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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KNOLOGY HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
4812
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
58-2203141
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
312 WEST 8TH STREET
WEST POINT, GEORGIA 31833
(706) 645-3903
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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WILLIAM E. MORROW
KNOLOGY HOLDINGS, INC.
312 WEST 8TH STREET
WEST POINT, GEORGIA 31833
(706) 645-8553
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
STEVEN M. KAUFMAN, ESQ.
HOGAN & HARTSON L.L.P.
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004
(202) 637-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE(1) FEE(2)
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11 7/8% Senior Discount Notes Due 2007..... $444,100,000 56.1449% $249,339,526 $73,556
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(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended.
(2) Calculated pursuant to Rule 457(f) based on the book value, calculated as of
November 30, 1997, of the outstanding 11 7/8% Senior Discount Notes Due 2007
of KNOLOGY Holdings, Inc. to be canceled in the exchange transaction
hereunder.
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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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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PROSPECTUS
DATED DECEMBER 24, 1997
KNOLOGY HOLDINGS INC.
$444,100,000
OFFER TO EXCHANGE ALL OUTSTANDING 11 7/8% SENIOR
DISCOUNT NOTES DUE
OCTOBER 15, 2007
FOR
11 7/8% SENIOR DISCOUNT NOTES DUE OCTOBER 15, 2007
OF
KNOLOGY HOLDINGS, INC.
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INTEREST PAYABLE APRIL 15 AND OCTOBER 15,
COMMENCING APRIL 15, 2003
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THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED.
KNOLOGY Holdings, Inc. (the "Company") hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus (as the same may be
amended or supplemented from time to time) and in the accompanying Letter of
Transmittal (the "Letter of Transmittal") (which together constitute the
"Exchange Offer"), to exchange $1,000 principal amount at maturity of its
11 7/8% Senior Discount Notes due October 15, 2007 (the "Exchange Notes") which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), for each $1,000 principal amount at maturity of its
outstanding unregistered 11 7/8% Senior Discount Notes due October 15, 2007, of
which $444,100,000 in aggregate principal amount at maturity is outstanding as
of the date hereof (the "Senior Discount Notes" and, together with the Exchange
Notes, the "Notes").
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Senior Discount Notes, except that (i) the
Exchange Notes will have been registered under the Securities Act and therefore
will not be subject to certain restrictions on transfer applicable to the Senior
Discount Notes and (ii) holders of the Exchange Notes will not be entitled to
certain rights of holders of the Senior Discount Notes under the Registration
Rights Agreement dated October 22, 1997 (the "Registration Rights Agreement")
among Morgan Stanley & Co. Incorporated, J.P. Morgan & Co. and First Union
Capital Markets Corp. (collectively, the "Placement Agents"), the Company and
SCANA Communications, Inc. ("SCANA"). The Exchange Notes will evidence the same
indebtedness as the Senior Discount Notes (which they will replace) and will be
issued pursuant to, and entitled to the benefits of, an indenture dated as of
October 22, 1997 between the Company and the United States Trust Company of New
York, as trustee (the "Trustee"), governing the Senior Discount Notes and the
Exchange Notes (the "Indenture").
SEE "RISK FACTORS" COMMENCING ON PAGE 14 FOR A DISCUSSION OF CERTAIN
FACTORS WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER
AND AN INVESTMENT IN 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.
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THE DATE OF THIS PROSPECTUS IS , 1998
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The Exchange Notes will mature on October 15, 2007. Interest will not
accrue on the Exchange Notes prior to October 15, 2002. Thereafter, interest on
the Exchange Notes will accrue at a rate of 11 7/8% per annum and will be
payable semiannually on April 15 and October 15 of each year, commencing April
15, 2003. See "Description of the Exchange Notes." The Exchange Notes will be
redeemable at the option of the Company, in whole or in part, at any time on or
after October 15, 2002, initially at 105.9375% of their principal amount at
maturity, plus accrued interest, declining ratably to 100% of their principal
amount at maturity, plus accrued interest, on and after October 15, 2004. In
addition, at any time prior to October 15, 2000, the Company may redeem up to
35% of the aggregate principal amount at maturity of the Senior Discount Notes
and the Exchange Notes from the proceeds of one or more Public Equity Offerings
(as defined herein) at 111.875% of their Accreted Value on the redemption date;
provided that after any such redemption at least $288.7 million aggregate
principal amount at maturity of the Senior Discount Notes and the Exchange Notes
remains outstanding. See "Description of the Exchange Notes -- Certain
Definitions."
The Exchange Notes will be unsubordinated indebtedness of the Company,
ranking pari passu in right of payment with the Senior Discount Notes and all
other existing and future unsubordinated indebtedness of the Company and senior
in right of payment to all subordinated indebtedness of the Company. As of
September 30, 1997, on a pro forma basis after giving effect to the Offering and
the Equity Private Placement (each as defined herein), the Company would have
had (on an unconsolidated basis) $124,000 of indebtedness other than the Senior
Discount Notes and the Exchange Notes. In addition, the Company is a holding
company and the Senior Discount Notes are, and the Exchange Notes will be,
effectively subordinated to all existing and future liabilities (including trade
payables) of the Company's subsidiaries. As of September 30, 1997, on the same
pro forma basis, the Company's subsidiaries would have had $4.1 million in
liabilities (excluding intercompany payables).
The Senior Discount Notes, together with warrants (the "Warrants") to
purchase preferred stock, par value $.01 per share of the Company (the
"Preferred Stock"), were originally issued and sold on October 22, 1997 in a
transaction not registered under the Securities Act (the "Offering").
Accordingly, the Senior Discount Notes may not be offered for resale, resold or
otherwise transferred unless so registered or unless an applicable exemption
from the registration requirements of the Securities Act is available. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission"), as set forth in no-action letters issued to third parties
unrelated to the Company, the Company believes that the Exchange Notes issued
pursuant to the Exchange Offer may be offered for resale, resold or otherwise
transferred by holders thereof (other than any holder that is (i) a
broker-dealer that acquired Senior Discount Notes as a result of market-making
activities or other trading activities or (ii) an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration or prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of such Exchange Notes. Any holder who tenders Senior Discount Notes in the
Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes or who is an affiliate of
the Company may not rely upon such interpretations by the staff of the
Commission and, in the absence of an exemption therefrom, must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Failure to comply with such
requirements in such instance may result in such holder incurring liabilities
under the Securities Act for which the holder is not indemnified by the Company.
The staff of the Commission has not considered the Exchange Offer in the context
of a no-action letter, and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange Offer
as in such other circumstances.
By tendering Senior Discount Notes in exchange for Exchange Notes, each
holder will represent to the Company, among other things, that: (i) any Exchange
Notes to be received by such holder will be acquired in the ordinary course of
such holder's business; (ii) such holder has no arrangement or understanding
with any person to participate in a distribution (within the meaning of the
Securities Act) of the Exchange Notes; and (iii) such holder is not an
"affiliate" of the Company (within the meaning of Rule 405 under the Securities
Act), or if such holder is an affiliate, that such holder will comply with the
registration and prospectus delivery
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requirements of the Securities Act to the extent applicable. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Senior Discount
Notes, where such Senior Discount Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Senior Discount Notes where such Senior Discount Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period not to exceed 180 days
after the Expiration Date (as defined herein), it will furnish additional copies
of this Prospectus, as amended or supplemented, to any broker-dealer that
reasonably requests such documents for use in connection with any such resale.
See "Plan of Distribution."
The Company does not intend to apply for listing of the Exchange Notes for
trading on any securities exchange or for inclusion of the Exchange Notes in any
automated quotation system. The Senior Discount Notes, however, have been
designated for trading in the Private Offerings, Resales and Trading through
Automatic Linkages ("PORTAL") Market of the National Association of Securities
Dealers, Inc. Any Senior Discount Notes not tendered and accepted in the
Exchange Offer will remain outstanding. To the extent that Senior Discount Notes
are not tendered and accepted in the Exchange Offer, a holder's ability to sell
such Senior Discount Notes could be adversely affected. Following consummation
of the Exchange Offer, the holders of Senior Discount Notes will continue to be
subject to the existing restrictions on transfer thereof and the Company will
have no further obligation to such holders to provide for the registration under
the Securities Act of the Senior Discount Notes. See "Description of the
Exchange Notes -- Exchange Offer; Registration Rights." No assurance can be
given as to the liquidity of either the Senior Discount Notes or the Exchange
Notes.
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF SENIOR DISCOUNT NOTES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR SENIOR DISCOUNT NOTES PURSUANT TO THE EXCHANGE OFFER.
Senior Discount Notes may be tendered for exchange prior to 5:00 p.m., New
York City time, on , 1998 (such time on such date being hereinafter
called the "Expiration Date"), unless the Exchange Offer is extended by the
Company (in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended). Tenders of Senior Discount Notes
may be withdrawn at any time prior to the Expiration Date. The Exchange Offer is
not conditioned upon any minimum aggregate principal amount of Senior Discount
Notes being tendered for exchange. The Exchange Offer is, however, subject to
certain events and conditions and to the terms of the Registration Rights
Agreement. Senior Discount Notes may be tendered only in integral multiples of
aggregate principal amount at maturity of $1,000. The Company has agreed to pay
all expenses of the Exchange Offer. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders of Senior Discount Notes as
of , 1998.
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The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No underwriter is being used in connection with
the Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
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TABLE OF CONTENTS
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PAGE
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Summary............................................................................... 5
Risk Factors.......................................................................... 14
The Exchange Offer.................................................................... 23
Use of Proceeds....................................................................... 31
Dividend Policy....................................................................... 32
Capitalization........................................................................ 33
Selected Consolidated Financial Data.................................................. 34
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 36
Business.............................................................................. 40
Legislation and Regulation............................................................ 57
Management............................................................................ 69
Certain Transactions.................................................................. 74
Principal Stockholders................................................................ 77
Description of Certain Indebtedness................................................... 78
Description of the Exchange Notes..................................................... 80
Description of the Warrants........................................................... 107
Description of Capital Stock.......................................................... 112
Certain United States Federal Income Tax Consequences................................. 114
Plan of Distribution.................................................................. 120
Legal Matters......................................................................... 121
Experts............................................................................... 121
Additional Information................................................................ 121
Index to Financial Statements......................................................... F-1
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KNOLOGY, OLOVision(R), OLOBahn(R) and OLOTel(R) are trademarks of the
Company and are registered in certain jurisdictions and "The Bundle" and
"Sterling Service" are service marks of the Company. This Prospectus also
includes trademarks of companies other than the Company.
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless the context
indicates or requires otherwise, any reference in this Prospectus to "KNOLOGY"
or the "Company" refers to KNOLOGY Holdings, Inc. and its subsidiaries. Each
prospective investor is urged to read this Prospectus in its entirety.
