efforts and increased costs of
certain programming services. Effective April 1, 1996, the Company became a
member of TeleSynergy, a cable television cooperative buying venture
representing over 5,000,000 customers. Members of this cooperative benefit from
lower programming costs per customer through consolidated buying efforts. The
TeleSynergy membership has partially offset the increased programming costs.
General and administrative expenses increased from $33,271,000 for the
year ended December 31, 1995 to $73,017,000 for the year ended December 31,
1996. Approximately $35,468,000 of the increase, from the CALP and Sammons
Acquisitions, was offset by a $718,000 decrease from the divestiture of the San
Angelo Systems. The remaining increase resulted primarily from the necessary
expansion of the home office operations in order to manage the increased size
of the business and increases in operating costs due to the growth experienced
in other of the Systems.
Depreciation and amortization expense increased from $83,723,000 for the
year ended December 31, 1995 to $166,429,000 for the year ended December 31,
1996 due primarily to the CALP and Sammons Acquisitions offset by a $4,078,000
decrease from the divestiture of the San Angelo Systems. Interest expense
increased from $82,911,000 for the year ended December 31, 1995 to $144,681,000
for the comparable period in 1996, due to the inclusion of interest expense
related to the borrowings under the 14 1/4% Notes and the Senior Credit
Facility, which became effective on June 9, 1995 and August 31, 1995,
respectively (borrowings under the Senior Credit Facility were substantially
increased on November 1, 1995). Borrowings, excluding capital leases, increased
from $1,406,006,000 at December 31, 1995 to $1,436,269,000 at December 31,
1996. The weighted average interest rate on all outstanding indebtedness was
11.6% and 9.97% for the year ended December 31, 1995 and December 31, 1996,
respectively.
The difference between the loss before extraordinary item of $44,421,000
and $100,070,000 for the year ended December 31, 1995 and 1996, respectively,
was due to the net effects of the $26,394,000 gain and the $6,442,000 gain from
the sales of the San Angelo and Moses Lake cable television systems in 1995 and
1996, respectively. The remaining increase resulted from the increases in
operations, depreciation, amortization and interest expense as discussed above.
No losses were allocated to the subsidiary limited partner interests for
the year ended December 31, 1996 or 1995. The Company recognized a loss of
$8,395,000 from the write-off of debt issuance costs from the early retirement
of the outstanding balance under its previous senior credit facility for the
year ended December 31, 1995.
As a result of the changes explained in the foregoing paragraphs, EBITDA
increased from $96,270,000 for the year ended December 31, 1995 to $204,293,000
for the year ended December 31, 1996.
FISCAL 1995 COMPARED TO FISCAL 1994
Revenues increased from $64,747,000 for the year ended December 31, 1994
to $198,294,000 for the year ended December 31, 1995. Approximately
$135,410,000 of such increase was the result of the Star, Crown, CALP and
Sammons Acquisitions. This increase from acquisitions was partially offset by
the divestiture of the San Angelo Systems on June 30, 1995. The San Angelo
Systems generated revenues of $11,992,000 for the year ended December 31, 1994,
while revenues from the San Angelo Systems through the date of sale in 1995
were $6,022,000. Management fees earned by Operating increased by $2,172,000.
Three and four months of such fees pursuant to the CALP and Maryland Cable
Agreements, respectively, were recorded in 1994, compared to a full year of
fees earned pursuant to the Maryland Cable Agreement in 1995 and eight months
of fees earned under the CALP Agreement. The CALP Agreement terminated upon the
completion of the CALP Acquisition on August 31, 1995. The revenues generated
from internal growth account for the remaining increase.
The Company's basic customers for its Systems increased from 222,735
at December 31, 1994, to 1,154,718 at December 31, 1995 due primarily to the
Crown, CALP and Sammons Acquisitions along with continued direct sales efforts,
offset by the divestiture of the San Angelo Systems. The total number of
premium units increased from 156,656 units at December 31, 1994, to 651,121
units at December 31, 1995. The Crown, CALP and Sammons Acquisitions account
for 488,115 of the increase in premium units, or 94.6% of the growth, after
considering the divestiture of the San Angelo Systems. The remaining growth was
developed through marketing promotions and continued implementation of premium
packaging.
Selling, service and system management expenses increased from $21,660,000
for the year ended December 31, 1994 to $68,753,000 for the year ended December
31, 1995, primarily due to a $48,214,000 increase from the Star, Crown, CALP
and Sammons Acquisitions, offset by a $2,236,000 decrease from the divestiture
of the San Angelo Systems. The remaining increase resulted primarily from
growth within the Company's existing systems, increased marketing efforts, the
development of more advertising sales ventures and increases in rates charged
by certain programming vendors.
-26-
<PAGE> 31
General and administrative expenses increased from $9,793,000 for the year
ended December 31, 1994 to $33,271,000 for the year ended December 31, 1995.
Excluding the $18,473,000 increase from the Star, Crown, CALP and Sammons
Acquisitions and the $794,000 decrease from the divestiture of the San Angelo
Systems, general and administrative expenses increased by $6,276,000. Such
increase was mainly the result of the inclusion of expenses which were formerly
expenses of the Management Company and previously recorded as management fees
and expenses. The remaining decrease of $477,000 is primarily the result of
improved operating efficiencies, partially due to office consolidations within
the existing Marcus systems.
Depreciation and amortization expense increased from $37,412,000 for the
year ended December 31, 1994 to $83,723,000 for the year ended December 31,
1995 due mainly to the Star, Crown, CALP and Sammons Acquisitions. Interest
expense for the year ended December 31, 1994 increased from $28,105,000 to
$82,911,000 for 1995, as borrowings, excluding capital leases, increased from
$327,264,000 at December 31, 1994 to $1,406,006,000 at December 31, 1995. The
weighted average interest rate on all outstanding indebtedness was 11.0% and
11.6% for the year ended December 31, 1994 and December 31, 1995, respectively.
The sale of the San Angelo Systems on June 30, 1995 resulted in a gain of
approximately $26,409,000, which is included in other income (see note 2 of the
Notes to the Consolidated Financial Statements).
No losses were allocated to the subsidiary limited partner interests for
the year ended December 31, 1995 compared to allocated losses of $6,034,000 for
the year ended December 31, 1994, primarily due to the conversion of certain
subsidiary limited partner interests into MCC partnership units in July 1994.
The loss before subsidiary limited partner interests and extraordinary item for
the year ended December 31, 1995, was $44,421,000, compared to a loss before
subsidiary limited partnership interests and extraordinary item of $34,337,000
for the year ended December 31, 1994. The change in loss between the last two
years is due to the factors discussed above. The Company recognized losses of
$8,395,000 and $2,307,000 from the write-off of debt issuance costs from the
early retirement of the outstanding balance under its previous credit
agreements for the years ended December 31, 1995 and 1994, respectively.
As a result of the changes explained in the foregoing paragraphs, EBITDA
increased from $31,129,000 for the year ended December 31, 1994 to $96,270,000
for the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has grown significantly over the past several years through
acquisitions as well as through upgrading, extending and rebuilding its
existing cable television systems. Since expansion by means of these methods is
capital intensive, the Company has relied upon various sources of financing to
meet its funding needs. These sources have included contributions from equity
investors, borrowings under various debt instruments and positive cash flows
from operations.
As of December 31, 1996, unreturned capital contributions from equity
investors totaled approximately $493,327,000 . There was no capital contributed
from equity investors during 1996. The Company has an aggregate of
$1,438,471,000 of indebtedness outstanding in the form of the 11 7/8%
Debentures, the 13 1/2% Notes and the Exchange Notes , borrowings under its
Senior Credit Facility and capital lease obligations. The Company has an
additional $243,000,000 of borrowing capacity under its Revolving Credit
Facility. Cash flows generated from operating activities have been positive
over the past three years and increased from $15,889,000 and $86,030,000 in
1994 and 1995, respectively, to $118,986,000 in 1996. Funding from equity
contributions, borrowings and positive cash flows from operations have been
sufficient to meet the Company's debt service, working capital and capital
expenditure requirements including the purchase costs incurred in connection
with all of the completed acquisitions.
The Company's most significant need for capital in the next year will
be to finance the planned system upgrades, rebuilds and extensions and the
purchase of modems and home terminal devices for use in customers' homes.
Certain of the Company's systems will be upgraded or rebuilt principally to 860
MHz or 750 MHz capability over the next three years to allow for additional
programming and service offerings through networks characterized by such
bandwidth capacity. Capital expenditures are expected to approximate
$167,000,000 (or $139 per customer) in 1997. Such expenditures include certain
upgrade and rebuild projects occurring principally in the Company's cable
systems located in Alabama, California , Wisconsin and Texas. Ongoing capital
expenditures in excess of these rebuild amounts are consistent with current
costs to extend and maintain the existing networks. The Company expects to fund
these capital expenditures through cash generated from operations and available
borrowings under the Revolving Credit Facility.
Cash interest is payable monthly, quarterly and semiannually on borrowings
outstanding under Operating's Senior Credit Facility and the 117/8% Debentures.
No cash interest is payable on the 13 1/2% Notes until February 1, 2000 and no
cash interest is payable on the Exchange Notes until December 15, 2000.
Maturities of all long-term debt total approximately $383,737,000 over the next
five years. The Company expects to cover both interest and principal payments on
its long-term obligations through internally generated funds.
-27-
<PAGE> 32
On March 14, 1997, Operating entered into an agreement to amend its
Senior Credit Facility. The amendment provides for, among other items, a
reduction in the interest rate margins under the Senior Credit Facility as well
as increased flexibility for the Company as it relates to investments,
permitted lines of businesses and the incurrence of unsecured indebtedness. In
addition, the availability under the Revolving Credit Facility was increased by
$50,000,000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Transfers of Financial Assets
and Extinguishments of Liabilities". SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. The provisions of SFAS No. 125 are generally
effective for transactions occurring after December 31, 1996, however, the
effective adoption of SFAS No. 125 is not expected to have a material impact on
the Company's financial statements and related disclosures.
INFLATION
Based on the FCC's current rate regulation standards, an inflation factor
is included in the benchmark formula in establishing the initial permitted
rate. Subsequent to establishing the initial rate, an annual rate increase
based on the year-end inflation factor is permitted. In addition to annual rate
increases, certain costs over the prescribed inflation factors, defined by the
FCC as "external costs", may be passed through to customers.
Certain of the Company's expenses, such as those for wages and benefits,
equipment repair and replacement and billing and marketing generally increase
with inflation. However, the Company does not believe that its financial
results have been adversely affected by inflation. Periods of high inflation
could have an adverse effect to the extent that increased borrowing costs for
floating rate debt may not be offset by increases in revenues. As of December
31, 1996, Operating and its subsidiaries had $205,000,000 of outstanding
borrowings under its Senior Credit Facility which are subject to floating
interest rates. The rates are based on either the Eurodollar rate, prime rate or
CD base rate, plus a margin of up to 2.75% subject to certain adjustments based
on the ratio of Operating's total debt to annualized operating cash flow.
To reduce the impact of changes in interest rates on its floating rate
long-term debt, the Company entered into certain interest rate swap agreements
with certain of the participating banks under the Senior Credit Facility. At
December 31, 1996, interest rate swap agreements covering a notional balance of
$650,000,000 were outstanding. These outstanding swap agreements mature during
1997 and 1998 and require the Company to pay a fixed rate of 5.77% to 5.81%,
plus the applicable interest rate margin. Extensions for additional periods are
available within the swap agreements at the option of the other parties
thereto.
BUSINESS
GENERAL
At December 31, 1996, the Company owned or managed cable television
systems in 18 states, serving 1,267,520 basic customers . Since its formation
in 1990, the Company has grown internally and through acquisitions, and is now
the ninth largest cable television operator in the United States. The Company's
customers were clustered as follows as of December 31, 1996.
<TABLE>
<CAPTION>
Basic
Customers
---------
<S> <C>
North Central Region (MN, WI) .................... 385,303
Southeast Region (AL, GA, NC, TN, KY, LA, MS) .... 252,466
Southwest Region (TX, OK) ........................ 187,761
East Region (DE, MD, VA, CT) ................... 175,140(1)
Midwest Region (IN, IL) .......................... 139,138
West Region (CA) ................................. 127,712
---------
Total ........................................... 1,267,520
=========
</TABLE>
(1) Includes 86,227 basic customers in a cable television system managed by
the Company. Such systems were sold on January 31, 1997. See "Recent
Transactions -- Divestitures -- Maryland Cable Systems".
As of December 31, 1996, the Systems passed 1,863,299 homes and served
1,181,293 basic customers who subscribed for 666,702 premium units. The
President and Chief Executive Officer of MCC is Jeffrey A. Marcus. Mr. Marcus
has successfully acquired, developed and managed cable television systems since
1979.
-28-
<PAGE> 33
THE CABLE TELEVISION INDUSTRY
A cable television system receives television, radio and data signals that
are transmitted to the system's headend site by means of off-air antennas,
microwave relay systems and satellite earth stations. These signals are then
modulated, amplified and distributed, primarily through coaxial and, in some
instances, fiber optic cable, to customers who pay a fee for this service.
Cable systems may also originate their own television programming and other
information services for distribution through the system. Cable television
systems generally are constructed and operated pursuant to nonexclusive
franchises or similar licenses granted by local governmental authorities for a
specified term of years.
Cable television systems offer customers various levels (or "tiers") of
basic cable services consisting of off-air television signals of local network,
independent and educational stations, a limited number of television signals
from so-called superstations originating from distant cities, various
satellite-delivered, non-broadcast channels (such as Cable News Network
("CNN"), the USA Network ("USA"), Entertainment and Sports Programming Network
("ESPN") and Turner Network Television ("TNT")), and certain programming
originated locally by the cable system (such as public, governmental and
educational access programs) and informational displays featuring news,
weather, stock market and financial reports and public service announcements.
Cable systems also typically offer premium television services to their
customers for an extra monthly charge. These services (such as Home Box Office,
Showtime, The Disney Channel and regional sports networks) are
satellite-delivered channels consisting principally of feature films, live
sports events, concerts and other special entertainment features, usually
presented without commercial interruption.
A customer generally pays an initial installation charge and fixed monthly
fees for basic and premium television services and for other services (such as
the rental of home terminal devices and remote control devices). Such monthly
service fees constitute the primary source of revenues for cable television
systems. In addition to customer revenues from these services, cable systems
generate revenues from additional fees paid by customers for pay-per-view
programming of movies and special events and from the sale of available
advertising spots on advertiser-supported programming. Cable systems also offer
home shopping services to their customers, a service which pays the systems a
share of revenues from sales of products in the systems' service areas. The
cable television industry is changing rapidly due to new technology and new
alliances between cable television and telephone companies. Distributing
traditional cable television programming is only one aspect of the industry, as
potential opportunities to expand into Internet access, telephone, educational
and entertainment services on an interactive basis continue to develop. See
"Business -- Legislation and Regulation in the Cable Television Industry."
BUSINESS STRATEGY
OPERATING OVERVIEW
The Company's owned and managed cable television systems are operated in
six geographic areas as follows: (1) North Central (Wisconsin and Minnesota);
(2) Southeast (Alabama, Georgia, North Carolina, Tennessee, Kentucky, Louisiana
and Mississippi); (3) Southwest (Texas and Oklahoma); (4) East (Delaware,
Maryland, Virginia and Connecticut); (5) Midwest (Indiana and Illinois); and
(6) West (California). The table below sets forth certain operating statistics
for these six regions as of December 31, 1996: OPERATING DATA
<TABLE>
<CAPTION>
Homes Basic Basic Premium Premium
Region Passed Customers Penetration Units Penetration
- ------ --------- --------- ------------ --------- -----------
(1) (2) (3) (4) (5)
<S> <C> <C> <C> <C> <C>
North Central 607,529 385,303 63.4% 254,220 66.0%
Southeast 352,908 252,466 71.5% 101,356 40.2%
Southwest 408,058 187,761 46.0% 128,666 68.5%
East (6) 279,090 175,140 62.8% 125,061 71.4%
Midwest 177,621 139,138 78.3% 74,994 53.9%
West 186,614 127,712 68.4% 58,139 45.5%
--------- --------- ---------
Total Systems and
Maryland Cable 2,011,820 1,267,520 63.0% 742,436 58.6%
========= ========= =========
</TABLE>
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(1) Homes passed refers to estimates by the Company of the approximate number
of dwelling units in a particular community that can be connected to the
Company's cable television distribution system without any further
extension of principal transmission lines.
(2) A home with one or more television sets connected to a cable system is
counted as one basic customer. Bulk accounts are included on a "basic
customer equivalent" basis in which the total monthly bill for the account
is divided by the basic monthly charge for a single outlet in the area.
(3) Basic customers as a percentage of homes passed.
(4) Premium units include single channel services offered for a monthly fee
per channel. A customer may purchase more than one premium service, each
of which is counted as a separate premium service unit.
(5) Premium units as a percentage of basic customers. A customer may purchase
more than one premium service, each of which is counted as a separate
premium service unit. This ratio may be greater than 100% if the average
customer subscribes for more than one premium service.
(6) Includes 148,521 homes serving 86,227 basic customers who subscribed for
75,734 premium units in a cable system managed by the Company through
January 31, 1997. See "Recent Transactions -- Divestitures -- Maryland
Cable Systems".
GENERAL STRATEGY
The Company's business strategy focuses on three principles: (i) forming
regional clusters of cable television systems through strategic acquisitions,
internal growth and divestitures of non-strategic assets, (ii) promoting
internal growth and enhanced operating and financial performance by
streamlining operations in newly clustered systems and applying innovative
marketing techniques and (iii) upgrading systems and employing state-of-the-art
technology to enhance existing service and to develop, on a cost-effective
basis, ancillary revenue streams. This strategy was first employed by expanding
the originally acquired cable television systems in Wisconsin through strategic
acquisitions and internal growth. Upon completion of the Star and Crown
Acquisitions and the successful integration of their operations, the Company's
operations in that state more than tripled in size and the Company is now the
largest cable operator in Wisconsin.
The Sammons Acquisition elevated the Company's standing to the ninth
largest Multiple System Operator ("MSO") in the United States. The Sammons
Acquisition expanded the Company's operations from five states to nineteen
states. The Company developed an operating strategy to facilitate this
integration, which included (i) establishing a high-performance sales and
customer service culture; (ii) consolidating regional operations; (iii)
launching innovative programming packages and sales and marketing programs; and
(iv) investing in and deploying HFC plant with advanced analog home terminal
devices. The successful integration of the Sammons Systems has allowed the
Company to continue to take advantage of operational synergies due to its
increased size and visibility in the industry.
As part of this acquisition integration, the Company underwent a
departmental restructuring, dividing managerial responsibilities into regional
system groups. At the corporate level and within each of the regional system
groups, several initiatives to grow revenues and reduce operating expenses were
undertaken which have improved the acquired systems operating performance. The
Company's objective is to increase the value of its systems and to increase
system cash flow through the following business strategies.
Emphasis on Regional Clusters and Growth Through Acquisitions. The Company
has followed a systematic approach in acquiring, operating and developing cable
television systems based on the principle of increasing operating cash flow
while maintaining a high quality standard of service. A key element of the
Company's strategy is building regional clusters of cable television systems in
proximity to its existing systems or of sufficient size to serve as cores for
new operating regions.
The Company's historical growth pattern illustrates this strategy. In
1990, the Company acquired cable television systems in the Wisconsin area and
in 1992, purchased systems in Texas and in the Delaware/Maryland area. In 1994,
the Company added to its systems in Wisconsin through the acquisition of the
Star Systems in Wisconsin and Minnesota. The Crown Acquisition, in January
1995, further strengthened the Company's position, making it the largest cable
television operator in Wisconsin. The Sammons Acquisition more that doubled the
size of the Company and significantly expanded the areas served by the Company.
Each of these acquisitions involved selected groups of cable television
systems which the Company believed had the potential for increased basic and
premium customer penetration and for growth in operating cash flow and
operating margins. The Company believes that increasing its operating scale
through strategic acquisitions, as well as through internal growth, enhances
its ability to reduce its programming costs, develop new technologies, offer
new services and improve operating margins, and thus improve its long-term
competitiveness.
In addition, the Company's specific focus on Wisconsin provided it with
further opportunities to improve operating performance by eliminating
duplicative positions and excess office locations, creating regional customer
service centers and centralizing signal distribution facilities and
consolidating corporate support functions, including accounting, billing,
marketing, technical and administration services. The Sammons Acquisition
offered the Company an opportunity to increase
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system cash flow through the introduction of value-added programming packages
and additional channel launches in systems which had been previously
undermarketed and underdeveloped.
The Company believes that, as a result of its clustering strategy, it has
recognized and will continue to recognize benefits through reduced operating
costs as a result of economies of scale. The Company has also recognized
economies of scale as a result of its increased size, including programming
cost savings and increased discounts on equipment purchases.
Future expansion efforts are expected to focus on acquiring or swapping
systems in proximity to existing operations, with the strategic goal of forming
or expanding clusters of systems to permit the operating efficiencies and
economies of scale similar to those achieved by the Company in Wisconsin.
Opportunistic divestitures, in areas where consolidation opportunities do not
exist, are also considered. The Company's decision to divest the Moses Lake and
San Angelo Systems, which presented limited clustering opportunities for the
Company, is illustrative of this strategy.
System Operations. Upon completion of an acquisition, the Company
generally implements extensive management, operational and organizational
changes designed to enhance operating cash flow and operating margins, while
promoting superior customer service and strong community relations. After
consolidating acquired systems with existing ones, the Company selectively
upgrades the cable plant to allow for the offering of additional programming
and services. The Company then seeks to add customers and increase revenue per
customer by aggressively marketing innovative basic, tier and premium service
packages and by developing ancillary sources of revenue, such as local spot
advertising and pay-per-view programming. The Company has been successful in
increasing revenues in its acquired systems through the introduction of
multiple premium service packages that emphasize customer value and enable the
Company to take advantage of the programming agreements offering cost
incentives based on premium service unit growth. The Company's customer and
revenue growth, in combination with economies of scale and other operating cash
flow and operating margins recognized through regional clusters , has enabled
the Company to increase operating cash flow and operating margins of its
existing systems. At the same time, the Company has a decentralized and locally
responsive management structure which provides significant management
experience and stability and allows the Company to respond more effectively to
the specific needs of the communities it serves.
Locally Responsive Management. The Company's operations are grouped on a
regional basis into geographic areas in order to allow the flexibility and
response of decentralized management . At the same time, the systems are
combined to benefit from the Company's critical mass and economies of scale in
such areas as programming and marketing . The combined operations are grouped
into operating regions consisting of six geographic areas as follows: (1) North
Central (Wisconsin and Minnesota); (2) Southeast (Alabama, Georgia, North
Carolina, Tennessee, Kentucky, Louisiana and Mississippi); (3) Southwest (Texas
and Oklahoma); (4) East (Delaware, Maryland, Virginia and Connecticut); (5)
Midwest (Indiana and Illinois); and (6) West (California).
Innovative Marketing. The Company seeks to add customers and increase its
revenue per customer by aggressively marketing innovative basic, tier and
premium cable service packages and by developing ancillary sources of revenue
through local spot advertising sales and pay-per-view programming. The Company
believes that it has benefitted and will continue to benefit from its
aggressive marketing strategy. The Company's systems typically offer a choice
of two tiers of basic cable television programming service: a broadcast basic
programming tier (consisting generally of network and public television signals
available over-the-air in the franchise community and "superstation" signals)
and a satellite programming tier (consisting primarily of satellite-delivered
programming such as CNN, USA, ESPN and TNT). Approximately 96% of the Company's
customers subscribed to both tiers of basic service as of December 31, 1996.
The Company also offers premium programming services, both on an a la
carte basis and as part of premium service packages. The former service is
designed to increase consumer options while the latter is designed to enhance
customer value and enable the Company to take advantage of programming
agreements offering cost incentives based on premium service unit growth. The
Company has successfully promoted innovative premium service packages, such as
its Maximum Value Package program where customers are offered combinations of
premium television services such as HBO, Cinemax and Showtime as a package for
a discounted price, throughout all of its systems. Overall premium service
penetration has increased significantly in systems where such packages have
been introduced by the Company.
The Company has been and expects to continue to be successful by actively
marketing its services through direct mail, advertising, telemarketing and
door-to-door selling campaigns. The Company also seeks to add customers by
extending its cable plant to new housing developments once a potential for a
significant number of additional customers is exhibited. Through its marketing
efforts, the Company strives to attract and retain customers in order to
increase its market penetration.
Customer Service and Community Relations. The Company is dedicated to
providing superior customer service and fostering strong community relations in
the towns and cities served by its cable television systems. As part of this
effort,
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the Company places special emphasis on the personal and professional growth of
its employees, which includes a strong commitment to, and investment in,
training. All of the Company's employees receive extensive training in customer
service, sales and customer retention skills on a regular basis from outside
professionals and qualified management personnel. Technical employees are
encouraged to enroll in courses available from the National Cable Television
Institute and attend regularly scheduled on-site seminars conducted by
equipment manufacturers to keep pace with the latest technological developments
in the cable television industry. The Company believes that all of these
training programs improve the overall quality of employee workmanship in the
field , resulting in fewer service calls from customers, improved cable
television picture and product quality and greater system reliability. The
Company also utilizes surveys, focus groups and other research tools as another
part of its effort to determine and respond to the needs of its customers.
The Company seeks to further develop its community relations by
participating in charitable activities and other community affairs in the towns
and cities served by its cable television systems. In addition to the Company's
commitment to training its own employees, the Company places a special emphasis
on education in the communities it serves and regularly awards scholarships to
customers who intend to pursue courses of study related to the communications
field. The Company has demonstrated its commitment to education through its
active involvement in the Cable in the Classroom program, where cable
television companies throughout the United States provide schools with cable
television service free of charge. The Company also supports numerous local
charities and community causes through marketing promotions to raise money and
supplies for persons in need. Recent charity affiliations have included
campaigns for Toys for Tots, local food banks and volunteer fire and ambulance
corps.
Technology. The Company strives to maintain high technological standards
in its cable television systems on a cost-effective basis and is constantly
upgrading its cable plant to achieve this goal. Subsequent to acquiring
systems, in addition to implementing extensive management, operational and
organizational changes designed to enhance operating cash flow and promote
customer service and community relations, the Company selectively upgrades the
cable plant of such systems to increase channel capacity and expand the number
and variety of services available to its customers. The Company may also seek
to deploy fiber optic technology, which is capable of carrying hundreds of
video, data and voice channels, in its systems during the system upgrade
process. The Company continually monitors and evaluates new technological
developments on the basis of its ability to make optimal use of its existing
assets and to anticipate the introduction of new services and program delivery
capabilities. Currently, the Company intends to systematically rebuild its
cable systems so that within the next three years substantially all existing
systems will have a bandwidth of between 450 MHz and 860 MHz. This program
should enable the Company to deliver technological innovations to its customers
as such services become commercially viable.
For fiscal year 1997, the Company is projecting approximately $167,000,000
of capital expenditures, of which $106,000,000 is directly committed to system
rebuilds and upgrades. The capital expenditures projected for 1997 will
provide, among other benefits, a substantial increase in channel capacity. This
will permit the Company to offer additional programming through the expansion
of existing product tiers, the introduction of new product tiers, the
multiplexing of premium services and the offering of additional pay-per-view
channels.
The Company has undertaken a program that will upgrade substantially all
of its plant facilities to a minimum bandwidth of 450 MHz by the end of 1999.
As part of this program, certain systems, such as those serving the areas in
and around Ft. Worth/Tarrant County (Texas), Glendale/Burbank (California) and
suburban Birmingham, Alabama, together with selected systems in Wisconsin,
Indiana, Tennessee and other states in which the Company operates cable
systems, are being upgraded to 750 MHz or 860 MHz with two-way communication
capabilities. The Company's network architecture combines two design criteria:
(1) copper reach of the coaxial cable portion of the plant which is defined as
delivering a carrier to noise specification of 48 dB and is generally limited
to less than an 8,500 foot radius from an optical node and (2) an optical node
limited to serving no greater than 500 homes with excess fiber capacity to
allow for further reducing the number of customers served from each node. This
architecture insures a highly reliable network that, when coupled with an
active return path, is capable of supporting both analog and digital
interactive services, including the deployment of cable modems.
In addition to expanding revenue opportunities, upgrading network
architecture serves to enhance picture quality and system reliability, reduce
operating costs and improve overall customer satisfaction. As of December 31,
1996, the average channel capacity of the Systems was approximately 65 analog
channels with approximately 25% of the customers served by systems with 550 MHz
or greater bandwidth capacity, and approximately 76% of its customers were
served by systems that utilize addressable technology. The Company's current
plan contemplates that by the end of 1997, its systems will have (i) an average
capacity of approximately 78 analog channels with approximately 43% of the
customers being served by systems with 550 MHz or greater bandwidth capacity,
(ii) warehoused digital spectrum of up to 200 MHz in systems serving
approximately 28% of the Company's customers and (iii) systems that utilize
addressable technology serving approximately 83% of its customers.
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Through the upgrade of its cable plant, including the utilization of
addressable technology and fiber optic cable, the Company seeks to position
itself to benefit from the further development of advertising, pay-per-view and
home shopping services, as well as anticipated future services such as video-
on-demand and other interactive applications. This advanced broadband platform
has allowed the Company to enter into arrangements to provide video and data
transmission services to various educational institutions and to pursue similar
arrangements with utility providers . For example, in March 1995, the Company,
together with a neighboring cable television operator, was selected to create a
two-way broadband fiber network to connect 12 school districts in south central
Wisconsin as part of a "distance education" project. The fiber network allows
live interaction among classrooms in various locations. The Company was also
awarded a contract to connect the main campus of a technical college in the
Fond du Lac, Wisconsin area to two remote campuses in West Bend and Beaver Dam.
These projects will accelerate the rate at which the Company is able to build a
technologically advanced fiber network through shared funding with various
third parties. The Company, together with several public utilities, is also
exploring certain applications of its cable plant for digital meter reading and
electronic load monitoring applications which would provide "real time" power
usage information and would assist the utilities in monitoring and distributing
power in times of peak demand.
In addition to allowing for increased channel offerings, the expanded
bandwidth of the upgraded systems creates the optimal medium for transmitting
vast amounts of information at high speed. Cable modem technology enables data
traffic to be carried at rates up to 100 times faster than current telephone
modems. Most current Internet users are accessing the network through narrow
band telephony technology. This telephony technology severely limits the types
of content and services that can be effectively utilized. The high speed
capabilities of cable modems eliminate the current data bottle necks and will
"free up" users. The Company currently is testing the capabilities of cable
modems and its HFC network in one of its Dallas area systems. This test is
utilizing a 750 MHz system to provide high speed Internet access to several
customers. In addition to implementing the technical and operational steps in
deploying high speed data modems utilizing HFC plant, the Company plans to
explore various products and services that can be offered utilizing the high
speed data modems. Although there can be no assurance, it is anticipated that
commercial deployment of the service in this system will begin in late 1997
with expanding deployment in other systems in 1998.
SYSTEMS
The following information describes the Company's Systems and the Maryland
Cable Systems, as of December 31, 1996.
NORTH CENTRAL REGION
The North Central Region is comprised of the original Wisconsin Systems
acquired by the Company in 1990, the Star Systems acquired in July 1994 and the
Crown Systems purchased in January 1995. Through these systems, the Company
serves customers in a majority of suburban and rural regions in Wisconsin, and
in parts of Minnesota . As of December 31, 1996, the North Central systems
consisted of approximately 9,400 miles of distribution plant passing
approximately 607,500 homes and serving approximately 385,300 basic customers
who subscribed for approximately 254,200 premium units. The North Central
Region comprises approximately 30% of the Company's customer base, making it
the largest of the Company's six operating regions.
The North Central Region serves eight districts throughout Wisconsin and
Minnesota , including certain suburbs of Milwaukee, the communities of
Janesville, Wausau and Sheboygan, Wisconsin, and the communities of Apple
Valley and Northfield, Minnesota. The areas served include a blend of rural and
suburban municipalities and counties with a diverse socioeconomic mix and few
entertainment alternatives. The Wisconsin Systems are classic in nature,
serving communities where customers require cable to receive television signals
as a result of inadequate off-air television reception due to topography or
remoteness from broadcast towers. The main features of the combined Wisconsin
Systems are high penetration rates and a stable customer base. Additionally,
certain of the former Star and Crown Systems also are located in expanding
communities with strong potential for future growth.
The consolidations and expenditures that the Company has made and plans to
make should provide increased operating, technical and marketing efficiencies,
including expansion of advertising sales opportunities and wider distribution
of addressable converter technology to expand the customer base having access
to special event and movie pay-per-view services. The Company plans to develop
similar revenue streams in other systems in the Wisconsin operating region by
consolidation and through economies of scale afforded by the Star and Crown
Systems.
SOUTHEAST REGION
The Company owns four groups of systems in Alabama, Georgia,
Tennessee/North Carolina/Kentucky and Mississippi/Louisiana. As of December 31,
1996, these systems consisted of approximately 7,600 miles of distribution
plant passing approximately 352,900 homes and serving approximately 252,500
basic customers who subscribed for
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approximately 101,400 premium units. The Southeast Region comprises
approximately 20% of the Company's customer base, making it the second largest
of the Company's six operating regions. The Alabama systems, which serve
approximately 39% of the customers in the Southeast Region, consisted of
approximately 3,400 miles of distribution plant passing approximately 142,400
homes and serving approximately 98,500 basic customers who subscribed for
approximately 44,100 premium units. The Alabama systems serve communities
surrounding the city of Birmingham as well as the towns of Tuskegee and
Russellville. The Georgia systems serve rural areas straddling the
Georgia-Alabama border including the city of West Point. The Tennessee/North
Carolina/Kentucky cluster serves primarily suburban and rural areas including
the Tennessee cities of Bristol, Johnson City and Morristown, and Middlesboro,
Kentucky and Waynesville, North Carolina. The Mississippi/Louisiana cluster,
located primarily in southwestern Mississippi, serves mainly the communities of
Brookhaven, Natchez, McComb and Pascagoula, Mississippi.
SOUTHWEST REGION
The Company owns several clusters of systems in the Dallas/Ft. Worth
metropolitan area and in northwest Texas and southwest Oklahoma. The Dallas/Ft.
Worth systems are primarily urban and suburban in nature while the northwest
Texas and southwest Oklahoma systems are located in relatively rural areas. As
of December 31, 1996, the Southwest Region consisted of approximately 4,800
miles of distribution plant passing approximately 408,100 homes and serving
approximately 187,800 basic customers who subscribed for approximately 128,700
premium units. The Southwest Region comprises approximately 15% of the
Company's customer base, making it the third largest of the six operating
regions.
The Dallas/Ft. Worth systems serve the communities of Ft. Worth, Tarrant
County, Denton, Duncanville, University Park, Highland Park and surrounding
areas. Northern Tarrant County is one of the fastest growing areas in Texas,
and its dense concentration of businesses provides opportunities for the future
provision of telecommunications services, including the expansion of existing
alternate access businesses. The Dallas/Ft. Worth cluster also includes several
upper middle class residential communities including the Park Cities and
Duncanville, both suburbs of Dallas with median household incomes in excess of
$50,000. The service area includes three universities: Texas Christian
University, Southern Methodist University and the University of North Texas, as
well as several colleges. The northwest Texas and southwest Oklahoma systems
serve primarily working class communities with stable economies in Pampa,
Borger and Dumas, Texas and Clinton and Elk City, Oklahoma.
EAST REGION
The East region comprises approximately 14% of the Company's customer base
(including the Maryland Cable System). As of December 31, 1996, the East Region
consisted of approximately 3,400 miles of distribution plant passing
approximately 279,100 homes and serving approximately 175,100 basic customers
who subscribed for 125,100 premium units.
The Company currently owns two groups of systems located in the center of
the Delmarva peninsula. As of December 31, 1996, the Delaware/Maryland Systems
consisted of approximately 1,200 miles of distribution plant passing
approximately 39,900 homes and serving approximately 26,500 basic customers who
subscribed for approximately 21,000 premium units. The Delaware/Maryland
Systems serve communities in middle Delaware and adjacent portions of eastern
Maryland. In combination, the two systems serve a geographic area ranging from
the suburban areas of Dover, Delaware on the northeast, to the suburban areas
of Georgetown, Maryland on the southeast and west to the Chesapeake Bay at
Cambridge. The population includes diverse middle, upper middle and working
class communities.
The Company's East Region also includes systems located in Waterbury,
Connecticut and Petersburg, Virginia. The Waterbury system serves the community
of Waterbury, Connecticut and surrounding areas. The population is
predominantly middle class, with many professionals and state government
employees due to its proximity to Hartford. The Petersburg system, located near
Richmond, serves primarily suburban, middle class communities. As of December
31, 1996, these systems consisted of approximately 900 miles of distribution
plant passing approximately 90,700 homes and serving approximately 62,400 basic
customers who subscribed for approximately 28,400 premium units.
Maryland Cable Systems. As of December 31, 1996, the Company managed cable
television systems owned by Maryland Cable, a company controlled by an
affiliate of Goldman Sachs, pursuant to a management agreement. The Maryland
Cable Systems serve communities in and around Prince Georges County, Maryland.
As of December 31, 1996, the Maryland Cable Systems consisted of approximately
1,300 miles of distribution plant passing approximately 148,500 homes and
serving approximately 86,200 basic customers who subscribed for approximately
75,700 premium units. The Maryland Cable Systems were sold on January 31, 1997.
See "Recent Transactions -- Divestitures -- Maryland Cable Systems".
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MIDWEST REGION
The Company owns two groups of systems clustered in Indiana and Illinois.
As of December 31, 1996, the Midwest Region consisted of approximately 3,000
miles of distribution plant passing approximately 177,600 homes and serving
approximately 139,100 basic customers who subscribed for approximately 75,000
premium units. The Midwest Region comprises approximately 11% of the Company's
customer base making it the fifth largest of the six operating regions. These
systems serve a mix of suburban areas and rural communities (including
Crawfordsville, Connersville, Columbus, New Albany, Logansport, Monticello and
Frankfort, Indiana and Ottawa and Jacksonville, Illinois), with significant
business presence and strong, stable economies.
WEST REGION
The Company operates two clusters of systems in the West Region. The two
clusters are in the State of California, with one being located in the
Glendale/Burbank/Whittier region of Los Angeles County in southern California
and the other being located in the Turlock region of northern California.
As of December 31, 1996, the West Region consisted of approximately 1,400
miles of distribution plant passing approximately 186,600 homes and serving
approximately 127,700 basic customers who subscribed for 58,100 premium units.
The West region comprises approximately 10% of the Company's customer base.
The Glendale/Burbank cluster serves the communities of Glendale and
Burbank, which are upper middle class suburban areas. Whittier also is an
urban/suburban, upper middle class community. Due to signal shadowing in the
area from the San Gabriel mountains and hilly terrain, both of the southern
California systems are reception-based markets. The Turlock system serves the
suburban and rural areas outside of Modesto, in the San Joaquin Valley. Due to
its location in a multiple-ADI market, its distance from Sacramento, San Jose
and Fresno and the generally poor off-air signal reception, this market is also
reception-based with 81% basic penetration.
TECHNOLOGY
At December 31, 1996, approximately 76% of the Company's customers are
served by systems which utilize addressable technology (i.e., systems having
the capacity to offer addressable services if addressable converters are
present in customer homes), and approximately 40% of the Company's customers
have addressable converters. Addressable technology enables a cable television
system operator to activate, from the headend site or another central location,
the cable television services delivered to each customer having an addressable
converter. With addressable technology, the Company can upgrade or downgrade
services to a customer immediately, without the delay or expense associated
with dispatching a technician to the home. Addressable technology also allows
the Company to offer pay-per-view services, reduces premium service theft, and
through the ability to deactivate service automatically, to disconnect
delinquent customer accounts. In certain of its systems, the Company has taken
active steps to remove from service older addressable converter equipment which
was costly to maintain. Through this equipment replacement, the Company has
enhanced customer convenience and revenue growth through increased premium
service orders and simultaneously has achieved significant reductions in
service costs. The Company's current plan contemplates that by the end of 1997,
its systems will have an average capacity of approximately 78 analog channels
with approximately 43% of the customers being served by systems with 550 MHz or
greater bandwidth capacity, warehoused digital spectrum of up to 200 MHz in
systems serving approximately 28% of the Company's customers, and approximately
83% of its customers will be served by systems that utilize addressable
technology.
The Company continually monitors and evaluates new technological
developments on the basis of its ability to make optimal use of its existing
assets and to anticipate the introduction of new services and program delivery
capabilities. The use of fiber optic cable as an enhancement to coaxial cable
is playing a major role in expanding channel capacity and improving the
performance of cable television systems. Fiber optic cable is capable of
carrying hundreds of video, data and voice channels. To date, the Company has
sought to implement fiber optic technology in portions of its systems,
primarily by undertaking fiber-to-the-node upgrades. Such upgrades use fiber
optic cable to carry signals from a systems's headend to multiple locations
within the system reducing the need to deploy amplifiers , thereby enhancing
signal quality and reducing service interruptions. The Company plans to
continue to deploy fiber-to-the-node to upgrade and expand channel capacity ,
using both analog and digital transmission techniques, to interconnect systems
and groups of systems into regional networks.
New technological advances that are anticipated to be commercially viable
in the next few years include digital compression and expanded bandwidth
amplifiers, which offer cable operators the potential for a dramatic expansion
of channel capacity, along with alternative communications delivery systems. As
this new technology and related services
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become available, the Company intends to carefully assess the economic return
and market demand for such technology and services in order for the Company to
prudently implement additional services in the most cost-effective manner.
PROGRAMMING
The Company has various contracts to obtain basic and premium programming
for its systems from program suppliers whose compensation is typically based on
a fixed fee per customer. The Company's 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 the Company. In particular, the Company has negotiated programming
agreements with premium service suppliers that offer cost incentives to the
Company under which premium service unit prices decline as certain premium
service growth thresholds are met. The Company's successful marketing of
multiple premium service packages emphasizing customer value has enabled the
Company to take advantage of such cost incentives.
The Company's cable programming costs have increased in recent years and
are expected to continue to increase due to system acquisitions, additional
programming being provided to customers, increased cost to produce or purchase
cable programming, inflationary increases and other factors. Program suppliers
may continue to increase rates. However, under the new FCC rules, the cable
operator may have the ability to mark up these increases by 7.5% and pass the
increase on to customers. In lieu of the 7.5% markup, the Company had the right
to recover up to $1.20 per customer between January 1, 1995 and 1997 for
additional channels added to Cable Programming Service Tiers ("CPSTs") (not to
exceed $0.20 per added channel) and up to $0.30 per customer over that same
period for aggregate license fees. Beginning on January 1, 1997, the cap for
additional channels increased to $1.40. After January 1, 1998, the optional
rate increase for additional channels will lapse. Although there can be no
assurances, the Company believes it will continue to have access to cable
programming services at reasonable prices.
Effective April 1, 1996, the Company became a member of TeleSynergy, a
cable television cooperative buying venture representing over 5,000,000
customers. Members of this cooperative benefit from lower programming costs per
customer through consolidated buying efforts. The TeleSynergy membership has
partially offset the increased programming costs noted above.
FRANCHISES
Cable television systems are generally constructed and operated under
nonexclusive 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
the provision of free service to schools and certain other public institutions;
and the maintenance of insurance, indemnity bonds and customer service
standards. The provisions of local franchises are subject to federal regulation
under the 1984 Cable Act and the 1992 Cable Act, now consolidated under the
1996 Telecom Act.
As of December 31, 1996, the Company operated pursuant to 751 franchises.
These nonexclusive franchises provide for the payment of fees to the issuing
authority. Annual franchise fees imposed on the systems range up to the 5%
federally mandated cap on gross revenues generated by a system. In
substantially all of the Systems, such franchise fees are passed through to the
customers directly as an addition to the rates for cable television service.
The table below illustrates the grouping of the franchises by date of
expiration and presents the approximate number and percentage of basic service
customers for each group as of December 31, 1996.
<TABLE>
<CAPTION>
Year of Percentage
Franchise Number of Number of of Total
Expiration Communities Customers Customers
- ---------- ----------- --------- ---------
<S> <C> <C> <C>
Prior to 1997 (1) ........... 60 90,954 7.2%
1997-2001 .................... 247 405,100 32.0%
2002 and after ............... 405 733,311 57.8%
Other (2) .................... 39 38,155 3.0%
--------- --------- ---------
Total ........................ 751 1,267,520 100.0%
========= ========= =========
</TABLE>
- ------------------
(1) All expired franchises have open extensions pending renegotiation of
long-term renewals.
(2) The Company operates a number of systems that serve multiple communities
and, in some instances, portions of such systems extend into jurisdictions
for which the Company believes no franchise is necessary.
- ------------------
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The 1984 Cable Act provides, among other things, for an orderly franchise
renewal process where franchise renewal will not be unreasonably withheld or,
if renewal is withheld, the franchise authority must pay the operator the "fair
market value" for the system covered by such franchise. In addition, the 1984
Cable Act establishes comprehensive renewal procedures that require that an
incumbent franchisee's renewal application be assessed on its own merit and not
as part of a comparative process with competing applications.
The Company believes that it generally has good relationships with its
franchising communities. Neither the Company nor its predecessor entities
controlled by Mr. Marcus (who has owned and operated cable television systems
since 1979) has ever had a franchise revoked or failed to have a franchise
renewed. In addition, all of the franchises of the Company and such
predecessors eligible for renewal have been renewed or extended at or prior to
their stated expirations, and no material franchise community has refused to
consent to a franchise transfer to the Company or any such predecessor.
COMPETITION
Cable television systems face competition from alternative methods of
receiving and distributing television signals such as Direct Broadcast
Satellites ("DBS") and from other sources of news, information and
entertainment such as off-air television broadcast programming, newspapers,
movie theaters, live sporting events, interactive computer services and home
video products, including videotape cassette recorders. The extent to which a
cable communications system is competitive depends, in part, upon the cable
system's ability to provide , at a reasonable price to customers, a greater
variety of programming and other communications services than those which are
available off-air or through other alternative delivery sources. See "--
Legislation and Regulation in the Cable Television Industry."
The 1996 Telecom Act enables local telephone companies and others to
provide a wide variety of video services competitive with services provided by
cable systems and to provide cable services directly to customers. Various
local telephone companies currently are seeking to provide video programming
services within their telephone service areas through a variety of distribution
methods. Cable systems could be placed at a competitive disadvantage if the
delivery of video programming services by local telephone companies becomes
widespread since telephone companies may not be required, under certain
circumstances, to obtain local franchises to deliver such video services or to
comply with the variety of obligations imposed upon cable systems under such
franchises. Issues of cross-subsidization by local telephone companies of video
and telephony services also pose strategic disadvantages for cable operators
seeking to compete with local telephone companies who provide video services.
The Company cannot predict at this time the likelihood of success of any video
programming ventures by local telephone companies or the impact on the Company
of such competitive ventures.
Cable systems generally operate pursuant to franchises granted on a
nonexclusive basis. The 1992 Cable Act gives local franchising authorities
jurisdiction over basic cable service rates and equipment in the absence of
"effective competition", prohibits franchising authorities from unreasonably
denying requests for additional franchises and permits franchising authorities
to operate cable systems. It is possible that a franchising authority might
grant a second franchise to another company containing terms and conditions
more favorable than those afforded the Company. Well-financed businesses from
outside the cable industry (such as the public utilities that own the poles on
which cable is attached) may become competitors for franchises or providers of
competing services. The costs of operating a cable system where a competing
service exists will be substantially greater than if there were no competition
present. Although the potential for competition exists, there are presently
only two competing systems located in each of the East and Midwest operating
regions, which represent an aggregate of approximately 1,250 of the homes in
the Company's franchise areas. The Company is not aware of any other company
that is actively seeking local governmental franchises for areas presently
served by the Company.
Cable operators face additional competition from private Satellite Master
Antenna Television ("SMATV") systems that serve condominiums, apartment and
office complexes and private residential developments. The operators of these
SMATV systems often enter into exclusive agreements with building owners or
homeowners' associations. Due to the widespread availability of reasonably
priced earth stations, SMATV systems now offer both improved reception of local
television stations and many of the same satellite-delivered program services
offered by franchised cable systems. Various states have enacted laws to
provide franchised cable systems access to private complexes. These laws have
been challenged in the courts with varying results. Additionally, the 1984
Cable Act gives a franchised cable operator the right to use existing
compatible easements within its franchise area; however, there have been
conflicting judicial decisions interpreting the scope of this right,
particularly with respect to easements located entirely on private property.
The ability of the Company to compete for customers in residential and
commercial developments served by SMATV operators is uncertain. The 1996
Telecom Act broadens the definition of SMATV systems not subject to local
franchising regulation and gives cable operators greater flexibility in pricing
cable services provided to customers in condominiums, apartment and office
complexes and private residential developments.
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Competition for the Company's customers is likely to increase from medium
power and higher power DBS that use higher frequencies to transmit signals that
can be received by dish antennas much smaller in size than the traditional Home
Satellite Dish ("HSD"). Primestar distributes a multi-channel programming
service via a medium power communications satellite to HSDs of approximately 3
feet in diameter. DirecTv, Inc., United States Satellite Broadcasting
Corporation and EchoStar Communication Corporation transmit from high power
satellites and generally use smaller dishes to receive their signals.
Alphastar, Inc. began offering medium power service in the second quarter of
1996. MCI Communications, Corp/News Corp. has announced that it expects to
commence offering high power service by the end of 1997. DBS operators have the
right to distribute substantially all of the significant cable television
programming services currently carried by cable television systems. The Company
expects that competition from DBS will continue to grow.
DBS has advantages and disadvantages as an alternative means of
distributing video signals to the home. Among the advantages are that the
capital investment (although initially high) for the satellite and uplinking
segment of a DBS system is fixed and does not increase with the number of
customers receiving satellite transmissions; that DBS is not currently subject
to local regulation of service and prices or required to pay franchise fees;
and that the capital costs for the ground segment of a DBS system (the
reception equipment) are directly related to, and limited by, the number of
service customers. DBS's disadvantages presently include limited ability to
tailor the programming package to the interests of different geographic
markets, such as providing local news, other local origination services and
local broadcast stations; signal reception being subject to line of sight
angles; substantial upfront costs for customers; significant costs to customers
for providing service on multiple television sets within a single home; and
limited ability to locally service the customer's reception equipment.
Although the effect of competition from these DBS services cannot be
specifically predicted, it is clear there has been significant growth in DBS
customers and the Company assumes that such DBS competition will continue as
developments in technology continue to increase satellite transmitter power and
decrease the cost and size of equipment needed to receive these transmissions.
Another alternative method of distribution are Multichannel, Multipoint
Distribution Service ("MMDS systems"), which deliver programming services over
microwave channels received by customers with special antennas. MMDS 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. The 1992 Cable Act also ensures that MMDS systems have
access to acquire all significant cable television programming services.
Although there are relatively few MMDS systems in the United States currently
in operation, virtually all markets have been licensed or tentatively licensed.
The FCC has taken a series of actions intended to facilitate the development of
wireless cable systems as an alternative means of distributing video
programming, including reallocating the use of certain frequencies to these
services and expanding the permissible use of certain channels reserved for
educational purposes. The FCC's actions enable a single entity to develop an
MMDS system with a potential of up to 35 analog channels, and thus compete more
effectively with cable television. Developments in digital compression
technology will significantly increase the number of channels that can be made
available from MMDS. Further, in 1995, several large telephone companies
acquired significant ownership in numerous MMDS companies. This infusion of
money into the MMDS industry was expected to accelerate its growth and its
competitive impact. However, in 1996, telephone company backing of MMDS
appeared to diminish as both Bell Atlantic and NYNEX suspended their
investments in two major MMDS companies. Finally, an emerging technology, Local
Multipoint Distribution Services ("LMDS"), could also pose a threat to the
cable television industry, if and when it becomes established. LMDS, sometimes
referred to as cellular television, could have the capability of delivering
more than 100 channels of video programming to a customer's home. The potential
impact of LMDS is difficult to assess due to the newness of the technology and
the absence of any current fully operational LMDS systems.
Although long distance telephone companies have no legal prohibition on
the provision of video services, they historically have not been providers of
such services in competition with cable systems. However, such companies may
prove to be a source of competition in the future. The long distance companies
are expected to expand into local markets with local telephone and other
offerings (including video services) in competition with the Regional Bell
Operating Companies ("RBOCs").
Cable-like programming can also be delivered through on-line computer
services on the Internet such as CompuServe. However, due to its substandard
picture quality and transmission speed, the technology of these services
presently is not comparable to cable television service. The Company is unable
to predict the effect of competition from on-line services on its future
operations.
Other new technologies may become competitive with nonentertainment
services that cable television systems can offer. The FCC has authorized
television broadcast stations to transmit textual and graphic information
useful both to consumers and businesses. The FCC also permits commercial and
noncommercial FM stations to use their subcarrier frequencies to provide
nonbroadcast services including data transmissions. The FCC established an
over-the-air Interactive Video and Data Service that will permit two-way
interaction with commercial and educational programming along with
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informational and data services. The expansion of fiber optic systems by
telephone companies and other common carriers are providing facilities for the
transmission and distribution to homes and businesses of video services,
including interactive computer-based services like the Internet, data and other
nonvideo services. The FCC has held spectrum auctions for licenses to provide
Personal Communications Services ("PCS"). PCS will enable license holders,
including cable operators, to provide voice and data services as well as video
programming.
Advances in communications technology as well as changes in the
marketplace and the regulatory and legislative environments are constantly
occurring. Thus, it is not possible to predict the effect that ongoing or
future developments might have on the cable industry or on the operations of
the Company.
LEGISLATION AND REGULATION IN THE CABLE TELEVISION INDUSTRY
The operation of cable television systems is extensively regulated by the
FCC, some state governments and most local governments. On February 8, 1996,
the President signed into law the 1996 Telecom Act. This new law alters the
regulatory structure governing the nation's telecommunications providers. It
removes barriers to competition in both the cable television market and the
local telephone market. Among other things, it reduces the scope of cable rate
regulation.
The 1996 Telecom Act required the FCC to undertake a host of implementing
rulemakings, the final outcome of which cannot yet be determined. Moreover,
Congress and the FCC have frequently revisited the subject of cable television
regulation and may do so again. Future legislative and regulatory changes could
adversely affect the Company's operations. This section briefly summarizes key
laws and regulation currently affecting the growth and operations of the
Company's cable systems.
Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate
regulation regime on the cable television industry. Under that regime, all
cable systems are subject to rate regulation, unless they face "effective
competition" in their local franchise area. Under the 1992 Cable Act, the
incumbent cable operator can demonstrate "effective competition" by showing
either low penetration (less than 30% of the local population) or the presence
(measured collectively as 50% availability, 15% customer penetration) of other
Multichannel Video Programming Distributors ("MVPDs"). The 1996 Telecom Act
expands the existing definition of "effective competition" to create a special
test for a competing MVPD (other than a DBS distributor) affiliated with a
Local Exchange Carrier ("LEC"). There is no penetration minimum for an LEC
affiliate to qualify as an effective competitor, but it must offer comparable
programming services in the franchise area.
Although the FCC establishes all cable rate rules, local government units,
commonly referred to as Local Franchising Authorities ("LFAs") are primarily
responsible for administering the regulation of the lowest level of cable, the
Basic Service Tier ("BST"), which typically contains local broadcast stations
and public, educational, and government access channels. Before an LFA begins
BST rate regulation, it must certify to the FCC that it will follow applicable
federal rules, and many LFAs have voluntarily declined to exercise this
authority. LFAs also have primary responsibility for regulating cable equipment
rates. Under federal law, charges for various types of cable equipment must be
unbundled from each other and from monthly charges for programming services.
The 1996 Telecom Act allows operators to aggregate costs for broad categories
of equipment across geographic and functional lines. This change should
facilitate the introduction of new technology to a broader customer base.
The FCC itself directly administers rate regulation of any CPST, which
typically contains satellite-delivered programming. Under the 1996 Telecom Act,
the FCC can regulate CPST rates only if an LFA first receives at least two
complaints from local customers within 90 days of a CPST rate increase and then
files a formal complaint with the FCC. When new CPST rate complaints are filed,
the FCC now considers only whether the incremental increase is justified and
will not reduce the previously established CPST rate.
Under the FCC's rate regulations, the Company was required to reduce its
BST and CPST rates in 1993 and 1994, and has since had its rate increases
governed by a complicated price cap scheme that allows for the recovery of
inflation and certain increased costs, as well as providing some incentive for
expanding channel carriage. The FCC has modified its rate adjustment
regulations to allow for annual rate increases and to minimize previous
problems associated with regulatory lag. Operators also have the opportunity of
bypassing this "benchmark" scheme in favor of traditional cost-of-service
regulation in cases where the latter methodology appears favorable. However,
the FCC significantly limited the inclusion in the rate base of acquisition
costs in excess of the book value of tangible assets. As a result, the Company
pursued cost of service justifications in only a few cases. The FCC has also
provided operators with a mechanism to recover costs associated with a system
rebuild. Using a cost-of-service approach, the amounts produced by the FCC's
calculation are added to the BST & CPST rates discussed above and recovered
over a 10 year period. Premium cable service offered on a per channel or per
program basis remain unregulated, as do affirmatively marketed packages
consisting entirely of new programming product.
The Company believes that it has materially complied with provisions of
the Cable Acts, including rate setting provisions promulgated by the FCC on
April 1, 1993. However, in jurisdictions which have chosen not to certify,
refunds
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covering a one-year period on basic service may be ordered if the Company is
regulated at a later date and is unable to justify its rates through a
benchmark or cost-of-service filing. The amount of refunds, if any, which may
be payable by the Company in the event that these systems' rates are
successfully challenged by franchising authorities is not currently estimable.
During the year ended December 31, 1994, the Company paid total cumulative rate
refunds of approximately $944,000 for 1993 and 1994 to its cable customers as a
result of rate orders issued by certain franchise authorities within certain
cable systems which have subsequently been sold. During 1995, a total of
approximately $25,000 was paid for rate refunds. Additionally, there are rate
complaints currently pending at the FCC concerning certain of the Company's
CPST's. Pursuant to the re-regulation covering the time period from September
1, 1993 through May 15, 1994, there are currently under review by the FCC 18
cost-of-service filings and two benchmark filings. Pursuant to the
re-regulation covering the time period from May 1994 to the date hereof, there
are 48 benchmark filings under review by the FCC. These pending reviews
potentially affect 351,000 of the Company's basic customers. During 1996, there
were no rate refunds issued. Reviews involving certain of the Company's systems
serving approximately 75,000 customers have been completed in which the FCC
found no errors in the Company's rate calculations. As a result, the related
complaints were denied. If the FCC determines that the Company's CPST rates are
unreasonable, it has the authority to order the Company to reduce such rates
and to refund to customers any overcharges with interest occurring from the
filing date of the rate complaint at the FCC. The amount of refunds, if any,
which may be required by the FCC in the event the Company's CPST rates are
found to be unreasonable is not currently estimable.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all systems
(regardless of size) on March 31, 1999. It also relaxes existing uniform rate
requirements by specifying that uniform rate requirements do not apply where
the operator faces "effective competition," and by exempting bulk discounts to
multiple dwelling units, although complaints about predatory pricing still may
be made to the FCC.
Cable Entry Into Telecommunications. The 1996 Telecom Act provides that no
state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications services. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way.
Although the 1996 Telecom Act clarifies that traditional cable franchise fees
may be based only on revenues related to the provision of cable television
services, it also provides that LFAs may require reasonable, competitively
neutral compensation for management of the public rights-of-way when cable
operators provide telecommunications service. The 1996 Telecom Act prohibits
LFAs from requiring cable operators to provide telecommunications service or
facilities as a condition of a franchise grant, renewal or transfer, except
that LFAs can seek "institutional networks" as part of such franchise
negotiations. The favorable pole attachment rates afforded cable operators
under federal law can be increased by utility companies owning the poles during
a five year phase in period beginning in 2001, if the cable operator provides
telecommunications services, as well as cable service over its plant.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. Review of the FCC's
initial interconnection order is now pending before the Eighth Circuit Court of
Appeals.
Telephone Company Entry Into Cable Television. The 1996 Telecom Act allows
telephone companies to compete directly with cable operators by repealing the
historic telephone company/cable cross-ownership ban and the FCC's video
dialtone regulations. This will allow LECs, including the RBOCs, to compete
with cable operators both inside and outside their telephone service areas.
Because of their resources, LECs could be formidable competitors to traditional
cable operators, and certain LECs have begun offering cable service to a very
limited number of households.
Under the 1996 Telecom Act, an LEC providing video programming to
customers will be regulated as a traditional cable operator (subject to local
franchising and federal regulatory requirements), unless the LEC elects to
provide its programming via an Open Video System ("OVS"). LECs providing
service through an OVS can proceed without a traditional cable franchise,
although an OVS operator will be subject to general rights-of-way management
regulations and can be required to pay franchise fees to the extent it provides
cable services. To be eligible for OVS status, the LEC itself cannot occupy
more than one-third of the system's activated channels when demand for channels
exceeds supply. Nor can it discriminate among programmers or establish
unreasonable rates, terms or conditions for service.
Although LECs and cable operators can now expand their offerings across
traditional service boundaries, the general prohibitions remain on LEC buyouts
(i.e., any ownership interest exceeding 10 percent) of co-located cable
systems, cable operator buyouts of co-located LEC systems, and joint ventures
between cable operators and LECs in the same market. The 1996 Telecom Act
provides a few limited exceptions to this buyout prohibition. The "rural
exemption" permits buyouts where the purchased system serves an area with fewer
than 35,000 inhabitants outside an urban area, and the cable system plus any
other system in which the LEC has interest do not represent 10% or more of the
LECs telephone service area. The 1996 Telecom Act also provides the FCC with
the power to grant waivers of the buyout prohibition in cases where: (1) the
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cable operator or LEC would be subject to undue economic distress; (2) the
system or facilities would not be economically viable; or (3) the
anticompetitive effects of the proposed transaction are clearly outweighed by
the effect of the transaction in meeting community needs. The LFA must approve
any such waiver.
Electric Utility Entry Into Telecommunications/Cable Television. The 1996
Telecom Act provides that registered utility holding companies and subsidiaries
may provide telecommunications services (including cable television)
notwithstanding the Public Utilities Holding Company Act. Electric utilities
must establish separate subsidiaries, known as "exempt telecommunications
companies" and must apply to the FCC for operating authority. Again, because of
their resources, electric utilities could be formidable competitors to
traditional cable systems.
Additional Ownership Restrictions. The 1996 Telecom Act eliminates
statutory restrictions on broadcast/cable cross-ownership (including broadcast
network/cable restrictions), but leaves in place existing FCC regulations
prohibiting local cross-ownership between television stations and cable
systems. The 1996 Telecom Act also eliminates the three year holding period
required under the 1992 Cable Act's "anti-trafficking" provision. The 1996
Telecom Act leaves in place existing restrictions on cable cross-ownership with
SMATV and MMDS facilities, but lifts those restrictions where the cable
operator is subject to effective competition. In January 1995, however, the FCC
adopted a regulation which permits cable operators to own and operate SMATV
systems within their franchise area, provided that such operation is consistent
with local cable franchise requirements.
Must Carry/Retransmission Consent. The 1992 Cable Act contains 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 ("must carry") or negotiate for payments for granting permission to the
cable operator to carry the station ("retransmission consent"). Less popular
stations typically elect "must carry," and more popular stations typically
elect "retransmission consent ." Must carry requests can dilute the appeal of a
cable system's programming offerings, and retransmission consents demands may
require substantial payments or other concessions. Either option has a
potentially adverse affect on the Company's business. Additionally, cable
systems are required to obtain retransmission consent for all "distant"
commercial television stations (except for commercial satellite-delivered
independent "superstations" such as WTBS).
Access Channels. LFAs can include franchise provisions requiring cable
operators to set aside certain channels for public, educational and
governmental access programming. Federal law also requires a cable system with
36 or more channels to designate a portion of its channel capacity (either 10%
or 15%) for commercial leased access by unaffiliated third parties. The FCC has
adopted rules regulating the terms, conditions and maximum rates a cable
operator may charge for use of these designated channel capacity, but use of
commercial leased access channels has been relatively limited. In February of
1997, the FCC released revised rules which mandate a modest rate reduction and
could make commercial leased access a more attractive option for third party
programmers.
"Anti-Buy Through" Provisions. Federal law requires each cable system to
permit customers to purchase video programming offered by the operator on a
per-channel or a per-program basis without the necessity of subscribing to any
tier of service (other than the basic service tier) unless the system's lack of
addressable home terminal devices or other technological limitations does not
permit it to do so. The statutory exemption for cable systems that do not have
the technological capability to comply expires in December 2002, but the FCC
may extend that period if deemed necessary.
Access to Programming. To spur the development of independent cable
programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Act precludes video programmers affiliated with cable companies from
favoring cable operators over competitors and requires such programmers to sell
their programming to other multichannel video distributors (such as DBS and
MMDS). This provision limits the ability of vertically integrated cable
programmers to offer exclusive programming arrangements to the Company.
Other FCC Regulations. In addition to the FCC regulations noted above,
there are other FCC regulations covering such areas as equal employment
opportunity, customer privacy, programming practices (including, among other
things, syndicated program exclusivity, network program nonduplication, local
sports blackouts, indecent programming, lottery programming, political
programming, sponsorship identification, and children's programming
advertisements), registration of cable systems and facilities licensing,
maintenance of various records and public inspection files, frequency usage,
lockbox availability, antenna structure notification, tower marking and
lighting, consumer protection and customer service standards, technical
standards and consumer electronics equipment compatibility . The FCC is
expected to impose new Emergency Alert System requirements on cable operators
this year. The FCC has the authority to enforce its regulations through the
imposition of substantial 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 certain transmission facilities used in connection
with cable operations.
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Two pending FCC proceedings of particular competitive concern involve
inside wiring and navigational devices. The first of such proceedings is
considering ownership of cable wiring located inside multiple dwelling unit
complexes. If the FCC concludes that such wiring belongs to, or can be
unilaterally acquired by the complex owner, it will become easier for complex
owners to terminate service from the incumbent cable operator in favor of a new
entrant. The second of such proceedings is considering whether cable customers
should be permitted to purchase cable converters from third party vendors. If
the FCC concludes that such distribution is required, and does not make
appropriate allowances for signal piracy concerns, it may become more difficult
for cable operators to combat theft of service.
Copyright. Cable television systems are subject to federal copyright
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool (that varies depending on the size
of the system and the number of distant broadcast television signals carried),
cable operators can obtain blanket permission to retransmit copyrighted
material on broadcast signals. The possible modification or elimination of this
compulsory copyright license is subject to continuing review and could
adversely affect the Company's ability to obtain desired broadcast programming.
In addition, the cable industry pays music licensing fees to Broadcast Music,
Inc. ("BMI") and is negotiating a similar arrangement with the American Society
of Composers, Authors and Publishers ("ASCAP"). Copyright clearances for
nonbroadcast programming services are arranged through private negotiations.
State and Local Regulation. Cable television systems generally are
operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity. The 1996 Telecom Act clarified that the need
for an entity providing cable services to obtain a local franchise depends
solely on whether the entity crosses public rights of way. Federal law now
prohibits franchise authorities from granting exclusive franchises or from
unreasonably refusing to award additional franchises covering an existing cable
system's service area. Cable franchises generally are granted for fixed terms
and in many cases are terminable if the franchisee fails to comply with
material provisions. Non-compliance by the cable operator with franchise
provisions may also result in monetary penalties.
The terms and conditions of franchises vary materially from jurisdiction
to jurisdiction. Each franchise generally contains provisions governing cable
operations, service rates, franchise fees, system construction and maintenance
obligations, system channel capacity, design and technical performance,
customer service standards and indemnification protections. A number of states
subject cable television systems to the jurisdiction of centralized state
governmental agencies, some of which impose regulation of a character similar
to that of a public utility. Although LFAs have considerable discretion in
establishing franchise terms, there are certain federal limitations. For
example, LFAs cannot insist on franchise fees exceeding 5% of the system's
gross revenues, cannot dictate the particular technology used by the system,
and cannot specify video programming other than identifying broad categories of
programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees (limited to 5% of gross revenue) as a condition of
renewal. Similarly, if a franchise authority's consent is required for the
purchase or sale of a cable system or franchise, such authority may attempt to
impose more burdensome or onerous franchise requirements in connection with a
request for consent. Historically, franchises have been renewed for cable
operators that have provided satisfactory services and have complied with the
terms of their franchises.
EMPLOYEES
At December 31, 1996, the Company had 2,078 full-time employees and 147
part-time employees. Approximately 220 of the employees at seven of its cable
television systems are represented by a designated collective bargaining
representative or under various labor agreements. The Company considers its
relations with its employees to be good.
REAL PROPERTY
At December 31, 1996, the Company operated or managed systems in 751
communities in Alabama, California, Connecticut, Delaware, Georgia, Indiana,
Illinois, Kentucky, Louisiana, Maryland, Minnesota, Mississippi, North
Carolina, Oklahoma, Tennessee, Texas, Wisconsin and Virginia. In connection
with its operation of the systems, the Company owns or leases parcels of real
property for signal reception sites (antenna towers and headends), microwave
facilities and business offices, and owns most of its service vehicles. The
Company believes that its properties, both owned and leased, are in good
condition and are suitable and adequate for the Company's business operations.
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Cable television systems generally consist of four principal operating
components. The first component, known as the headend facility, receives
television and radio signals and other programming and information by means of
special antennae, microwave relays and satellite earth stations. The second
component, the distribution network, which originates at the headend and
extends throughout the system's service area, typically consists of coaxial or
fiber optic cables placed on utility poles or buried underground, and
associated electronic equipment. The third component of the system is a drop
cable, which extends from the distribution network into each customer's home
and connects the distribution system to the customer's television set. The
fourth component, a converter, is the home terminal device that expands channel
capacity to permit reception of more than 12 channels of programming. Some
systems utilize home terminal devices that can be addressed by sending coded
signals from the headend over the cable network.
The Company's cables generally are attached to utility poles under pole
rental agreements with local public utilities, although in some areas the
distribution cable is buried in underground ducts or trenches. The physical
components of the systems require maintenance and periodic upgrading to keep
pace with technological advances.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which MCC or any of its
subsidiaries are a party or to which any of their respective properties are
subject.
-43-
<PAGE> 48
MANAGEMENT
DIRECTOR AND EXECUTIVE OFFICERS OF MARCUS CABLE PROPERTIES, INC.
The sole general partner of MCC is the General Partner, whose sole general
partner is MCPI. The sole director and executive officers of MCPI, which as the
sole general partner of the General Partner is responsible for the overall
management of the business and operations of the Company, are:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jeffrey A. Marcus 50 President, Chief Executive Officer and Sole Director
Louis A. Borrelli, Jr. 41 Executive Vice President and Chief Operating Officer
Thomas P. McMillin 35 Senior Vice President and Chief Financial Officer
Richard A. B. Gleiner 44 Senior Vice President, Secretary and General Counsel
David L. Hanson 48 Senior Vice President of Operations
Edwin F. Comstock, III 44 Vice President of Operations
J. Christian Fenger 42 Vice President of Operations
Steven P. Brockett 46 Vice President of Operations - Administration
Cynthia J. Mannes 38 Vice President of Human Resources and Administration
David M. Intrator 41 Vice President of Marketing and Programming
John C. Pietri 47 Vice President of Engineering and Technology
John P. Klingstedt, Jr. 34 Vice President and Controller
Daniel J. Wilson 32 Vice President of Finance and Development
Susan C. Holliday 31 Vice President of Regulatory Compliance and Planning
</TABLE>
The following sets forth certain biographical information with respect to
the director and executive officers of MCPI:
JEFFREY A. MARCUS, is President, Chief Executive Officer and Sole
Director of MCPI and is a cable television industry executive with more than
28 years of experience in system operations and ownership, who founded the
Company in 1990. Mr. Marcus had previously founded Marcus Communications, Inc.
in 1982, a cable television company that ultimately served and managed over
160,000 customers by the time of its 1988 merger into publicly held Western
TeleCommunications, Inc. The combined companies were renamed WestMarc
Communications, Inc. ("WestMarc"), and grew to serve over 550,000 customers
during the period when Mr. Marcus served as WestMarc's Chairman and Chief
Executive Officer. Mr. Marcus exchanged his interest in WestMarc at the end of
1988 for cable television systems in Wisconsin which were operated from 1989
until August 1990 by Marcus Communications, Inc. These Systems were subsequently
contributed to the Company as part of the acquisition of the Wisconsin Systems.
Prior to forming the original Marcus Communications, Inc. in 1982, Mr. Marcus
co-founded Communications Equity Associates ("CEA") in 1975. From its inception
until 1982, when Mr. Marcus sold his interest in the company, CEA grew to become
the second-largest brokerage firm in the cable television industry. Mr. Marcus
also served as Director of Sales for Teleprompter Corporation from 1973 to 1975,
as Vice President of Marketing for Sammons Communications, Inc. from 1971 to
1973 and as the owner of Markit Communications, Inc., a cable marketing and
installation company, from 1969 to 1971.