THE COMPANY
KNOLOGY offers residential and business customers broadband communications
services ("Broadband Services"), including cable television, telephone and
high-speed Internet access service. The Company provides these Broadband
Services using high-capacity hybrid fiber-coaxial networks that are two-way
interactive ("Interactive Broadband Networks"). The Company operates Interactive
Broadband Networks in two cities, Montgomery, Alabama and Columbus, Georgia, and
plans to expand to additional mid-sized cities in the southeastern United
States. KNOLOGY has been providing cable television service since 1995 and
commenced providing telephone and high-speed Internet access service in July
1997. The Company believes its ability to provide numerous services over the
same network and to bundle the services at an attractive price, coupled with its
emphasis on customer service, provides it with a competitive advantage.
KNOLOGY commenced providing cable television service by acquiring cable
television systems in Montgomery and Columbus and using those systems as a base
for constructing new Interactive Broadband Networks. Since acquiring the
Montgomery system (the "Montgomery System") in April 1995, the Company has
extended the Montgomery network from approximately 275 miles and 8,252
subscribers to approximately 575 miles with 18,267 subscribers and 52,138 homes
passed as of September 30, 1997. Since its acquisition of the Columbus system
(the "Columbus System," and together with the Montgomery System, the "Systems")
in September 1995, the Company has extended the Columbus network from
approximately 180 miles and 5,109 subscribers to approximately 434 miles with
11,741 subscribers and 38,620 homes passed as of September 30, 1997. The
Company's penetration rates (the ratio of the number of subscribers to homes
passed) were 35.0% and 30.4% in Montgomery and Columbus, respectively, as of
September 30, 1997. The Company believes that its ability to increase and
maintain its subscribers has been due largely to its commitment to customer
service, the greater number of channels and the greater reliability and quality
of the picture and sound offered by the Company over its Interactive Broadband
Networks compared to the more traditional cable networks operated by the
Company's competitors. The Company expects the number of its cable television
subscribers to continue to increase as it expands its Systems in Montgomery and
Columbus, focuses on marketing to multiple dwelling units, increases the number
of Broadband Services offered and introduces its OLOVision(R) digital video
service, which will use compression technology to significantly increase the
number of television channels.
KNOLOGY commercially launched its high-speed OLOBahn(R) Internet access
service (using cable modems) and its OLOTel(R) local and long distance telephone
services in July 1997. These services are presently offered in Montgomery. In
Columbus, high-speed Internet access service was introduced in September 1997
and telephone service was introduced in the fourth quarter of 1997. While the
Company expects its subscribers for cable television (which are primarily
residential) to serve as the Company's initial customer base for its telephone
and Internet services, the Company has begun to target small- and medium-sized
businesses using a bundled offering emphasizing telephone and Internet access
services. KNOLOGY offers its OLOTel(R) services using its Interactive Broadband
Network and interconnections with BellSouth under a nine-state interconnection
agreement, and it resells long distance service to customers in Montgomery to
provide telephone service outside the reach of the Company's networks. In
addition, the Company also offers long distance access services to long distance
carriers over its Interactive Broadband Networks.
The Company believes that its Interactive Broadband Networks could in the
future enable it to provide additional Broadband Services, including (i)
interactive energy management services (in partnership with power companies),
which involve monitoring by the customer of energy usage and cost; (ii) security
services,
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including closed-circuit television security monitoring and alarm systems; (iii)
high-speed data transmission connecting homes and offices ("extranets"); and
(iv) wholesale transport and interconnection ("local loop") services to connect
long distance carriers to their customers. The Company expects to commence
trials of certain of these services in 1998.
The Company intends to expand to additional mid-sized cities in the
southeastern United States. In December 1997, the Company acquired a cable
television system in Panama City Beach, Florida (the "Beach Cable System") for
approximately $3.9 million in cash and 2,485 shares of Preferred Stock valued at
approximately $3.7 million, subject to adjustment. The Company intends to apply
for a cable franchise in adjacent Panama City. The Beach Cable System, which
currently passes approximately 10,500 homes, consists of a new cable television
network which the Company believes can be adapted for delivery of Broadband
Services. The Company plans to start construction of an Interactive Broadband
Network that would significantly expand the existing Beach Cable System into
Panama City (the Beach Cable System, as proposed to be expanded, is referred to
herein as the "Panama City System"). The Company has applied for cable
franchises in Charleston, South Carolina and Augusta, Georgia, and intends to
apply for additional franchises in other cities.
BROADBAND SERVICES STRATEGY
The Company has developed the following strategy for the implementation and
operation of its Broadband Services business.
BUILD RELIABLE INTERACTIVE BROADBAND NETWORKS. By constructing and
operating its own Interactive Broadband Networks, the Company provides its
residential and business customers with access to high-quality networks capable
of supporting a wide range of Broadband Services. The Company believes that this
will provide a competitive advantage over cable, telephone and wireless systems
that do not have the capability to provide a wide range of broadband services.
The Company also believes that its newly constructed, Interactive Broadband
Networks will give it a quality and reliability advantage over upgraded
lower-capacity coaxial cable systems. KNOLOGY's Interactive Broadband Networks
utilize a 750 MHz signal (designed to allow for upgrade to 1,000 MHz) and are
protected by redundant paths for communications segments, including a SONET ring
connecting hubs for restoration and security purposes. By comparison, most
traditional cable television systems utilize 450 MHz to 550 MHz signals and do
not have significant redundancy protection. The Company uses a specially
designed powering system which is backed up at each hub site by a generator and
uninterruptable power source ("UPS") to allow service to continue in case of a
power outage. The Interactive Broadband Networks are monitored 24-hours per day,
seven days per week, at KNOLOGY's network operations center.
PROVIDE BUNDLED OFFERINGS. The Company believes that by bundling Broadband
Services it can distinguish itself from the competition. The Company believes
that savings on a bundle of services and the advantages of one-stop shopping
(including a single point of purchase and one relationship to manage all
services included in the bundle) will be attractive to new customers,
particularly since most of its prospective customers presently buy services from
multiple sources. The Company also believes that because of the cost savings
associated with purchasing a bundle of services from the Company, customers will
be less likely to switch should competitors offer lower prices on individual
services. The ability to realize an overall return on a bundle of services
should give the Company greater pricing flexibility.
BE FIRST TO MARKET WITH MULTIPLE BROADBAND SERVICES. The Company believes
that it is or will be the first provider of a bundled video, voice and data
Broadband Services package in Montgomery and Columbus and intends to be the
first to market a bundled video, voice and data Broadband Services package in
each of the cities in which it proposes to construct and operate Interactive
Broadband Networks. The Company believes that a large number of companies may
seek to provide multiple Broadband Services over the next several years, and
that market share earned by the early entrants will create financial barriers to
entry in the Company's target markets. Since constructing Broadband Services
networks requires a large capital investment, the Company expects that later
entrants will have greater difficulty in demonstrating economic
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returns that support such an investment. In addition, constructing networks uses
space on various rights of way, which may be limited or more expensive for later
entrants.
EXPAND TO ADDITIONAL MARKETS. The Company intends to expand to additional
mid-sized cities in the southeastern United States. The Company intends to
target cities (1) that have a geographic density such that network plant can be
constructed to pass an average of 70 homes per mile, (2) that generally have
populations of at least 100,000 and (3) in which the Company believes it can
capture a substantial portion of the cable television customers and can be the
leading provider of Broadband Services. The Company believes that such cities
will support a Broadband Services business and that most of the large cable
companies and other service providers currently are focusing primarily on major
metropolitan areas.
FOCUS ON THE CUSTOMER. Customer service is an essential element of the
Company's operations. The Company believes the quality and responsiveness of its
customer service differentiates it from its competitors. Customer service
representatives in each market handle customer-related functions such as order
taking, customer activations, billing inquiries and collections, and service
upgrades and administer the Company's customer satisfaction program. Under its
customer satisfaction program, the Company follows up with new customers
regarding satisfaction with the service, and uses installation customer surveys,
market research and focus groups to improve its service and marketing. In
addition, the Company provides 24-hour customer service, operates customer phone
centers in each of the Company's service areas, and is building a back-up
customer phone center in West Point, Georgia. The Company monitors its networks
24 hours a day, seven days a week and strives to resolve problems prior to the
customer being aware of any service interruptions.
PURSUE STRATEGIC RELATIONSHIPS WITH OTHER SERVICE PROVIDERS. KNOLOGY
offers certain of its Broadband Services in conjunction with or through
strategic partners. KNOLOGY was founded in 1995 by the corporate predecessor of
ITC Holding Company, Inc. (together with such predecessor, "ITC Holding"), which
holds significant interests in a variety of communications companies ("ITC
Companies"), including Interstate Telephone Company, an independent local
exchange carrier serving communities in western Georgia and eastern Alabama for
over 100 years, and MindSpring Enterprises, Inc. ("MindSpring"), a large
Internet service provider, and which until October 1997 included ITC/\DeltaCom,
Inc. ("ITC/\DeltaCom"), a provider of retail long distance services to mid-sized
and major regional businesses using ITC/\DeltaCom's own fiber optic network in
the southern United States (now owned by ITC Holding's stockholders). The
Company uses ITC/\DeltaCom's fiber optic network to provide long distance
service as part of the Company's bundle of Broadband Services, uses a direct
link to the Internet procured through ITC/\DeltaCom and jointly operates a
network operations center with ITC/\DeltaCom in West Point, Georgia. Interstate
Telephone Company provides the Company with telephone billing and switching
services, and MindSpring provides the Company with Internet content and backup
customer service on computer-related customer inquiries. Strategic partners also
include SCANA Communications, Inc. (together with SCANA Corporation, "SCANA"),
which is supporting the Company's entrance into Charleston, providing assistance
in areas including government relations, franchise approval, marketing and
access to sites for its equipment, which is an important part of network
construction.
INVESTORS; EQUITY PRIVATE PLACEMENT; NEW CREDIT FACILITY
KNOLOGY has been supported by ITC Holding and other strategic investors,
including SCANA, Century Telephone Enterprises, Inc. ("Century Telephone"),
South Atlantic Venture Fund III, Limited Partnership and related funds
(collectively, "South Atlantic") and AT&T Venture Fund II, L.P. and related
funds (collectively, "AT&T Venture Funds"). These entities have contributed most
of the equity raised by the Company to date. In connection with the Offering,
ITC Holding, SCANA, Century Telephone, South Atlantic and AT&T Venture Funds
purchased an aggregate of 18,662 shares of Preferred Stock for an aggregate
purchase price of approximately $28.0 million as part of a $32.2 million private
placement (the "Equity Private Placement"). As of October 31, 1997, ITC Holding
owns approximately 30.0% (including shares held by its wholly owned subsidiary
InterCall, Inc. ("InterCall")), South Atlantic owns approximately 15.8%, AT&T
Venture Funds owns approximately 15.0%, Century Telephone owns approximately
14.2% and SCANA owns approximately 7.7% (excluding warrants to purchase
Preferred Stock to be issued to SCANA) of the outstanding capital stock of the
Company.
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The Company received a commitment letter for a $50.0 million, five-year
senior secured credit facility from First Union (as defined below) (the "New
Credit Facility") to be used for working capital and other purposes, including
capital expenditures. It is currently contemplated that the Company's
obligations under the New Credit Facility will be secured by all current and
future assets of the Company. See "Description of Certain Indebtedness -- New
Credit Facility."
In 1995, the Company was originally formed as a limited liability company
and later was incorporated in the State of Delaware. The Company's principal
executive offices are located at 312 West 8th Street, West Point, Georgia 31833
and its telephone number is (706)645-8553.
THE EXCHANGE OFFER
The Exchange Offer......... Up to $444.1 million aggregate principal amount at
maturity of Exchange Notes are being offered in
exchange for a like aggregate principal amount of
Senior Discount Notes. Senior Discount Notes may be
tendered for exchange in whole or in part in
integral multiples of $1,000 principal amount at
maturity. The Company is making the Exchange Offer
in order to satisfy its obligations under the
Registration Rights Agreement relating to the
Senior Discount Notes. For a description of the
procedures for tendering Senior Discount Notes, see
"The Exchange Offer -- Procedures for Tendering
Senior Discount Notes."
Expiration Date............ 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended by the
Company (in which case the term "Expiration Date"
shall mean the latest date and time to which the
Exchange Offer is extended). See "The Exchange
Offer -- Expiration Date; Extensions; Amendments."
Conditions to the Exchange
Offer..................... The Exchange Offer is subject to certain conditions
which may be waived by the Company in its sole
discretion. The Exchange Offer is not conditioned
upon any minimum aggregate principal amount at
maturity of Senior Discount Notes being tendered.
See "The Exchange Offer -- Conditions to the
Exchange Offer."
The Company reserves the right in its sole and
absolute discretion, subject to applicable law, at
any time and from time to time, (i) to delay the
acceptance of the Senior Discount Notes, (ii) to
terminate the Exchange Offer if certain specified
conditions have not been satisfied, (iii) to extend
the Expiration Date of the Exchange Offer and
retain all Senior Discount Notes tendered pursuant
to the Exchange Offer, subject, however, to the
right of holders of Senior Discount Notes to
withdraw their tendered Senior Discount Notes, and
(iv) to waive any condition or otherwise amend the
terms of the Exchange Offer in any respect. See
"The Exchange Offer -- Expiration Date; Extensions;
Amendments."
Withdrawal Rights.......... Tenders of Senior Discount Notes may be withdrawn
at any time prior to the Expiration Date by
delivering a written notice of such withdrawal to
the Exchange Agent (as defined herein) in
conformity with certain procedures as set forth
below under "The Exchange Offer -- Withdrawal
Rights."
Procedures for Tendering
Senior Discount Notes..... Tendering holders of Senior Discount Notes must
complete and sign a Letter of Transmittal in
accordance with the instructions contained
8
<PAGE> 10
therein and forward the same by mail, facsimile
transmission or hand delivery, together with any
other required documents, to the Exchange Agent,
either with the Senior Discount Notes to be
tendered or in compliance with the specified
procedures for guaranteed delivery of Senior
Discount Notes. Certain brokers, dealers,
commercial banks, trust companies and other
nominees may also effect tenders by book-entry
transfer. Holders of Senior Discount Notes
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee are
urged to contact such person promptly if they wish
to tender Senior Discount Notes pursuant to the
Exchange Offer. See "The Exchange
Offer -- Procedures for Tendering Senior Discount
Notes."
Letters of Transmittal and certificates
representing Senior Discount Notes should not be
sent to the Company. Such documents should only be
sent to the Exchange Agent. Questions regarding how
to tender and requests for information should be
directed to the Exchange Agent. See "The Exchange
Offer -- Exchange Agent."
Resales of Exchange
Notes..................... Based on interpretations by the staff of the
Commission, as set forth in no-action letters
issued to third parties, the Company believes that
holders of Senior Discount Notes (other than any
holder that is (i) a broker-dealer that acquired
Senior Discount Notes as a result of market-making
activities or other trading activities, or (ii) an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) who exchange
their Senior Discount Notes for Exchange Notes
pursuant to the Exchange Offer may offer for
resale, resell and otherwise transfer such Exchange
Notes without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired
in the ordinary course of such holders' business
and such holders have no arrangement or
understanding with any person to participate in a
distribution (within the meaning of the Securities
Act) of such Exchange Notes. Any holder who tenders
Senior Discount Notes in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes or who is an affiliate of the Company may not
rely upon such interpretations by the staff of the
Commission and, in the absence of an exemption
therefrom, must comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with any secondary resale
transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liabilities under the Securities
Act for which the holder is not indemnified by the
Company. The staff of the Commission has not
considered the Exchange Offer in the context of a
no-action letter, and there can be no assurance
that the staff of the Commission would make a
similar determination with respect to the Exchange
Offer. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Senior
Discount Notes, where such Senior Discount Notes
were acquired by such broker-dealer as a result of
market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. The Company has
agreed that, for a period not to exceed 180 days
after the Expiration Date, it will furnish
additional copies of
9
<PAGE> 11
this Prospectus, as amended or supplemented, to any
broker-dealer that reasonably requests such
documents for use in connection with any such
resale. See "Plan of Distribution."
Exchange Agent............. The exchange agent with respect to the Exchange
Offer is United States Trust Company of New York
(the "Exchange Agent"). The address, telephone
number and facsimile number of the Exchange Agent
are set forth in "The Exchange Offer -- Exchange
Agent" and in the Letter of Transmittal.
Use of Proceeds............ The Company will not receive any cash proceeds from
the issuance of the Exchange Notes offered hereby.
The net proceeds from the Offering and the Equity
Private Placement have been and will be used to
repay certain outstanding indebtedness of the
Company; to fund expansion of the Company's
telecommunications business, including development
and construction of Interactive Broadband Networks;
and for additional working capital and general
corporate purposes, including funding operating
deficits. See "Use of Proceeds."
Certain United States
Federal Income Tax
Consequences.............. The exchange of the Senior Discount Notes for the
Exchange Notes will not be a taxable exchange for
federal income tax purposes, and holders of Senior
Discount Notes should not recognize any taxable
gain or loss or any interest income as a result of
such exchange. See "The Exchange Offer -- Certain
United States Federal Income Tax Consequences."
THE EXCHANGE NOTES
Securities Offered......... $444.1 million aggregate principal amount at
maturity of 11 7/8% Senior Discount Notes due
October 15, 2007. The terms of the Exchange Notes
will be identical in all material respects to the
terms of the Senior Discount Notes, except that (i)
the Exchange Notes will have been registered under
the Securities Act and therefore will not be
subject to certain restrictions on transfer
applicable to the Senior Discount Notes and (ii)
holders of the Exchange Notes will not be entitled
to certain rights of holders of the Senior Discount
Notes under the Registration Rights Agreement. The
Exchange Notes will evidence the same debt as the
Senior Discount Notes and will be issued pursuant
to and entitled to the benefits of the Indenture.
Maturity................... October 15, 2007.
Yield and Interest......... The Senior Discount Notes were issued at a
substantial discount from their principal amount at
maturity and there will not be any payment of
interest on the Notes prior to April 15, 2003. For
a discussion of the federal income tax treatment of
the Exchange Notes under the original issue
discount rules, see "Certain United States Federal
Income Tax Consequences." The Exchange Notes will
fully accrete to face value on October 15, 2002.
From and after October 15, 2002, the Exchange Notes
will bear interest, which will be payable in cash,
at a rate of 11 7/8% per annum on each April 15 and
October 15, commencing April 15, 2003.
Optional Redemption........ The Exchange Notes may be redeemed at any time on
or after October 15, 2002, at the option of the
Company, in whole or in part, at 105.9375% of their
principal amount at maturity, plus accrued
interest, declining ratably to 100% of their
principal amount at maturity, plus accrued interest
on and after October 15, 2004. In addition, at any
time prior to October 15, 2000, up to 35% of the
aggregate principal amount at
10
<PAGE> 12
maturity of the Senior Discount Notes and the
Exchange Notes may be redeemed from the proceeds of
one or more Public Equity Offerings at 111.875% of
their Accreted Value on the redemption date;
provided that after any such redemption at least
$288.7 million aggregate principal amount at
maturity of the Senior Discount Notes and the
Exchange Notes remains outstanding.
Change of Control.......... Upon a Change of Control (as defined herein), the
Company will be required to make an offer to
purchase the Exchange Notes at a purchase price
equal to 101% of their Accreted Value on the date
of purchase, plus accrued interest, if any. There
can be no assurance that the Company will have
sufficient funds available at the time of any
Change of Control to make any required debt
repayment (including repurchases of the Exchange
Notes). See "Description of the Exchange Notes --
Repurchase of Exchange Notes upon a Change of
Control," and "Description of the Exchange
Notes -- Certain Definitions."
Ranking.................... The Exchange Notes will be unsubordinated
indebtedness of the Company, ranking pari passu in
right of payment with the Senior Discount Notes and
all other existing and future unsubordinated
indebtedness of the Company and senior in right of
payment to all subordinated indebtedness of the
Company. As of September 30, 1997, on a pro forma
basis after giving effect to the Offering and the
Equity Private Placement, the Company would have
had (on an unconsolidated basis) $124,000 of
indebtedness other than the Senior Discount Notes.
In addition, the Company is a holding company and
the Senior Discount Notes are, and the Exchange
Notes will be, effectively subordinated to all
existing and future liabilities (including trade
payables) of the Company's subsidiaries. As of
September 30, 1997, on the same pro forma basis,
the subsidiaries of the Company would have had $4.1
million of liabilities (excluding intercompany
payables). In October 1997, the Company received a
commitment letter for a $50.0 million New Credit
Facility from First Union National Bank and First
Union Capital Markets Corp. (collectively, "First
Union") to be used for working capital and other
purposes, including capital expenditures. It is
currently contemplated that the Company's
obligations under the New Credit Facility will be
secured by all current and future assets of the
Company. See "Risk Factors -- Holding Company
Structure; Priority of Secured Debt" and
"Description of Certain Indebtedness -- New Credit
Facility."
Certain Covenants.......... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its subsidiaries to incur indebtedness,
pay dividends, prepay subordinated indebtedness,
repurchase capital stock, make investments, engage
in transactions with stockholders and affiliates,
create liens, sell assets and engage in mergers and
consolidations. However, these limitations are
subject to a number of important qualifications and
exceptions. See "Description of the Exchange
Notes -- Covenants."