Long active in state and national cable television industry matters and
community affairs, Mr. Marcus serves as a member of the board of directors for
the National Cable Television Association ("NCTA"), the Cable Television
Association ("CATA") , the Cable Television Advertising Bureau, Cable in the
Classroom, CSPAN, Chancellor Broadcasting and Brinker International. He has
also served as Executive Director of the Minnesota and Wisconsin Cable
Television Associations, as a Director of Daniels & Associates, one of the
cable television industry's largest brokerage and investment services
companies, and as Director of TCI Northeast, Inc., a subsidiary of
TeleCommunications, Inc.
LOUIS A. BORRELLI, JR. is Executive Vice President and Chief Operating
Officer of MCPI , with responsibility for the Company's general operations as
well as strategic planning. From October 1989 to March 1994, Mr. Borrelli
served as Senior Vice President of MCPI. Mr. Borrelli has had an extensive 18
year career in the cable television industry, with specific expertise in the
marketing, programming and operations areas. Mr. Borrelli joined Marcus
Communications, Inc. in 1986 as Director of Operations. In connection with the
1988 WestMarc merger, he was appointed as a Vice President -Operations for
WestMarc, with responsibility for a division of cable systems serving 200,000
customers. In October 1989 Mr. Borrelli returned to Marcus Communications, Inc.
as Senior Vice President.
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<PAGE> 49
From 1978 to 1986, Mr. Borrelli served in various capacities for the
predecessor company to United Artists Cable Systems Corp., including service as
the Director of Programming/Marketing from 1984 to 1986. There he coordinated
all programming and marketing activities and the development of new revenue
opportunities such as advertising sales and pay-per-view. Long active in the
cable television industry, Mr. Borrelli is a member of the Cable Television
Administration and Marketing Society ("CTAM"), and has served as President of
CTAM's South Central region, Director of CTAM's National Board and Chairman of
CTAM's National Pay-Per-View and Interactive Media Conference and as Chairman
of the Planning and Development Committee of the Metro Cable Marketing Co-Op,
representing over 3 million cable customers in the New York tri-state area. He
is also a member of the Board of Directors of TeleSynergy, Women in
Telecommunications and the Mentor Program of the National Association of
Minorities in Cable.
THOMAS P. MCMILLIN is Senior Vice President and Chief Financial Officer of
MCPI , with responsibility for overseeing all of the financing, accounting,
regulatory and information system aspects of the Company. He joined the Company
in September 1994, as Vice President of Finance and Development. Prior to
joining the Company, Mr. McMillin served for three years as Vice President -
Cable Development for Crown Media, a cable television subsidiary of Hallmark
Cards, Inc. Prior to his position with Crown, Mr. McMillin served five years in
various positions for Cencom Cable Associates, Inc.("Cencom"), most recently as
Vice President - Finance and Acquisitions. Prior to joining Cencom in 1987, Mr.
McMillin served four years with Arthur Andersen & Co., certified public
accountants. Mr. McMillin received his Bachelor of Science Degree in
Accountancy from the University of Missouri - Columbia.
RICHARD A. B. GLEINER is Senior Vice President, Secretary and General
Counsel of MCPI, with responsibility for overseeing all of the legal affairs of
the Company. Prior to joining the Company in 1994, Mr. Gleiner had been of
counsel to Dow, Lohnes & Albertson, New York, New York from 1988 until 1991,
where he was the primary outside counsel to the Company and its predecessors.
From 1991 until joining Marcus Cable, Mr. Gleiner was in private practice in
Northampton, Massachusetts. Mr. Gleiner received his A.B. Degree from Vassar
College in 1974, and his J.D. Degree from Boston University in 1977.
DAVID L. HANSON is Senior Vice President of Operations of MCPI, with
responsibility for the daily operations of the North Central Region. Mr. Hanson
is a native of Wisconsin and has spent more than 20 years in the state's cable
television industry designing, building and managing systems. Mr. Hanson held a
number of technical and management positions with Badger CATV in Wisconsin from
1973 through 1982, when Badger CATV was acquired by Marcus Communications,
Inc., after which Mr. Hanson was named Wisconsin Regional Manager of Marcus
Communications, Inc. After the 1988 WestMarc merger, Mr. Hanson was named a
Vice President/Regional Manager of WestMarc, and he became a Vice President of
Marcus Communications, Inc. in 1989 when Mr. Marcus exchanged his ownership
position in WestMarc for the original Wisconsin systems previously owned by
Badger CATV. Mr. Hanson is a longtime board member and past President of both
the North Central Cable Television Association (serving Minnesota, Wisconsin,
Michigan, Iowa, North Dakota and South Dakota) and the Wisconsin Cable
Communications Association. He also has served as a regional Vice-Director on
the national board of the Community Antenna Television Association.
EDWIN F. COMSTOCK, III is Vice President of Operations of MCPI, with
responsibility for the daily operations of the Southeast and East Regions. Mr.
Comstock brings 20 years of experience in the cable television industry to
MCPI. Prior to joining the Company, he spent his cable career with Sammons.
Most recently he was the Vice President of Business Development. From 1986 to
1993, Mr. Comstock was Vice President of Regional Operations overseeing all
aspects of operations and management of ten cable systems . He also served as
Director of Operations, in 1986, Manager of Plant Development, from 1982 to
1986, and Director of Security Operations, in 1982. Mr. Comstock holds a
Bachelor of Arts degree from Alfred University, Alfred, New York.
J. CHRISTIAN FENGER is Vice President of Operations of MCPI, with
responsibility for the daily operations of the Southwest, Midwest and West
Regions. Mr. Fenger brings over 16 years of diverse operating experience in the
cable television business. Prior to joining the Company in the Fall of 1992, he
served as Regional Manager for Simmons Cable TV for its systems throughout
Maryland and Delaware since 1986 (including those systems that now comprise the
Company's Delaware/Maryland systems). Previously, he served from 1985 to 1986
as General Manager for the Warner Amex cable system in Nashua, New Hampshire,
where he was responsible for upgrading system operations, and from 1980 to
1985, he served as Marketing Manager for Rogers Cablesystems in Syracuse, New
York. He has held various volunteer positions with the Delaware/Maryland/DC
Cable Associations and is a past President of the Board of Directors of Easton
Community Television. Mr. Fenger earned his undergraduate and Masters Degree in
Communications Management from Syracuse University.
-45-
<PAGE> 50
STEVEN P. BROCKETT is Vice President of Operations - Administration of
MCPI, with responsibility for the coordination of operating activities common
to all operating regions. Prior to joining the Company in February of 1995, Mr.
Brockett worked for two years as Vice President - Administration and one year
as Vice President - Controller for Crown. Mr. Brockett began his cable career
in 1978 with Heritage Communications, Inc., where he gained experience in both
Accounting (Cable Division Controller) and Operations (Director of System
Training). Mr. Brockett has held various positions at the cable system
operating level including System Controller in New Castle County, Delaware
(125,000 customers). Mr. Brockett holds a Bachelors of Science Degree in
Accountancy from the University of South Dakota and is an active member of the
Cable Television Administration Marketing Society (National and Texas).
CYNTHIA J. MANNES is Vice President of MCPI, with responsibility for human
resources, employee benefits, general administration and insurance matters. Ms.
Mannes began her cable television career in 1984 as a receptionist with Marcus
Communications, Inc., expanding her role with the Company in later years by
becoming Assistant to the President, with responsibility for corporate
administration. Upon the merger of Marcus Communications, Inc. with WestMarc in
1988, Ms. Mannes was named Assistant to the Chairman. At the end of 1988, Ms.
Mannes left WestMarc to become Vice President of Corporate Affairs at Marcus
Communications, Inc., with responsibility for day-to-day operations and
administration. Ms. Mannes is an active member of Women in Cable &
Telecommunications, Dallas Human Resource Management Association, and the Cable
Television Human Resource Association. Ms. Mannes is also a charter fellow of
The Betsy Magness Leadership Institute.
DAVID M. INTRATOR is Vice President of Marketing and Programming of MCPI,
with responsibility for the Company's programming, marketing, advertising sales
and ancillary revenue business. Prior to joining the Company in October of
1994, Mr. Intrator has had a diverse 15 year career in the cable television
industry, managing systems for Acton, Capital Cities, Post-Newsweek and Centel,
and working in cable programming with the Home Shopping Network, where he was
Director, Affiliate Relations from 1986 to 1990 and with Viewer's Choice
Pay-Per-View where he was Vice President, Affiliate Relations from 1990 to
1994. Mr. Intrator is a member of CTAM and is a Board member of the CTAM Texas
chapter. Mr. Intrator is a graduate of the University of Connecticut and holds
a Masters Degree in Public Administration from the Maxwell School of Public
Administration of Syracuse University.
JOHN C. PIETRI is Vice President of Engineering and Technology of MCPI,
with responsibility for the technical operations and standards of the Company's
cable television systems including: new construction and rebuild projects;
routine maintenance and installation practices; capital control and purchasing;
and regulatory compliance and reporting. Mr. Pietri has spent the past 19 years
in the cable television industry in a variety of technical management
positions. Prior to joining the Company, Mr. Pietri was Regional Plant Manager
for WestMarc, managing all technical operations, budgeting and purchasing . Mr.
Pietri also held positions as Operations Manager of Minnesota Utility
Contracting, General Manager of Double "A" Enterprises and President of the
Milwaukee Division of Mullen Communications Construction Company. Mr. Pietri
attended the University of Wisconsin.
JOHN P. KLINGSTEDT, JR. is Vice President and Controller of MCPI, with
responsibility for the accounting and financial reporting of the Company. Mr.
Klingstedt joined Marcus Communications, Inc. in 1987 and became Controller in
1989, with the election to Vice President following in 1994. Mr. Klingstedt
holds a Bachelors of Science Degree in Accountancy from Oklahoma State
University and is a member of the Cable Television Tax Professionals Institute
and the National Cable Television Association Accounting Committee.
DANIEL J. WILSON is Vice President of Finance and Development of MCPI,
with responsibility for the treasury, finance and acquisition and divestiture
activities of the Company. Mr. Wilson joined MCPI in March 1995 as Director of
Finance and Development and was promoted to Vice President of Finance and
Development in June 1995. Prior to joining the Company, Mr. Wilson served for
three years in various positions at Crown, including as Director of Regulatory
Affairs and Director of Finance and Development. Prior thereto, Mr. Wilson
served for three years in various positions with Cencom, most recently as
Senior Financial Analyst. Prior to joining Cencom in 1989, Mr. Wilson served
for four years with Arthur Andersen & Co., certified public accountants. Mr.
Wilson received his Bachelor of Science in Business Administration with majors
in Finance and Accounting from Saint Louis University.
SUSAN C. HOLLIDAY is Vice President of Regulatory Compliance and Planning
of MCPI, with responsibility for all FCC rate regulatory compliance and
procedures; the budgeting process and operational audit procedures. Prior to
joining the Company in 1993, Ms. Holliday had been an audit manager with KPMG
Peat Marwick. Ms. Holliday holds a Bachelors Degree in Business Administration
with concentration in Accounting from the College of William and Mary, and is a
Certified Public Accountant (CPA).
-46-
<PAGE> 51
EXECUTIVE COMPENSATION
MCPI presently does not pay any compensation to its director or
officers. The executives of MCPI are compensated in their capacity as officers
of Operating. The following table summarizes the compensation paid by Operating
to its Chief Executive Officer and to each of its four other most highly
compensated executive officers receiving compensation in excess of $100,000 for
services rendered during the fiscal years ended December 31, 1994, 1995, and
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1)
------------------------------ ---- ------ -------- ----------------
<S> <C> <C> <C> <C>
Jeffrey A. Marcus 1994 $163,949 $200,000 $ 575,765 (2)
President and 1995 $583,196 -- --
Chief Executive Officer 1996 $980,781 $500,000 $ 38,186 (3)
Louis A. Borrelli, Jr 1994 $176,275 $263,942 $ 4,620 (3)
Executive Vice President and 1995 $276,235 $185,000 $ 6,464 (3)
Chief Operating Officer 1996 $353,099 $ 52,000 $ 15,377 (3)
Thomas P. McMillin 1994 $ 36,050 $ 69,567 --
Senior Vice President and 1995 $172,680 $200,000 $ 6,214 (3)
Chief Financial Officer 1996 $255,000 $ 32,000 $ 15,244 (3)
Richard A.B. Gleiner 1994 $ 48,799 $ 10,667 --
Senior Vice President, Secretary 1995 $170,816 $200,000 $ 6,526 (3)
and General Counsel 1996 $220,673 $ 32,000 $ 16,662 (3)
David L. Hanson 1994 $ 86,034 $ 93,380 $ 2,368 (3)
Senior Vice President of 1995 $150,350 $ 55,000 $ 17,646 (3)
Operations 1996 $155,263 $ 40,000 $ 19,024 (3)
</TABLE>
- -----------------
(1) During 1995: (a) Mr. Marcus was issued 16,670 Employee Units with a
Strike Price (hereinafter defined) of $1,750 per Unit (the "Series II
Employee Units"); (b) Mr. Borrelli was issued 1,235 Series II Employee
Units; (c) Mr. McMillin was issued 973.7 Employee Units with a Strike
Price of $1,600 per Unit (the "Series I Employee Units") and 1,035
Series II Employee Units; (d) Mr. Gleiner was issued 973.7 Series I
Employee Units and 300 Series II Employee Units; and (e) Mr. Hanson
was issued 110 Series I Employee Units. Mr. Marcus' Employee Units are
fully vested. Of the Series I Employee Units issued in 1995, 40% are
vested and the remaining 60% will vest in equal amounts on the second
through fourth anniversaries of the date of issuance thereof. Of the
Series II Employee Units issued in 1995 (other than those held by Mr.
Marcus) 10% are vested and 10%, 20%, 30% and 30% vest on November 1,
of 1997, 1998, 1999 and 2000, respectively. The first year in which
Employee Units were issued was 1995. The Company believes that the
Employee Units issued in 1995 have no current value. See "Incentive
Performance Plans-Employee Unit Plan" and "Security Ownership of
Certain Beneficial Owners and Management-Principal Security Holders."
(2) Represents distribution to Jeffrey A. Marcus and Nancy C. Marcus as
the stockholders of the Management Company. MCPI, which is owned by
Mr. and Mrs. Marcus, had contracted with the Company to provide
services relating to the planning and negotiation of acquisitions in
the merger of Marcus Management, Inc. into MCPI in December 1993.
(3) Represents the employer matching contribution under the Company's
401(k) matched savings plan , vehicle expense for each of the
executive officers other than Mr. Marcus and the value of term life
insurance premiums paid by the Company for the benefit of the named
executive. See "Management-Pension and Profit Sharing Plans". Other
compensation for Mr. Marcus also includes amounts paid by the Company
for airplane usage. Other compensation for Mr. Hanson in 1995 and 1996
and for Mr. Gleiner in 1996 also includes amounts paid by the Company
for relocation expenses.
INCENTIVE PERFORMANCE PLANS
Employee Unit Plan. The General Partner may elect at any time and from
time to time to cause MCC to issue a limited number of Class B Units designated
"Employee Units" to the General Partner or to key individuals providing
services to MCC or any of its subsidiaries. Employee Units will be issued in
series, as more fully described in the partnership agreement of MCC. A series
generally will not be entitled to distributions until such time as all units
(other than Convertible Preference Units and subsequently issued Employee
Units) outstanding at the date of a given distribution will have been
distributed an amount equal to the product of all such units outstanding on the
date of a given distribution
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<PAGE> 52
multiplied by a specified price (the "Strike Price") related to such Employee
Units. The General Partner is authorized to issue (and reissue to the extent
forfeited) up to a total of 31,517 Employee Units. As of March 26, 1997, MCC
had issued 5,602.2 Employee Units with a $1,600 Strike Price and 22,185.0
Employee Units with a $1,750 Strike Price. The General Partner, in its sole
discretion, may determine the other terms and conditions (e.g., vesting,
forfeiture and restrictions on transfer) governing grants of Employee Units.
The General Partner may, but is not obligated to, require in connection with
the grant of any Employee Units that the holder thereof grant to the General
Partner, Mr. Marcus or any of their affiliates (i) a right of first refusal on
such holder's Employee Units as well as an option to purchase such holder's
Employee Units upon such holder's termination (voluntary or involuntary) of
employment with MCC or any of its subsidiaries and (ii) a proxy, which is
coupled with an interest and is irrevocable, to vote such holder's Employee
Units in such proxy's sole discretion.
Limited Partner Interests in General Partner. The General Partner has
issued certain limited partner interests in the General Partner ("LP Units") to
key employees of MCC and its subsidiaries without requiring such employees to
make capital contributions to the General Partner. As of the date hereof, most
of the outstanding LP Units issued are fully vested and all of the outstanding
LP Units will be fully vested by 1999.
Among the executive officers of MCPI named in the Summary Compensation
Table, Louis A. Borrelli, Jr. and David L. Hanson hold 13.75 and 3.63 vested LP
Units, respectively. Thomas P. McMillin has been granted 2.50 LP Units and
Richard A.B. Gleiner has been granted 1.00 LP Unit. 60% of Mr. McMillin's and
Mr. Gleiner's LP Units are vested and the remaining 40% will vest equally on
each of April 1, 1998 and 1999. No LP Units were issued during the year ended
December 31, 1996. The total number of units of general partner interest ("GP
Units") will automatically be reduced at such time as any unvested LP Units
vest in order to ensure that the total number of outstanding GP Units and fully
vested LP Units (for which no capital contribution was required) does not
exceed 100%.
PENSION AND PROFIT SHARING PLANS
The Company sponsors a 401(k) plan for its employees that are age 21 or
older and have been employed by the Company for at least six months. Employees
of the Company can contribute up to 15% of their salary, on a before-tax basis,
with a maximum 1996 contribution of $9,500 (as set by the Internal Revenue
Service). The Company matches participant contributions up to a maximum of 2%
of a participant's salary. All employee-participant contributions and earnings
are fully vested upon contribution and Company contributions and earnings vest
20% per year of employment with the Company, becoming fully vested after five
years. See "Summary Compensation Table."
COMPENSATION OF DIRECTORS
Mr. Jeffrey A. Marcus is not compensated for his service as the sole
director of MCPI.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Jeffrey A. Marcus, as the president and sole director of MCPI, the
ultimate general partner, sets the compensation of the executive officers of
MCPI in their executive positions with Operating.
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<PAGE> 53
PRINCIPAL SECURITY HOLDERS
The following table sets forth, as of March 26, 1997, (i) the units of
general partnership interests and limited partnership interests of MCC
constituting a class of voting security and which are owned by the sole
director and executive officers of MCPI and each person who is known to MCC to
own beneficially more than 5% of any class of MCC's partnership interests and
(ii) the units of the equity securities of MCPI and the General Partner owned
by the sole director and executive officers of MCPI named in the Summary
Compensation Table and by the sole director and all executive officers of MCPI
as a group.
<TABLE>
<CAPTION>
Name and Address of # of Equivalent
Beneficial Owners (1) Units/Shares % of Class (2)
------------------------ ---------------- ----------
<S> <C> <C> <C>
MCC (3).................... General Partner 22,577.99 (4) 6.37%
The Goldman Sachs Group, L.P. (5) 125,866.241 (6) 35.68
85 Broad Street
New York, New York 10004
Hicks, Muse, Tate & Furst Equity 65,714.286 18.63
Fund II, L.P.
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Freeman Spogli & Co. Incorporated 56,428.571 15.99
Affiliates (7)
11100 Santa Monica Boulevard
Los Angeles, California 90025
Greenwich Street Capital Partners, 27,053.571 7.67
Inc. Affiliates (8)
388 Greenwich Street
New York, New York 10013
Jeffrey A. Marcus (9) 50,365.190 14.28
Louis A. Borrelli, Jr. (10) 1,235.000 *
Thomas P. McMillin (10) 2,008.700 *
Richard A. B. Gleiner (10) 1,273.700 *
David L. Hanson (10) 110.000 *
Sole Director and Executive Officers as a 50,365.190 14.28
Group (14 persons)
MCPI....................... Jeffrey A. Marcus (9) 1,000.00 100.00%
General Partner............ MCPI (9) 67.25 (11) 66.15%
Jeffrey A. Marcus 67.25 (11) 66.15
Louis A. Borrelli, Jr. 13.75 (12) 13.53
Thomas P. McMillin 2.50 (12) 2.46
Richard A. B. Gleiner 1.00 (12) 0.98
</TABLE>
-49-
<PAGE> 54
<TABLE>
<S> <C> <C> <C>
David L. Hanson 3.63 (12) 3.57
Sole Director and Executive Officers as a
Group (14 persons) 100.13 98.50
</TABLE>
* Less than 1%.
(1) The address for the General Partner, MCPI and Messrs Marcus, Borrelli,
McMillin, Gleiner and Hanson is 2911 Turtle Creek Blvd., Dallas, Texas
75219.
(2) Assumes all 31,517 Employee Units are outstanding.
(3) As of the date hereof, all partnership interests in MCC, other than
Convertible Preference Units, are designated Class B Units. The
interests held by the General Partner are comprised of different types
of Class B Units which are entitled to different distribution rights
and, in certain cases, the Class B Units held by the General Partner
do not have voting rights. MCC has issued 7,500 Convertible Preference
Units which have a general distribution preference over the Class B
Units and are convertible, initially, into Class B Units on a
one-for-one basis. The current ownership of Convertible Preference
Units is as follows: Broad Street Investment Fund I, L.P. (5,003.0831
units); Broad Street Advancement Corporation (1,260.1681 units); The
Goldman Sachs Group, L.P. (586.3515 units); Broad Street Strategic
Corporation (243.6068 units); Stone Street Fund 1991, L.P. (233.9071
units); Bridge Street Fund 1991, L.P. (77.9690 units); Stone Street
Fund 1990, L.P. (60.3397 units); and Bridge Street Fund 1990, L.P.
(34.5747 units). All of the holders of Convertible Preference Units
are affiliates of Goldman Sachs.
(4) Reflects the General Partner's ownership of 18,848.19 units and
3,729.80 unissued Employee Units.
(5) Represents stock owned by certain investment partnerships, of which
affiliates of The Goldman Sachs Group, L.P. ("GS Group") are the
general partner, managing general partner or investment manager. The
current ownership of affiliates of GS Group of the outstanding Class B
Units of MCC is as follows: Broad Street Investment Fund I, L.P.
(81,511.696 units); The Goldman Sachs Group, L.P. (8,095.855 units); GS
Capital Partners II, L.P. (6,705.000 units); Broad Street Acquisition
Corporation (5,028.885 units); GS Capital Partners II Offshore Marcus
Holding I, L.P. (2,893.000 units); GS Capital Partners II Marcus
Holding I, L.P. (1,503.000 units); Bridge Street Fund 1995, L.P.
(1,480.000 units); Broad Street Income Corporation (1,456.490 units);
Stone Street Fund 1992, L.P. (1,416.686 units); Stone Street Fund 1995,
L.P. (1,253.100 units); Broad Street Funding Corp. (1,026.000 units);
Bridge Street Fund 1994, L.P. (986.220 units); Stone Street Fund 1994,
L.P. (895.740 units); Broad Street Yield Corporation (866.080 units);
Bridge Street Fund 1992, L.P. (831.163 units); Stone Street Fund 1990,
L.P. (462.834 units); Broad Street Exploration Corporation (405.405
units); GS Capital Partners II Offshore, L.P. (370.000 units); Bridge
Street Fund 1990, L.P. (308.272 units); GS Capital Partners II Germany
Marcus Holding I, L.P. (303.000 units); Stone Street Fund 1991, L.P.
(257.670 units); Broad Street Empire Corporation (121.618 units); Broad
Street Value Corporation (79.497 units); Stone Street Marcus Holding,
Inc. (49.000 units); Participation Subsidiary Corporation II (46.130
units); and Stone Street 1995 Marcus Holding, Inc. (13.900 units). GS
Group disclaims beneficial ownership of the shares owned by such
investment partnerships to the extent attributable to partnership
interests herein held by persons other than GS Group and its
affiliates. Each of such investment partnerships shares voting and
investment power with certain of its respective affiliates.
(6) Includes 7,500 Convertible Preference Units. See note 3 above.
(7) The current ownership by affiliates of Freeman Spogli & Co.
Incorporated of the outstanding Class B Units of MCC is as follows: FS
Equity Partners III, L.P. (54,278.285 units) and MCC International
Holdings, Ltd. (2,150.286 units).
(8) The current ownership by affiliates of Greenwich Street Capital
Partners, Inc. of the outstanding Class B Units of MCC is as follows:
Greenwich Street Capital Partners, L.P. (17,146.840 units); TRV
Employees Fund, L.P. (7,532.012 units); GSCP Offshore Holdings, Inc.
(1,060.783 units); The Travelers Insurance Company (880.337 units);
and The Travelers Life and Annuity Company (433.599 units).
(9) Mr. and Mrs. Marcus own all the issued and outstanding common stock of
MCPI, the general partner of the General Partner, which stock is
subject to a voting trust agreement which gives Mr. Marcus the right
to vote all of such stock. Accordingly, the numbers for Mr. Marcus
reflect all units held by the General Partner. Additionally, such
numbers include 27,787.20 issued Employee Units. Mr. Marcus has the
right to issue additional authorized but unissued or forfeited
Employee Units to employees, himself or the General Partner. Mr.
Marcus has been granted irrevocable proxies to exercise all voting
rights with respect to issued Employee Units. Mr. Marcus is the record
owner of 16,600.00 Employee Units. Mr. Marcus' address is 2911 Turtle
Creek Boulevard, Suite 1300, Dallas, Texas 75219.
(10) Reflects the executive officers' ownership of Employee Units. Such
Employee Units are subject to certain vesting schedules. The address
for all executive officers is 2911 Turtle Creek Boulevard, Suite 1300,
Dallas, Texas 75219.
(11) Reflects the number of GP Units currently owned by MCPI, assuming full
vesting of all LP Units.
(12) Reflects the current ownership of vested and unvested LP Units. Thomas
P. McMillin also holds 1.00 unvested LP Units and Richard A.B. Gleiner
also holds 0.40 unvested LP Units. These units are currently scheduled
to vest equally on each of April 1, 1998 and 1999.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no significant transactions, new relationships or
indebtedness between the Company and related parties during 1996.
Transaction Fees
Transaction fees for services relating to the planning and negotiation of
acquisitions have been paid by the Company upon the closing of certain
transactions. In January 1995, MCPI received a transaction fee of $1,250,000 in
connection with the Crown Acquisition. In November 1995, MCPI received a
transaction fee of $4,000,000 in connection with the Sammons Acquisition.
In addition, certain equity investors received equity commitment and
merger advisory fees, respectively, in connection with the closing of the
Sammons Acquisition as follows: Goldman Sachs, $1,251,000 and $4,804,000;
Freeman Spogli & Co., Incorporated, $1,788,000 and $2,189,000; Greenwich Street
Capital Partners, Inc., $650,000 and $1,049,000; First Union Corporation,
$488,000 (merger advisory fee only); Weiss, Peck & Greer, $211,000 and
$508,000; and State of Wisconsin Investment Board, $325,000 (equity commitment
fee only). In addition, Hicks Muse, Tate & Furst, Incorporated will receive
financial monitoring fees totaling $4,998,000 (payable in six annual
installments commencing with the closing of the Sammons Acquisition) and
received a merger advisory fee of $5,000,000 in connection with such
acquisition.
Senior Credit Facility
Goldman Sachs and GS Credit Partners, an affiliate of Goldman Sachs, are
part of the lending syndicate under the Senior Credit Facility and made an
initial aggregate commitment of $183,333,333. In connection with this
financing, Goldman Sachs and GS Credit Partners received fees of approximately
$3,300,000.
CALP
At the time of the CALP Acquisition, all of the outstanding ordinary
limited partnership interests in CALP which were owned by affiliates of Goldman
Sachs were exchanged for Convertible Preference Units in MCC having a
distribution preference of $15,000,000. In addition, Special Limited
Partnership Units owned by Mr. Marcus and affiliates of Goldman Sachs were
redeemed and retired in connection with the CALP Acquisition. Mr. Marcus and
affiliates of Goldman Sachs received $2,100,000 and $7,800,000, respectively,
in respect of their Special Limited Partnership Units.
Investment Banking Agreement
MCC, MCPI, Mr. Marcus and Goldman Sachs have entered into that certain
Investment Banking Agreement dated as of January 17, 1990 pursuant to which the
parties have agreed that, for so long as Goldman Sachs holds at least 30% of
the total outstanding partnership interests of MCC, no person or entity other
than Goldman Sachs or its affiliates are to provide investment banking,
financial advisory, or underwriting or placement agent services on behalf of
the Company. Goldman Sachs received discounts and fees aggregating $7,332,000
in connection with the Note Offering.
THE MCC PARTNERSHIP AGREEMENT
The Issuers believe the following summary sets forth all of the material
terms of the Fifth Amended and Restated Agreement of Limited Partnership of MCC
dated as of August 31, 1995 (the "MCC Partnership Agreement"). The summary is
qualified in its entirety by reference to full text of the MCC Partnership
Agreement, complete copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part and are available in
the manner described in "Additional Information."
ORGANIZATION
MCC was formed as a limited partnership pursuant to the provisions of the
Delaware Revised Uniform Limited Partnership Act, as amended, and a certificate
of limited partnership of MCC was filed with the Secretary of State of Delaware
on January 17, 1990. The purpose of MCC, as set forth in the MCC Partnership
Agreement, is to (i) carry on the business of acquiring, owning, constructing,
maintaining, operating, promoting, selling, disposing and otherwise developing
cable television systems and
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franchises and other related activities and to acquire and hold interests in
any entity or individual engaged in such activities and (ii) do all other
lawful things necessary, appropriate or advisable in connection with such
purposes.
CLASSES OF PARTNERSHIP INTERESTS
Under the MCC Partnership Agreement, all of the outstanding partnership
interests in MCC ("Units") are Class B Units or Convertible Preference Units.
(The Class A Units were all redeemed on or prior to July 29, 1994.) The
partnership interests of MCC consist of both the General Partner's total
interest in MCC (the "GP Units") and the limited partnership interests in MCC
(the "LP Units"). GP Units, in turn, include GP Profits Units, DCA Class B
Units and other Class B Units, and LP Units include Class B LP Units and
Convertible Preference Units. "Class B LP Units" are defined under the MCC
Partnership Agreement as all Class B Units excluding the Class B Units held by
the General Partner.
The MCC Partnership Agreement authorizes MCC to issue certain Class B
Units to be designated Employee Units to the General Partner or to key
individuals providing services to MCC or any of MCC's subsidiaries. Under the
MCC Partnership Agreement, the General Partner has the authority to cause MCC
to issue (and to reissue to the extent forfeited or otherwise returned to MCC)
up to a total of 31,517 Employee Units.
The Convertible Preference Units were issued to the former limited
partners of CALP in connection with the CALP Acquisition, entitle the holders
thereof to a return of capital pursuant to the terms of the MCC Partnership
Agreement and are convertible into Class B LP Units. The Convertible Preference
Units are LP Units, although they are not Class B Units prior to conversion.
The Convertible Preference Units vote together with Class B Units as a single
class, and the voting percentage of each Convertible Preference Unit, at a
given time, is based on the number of Class B LP Units into which such
Convertible Preference Unit is then convertible. For purposes of the MCC
Partnership Agreement, "Outstanding Class B Units" at any given time consists
of the sum of all Class B Units then issued and outstanding plus Class B Units
then issuable upon conversion of issued and outstanding Convertible Preference
Units, if any, and "Outstanding Class B LP Units" consist of all Outstanding
Class B Units other than GP Units.
DURATION
Under the MCC Partnership Agreement, MCC will be dissolved upon the
earliest to occur of: (i) December 31, 2005, unless extended on an annual basis
by the affirmative vote of holders of 51% or more of the Outstanding Class B
Units and the written consent of the General Partner, (ii) any Disabling Event
(defined below), (iii) the removal of the General Partner pursuant to the MCC
Partnership Agreement and (iv) an election to dissolve MCC pursuant to the
terms set forth below; provided, however, in the case of (ii) and (iii) above,
dissolution shall not occur if, within 90 days after the triggering event,
holders of 90% or more of the Class B LP Units elect to reconstitute the
business in a new limited partnership and elect a new general partner. The MCC
Partnership Agreement defines "Disabling Event" to include (a) the bankruptcy
of the General Partner, (b) the withdrawal of the General Partner from MCC, (c)
the death, retirement or disability of Mr. Marcus (which includes the inability
of Mr. Marcus to perform the duties of general partner, were he the general
partner, or the failure by Mr. Marcus to possess the sole right to elect a
majority of the Board of Directors of MCPI), if a majority in interest of the
holders of LP Units demand in writing within 60 days after such event that such
event be a Disabling Event, or (d) the assignment, transfer or conveyance by
the General Partner of any part of its interest in MCC in violation of the MCC
Partnership Agreement. An election to dissolve MCC must be based on the vote of
the Outstanding Class B LP Units, the percentage of the Outstanding Class B LP
Units required for the dissolution to be effective will vary over time and the
consent of the General Partner will not be required beginning on November 1,
2002. The required percentage of votes will decrease from 60%, with certain
exceptions, prior to November 1, 1998, to 51% from November 1, 1998 through
October 31, 2002, to 40% from November 1, 2002 through October 31, 2004 and 15%
from and after November 1, 2004.
The partners of MCC agreed in the MCC Partnership Agreement that, prior to
November 1, 2002, so long as any 11 7/8% Debentures, 13 1/2% Notes or Exchange
Notes are outstanding, or any other debentures or notes issued by MCC or any of
its subsidiaries in connection with the CALP Acquisition and/or the Sammons
Acquisition are outstanding, they will take all action necessary, except in the
case of the bankruptcy or insolvency of the General Partner, in which case MCC
shall use its best efforts, to ensure that MCC is not dissolved or that a
Successor Company (as defined in the Indentures governing the 11 7/8%
Debentures, the 13 1/2% Notes, and the Exchange Notes) assumes all of the
obligations of MCC pursuant to the Indentures governing the 11 7/8% Debentures,
the 13 1/2% Notes and the Exchange Notes, respectively.
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CONTROL OF OPERATIONS
The MCC Partnership Agreement provides that the General Partner has
exclusive authority with respect to the management and control of the business
and operations of MCC, subject to the terms and provisions of the MCC
Partnership Agreement. Among the limitations on its power, the General Partner
does not or will not have the right: (i) to alter the purpose of MCC, (ii) to
cause MCC to issue Additional Units (defined below), except as set forth in the
MCC Partnership Agreement, (iii) to possess any MCC property or assign rights
to such property for other than a partnership purpose, (iv) to perform any act
or employ any assets of MCC in contravention of the MCC Partnership Agreement,
(v) to perform any act which would subject any limited partner to liability as
a general partner, (vi) to employ the funds or assets of MCC in any manner
except for the exclusive benefit of MCC, (vii) to cause any withdrawal by the
General Partner or any assignment of any interest of the General Partner, not
in accordance with the MCC Partnership Agreement, (viii) to cause any LP Units
to qualify as an Attributable Interest (defined below) with respect to any
limited partner, other than a holder of Employee Units, (ix) to cause MCC or
any subsidiary thereof to effect certain material transactions without an
affirmative vote of disinterested holders of 51% or more of the Outstanding
Class B Units (a "Disinterested Required Vote"). The MCC Partnership Agreement
defines "Attributable Interest" as any direct or indirect ownership in any
radio station, television station, cable television system, wireless cable
television system, satellite master antenna television system or the English
language daily newspaper which is deemed attributable to any person holding
such interest under the rules, regulations, policies and decisions of the FCC.
VOTING RIGHTS AND AMENDMENT OF THE MCC PARTNERSHIP AGREEMENT
Under the MCC Partnership Agreement, the limited partners of MCC (the
"Limited Partners") have no right to vote on any partnership matters except as
to matters for which consent or approval is expressly required under the MCC
Partnership Agreement. Pursuant to the MCC Partnership Agreement, Convertible
Preference Units will vote, together with Class B Units, as a single class.
Where a vote is required under the MCC Partnership Agreement, each Partner is
entitled to one vote per Unit held by it and the voting percentage of each
Convertible Preference Unit, at a given time, will be based on the number of
Class B LP Units into which such Convertible Preference Unit is then
convertible.
In general, the MCC Partnership Agreement may be modified or amended by
the vote or written consent of the holders of 80% or more of the Outstanding
Class B Units and the written consent of the General Partner; provided,
however, the MCC Partnership Agreement may be amended from time to time by the
General Partner without the consent of any of the Limited Partners to reflect
the admission of Limited Partners or the change of MCC's chief executive
offices or other places of business.