RISK FACTORS
Potential participants in the Exchange Offer should consider carefully
certain factors relating to the Company, its business and an investment in the
Exchange Notes before tendering their Senior Discount Notes for Exchange Notes.
See "Risk Factors."
11
<PAGE> 13
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary consolidated financial and operating data set forth below
should be read in conjunction with "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto, included elsewhere in this Prospectus. The
financial and operating data for periods after April 28, 1995 (the date the
Company acquired (the "Montgomery Acquisition") Montgomery Cablevision &
Entertainment, Inc. ("Montgomery Cablevision" or the "Predecessor Company"), the
owner and operator of the Montgomery System) are not comparable to the financial
and operating data for prior periods as a result of the amortization of the cost
in excess of net assets in connection with the Montgomery Acquisition and the
acquisition of the Columbus System on September 29, 1995. See notes 1 and 2 to
the Company's Consolidated Financial Statements included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY(A) SUCCESSOR COMPANY(A)
--------------------------- ----------------------------------------------------------------
YEAR FOUR MONTHS EIGHT MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, APRIL 30, DECEMBER 31, DECEMBER 31, NINE MONTHS NINE MONTHS
1994 1995 1995(B) 1996 ENDED ENDED
------------ ----------- ------------ ------------ SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 2,111,952 $ 857,161 $ 2,196,998 $ 5,334,183 $ 3,825,728 $ 7,044,686
Operating expenses:
General and
administrative...... 587,579 175,724 1,027,001 2,346,201 1,588,764 2,368,525
Programming charges... 1,042,186 409,325 1,029,959 2,513,693 1,781,851 3,263,652
Depreciation and
amortization........ 768,496 259,336 745,004 1,640,025 (c) 1,118,403 2,263,982(c)
Field and technical... 303,600 98,293 417,273 877,870 666,090 988,435
Sales and marketing... 128,909 16,590 58,414 659,667 339,934 947,284
---------- --------- ---------- ---------- ---------- ----------
Total operating
expenses.......... 2,830,770 959,268 3,277,651 8,037,456 5,495,042 9,831,878
---------- --------- ---------- ---------- ---------- ----------
Operating loss.......... (718,818) (102,107) (1,080,653) (2,703,273) (1,669,314) (2,787,192)
---------- --------- ---------- ---------- ---------- ----------
Other income and
expenses.............. (155,417) (21,878) (549,169) (795,478) (c) (536,873) (1,049,583)(c)
---------- --------- ---------- ---------- ---------- ----------
Loss before minority
interest and income
tax benefit........... (874,235) (123,985) (1,629,822) (3,498,751) (2,206,187) (3,836,775)
Minority interest....... -- -- 109,837 -- -- --
Income tax benefit...... -- -- 334,451 373,323 373,323 --
---------- --------- ---------- ---------- ---------- ----------
Net loss................ (874,235) (123,985) (1,185,534) (3,125,428) (1,832,864) (3,836,775)
Preferred stock
dividends............. (591,175) (230,407) -- -- -- --
---------- --------- ---------- ---------- ---------- ----------
Net loss after preferred
stock dividends....... $(1,465,410) $(354,392) $(1,185,534) $(3,125,428) (c) $(1,832,864) $(3,836,775)(c)
========== ========= ========== ========== ========== ==========
PER SHARE DATA:
Net loss per share(d)... $ 157.65 $ 229.37 (e) 147.12 159.10(e)
Weighted average common
share equivalents
outstanding........... 7,520 13,626 (e) 12,458 24,116(e)
OTHER FINANCIAL DATA:
Capital expenditures.... $ 717,325 $ 42,504 $ 1,291,080 $14,416,135 10,822,681 $22,034,377
Net cash provided by
(used in) operating
activities............ 82,590 144,076 (742,928) (1,998,007) (761,090) (320,854)
EBITDA(f)............... 124,836 157,229 (207,068) (803,228) (292,719) (473,328)
Ratio of earnings to
fixed charges(g)...... -- -- -- -- -- --
OTHER OPERATING DATA:
Cable subscribers....... 14,219 18,169 16,570 30,008
Average monthly cable
revenue per
subscriber............ $ 25.47 $ 26.71 $ 25.25 $ 27.34
Homes passed............ 47,131 91,457
Cable penetration
level(h).............. 35.16% 32.81%
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
SUCCESSOR COMPANY(a)
--------------------------------------------------------------
DECEMBER 31,
---------------------------- SEPTEMBER 30, 1997
1995 1996 ------------------------------
------------ ------------ ACTUAL AS ADJUSTED(i)
------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $ 3,498,482 $(3,201,202) $(16,204,619) $247,363,802
Property and equipment, net............................. 6,976,268 21,477,209 41,493,409 41,493,409
Total assets............................................ 19,346,317 29,941,745 50,073,981 308,738,108
Total liabilities....................................... 12,992,682 15,743,318 29,006,927 253,030,503
Accumulated deficit..................................... (1,185,534) (4,310,962) (8,147,737) (8,147,737)
Total stockholders' equity.............................. 6,269,156 14,198,427 21,067,054 55,707,605
</TABLE>
- ---------------
(a) "Successor Company" refers to KNOLOGY and its subsidiaries. KNOLOGY,
initially capitalized as a limited liability company in March 1995, was
established for the purpose of acquiring the Predecessor Company. The
Montgomery Acquisition, which was accounted for as a purchase, was
consummated on April 28, 1995, and the Company acquired the remaining
minority interest in the Predecessor Company in January 1996. See note 1 to
the Company's Consolidated Financial Statements included elsewhere in this
Prospectus.
(b) Includes the operations of the Columbus System from September 29, 1995. The
acquisition of the Columbus System was accounted for as a purchase. See note
1 to the Company's Consolidated Financial Statements included elsewhere in
this Prospectus.
(c) On a pro forma basis, after giving effect to the Offering and the Equity
Private Placement and the application of the net proceeds therefrom, the
Company's interest expense would have increased by approximately $19,030,000
and $13,879,000 and depreciation and amortization would have increased by
approximately $577,000 and $430,000 as a result of amortization of debt
issuance costs for the year ended December 31, 1996 and the nine months
ended September 30, 1997, respectively, and its net loss after Preferred
Stock dividends would have been approximately $22,733,000 and $18,145,000
for the year ended December 31, 1996 and the nine months ended September 30,
1997, respectively.
(d) Net loss per share is computed using the weighted average number of shares
of common stock and dilutive common stock equivalent shares from convertible
preferred stock (using the if converted method). As the Company has no
common stock outstanding, the Preferred Stock is assumed to be converted for
purposes of this calculation. The Predecessor Company net losses per share
are not shown, as they are not comparable with the Successor Company's.
(e) On a pro forma basis, after giving effect to the Offering and the Equity
Private Placement and the application of the net proceeds therefrom, net
loss per share would have been $648.14 and $398.23 for the year ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively, and the weighted average common share equivalents outstanding
would have been 35,074 and 45,564 at December 31, 1996 and September 30,
1997, respectively. All options and warrants have been excluded from the
calculations of net loss per share as they are anti-dilutive.
(f) EBITDA represents earnings before preferred stock dividends, interest
expense, income taxes, depreciation and amortization. EBITDA is provided
because it is a measure commonly used in the industry. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered an alternative to net income as a
measure of performance or to cash flow as a measure of liquidity. EBITDA is
not necessarily comparable with similarly titled measures for other
companies.
(g) Earnings consist of income before minority interests, preferred stock
dividends, income taxes, plus fixed charges. Fixed charges consist of
interest charges and amortization of debt issuance costs and the portion of
rent expense under operating leases representing interest (estimated to be
1/3 of such expense). Earnings were insufficient to cover fixed charges for
the year ended December 31, 1994, the four months ended April 30, 1995, the
eight months ended December 31, 1995, the year ended December 31, 1996 and
the nine months ended September 30, 1996 and 1997 by $874,235, $123,985,
$1,629,822, $3,498,751, $2,206,187 and $3,836,775, respectively. On a pro
forma basis, after giving effect to the Offering and the Equity Private
Placement, the Company's earnings would have been insufficient to cover its
fixed charges for the year ended December 31, 1996 and the nine months ended
September 30, 1997 by $23,106,207 and $18,145,103, respectively.
(h) Determined by dividing the number of subscribers by the number of homes
passed. Because the Company does not begin to market its services in an area
until its network has been expanded and the Company typically needs 60 to 90
days once marketing has commenced to build its subscriber base, the
Company's penetration rate is adversely affected during rapid expansion of
the networks.
(i) Adjusted to give effect to the Offering and the Equity Private Placement and
application of the net proceeds therefrom. See "Use of Proceeds."
13
<PAGE> 15
RISK FACTORS
An investment in the Exchange Notes involves a significant degree of risk.
In determining whether to tender their Senior Discount Notes for Exchange Notes,
potential investors should consider carefully all of the information set forth
in this Prospectus and, in particular, the following factors. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in
such forward-looking statements.
HISTORY OF LOSSES; EXPECTATION OF FUTURE LOSSES AND NEGATIVE CASH FLOWS FROM
OPERATIONS
Each of the Systems has had net losses and negative cash flow from
operations since its commencement of operations. Since the Company acquired the
Montgomery and Columbus Systems in April and September 1995, respectively, the
Systems have incurred aggregate net losses, as of September 30, 1997, in excess
of $8.1 million and aggregate negative cash flow from operations of $3.1
million. The implementation of the Company's business plan to build out the
Systems and commence construction of new systems involves significant additional
expenditures and is expected to result in substantially increased depreciation
and amortization. Revenues from new services are expected to be subject to
start-up delays. Accordingly, the Company expects that it will incur net losses
and negative cash flow (after capital expenditures) during the next several
years as it continues to expand its operations. In addition to timely and
cost-effective construction efforts, the ability of the Company to achieve
profitability and positive cash flow will depend in large part on the successful
marketing of the cable television and other Broadband Services offered by the
Company. There can be no assurance the Company can successfully compete in
obtaining subscribers for its Broadband Services or that the Company will
generate sufficient revenues such that the Company's operations will become
profitable or generate positive cash flows in the future. If the Company cannot
achieve operating profitability or positive cash flows from operating
activities, it may not be able to meet its working capital or debt service
requirements, including its obligations under the Notes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION
The television, telephone and Internet service businesses are highly
competitive and the level of competition is increasing. Many of the Company's
existing and potential competitors have long-standing customer relationships and
experience, financial, technical and other resources, marketing capabilities and
name recognition far greater than those of the Company. The ability of the
Company to compete will depend in part on the technical advantages of its
systems, its focus on customer service, the pricing of its services and its
ability to offer a bundle of services not available from any other single
vendor. There can be no assurance that the Company will be able to compete
successfully or that competitive pressures will not have a material adverse
effect on the Company's business, operating results or financial condition. See
"Business -- Competition."