In addition, under the MCC Partnership Agreement, (i) the holders of the
same percentage and type of LP Units will have to agree to any amendment of a
provision which requires the consent or vote of holders of a specified
percentage and type of LP Units, (ii) the consent of holders of 80% or more of
the Outstanding Class B LP Units will be required to alter any distribution or
allocation of income, gain, loss, deduction, expense or credit under the MCC
Partnership Agreement, (iii) no amendment providing for additional capital
contributions will be effective absent the consent of each partner affected
thereby, (iv) no amendment to the indemnification and exculpation provisions
will be effective as to any person who at any time has served as a director,
officer, employee of the General Partner or its affiliates who, in such
capacity, engaged in activities on behalf of MCC, with respect to any acts or
omissions performed or omitted to be performed prior to the date of such
amendment, (v) the consent of holders of at least 66 2/3% of the Outstanding
Class B LP Units will be required for the issuance of additional GP Profits
Units or Units substantially similar to GP Profits Units, (vi) the consent of
Limited Partners who hold at least 66 2/3% of the issued and outstanding
Convertible Preference Units, voting as a class, will be required for MCC to
alter any of the preferences or rights of the holders of Convertible Preference
Units that are not preferences or rights of the holders of Class B LP Units so
as to materially adversely affect such preferences and rights, (vii) the
consent of holders of 75% or more of the Outstanding Class B Units will be
required for issuing any class of Additional Units ranking prior or in
preference to Class B LP Units, (viii) the affirmative vote or consent of
holders of 51% or more of the outstanding Class B Units (a "Required Vote")
will be necessary for MCC to issue any Additional Units other than Employee
Units and Class B LP Units issued in exchange for Convertible Preference Units,
(ix) a Disinterested Required Vote will be required to permit MCC or any
subsidiary to enter into a material disposition or become bound by a material
contract, (x) a Required Vote (excluding units beneficially owned by the
General Partner and its affiliates) will be required to remove the General
Partner for Cause (as defined below), (xi) the election by the Class B Limited
Partners holding 90% or more of the outstanding Class B LP Units to
reconstitute the business of MCC will be required to avoid dissolution upon the
occurrence of any Disabling Event or the removal of the General Partner, (xii)
the affirmative vote of holders of a percentage of outstanding Class B Units
that will vary over time will be required for an election to dissolve MCC,
(xiii) upon a Required Vote and the written consent of the General Partner, the
term of MCC shall be extended on an annual basis beyond December 31, 2005,
(xiv) upon a Disinterested Required Vote, the partners will be able to direct
the General Partner to effect a Reorganization, provided that, prior to
November 1, 1998, the percentage vote required to approve
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a Reorganization shall be increased to 60% from 51%, unless the Reorganization
will result in holders of Class B LP Units (excluding Employee Units) having
received at least $3,500 per Class B LP Unit, in respect of such Reorganization
and all other prior distributions, (xv) a Disinterested Required Vote will be
required to approve compensation for a liquidator's services and to approve a
successor liquidator and (xvi) any member of the Information Committee may be
removed with or without cause upon the affirmative vote of holders of 90% or
more of the Outstanding Class B Units, along with the unanimous vote of the
members of the Information Committee, excluding the members subject to removal.
For purposes of the MCC Partnership Agreement, "Reorganization" is defined
as any one or more of the following transactions: (i) the incorporation of all
or substantially all of MCC's properties and assets; (ii) the contribution,
sale, exchange, lease, transfer, conveyance or other disposition to any other
person of all or substantially all of MCC's assets; (iii) the merger or
consolidation of MCC with or into any other person; or (iv) any other
transaction involving MCC (other than a dissolution of MCC) which, pursuant to
a Disinterested Required Vote, is deemed to have the effect of any of the
transactions described in (i), (ii) or (iii) above.
CAPITAL CONTRIBUTIONS
The General Partner is required under the MCC Partnership Agreement to
make such additional capital contributions to MCC as are necessary to maintain
at all times a minimum capital account balance equal to either 1% of the
aggregate positive capital account balances of all the partners of MCC or
$500,000, whichever is less. The Limited Partners are not required to make
additional capital contributions to MCC under the MCC Partnership Agreement.
The MCC Partnership Agreement provides that no partner of MCC shall have the
right to withdraw or demand return of its capital contribution during the term
of the partnership.
ISSUANCE AND SALE OF UNITS
Subject to receipt of a Required Vote, the General Partner has the right,
subject to certain conditions, to arrange for the sale and issuance of
additional Class B Units or other Units ("Additional Units"), and rights,
options or warrants to purchase Additional Units, on such terms and for such
consideration as the General Partner in its discretion may determine; provided,
however, that (i) the General Partner shall first give written notice to the
then existing Limited Partners, and (ii) the consent of 66 2/3% or more of the
Outstanding Class B LP Units shall be required for issuing any additional GP
Profits Units or other Units having substantially similar rights, powers and
duties or to be issued solely to the General Partner, Mr. Marcus or any of
their affiliates.
The General Partner is required under the MCC Partnership Agreement to
classify Additional Units in accordance with the relative rights, powers and
duties associated with such Units; provided, however, that the consent of
holders of at least 75% of the Outstanding Class B Units is required for
issuing, effecting or validating any class of Additional Units (or rights,
options or warrants to purchase Additional Units) ranking prior to or in
preference to Class B LP Units. The MCC Partnership Agreement provides that the
General Partner may offer preemptive rights to the holders of Additional Units;
provided, however, that such preemptive rights shall be no more favorable than
the preemptive rights of the existing Limited Partners.
Under the MCC Partnership Agreement, so long as Goldman Sachs, together
with its affiliates, hold 30% or more of the sum of the total outstanding Units
and Units which would be outstanding upon the exercise of all outstanding
rights, options and warrants to purchase Units (without duplication for the
conversion of all outstanding Convertible Preference Units), MCC shall not, and
the General Partner shall not cause or permit MCC to, issue any Additional
Units or rights, options or warrants to purchase Additional Units without the
prior written approval of Goldman Sachs. However, the MCC Partnership Agreement
provides that, in connection with any approval of a proposed issuance of
Additional Units representing the equity portion of a proposed financing of an
Investment Opportunity (defined below) which the General Partner has determined
to pursue on behalf of MCC, Goldman Sachs shall commit to purchase, or cause
another person to commit to purchase: (i) a percentage of Additional Units to
be issued equal to its percentage interest in the total outstanding Units of
MCC, if at the time of such approval, Goldman Sachs, together with its
affiliates, hold Units with an aggregate initial issuance price of less than
$35,000,000 and (ii) 25% of the Additional Units to be issued, if at the time
of such approval, Goldman Sachs, together with its affiliates, hold Units with
an aggregate initial issuance price of $35,000,000 or more.
Additionally, under the MCC Partnership Agreement, the General Partner has
the authority, without the consent of any Limited Partners, to (i) cause MCC to
issue Class B Units designated as Employee Units to the General Partner or key
individuals serving MCC or any of its subsidiaries, subject to the terms of the
MCC Partnership Agreement, and (ii) issue Class B LP Units upon conversion of
Convertible Preference Units.
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PREEMPTIVE RIGHTS
The MCC Partnership Agreement provides that, if at any time MCC proposes
to issue Additional Units (including rights, options or warrants to purchase
Additional Units, but excluding Employee Units and Class B LP Units issuable
upon conversion of Convertible Preference Units), the General Partner must give
written notice to the then existing Limited Partners setting forth the purchase
price of such Additional Units and the rights and limitations thereof.
Thereafter, the General Partner and each then existing Limited Partner will
have the right to acquire the percentage of such Additional Units equal to the
number of Units (assuming full conversion of Convertible Preference Units) then
held by such then existing partner divided by the total number of Units
(assuming full conversion of Convertible Preference Units) held by all of the
then existing partners.
LIABILITY OF THE GENERAL PARTNER
Under the MCC Partnership Agreement, neither the General Partner nor its
affiliates will be liable, in damages or otherwise, to MCC or to any Limited
Partner and neither MCC nor any Limited Partner shall take any action against
the General Partner or any of its affiliates, in respect of any loss arising
out of any acts or omissions performed or omitted by it pursuant to the
authority granted by the MCC Partnership Agreement or otherwise performed on
behalf of MCC, if the General Partner or its affiliates in good faith
determined that such course of action was in the best interests of MCC. Under
the MCC Partnership Agreement, MCC will indemnify the General Partner and its
affiliates against losses, damages, expenses (including attorneys' fees),
judgments and settlement amounts actually and reasonably incurred by such party
with respect to activities performed on behalf of MCC and not constituting bad
faith, willful misconduct or fraud. The General Partner is not personally
liable for the return of the investment made by the Limited Partners.
WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER
Under the MCC Partnership Agreement, the General Partner may not
voluntarily retire or withdraw as a general partner of MCC. Upon a Required
Vote (excluding therefrom Units beneficially owned by the General Partner and
its affiliates) and subject to certain procedures, the General Partner shall be
removed and a replacement general partner shall be appointed; provided,
however, that the General Partner can only be removed for "cause," which is
defined as one or more of the following: (i) conviction of a felony, or plea of
guilty to a charge of a felony, by the General Partner or Mr. Marcus which
reasonably could have an adverse effect on the ability of the General Partner
or Mr. Marcus to perform its or his obligations under the MCC Partnership
Agreement, (ii) a determination that there has been malfeasance, criminal
conduct or willful neglect by the General Partner or Mr. Marcus or (iii) a
determination that there has been a violation by the General Partner or Mr.
Marcus of any material provision of the MCC Partnership Agreement. If such
removal is based on (ii) or (iii) above, the General Partner cannot be removed
unless it has been determined by an arbitrator, a court of law, an
administrator or a regulatory authority that a factor constituting "cause"
exists. Upon the removal of the General Partner, all of the GP Units held by
the General Partner, other than those representing 1% of MCC items of income or
loss, shall be converted into an equivalent number of Class B LP Units;
provided, however, that so long as such Class B LP Units are held by the
General Partner or an affiliate of the General Partner, such Class B LP Units
shall not confer any voting rights or rights to give or withhold consent or
approval as a Limited Partner.
PUT AND CALL RIGHTS
The MCC Partnership Agreement provides that, upon the occurrence of (i)
the death or incapacity of Mr. Marcus and a written election to convert by the
General Partner or (ii) the later of the date on which the partners (a) elect
to reconstitute the business of MCC and (b) elect a new general partner, in
either case in connection with a Disabling Event (including the death or
incapacity of Mr. Marcus), the GP Units held by the General Partner shall
immediately convert into an equivalent number of Class B LP Units. Such
converted Class B LP Units have the relative rights, powers and preferences
provided to holders of Class B LP Units except to the extent set forth in the
MCC Partnership Agreement. Upon a conversion of GP Units resulting from the
death or incapacity of Mr. Marcus, the holders of the converted Class B LP
Units, from and after January 1, 1999, shall have the right to cause MCC to
purchase all (but not less than all) of the converted Units owned by such
holders and any other Units held by the General Partner or its affiliates,
including any rights, options or warrants, at a price equal to their fair
market value, to the extent permitted by the Indentures governing the Exchange
Notes, the 11 7/8% Debentures and the 13 1/2% Notes and the Senior Credit
Facility. In addition, MCC shall have the right, from and after January 1,
1999, to purchase from the General Partner, upon the affirmative vote of 51% or
more of the Outstanding Class B LP Units (excluding therefrom the converted
Units), all (but not less than all) of the converted Units and any other Units
held by the General Partner or its affiliates, including any rights, options or
warrants, at a price equal to their fair market value, to the extent permitted
by the Indentures governing the Exchange Notes, the 11 7/8% Debentures and the
13 1/2% Notes and the Senior Credit Facility.
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Under the MCC Partnership Agreement, in the event the General Partner
fails to timely dissolve MCC following the vote to dissolve the partnership by
holders of 51% or more of the Class B Units, then the holders of the Class B LP
Units (other than Class B Units held or beneficially owned by the General
Partner or its affiliates) shall have the right, exercisable upon written
notice to MCC from the holders of 51% or more of the Outstanding Class B LP
Units (other than Class B Units held or beneficially owned by the General
Partner or its affiliates), to cause MCC to purchase all (but not less than
all) of the Class B LP Units held by such holders at a price equal to the fair
market value thereof, to the extent permitted by the Indentures governing the
Exchange Notes, the 117/8% Debentures and the 13 1/2% Notes and the Senior
Credit Facility.
LIABILITY OF LIMITED PARTNERS
Limited Partners of MCC are not personally responsible for the liabilities
of MCC except to the extent a Limited Partner assumes or guarantees any debts
of MCC under the MCC Partnership Agreement. A Limited Partner will not be
personally liable except as otherwise required by law to (i) pay to MCC or to
any creditor of MCC or any other partner any deficiency in such Limited
Partner's capital account, or (ii) return to MCC or to pay any creditor or any
other partner the amount of any return to him of his capital contribution or
other distribution made to him.
ASSIGNMENT OF PARTNERSHIP INTERESTS
Under the MCC Partnership Agreement, the General Partner may not transfer
any of its GP Units; provided, however, that the General Partner may assign, in
whole or in part, to affiliates (including Mr. Marcus) and employees of
affiliates of the General Partner and to the immediate family of Mr. Marcus,
the right to share in such profits and losses, to receive distributions and to
receive such allocations of income, gain, loss, deduction or credit to which a
holder of a GP Unit is entitled. Further, a partner may transfer all or any
part of such partner's LP Units (subject in certain cases to rights of first
offer and rights of first refusal set forth in the MCC Partnership Agreement)
to another person only such transfer meets the conditions set forth in the MCC
Partnership Agreement; provided, however, that each Limited Partner (or an
affiliate thereof) shall be entitled to transfer LP Units to any affiliate of
such Limited Partner (or affiliate thereof). Certain Limited Partners who
purchased LP Units on or after January 18, 1995 are prohibited from
transferring such Units prior to January 18, 1998.
INFORMATION COMMITTEE
The MCC Partnership Agreement provides for the establishment of an
Information Committee to be informed of each cable television system investment
proposed by the General Partner for MCC. The MCC Partnership Agreement does not
require the approval of the Information Committee to approve any cable
television system acquisition. The General Partner, by consent of Mr. Marcus
and a designee of Mr. Marcus serving at Mr. Marcus' sole discretion, has the
authority to approve such investment after it has informed the Information
Committee thereof.
CONFLICTS OF INTEREST AND INVESTMENT OPPORTUNITIES
The business and affairs of MCC or any subsidiary thereof shall be the
principal business of Mr. Marcus and the General Partner; provided, however,
that Mr. Marcus may devote time to the ownership, management and operation of
Marcus Investments (as defined below). Pursuant to the MCC Partnership
Agreement, Mr. Marcus, the General Partner and any affiliates thereof cannot
engage in, or render services to an entity that engages in, the management,
operation or ownership of any entity which engages in the communications or
voice or data transmission or video programming business, including the
business of operating a cable television system, or any similar business. The
following activities, however, will not violate the provisions outlined above:
(i) owning less than 5% of the equity securities of any publicly traded entity
which may be engaged in a competing business, provided that the market value of
all such equity securities of any entity does not exceed $2,000,000, (ii)
having investments (such as hedge funds) in which the applicable entity or
person is not an active manager of such investment or (iii) making subsequent
investments in a Marcus Investment, relating to the maintenance or improvement
of assets or properties thereof, subject to the Investment Right (defined
below) of the Limited Partners. Under the MCC Partnership Agreement, a "Marcus
Investment" is an Investment Opportunity (as defined below) in which Mr. Marcus
or any affiliate thereof proposes to invest in through any person or entity
other than MCC or any subsidiary thereof. An "Investment Opportunity" is any
investment opportunity that (i) is within the partnership purpose of MCC, (ii)
is under consideration by Mr. Marcus, the General Partner or an affiliate
thereof, and (iii) involves an acquisition of cable television systems and
franchises, which, when aggregated with prior Marcus Investments, has a total
number of customers that does not exceed 175,000 customers.
If Mr. Marcus pursues an Investment Opportunity other than through MCC or
its subsidiaries, all Limited Partners have the right to invest in such
investment (the "Investment Right") on terms substantially identical to the
terms given other investors
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on a pro rata basis based on their respective ownership (assuming full
conversion of all outstanding Convertible Preference Units) in MCC.
THE SENIOR CREDIT FACILITY
The Senior Credit Facility provides for a term loan facility, comprised of
two tranches, one having a final maturity of December 31, 2002 and the other
having a final maturity of April 30, 2004. In addition, the Senior Credit
Facility provides for a revolving credit facility and letter of credit
facility. As of February 28, 1997, Operating and its subsidiaries had
approximately $830,000,000 outstanding under the Senior Credit Facility, and
the weighted average interest rate per annum under the term loan and revolving
credit facilities was 7.42% per annum. Operating has an additional
$268,209,000 of borrowing capacity under the Senior Credit Facility's
revolving credit facility.
The Senior Credit Facility provides for a pledge of all partnership
interests or common stock in the Operating Partnerships. Any intercompany notes
held by Operating for loans to the Operating Partnerships are also pledged to
the Lenders. All borrowings outstanding under the Senior Credit Facility are
guaranteed by MCC on an unsecured basis.
The Senior Credit Facility contains numerous restrictive financial and
other covenants, including (i) restrictions on indebtedness, distributions,
liens, sale/leaseback transactions, guarantees, mergers, dispositions of
assets, acquisitions, investments, transactions with affiliates, change in
business conducted and certain acquisitions by the Company and (ii) certain
financial maintenance tests. The Senior Credit Facility also provides that the
occurrence of a Change of Control (as defined in the Senior Credit Facility) of
the Company will constitute an event of default under the Senior Credit
Facility.
On March 14, 1997, Operating entered into an agreement to amend its
Senior Credit Facility. The amendment provides for, among other items, a
reduction in the interest rate margins under the Senior Credit Facility as well
as increased flexibility for the Company as it relates to investments,
permitted lines of businesses and the incurrence of unsecured indebtedness. In
addition, the availability under the Revolving Credit Facility was increased by
$50,000,000.
DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes were issued pursuant to the Exchange Offer in exchange
for the 14 1/4% Notes. The form and terms of the Exchange Notes are the same as
the form and terms of the 14 1/4% Notes (which they have replaced) except that
the Exchange Notes have been registered under the Securities Act and,
therefore, do not bear legends restricting the transfer thereof. The holders of
the 14 1/4% Notes formerly had certain registration rights with respect to the
14 1/4% Notes pursuant to the Registration Rights Agreement. The registration
obligations of the Issuers under the Registration Rights Agreement were
satisfied when the Exchange Offer was consummated, so the holders of the
Exchange Notes do not have registration rights under the Registration Rights
Agreement. The Exchange Notes are governed by the Note Indenture, which also
formerly governed the 14 1/4% Notes. The terms of the Exchange Notes include
those set forth in the Note Indenture and those made a part of the Note
Indenture by reference to the Trust Indenture Act of 1939, as amended and as in
effect on the date of the Note Indenture (the "Trust Indenture Act").
The Issuers believe the following summary sets forth all of the material
terms of the Exchange Notes. The statements under this caption relating to the
Exchange Notes and the Note Indenture are summaries and do not purport to be
complete. Where reference is made to particular provisions of the Note
Indenture, such provisions, including the definition of certain terms, are
incorporated by reference as a part of such summaries, which are qualified in
their entirety by such reference. The Exchange Notes are subject to all such
terms, and Holders of the Exchange Notes are referred to the Note Indenture, a
copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part and is available in the manner described under
"Available Information." Certain defined terms used primarily in this section
are set forth below under "-- Certain Definitions." Unless otherwise indicated,
references under this caption to sections, "ss." or articles are references to
sections and articles of the Note Indenture.
The Exchange Notes are unsecured, joint and several obligations of MCC and
Capital III, are limited to $299,228,000 aggregate principal amount and will
mature on December 15, 2005 (Section 301). In serving as a co-issuer of the
Exchange Notes, Capital III is acting as an agent of MCC. The Exchange Notes
were issued in exchange for 14 1/4% Notes, which were issued at a substantial
discount to their principal amount at maturity. No cash interest will be
payable on the Exchange Notes prior to December 15, 2000. The Exchange Notes
will fully accrete to face value on June 15, 2000. From and after June 15,
2000, cash interest on the Exchange Notes will accrue at a rate of 14 1/4% per
annum, and will be payable semiannually on each June 15 and December 15,
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commencing on December 15, 2000, to the Holders of record on the immediately
preceding June 1 and December 1. Interest on the Exchange Notes shall be
computed on the basis of a 360-day year of twelve 30-day months (Section 310).
At the option of the Issuers, principal of and premium, if any, and interest on
the Exchange Notes may be paid at the corporate trust office of the Trustee or
by check mailed to the address of the Person entitled thereto as it appears in
the Note Register (Sections 301, 305 and 1002). In no event shall the aggregate
principal amount of all Exchange Notes outstanding exceed $299,228,000.
Exchange Notes may be issued only in fully registered form, without
coupons, in denominations of $1,000 and integral multiples of $1,000 in excess
thereof (Section 302). No service charge will be made to any holder of the
Exchange Notes (a "Holder") for any registration of transfer or exchange of
Exchange Notes, but the Issuers or the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith (Sections 305 and 1002). Transfers of Exchange Notes may be made only
by presentation of the Exchange Notes, duly endorsed, to the Trustee for
registration of transfer on the Security Register maintained by the Trustee for
such purposes. Unless and until an Exchange Note is duly presented to the
Trustee for registration of transfer, the Company and the Trustee may treat the
Person in whose name such Exchange Note is registered on the Security Register
as the sole owner thereof for all purposes under the Indenture, notwithstanding
any notice to the contrary.
The Trustee currently is acting as Paying Agent and Registrar. The
Exchange Notes may be presented for registration of transfer and exchange at
the offices of the Registrar (Section 305).
FORM, DENOMINATION AND BOOK-ENTRY PROCEDURES
The Exchange Notes generally are represented by one or more
fully-registered global notes (collectively, the "Global Exchange Note"). The
Global Exchange Note has been deposited with The Depository Trust Company (the
"Depository") and registered in the name of the Depository or a nominee of the
Depository (the "Global Exchange Note Registered Owner"). Except as set forth
below, the Global Exchange Note may be transferred, in whole and not in part,
only to another nominee of the Depository or to a successor of the Depository
or its nominee.
The Depository has advised the Issuers that the Depository is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the
clearance and settlement of transactions in those securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Access
to the Depository's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of the Depository only through the
Participants or the Indirect Participants. The ownership interest and transfer
of ownership interest of each actual purchaser of each security held by or on
behalf of the Depository are recorded on the records of the Participants and
Indirect Participants.
The Depository has also advised the Issuers that pursuant to procedures
established by it, ownership of interests in the Global Exchange Note will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depository (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global Exchange Note). The laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Exchange Notes
is limited to that extent. For certain other considerations with respect to the
transferability of the Exchange Notes, see "Risk Factors --Trading Market for
the Exchange Notes."
Except as described below, owners of interests in the Global Exchange Note
will not have Exchange Notes registered in their names, will not receive
physical delivery of Exchange Notes in definitive form and will not be
considered the registered owners or holders thereof under the Note Indenture
for any purpose.
Payments in respect of the principal of and premium, if any, and interest
on any Exchange Notes registered in the name of the Global Exchange Note
Registered Owner will be payable by the Trustee to the Global Exchange Note
Registered Owner in its capacity as the registered Holder under the Note
Indenture. Under the terms of the Note Indenture, the Issuers and the Trustee
will treat the persons in whose names the Exchange Notes, including the Global
Exchange Note, are registered as the owners thereof for the purpose of
receiving such payments and for any and all other purposes whatsoever.
Consequently, neither the Issuers, the Trustee nor any agent of the Issuers or
the Trustee has or will have any responsibility or liability for (i) any aspect
of the Depository's records or any Participant's
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records relating to or payments made on account of beneficial ownership
interests in the Global Exchange Note, or for maintaining, supervising or
reviewing any of the Depository's records or any Participant's records relating
to the beneficial ownership interests in the Global Exchange Note or (ii) any
other matter relating to the actions and practices of the Depository or any of
its Participants. The Depository has advised the Issuers that its current
practice, upon receipt of any payment in respect of securities such as the
Exchange Notes (including principal and interest), is to credit the accounts of
the relevant Participants with the payment on the payment date, in amounts
proportionate to their respective holdings in principal amount of beneficial
interests in the relevant security as shown on the records of the Depository
unless the Depository has reason to believe it will not receive payment on such
payment date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Exchange Notes will be governed by standing instructions
and customary practices and will be the responsibility of the Participants or
the Indirect Participants and will not be the responsibility of the Depository,
the Trustee or the Issuers. Neither the Issuers nor the Trustee will be liable
for any delay by the Depository or any of its Participants in identifying the
beneficial owners of the Exchange Notes, and the Issuers and the Trustee may
conclusively rely on and will be protected in relying on instructions from the
Global Exchange Note Registered Owner for all purposes.
The Global Exchange Note is exchangeable for definitive Exchange Notes if
(i) the Depository notifies the Issuers that it is unwilling or unable to
continue as Depository of the Global Exchange Note and the Issuers thereupon
fail to appoint a successor Depository, (ii) the Issuers, at their option,
notify the Trustee in writing that they elect to cause the issuance of the
Exchange Notes in definitive registered form, (iii) there shall have occurred
and be continuing an Event of Default or any event which after notice or lapse
of time or both would be an Event of Default with respect to the Exchange Notes
or (iv) as provided in the following paragraph. Such definitive Exchange Notes
shall be registered in the names of the owners of the beneficial interests in
the Global Exchange Note as provided by the Participants. Exchange Notes issued
in definitive form will be in fully registered form, without coupons, in
minimum denominations of $1,000 and integral multiples thereof. Upon issuance
of Exchange Notes in definitive form, the Trustee is required to register the
Exchange Notes in the name of, and cause the Exchange Notes to be delivered to,
the person or persons (or the nominee thereof) identified as the beneficial
owners as the Depository shall direct.
Subject to the restrictions on the transferability of the Exchange Notes
described in "Risk Factors -- Restrictions on Transfer," an Exchange Note in
definitive form will be issued upon the resale, pledge or other transfer of any
Exchange Note or interest therein to any person or entity that does not
participate in the Depository. Transfers of certificated Exchange Notes may be
made only by presentation of Exchange Notes, duly endorsed, to the Trustee for
registration of transfer on the Note Register maintained by the Trustee for
such purposes.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Issuers
believe to be reliable, but the Issuers take no responsibility for the accuracy
thereof.
REDEMPTION
The Exchange Notes will be subject to redemption, at the option of the
Issuers, in whole or in part, at any time on or after June 15, 2000 and prior
to maturity, upon not less than 30 nor more than 60 days' notice mailed to each
Holder of Exchange Notes to be redeemed at his address appearing in the Note
Register, in amounts of $1,000 or an integral multiple of $1,000, at the
following Redemption Prices (expressed as percentages of principal amount) plus
accrued interest to but excluding the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date to receive interest due
on an Interest Payment Date that is on or prior to the Redemption Date (each
defined in the Note Indenture)), if redeemed during the 12-month period
beginning June 15 of the years indicated:
<TABLE>
<CAPTION>
YEAR Redemption Price
- ---- ----------------
<C> <C>
2000........................................................................... 107.00%
2001........................................................................... 103.50%
2002 and thereafter............................................................ 100.00%
</TABLE>
In the event that on or before June 15, 1998, MCC consummates a sale of
any of its Capital Stock pursuant to a registered public offering, resulting in
net proceeds to MCC of at least $25,000,000, the Issuers may, at the option of
MCC, apply the proceeds to redeem up to 25% of the Exchange Notes then
outstanding at a Redemption Price of 110% of the Accreted Value (Sections 203,
1101 and 1107).
If less than all the Exchange Notes are to be redeemed, the Trustee
shall select, in such manner as it shall deem fair and appropriate, the
particular Exchange Notes to be redeemed or any portion thereof that is an
integral multiple of $1,000 (Section 1104).
The Exchange Notes do not have the benefit of any sinking fund
obligations (Section 203).
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COVENANTS
The Note Indenture contains, among others, the following covenants:
Limitation on Consolidated Debt
The Issuers may not, and may not permit any Restricted Subsidiary of MCC
to, Incur any Debt unless, (1) immediately after giving effect to the
Incurrence of such Debt and any other Debt Incurred since the date of the most
recent available quarterly or annual balance sheet and the receipt and
application of the proceeds thereof, the ratio of the aggregate accreted
principal amount of consolidated Debt of MCC and its Restricted Subsidiaries
outstanding as of the most recent available quarterly or annual balance sheet
to the product of (x) the Pro Forma Consolidated Cash Flow for the full fiscal
quarter immediately preceding the date of Incurrence, multiplied by (y) four,
determined on a pro forma basis as if any such Debt had been Incurred and the
proceeds thereof had been applied at the beginning of such preceding fiscal
quarter, would not exceed 8.0 to 1.0 for the period ending December 31, 1997
and 7.0 to 1.0 thereafter and (2) the Pro Forma Available Cash Flow for the
full fiscal quarter immediately preceding the date of Incurrence, multiplied by
four (determined on a pro forma basis as if such Debt had been Incurred and the
proceeds had been applied at the beginning of such preceding fiscal quarter)
would have been sufficient to permit MCC to make all interest and principal
payments that would have been due on Debt of MCC during such preceding fiscal
quarter on a pro forma basis assuming such Debt had been incurred at the
beginning of such preceding fiscal quarter.
Notwithstanding the foregoing limitation, MCC and any Restricted
Subsidiary of MCC may Incur the following: (i) Debt under a working capital
facility in an aggregate principal amount at any one time not to exceed $50
million; (ii) Debt owed by MCC to any Wholly Owned Restricted Subsidiary of MCC
or owed by any Subsidiary of MCC to MCC or any Wholly Owned Restricted
Subsidiary of MCC (but only so long as such Debt is held by MCC or a Wholly
Owned Restricted Subsidiary of MCC); (iii) Debt Incurred to renew, refund,
refinance or extend (successively or otherwise) the Exchange Notes, the 11 7/8%
Debentures or the 13 1/2% Notes, in any case in an amount not to exceed the
principal amount of such Debt so renewed, refunded, extended or refinanced plus
(1) the amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of such Debt, or the amount of any premium
and accrued interest reasonably determined by the Issuers as necessary to
accomplish such financing by means of a tender offer or privately negotiated
repurchase, plus (2) all other fees and expenses of MCC or such Restricted
Subsidiary of MCC reasonably incurred in connection with such refinancing,
provided that, (A) in the case of any refinancing or refunding of Debt pari
passu to the Exchange Notes, such refinancing or refunding Debt is made pari
passu or subordinated to the Exchange Notes and, in the case of any refinancing
or refunding of Debt subordinated to the Exchange Notes, such refinancing or
refunding Debt is made subordinated to the Exchange Notes to substantially the
same extent as the Debt refinanced or refunded, and (B) in either case, such
refinancing or refunding Debt does not have an Average Life less than the
Average Life of the Debt being renewed, refunded, refinanced or extended; (iv)
Capital Lease Obligations not to exceed $5 million in the aggregate at any one
time; and (v) Debt not otherwise permitted to be Incurred pursuant to clauses
(i) through (iv) above, which, together with any other outstanding Debt
Incurred pursuant to this clause (v), has an aggregate principal amount not in
excess of $50 million at any time outstanding (Section 1007).
Limitation on Restricted Payments
Each of the Issuers (i) may not, directly or indirectly, declare or pay
any dividend, or make any distribution, in respect of its Capital Stock or to
the holders thereof (including pursuant to a merger or consolidation of MCC or
Capital III and excluding any dividends or distributions payable solely in
shares of its Capital Stock (other than Redeemable Stock) or in options,
warrants or other rights to acquire its Capital Stock (other than Redeemable
Stock)); (ii) may not, and MCC may not permit any Restricted Subsidiary to,
directly or indirectly, purchase, redeem or otherwise acquire or retire for
value (a) any Capital Stock of either of the Issuers or any Related Person of
either of the Issuers or (b) any options, warrants or rights to purchase or
acquire shares of Capital Stock of either of the Issuers or any Related Person
of either of the Issuers; (iii) may not make, and MCC may not permit any
Restricted Subsidiary to make, any loan, advance, capital contribution to or
investment in, or payment on a Guarantee of any obligation of, any Unrestricted
Subsidiary or any Affiliate or any Related Person of MCC, other than MCC or a
Wholly Owned Restricted Subsidiary of MCC which is a Wholly Owned Restricted
Subsidiary prior to such Investment (provided that if, at any time thereafter,
such Subsidiary becomes an Unrestricted Subsidiary, such investment will be
deemed to have been made in an Unrestricted Subsidiary at such time); and (iv)
may not, and MCC may not permit any Restricted Subsidiary to, redeem, defease,
repurchase or otherwise acquire or retire for value prior to any scheduled
maturity, repayment or sinking fund payment, Debt of either of the Issuers
(other than Debt owing to MCC or one of its Restricted Subsidiaries) which is
subordinate in right to payment to the Exchange Notes (each of clauses (i)
through (iv) being a "Restricted Payment"), if: (1) an Event of Default, or an
event that with the lapse of time or the giving of notice, or both, would
constitute an Event of Default, shall have occurred and be continuing; (2) upon
giving effect to such Restricted Payment the aggregate of all Restricted
Payments from the date of
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the Note Indenture exceeds the sum of: (a) the remainder of (x) 100% of
cumulative Consolidated Cash Flow after March 31, 1995 through the last day of
the last full fiscal quarter immediately preceding such Restricted Payment for
which quarterly or annual financial statements of MCC are available minus (y)
the product of 1.4 times cumulative Consolidated Interest Expense after March
31, 1995 through the last day of the last full fiscal quarter immediately
preceding such Restricted Payment for which quarterly or annual financial
statements of MCC are available; and (b) the sum of (x) 100% of the aggregate
net proceeds after the date of the Note Indenture from the issuance of Capital
Stock (other than Redeemable Stock) of each of the Issuers and options,
warrants or other rights to purchase or acquire shares of Capital Stock (other
than Redeemable Stock) of each of the Issuers and (y) the principal amount of
Debt of each of the Issuers that has been converted into Capital Stock (other
than Redeemable Stock) of an Issuer after the date of the Note Indenture; or
(3) immediately after giving effect to such Restricted Payment, the Issuers
could not Incur at least $1.00 of additional Debt pursuant to the provisions of
the first paragraph under "-Limitation on Consolidated Debt."
The foregoing provisions will not be violated by reason of (i) the payment
of any dividend or distribution on partnership interests within 60 days after
declaration thereof if at the declaration date such payment would have complied
with the foregoing provision; (ii) the refinancing of Debt that is subordinated
to the Exchange Notes (including premium, if any, accrued interest, fees and
expenses) pursuant to clause (iii) of "-Limitation on Consolidated Debt;" (iii)
payments in redemption of Capital Stock of MCC or a Related Person of MCC or
options, warrants or rights to purchase or acquire shares of Capital Stock of
MCC or a Related Person of MCC to officers or employees or former officers or
employees (or their estates or their estate beneficiaries) upon death,
disability, retirement or termination of employment from MCC or its
Subsidiaries not to exceed $5 million in any 12-month period; (iv) so long as
no Event of Default shall have occurred and be continuing, and so long as MCC
is treated as a partnership for U.S. federal income tax purposes, distributions
in respect of partners' income tax liability in an amount not to exceed the Tax
Amount; (v) Investments in Unrestricted Subsidiaries engaged in business
related to that of MCC and its Restricted Subsidiaries in an aggregate amount
not in excess of $25 million; (vi) the purchase, redemption or other
acquisition or retirement for value of Capital Stock or options, warrants or
rights to purchase or acquire shares of Capital Stock or the acquisition or
retirement of Debt that is subordinated to the Exchange Notes, in each case, in
exchange for or solely out of the proceeds of a substantially concurrent
offering of Capital Stock (other than Redeemable Stock); (vii) payment of up to
$30,000,000 in merger advisory fees, financial monitoring fees and equity
commitment fees in connection with the Pending Transactions; or (viii) any
investments made in connection with the CALP Acquisition. Any payment made
pursuant to clause (i), (iii), (iv), (v) or (vi) of this paragraph shall be a
Restricted Payment for purposes of calculating aggregate Restricted Payments
under the preceding paragraph (Section 1009).