TELEVISION. In providing cable television service, the Company currently
competes with other cable television providers (including Tele-Communications,
Inc. ("TCI") in Montgomery and TCI and Charter Communications ("Charter") in
Columbus) and competes or may compete with other means of video distribution,
including broadcast television stations, direct broadcast satellite companies,
multichannel multipoint distribution services ("MMDS"), satellite master antenna
systems ("SMATV") and private home dish earth stations. Additional competition
may also come from new wireless local multipoint distribution services ("LMDS")
authorized by the Federal Communications Commission (the "FCC"), for which
spectrum is expected to be auctioned by the FCC in February 1998. In addition,
the Telecommunications Act of 1996 (the "1996 Telecom Act") repealed the
cable/television cross ownership ban and telephone companies will now be
permitted to provide cable television service within their service areas. The
Company also faces competition from other communications and entertainment
media, including newspapers, movie theaters, live sporting events and entities
that make videotaped movies and programs available for home rental.
14
<PAGE> 16
TELEPHONE. In providing local and long distance telephone service and long
distance access services the Company competes and will compete with the
incumbent local exchange carrier. BellSouth Corp. ("BellSouth") is the incumbent
local exchange carrier and a particularly strong competitor in its current
markets and most of the markets targeted by the Company. The Company will also
compete with long distance carriers (such as AT&T Corp. ("AT&T "), MCI
Communications Corporation ("MCI ") and Sprint Corporation ("Sprint")). Other
competitors are likely to include independent local exchange carriers, including
other Regional Bell Operating Companies ("RBOCS"), competitive local exchange
carriers, microwave, wireless and satellite carriers and utilities.
INTERNET SERVICES. In providing Internet access services, the Company will
compete with other network providers which provide Internet access services;
providers of satellite-based Internet services, and long distance carriers that
offer Internet access services and other cable television companies that offer
Internet access services. Although the Company believes that broadband
transmission is the most efficient means of transmitting large volumes of data
and information on a high-speed basis to and from the Internet, technologies
such as Integrated Services Digital Network ("ISDN") and direct broadcast
satellite also offer high-speed or broadband connections to the Internet. In
providing Internet services, the Company likely will compete with companies such
as DirecPC, one of the principal providers of satellite-based Internet services
in the United States, long distance carriers such as AT&T and MCI and cable
modem services such as @Home, a joint venture among TCI and other large cable
companies, and Internet service providers ("ISPs").
HIGH LEVERAGE; ABILITY TO SERVICE DEBT; RESTRICTIVE COVENANTS
At September 30, 1997, on a pro forma basis, giving effect to the Offering,
the Equity Private Placement and the application of the net proceeds therefrom,
the Company would have had $248.0 million of indebtedness and its stockholders'
equity would have been $55.7 million. In addition, the Company expects to have
$50.0 million of availability under the New Credit Facility and the accretion of
original issue discount on the Notes will cause an increase in indebtedness of
approximately $196.7 million by October 15, 2007. The level of the Company's
indebtedness could adversely affect the Company in a number of ways, including
the following: (i) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of principal and interest on its
indebtedness and will not be available for other purposes; (ii) the ability of
the Company to obtain any necessary financing in the future for working capital,
capital expenditures, debt service requirements or other purposes may be
limited; (iii) the Company's level of indebtedness could limit its flexibility
in planning for, or reacting to, changes in its business; (iv) the Company may
be more highly leveraged than some of its competitors, which may place it at a
competitive disadvantage; and (v) the Company's degree of indebtedness may make
it more vulnerable to a downturn in its business or the economy generally.
On a pro forma basis, giving effect to the Offering and the Equity Private
Placement and the application of the net proceeds therefrom, the Company's
earnings would have been insufficient to cover its fixed charges for the year
ended December 31, 1996 and the nine months ended September 30, 1997 by
$23,106,207 million and $18,145,103 million, respectively, and its EBITDA less
capital expenditures and interest expense would have been $16,274,861 and
$23,607,170, respectively. There can be no assurance that the Company will be
able to improve its earnings before fixed charges or that the Company will be
able to meet its debt service obligations, including its obligations on the
Notes. If the Company is unable to generate sufficient cash flow or otherwise
obtain funds necessary to make required payments, or if the Company otherwise
fails to comply with the various covenants in its indebtedness, it would be in
default under the terms thereof, which would permit the holders of such
indebtedness to accelerate the maturity of such indebtedness and could cause
defaults under other indebtedness of the Company. Such defaults could result in
a default on the Notes and could delay or preclude payment of interest or
principal on the Notes. The ability of the Company to meet its obligations will
be dependent upon the future performance of the Company, which will be subject
to prevailing economic conditions and to financial, business and other factors.
See "Description of Certain Indebtedness" and "Description of the
Notes -- Covenants."
The successful implementation of the Company's strategy, including
increasing the number of cable television subscribers, obtaining customers for
other Broadband Services, expanding or constructing
15
<PAGE> 17
Interactive Broadband Networks in Montgomery, Columbus, Panama City Beach/Panama
City, Charleston and Augusta, and significant and sustained growth in the
Company's cash flow are necessary for the Company to be able to meet its debt
service requirements, including its obligations under the Notes. There can be no
assurance that the Company will successfully implement its strategy or that the
Company will be able to generate sufficient cash flow from operating activities
to meet its debt service obligations and working capital requirements. In the
event the implementation of the Company's strategy is delayed or is unsuccessful
or the Company does not generate sufficient cash flow to meet its debt service
and working capital requirements, the Company may need to seek additional
financing. There can be no assurance that any such financing could be obtained
on terms that are acceptable to the Company, or at all. In the absence of such
financing, the Company could be forced to dispose of assets in order to make up
for any shortfall in the payments due on its indebtedness under circumstances
that might not be favorable to realizing the highest price for such assets.
There can be no assurance that the Company's assets could be sold quickly enough
or for sufficient amounts to enable the Company to meet its obligations,
including its obligations with respect to the Notes.
The Indenture imposes, and the New Credit Facility will impose, operating
and financial restrictions on the Company and its subsidiaries. These
restrictions will affect, and in certain cases significantly limit or prohibit,
among other things, the ability of the Company and its subsidiaries to incur
additional indebtedness, create liens upon assets, apply the proceeds from the
disposal of assets, make investments, make dividend payments and other
distributions on capital stock and redeem capital stock. In addition, the New
Credit Facility is expected to require the Company to maintain certain financial
ratios. See "Description of Certain Indebtedness -- New Credit Facility" and
"Description of the Exchange Notes." There can be no assurance that the Company
will be able to maintain such ratios or that such covenants will not adversely
affect the Company's ability to finance its future operations or capital needs
or to engage in other business activities that may be in the interest of the
Company. The limitations in the Indenture are subject to a number of important
qualifications and exceptions. In particular, while the Indenture restricts the
Company's ability to incur indebtedness by requiring compliance with specified
leverage ratios, it permits the Company to incur an unlimited amount of
additional indebtedness to finance the acquisition of equipment, inventory or
network assets.
HOLDING COMPANY STRUCTURE; PRIORITY OF SECURED DEBT
The Company is a holding company with no direct operations and no
significant assets other than the stock of its subsidiaries. The Company is
dependent on the cash flows of its subsidiaries to meet its obligations,
including the payment of interest and principal on the Notes. The Company's
subsidiaries are separate legal entities that have no obligation to pay any
amounts due pursuant to the Notes or to make any funds available therefor,
whether by dividends, loans or other payments. Because the Company's
subsidiaries will not guarantee the payment of the principal or interest on the
Notes, any right of the Company to receive assets of any of its subsidiaries
upon its liquidation or reorganization (and consequent right of holders of the
Notes to participate in the distribution or realize proceeds from those assets)
will be effectively subordinated to the claims of the creditors of any such
subsidiary (including trade creditors and holders of indebtedness of such
subsidiary), except if and to the extent the Company is itself a creditor of
such subsidiary, in which case the claims of the Company would still be
effectively subordinated to any security interest in the assets of such
subsidiary held by other creditors. As of September 30, 1997, after giving
effect to the Offering and the Equity Private Placement, the subsidiaries of the
Company would have had approximately $4.1 million of liabilities (excluding
intercompany payables).
The Exchange Notes are unsecured and therefore will be effectively
subordinated in right of payment to any secured indebtedness of the Company. The
Indenture will permit the Company and its subsidiaries to incur an unlimited
amount of indebtedness to finance the acquisition of equipment, inventory and
network assets and to secure such indebtedness, and up to $50.0 million of other
secured indebtedness pursuant to one or more credit facilities. In the event of
a bankruptcy, liquidation, dissolution, reorganization or similar proceeding
with respect to the Company, the holders of any secured indebtedness will be
entitled to proceed against the collateral that secures such indebtedness and
such collateral will not be available for satisfaction of any amounts owed under
the Exchange Notes. In addition, to the extent such assets did not satisfy in
full the
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secured indebtedness, the holders of such indebtedness would have a claim for
any shortfall that would be pari passu (or effectively senior if the
indebtedness were issued by a subsidiary) with the Exchange Notes. Accordingly,
there may only be a limited amount of assets available to satisfy any claims of
the holders of the Exchange Notes upon an acceleration of the Exchange Notes.
NETWORK CONSTRUCTION UNCERTAINTIES
The timing of completion of the various phases of construction is subject
to uncertainties. Expansion into additional cities will require the Company to
obtain franchises and other regulatory approvals and there can be no assurance
that they will be obtained on a timely basis. See "-- Need for Favorable
Franchises and Franchise Renewals" and "Legislation and Regulation." Delays in
receiving the necessary financing, in performing the "make-ready" work to attach
the cable to utility poles, and in conducting the construction itself (due to
inclement weather and other causes) have adversely affected the Company's
schedule in the past, and could do so again in the future. In constructing the
network, the Company will be dependent on the performance of contractors. There
can be no assurance that these contractors will perform in accordance with the
Company's expectations. During 1996, the Company experienced significant
difficulty in meeting its construction schedules, primarily as a result of
delays in installation of aerial portions of the cable construction in
Montgomery and to a lesser extent, Columbus. The principal difficulty resulting
in such delays arose from pole change-outs and "make-ready" time and expense
requirements. Construction moratoriums imposed by telephone and power companies
for about six weeks during the Olympics caused additional delays, particularly
in Columbus. In addition, on three occasions the Mayor of Montgomery requested
that the Company temporarily cease underground construction following
complaints. Although the Company believed that it was performing such
construction in an acceptable manner, the Company voluntarily complied with the
Mayor's requests and reallocated its crews to other locations. Since the
Company's plan involves entering cities where it can capture a significant share
of the cable television subscribers and where it can be one of the first
providers of Broadband Services, delays in implementing the expansion plan could
have an adverse effect on the Company.
ABILITY TO MANAGE GROWTH
The Company's future performance will depend, in part, upon its ability to
successfully implement its sales and marketing strategy, evaluate markets,
secure financing, construct facilities, acquire rights of way and effect pole
attachments and obtain any required government authorizations, all in a timely
manner, at reasonable costs and on satisfactory terms and conditions. Rapid
growth may place a significant strain on a company's management, administrative,
operational and financial resources. The Company's ability to manage its growth
successfully will require the Company to further enhance its operational,
management, financial and information systems and controls. The Company's
success will also depend in part upon its ability to hire and retain qualified
sales, marketing, administrative, operating and technical personnel. There can
be no assurance that the Company will be able to recruit, train, manage and
retain sufficient qualified personnel. In addition, as the Company increases its
service offerings and expands its targeted markets, there will be additional
demands on customer support, sales and marketing, administrative resources and
network infrastructure. The Company's inability to effectively manage its growth
could have a significant adverse effect on the Company's business, results of
operations and financial condition.
If the Company acquires existing companies or networks, or enters into
joint ventures as part of its expansion plan, it will be subject to the risks
generally attendant to an acquisition strategy or joint venture. Such risks
include the acquired company or joint venture not having all the benefits that
are anticipated, the diversion of resources and management time, the integration
of the acquired business or joint venture with the Company's operations, the
potential impairment of relationships with employees or customers as a result of
changes in management, the Company becoming subject to liabilities or taking on
obligations as a result of the acquisition or joint venture, the additional debt
burden or dilution incurred to pay the purchase price or capital investment
requirements, and other matters. There are also risks in participating in joint
ventures, including the risk that the other joint venture partners may at any
time have economic, business or legal interests or goals that are inconsistent
with those of the joint venture or the Company or that a joint venture partner
may
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be unable to meet its economic or other obligations in the joint venture and
that the Company may be required to fulfill some or all of those obligations.
SIGNIFICANT CAPITAL REQUIREMENTS
The Company's business requires substantial investment to finance capital
expenditures and related expenses to expand the Interactive Broadband Networks
in Montgomery and Columbus, to construct additional Interactive Broadband
Networks, to fund subscriber equipment, to fund operating deficits in new
systems as it builds its customer base and to maintain the quality of its
networks. The Company currently expects to spend at least $36.0 million in the
fourth quarter of 1997 and through 1998 to expand and upgrade the Montgomery and
Columbus networks. In addition, the Company estimates the cost of constructing
networks in additional cities and funding initial subscriber equipment at
approximately $35 million to $50 million per city (including, in the case of the
Panama City System, the cost of acquiring the Beach Cable System). Actual costs
may vary significantly from this range and will depend in part on the number of
miles of network to be constructed, the geographic and demographic
characteristics of the city, other factors affecting construction costs, costs
associated with the cable franchise in each city, the number of subscribers, the
mix of services purchased, the cost of subscriber equipment paid for or financed
by the Company and other factors. Although there can be no assurance, the
Company believes that the proceeds from the Offering and the Equity Private
Placement and amounts expected to be available under the New Credit Facility,
will provide sufficient funds to expand the Systems as currently planned and
fund the expansion into Panama City Beach/Panama City, Charleston and Augusta.
The Company may need to seek additional financing in the event the New Credit
Facility is not entered into or actual costs vary. In addition, the Company will
need additional financing to expand into additional cities, for new business
activities or in the event it decides to make additional acquisitions. Sources
of additional capital may include cash flow from operations, and public and
private equity and debt financings. There can be no assurance that such
financing will be available to the Company on acceptable terms or at all. If the
Company is not successful in obtaining sufficient funds it may be required to
defer or abandon its expansion plans, which could limit the Company's growth and
prospects, and reduce some of the economies of scale the Company expects to
obtain, including with respect to purchases of equipment, programming and
advertising, which could have an adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
NEED FOR FAVORABLE FRANCHISES AND FRANCHISE RENEWALS
In order to construct and operate its Interactive Broadband Networks in a
city, the Company must obtain a franchise from the city (along with other
regulatory approvals). See "Legislation and Regulation -- Federal Regulation of
Cable Services -- Franchise Authority." The Company's business is dependent on
its ability to obtain and renew its franchises in a timely manner. Each city has
some flexibility in determining the terms of a franchise (including franchise
fees), and to some extent can impose conditions on such franchise, such as
build-out requirements. The Company cannot predict whether it will obtain
franchises in new cities on terms that will make construction of a network and
provision of Broadband Services (including cable television) economically
attractive for the Company. In addition, although the Telecom Act limits the
ability of franchise authorities to decline to award or renew a franchise and
specifies a period within which franchise authorities must act, franchises may
be withheld and are subject to non-renewal or termination under certain
circumstances. The Company's franchise for the Columbus System expires in June
1998, the Company's franchise for the Montgomery System expires in March 2005,
and the Company's initial franchise for the Beach Cable System expires in July
2007.
DEPENDENCE ON INTERCONNECTIONS
The Company relies on local telephone companies and other companies to
provide communications capacity for the Company's local and long distance
telephone service. The Company obtains access to BellSouth's telephone network
under a nine-state interconnection agreement. The terms of such interconnection
agreement have been approved by the Georgia and Alabama state public utility
commissions. Approvals of other state public utility commissions will be
required in connection with the Company's
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provision of telephone service in other states. In addition, the 1996 Telecom
Act established certain requirements and standards for interconnection
arrangements, and the Company's interconnection agreement with BellSouth is
based in part on such requirements. However, these requirements and standards
are still being developed and implemented by the FCC in conjunction with the
states through a process of negotiation and arbitration. To the extent that the
standards as implemented are unfavorable to the Company, the Company's
interconnection arrangement with BellSouth could be adversely affected. One area
in which standards could be unfavorable to the Company is permitted access
charges by BellSouth for terminating calls. The Company's ability to offer
telephony services at competitive rates depends upon maintaining interconnection
and access on economic terms acceptable to the Company. The 1996 Telecom Act
creates incentives for local exchange carriers to permit access to their
facilities by denying such carriers the ability to provide long distance
services until there is the specified amount of competition at the local level.
BellSouth is not yet permitted to offer long distance services. There can be no
assurance that BellSouth or other local exchange carriers will not be less
accommodating to the Company once they are permitted to offer long distance
service. The interconnection agreement expires in April 1999 and there can be no
assurance that it will be renewed on favorable terms, or at all. See
"Legislation and Regulation -- Federal Regulation of Telecommunications
Services."
DEPENDENCE ON TELEPHONY BILLING AND INFORMATION SYSTEMS
The Company is dependent on Interstate Telephone Company, an ITC Company,
and others for provision of sophisticated telephony information and processing
systems to monitor costs, bill customers, fill customer orders and achieve
operating efficiencies. As the Company increases its provision of telephone
services, its dependence on billing and information systems will increase
significantly. The inability of the Company to adequately identify all of its
information and processing needs, or to obtain upgraded systems as necessary,
could have a material adverse impact on the Company's ability to expand its
telephone business and on its results of operations and financial condition.
EQUIPMENT SUPPLY UNCERTAINTIES FOR NEW SERVICES
The Company's ability to offer certain new Broadband Services will depend
in part upon the availability at economical prices of implementing equipment,
such as set-top terminals (in the case of digital video service). Certain
equipment will need to be reduced in price and standardized in order for the
Company to offer a cost-effective service that is attractive to consumers and to
compete successfully with service providers using different technologies (such
as direct broadcast satellite, in the case of digital video service).
DEMAND FOR BUNDLE OF BROADBAND SERVICES IS UNCERTAIN
The Company's business strategy to provide an integrated bundle of
Broadband Services is comparatively untested and subject to certain risks such
as future competition, pricing, regulatory uncertainties, operating and
technical difficulties. Accordingly, the demand for an integrated bundle of such
services, at the prices proposed to be charged by the Company is uncertain. In
addition, some of the Broadband Services being considered by the Company,
including high-speed data transmission services for residential customers and
interactive energy management services, are not generally available currently.
The demand for these new services also is uncertain. The Company's business
could be materially adversely affected if demand for an integrated bundle of
Broadband Services is materially lower than anticipated.
RISK OF RAPID TECHNOLOGICAL CHANGES
The telecommunications industry is subject to rapid and significant changes
in technology. Even though the Company believes its networks will be
"state-of-the-art" when constructed, there can be no assurance that subsequent
technological developments will not reduce the competitiveness of the Company's
networks, and require upgrades or additional equipment that could be expensive
and time consuming. In addition, the Company may be required to select in
advance one technology over another, but it will be impossible to predict with
any certainty, at the time the Company is required to make its investment, which
technology will prove to be the most economic, efficient or capable of
attracting customer usage.
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EVOLVING REGULATORY ENVIRONMENT
Although the 1996 Telecom Act, together with the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") and other recent
laws and regulations, eliminated most limitations on competition in the
Broadband Services business, the 1996 Telecom Act is complex and in many areas
sets forth policy objectives to be implemented by regulation. It is generally
expected that the 1996 Telecom Act will undergo considerable interpretation and
implementation through regulation and court decisions over the next several
years. There can be no assurance that such interpretation or implementing
regulations will be favorable to the Company. In certain areas, particularly
telephony, further regulation is expected to affect the Company's provision of
service. The Company's ability to compete successfully in the provision of
telephone service will depend in part on the timing of such implementing
regulations and whether they are favorable to the Company. It is also important
to the Company that the provisions limiting the ability of franchise authorities
to deny awarding or renewing franchises not change in a manner adverse to the
Company. See "-- Dependence on Interconnections" and "Legislation and
Regulation."
RELATIONSHIPS WITH ITC COMPANIES; POTENTIAL CONFLICTS OF INTERESTS
The Company has relationships with several ITC Companies. Its bundle of
Broadband Services includes long distance traffic routed over ITC/\DeltaCom's
fiber optic network pursuant to an exclusive agreement with ITC/\DeltaCom. The
Company offers long distance access services to small- and medium-sized
businesses and other customers by carrying traffic to ITC/\DeltaCom's point of
presence ("POP") in Montgomery, and shortly will offer these services in
Columbus. The Company obtains telephone billing and switching services from
Interstate Telephone Company, another ITC Company. See "Certain Transactions."