Limitations Concerning Distributions by and Transfers to Subsidiaries
Each Issuer may not, and MCC may not permit any Restricted Subsidiary to,
suffer to exist any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary of MCC (i) to pay, directly or indirectly, dividends or
make any other distributions in respect of its Capital Stock or pay any Debt or
other obligation owed to such Issuer or any other Restricted Subsidiary; (ii)
to make loans or advances to such Issuer or any Restricted Subsidiary; or (iii)
to transfer any of its property or assets to such Issuer. Notwithstanding the
foregoing, such Issuer may, and MCC may permit any Restricted Subsidiary to,
suffer to exist any such encumbrance or restriction (a) pursuant to the Senior
Credit Facility or pursuant to any other agreement in effect on the date of the
Note Indenture, (b) pursuant to an agreement relating to any Debt Incurred by
such Restricted Subsidiary prior to the date on which such Restricted
Subsidiary was acquired by MCC and outstanding on such date and not Incurred in
anticipation of becoming a Restricted Subsidiary, (c) pursuant to an agreement
relating to any Debt Incurred or Preferred Stock issued by a Restricted
Subsidiary of MCC (other than the Restricted Subsidiaries of MCC existing on
the date of the Note Indenture or any Restricted Subsidiary carrying on any of
the businesses of any such Restricted Subsidiary) in connection with MCC's
acquisition of such Restricted Subsidiary or the business of such Restricted
Subsidiary, provided that such encumbrance or restriction applies solely to
such Restricted Subsidiary and not to MCC or any other Restricted Subsidiary of
MCC or (d) pursuant to an agreement effecting a renewal, refunding, refinancing
or extension of Debt Incurred pursuant to an agreement referred to in clause
(a), (b) or (c) above or effecting an amendment to such agreement; provided,
however, that the provisions contained in such renewal, refunding, refinancing
or extension agreement relating to such encumbrance or restriction are no more
restrictive in any material respect than the provisions contained in the
agreement which is the subject thereof in the reasonable judgment of the Board
of Directors of MCPI as evidenced by a resolution of the Board of Directors of
MCPI filed with the Trustee (Section 1010).
Limitation on Transactions with Affiliates and Related Persons
Each Issuer may not, and MCC may not permit any Restricted Subsidiary to,
directly or indirectly, enter into any transaction or series of transactions
after the date of the Note Indenture resulting in aggregate consideration of
$1,000,000 or more
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within any 12-month period with any Affiliate or Related Person (other than
such Issuer or a Wholly Owned Restricted Subsidiary of MCC), unless (1) the
Board of Directors of MCPI determines in its good faith judgment evidenced by a
Board Resolution that the terms of such transaction are in the best interests
of such Issuer or such Restricted Subsidiary; and (2) such transaction is, in
the good faith judgment of the Board of Directors of MCPI evidenced by a Board
Resolution, on terms no less favorable to such Issuer, or such Restricted
Subsidiary, than those that could be obtained in a comparable arm's-length
transaction with an entity that is not an Affiliate or a Related Person;
provided that the foregoing shall not apply to (i) the Investment Banking
Agreement as currently in effect as of the date of the Note Indenture
(including any extensions of such agreements on terms substantially the same as
those in existence on the date of the Note Indenture), or (ii) Restricted
Payments permitted under "-Limitation on Restricted Payments" (Section 1012).
Limitation on Liens
MCC and Capital III may not Incur any Lien on or with respect to any
property or assets of such Issuer to secure Debt without making effective
provision for securing the Exchange Notes (and, if the Issuers shall so
determine, any other Debt of the Issuers which is not subordinate to the
Exchange Notes) equally and ratably with such Debt or, in the event such Debt
is subordinate in right of payment to the Exchange Notes, prior to such Debt,
as to such property or assets for so long as such Debt shall be so secured. The
foregoing restrictions shall not apply to (i) Liens in respect of the Senior
Credit Facility or in respect of any Debt that exists on the date of the Note
Indenture; (ii) Liens securing only the Exchange Notes; (iii) Liens in favor of
the Issuers; (iv) Liens on property existing at the time of acquisition thereof
(and not Incurred in anticipation of the financing of such acquisition); (v)
Liens on property of a Person existing at the time such Person is merged into
or consolidated with either of the Issuers; (vi) Liens on property of either of
the Issuers in favor of any governmental authority to secure certain payments
pursuant to any contract or statute; (vii) Liens to secure Debt Incurred for
the purpose of financing all or any part of the purchase price or the cost of
construction or improvement of the property subject to such Liens, provided,
however, that (a) the principal amount of any Debt secured by such a Lien shall
not exceed 100% of such purchase price or cost, (b) such Lien shall not extend
to or cover any other property other than such item of property and any
improvements on such item and (c) the Incurrence of such Debt is permitted by
the provisions described under "-Limitation on Consolidated Debt;" (viii) Liens
Incurred to secure the performance of statutory obligations, surety or appeal
bonds, performance or return-of-money bonds or other obligations of a like
nature incurred in the ordinary course of business; (ix) Liens on Capital Stock
of a Subsidiary and Liens on intercompany notes issued by such Subsidiary to an
Issuer to secure Debt Incurred by such Subsidiary in connection with the
Company's acquisition of such Subsidiary or the business of such Subsidiary;
and (x) Liens to secure any extension, renewal, refunding or refinancing (or
successive extensions, renewals, refundings or refinancings), in whole or in
part, of any Debt secured by Liens referred to in the foregoing clauses (i)
through (ix) so long as such Lien does not extend to any other property (other
than under the Senior Credit Facility) and the Debt so secured is not increased
(Section 1011).
Limitation on Certain Asset Dispositions
Each Issuer may not, and MCC may not permit any Restricted Subsidiary to,
make any Asset Disposition in one or more transactions in which the aggregate
consideration in any 12-month period exceeds $2,500,000, unless: (i) such
Issuer (or Restricted Subsidiary of MCC, as the case may be) receives
consideration at the time of such sale or other disposition at least equal to
the fair market value of the assets sold or disposed of as determined by the
Board of Directors of MCPI; (ii) except in the case of an exchange of assets
qualifying as a like-kind exchange under ss. 1031 of the Internal Revenue Code
(or successor provisions), not less than 75% of the consideration for such
disposition consists of cash or readily marketable cash equivalents or the
assumption of Debt of the Issuers or other obligations assumed and the release
of the Issuers and such Restricted Subsidiary from all liability on the Debt or
other obligations assumed is obtained; and (iii) all Net Available Proceeds,
less any amounts invested within one year of such disposition in accordance
with the following sentence in assets related to the business of the Issuers,
of such disposition and from the sale of any marketable cash equivalents
received therein are applied within one year of such disposition, (1) first, to
the permanent reduction of any Debt then outstanding under the Senior Credit
Facility or to the repayment of any other Debt of a Restricted Subsidiary of
MCC and (2) second, to the extent of remaining Net Available Proceeds, to
purchases of outstanding Exchange Notes pursuant to an Offer to Purchase
outstanding Exchange Notes at a purchase price equal to their Accreted Value on
the date of purchase (if such Offer to Purchase is consummated on or before
June 15, 2000) and 100% of their principal amount plus accrued interest to the
date of the purchase (if such Offer to Purchase is consummated thereafter) and
other pari passu Debt, on a pro rata basis according to their respective
principal amounts then outstanding (or accreted value in the case of original
issue discount debt), at 100% of the principal amount (or accreted value in the
case of original issue discount debt) plus accrued interest to the date of the
purchase. Notwithstanding the foregoing, the Issuers shall not be required to
repurchase or redeem Exchange Notes pursuant to clause (2) above if the Net
Available Proceeds from any Asset Disposition, less any amounts invested within
one year of such disposition in assets related to the business of MCC and any
amounts applied to repay Debt pursuant to clause (1) above, are less than
$5,000,000. The Issuers shall not be
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entitled to any credit against such obligation to purchase Exchange Notes for
the principal amount of any Exchange Notes acquired by the Issuers otherwise
than pursuant to such Offer to Purchase. To the extent that the aggregate
principal amount of Exchange Notes tendered pursuant to an Offer to Purchase
outstanding Exchange Notes is less that the amount of remaining Net Available
Proceeds, MCC may use an amount of Net Available Proceeds equal to the amount
by which Net Available Proceeds exceed the amount of such tendered Exchange
Notes for general business purposes. These provisions will not apply to a
transaction which is permitted under the provisions described under "-Mergers,
Consolidations and Certain Sales of Assets" (Section 1013).
Limitation on Issuances and Sale of Capital Stock of Subsidiaries
Subject to the provisions of the Note Indenture described under "-Mergers,
Consolidations and Certain Sales of Assets," each Issuer shall not, and MCC
shall not permit any Restricted Subsidiary to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of such Restricted Subsidiary or any
other Restricted Subsidiary to any Person (other than such Issuer or a Wholly
Owned Restricted Subsidiary of MCC) unless such transfer, conveyance, sale,
lease or other disposition is of all the Capital Stock of such Restricted
Subsidiary and the Net Available Proceeds from such transfer, conveyance, sale,
lease or other disposition are applied as described under "-Limitation on
Certain Asset Dispositions;" provided, however, that pledges of shares of
Capital Stock of MCC's Subsidiaries pursuant to the Senior Credit Facility or
any other credit facility of the Company that amends, refinances or replaces
the same, shall not constitute such a transfer, conveyance, sale, lease or
other disposition. MCC shall not permit any Restricted Subsidiary to issue
shares of its Capital Stock (other than directors' qualifying shares), or
securities convertible into, or warrants, rights or options to subscribe for or
purchase shares of, its Capital Stock to any Person other than to such Issuer
or a Wholly Owned Restricted Subsidiary of MCC. The foregoing provision shall
not be violated by the transfer, conveyance, issuance or sale by a Wholly Owned
Restricted Subsidiary of shares of its Capital Stock, provided that upon
consummation of any such transfer, conveyance, issuance or sale, such Wholly
Owned Restricted Subsidiary remains a Wholly Owned Restricted Subsidiary
(Section 1014).
The Issuers may not permit any Restricted Subsidiary of MCC to incur or
suffer to exist any Preferred Stock except: (i) Preferred Stock issued to and
held by MCC or a Wholly Owned Restricted Subsidiary of MCC (provided that such
Preferred Stock is at all times held by MCC or a Person which is a Wholly Owned
Restricted Subsidiary of MCC), (ii) Preferred Stock outstanding on the date of
the Note Indenture, and (iii) Preferred Stock issued by a Restricted Subsidiary
prior to the time (a) a Person became a Restricted Subsidiary, (b) a Person
merged into or consolidated with a Restricted Subsidiary or (c) another
Restricted Subsidiary of the Company merged into or consolidated with such
Person, which Preferred Stock was not Incurred or issued in anticipation of
such transaction and was outstanding prior to such transaction (Section 1008).
Provision of Financial Information
So long as any of the Exchange Notes are Outstanding, the Issuers will
file with the SEC, to the extent permitted by the SEC or the Exchange Act the
annual reports, quarterly reports and other documents which the Issuers would
have been required to file with the SEC pursuant to Section 13(a) or 15(d) of
the Exchange Act if the Issuers were subject to such Sections or will provide
to all Holders and file with the Trustee copies of such reports (Section 1016).
Limitations on Conduct of Business of Capital III
Capital III will not hold any operating assets or other properties or
conduct any business other than to serve as an Issuer and co-obligor with
respect to the Exchange Notes and will not own any Capital Stock of any Person
to the extent that such ownership would cause such Person to be deemed a
Subsidiary of Capital III (Section 1017).
UNRESTRICTED SUBSIDIARIES
MCC may designate any Subsidiary of MCC to be an "Unrestricted
Subsidiary," as set forth below, whereupon (and until such Person ceases to be
an Unrestricted Subsidiary) such Person and each other Person that is then or
thereafter becomes a Subsidiary of such Person will be deemed to be an
Unrestricted Subsidiary. An "Unrestricted Subsidiary" means (1) any Subsidiary
of MCC designated as such by MCC as set forth below where (a) neither MCC nor
any of its other Subsidiaries (other than another Unrestricted Subsidiary) (i)
provides credit support for, or any Guarantee of, any Debt of such Subsidiary
(including any undertaking, agreement or instrument evidencing such Debt) or
(ii) is directly or indirectly liable for any Debt of such Subsidiary, and (b)
no default with respect to any Debt of such Subsidiary (including any right
which the holders thereof may have to take enforcement action against such
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Debt of MCC and its other Subsidiaries (other than another Unrestricted
Subsidiary) to declare a default on such other Debt
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or cause the payment thereof to be accelerated or payable prior to its final
scheduled maturity, or (2) any Subsidiary of an Unrestricted Subsidiary. MCC
may designate any Subsidiary to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, any other Subsidiary of MCC, which is not a Subsidiary of the Subsidiary to
be so designated or otherwise an Unrestricted Subsidiary, provided that either
(a) the Subsidiary to be so designated has total assets of $1,000 or less or
(b) immediately after giving effect to such designation, the issuer could incur
at least $1.00 of additional Debt pursuant to the provisions of the Note
Indenture described in the first paragraph under "-Limitation on Consolidated
Debt." MCC may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary, provided that, immediately after giving effect to such designation,
the Issuers could incur at least $1.00 of additional Debt pursuant to the
provisions of the Note Indenture described in the first paragraph under
"-Limitation on Consolidated Debt." Any such designation by MCC will be
evidenced to the Trustee by filing with the Trustee an officers' certificate
certifying that such designation complied with the conditions described above.
Each Person that is or becomes a Subsidiary of MCC will be deemed to be a
Restricted Subsidiary at all times when it is a Subsidiary of MCC and has not
been duly designated as an Unrestricted Subsidiary. Each Person that is or
becomes a Wholly Owned Subsidiary of MCC shall be deemed to be a Wholly Owned
Restricted Subsidiary at all times when it is a Wholly Owned Subsidiary of MCC
and has not been duly designated as an Unrestricted Subsidiary (Section 101).
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
Each Issuer (i) may not consolidate with or merge into any other Person or
permit any other Person to consolidate with or merge into such Issuer or any
Restricted Subsidiary of MCC (in a transaction in which such Restricted
Subsidiary remains a Subsidiary); and (ii) may not, directly or indirectly,
transfer, convey, sell, lease or otherwise dispose of all or substantially all
of its assets unless: (1) immediately before and after giving effect to such
transaction and treating any Debt Incurred by such Issuer or a Restricted
Subsidiary of MCC as a result of such transaction as having been Incurred by
such Issuer or such Restricted Subsidiary at the time of the transaction, no
Event of Default or event that with the passing of time or the giving of
notice, or both, shall constitute an Event of Default shall have occurred and
be continuing; (2) in a transaction in which such Issuer does not survive or in
which such Issuer conveys, sells, leases or otherwise disposes of all or
substantially all of its assets, the successor entity of such Issuer is a
corporation, partnership, limited liability company or trust and is organized
and validly existing under the laws of the United States or any State thereof
or the District of Columbia and expressly assumes, by a supplemental indenture
executed and delivered to the Trustee in form satisfactory to the Trustee, all
of such Issuer's obligations under the Note Indenture; (3) immediately after
giving effect to such transaction, such Issuer or the successor entity to such
Issuer could incur at least $1.00 of additional Debt pursuant to the provisions
of the Note Indenture described in the first paragraph of "-Limitation on
Consolidated Debt" above; provided, however, that the provisions of this clause
(3) shall not apply to transactions described in clauses (i) and (ii) above
which are (x) between such Issuer and one or more Wholly Owned Restricted
Subsidiaries of MCC or (y) between two or more Wholly Owned Restricted
Subsidiaries of MCC; (4) if, as a result of any such transaction, property or
assets of such Issuer, the successor entity to such Issuer or any Subsidiary
would become subject to a Lien prohibited by the provisions of the Note
Indenture described under "-Limitation on Liens" above, such Issuer or the
successor entity to such Issuer shall have secured the Exchange Notes as
required by said covenant; and (5) certain other conditions are met. The
provisions of this section shall be applicable to any successor company which
expressly assumes such Issuer's obligations under the Note Indenture (Sections
801 and 802).
CHANGE OF CONTROL
Within 30 days following the date of the consummation of a transaction
resulting in a Change of Control, the Issuers will commence an Offer to
Purchase all outstanding Exchange Notes at a purchase price equal to 101% of
the Accreted Value on the date of purchase (if such Offer to Purchase is
consummated on or before June 15, 2000) or 101% of their aggregate principal
amount plus accrued interest to the date of purchase (if such Offer to Purchase
is consummated thereafter).
"Change of Control" will be deemed to have occurred at such time after the
date of the Note Indenture as any of the following occur:
(i) any issuance or transfer of any equity interest (or any beneficial
interest in any equity interest) in the General Partner or MCPI, or any
transfer of assets of any Person (including any member of senior management of
the Company), or any merger, consolidation or other transaction, or any other
event or occurrence, after which the Marcus Family Investors shall own not more
than 51% of the aggregate direct and indirect beneficial ownership interest in
the General Partner or MCPI or the Marcus Family Investors shall no longer have
the sole power to direct or cause the direction of the management or policies
of the General Partner or MCPI;
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(ii) a transfer or assignment of the General Partner's general partnership
interest in MCC, or of any portion thereof or of any beneficial interest
therein, if after giving effect to such assignment or transfer, the aggregate
direct or indirect beneficial ownership interest of the General Partner in the
general partnership interests of MCC is less than 51% and after which the
General Partner does not have the sole power to take all of the actions which
the General Partner is entitled or required to take under the MCC Partnership
Agreement in its capacity as General Partner;
(iii) a merger, consolidation or similar transaction involving either
Issuer unless the surviving entity of such transaction is a partnership or
corporation of which Mr. Marcus or an entity under the sole control of Mr.
Marcus or the Marcus Family Investors is the sole general partner or a
stockholder having the power to elect a majority of the Board of Directors of
such corporation, as the case may be, and with respect to which surviving
entity Mr. Marcus or an entity under the sole control of Mr. Marcus or the
Marcus Family Investors has the sole power to take all actions with respect to
such surviving entity which the General Partner is entitled or required to take
under the MCC Partnership Agreement in its capacity as the General Partner; or
(iv) the admission of any Person as a general partner of MCC after which
the General Partner does not have the sole power to take all of the actions
which the General Partner is entitled to or required to take under the MCC
Partnership Agreement, as in effect immediately following the original issuance
of the 14 1/4% Notes in its capacity as the general partner of MCC.
Notwithstanding the foregoing, no Change of Control will be deemed to have
occurred upon the occurrence of any of the events specified in clause (i),
(ii), (iii) or (iv) above if any such event shall have occurred as a result of
(1) the death or disability of Mr. Marcus and subsequent to such death or
disability and upon consummation of such event specified in clause (i), (ii),
(iii) or (iv), the Investors at the date of the Note Indenture and the Marcus
Family Investors shall own at least 51% of the aggregate direct and indirect
ownership interests in MCC or (2) the removal of the General Partner for cause
pursuant to the terms of the MCC Partnership Agreement and subsequent to such
removal and upon consummation of such event specified in clause (i), (ii),
(iii) or (iv), the Investors at the date of the Note Indenture own at least 51%
of the aggregate direct and indirect ownership interests in MCC. (Section
1015).
In the event that the Issuers are required to make an offer to purchase
outstanding Exchange Notes following the occurrence of a Change of Control, the
Issuers will comply, to the extent applicable, with any applicable requirements
relating to tender offers, including those arising under the Exchange Act and
Rule 14e-1 promulgated thereunder.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Note Indenture. Reference is made to the Note Indenture for the full definition
of all such terms, as well as any other terms used herein for which no
definition is provided. (Section 101).
"Accreted Value" of an Exchange Note means (i) as of any date of
determination prior to June 15, 2000 the sum of (a) the initial offering price
of the Note in exchange for which such Exchange Note was issued and (b) the
portion of the excess of the principal amount of such Exchange Note over such
initial offering price which shall have been accreted thereon through such
date, such amount to be so accreted on a daily basis at the rate of 14 1/4% per
annum of the initial offering price of the 14 1/4% Notes, compounded
semiannually on each June 15 and December 15, from the date of issuance of the
14 1/4% Notes through the date of determination, and (ii) as of any date of
determination on or after June 15, 2000, 100% of the principal amount at
maturity of each Exchange Note.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" by any Person means any transfer, conveyance, sale,
lease or other disposition by such Person or any of its Restricted Subsidiaries
(including a consolidation or merger or other sale of any such Restricted
Subsidiary with, into or to another Person in a transaction in which such
Restricted Subsidiary ceases to be a Restricted Subsidiary, but excluding a
disposition by a Restricted Subsidiary of such Person to such Person or a
Wholly Owned Subsidiary of such Person or by such Person to a Wholly Owned
Subsidiary of such Person, and excluding the creation of a Lien) of (i) shares
of Capital Stock (other
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than directors' qualifying shares) or other ownership interests of a Restricted
Subsidiary of such Person, (ii) substantially all of the assets of such Person
or any of its Restricted Subsidiaries representing a division or line of
business or (iii) other assets or rights of such Person or any of its
Restricted Subsidiaries outside of the ordinary course of business.
"Average Life" means, as of the date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of the
products of (A) the numbers of years from the date of determination to the
dates of each successive scheduled principal or liquidation value payments of
such Debt or Preferred Stock, respectively, and (B) the amount of such
principal or liquidation value payments, by (ii) the sum of all such principal
or liquidation value payments.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday or Friday
which is not a day on which banking institutions in The City of New York, New
York or Dallas, Texas are authorized or obligated by law or executive order to
close.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property of such Person which is required to
be classified and accounted for as a capital lease or a liability on the face
of a balance sheet of such Person in accordance with generally accepted
accounting principles. The stated maturity of such obligation shall be the date
of the last payment of rent or any other amount due under such lease prior to
the first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests,
participation or other equivalents (however designated) of corporate stock or
other equity interests of such Person, including without limitation,
partnership interests.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Cash Flow" of any Person means for any period the
Consolidated Net Income of such Person for such period increased by (i)
Consolidated Interest Expense of such Person for such period, plus (ii)
Consolidated Income Tax Expense of such Person for such period, plus (iii) the
consolidated depreciation and amortization expense included in the income
statement of such Person and its Consolidated Subsidiaries for such period,
plus (iv) other consolidated non-cash charges deducted from consolidated
revenues in determining Consolidated Net Income for such period, minus (v)
non-cash items increasing consolidated revenues for such period.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person and its Consolidated
Subsidiaries for such period.
"Consolidated Interest Expense" of any Person means for any period the
consolidated interest expense included in a consolidated income statement
(without deduction of interest income) of such Person and its Consolidated
Subsidiaries for such period determined in accordance with generally accepted
accounting principles, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the amortization of Debt
discounts; (ii) any payments or fees with respect to letters of credit,
bankers' acceptances or similar facilities; (iii) fees with respect to interest
rate swap or similar agreements or foreign currency hedge, exchange or similar
agreements, other than fees or charges related to the acquisition or
termination thereof which are not allocable to interest expenses in accordance
with generally accepted accounting principles; and (iv) Preferred Stock
dividends declared and payable in cash. However, Consolidated Interest Expense
shall not include the amortization of debt issuance costs.
"Consolidated Net Income" of any Person means for any period the
Consolidated Net Income (or loss) of such Person and its Consolidated
Subsidiaries for such period determined in accordance with generally accepted
accounting principles; provided that there shall be excluded therefrom (a) the
net income (or loss) of any Person acquired by such Person or a Subsidiary of
such Person in a pooling-of-interests transaction for any period prior to the
date of such transaction, (b) the net income (or loss) of any Person that is
not a Consolidated Subsidiary of such Person except to the extent of the amount
of dividends or other distributions actually paid to such Person by such other
Person during such period, (C) gains or losses on Asset Dispositions by such
Person or its Consolidated Subsidiaries and (d) all extraordinary gains and
extraordinary losses.
"Consolidated Subsidiaries" of any Person means all other Persons that
would be accounted for as consolidated Persons in such Person's financial
statements in accordance with generally accepted accounting principles;
provided that, for any particular
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period during which any Subsidiary was an Unrestricted Subsidiary,
"Consolidated Subsidiaries" will exclude such Subsidiary for such period (or
portion thereof) during which it was an Unrestricted Subsidiary.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person, and whether or
not contingent, (i) every obligation of such Person for money borrowed; (ii)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person (but excluding trade letters of credit in
support of Trade Accounts Payable arising in the ordinary course of business
and letters of credit and performance bonds issued in favor of Franchisors as a
term of the cable television franchises held by such Person or its
Subsidiaries); (iv) every obligation of such Person issued or assumed as the
deferred purchase price of property or services (but excluding Trade Accounts
Payable or accrued liabilities arising in the ordinary course of business and
accrued management fees); (v) every Capital Lease Obligation of such Person;
(vi) the maximum fixed redemption or repurchase price of Redeemable Stock of
such Person at the time of determination; and (vii) every obligation of the
type referred to in clauses (i) through (vi) of another Person and all
dividends of another Person the payment of which, in either case, such first
Person has Guaranteed or for which such first Person is responsible or liable,
directly or indirectly, as obligor, Guarantor or otherwise; provided, however,
Debt shall not include (A) with respect to MCC or any Subsidiary thereof, any
obligation of MCC or such Subsidiary in respect of any Interest Rate Agreement
to the extent such Interest Rate Agreement is entered into in connection with
Debt outstanding on the date of the Indenture or Debt permitted to be Incurred
pursuant to the covenant described under "-Limitation on Consolidated Debt" and
to the extent that the notional amount of debt specified in such Interest Rate
Agreement does not exceed the amount of such Debt and (B) any Trade Accounts
Payable.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person guaranteeing or having the economic effect of guaranteeing any
Debt of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, and including, without limitation, any obligation of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Debt or to purchase (or to advance or supply funds for the
purchase of) any security for the payment of such Debt, (ii) to purchase
property, securities or services for the purpose of assuring the holder of such
Debt of the payment of such Debt, or (iii) to maintain working capital, equity
capital or other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Debt (and "Guaranteed,"
"Guaranteeing" and "Guarantor" shall have meanings correlative to the
foregoing); provided, however, that the Guarantee by any Person shall not
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other
obligation or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Debt or other obligation on the
balance sheet of such Person (and "Incurrence," "Incurred," "Incurrable" and
"Incurring" shall have meanings correlative to the foregoing); provided,
however, that a change in generally accepted accounting principles that results
in an obligation of such Person that exists at such time becoming Debt shall
not be deemed an Incurrence of such Debt.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or similar agreement or
arrangement entered into for hedging purposes and designed to protect such
Person or any of its Subsidiaries against fluctuations in interest rates to or
under which such Person or any of its Subsidiaries is a party or a beneficiary
on the date of the Note Indenture or becomes a party or beneficiary thereafter.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution to (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise), or purchase or acquisition of Capital
Stock, bonds, notes, debentures or other securities or evidence of Debt issued
by any other Person.
"Investment Banking Agreement" means the agreement dated as of January 17,
1990 and as amended as of August 1, 1990, among Goldman, Sachs & Co., Marcus
Cable Partners, L.P., Marcus Cable Properties, Inc. and Jeffrey A. Marcus.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or
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marketability), encumbrance, preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever on or with respect
to such property or assets (including, without limitation, any conditional sale
or other title retention agreement having substantially the same economic
effect as any of the foregoing).
"Marcus Family Investors" means Jeffrey A. Marcus and his wife, Nancy C.
Marcus, and their respective estates, lineal descendants, adopted children,
heirs, executors, personal representatives, administrators and trusts for any
of their benefit or the benefit of their respective spouses, estates, lineal
descendants, adopted children or heirs and corporations and partnerships in
which one or more of the foregoing own more than 50% of the voting stock.
"MCPI" means Marcus Cable Properties, Inc., a Delaware corporation.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or readily marketable cash equivalents received (including by way of sale
or discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Debt or other obligations relating to such properties or assets or
received in any other noncash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and
expenses Incurred and all federal, state, provincial, foreign and local taxes
required to be accrued as a liability as a consequence of such Asset
Disposition; (ii) all payments made by such Person or its Subsidiaries on any
Debt which is secured by such assets in accordance with the terms of any Lien
upon or with respect to such assets or which must by the terms of such Lien, or
in order to obtain a necessary consent to such Asset Disposition or by
applicable law be repaid out of the proceeds from such Asset Disposition; (iii)
all distributions and other payments made to minority interest holders in
Subsidiaries of such Person or joint ventures as a result of such Asset
Disposition; and (iv) appropriate amounts to be provided by such Person or any
Restricted Subsidiary thereof, as the case may be, as a reserve in accordance
with generally accepted accounting principles against any liabilities
associated with such assets and retained by such Person or any restricted
Subsidiary thereof, as the case may be, after such Asset Disposition,
including, without limitation, liabilities under any indemnification
obligations and severance and other employee termination costs associated with
such Asset Disposition, in each case as determined by the board of directors or
general partner or applicable governing body of such Person or Restricted
Subsidiary, in its reasonable good faith judgement evidenced by a resolution of
such board of directors or general partner or applicable governing body filed
with the Trustee; provided, however, that any reduction in such reserve within
12 months following the consummation of such Asset Disposition will be treated
for all purposes of the Note Indenture and the Exchange Notes as a new Asset
Disposition at the time of such reduction with Net Available Proceeds equal to
the amount of such reduction.
"Offer to Purchase" means a written offer (the "Offer") sent by the
Issuers by first class mail, postage prepaid, to each Holder at its address
appearing in the Note Register on the date of the Offer offering to purchase up
to the principal amount of Exchange Notes specified in such Offer at the
purchase price specified on such Offer. Unless otherwise required by applicable
law, the Offer shall specify an expiration date (the "Expiration Date") of the
Offer to Purchase which shall be, subject to any contrary requirements of
applicable law, not less than 30 days or more than 60 days after the date of
such Offer and a settlement date (the "Purchase Date") for the purchase of
Exchange Notes within five Business Days after the Expiration Date. The Issuers
shall notify the Trustee at least 15 Business Days (or such shorter period as
is acceptable to the Trustee) prior to the mailing of the Offer of the Issuers'
obligation to make an Offer to Purchase, and the Offer shall be mailed by the
Issuers or, at the Issuers' request, by the Trustee in the name and at the
expense of the Issuers. The Offer shall contain information concerning the
business of the Issuers and their Subsidiaries which the Issuers in good faith
believe will enable such Holders to make an informed decision with respect to
the Offer to Purchase (which at a minimum will include (i) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to the provisions
described under "Provision of Financial Information" (which requirements may be
satisfied by delivery of such documents together with the Offer); (ii) a
description of material developments in the Issuers' business subsequent to the
date of the latest of such financial statements referred to in clause (i)
(including a description of the events requiring the Issuers to make the Offer
to Purchase); (iii) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring the Issuers to make
the Offer to Purchase; and (iv) any other information required by applicable
law to be included therein). The Offer shall contain all instructions and
materials necessary to enable such Holders to tender Exchange Notes pursuant to
the Offer to Purchase. The Offer shall also state:
(1) the Section of the Note Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
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(3) the aggregate principle amount of the Outstanding Exchange Notes
offered to be purchased by MCC pursuant to the Offer to Purchase (including, if
less than 100%, the manner by which such has been determined pursuant to the
Section of the Note Indenture requiring the Offer to Purchase) (the "Purchase
Amount");
(4) the purchase price to be paid by MCC for each $1,000 aggregate
principal amount of Exchange Notes accepted for payment (as specified pursuant
to the Note Indenture);
(5) that the Holder may tender all or any portion of the Exchange Notes
registered in the name of such Holder and that any portion of an Exchange Note
tendered must be tendered in an integral multiple of $1,000 principal amount;
(6) the place or places where Exchange Notes are to be surrendered for
tender pursuant to the Offer to Purchase;
(7) that interest on any Exchange Note not tendered or tendered but not
purchased by the Issuers pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the purchase price will become due and
payable upon each Exchange Note accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each Holder electing to tender an Exchange Note pursuant to the
Offer to Purchase will be required to surrender such Exchange Note at the place
or places specified in the Offer prior to the close of business on the
Expiration Date (such Exchange Note being, if the Issuers or the Trustee so
requires, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Issuers and the Trustee duly executed by, the
Holder thereof or his attorney duly authorized in writing and bearing
appropriate signature guarantees);
(10) that Holders will be entitled to withdraw all or any portion of
Exchange Notes tendered if the Issuers (or their Paying Agent) receives, not
later than the close of business on the Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Exchange Note the Holder tendered, the certificate
number of the Exchange Note the Holder tendered and a statement that such
Holder is withdrawing all or a portion of such tender;
(11) that (a) if Exchange Notes in an aggregate principal amount less than
or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to
the Offer to Purchase, the Issuers shall purchase all such Exchange Notes and
(b) if Exchange Notes in an aggregate principal amount in excess of the
Purchase Amount are tendered and not withdrawn pursuant to the Offer to
Purchase, the Issuers shall purchase Exchange Notes having an aggregate
principal amount equal to the Purchase Amount on a pro rata basis (with such
adjustments as may be deemed appropriate so that only Exchange Notes in
denominations of $1,000 or integral multiples thereof shall be purchased); and
(12) that in case of any Holder whose Exchange Note is purchased only in
part, the Issuers shall execute, and the Trustee shall authenticate and deliver
to such Holder at the expense of the Issuers, a new Exchange Note or Exchange
Notes, of any authorized denomination as requested by such Holder, in an
aggregate principal amount equal to and in exchange for the unpurchased portion
of the Exchange Note so tendered.
"pari passu," when used with respect to the ranking of any Debt of any
Person in relation to other Debt of such Person, means that such Debt (a)
either (i) is not subordinate in right of payment to any other Debt of such
Person or (ii) is subordinate in right of payment to the same Debt of such
Person as is the other and is so subordinate to the same extent and (b) is not
subordinate in right of payment to the other or to any Debt of such Person as
to which the other is not so subordinate.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, trust, unincorporated organization or government or any
agency or political subdivision thereof. The term "Person" as defined in the
Note Indenture could include any individual who is a member of the Company's
management and directors of MCPI. Unless the context otherwise indicates,
however, the term "Person" would not include affiliates of an individual or
entity specified in the next preceding sentence.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class of classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of
such Person, to shares of Capital Stock or any other class of such Person.
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<PAGE> 74
"Pro Forma Available Cash Flow" means the Pro Forma Consolidated Cash Flow
of MCC for any period less any amount of net income of any Consolidated
Subsidiary that would not have been available to MCC to make interest payments
or principal payments during such period on all MCC Debt outstanding during
such period.
"Pro Forma Consolidated Cash Flow" of any Person means for any period the
Consolidated Cash Flow of such Person for such period calculated on a pro forma
basis to give effect to any Asset Disposition or acquisition of assets not in
the ordinary course of business (including acquisitions of other Persons by
merger, consolidation or purchase of Capital Stock) during such period as if
such Asset Disposition or acquisition of assets had taken place on the first
day of such period.
"Redeemable Stock" means any equity security that by its terms or
otherwise is required to be redeemed prior to the Stated Maturity of the
Exchange Notes, or is redeemable at the option of the holder thereof at any
time prior to the Stated Maturity of the Exchange Notes.
"Related Person" of any Person means, without limitation, any other Person
owning (a) 5% or more of the outstanding Capital Stock of such Person or (b) 5%
or more of the Voting Stock of such Person.
"Senior Credit Facility" means the $1,150,000,000 credit facility entered
into by Operating on terms substantially as described under "The Senior Credit
Facility."
"Stated Maturity," when used with respect to any Note or any installment
of interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person, or by such Person
and one or more other Subsidiaries thereof or (ii) any other Person (other than
a corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof.
"Tax Amount" means for each fiscal year of any Person (a) the aggregate
amount of income or gain of such Person over the aggregate amount of loss,
deduction or expense of such Person multiplied by (b) the aggregate of the
maximum marginal federal, New York State and New York City income tax rates.
"Trade Accounts Payable" means, with respect to any Person, any customer
advance payments and deposits, trade payables and accounts payable created,
assumed or guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business that would be accounted for as an account payable
under generally accepted accounting principles.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
99% or more of the outstanding Capital Stock or other ownership interest of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
EVENTS OF DEFAULT
The following will be Events of Default under the Note Indenture: (a)
failure to pay any interest on any Exchange Note when due, continued for 30
days; (b) failure to pay principal of (or premium, if any, on) any Exchange
Note when due; (c) default in the payment of principal and interest on Exchange
Notes required to be purchased pursuant to an Offer to Purchase as described
under "-Limitation on Certain Asset Dispositions" and "-Change of Control" when
due and payable; (d) failure to perform or comply with the provisions described
under "-Mergers, Consolidations and Certain Sales of Assets;" (e) failure to
perform or breach of any other covenant or warranty of the Issuers in the Note
Indenture, continued for 60 days after written notice from the Trustee or
Holders of at least 25% in principal amount of the outstanding Exchange Notes
as provided in the Note Indenture; (f) a default under any bonds, debentures,
notes or other evidences of Debt of the Issuers or any Restricted Subsidiary or
under any mortgages, indentures or instruments under which there may be issued
or by which there may be secured or evidenced any Debt by the Issuers or any
Restricted Subsidiary, with a principal amount then outstanding, individually
or in the aggregate, in excess of $5 million, whether such Debt now exists or
shall hereafter be created, which default or defaults shall constitute a
failure to pay any portion of the principal of such Debt when due and payable
after the expiration of any applicable grace period (including any extension
thereof granted prior to the expiration of such grace period) with respect
thereto or shall
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<PAGE> 75
have resulted in such Debt becoming or being declared due and payable prior to
the date on which it would otherwise have become due and payable; (g) the
rendering of a final judgment or judgments against MCC or any of its Restricted
Subsidiaries in an aggregate amount (not otherwise covered by insurance) in
excess of $5 million which remains unstayed, in effect and unpaid for a period
of 60 consecutive days after the right to appeal all such judgments has
expired; and (h) certain events in bankruptcy insolvency or reorganization
affecting the Issuers or any Restricted Subsidiary (Section 501).