Certain members of the Company's Board of Directors (Campbell B. Lanier, III,
William H. Scott, III, Donald W. Burton and O. Gene Gabbard) are directors,
stockholders, and/or officers of ITC Holding, ITC/\DeltaCom and/or a number of
other ITC Companies. ITC Holding and Messrs. Lanier, Scott and Gabbard, as
significant stockholders of the Company, are in positions involving the
possibility of conflicts of interest with respect to certain transactions
concerning the Company. When the interests of ITC Holding or other ITC Companies
and its affiliates (other than the Company) and the Company diverge, ITC Holding
and its affiliates may exercise their influence in their own best interests.
Certain decisions concerning the operations or financial structure of the
Company may present conflicts of interest between the Company and ITC Holding
and/or its affiliates. See "-- Control by Principal Stockholders; Conflicts of
Interest."
DEPENDENCE ON KEY PERSONNEL
The Company's business is currently managed by a small number of key
management and operating personnel. The Company does not have any term
employment agreements with, nor does the Company maintain "key man" insurance
on, these or any other employees. The loss of the services of key personnel, or
the inability to attract, recruit and retain sufficient or additional qualified
personnel, could have a material adverse effect on the Company. See
"Management."
CONTROL BY PRINCIPAL STOCKHOLDERS; CONFLICTS OF INTEREST
As of October 31, 1997, ITC Holding owned approximately 30.0% (including
shares held by its wholly owned subsidiary InterCall), Century Telephone owned
approximately 14.2%, AT&T Venture Funds owned approximately 15.0%, South
Atlantic owned approximately 15.8% and SCANA owned approximately 7.7% (excluding
warrants to purchase Preferred Stock to be issued to SCANA) of the outstanding
capital stock of the Company. As a result, these stockholders are in a position
to control matters requiring approval by the stockholders of the Company,
including the election of a majority of the directors and the approval of
significant corporate matters, including certain change-of-control transactions.
In addition, certain decisions concerning the operations or financial structure
of the Company may present conflicts of interest between such shareholders or
management and the holders of the Exchange Notes. For example, if the Company
encounters financial difficulties or is unable to pay its debts as they mature,
the interests of such shareholders and management might conflict with those of
the holders of the Exchange Notes. In addition, such shareholders and management
may have an interest in pursuing transactions that, in their respective
judgments, could
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enhance its equity investment, even though such transactions might involve risk
to the holders of the Exchange Notes.
ABSENCE OF PUBLIC MARKET
The Senior Discount Notes have been designated for trading by qualified
buyers in the PORTAL Market. The Senior Discount Notes have not been registered
under the Securities Act, however, and will continue to be subject to
restrictions on transferability to the extent that they are not exchanged for
Exchange Notes. Furthermore, the Exchange Offer will not be conditioned upon any
minimum or maximum aggregate principal amount of Senior Discount Notes being
tendered for exchange. No assurance can be given as to the liquidity of the
trading market of the Senior Discount Notes following the Exchange Offer.
Although the Exchange Notes will generally be permitted to be resold or
otherwise transferred by the holders thereof (other than any holder that is (i)
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) a broker-dealer that acquired Senior Discount Notes as a
result of market-making activities or other trading activities) without
compliance with the registration requirements under the Securities Act, the
Exchange Notes will constitute a new issue of securities for which there is
currently no established trading market. If a trading market does not develop or
is not maintained, holders of the Exchange Notes may experience difficulty in
reselling the Exchange Notes or may be unable to sell them at all. If a market
for the Exchange Notes develops, any such market may cease at any time. If a
public trading market develops for the Exchange Notes, future trading prices of
the Exchange Notes will depend on many factors, including, among other things,
prevailing interest rates, the market for similar securities, the financial
conditions and results of operations of the Company and other factors beyond the
control of the Company, including general economic conditions. The Company does
not intend to list the Exchange Notes on any national securities exchange or to
seek approval for quotation through any automated quotation system. The Company
has been advised by the Placement Agents that following completion of the
Exchange Offer, the Placement Agents intend to make a market in the Exchange
Notes. However, the Placement Agents are not obligated to do so and any
market-making activities with respect to the Exchange Notes may be discontinued
at any time without notice. Accordingly, no assurance can be given that an
active public or other market will develop for the Exchange Notes or as to the
liquidity of or the trading market for the Exchange Notes.
Notwithstanding the registration of the Exchange Notes in the Exchange
Offer, holders who are "affiliates" of the Company (within the meaning of Rule
405 under the Securities Act) may publicly offer for sale or resell the Exchange
Notes only in compliance with the provisions of Rule 144 under the Securities
Act or any other available exemptions under the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Senior Discount Notes, where such Senior Discount Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution."
CONSEQUENCES OF ORIGINAL ISSUE DISCOUNT ON EXCHANGE NOTES
The Senior Discount Notes were issued at a substantial discount from their
principal amount. Consequently, participants in the Exchange Offer generally
will be required to include amounts in gross income for federal income tax
purposes in advance of receipt of the cash payments to which the income is
attributable, and no cash payments of interest will be made until April 15,
2003.
Moreover, the Exchange Notes will constitute "applicable high yield
discount obligations" ("AHYDOs") because the yield to maturity of the Exchange
Notes (treated as a continuation of the Senior Discount Notes) exceeds the
relevant applicable federal rate (the "AFR") at the time of issue by more than 5
percentage points. For October 1997, the long term AFR is 6.57% and the mid-term
AFR is 6.24% (based on semi-annual corresponding). The appropriate AFR depends
upon the weighted average maturity of the Exchange Notes. Since the Exchange
Notes constitute AHYDOs, the Company will not be entitled to deduct original
issue discount ("OID") accruing with respect thereto until such amounts are
actually paid. See
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"Certain United States Federal Income Tax Consequences" for a more detailed
discussion of the federal income tax consequences to participants in the
Exchange Offer.
If a bankruptcy proceeding is commenced by or against the Company under the
United States Bankruptcy Code after the issuance of the Exchange Notes, the
claim of a holder of Exchange Notes may be limited to an amount equal to the sum
of (i) the initial public offering price of the Senior Discount Notes and (ii)
that portion of the original issue discount that is not deemed to constitute
"unmatured interest" for purposes of the United States Bankruptcy Code. Any
original issue discount that was not amortized as of the commencement of any
such bankruptcy proceeding would constitute "unmatured interest."
CONSEQUENCES OF A FAILURE TO EXCHANGE SENIOR DISCOUNT NOTES
The Senior Discount Notes have not been registered under the Securities Act
or any state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Senior Discount Notes
that remain outstanding after consummation of the Exchange Offer will continue
to bear a legend reflecting such restrictions on transfer. In addition, upon
consummation of the Exchange Offer, holders of Senior Discount Notes that remain
outstanding will not be entitled to any rights to have such Senior Discount
Notes registered under the Securities Act, except under certain limited
circumstances. The Company does not intend to register under the Securities Act
any Senior Discount Notes that remain outstanding after consummation of the
Exchange Offer. See "The Exchange Offer." To the extent that Senior Discount
Notes are not tendered and accepted in the Exchange Offer, a holder's ability to
sell such Senior Discount Notes could be adversely affected.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Senior Discount Notes
pursuant to the Exchange Offer will be made only after a timely receipt by the
Exchange Agent of (i) such Senior Discount Notes or a book-entry confirmation of
a book-entry transfer of the Senior Discount Notes into the Exchange Agent's
account at The Depository Trust Company ("DTC"); (ii) the Letter of Transmittal
(or a facsimile thereof), properly completed and duly executed, with any
required signature guarantees; and (iii) any other documents required by the
Letter of Transmittal. Holders of the Senior Discount Notes desiring to tender
such Senior Discount Notes in exchange for Exchange Notes should allow
sufficient time to ensure timely delivery. The Company and the Exchange Agent
are under no duty to give notification of defects or irregularities with respect
to the tenders of Senior Discount Notes for exchange. See "The Exchange Offer."
ANTI-TAKEOVER EFFECTS
The Board of Directors of the Company has the authority to issue up to
100,000 shares of Preferred Stock, and to determine the price, rights (including
voting and conversion), preferences and privileges of those shares, without any
further vote or action by the stockholders. While the Company has no present
intention to issue any additional shares of Preferred Stock other than in
connection with the Beach Cable System acquisition, the exercise of the SCANA
warrants and the Warrants issued in connection with the Offering, any such
issuance or the perception that any such issuance may occur could have the
effect of making it more difficult for a third party to acquire the Company. The
foregoing, as well as the concentrated ownership of the Company, could have the
effect of delaying or precluding transactions involving a change of control of
the Company, including transactions in which stockholders might otherwise
receive a substantial premium for their shares over then current market prices.
See "-- Control by Principal Stockholders; Conflicts of Interest,"
"Management -- Executive Compensation, "Description of the Exchange
Notes -- Covenants" and "Description of Capital Stock -- Preferred Stock."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Senior Discount Notes, the Company
entered into the Registration Rights Agreement with the Placement Agents,
pursuant to which the Company agreed to file and to use its best efforts to
cause to become effective with the Commission a registration statement with
respect to the exchange of the Senior Discount Notes for Exchange Notes with
terms identical in all material respects to the terms of the Senior Discount
Notes. A copy of the Registration Rights Agreement has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part (the
"Registration Statement"). The Exchange Offer is being made to satisfy the
contractual obligations of the Company under the Registration Rights Agreement.
By tendering Senior Discount Notes in exchange for Exchange Notes, each
holder will represent to the Company that: (i) any Exchange Notes to be received
by such holder will be acquired in the ordinary course of such holder's
business; (ii) such holder has no arrangement or understanding with any person
to participate in a distribution (within the meaning of the Securities Act) of
the Exchange Notes; (iii) such holder is not an "affiliate" of the Company
(within the meaning of Rule 405 under the Securities Act), or if such holder is
an affiliate, that such holder will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable; (iv) such
holder has full power and authority to tender, exchange, sell, assign and
transfer the tendered Senior Discount Notes; (v) the Company will acquire good,
marketable and unencumbered title to the tendered Senior Discount Notes, free
and clear of all liens, restrictions, charges and encumbrances; and (vi) the
Senior Discount Notes tendered for exchange are not subject to any adverse
claims or proxies. Each tendering holder also will warrant and agree that such
holder will, upon request, execute and deliver any additional documents deemed
by the Company or the Exchange Agent to be necessary or desirable to complete
the exchange, sale, assignment, and transfer of the Senior Discount Notes
tendered pursuant to the Exchange Offer. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Senior Discount Notes, where
such Senior Discount Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution."
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Senior Discount Notes in any jurisdiction
in which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Senior Discount Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder, or any participant in
DTC whose name appears on a security position listing as a holder of Senior
Discount Notes (which, for purposes of the Exchange Offer, include beneficial
interests in the Senior Discount Notes held by direct or indirect participants
in DTC and Senior Discount Notes held in definitive form).