Subject to the provisions of the Note Indenture relating to the duties of
the Trustee in case an Event of Default shall occur and be continuing, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Note Indenture at the request or direction of any of the Holders,
unless such Holders shall have offered to the Trustee reasonable indemnity.
(Section 603). Subject to such provisions for the indemnification of the
Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Exchange Notes will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee (Section 512).
If an Event of Default (other than Events of Default with respect to
certain events of bankruptcy, insolvency or reorganization affecting the
Issuers or any Restricted Subsidiary) shall occur and be continuing, either the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Exchange Notes may accelerate the maturity of all Exchange Notes;
provided, however, that after such acceleration, but before a judgment or
decree based on acceleration, the Holders of a majority in aggregate principal
amount of outstanding Exchange Notes may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than the
non-payment of accelerated principal, have been cured or waived as provided in
the Indenture. If a specified Event of Default with respect to certain events
of bankruptcy, insolvency or reorganization affecting the Issuers or any
Restricted Subsidiary occurs, the principal of the Exchange Notes then
outstanding shall ipso facto become immediately due and payable without any
declaration or other Act on the part of the Trustee or any Holder of the
Exchange Notes. (Section 502). For information as to waiver of defaults, see
"-Modification and Waiver."
No Holder of any Exchange Note will have any right to institute any
proceeding with respect to the Note Indenture or for any remedy thereunder,
unless such Holder shall have previously given to the Trustee written notice of
a continuing Event of Default (as defined) and unless also the Holders of at
least 25% in aggregate principal amount of the outstanding Exchange Notes shall
have made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as trustee, and the Trustee shall not have received
from the Holders of a majority in aggregate principal amount of the outstanding
Exchange Notes a direction inconsistent with such request and shall have failed
to institute such proceeding within 60 days (Section 507). However, such
limitations do not apply to a suit instituted by a Holder of an Exchange Note
for enforcement of payment of the principal of (and premium, if any) or
interest on such Exchange Note on or after the respective due dates expressed
in such Exchange Note (Section 508).
The Issuers will be required to furnish to the Trustee annually a
statement as to the performance by the Issuers of certain of their obligations
under the Note Indenture and as to any default in such performance (Section
1018).
DEFEASANCE
The Note Indenture will provide that, at the Issuers' option, (A) if
applicable, the Issuers will be discharged from any and all obligations in
respect of the outstanding Exchange Notes or (B) if applicable, the Issuers may
omit to comply with certain restrictive covenants, and that such omission shall
not be deemed to be an Event of Default under the Note Indenture and the
Exchange Notes, in either case (A) or (B) upon irrevocable deposit with the
Trustee, in trust, of money and/or U.S. government obligations which will
provide money in an amount sufficient in the opinion of a nationally recognized
firm of independent certified public accountants to pay the principal of and
premium, if any, and each installment of interest, if any, on the outstanding
Exchange Notes. With respect to clause (B), the obligations under the Note
Indenture, other than with respect to such covenants, and the Events of
Default, other than the Events of Default relating to such covenants, shall
remain in full force and effect. Such trust may only be established if, among
other things (i) with respect to clause (A), the Issuers have received from, or
there has been published by, the Internal Revenue Service a ruling or there has
been a change in law, which in the opinion of counsel provides that Holders of
the Exchange Notes will not recognize gain or loss for Federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to Federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit, defeasance and
discharge had not occurred; or, with respect to clause (B), the Issuers have
delivered to the Trustee an opinion of counsel to the effect that the Holders
of the Exchange Notes will not recognize gain or loss for Federal income tax
purposes as a result of such deposit and defeasance and will be subject to
Federal income tax on the same amount, in the same manner and at the same times
as would have been the case if such deposit and defeasance had not occurred;
(ii) no Event of Default or event that with the passing of time or the giving
of notice, or both, shall constitute an Event of Default shall have occurred or
be continuing; (iii) the Issuers have delivered to the Trustee an opinion of
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<PAGE> 76
counsel to the effect that such deposit shall not cause the Trustee or the
trust so created to be subject to the Investment Company Act of 1940; and (iv)
certain other customary conditions precedent are satisfied. (Article Twelve).
MODIFICATION AND WAIVER
Modifications and amendments of the Note Indenture may be made by the
Issuers and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the outstanding Exchange Notes; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each outstanding Exchange Note affected thereby, (a) change the
Stated Maturity of, the principal of, or any installment of interest on, any
Exchange Note, (b) reduce the principal amount of (or the premium) or interest
on, any Exchange Note, (c) change the place or currency of payment of,
principal of (or the premium) or interest on, any Exchange Note, (d) impair the
right to institute suit for the enforcement of any payment on or with respect
to any Exchange Note, (e) reduce the above-stated percentage of outstanding
Exchange Notes necessary to modify or amend the Note Indenture, (f) reduce the
percentage of aggregate principal amount of outstanding Exchange Notes
necessary for waiver of compliance with certain provisions of the Note
Indenture or for waiver of certain defaults, (g) modify any provisions of the
Note Indenture relating to the modification and amendment of the Note Indenture
or the waiver of past defaults or covenants, except as otherwise specified, or
(h) following the mailing of an offer with respect to an Offer to Purchase the
Exchange Notes as described under "-Limitation on Certain Asset Dispositions,"
"-Limitation on Issuances and Sale of Capital Stock of Subsidiaries" and
"-Change of Control," modify the Note Indenture with respect to such Offer to
Purchase in a manner adverse to such Holder (Section 902).
The Holders of a majority in aggregate principal amount of the outstanding
Exchange Notes may waive compliance by the Issuers with certain restrictive
provisions of the Note Indenture (Section 1019). The Holders of a majority in
aggregate principal amount of the outstanding Exchange Notes may waive any past
default under the Note Indenture, except a default in the payment of principal,
premium, if any, or interest (Section 513).
THE TRUSTEE
Norwest Bank Minnesota, National Association will be the Trustee under the
Note Indenture unless or until a successor Trustee is subsequently appointed
pursuant to the provisions of the Note Indenture. The Note Indenture provides
that, except during the continuance of an Event of Default, the Trustee will
perform only such duties as are specifically set forth in the Note Indenture.
During the existence of an Event of Default, the Trustee will exercise such
rights and powers vested in it under the Indenture and use the same degree of
care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs (Sections 601 and
603).
The Note Indenture and provisions of the Trust Indenture Act incorporated
by reference therein contain limitations on the rights of the Trustee, should
it become a creditor of the Issuers, to obtain payment of claims in certain
cases or to realize on certain property received by it in respect of any such
claim as security or otherwise (Section 613).
The Trustee is permitted to engage in other transactions with the Issuers
or any Affiliate; provided, however, that if it acquires any conflicting
interest (as defined in the Note Indenture or in the Trust Indenture Act), it
must eliminate such conflict or resign (Section 608).
RELEASE FROM LIABILITY
The Exchange Notes were issued solely by MCC and Capital III. The Note
Indenture provides that none of the General Partner, MCPI, any of the limited
partners of any of the Operating Partnerships or the Investors, or any of their
respective directors, officers, partners, stockholders and employees, will be
an obligor under the Exchange Notes, and the Note Indenture expressly provides
that the General Partner, MCPI, any of the limited partners of any of the
Operating Partnerships and the Investors, together with their respective
directors, officers, partners, stockholders and employees, shall not have any
liability for any obligations of MCC or Capital III under the Exchange Notes or
the Note Indenture or any claim based on, in respect of, or by reason of, such
obligations, and that by accepting the Exchange Notes, each Holder of the
Exchange Notes waives and releases all such liability, which waiver and release
are part of the consideration for issuance of the Exchange Notes. (Section
203). Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the SEC that such a waiver is against
public policy.
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<PAGE> 77
PLAN OF DISTRIBUTION
This Prospectus is to be used by Goldman Sachs in connection with offers
and sales of the Exchange Notes in market-making transactions effected from
time to time. Goldman Sachs may act as principal or agent in such transactions
including as agent for the counterparty when acting as principal or as agent
for both counterparties, and may receive compensation in the form of discounts
and commissions, including from both counterparties when it acts as agent for
both. Such sales will be made at prevailing market prices at the time of sale,
at prices related thereto or at negotiated prices.
Affiliates of Goldman Sachs collectively comprise the largest holder of
Class B LP Units of MCC. See "Principal Security Holders." Goldman Sachs has
informed the Company that it does not intend to confirm sales of the Exchange
Notes to any accounts over which it exercises discretionary authority without
the prior specific written approval of such transactions by the customer.
Goldman Sachs has provided investment banking services to the Company in
the past and may provide such services and financial advisory services to the
Company in the future. Goldman Sachs acted as underwriter in connection with
the original offering of the 14 1/4% Notes and received underwriting discounts
totaling $3,000,000 in connection therewith. See "Certain Relationships and
Related Transactions".
The Issuers have not and do not intend to apply for listing of the
Exchange Notes on any security exchange. The Company has been advised by
Goldman Sachs that Goldman Sachs intends to make a market in the Exchange Notes
but are not obligated to do so and may discontinue market-making at any time
without notice. In addition, such market-making activity will be subject to the
limits imposed by the Act and the Exchange Act. Because of the affiliation of
Goldman Sachs with the Issuers, Goldman Sachs has determined that they should
deliver a current prospectus to any purchaser in connection with secondary
transactions in the securities. No assurance can be given as to the liquidity of
the trading market for the Exchange Notes. See "Risk Factors -- Absence of
Public Market for the Exchange Notes".
Goldman Sachs and the Issuers have entered into a registration rights
agreement with respect to the use by Goldman Sachs of this Prospectus.
Pursuant to such agreement, the Issuers agreed to bear all registration
expenses incurred under such agreement, and the Company agreed to indemnify
Goldman Sachs against certain liabilities, including liabilities under the
Securities Act.
VALIDITY OF THE EXCHANGE NOTES
The validity of the Exchange Notes was passed upon for the Issuers by
Baker & Botts, L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements of MCC and subsidiaries as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, the financial statements of Capital III as of December
31, 1996 and for the period from June 9, 1995 (date of inception) to December
31, 1995, the balance sheets of Properties as of December 31, 1996 and 1995
have been included herein and in the Registration Statement in reliance upon
the reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The combined financial statements of the Sammons Systems as of December
31, 1994 and 1993 and for each of the years in the three-year period ended
December 31, 1994 included herein and in the Registration Statement have been
included herein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, appearing elsewhere herein, given on the authority of
that firm as experts in accounting and auditing.
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<PAGE> 78
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Marcus Cable Company, L.P. and Subsidiaries:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the three years ended December 31, 1996 . . . . F-4
Consolidated Statements of Partners' Capital (Deficit) for the three years ended
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1996 . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-7
Marcus Cable Capital Corporation III:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-20
Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . F-21
Statements of Operations for the year ended December 31, 1996 and for the period from
June 9, 1995 (date of inception) to December 31, 1`995 . . . . . . . . . . . . . . F-22
Statements of Shareholder's Equity for the year ended December 31, 1996 and for the period
from June 9, 1995 (date of inception) to December 31, 1995 . . . . . . . . . . . . F-23
Statements of Cash Flows for the year ended December 31, 1996 and for the period from
June 9, 1995 (date of inception) to December 31, 1995 . . . . . . . . . . . . . . F-24
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-25
Marcus Cable Properties, L.P.:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-26
Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . F-27
Notes to Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-28
The Sammons Systems:
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-30
Combined Balance Sheets as of December 31, 1994 and 1993 and
September 30, 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . F-31
Combined Statements of Income for the three years ended December 31, 1994 and the nine
months ended September 30, 1995 and 1994 (unaudited) . . . . . . . . . . . . . . . F-32
Combined Statements of Changes in Equity (Deficit) Investment for the three years ended
December 31, 1994 and the nine months ended September 30, 1995 (unaudited) . . . . F-33
Combined Statements of Cash Flows for the three years ended December 31, 1994 and the
nine months ended September 30, 1995 and 1994 (unaudited) . . . . . . . . . . . . F-34
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-35
</TABLE>
<PAGE> 79
INDEPENDENT AUDITORS' REPORT
The Partners
Marcus Cable Company, L.P.:
We have audited the accompanying consolidated balance sheets of Marcus Cable
Company, L.P. and subsidiaries as of December 31, 1996 and 1995, and the
related statements of operations, partners' capital (deficit) and cash flows
for each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Partnership'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 Marcus Cable
Company, L.P. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
February 21, 1997, except for note 12,
which is as of March 14, 1997
F-2
<PAGE> 80
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
Assets 1996 1995
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,034 $ 17,409
Accounts receivable, net of allowance of $1,900 in 1996 and
$1,564 in 1995 17,043 16,946
Prepaid expenses 2,432 1,860
------------ ------------
Total current assets 25,509 36,215
Property and equipment, net (notes 2 and 3) 578,507 538,452
Other assets, net (note 4) 1,083,534 1,185,387
------------ ------------
$ 1,687,550 $ 1,760,054
============ ============
Liabilities and Partners' Capital
Current liabilities:
Current maturities of long-term debt (note 6) $ 41,819 $ 339
Accrued liabilities (note 5) 49,405 50,350
Accrued interest 10,664 12,734
------------ ------------
Total current liabilities 101,888 63,423
Long-term debt (note 6) 1,396,652 1,407,551
Subsidiary limited partner interests (note 7) (246) (246)
Partners' capital - redeemable partner interests (note 8) 189,256 289,326
Commitments and contingencies (notes 6, 8 and 11)
------------ ------------
$ 1,687,550 $ 1,760,054
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 81
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Cable services $ 432,172 $ 195,004 $ 63,629
Management fees 2,335 3,290 1,118
---------- ---------- ----------
Total revenues 434,507 198,294 64,747
---------- ---------- ----------
Operating expenses:
Selling, service and system management 157,197 68,753 21,660
General and administrative 73,017 33,271 9,793
Management fees and expenses (note 9) -- -- 2,165
Depreciation and amortization 166,429 83,723 37,412
---------- ---------- ----------
396,643 185,747 71,030
---------- ---------- ----------
Operating income (loss) 37,864 12,547 (6,283)
---------- ---------- ----------
Other (income) expense:
Interest expense 144,681 82,911 28,105
Gain on sale of cable systems (note 2) (6,442) (26,409) --
Interest income (305) (768) (407)
Other, net -- 1,234 356
---------- ---------- ----------
137,934 56,968 28,054
---------- ---------- ----------
Loss before subsidiary limited partner
interests and extraordinary item (100,070) (44,421) (34,337)
Subsidiary limited partner interests (note 7) -- -- 6,034
---------- ---------- ----------
Loss before extraordinary item (100,070) (44,421) (28,303)
Extraordinary item - loss on early retirement of debt -- (8,395) (2,307)
---------- ---------- ----------
Net loss $ (100,070) $ (52,816) $ (30,610)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 82
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidated Statements of Partners' Capital (Deficit)
Years ended December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
Redeemable Partner Interests
----------------------------
Class B
General Limited Class A
Partners Partners Partner Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ (7,361) $ -- $ (4,309) $ (11,670)
Distribution of preference
returns on Class A units
redeemed (7) (721) -- (728)
Redemption of Class A units (25) (2,519) 1,272 (1,272)
Conversion of Class A units (3,844) (166) 4,010 --
Issuance of partnership units -- 22,990 -- 22,990
Net loss (10,053) (19,584) (973) (30,610)
---------- ---------- ---------- ----------
Balance at December 31, 1994 (21,290) -- -- (21,290)
Excess of purchase price over
carrying value of certain CALP
assets acquired (note 2) -- (14,183) -- (14,183)
Issuance of partnership units -- 385,000 -- 385,000
Syndication costs -- (7,385) -- (7,385)
Net loss (106) (52,710) -- (52,816)
---------- ---------- ---------- ----------
Balance at December 31, 1995 (21,396) 310,722 -- 289,326
Net loss (200) (99,870) -- (100,070)
---------- ---------- ---------- ----------
Balance at December 31, 1996 $ (21,596) $ 210,852 $ -- $ 189,256
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 83
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (100,070) $ (52,816) $ (30,610)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Extraordinary item - loss on early retirement of debt -- 8,395 2,307
Gain on sale of assets (6,442) (26,409) --
Depreciation and amortization 166,429 83,723 37,412
Accretion of discount on notes 63,278 43,739 12,264
Subsidiary limited partner interests -- -- (6,034)
Changes in assets and liabilities, net of effects of
acquisitions:
Accounts receivable (70) (2,610) (2,411)
Prepaid expenses (574) (474) (222)
Other assets (502) 1,721 495
Accrued liabilities (3,063) 30,761 2,688
------------ ------------ ------------
Net cash provided by operating activities 118,986 86,030 15,889
------------ ------------ ------------
Cash flows from investing activities:
Escrow deposit on acquisition of cable systems -- -- (5,000)
Acquisition of cable systems and franchises, net of
cash acquired (10,272) (1,455,718) (139,130)
Net proceeds from sale of assets 20,638 65,037 --
Additions to property and equipment (110,639) (42,219) (6,592)
------------ ------------ ------------
Net cash used in investing activities (100,273) (1,432,900) (150,722)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt 65,338 1,280,003 215,000
Repayment of long-term debt (95,052) (245,000) (95,000)
Contributions by limited partners, net of syndication costs -- 362,615 22,990
Payment of debt issuance costs -- (38,307) (9,666)
Payments on capital leases (374) (360) --
Redemption of Class A partner units -- -- (2,000)
------------ ------------ ------------
Net cash provided by (used in) financing
activities (30,088) 1,358,951 131,324
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (11,375) 12,081 (3,509)
Cash and cash equivalents at beginning of year 17,409 5,328 8,837
------------ ------------ ------------
Cash and cash equivalents at end of year $ 6,034 $ 17,409 $ 5,328
============ ============ ============
Supplemental disclosure of cash flow information - interest paid $ 83,473 $ 27,591 $ 15,868
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 84
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) General
Marcus Cable Company, L.P. ("MCC" or the "Partnership"), a
Delaware limited partnership, and subsidiaries (collectively, the
"Company") was formed on January 17, 1990 for the purpose of
acquiring, operating and developing cable television systems. The
Company derives its primary source of revenues by providing
various levels of cable television programming and services to
residential and business customers. Other revenues are derived by
providing management services to cable systems owned by third
parties. The Company's operations are conducted through
subsidiary partnerships. In July 1994, the Company formed Marcus
Cable Operating Company, L.P. ("Operating"), a wholly-owned
subsidiary. Operating acts as a holding company and as general
partner for its subsidiary operating partnerships.
(b) Basis of Presentation
The consolidated financial statements include the accounts of MCC
and its subsidiary partnerships and corporations. All significant
intercompany accounts and transactions have been eliminated in
consolidation. Certain reclassifications have been made to prior
years' consolidated balances to conform to the current year
presentation.
(c) Cash Equivalents
For purposes of the statement of cash flows, the Company considers
all highly liquid investments with original maturities of three
months or less at inception to be cash equivalents. At December
31, 1996 and 1995, the Company had cash equivalents of $6,233,000
and $21,114,000, respectively, consisting of certificates of
deposit and money market funds.
(d) Property and Equipment
Property and equipment are recorded at cost, including all direct
costs and certain indirect costs associated with the construction
of cable television transmission and distribution systems, and the
cost of new customer installations. Maintenance and repairs are
charged to expense as incurred and equipment replacements and
betterments are capitalized.
Property and equipment are depreciated using the straight-line
method based on estimated useful lives as follows: buildings, 15
years; cable systems, 3 to 10 years; and vehicles and other, 3 to
10 years.
(e) Other Assets
Franchise rights and going concern value of acquired cable systems
are amortized on a straight-line basis over ten to fifteen years.
The cost of noncompetition agreements is amortized by the
straight-line method over the periods of the respective
agreements. Deferred debt issuance costs are amortized to
interest expense using the interest method over the term of the
related debt.
The Company assesses the recoverability of goodwill and other
intangible assets as well as the related amortization lives by
determining whether the carrying value of the intangible assets
can be recovered over the remaining lives through projected
undiscounted future cash flows. To the extent that such
projections indicate that undiscounted future cash flows are not
expected to be adequate to recover the carrying amounts of the
related goodwill and other intangible assets, such carrying
amounts are adjusted for impairment to a level commensurate with
the estimated fair value of the underlying assets.
(f) Revenues
Revenues from basic and premium service are recognized when the
service is provided.
F-7
<PAGE> 85
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Installation revenues are recognized to the extent of direct
selling costs incurred. The remainder, if any, is deferred and
amortized to income over the estimated average period that
customers are expected to remain connected to the cable television
system.
Management fee revenues are recognized concurrently with the
recognition of revenues by the managed cable system.
(g) Income Taxes
The Company has not provided for federal income taxes since such
taxes are the responsibility of the individual partners. The
Company's subsidiary corporations are subject to federal income
tax but either have no operations or have experienced net losses
and, therefore, had no taxable income since their inception.
(h) Subsidiary Limited Partner Interests
Limited partner interests of subsidiary partnerships which are not
directly held by the Company are accounted for in a manner similar
to minority interests. Net income or loss and preference returns
related to the limited partner interests of subsidiary
partnerships are reflected in the accompanying statements of
operations as "subsidiary limited partner interests."
(i) Derivative Financial Instruments
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Any
derivative financial instruments are used to manage well-defined
interest rate risk related to the Company's outstanding debt.
As interest rates change under interest rate swap agreements, the
differential to be paid or received is recognized as an adjustment
to interest expense. The Company is not exposed to credit loss as
its interest rate swap agreements are with certain of the
participating banks under the Company's Senior Credit Facility.
The fair value of long-term debt was $1,511,233,000 and
$1,511,875,000 at December 31, 1996 and 1995, respectively.
(j) Disclosure of Certain Significant Risks and Uncertainties
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.
(k) Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, on January 1, 1996. This Statement requires that
long-lived assets and intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of
are reported at the lower of the carrying amount or fair value
less costs to sell. The adoption of this Statement did not have a
material impact on the Company's financial position, results of
operations, or liquidity.
F-8
<PAGE> 86
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Acquisitions and Dispositions
On January 11, 1996, the Company completed the purchase of cable
television systems in Texas for $875,000. On July 8, 1996, the Company
acquired cable television systems in Mississippi for an aggregate
purchase price of $2,600,000. On July 31, 1996, the Company acquired
cable television systems in Indiana for a purchase price of $6,700,000.
Combined acquisition costs for these systems were approximately $97,000.
On January 18, 1995, the Company acquired cable television systems in
Wisconsin and Minnesota owned and operated by Crown Media, Inc. ("Crown")
and Cencom of Alabama, L.P. ("CALP") limited partner units held by Crown
for an aggregate purchase price of $331,717,000. On August 31, 1995, the
Company acquired all remaining CALP ordinary limited partner interests
held by outside parties in exchange for convertible preference units of
MCC with a $15,000,000 distribution preference and caused the redemption
of all outstanding CALP special limited partnership interests and the
retirement of all outstanding bank indebtedness of CALP for $138,280,000
in cash. On November 1, 1995, the Company acquired certain cable
television systems owned and operated by Sammons Communications, Inc.
("Sammons") for a purchase price of $961,701,000 plus direct acquisition
costs of $31,187,000 and less assumed liabilities of $4,524,000. Other
miscellaneous acquisitions of cable television systems were also
completed in 1995 for $2,357,000.
On July 29, 1994, the Company acquired cable television systems in
Wisconsin and Minnesota from Star Cablevision Group ("Star"), an
unaffiliated third party, for $139,232,000. On September 1, 1994, the
Company acquired from Crown the general partner interest in CALP, the
management contract pursuant to which the Company provided management
services to CALP, and accrued and unpaid management fees, for total cash
consideration of $2,878,000. Management fees earned by the Company under
the management contract during the years ended December 31, 1995 and 1994
were $1,082,000 and $532,000, respectively.
The acquisitions discussed above were accounted for as purchases and,
accordingly, the purchase prices were allocated to tangible and
intangible assets based on estimated fair market values at the dates of
acquisition. Fair market values were determined using independent
appraisers, or in the case of the smaller acquisitions, estimated based
on previous acquisitions. Operating results of the acquired companies
are included in the accompanying financial statements from the dates of
acquisition except for operating results of Crown, which are included as
of January 1, 1995. In connection with the acquisitions, the Company
also assumed responsibility for settling outstanding receivables and
payables of the cable television systems acquired. Net assets acquired
as a result of these acquisitions are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Working capital deficit $ -- $ (15,900) $ --
Property and equipment 5,004 485,410 34,147
Franchise rights 4,861 959,651 94,437
Going concern value -- 33,055 10,412
Noncompetition agreements 383 12,160 100
Other assets 24 1,342 3,014
------------ ------------ ------------
Total purchase price (1995 includes $5,000
from escrow paid in 1994 and 1994
includes $2,980 from escrow paid in 1993) $ 10,272 $ 1,475,718 $ 142,110
============ ============ ============
</TABLE>
Prior to the final CALP acquisition, certain partners in MCC who hold a
controlling interest in MCC also held an interest in CALP. Because of
this common ownership interest, the predecessor cost was used to value
the assets acquired to the extent of the investment held in CALP by the
partners in MCC. A charge of $14,183,000
F-9
<PAGE> 87
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
which was made to partners' capital represents the excess of the
consideration paid over the carrying value of the investment in CALP held
by partners in MCC. For accounting purposes, such excess is reflected as
a reduction in the partners' capital accounts of MCC.
On October 11, 1996, the Company sold the cable television systems
operating in Washington for a cash purchase price of $20,638,000, net of
selling costs. The sale resulted in a gain of $6,442,000.
On June 30, 1995, the Company sold the cable television systems operating
in and around San Angelo, Texas to TeleService Corporation of America for
a cash purchase price of $65,037,000, net of selling costs. The sale
resulted in a gain of $26,409,000. Net proceeds from the sale were used
to retire outstanding borrowings under Operating's then existing senior
credit facility.
Unaudited pro forma financial information for the years ended December
31, 1996 and 1995 as though the acquisitions and dispositions discussed
above had occurred at January 1, 1995 follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenues $ 432,698 $ 398,141
Operating income 37,310 11,263
Net loss (100,624) (140,186)
</TABLE>
(3) Property and Equipment
Property and equipment consists of the following at December 31, 1996 and
1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cable systems $ 670,829 $ 567,542
Vehicles and other 26,008 19,826
Land and buildings 13,256 10,362
---------- ----------
710,093 597,730
Accumulated depreciation (131,586) (59,278)
---------- ----------
$ 578,507 $ 538,452
========== ==========
</TABLE>
F-10
<PAGE> 88
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Other Assets
Other assets consist of the following at December 31, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Franchise rights $ 1,175,009 $1,181,243
Going concern value of acquired cable systems 45,969 45,856
Noncompetition agreements 31,914 32,633
Debt issuance costs 43,500 43,246
Other 1,069 1,071
------------ ----------
1,297,461 1,304,049
Accumulated amortization (213,927) (118,662)
------------ ----------
$ 1,083,534 $1,185,387
============ ==========
</TABLE>
(5) Accrued Liabilities
Accrued liabilities consist of the following at December 31, 1996 and
1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Accrued property taxes $ 3,830 $ 3,552
Accrued acquisition costs 2,838 3,438
Accrued programming costs 8,301 8,371
Accrued franchise fees 9,429 8,730
Accrued operating liabilities 20,377 18,916
Other accrued liabilities 4,630 7,343
----------- ----------
$ 49,405 $ 50,350
=========== ==========
</TABLE>
(6) Long-term Debt
The Company has outstanding borrowings on long-term debt arrangements at
December 31, 1996 and 1995 as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Senior Credit Facility $ 855,000 $ 885,000
13 1/2% Senior Subordinated Discount Notes 295,119 258,979
14 1/4% Senior Discount Notes 185,862 162,027
11 7/8% Senior Debentures 100,000 100,000
Capital leases and other notes 2,490 1,884
---------- ----------
1,438,471 1,407,890
Less current maturities 41,819 339
---------- ----------
$1,396,652 $1,407,551
========== ==========
</TABLE>
On August 31, 1995, the Company entered into the Senior Credit Facility,
which provides for two term loan facilities, one of which is in the
principal amount of $490,000,000 and matures on December 31, 2002
("Tranche A") and the other of which is in the principal amount of
$300,000,000 and matures on April 30, 2004 ("Tranche
F-11
<PAGE> 89
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
B"). The Senior Credit Facility provides for scheduled amortization of
the two term loan facilities beginning in September 1997. The Senior
Credit Facility also provides for a $310,000,000 Revolving Credit
Facility, with a maturity date of December 31, 2002. At December 31,
1996, there were borrowings of $790,000,000 under the two term loan
facilities and $65,000,000 under the Revolving Credit Facility. Amounts
outstanding under the Senior Credit Facility bear interest at either the
i) Eurodollar rate, ii) prime rate or iii) CD base rate, in each case
plus a margin of up to 2.75% subject to certain adjustments based on the
ratio of Operating's total debt to annualized operating cash flow, as
defined. At December 31, 1996, borrowings under the Senior Credit
Facility bore interest at rates ranging from 6.75% to 8.25% under the
Eurodollar rate option. The Senior Credit Facility, among other things,
provides for (i) a pledge by Operating of all partnership interests in
the subsidiary operating partnerships and (ii) a pledge by Operating of
intercompany notes payable to it by the subsidiary operating
partnerships. All borrowings outstanding under the Senior Credit
Facility are guaranteed by MCC on an unsecured basis. The Company pays a
commitment fee of .250% to .375% on the unused commitment under the
facilities. Commitment fees on the unused portion of credit facilities
amounted to $866,000, $788,000 and $225,000 for the years ended December
31, 1996, 1995 and 1994, respectively.
On June 9, 1995, MCC issued $299,228,000 of 14 1/4% Senior Discount Notes
due December 15, 2005 (the "14 1/4% Notes") for net proceeds of
$150,003,000. The 14 1/4% Notes are unsecured and rank pari passu to the
11 7/8% Debentures (defined below). The 14 1/4% Notes are redeemable at
the option of MCC at amounts decreasing from 107% to 100% of par
beginning on June 15, 2000. No interest is payable until December 15,
2000. Thereafter interest is payable semi annually until maturity. The
discount on the 14 1/4% Notes is being accreted using the interest
method. The unamortized discount was $113,366,000 and $137,201,000 at
December 31, 1996 and 1995, respectively. Proceeds from the 14 1/4%
Notes were used to retire outstanding borrowings under Operating's then
existing senior credit facility.
On July 29, 1994, the Company, through Operating, issued $413,461,000
face amount of 13 1/2% Senior Subordinated Discount Notes due August 1,
2004 (the "13 1/2% Notes") for net proceeds of approximately
$215,000,000. The 13 1/2% Notes are unsecured, are guaranteed by MCC and
are redeemable, at the option of Operating, at amounts decreasing from
105% to 100% of par beginning on August 1, 1999. No interest is payable
on the 13 1/2% Notes until February 1, 2000. Thereafter, interest is
payable semiannually until maturity. The discount on the 13 1/2% Notes
is being accreted using the interest method. The unamortized discount
was $118,342,000 and $154,482,000 at December 31, 1996 and 1995,
respectively. Proceeds from the 13 1/2% Notes were used to retire
outstanding borrowings under the Company's then existing senior credit
facility and to fund the 1994 acquisitions.
On October 13, 1993, the Company issued $100,000,000 principal amount of
11 7/8% Senior Debentures due October 1, 2005 (the "11 7/8% Debentures").
The 11 7/8% Debentures are unsecured and are redeemable at the option of
the Company on or after October 1, 1998 at amounts decreasing from 105.9%
to 100% of par at October 1, 2002, plus accrued interest, to the date of
redemption. Interest on the 11 7/8% Debentures is payable semiannually
each April 1 and October 1 until maturity. Proceeds from the 11 7/8%
Debentures, together with borrowings under the Company's then existing
senior credit facility, were used to repay indebtedness of subsidiary
operating partnerships and to redeem certain MCC preference units.
The 14 1/4% Notes, 13 1/2% Notes, 11 7/8% Debentures and Senior Credit
Facility all require the Company and/or its subsidiaries to comply with
various financial and other covenants, including the maintenance of
certain operating and financial ratios. These debt instruments also
contain substantial limitations on, or prohibitions of, distributions,
additional indebtedness, liens, asset sales and certain other items.
The Company entered into certain interest rate swap agreements with
certain of the participating banks under the Company's Senior Credit
Facility in order to reduce the impact of changes in interest rates on
its floating rate long-term debt. At December 31, 1996, interest rate
swap agreements covering a notional balance of
F-12
<PAGE> 90
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
$650,000,000 are outstanding. These outstanding swap agreements mature
during 1997 and 1998 and require the Company to pay a fixed rate of 5.77%
to 5.81% while the counterparty pays a floating rate based on the one or
three-month London Interbank Borrowing Offered Rate ("LIBOR").
Extensions for additional periods are available at the option of the
counterparties. During the year ended December 31, 1996, the Company
recognized additional expenses under its interest rate swap agreements of
$130,000. During the year ended December 31, 1995, the Company
recognized benefits of $95,000 under its interest rate swap agreements.
There are no significant differences between the fair value and carrying
value of the interest rate swaps.
A summary of the future maturities of long-term debt follows (in
thousands):
<TABLE>
<S> <C>
1997 $ 41,819
1998 68,124
1999 78,134
2000 89,405
2001 106,255
Thereafter 1,054,734
----------
$1,438,471
==========
</TABLE>
(7) Subsidiary Limited Partner Interests
Subsidiary limited partner interests represent limited partner units of
the subsidiary partnerships held by entities affiliated with, but not a
part of, the Company. These limited partner units have voting rights and
share in the profit or loss of the respective partnerships. Certain of
the subsidiary limited partner interests receive preference returns on
their capital contributions. A summary of transactions in subsidiary
limited partner interests during the three years ended December 31, 1996
follows (in thousands):
F-13
<PAGE> 91
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $ (246) $ (246) $ 5,788
Accrued preference returns (through July 29, 1994) -- -- 764
Net loss -- -- (6,798)
-------- -------- --------
Balance at end of year $ (246) $ (246) $ (246)
======== ======== ========
</TABLE>
Certain subsidiary limited partner interests were allocated losses in
excess of their contributed capital to the extent that the fair value of
assets contributed by the subsidiary limited partners exceeded the book
value at the date of contribution. As of July 29, 1994, preference
returns are no longer accrued on subsidiary limited partner interests.
(8) Partners' Capital - Redeemable Partner Interests
(a) Classes of Partnership Interests
The MCC partnership agreement (the "partnership agreement")
requires the dissolution of the Partnership no later than December
31, 2005, unless extended on an annual basis by the affirmative
vote of holders of 51% or more of the outstanding Class B Units
and the written consent of the General Partner. Class B Units
consist of General Partner Units ("GP Units") and Limited Partner
Units ("LP Units"). GP Units include GP Profits Units, DCA Class
B Units and Class B Units, and LP Units consist of Class B LP
Units. To the extent that GP Units have the right to vote, GP
Units vote as Class B Units together with Class B LP Units.
Voting rights of Class B LP Units are limited to items specified
under the partnership agreement including, but not limited to,
certain amendments to the partnership agreement, the issuance of
additional GP Profits Units or Class B LP Units, dissolution of
the Partnership or removal of the General Partner. At December
31, 1996, 294,937.67 Class B LP Units and 18,848.19 GP Units were
outstanding.
The partnership agreement also provides for the issuance of a
class of Convertible Preference Units. These units are entitled
to a general distribution preference over the Class B LP Units and
are convertible into Class B LP Units. The Convertible Preference
Units vote together with Class B Units as a single class, and the
voting percentage of each Convertible Preference Unit, at a given
time, will be based on the number of Class B LP Units into which
such Convertible Preference Unit is then convertible. In
connection with the acquisition of CALP in August 1995, MCC issued
7,500 Convertible Preference Units with a distribution preference
and conversion price of $2,000 per unit.
The partnership agreement permits the General Partner, at its sole
discretion, to issue up to 31,517 Employee Units (classified as
Class B Units) to key individuals providing services to the
Company. Employee Units are not entitled to distributions until
such time as all units have received certain distributions as
calculated under provisions of the partnership agreement
("subordinated thresholds"). At December 31, 1996 and 1995,
27,758.2 and 27,705.2 Employee Units, respectively, were
outstanding with a subordinated threshold ranging from $1,600 to
$1,750 per unit. The Company believes that the Employee Units
issued have no current value.
(b) Redemption Rights
Upon the occurrence of certain key events (as defined in the
partnership agreement), the GP Units held by the General Partner
shall be immediately converted into an equivalent number of Class
B LP Units. The holders of the converted Class B LP Units, from
and after January 1, 1999, have the right to cause MCC to purchase
all units held by such holders, and MCC has the right to purchase
from the General Partner, upon affirmative vote of 51% or more of
the outstanding Class B LP Units, all such units held by
F-14
<PAGE> 92
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
the General Partner, at a price equal to their fair market value,
to the extent permitted by the 14 1/4% Notes, 11 7/8% Debentures,
13 1/2% Notes and the Senior Credit Facility. In addition, in the
event the General Partner fails to timely dissolve the Partnership
following the vote by holders of 51% or more of the Class B Units,
then the holders of the Class B LP Units (other than Class B Units
held by the General Partner) shall have the right to require MCC
to purchase all of the Class B Units held by such holders at a
price equal to their fair market value, to the extent permitted by
the 14 1/4% Notes, 11 7/8% Debentures, 13 1/2% Notes and the
Senior Credit Facility.
(c) General Partner and Class A Partner
Marcus Cable Properties, L.P. ("Properties") is the General
Partner of the Company and was also a Class A partner through July
29, 1994. On that date, the Company redeemed 1,272.126 Class A
partnership units with a face value of $1,000 per unit and
cumulative unpaid preference returns of $727,875 for cash of
$2,000,000. Also on that date, the remaining 3,405.944 Class A
units with a face value of $1,000 per unit and cumulative unpaid
preference returns of $1,971,474 were converted into 3,934.53
Class B Units and 201.95 Class B LP units of MCC, each with a face
value of $1,300 per unit.
(d) Allocation of Income and Loss to Partners
Income and loss are allocated in accordance with the partnership
agreement. Generally, income is allocated as follows:
(1) First, among the partners whose unreturned capital
contributions exceed their capital accounts in proportion to
such excesses until each partner's capital account equals
such partner's unreturned capital contributions;
(2) Next, to the holders of Class B Units in the same
proportions, and in the same amounts, as distributions are
or would be made as discussed below; and
(3) Finally, to the holders of Class B Units in accordance with
their Class B percentage interests.
Generally, losses are allocated as follows:
(1) If any of the partners have capital accounts that exceed
their unreturned capital contributions, among the partners
whose capital accounts exceed their unreturned capital
contributions in proportion to such excesses until each such
partner's capital account equals its unreturned capital
contribution; and
(2) Next, to the holders of Class B Units in accordance with
their unreturned capital contribution percentages.
The General Partner is allocated a minimum of .2% to 1% of income
or loss at all times, depending on the level of capital
contributions made by the partners.
(e) Distributions
The amount of distributions is at the discretion of the General
Partner, subject to the restrictions in the 14 1/4% Notes, 11 7/8%
Debentures, 13 1/2% Notes and Senior Credit Facility (see note 6).
The manner of distribution is as follows:
(1) First, to each partner in an amount sufficient to pay income
taxes on net taxable income allocated to each partner;
(2) Next, to the holders of Convertible Preference Units in
accordance with their unpaid preference amount (currently
$15,000,000) until each partner's unpaid preference amount
is reduced to zero;
F-15
<PAGE> 93
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Next, to the holders of Class B Units in accordance with
their unreturned capital contribution percentages until each
partner's unreturned capital contribution is reduced to
zero;
(4) Next, to the holders of Class B Units (exclusive of all or
certain Employee Units), in accordance with their Class B
percentage interests until a defined threshold has been met.
(5) Finally, to the holders of Class B Units in accordance with
the Class B percentage interests.
(f) Capital Contributions
The partnership agreement requires the General Partner to make
such additional contributions to MCC as are necessary to maintain
at all times a minimum capital account balance equal to either 1%
of the aggregate positive capital account balances of all the
partners of MCC or $500,000, whichever is less. The limited
partners are not required to make additional capital
contributions, and no partner has the right to withdraw its
capital contribution during the term of the Partnership.
(g) Issuance of Partnership Units
During the year ended December 31, 1994, MCC issued Class B LP
Units for cash of $22,990,000 to partially fund the purchase of
cable television systems from Star. During the year ended
December 31, 1995, MCC issued Class B LP Units for cash of
$362,615,000, net of equity syndication fees of $7,385,000 paid to
certain limited partners, and Convertible Preference Units with a
distribution preference of $15,000,000 to partially fund the
purchases of Sammons, CALP and Crown.
(9) Related Party Transactions
Through July 29, 1994, each subsidiary partnership had a management
agreement with Marcus Cable Management, Inc. ("MMI"), an affiliated
entity, whereby MMI provided various general, administrative and
operating services to the partnerships. The management fee paid by each
subsidiary for these services was 5.5% of revenues. The Company and its
subsidiary partnerships recorded management fees and expenses of
$2,165,000 for the year ended December 31, 1994, pursuant to this
agreement. The management fees were discontinued on July 29, 1994, and
the employees and related expenses of MMI became a part of the Company.
In connection with the acquisitions in 1995 and 1994, fees of $5,250,000
and $1,500,000, respectively, were paid to Properties for services
directly related to the Sammons, Crown and Star acquisitions. In
addition, strategic advisory fees of $18,309,000 were paid to certain
limited partners in connection with the acquisition of Sammons in 1995.
The fees were capitalized as part of the cost of acquiring the cable
television systems.
(10) Employee Benefit Plan
The Company sponsors a 401(k) plan for its employees whereby employees
that qualify for participation under the plan can contribute up to 15% of
their salary, on a before tax basis, subject to a maximum contribution
limit as determined by the Internal Revenue Service. The Company matches
participant contributions up to a maximum of 2% of a participant's
salary. For the years ended December 31, 1996, 1995 and 1994, the
Company made contributions to the plan of approximately $480,000,
$247,000 and $83,000, respectively.
(11) Commitments and Contingencies
The Company rents pole space from various companies under agreements
which are generally cancelable on short notice and leases office space
for system and corporate offices. Lease and rental costs charged to
expense for the years ended December 31, 1996, 1995 and 1994 were
approximately $6,775,000, $3,093,000 and $461,000, respectively.
F-16
<PAGE> 94
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In October 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). During
May 1993, pursuant to authority granted to it under the 1992 Cable Act,
the Federal Communications Commission ("FCC") issued its rate regulation
rules which became effective September 1, 1993. These rate regulation
rules required certain cable systems in franchise areas which receive
certification and are not subject to effective competition, as defined,
to set rates for basic and cable programming services, as well as related
equipment and installations, pursuant to general cost-of-service
standards or FCC prescribed benchmarks. These FCC benchmarks were based
on an average 10% competitive differential between competitive and
non-competitive systems. Effective September 1, 1993, regulated cable
systems not electing cost-of-service were required to reduce rates to the
higher of the prescribed benchmarks or rates that were 10% below those in
effect on September 1, 1992.
In February 1994, the FCC announced further changes in its rate
regulation rules and announced its interim cost- of-service standards.
In connection with these changes, the FCC issued revised benchmark
formulas, based on a revised competitive differential of 17%, which
became effective on May 15, 1994 or if certain conditions were met, on
July 14, 1994. Regulated cable systems were required to reduce rates to
the higher of the new FCC prescribed benchmarks or rates that were 17%
below those in effect on September 1, 1992.
On February 1, 1996 Congress passed S.652, "The Telecommunications Act of
1996" (the "Act"), which was subsequently signed into law on February 8,
1996. This new law altered federal, state and local laws and regulations
for telecommunications providers and services, including the Company.
There are numerous rulemakings to be undertaken by the FCC which will
interpret and implement the Act. It is not possible at this time to
predict the outcome of such rulemakings. Several aspects of the Act
impact cable television, including the elimination of regulation of the
cable programming service tier as of March 31, 1999.
The Company believes that it has complied with all provisions of the 1992
Cable Act, including the rate setting provisions promulgated by the FCC.
However, in jurisdictions which have chosen not to certify, refunds
covering a one-year period of basic service may be ordered upon
certification if the Company is unable to justify its rates. The amount
of refund liability, if any, to which the Company could be subject in the
event that these systems' rates are successfully challenged by
franchising authorities is not currently estimable.
During the year ended December 31, 1994, the Company paid rate refunds of
approximately $944,000 to its cable customers as a result of rate orders
issued by certain franchise authorities within certain cable systems
which have subsequently been sold.
The Company is involved in various claims and lawsuits which are
generally incidental to its business. The Company is vigorously
contesting all such matters and believes that their ultimate resolution
will not have a material adverse effect on its consolidated financial
position, results of operations or cash flows.
(12) Subsequent Event
On March 14, 1997, the Company entered into an agreement to amend its
Senior Credit Facility. The amendment provides for, among other items, a
reduction in the interest rate margins under the Senior Credit Facility
as well as increased flexibility for the Company as it relates to
investments, permitted lines of businesses and the incurrence of
unsecured indebtedness. In addition, the availability under the
Revolving Credit Facility was increased from $310,000,000 to
$360,000,000.
F-17
<PAGE> 95
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATING SCHEDULE - BALANCE SHEET INFORMATION
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Consolidated
Combined Marcus Cable Marcus Cable Marcus Cable
Operating Capital Operating Operating
Assets Partnerships Corporation II Company, L.P. Eliminations Company,L.P.
------ ------------ -------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash and cash
equivalents ........... $ 8,126 $ 1 $ (2,849) $ -- $ 5,278
Accounts receivable,
net ................... 26,649 -- (12,966) 3,360 17,043
Prepaid expenses ........ 1,896 -- 536 -- 2,432
---------- ------- ----------- ----------- -----------
Total current assets... 36,671 1 (15,279) 3,360 24,753
Property and
equipment, net ........ 572,990 -- 5,517 -- 578,507
Other assets, net ....... 1,084,284 -- 1,536,473 (1,527,515) 1,093,242
Investment in
subsidiaries .......... -- -- 189,573 (189,573) --
---------- ------- ----------- ----------- -----------
Total assets ......... $1,693,945 $ 1 $ 1,716,284 $(1,713,728) $ 1,696,502
========== ======= =========== =========== ===========
Liabilities and Partners'
- -------------------------
Capital (Deficit)
- -----------------
Current liabilities:
Current maturities of
long-term debt ....... $ 183 $ -- $ 41,636 $ -- $ 41,819
Accrued liabilities ..... 60,179 -- 76,520 (80,626) 56,073
Accrued interest ..... 10,664 -- 7,695 (10,664) 7,695
---------- ------ ----------- ----------- -----------
Total current
liabilities ........ 71,026 -- 125,851 (91,290) 105,587
Long-term debt .......... 1,433,347 -- 1,110,308 (1,432,865) 1,110,790
Subsidiary limited
partner interests ..... -- -- (246) -- (246)
Partners' capital -
redeemable partner
interests ............. 189,572 1 480,371 (189,573) 480,371
---------- ------ ----------- ----------- -----------
Total liabilities and
partners' capital... $1,693,945 $ 1 $ 1,716,284 $(1,713,728) $ 1,696,502
========== ====== =========== =========== ===========
<CAPTION>
Marcus Cable Capital Marcus Consolidated
Capital Corporation Cable Marcus Cable
Assets Corporation III Company, L.P. Eliminations Company
------ ------------ ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash
equivalents ........... $ 1 $ 1 $ 754 $ -- $ 6,034
Accounts receivable,
net ................... -- -- -- -- 17,043
Prepaid expenses ........ -- -- -- -- 2,432
--------- --------- --------- --------- -----------
Total current assets... 1 1 754 -- 25,509
Property and
equipment, net ........ -- -- -- -- 578,507
Other assets, net ....... -- -- (3,040) (6,668) 1,083,534
Investment in
subsidiaries .......... -- -- 480,373 (480,373) --
--------- --------- --------- --------- -----------
Total assets ......... $ 1 $ 1 $ 478,087 $(480,041) $ 1,687,550
========= ========= ========= ========= ===========
Liabilities and Partners'
- -------------------------
Capital (Deficit)
- -----------------
Current liabilities:
Current maturities of
long-term debt ....... $ -- $ -- $ -- $ -- $ 41,819
Accrued liabilities ..... -- -- -- (6,668) 49,405
Accrued interest ..... -- -- 2,969 -- 10,664
--------- --------- --------- --------- -----------
Total current
liabilities ........ -- -- 2,969 (6,668) 101,888
Long-term debt .......... -- -- 285,862 -- 1,396,652
Subsidiary limited
partner interests ..... -- -- -- -- (246)
Partners' capital -
redeemable partner
interests ............. 1 1 189,256 (480,373) 189,256
--------- --------- --------- --------- -----------
Total liabilities and
partners' capital... $ 1 $ 1 $ 478,087 $(487,041) $ 1,687,550
========= ========= ========= ========= ===========
</TABLE>
F-18
<PAGE> 96
MARCUS CABLE COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATING SCHEDULE - STATEMENT OF OPERATING INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Consolidated
Marcus Cable Marcus Cable
Combined Marcus Cable Operating Operating
Operating Capital Company, Company,
Partnerships Corporation II L.P. Eliminations L.P.
------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Cable services ...... $ 432,172 $ -- $ -- $ -- $ 432,172
Management fees ..... -- -- 2,335 -- 2,335
--------- ------ --------- --------- ---------
Total
revenues ............ 432,172 -- 2,335 -- 434,507
--------- ------ --------- --------- ---------
Operating expenses:
Selling, service and
system management... 155,279 -- 1,918 -- 157,197
General and
administrative ..... 60,870 -- 12,147 -- 73,017
Allocated corporate
costs .............. 12,150 -- (12,150) -- --
Depreciation and
amortization ....... 165,511 -- 918 -- 166,429
--------- ------ --------- --------- ---------
393,810 -- 2,833 -- 396,643
--------- ------ --------- --------- ---------
Operating income (loss) 38,362 -- (498) -- 37,864
--------- ------ --------- --------- ---------
Other (income) expense:
Interest expense .... 145,353 -- 107,915 (145,272) 107,996
Interest income ..... 312 -- (145,876) 145,272 (292)
Gain on sale of cable
system ............. (6,442) -- -- -- (6,442)
Equity earnings of
subsidiaries ....... -- -- 100,861 (100,861) --
--------- ------ --------- --------- ---------
139,223 -- 62,900 (100,861) 101,262
--------- ------ --------- --------- ---------
Net income (loss) ...... $(100,861) $ -- $ (63,398) $ 100,861 $ (63,398)
========= ====== ========= ========= =========
<CAPTION>
Marcus
Cable
Marcus Cable Capital Marcus Cable Consolidated
Capital Corporation Company Marcus Cable
Corporation III L.P. Eliminations Company
------------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Cable services ...... $ -- $ -- $ -- $ -- $ 432,172
Management fees ..... -- --
------ ------ --------- -------- ---------
Total
revenues ............ -- -- -- -- 434,507
------ ------ --------- -------- ---------
Operating expenses:
Selling, service and
system management... -- -- -- -- 157,197
General and
administrative ..... -- -- -- -- 73,017
Allocated corporate
costs .............. -- -- -- -- --
Depreciation and
amortization ....... -- -- -- -- 166,429
------ ------ --------- -------- ---------
-- -- -- -- 396,643
------ ------ --------- -------- ---------
Operating income (loss) -- -- -- -- 37,864
------ ------ --------- -------- ---------
Other (income) expense:
Interest expense .... -- -- 36,685 -- 144,681
Interest income ..... -- -- (13) -- (305)
Gain on sale of cable
system ............. -- -- -- -- (6,442)
Equity earnings of
subsidiaries ....... -- -- 63,398 (63,398) --
------ ------ --------- -------- ---------
-- -- 100,070 (63,398) 137,934
------ ------ --------- -------- ---------
Net income (loss) ...... $ -- $ -- $(100,070) 63,398 (100,070)
====== ====== ========= ======== =========
</TABLE>
F-19
<PAGE> 97
INDEPENDENT AUDITORS' REPORT
The Shareholder
Marcus Cable Capital Corporation III:
We have audited the accompanying balance sheets of Marcus Cable Capital
Corporation III as of December 31, 1996 and 1995, and the related statements of
operations, shareholder's equity and cash flows for the year ended December 31,
1996 and for the period from June 9, 1995 (date of inception) to December 31,
1995. 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 audit to obtain
reasonable assurance about whether the financial statements arc 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 Marcus Cable Capital
Corporation III as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the year ended December 31, 1996 and for the
period from June 9, 1995 (date of inception) to December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
April 8, 1997
F-20
<PAGE> 98
MARCUS CABLE CAPITAL CORPORATION III
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cash $ 927 $ 927
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Payable to affiliate $ 50 $ --
Shareholder's equity:
Common stock, par value $1; authorized and
issued 1,000 shares in 1996 and 1995 1,000 1,000
Accumulated deficit (123) (73)
------- -------
Total shareholder's equity 877 927
------- -------
$ 927 $ 927
======= =======
</TABLE>
See accompanying notes to financial statements
F-21
<PAGE> 99
MARCUS CABLE CAPITAL CORPORATION III
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 AND
THE PERIOD FROM JUNE 9, 1995 (DATE OF INCEPTION) TO
DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenue $ -- $ --
Expense - management expenses 50 73
---- ----
Net Loss $(50) $(73)
==== ====
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 100
MARCUS CABLE CAPITAL CORPORATION III
STATEMENTS OF SHAREHOLDER'S EQUITY
YEAR ENDED DECEMBER 31, 1996 AND
THE PERIOD FROM JUNE 9, 1995 (DATE OF INCEPTION) TO
DECEMBER 31, 1995
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK DEFICIT TOTAL
------------ ----------- -------
<S> <C> <C> <C>
Capital contribution $ 1,000 $ -- $ 1,000
Net loss -- (73) (73)
------- ------- -------
Balance at December 31, 1995 1,000 (73) 927
------- ------- -------
Net loss -- (50) (50)
------- ------- -------
Balance at December 31, 1996 $ 1,000 $ (123) $ 877
======= ======= =======
See accompanying notes to financial statements
</TABLE>
F-23
<PAGE> 101
MARCUS CABLE CAPITAL CORPORATION III
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 AND
THE PERIOD FROM JUNE 9, 1995 (DATE OF INCEPTION) TO
DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Net loss $ (50) $ (73)
Adjustment to reconcile net loss to net cash used in
operating activities - change in payable to affiliate 50 --
------- -------
Net cash used in operating activities -- (73)
------- -------
Cash flows from financing activities - issuance of common stock -- 1,000
------- -------
Net increase in cash -- 927
Cash at beginning of period 927 --
------- -------
Cash at end of period $ 927 $ 927
======= =======
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE> 102
MARCUS CABLE CAPITAL CORPORATION III
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Marcus Cable Capital Corporation III (the "Company"), a Delaware
corporation, is a wholly-owned subsidiary of Marcus Cable Company,
L.P. ("MCC"), and was organized on June 9, 1995 for the purpose of
acting as co-issuer with MCC of $299,228,000 of senior discount notes
which yielded proceeds of $150,003,000. The Company has had no
operations.
(2) COMMITMENTS
The Company is a co-issuer with MCC of $299,228,000 of 14 1/4% senior
discount notes (accreted balance of $185,862,000 at December 31,
1996). The notes are included in the consolidated financial statements
of MCC, and all interest and principal repayments will be made by MCC.
F-25
<PAGE> 103
INDEPENDENT AUDITORS' REPORT
The Partners
Marcus Cable Properties, L.P.:
We have audited the accompanying balance sheets of Marcus Cable Properties,
L.P. as of December 31, 1996 and 1995. 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 audit to
obtain reasonable assurance about whether the balance sheets are free of
material misstatement. An audit of a balance sheet includes examining, on a
test basis, evidence supporting the amounts and disclosures in that balance
sheet. An audit of a balance sheet also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall balance sheet presentation. We believe that our audits
of the balance sheets provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of Marcus Cable Properties, L.P. as
of December 31, 1996 and 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Dallas, Texas
April 8, 1997
F-26
<PAGE> 104
MARCUS CABLE PROPERTIES, L.P.
BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ -------- --------
<S> <C> <C>
Cash $ -- $ --
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Payable to affiliate $ 27 $ 27
Excess of accumulated losses over investment in Marcus Cable Company,
L.P. (Note 2) 21,842 21,642
Partners' deficit (Note 3) (21,869) (21,669)
Contingency (Note 4) -- --
-------- --------
$ -- $ --
======== ========
</TABLE>
See accompanying notes to balance sheet.
F-27
<PAGE> 105
MARCUS CABLE PROPERTIES, L.P.
NOTES TO BALANCE SHEETS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
Marcus Cable Properties, L.P. ("Properties"), a Delaware limited
partnership, was formed on May 14, 1990 for the purpose of serving
as the general partner of Marcus Cable Company, L.P. ("MCC").
In 1990, Properties acquired 335 Class III limited partner units of
Marcus Cable Partners, L.P. ("Partners L.P.") for $205,000. In
1992, Properties acquired 100 Class B limited partner units of
Marcus Cable of San Angelo, L.P. ("San Angelo L.P.") for $100, and
100 Class B limited partner units of Marcus Cable of Delaware and
Maryland, L.P. ("Delaware/Maryland L.P.") for $100. San Angelo,
L.P. was dissolved in 1996 after the divestiture of the cable
system assets on June 30, 1995. In 1994, Properties acquired two
limited partner units of Marcus Cable Operating Company, L.P.
("MCOC") for $2. MCOC is the general partner of Partners L.P. and
Delaware/Maryland L.P.
Properties was the Class A partner of MCC through July 29, 1994.
On that date, MCC redeemed 1,272.126 Class A partnership units with
a face value of $1,000 per unit and cumulative unpaid preference
returns of $727,875 for cash of $2,000,000. Also on that date, the
remaining 3,405.944 Class A units with a face value of $1,000 per
unit and cumulative unpaid preference returns of $1,971,474 were
converted into 3,934.53 Class B units and 201.95 Class B LP units
of MCC, each with a face value of $1,300 per unit.
(b) Investments in Partnerships
Investments in partnerships are accounted for using the equity
method.
(2) INVESTMENT IN AFFILIATES
At December 31, 1996 and 1995, Properties owned 18,848.19 general
partner units in MCC with a negative carrying value of approximately
$21,842,000. Summarized financial information for MCC follows
(in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
------------ ------------
<S> <C> <C>
Current assets $ 25,509 $ 36,215
Net property and equipment 578,507 538,452
Other assets, net 1,083,534 1,185,387
------------ ------------
Total assets $ 1,687,550 $ 1,760,054
============ ============
Current liabilities 101,888 63,423
Long-term debt 1,396,652 1,407,551
Subsidiary limited partner interests (246) (246)
Partners' capital 189,256 289,326
------------ ------------
Total liabilities and partners' capital $ 1,687,550 $ 1,760,054
============ ============
</TABLE>
(Continued)
F-28
<PAGE> 106
MARCUS CABLE PROPERTIES, L.P.
NOTES TO BALANCE SHEETS
(3) PARTNERS' DEFICIT
(a) General Partner
Marcus Cable Properties, Inc. ("General Partner") is the general
partner for Properties.
(b) Limited Partners
The General Partner has issued limited partner units to certain
employees. The ownership of these limited partner units is based
upon a vesting schedule as set forth in the partnership agreement,
which is generally five years. The General Partner is entitled to
a cumulative 12% preference return on unrecovered capital
contributions, compounded annually, before any distribution can be
made to the limited partners.
In the event that a limited partner, who is an employee, ceases to
be employed by the General Partner or an affiliate thereof for any
reason other than for cause, then such affiliate, Properties or the
General Partner shall have the right to purchase all or any portion
of the Limited Partner Units held by such limited partner. If the
employment of the employee/limited partner is terminated for cause,
then the limited partner units owned by the employee/limited
partner are automatically cancelled by Properties.
(c) Allocation of Income or Loss to Partners
Income is allocated to the General Partner and vested limited
partners as follows:
First, to eliminate any negative capital until no partner has
a negative capital account balance;
Next, to the General Partner in an amount equal to all prior
distributions of preference returns;
Next, to the vested limited partners in accordance
with their percentage interests.
Losses are allocated as follows:
First, to the General Partner until its capital
account does not exceed zero;
Next, to the limited partners until each holder's capital
account does not exceed zero;
Next, to the General Partner.
(d) Distributions
Distributions are made at the discretion of the General Partner as
follows:
First, to the General Partner in an amount equal to any
accrued but unpaid cumulative preference returns;
Next, to the General Partner in an amount equal to the General
Partner's unreturned capital contribution;
Next, to all partners in accordance with their respective
percentage interests in Properties.
(4) CONTINGENCY
As the general partner of MCC, Properties remains contingently liable
for any liabilities incurred by MCC in excess of its assets.
F-29
<PAGE> 107
REPORT OF INDEPENDENT ACCOUNTANTS
The Boards of Directors
Sammons Communications, Inc. and
Marcus Cable Associates, L.P.:
We have audited the accompanying combined balance sheets of The Sammons Systems
(cable systems of Sammons Communications, Inc. purchased by Marcus Cable
Associates, L.P.--"The Sammons Systems") as of December 31, 1994 and 1993, and
the related combined statements of income, changes in equity (deficit)
investment and cash flows for each of the years in the three-year period ended
December 31, 1994. These combined financial statements are the responsibility
of Sammons Communications, Inc. 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 combined financial position of The Sammons Systems
as of December 31, 1994 and 1993, and the combined results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in the accompanying notes to the combined financial statements,
The Sammons Systems changed its methods of accounting for income taxes and
postretirement benefits other than pensions during 1992.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
May 5, 1995, except for Note 11
as to which the date is November 1, 1995
F-30
<PAGE> 108
THE SAMMONS SYSTEMS
(CABLE SYSTEMS OF SAMMONS COMMUNICATIONS, INC.
PURCHASED BY MARCUS CABLE ASSOCIATES, L.P.)
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, SEPT. 30,
----------------------- ------------
ASSETS 1994 1993 1995
------ -------- -------- ------------
<S> <C> <C> <C>
Cash and cash equivalents ................................................. $ 804 $ 600 $ 1,530
Accounts receivable:
Customers, net of allowance of $416 in 1994, $406 in 1993 and $514
in 1995 ................................................................ 11,564 10,959 12,680
Other, less allowance for uncollectible receivables of $29 in 1994,
$27 in 1993 and $13 in 1995 ........................................... 615 491 937
Federal and state income taxes receivable ................................. -- -- 2,667
Deferred federal and state income taxes ................................... 597 844 101
Other ..................................................................... -- 18 --
---------- ---------- ----------
Total current assets .................................................. 13,580 12,912 17,915
Property and equipment: ...................................................
Cable systems ........................................................... 503,157 468,993 531,180
Vehicles and other ...................................................... 34,467 30,962 31,861
Land and buildings ...................................................... 9,365 9,366 9,475
---------- ---------- ----------
546,989 509,321 572,516
Less accumulated depreciation ........................................... (323,605) (292,797) (347,983)
---------- ---------- ----------
Net property and equipment ............................................ 223,384 216,524 224,533
Franchises and goodwill, net of accumulated amortization of
$19,699 in 1994, $14,986 in 1993 and $23,183 in 1995 .................... 171,115 175,706 167,781
Other assets .............................................................. 1,070 931 991
---------- ---------- ----------
172,185 176,637 168,772
---------- ---------- ----------
Total assets .......................................................... $ 409,149 $ 406,073 $ 411,220
========== ========== ==========
LIABILITIES AND EQUITY INVESTMENT
---------------------------------
Current liabilities:
Accounts payable, trade ................................................. $ 6,382 $ 4,585 $ 2,297
Interest payable ........................................................ 1,211 1,287 736
Accrued expenses ........................................................ 16,626 16,177 13,422
Deferred revenue ........................................................ 8,006 5,512 8,785
Federal and state income taxes payable .................................. 173 1,418 --
Current portion of notes payable--parent ................................ 231,000 43,000 231,000
---------- ---------- ----------
Total current liabilities ............................................. 263,398 71,979 256,240
Accrued pensions and other ................................................ 3,608 4,386 3,708
Customer advance payments and deposits .................................... 1,703 1,966 1,693
Notes payable--parent ..................................................... -- 231,000 --
Deferred federal and state income taxes ................................... 41,744 37,652 44,267
---------- ---------- ----------
Total liabilities ..................................................... 310,453 346,983 305,908
Commitments and contingencies (Note 7)
Equity investment ......................................................... 98,696 59,090 105,312
---------- ---------- ----------
Total liabilities and equity investment ............................... $ 409,149 $ 406,073 $ 411,220
========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-31
<PAGE> 109
THE SAMMONS SYSTEMS
(CABLE SYSTEMS OF SAMMONS COMMUNICATIONS, INC.
PURCHASED BY MARCUS CABLE ASSOCIATES, L.P.)
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- ------------------------
1994 1993 1992 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Basic revenue ...................................... $ 141,280 $ 129,790 $ 114,952 $ 116,388 $ 105,345
Premium revenue .................................... 36,682 32,331 30,237 28,798 27,175
Installation and other ............................. 28,637 21,181 13,728 23,423 21,274
---------- ---------- ---------- ---------- ----------
206,599 183,302 158,917 168,609 153,794
---------- ---------- ---------- ---------- ----------
Operating expenses:
Programming cost ................................... 47,813 39,370 33,573 39,636 35,379
Selling, service and system management ............. 35,142 30,521 28,324 24,754 25,950
General and administrative ......................... 41,315 36,649 33,966 30,660 31,943
Management fees .................................... 4,909 3,967 3,273 3,965 3,665
Depreciation and amortization ...................... 36,471 31,452 27,022 28,037 26,650
---------- ---------- ---------- ---------- ----------
165,650 141,959 126,158 127,052 123,587
---------- ---------- ---------- ---------- ----------
Operating income ................................. 40,949 41,343 32,759 41,557 30,207
Interest expense ..................................... (15,191) (12,075) (15,738) (9,711) (11,279)
---------- ---------- ---------- ---------- ----------
Income before provision for federal and state income
taxes and cumulative effect of changes in
accounting principles ............................ 25,758 29,268 17,021 31,846 18,928
Provision for federal and state income taxes ......... (10,316) (13,174) (7,132) (12,589) (7,672)
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of changes
in accounting principles ......................... 15,442 16,094 9,889 19,257 11,256
Cumulative effect of changes in accounting principles -- -- (7,547) -- --
---------- ---------- ---------- ---------- ----------
Net income ........................................... $ 15,442 $ 16,094 $ 2,342 $ 19,257 $ 11,256
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-32
<PAGE> 110
THE SAMMONS SYSTEMS
(CABLE SYSTEMS OF SAMMONS COMMUNICATIONS, INC.
PURCHASED BY MARCUS CABLE ASSOCIATES, L.P.)
COMBINED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
Balance at January 1, 1992 .................................. $ (14,896)
Net income .............................................. 2,342
Increase in equity investment ........................... 32,503
----------
Balance at December 31, 1992 ................................ 19,949
Net income .............................................. 16,094
Increase in equity investment ........................... 23,047
----------
Balance at December 31, 1993 ................................ 59,090
Net income .............................................. 15,442
Increase in equity investment ........................... 24,164
----------
Balance at December 31, 1994 ................................ 98,696
Net income (unaudited) .................................. 19,257
Reduction in equity investment (unaudited) .............. (12,641)
----------
Balance at September 30, 1995 (unaudited) ................... $ 105,312
==========
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-33
<PAGE> 111
THE SAMMONS SYSTEMS
(CABLE SYSTEMS OF SAMMONS COMMUNICATIONS, INC.
PURCHASED BY MARCUS CABLE ASSOCIATES, L.P.)
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- ------------------------
1994 1993 1992 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ....................................... $ 15,442 $ 16,094 $ 2,342 $ 19,257 $ 11,256
---------- ---------- ---------- ---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of changes in accounting
principles ................................... -- -- 7,547 -- --
Provision for uncollectible receivables ........ 2,493 2,479 2,189 2,077 1,927
Depreciation and amortization .................. 36,471 31,452 27,022 28,037 26,650
Provision for deferred income taxes ............ 4,339 1,881 (946) 3,019 4,714
(Gain) loss on sales of property, plant and
equipment ................................... 110 (168) (116) (10) (64)
Changes in certain assets and liabilities:
Accounts receivable, customers ............... (3,098) (5,055) (3,155) (3,193) (2,705)
Accounts receivable, other ................... (124) (312) 152 (322) 295
Other assets ................................. (190) 47 1 40 (500)
Accounts payable, trade ...................... 1,797 728 (420) (4,085) (753)
Interest payable ............................. (76) 57 1,228 (475) (548)
Accrued expenses ............................. (329) 3,044 1,880 (3,104) (987)
Customer advance payments and deposits ....... (263) (37) (3) (10) (174)
Deferred revenue ............................. 2,494 418 804 779 2,632
Federal and state income taxes payable ....... (1,245) 60 1,210 (2,840) (915)
---------- ---------- ---------- ---------- ----------
42,379 34,594 37,393 19,913 29,572
---------- ---------- ---------- ---------- ----------
Net cash provided by operating activities .... 57,821 50,688 39,735 39,170 40,828
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sales of property and equipment .... 208 964 372 126 116
Proceeds from sales of marketable securities ..... 18 1 -- -- 16
Cable system acquisitions ........................ (1,100) (185,067) (1,175) -- (1,100)
Purchases of property and equipment .............. (37,907) (33,462) (33,846) (25,929) (22,476)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities ........ (38,781) (217,564) (34,649) (25,803) (23,444)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Net change in equity investment .................. 24,164 23,047 32,503 (12,641) (15,386)
Issuance of notes payable--parent ................ -- 180,000 -- -- --
Payments of notes payable--parent ................ (43,000) (36,000) (38,000) -- --
---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by financing
activities ................................. (18,836) 167,047 (5,497) (12,641) (15,386)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 204 171 (411) 726 1,998
Cash and cash equivalents, beginning of period ..... 600 429 840 804 600
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of period ........... $ 804 $ 600 $ 429 $ 1,530 $ 2,598
========== ========== ========== ========== ==========
Supplemental information: ..........................
Interest paid .................................... $ 15,267 $ 12,018 $ 14,510 $ 10,186 $ 11,827
========== ========== ========== ========== ==========
Income taxes paid ................................ $ 7,222 $ 11,233 $ 6,868 $ 12,675 $ 4,141
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-34
<PAGE> 112
THE SAMMONS SYSTEMS
(CABLE SYSTEMS OF SAMMONS COMMUNICATIONS, INC.
PURCHASED BY MARCUS CABLE ASSOCIATES, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
The combined financial statements include the accounts of certain
cable television systems which are owned by Sammons Communications, Inc.
("SCI") (collectively, "The Sammons Systems"). SCI is a wholly-owned
subsidiary of Sammons Enterprises, Inc. ("SEI"). On April 5, 1995, SCI entered
into an asset purchase agreement (the "Agreement") to sell The Sammons Systems
to Marcus Cable Associates, L.P. ("Marcus") for $962,500,000 in cash, which is
subject to various conditions and approvals as defined in the agreement (See
Note 11). These combined financial statements include the historical basis of
assets, liabilities and operations of the cable television systems to be
acquired. In addition, these financial statements include allocations of
certain actual corporate administrative costs attributed to the cable systems
acquired. The methods by which such amounts are attributable or allocated are
based on gross revenues and are deemed reasonable by management of SCI. All
significant intersystem balances and transactions have been eliminated from the
combined financial statements. The following table identifies the cable
television systems included in the accompanying combined financial statements:
<TABLE>
<CAPTION>
SYSTEM COVERAGE AREA
<S> <C> <C>
Sammons Communications, Inc. Whittier, CA West Point, GA
Waynesville, NC University Park, TX
Tuskegee, AL Turlock, CA
Russellville, AL Natchez, MS
Middlesborough, KY Elk City, OK
Duncanville, TX Glendale, CA
Denton, TX Johnson City, TN
Black Mountain, NC Morristown, TN
Bristol, TN Logansport, IN
Brookhaven, MS McComb, MS
Clinton, OK Tarrant County, TX
Sammons Communications of Connecticut, Inc. Waterbury, CT
Sammons Communications of Washington, Inc. Moses Lake, WA
Sammons Communications of Texas, Inc. Borger, TX
Dumas, TX
Sammons Communications of Illinois, Inc. Jacksonville, IL
Ottawa, IL
Sammons Communication of Virginia, Inc. Petersburg, VA
Sammons Communication of Mississippi, Inc. Pascagoula, MS
Sammons of Indiana Columbus, IN Monticello, IN
Connersville, IN New Albany, IN
Crawfordsville, IN Peru, IN
Sammons of Fort Worth Fort Worth, TX
</TABLE>
Cash and Cash Equivalents
The Sammons Systems consider all current investment securities and
interest-bearing deposits purchased with original maturities of three months or
less to be cash equivalents.
F-35
<PAGE> 113
THE SAMMONS SYSTEMS
(CABLE SYSTEMS OF SAMMONS COMMUNICATIONS, INC.
PURCHASED BY MARCUS CABLE ASSOCIATES, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment
Property, plant and equipment is stated at cost. Depreciation is
computed on a straight-line basis over the estimated useful lives of the
related assets as follows:
<TABLE>
<S> <C>
Cable systems and equipment 5 to 15 years
Fixtures and equipment 5 to 10 years
Leasehold improvements Remaining life of lease
Transportation equipment 4 years
Buildings 15 to 25 years
</TABLE>
The material and labor costs for the initial connection of a residence
are capitalized and depreciated over ten years. The costs of subsequently
disconnecting and reconnecting a residence are charged to expense in the period
incurred.
Certain costs incurred during the period of cable system construction
are deferred and amortized over the estimated useful lives of the related cable
systems.
When property is retired or otherwise disposed of, the related cost
and accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in income in the period incurred.
Franchises and Goodwill
Goodwill acquired prior to October 31, 1970 is not being amortized.
Goodwill acquired subsequent to October 31, 1970 is capitalized and amortized
on a straight-line basis over forty years.
The direct costs to acquire cable television franchises are
capitalized and amortized on a straight-line basis over the lives of the
franchises, not exceeding forty years.
The Sammons Systems continually reevaluate the propriety of the
carrying amount of goodwill and other intangibles as well as the amortization
period to determine whether current events and circumstances warrant
adjustments to the carrying value and/or revisions of the estimated useful
lives. At this time, The Sammons Systems believe that no significant
impairment of the goodwill and other intangibles has occurred and that no
reduction of the estimated useful lives is warranted.
Income Taxes
The Sammons Systems are members of SEI's consolidated United States
federal income tax group. The policy for intercompany allocation of federal
income taxes provides that The Sammons Systems compute the provision for
federal income taxes on a separate company basis. The Sammons Systems make
payments to, or receive payments from, SEI in the amount they would have paid
to or received from the Internal Revenue Service had they not been members of
the consolidated tax group. The separate company provisions and payments are
computed using the tax elections made by SEI. The Sammons Systems use the
"flow-through" method of accounting for the investment tax credit.
In 1992, The Sammons Systems adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," which requires
recognition of deferred tax liabilities and assets based upon the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
Interim Financial Information
In the opinion of management, the unaudited interim combined financial
information of The Sammons Systems contains all adjustments, consisting only of
those of a normal recurring nature, necessary to present fairly The Sammons
Systems' financial position as of September 30, 1995 and the results of
operations and cash flows for the nine months ended September 30, 1995 and
1994, and changes in equity investment for the nine months ended September 30,
1995. The results of operations for the nine months ended September 30, 1995
and 1994 are not necessarily indicative of the results to be expected for the
full year.
F-36
<PAGE> 114
THE SAMMONS SYSTEMS
(CABLE SYSTEMS OF SAMMONS COMMUNICATIONS, INC.
PURCHASED BY MARCUS CABLE ASSOCIATES, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. NOTES PAYABLE--PARENT:
During 1994, The Sammons Systems renewed a financing arrangement with
SEI which provided revolving lines of credit of $480,000,000. Borrowings
against these lines totaled $231,000,000 at December 31, 1994.
The principal terms of the agreement provide that interest is payable
quarterly at a weighted average rate of 5.4%, 5.7% and 9.0% for 1994, 1993 and
1992, respectively. Accrued interest was $1,211,000 at December 31, 1994. At
December 31, 1994 and 1993, the fair value of the notes payable was
$225,827,000 and $273,713,000, respectively, and was determined using the prime
rate.
The notes payable are scheduled to mature during the year ending
December 31, 1995.
3. INCOME TAXES:
The provision for income taxes consists of the following (amounts in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal .............................. $ 4,475 $ 9,171 $ 6,625
State ................................ 1,502 2,122 1,453
Deferred:
Federal ................................. 4,434 1,527 (806)
State ................................ (95) 354 (140)
-------- -------- --------
$ 10,316 $ 13,174 $ 7,132
======== ======== ========
</TABLE>
The Sammons Systems recognized a net increase of $7,242,000 to the net
deferred tax liability as of January 1, 1992, as a result of the adoption of
SFAS No. 109. Such amount has been reflected in the combined statements of
income as a cumulative effect of an accounting change.
The components of the net deferred tax liability are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Deferred tax liability:
Amortization .................................... $ (8,609) $ (6,267)
Basis in property and equipment ................. (36,305) (33,719)
-------- --------
(44,914) (39,986)
-------- --------
Deferred tax asset:
AMT carryforward ................................ 2,015 131
Accrued pension liability ....................... 624 1,021
Various accrued expenses not currently deductible 1,128 2,026
-------- --------
3,767 3,178
Valuation allowance ................................ -- --
-------- --------
Net deferred tax liability ......................... $(41,147) $(36,808)
======== ========
</TABLE>
F-37
<PAGE> 115
THE SAMMONS SYSTEMS
(CABLE SYSTEMS OF SAMMONS COMMUNICATIONS, INC.
PURCHASED BY MARCUS CABLE ASSOCIATES, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The difference between the provision for income taxes attributable to
income before income taxes and the amounts that would be expected using the
U.S. federal statutory income tax rate of 35% in 1994 and 1993 and 34% in 1992
is as follows (amounts in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Federal income taxes at the statutory rate ............ $ 9,015 $ 10,244 $ 5,787
State income taxes .................................... 915 1,609 867
Amortization of nondeductible intangibles ............. 365 482 470
Effect of one percent federal tax rate increase
on deferred tax balance at January 1, 1993 ......... -- 842 --
Other ................................................. 21 (3) 8
-------- -------- --------
Provision for income taxes ............................ $ 10,316 $ 13,174 $ 7,132
======== ======== ========
</TABLE>
4. EMPLOYEE STOCK OWNERSHIP PLAN:
The Sammons Systems are participants in the Sammons Enterprises, Inc.
Employee Stock Ownership Plan ("ESOP"). The Sammons Systems' contribution to
the ESOP was approximately $1,755,000, $2,299,000 and $2,489,000 for 1994,
1993 and 1992, respectively.
5. EMPLOYEE BENEFIT PLANS:
The Sammons Systems are participants in the SEI's noncontributory
defined benefit pension plan (the "Pension Plan") covering certain full-time
employees. Pension benefits are generally based upon years of service and
include accruing pension cost currently, contributing the maximum amount
deductible for federal income taxes and meeting minimum funding standards of
the Employee Retirement Income Security Act of 1974 as determined by an
actuarial valuation. Pension Plan assets consist primarily of cash
equivalents, listed stocks and bonds, and group annuity contracts with an
affiliated insurance company.
The following table sets forth The Sammons Systems' respective
interest in the Pension Plan's funded status and amounts recognized in the
financial statements at December 31 (amounts in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Accumulated benefit obligations:
Vested ...................................................... $ 6,444 $ 5,912
Nonvested ................................................... 388 371
-------- --------
$ 6,832 $ 6,283
======== ========
Fair value of plan assets ..................................... $ 9,362 $ 6,919
Projected benefit obligation .................................. 10,790 10,255
-------- --------
Funded status ................................................. 1,428 3,336
Unrecognized net transition asset ............................. 393 404
Unrecognized prior service cost ............................... (614) (638)
Unrecognized net gain (loss) .................................. 392 (761)
-------- --------
Accrued pension liability ..................................... $ 1,599 $ 2,341
======== ========
</TABLE>
The Pension Plan had a settlement gain (loss) of approximately
$(18,000), $465,000 and $141,000 for 1994, 1993 and 1992, respectively.
F-38
<PAGE> 116
THE SAMMONS SYSTEMS
(CABLE SYSTEMS OF SAMMONS COMMUNICATIONS, INC.
PURCHASED BY MARCUS CABLE ASSOCIATES, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The Sammons Systems' respective interest in the components of net
pension cost are as follows (amounts in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Service cost .............................................. $ 782 $ 563 $ 372
Interest cost ............................................. 906 734 502
Return on plan assets ..................................... (143) 237 221
Net amortization and deferrals ............................ 758 282 201
------ ------ ------
Net pension cost .......................................... $1,073 $ 778 $ 452
====== ====== ======
</TABLE>
For 1994 and 1993 the projected benefit obligation was determined
using an assumed discount rate of 8.50% and 7.75%, respectively, and an assumed
rate of compensation increase of 5.5%. The assumed long-term rate of return on
the plan assets was 8.0%, 8.5% and 8.5% in 1994, 1993 and 1992, respectively.
6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Sammons Systems provide certain postretirement health care and
life insurance benefits for eligible active and retired employees through SEI's
defined benefit plan (the "Postretirement Plan"). Effective January 1, 1992,
The Sammons Systems adopted SFAS No. 106 "Employees Accounting for
Postretirement Benefits Other Than Pensions."
SEI allocated a portion of the initial transition obligation totaling
approximately $528,000 to The Sammons Systems, based on employee demographics,
including headcount, age and years of service. The effect on net income was
$305,000 after a deferred tax benefit of $223,000. The Sammons Systems'
respective interest in the components of periodic expense based on employee
demographics, including head count, age and years of service for these
postretirement benefits are as follows (amounts in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Service cost, benefits earned during year ................. $ 39 $ 34 $ 22
Interest cost on accumulated postretirement
benefit obligation ...................................... 116 97 46
Amortization of loss ...................................... 8 -- --
------ ------ ------
Total expense ........................................... $ 163 $ 131 $ 68
====== ====== ======
</TABLE>
The Sammons Systems' respective interest in the actuarial and recorded
liabilities for these postretirement benefits, none of which have been funded,
are as follows (amounts in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retiree ................................................. $ 830 $ 662
Fully eligible active plan participants ................. 167 224
Other active participants ............................... 384 356
Unrealized loss ........................................... (80) --
-------- --------
Accrued postretirement benefit obligation ............... $ 1,301 $ 1,242
======== ========
</TABLE>
F-39
<PAGE> 117
THE SAMMONS SYSTEMS
(CABLE SYSTEMS OF SAMMONS COMMUNICATIONS, INC.
PURCHASED BY MARCUS CABLE ASSOCIATES, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The accumulated postretirement benefit obligation was determined using
the unit credit method and an assumed discount rate of 8.5% for 1994 and 1993.
The assumed health care cost trend rate and the assumed Medicare cost trend
rate used in 1994 and 1993 was 13%, grading down to 6% in the year 2001.
A one percent increase each year in the health care cost trend rate
used would have resulted in a $4,500 decrease in the aggregate service and
interest components of expense for the year 1994, and a $31,000 decrease in the
accumulated postretirement benefit obligation at December 31, 1994.
7. COMMITMENTS AND CONTINGENCIES:
The Sammons Systems generally act as a self-insurer with regard to
loss or damage to its cable distribution systems. No provision for future
losses has been provided.
At December 31, 1994 and 1993, The Sammons Systems have made purchase
commitments of approximately $1,734,000 and 3,911,000, respectively, for
property, plant and equipment.
The Sammons Systems maintain a $100,000 standby letter of credit
related to the provisions of a franchise agreement regarding installation of
cable communication facilities.
The Sammons Systems pay pole use, vehicle, office space, land and
plant facilities rentals under various agreements. Rental expense for 1994,
1993 and 1992 was approximately $3,369,000, $2,999,000 and $4,372,000,
including amounts paid to a related party of approximately $355,000, $276,000
and $268,000, respectively.
Approximate minimum future rentals under noncancelable operating
leases are as follows (amounts in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 638
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 528
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,157
--------
$ 3,548
========
</TABLE>
8. ACQUISITIONS:
During 1993, The Sammons Systems acquired the assets of several cable
television systems for an aggregate purchase price of $185,067,000 including
franchise agreements and goodwill of $139,370,000. The acquisitions were
accounted for as purchases, and accordingly, the results of operations have
been included in the combined financial statements from their respective dates
of acquisition, principally July 1993.
The pro forma results below are unaudited and reflect purchase price
accounting adjustments assuming the acquisition occurred at the beginning of
1992 and 1993 (amounts in thousands):
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Operating revenues .................................................. $ 200,826 $ 186,464
Operating income .................................................... 45,599 37,731
Income before provision for federal and state income taxes
and cumulative effect on prior years of changes in
accounting principles ............................................. 28,543 12,993
Net income .......................................................... 15,969 (162)
</TABLE>
F-40
<PAGE> 118
THE SAMMONS SYSTEMS
(CABLE SYSTEMS OF SAMMONS COMMUNICATIONS, INC.
PURCHASED BY MARCUS CABLE ASSOCIATES, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS:
The Sammons Systems pay SCI and other related parties for various
services. In addition, The Sammons Systems reimburse SCI for certain general
and operating expenses. These amounts are as follows (amounts in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Management fee expense ............ $4,909 $3,967 $3,273
Reimbursement of general
and administrative expenses ..... 5,274 4,453 4,178
</TABLE>
10. LITIGATION:
In the course of conducting its business, The Sammons Systems are from
time to time named as a defendant in litigation actions. The Sammons Systems
are currently involved as a defendant in certain legal issues. Management
currently believes the disposition of all claims and disputes, individually or
in the aggregate, should not have a material adverse effect on The Sammons
Systems' combined financial position.
11. SUBSEQUENT EVENT:
On November 1, 1995, Marcus acquired substantially all of the assets
of The Sammons Systems for a purchase price of $961,701,000, subject to certain
post-closing working capital adjustments.
F-41
<PAGE> 119
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information .................................... 2
Prospectus Summary ....................................... 3
Risk Factors ............................................. 13
Recent Transactions ...................................... 18
The Company .............................................. 19
Use of Proceeds .......................................... 20
Capitalization ........................................... 21
Selected Financial Data .................................. 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ...................................... 24
Business ................................................. 28
Management ............................................... 44
Principal Security Holders ............................... 49
Certain Relationships and Related Transactions ........... 51
The MCC Partnership Agreement ............................ 51
The Senior Credit Facility ............................... 57
Description of Exchange Notes ............................ 57
Plan of Distribution ..................................... 73
Validity of the Exchange Notes ........................... 73
Experts .................................................. 73
Index to Financial Statements ............................ F-1
</TABLE>
================================================================================
================================================================================
MARCUS CABLE
COMPANY, L.P.
MARCUS CABLE
CAPITAL CORPORATION III
14 1/4% SENIOR DISCOUNT NOTES
DUE DECEMBER 15, 2005
---------------------------
MARCUS CABLE
---------------------------
================================================================================
<PAGE> 120
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 6.4 of the Fifth Amended and Restated Agreement of Limited
Partnership of MCC, dated as of August 31, 1995, as amended (the "MCC
Partnership Agreement"), provides that the General Partner and its Affiliates
(generally defined as an individual or entity controlling, controlled by, or
under common control with a particular entity) will not be liable, in damages
or otherwise, to MCC or any of its limited partners for any loss arising out of
acts or omissions performed or omitted by it pursuant to the authority granted
by the MCC Partnership Agreement if the General Partner or its Affiliates, as
applicable, in good faith, determined that such course of conduct was in the
best interests of MCC; provided, however, Section 6.4 of the MCC Partnership
Agreement does not relieve the General Partner from its fiduciary duty or duty
of fair dealing to the limited partners of MCC under applicable law or as set
forth in the MCC Partnership Agreement. Section 6.4 further provides that the
General Partner (and its Affiliates) shall be indemnified and held harmless by
MCC against losses, damages, expenses (including attorneys' fees), judgments
and amounts paid in settlement actually and reasonably incurred in connection
with any threatened, pending or completed claim, suit, action or proceeding to
which it is made a party, or threatened to be made a party, arising out of
activities in which it is or was engaged on behalf of MCC, including without
limitation any action or proceeding brought under the Securities Act against
the General Partner (and its Affiliates) relating to MCC, except in the event
of the General Partners' bad faith, willful misconduct or fraud.
Section 7.5 of the Agreement of Limited Partnership of Properties, dated
as of May 14, 1990, as amended (the "Properties Partnership Agreement"),
provides that MCPI and its stockholders, officers and directors shall not be
liable, in damages or otherwise, to Properties or to any of its limited
partners for any loss which arises out of acts or omissions performed or
omitted by them pursuant to the authority granted by the Properties Partnership
Agreement if MCPI, in good faith, determined that such course of conduct was in
the best interest of Properties, except if such acts or omissions result from
willful misconduct and result in material harm to Properties. In addition, MCPI
and its stockholders, officers and directors will be indemnified and held
harmless by Properties against losses, damages, expenses (including attorneys'
fees), judgments and amounts paid in settlement actually and reasonably
incurred by or in connection with any claim, suit, action or proceeding to
which it is made a party, or threatened to be made a party, arising out of
activities in which it was engaged on behalf of Properties, including without
limitation any action or proceeding brought under the Securities Act (but only
to the extent permitted by the Securities Act) against MCPI and its
stockholders, officers and directors, relating to Properties, provided MCPI is
not found to have acted with willful misconduct or is not found to have failed
to act as a result of willful misconduct. Furthermore, MCPI and its
stockholders, officers and directors will be indemnified in connection with
their defense of a derivative action brought by any limited partner to the
extent permitted by the Delaware Revised Uniform Limited Partnership Act on the
condition that MCPI has not acted with willful misconduct or failed to act as a
result of willful misconduct.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
(the "DGCL"), provides that a corporation (in its original certificate of
incorporation or an amendment thereto) may eliminate or limit the personal
liability of a director (or certain persons who, pursuant to the provisions of
the certificate of incorporation, exercise or perform duties conferred or
imposed upon directors by the DGCL) to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provisions shall not eliminate or limit the liability of a director (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) under Section 174
of the DGCL (providing for liability of directors for unlawful payment of
dividends or unlawful stock purchases or redemptions) or (iv) for any
transaction from which the director derived an improper personal benefit.
Article Twelfth of MCPI's Certificate of Incorporation and Article Thirteenth
of Capital III's Certificate of Incorporation each limit the liability of
directors thereof to the extent permitted by Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, in general, a corporation may indemnify its
directors, officers, employees or agents against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties to which they may be made parties by reason of their being or
having been directors, officers, employees or agents and shall so indemnify
such persons if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. Article Eleventh of the Certificate of
Incorporation of MCPI and Article VIII of its By-Laws and Article Twelfth of
the Certificate of Incorporation of Capital III and Article V of its By-Laws
provide that each of MCPI and Capital III, respectively, shall have the power
to indemnify its officers, directors, employees and agents to the full extent
permitted by Delaware law.
II-1
<PAGE> 121
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<S> <C> <C>
3.1 Fifth Amended and Restated Agreement of Limited Partnership of
Marcus Cable Company, L.P. ("MCC"), dated as of August 31, 1995.
(Exhibit 99.1)
* 3.2 Certificate of Limited Partnership of MCC, dated July 24, 1990.
(Exhibit 3.2)
****3.3 Certificate of Incorporation of Marcus Cable Capital Corporation
III ("Capital III"), dated June 9, 1995. (Exhibit 3.10)
****3.4 Bylaws of Capital III. (Exhibit 3.11)
* 4.1 Indenture, dated as of October 13, 1993, by and among MCC and
Capital and the U.S. Trust Company of Texas, N.A., as Trustee,
relating to the 117/8% Senior Debentures due October 1, 2005.
(Exhibit 4.1)
*** 4.2 Indenture, dated as of July 29, 1994, by and among MCC, Operating
and Capital II and the U.S. Trust Company of Texas, N.A., as Trustee,
relating to the 13 1/2% Senior Subordinated Guaranteed Discount Notes
due August 1, 2004. (Exhibit 4.1)
**** 4.3 Indenture, dated as of June 9, 1995, by and among MCC and Capital
III and Norwest Bank Minnesota, National Association, as Trustee,
relating to the 14 1/4% Senior Discount Notes due December 15, 2005.
(Exhibit 4.3)
**** 4.4 Exchange and Registration Rights Agreement among MCC, Capital III
and Goldman, Sachs & Co., dated as of June 9, 1995. (Exhibit 4.4)
**** 4.5 Form of Global Exchange Note.
**** 4.6 Form of Certificated Exchange Note.
**** 5.1 Opinion of Baker & Botts, L.L.P.
* 10.1 Investment Banking Agreement, dated as of January 17, 1990, by
and among MCC, MCPI, Jeffrey A. Marcus and Goldman, Sachs & Co. (the
"Investment Banking Agreement"). (Exhibit 10.8)
* 10.2 Amendment to the Investment Banking Agreement, dated as of
August 1, 1990. (Exhibit 10.9)
** 10.3 Purchase Agreement, dated as of November 12, 1993 between Star
Cablevision Group and Star Mid America Limited Partnership
(collectively, "Star") and Marcus Cable Partners, L.P. (Exhibit
10.17)
*** 10.4 Amendment Number One to Purchase Agreement dated as of May 31,
1994 between Star and Marcus Cable Partners, L.P. (Exhibit 10.16)
+ 10.5 Amendment Number Two to Purchase Agreement dated as of July 29,
1994 between Star and Marcus Cable Partners, L.P. (Exhibit 2.3)
*** 10.6 Stock Purchase Agreement, dated as of July 1, 1994 ("Stock
Purchase Agreement") by and among Charter Communications, Inc., CCA
Acquisition Corp., Charter Communications II, L.P., the General
Partner, CM Acquisition Corp. and HC Crown Corp. (Exhibit 10.18)
+++ 10.7 Amendment to Stock Purchase Agreement, dated November 18, 1994.
(Exhibit 10.30)
++ 10.8 Funding and Adjustment Agreement dated as of January 18, 1995
among the General Partner, Charter Communications, Inc., CCA
Acquisition Corp., and Charter Communications II, L.P. and CM
Acquisitions Corp. (Exhibit 99.2)
+++ 10.9 Asset Purchase Agreement, dated March 24, 1995, among Marcus
Cable of San Angelo, L.P. and Teleservice Corporation of America
("TCA"). (Exhibit 10.30)
</TABLE>
II-2
<PAGE> 122
<TABLE>
<S> <C>
++++10.10 Asset Purchase Agreement, dated as of April 5, 1995, by and between
Marcus Cable Associates, L.P. and Sammons Communications, Inc.,
Sammons Communications of Connecticut, Inc., Sammons Communications
of Washington, Inc., Sammons Communications of Texas, Inc., Sammons
Communications of Illinois, Inc., Sammons Communications of
Virginia, Inc., Sammons Communications of Mississippi, Inc.,
Sammons of Indiana and Sammons of Fort Worth. (Exhibit 2.1)
+++++10.11 Unit Purchase Agreement, dated May 12, 1995, by and among MCC,
Cencom of Alabama, L.P., Marcus Cable of Alabama, Inc., on the one
hand, and Goldman Sachs Group, L.P., Broad Street Investment Fund
I, L.P., Stone Street Fund 1990, L.P., Stone Street Fund 1991,
L.P., Bridge Street Fund 1990, L.P. and Bridge Street Fund 1991,
L.P. (Exhibit 99.1)
++10.12 $250,000,000 Amended and Restated Senior Credit Facility among
Operating, NationsBank of Texas, N.A., as Managing Agent and as a
Lender, Union Bank, as Agent and as a Lender, The First National
Bank of Boston and Banque Paribas, as Co-Agents and Lenders, and
certain other Lenders named therein dated as of November 15, 1994.
(Exhibit 99.3)
-10.13 Senior Credit Facility dated August 31, 1995, among Operating, MCC,
the Several Lenders from time to time parties thereto, Chemical
Bank, Banque Paribas, The First National Bank of Boston, Pearl
Street L.P. and Union Bank, Chemical Securities Inc., Goldman,
Sachs & Co., Citicorp Securities Inc., Citibank, N.A., Paribas
Capital Markets. (Exhibit 99.4)
++10.14 Form of Subscription Agreement for the Purchase and Sale of Class B
LP Units dated as of January 11, 1995, among MCC, the General
Partner and a new investor. (Exhibit 4.2)
***10.15 Form of Subscription Agreement for the Purchase and Sale of Class B
LP Units dated as of April 25, 1995, among MCC and certain
subscribers. (Exhibit 10.17)
****10.16 MCC Long-Term Incentive Plan, dated as of May 25, 1995. (Exhibit
10.20)
-10.17 Senior Credit Facility. (Exhibit 99.2)
--10.18 Form of Amendment to the Senior Credit Facility, dated March 14,
1997. (Exhibit 10.16)
--12.1 Computation of Ratio of Earnings to Fixed Charges. (Exhibit 12.1)
--21.1 Subsidiaries of MCC. (Exhibit 21.1)
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
****25.1 Statement of Eligibility and Qualification of Trustee on Form T-1
of Norwest Bank Minnesota, National Association under the Trust
Indenture Act of 1939. (Exhibit 25.1)
****99.1 Form of Letter of Transmittal. (Exhibit 99.3)
</TABLE>
- --------------------
* Incorporated by reference to the exhibit shown in parentheses
contained in the Registration Statement on Form S-1 of MCC and Capital
(File Nos. 33-67390; 33-67390-01).
** Incorporated by reference to the exhibit shown in parentheses
contained in the Registration Statement on Form S-1 of MCC and Capital
(File Nos. 33-74104; 33-74104-01).
*** Incorporated by reference to the exhibit shown in parentheses
contained in the Registration Statement on Form S-1 of Operating and
Capital II (File Nos. 33-81088; 33-81088-01; 33-81088-02).
**** Previously filed. Exhibit number set forth in parentheses shows
exhibit number used in prior version of this Registration Statement in
which such exhibit was filed.
II-3
<PAGE> 123
+ Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K, dated July 29, 1994.
++ Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K, dated January 18, 1995.
+++ Incorporated by reference to the exhibit shown in parentheses
contained in the 1994 Annual Report on Form 10-K.
++++ Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K, dated April 5, 1995.
+++++ Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K, dated May 12, 1995.
- - Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K, dated August 31, 1995.
- -- Incorporated by reference to the exhibit shown in parentheses
contained in the Annual Report on Form 10-K, dated March 27, 1997.
(b) FINANCIAL STATEMENT SCHEDULES--MARCUS OPERATING PARTNERSHIPS AND
MARCUS CABLE COMPANY, L.P.:
All schedules have been omitted because they are inapplicable or the
information is included elsewhere in the Registration Statement.
ITEM 22. UNDERTAKINGS.
The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrants hereby undertake:
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of Operating, MCC,
Properties, MCPI and Capital III pursuant to the provisions described under
Item 20 above or otherwise, the Registrants have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrants of expenses incurred or paid by a director,
officer or controlling person of the registrants in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrants will, unless in the opinion of their counsel the matter has been
II-4
<PAGE> 124
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by them is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-5
<PAGE> 125
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
MARCUS CABLE COMPANY, L.P. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF DALLAS, STATE OF TEXAS, ON THE 25TH DAY OF APRIL, 1997.
Marcus Cable Company, L.P.
By: Marcus Cable Properties, L.P.,
its general partner
By: Marcus Cable Properties, Inc.,
its general partner
By: /s/ Thomas P. McMillin
----------------------------------
Thomas P. McMillin
Senior Vice President and Chief
Financial 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>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Jeffrey A. Marcus
- -------------------------------------
Jeffrey A. Marcus President, Chief Executive Officer and Sole April 25, 1997
Director of Marcus Cable Properties, Inc.
(Principal Executive Officer)
/s/ Thomas P. McMillin
- -------------------------------------
Thomas P. McMillin Senior Vice President and Chief Financial April 25, 1997
Officer of Marcus Cable Properties, Inc.
(Principal Financial and Accounting Officer)
</TABLE>
<PAGE> 126
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
MARCUS CABLE CAPITAL CORPORATION III HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS, ON THE 25TH DAY OF APRIL,
1997.
Marcus Cable Capital Corporation III
By: /s/ Thomas P. McMillin
----------------------------------------
Thomas P. McMillin
Senior Vice President and Chief
Financial 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>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Jeffrey A. Marcus
- ------------------------------------
Jeffrey A. Marcus President, Chief Executive Officer and Sole April 25, 1997
Director of Marcus Cable Capital Corporation III
(Principal Executive Officer)
/s/ Thomas P. McMillin
- ------------------------------------
Thomas P. McMillin Senior Vice President and Chief Financial April 25, 1997
Officer of Marcus Cable Capital Corporation III
(Principal Financial and Accounting Officer)
</TABLE>
<PAGE> 127
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Page
- ------ ---------------------- -------------
<S> <C> <C>
- 3.1 Fifth Amended and Restated Agreement of Limited Partnership of
Marcus Cable Company, L.P. ("MCC"), dated as of August 31, 1995.
(Exhibit 99.1)
* 3.2 Certificate of Limited Partnership of MCC, dated July 24, 1990.
(Exhibit 3.2)
**** 3.3 Certificate of Incorporation of Marcus Cable Capital Corporation
III ("Capital III"), dated June 9, 1995. (Exhibit 3.10)
**** 3.4 Bylaws of Capital III. (Exhibit 3.11)
* 4.1 Indenture, dated as of October 13, 1993, by and among MCC and
Capital and the U.S. Trust Company of Texas, N.A., as Trustee,
relating to the 117/8% Senior Debentures due October 1, 2005.
(Exhibit 4.1)
*** 4.2 Indenture, dated as of July 29, 1994, by and among MCC, Operating
and Capital II and the U.S. Trust Company of Texas, N.A., as Trustee,
relating to the 13 1/2% Senior Subordinated Guaranteed Discount Notes
due August 1, 2004. (Exhibit 4.1)
**** 4.3 Indenture, dated as of June 9, 1995, by and among MCC and Capital
III and Norwest Bank Minnesota, National Association, as Trustee,
relating to the 14 1/4% Senior Discount Notes due December 15, 2005.
(Exhibit 4.3)
**** 4.4 Exchange and Registration Rights Agreement among MCC, Capital III
and Goldman, Sachs & Co., dated as of June 9, 1995. (Exhibit 4.4)
**** 4.5 Form of Global Exchange Note.
**** 4.6 Form of Certificated Exchange Note.
**** 5.1 Opinion of Baker & Botts, L.L.P.
* 10.1 Investment Banking Agreement, dated as of January 17, 1990, by
and among MCC, MCPI, Jeffrey A. Marcus and Goldman, Sachs & Co. (the
"Investment Banking Agreement"). (Exhibit 10.8)
* 10.2 Amendment to the Investment Banking Agreement, dated as of
August 1, 1990. (Exhibit 10.9)
** 10.3 Purchase Agreement, dated as of November 12, 1993 between Star
Cablevision Group and Star Mid America Limited Partnership
(collectively, "Star") and Marcus Cable Partners, L.P. (Exhibit
10.17)
*** 10.4 Amendment Number One to Purchase Agreement dated as of May 31,
1994 between Star and Marcus Cable Partners, L.P. (Exhibit 10.16)
+ 10.5 Amendment Number Two to Purchase Agreement dated as of July 29,
1994 between Star and Marcus Cable Partners, L.P. (Exhibit 2.3)
*** 10.6 Stock Purchase Agreement, dated as of July 1, 1994 ("Stock
Purchase Agreement") by and among Charter Communications, Inc., CCA
Acquisition Corp., Charter Communications II, L.P., the General
Partner, CM Acquisition Corp. and HC Crown Corp. (Exhibit 10.18)
+++ 10.7 Amendment to Stock Purchase Agreement, dated November 18, 1994.
(Exhibit 10.30)
</TABLE>
<PAGE> 128
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Page
- ------ ---------------------- -------------
<S> <C> <C>
++ 10.8 Funding and Adjustment Agreement dated as of January 18, 1995
among the General Partner, Charter Communications, Inc., CCA
Acquisition Corp., and Charter Communications II, L.P. and CM
Acquisitions Corp. (Exhibit 99.2)
+++ 10.9 Asset Purchase Agreement, dated March 24, 1995, among Marcus
Cable of San Angelo, L.P. and Teleservice Corporation of America
("TCA"). (Exhibit 10.30)
++++ 10.10 Asset Purchase Agreement, dated as of April 5, 1995, by and between
Marcus Cable Associates, L.P. and Sammons Communications, Inc.,
Sammons Communications of Connecticut, Inc., Sammons Communications
of Washington, Inc., Sammons Communications of Texas, Inc., Sammons
Communications of Illinois, Inc., Sammons Communications of
Virginia, Inc., Sammons Communications of Mississippi, Inc.,
Sammons of Indiana and Sammons of Fort Worth. (Exhibit 2.1)
+++++10.11 Unit Purchase Agreement, dated May 12, 1995, by and among MCC,
Cencom of Alabama, L.P., Marcus Cable of Alabama, Inc., on the one
hand, and Goldman Sachs Group, L.P., Broad Street Investment Fund
I, L.P., Stone Street Fund 1990, L.P., Stone Street Fund 1991,
L.P., Bridge Street Fund 1990, L.P. and Bridge Street Fund 1991,
L.P. (Exhibit 99.1)
++ 10.12 $250,000,000 Amended and Restated Senior Credit Facility among
Operating, NationsBank of Texas, N.A., as Managing Agent and as a
Lender, Union Bank, as Agent and as a Lender, The First National
Bank of Boston and Banque Paribas, as Co-Agents and Lenders, and
certain other Lenders named therein dated as of November 15, 1994.
(Exhibit 99.3)
-10.13 Senior Credit Facility dated August 31, 1995, among Operating, MCC,
the Several Lenders from time to time parties thereto, Chemical
Bank, Banque Paribas, The First National Bank of Boston, Pearl
Street L.P. and Union Bank, Chemical Securities Inc., Goldman,
Sachs & Co., Citicorp Securities Inc., Citibank, N.A., Paribas
Capital Markets. (Exhibit 99.4)
++ 10.14 Form of Subscription Agreement for the Purchase and Sale of Class B
LP Units dated as of January 11, 1995, among MCC, the General
Partner and a new investor. (Exhibit 4.2)
*** 10.15 Form of Subscription Agreement for the Purchase and Sale of Class B
LP Units dated as of April 25, 1995, among MCC and certain
subscribers. (Exhibit 10.17)
**** 10.16 MCC Long-Term Incentive Plan, dated as of May 25, 1995. (Exhibit
10.20)
-10.17 Senior Credit Facility. (Exhibit 99.2)
--10.18 Form of Amendment to the Senior Credit Facility, dated March 14,
1997. (Exhibit 10.16)
--2.1 Computation of Ratio of Earnings to Fixed Charges. (Exhibit 12.1)
--21.1 Subsidiaries of MCC. (Exhibit 21.1)
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
</TABLE>
<PAGE> 129
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Page
- ------ ---------------------- -------------
<S> <C> <C>
****25.1 Statement of Eligibility and Qualification of Trustee on Form T-1
of Norwest Bank Minnesota, National Association under the Trust
Indenture Act of 1939. (Exhibit 25.1)
****99.1 Form of Letter of Transmittal. (Exhibit 99.3)
</TABLE>
- --------------------
* Incorporated by reference to the exhibit shown in parentheses
contained in the Registration Statement on Form S-1 of MCC and Capital
(File Nos. 33-67390; 33-67390-01).
** Incorporated by reference to the exhibit shown in parentheses
contained in the Registration Statement on Form S-1 of MCC and Capital
(File Nos. 33-74104; 33-74104-01).
*** Incorporated by reference to the exhibit shown in parentheses
contained in the Registration Statement on Form S-1 of Operating and
Capital II (File Nos. 33-81088; 33-81088-01; 33-81088-02).
**** Previously filed. Exhibit number set forth in parentheses shows
exhibit number used in prior version of this Registration Statement in
which such exhibit was filed.
+ Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K, dated July 29, 1994.
++ Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K, dated January 18, 1995.
+++ Incorporated by reference to the exhibit shown in parentheses
contained in the 1994 Annual Report on Form 10-K.
++++ Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K, dated April 5, 1995.
+++++ Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K, dated May 12, 1995.
- - Incorporated by reference to the exhibit shown in parentheses
contained in Form 8-K, dated August 31, 1995.
- -- Incorporated by reference to the exhibit shown in parentheses
contained in the Annual Report on Form 10-K, dated March 27, 1997.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' REPORT
The Partners
Marcus Cable Company, L.P.:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Dallas, Texas
April 24, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 33-67390; 33-67390-01) of our report dated May 5, 1995, except for Note 11
as to which the date is November 1, 1995, on our audits of the combined
financial statements of The Sammons Systems (cable systems of Sammons
Communications, Inc. purchased by Marcus Cable Associates L.P.) We also
consent to the reference to our firm under the caption "Experts".
Coopers & Lybrand L.L.P
April 25, 1997
Dallas, Texas