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange $1,000 principal amount at maturity of Exchange Notes for each $1,000
principal amount at maturity of Senior Discount Notes properly tendered prior to
the Expiration Date and not properly withdrawn in accordance with the procedures
described below. Holders may tender their Senior Discount Notes in whole or in
part in integral multiples of $1,000 principal amount at maturity.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Senior Discount Notes except that (i) the Exchange Notes will have
been registered under the Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the Senior Discount Notes and
(ii) holders of the Exchange Notes will not be entitled to certain rights of
holders of the Senior Discount Notes under the Registration Rights Agreement.
The Exchange Notes will evidence the same indebtedness as
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the Senior Discount Notes (which they replace) and will be issued pursuant to,
and entitled to the benefits of, the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Senior Discount Notes being tendered for exchange. The Company
reserves the right in its sole discretion to purchase or make offers for any
Senior Discount Notes that remain outstanding after the Expiration Date or, as
set forth under "-- Conditions to the Exchange Offer," to terminate the Exchange
Offer and, to the extent permitted by applicable law, purchase Senior Discount
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer. As of the date of this Prospectus, $444.1 million aggregate
principal amount at maturity of Senior Discount Notes is outstanding.
Holders of Senior Discount Notes do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Senior Discount Notes that are not
tendered, or are tendered but not accepted, in connection with the Exchange
Offer will remain outstanding and continue to accrue interest in accordance with
their terms. See "Risk Factors -- Consequences of a Failure to Exchange Senior
Discount Notes."
If any tendered Senior Discount Notes are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Senior Discount Notes will be
returned, without expense, to the tendering holder thereof promptly after the
Expiration Date.
Holders who tender Senior Discount Notes in connection with the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Senior Discount Notes in connection with the Exchange Offer. The
Company will pay all charges and expenses, other than certain applicable taxes
described below, in connection with the Exchange Offer. See "-- Fees and
Expenses."
THE BOARD OF DIRECTORS OF THE COMPANY MAKES NO RECOMMENDATION TO HOLDERS OF
SENIOR DISCOUNT NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR
ANY PORTION OF THEIR SENIOR DISCOUNT NOTES PURSUANT TO THE EXCHANGE OFFER. IN
ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF
SENIOR DISCOUNT NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO
THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF SENIOR DISCOUNT NOTES TO
TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND
CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR FINANCIAL POSITION AND
REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS, AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on
, 1998 unless the Exchange Offer is extended by the Company (in which
case the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended).
The Company expressly reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and from time to time, (i) to
delay the acceptance of the Senior Discount Notes for exchange; (ii) to
terminate the Exchange Offer (whether or not any Senior Discount Notes have
theretofore been accepted for exchange) if the Company determines, in its sole
and absolute discretion, that any of the events or conditions referred to under
"-- Conditions to the Exchange Offer" has occurred or exists or has not been
satisfied; (iii) to extend the Expiration Date of the Exchange Offer and retain
all Senior Discount Notes tendered pursuant to the Exchange Offer, subject,
however, to the right of holders of Senior Discount Notes to withdraw their
tendered Senior Discount Notes as described under "-- Withdrawal Rights;" and
(iv) to waive any condition or otherwise amend the terms of the Exchange Offer
in any respect (whether or not any Senior Discount Notes have theretofore been
accepted for exchange). If the Exchange Offer is amended in a manner determined
by the Company to constitute a material change, or if the Company waives a
material condition of
24
<PAGE> 26
the Exchange Offer, the Company will promptly disclose such amendment by means
of a prospectus supplement that will be distributed to the registered holders of
the Senior Discount Notes, and the Company will extend the Exchange Offer to the
extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, termination, extension or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent (any
such oral notice to be promptly confirmed in writing) and by making a public
announcement thereof, and such announcement in the case of an extension will be
made no later than 9:00 a.m., New York City time, on the next business day after
the previously scheduled Expiration Date. Without limiting the manner in which
the Company may choose to make any public announcement, and subject to
applicable laws, the Company shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a
release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange, and will issue to the Exchange Agent, Exchange Notes for
Senior Discount Notes validly tendered and not withdrawn (pursuant to the
withdrawal rights described under "-- Withdrawal Rights") promptly after the
Expiration Date.
In all cases, delivery of Exchange Notes in exchange for Senior Discount
Notes tendered and accepted for exchange pursuant to the Exchange Offer will be
made only after timely receipt by the Exchange Agent of (i) Senior Discount
Notes or a book-entry confirmation of a book-entry transfer of Senior Discount
Notes into the Exchange Agent's account at DTC; (ii) the Letter of Transmittal
(or facsimile thereof), properly completed and duly executed, with any required
signature guarantees; and (iii) any other documents required by the Letter of
Transmittal. Accordingly, the delivery of Exchange Notes might not be made to
all tendering holders at the same time, and will depend upon when Senior
Discount Notes, book-entry confirmations with respect to Senior Discount Notes
and other required documents are received by the Exchange Agent.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Senior Discount Notes into the Exchange Agent's account
at DTC.
Subject to the terms and conditions of the Exchange Offer, the Company will
be deemed to have accepted for exchange, and thereby exchanged, Senior Discount
Notes validly tendered and not withdrawn as, if and when the Company gives oral
or written notice to the Exchange Agent (any such oral notice to be promptly
confirmed in writing) of the Company's acceptance of such Senior Discount Notes
for exchange pursuant to the Exchange Offer. The Company's acceptance for
exchange of Senior Discount Notes tendered pursuant to any of the procedures
described above will constitute a binding agreement between the tendering holder
and the Company upon the terms and subject to the conditions of the Exchange
Offer. The Exchange Agent will act as agent for the Company for the purpose of
receiving tenders of Senior Discount Notes, Letters of Transmittal and related
documents, and as agent for tendering holders for the purpose of receiving
Senior Discount Notes, Letters of Transmittal and related documents and
transmitting Exchange Notes to holders who validly tendered Senior Discount
Notes. Such exchange will be made promptly after the Expiration Date. If for any
reason whatsoever the acceptance for exchange or the exchange of any Senior
Discount Notes tendered pursuant to the Exchange Offer is delayed (whether
before or after the Company's acceptance for exchange of Senior Discount Notes),
or the Company extends the Exchange Offer or is unable to accept for exchange or
exchange Senior Discount Notes tendered pursuant to the Exchange Offer, then,
without prejudice to the Company's rights set forth herein, the Exchange Agent
may, nevertheless, on behalf of the Company and subject to Rule 14e-1(c) under
the Exchange Act, retain tendered Senior Discount Notes and such Senior Discount
Notes may not be withdrawn except to the extent tendering holders are entitled
to withdrawal rights as described under "-- Withdrawal Rights."
PROCEDURES FOR TENDERING SENIOR DISCOUNT NOTES
VALID TENDER. Except as set forth below, in order for Senior Discount
Notes to be validly tendered pursuant to the Exchange Offer, either (i) (a) a
properly completed and duly executed Letter of Transmittal
25
<PAGE> 27
(or facsimile thereof), with any required signature guarantees and any other
required documents, must be received by the Exchange Agent at the address set
forth under "-- Exchange Agent" prior to the Expiration Date and (b) tendered
Senior Discount Notes must be received by the Exchange Agent, or such Senior
Discount Notes must be tendered pursuant to the procedures for book-entry
transfer set forth below and a book-entry confirmation must be received by the
Exchange Agent, in each case prior to the Expiration Date, or (ii) the
guaranteed delivery procedures set forth below must be complied with.
If less than all of the Senior Discount Notes held by a holder are tendered
by such holder, such holder should fill in the amount of Senior Discount Notes
being tendered in the appropriate box on the Letter of Transmittal. The entire
amount of Senior Discount Notes delivered to the Exchange Agent will be deemed
to have been tendered unless otherwise indicated.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company, in its sole discretion, of such person's
authority to so act must be submitted.
Any beneficial owner of Senior Discount Notes that are held by or
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee or custodian is urged to contact such entity promptly if such
beneficial holder wishes to participate in the Exchange Offer.
THE METHOD OF DELIVERY OF SENIOR DISCOUNT NOTES, THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY AND PROPER INSURANCE SHOULD BE OBTAINED. NO
LETTER OF TRANSMITTAL OR SENIOR DISCOUNT NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
BOOK-ENTRY TRANSFER. The Exchange Agent will make a request to establish
an account with respect to the Senior Discount Notes at DTC for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in DTC's book-entry transfer
facility system may make a book-entry delivery of the Senior Discount Notes by
causing DTC to transfer such Senior Discount Notes into the Exchange Agent's
account at DTC in accordance with DTC's procedures for transfers. However,
although delivery of Senior Discount Notes may be effected through book-entry
transfer into the Exchange Agent's account at DTC, the Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees and any other required documents, must in any case be
delivered to and received by the Exchange Agent at its address set forth under
"-- Exchange Agent" prior to the Expiration Date, or the guaranteed delivery
procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
SIGNATURE GUARANTEES. Certificates for Senior Discount Notes need not be
endorsed and signature guarantees on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are unnecessary unless (a) a certificate for
Senior Discount Notes is registered in a name other than that of the person
surrendering the certificate or (b) a registered holder completes the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" in
the Letter of Transmittal. In the case of (a) or (b) above, such certificates
for Senior Discount Notes must be duly endorsed or accompanied by a properly
executed bond power, with the endorsement or signature on the bond power and on
the Letter of Transmittal or the notice of withdrawal,
26
<PAGE> 28
as the case may be, guaranteed by a firm or other entity identified in Rule
17Ad-15 under the Exchange Act as an "eligible guarantor institution," including
(as such terms are defined therein) (i) a bank; (ii) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association (each an "Eligible
Institution"), unless surrendered on behalf of such Eligible Institution. See
Instructions 2 and 5 to the Letter of Transmittal.
GUARANTEED DELIVERY. If a holder desires to tender Senior Discount Notes
pursuant to the Exchange Offer and the certificates for such Senior Discount
Notes are not immediately available or time will not permit all required
documents to reach the Exchange Agent before the Expiration Date, or the
procedures for book-entry transfer cannot be completed on a timely basis, such
Senior Discount Notes may nevertheless be tendered, provided that all of the
following guaranteed delivery procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form accompanying the Letter of
Transmittal, setting forth the name and address of the holder of Senior
Discount Notes and the amount of Senior Discount Notes tendered, stating
that the tender is being made thereby and guaranteeing that within three
New York Stock Exchange trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered
Senior Discount Notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent. The Notice of Guaranteed Delivery may be delivered by
hand, or transmitted by facsimile or mail to the Exchange Agent and must
include a guarantee by an Eligible Institution in the form set forth in the
Notice of Guaranteed Delivery; and
(iii) the certificates (or book-entry confirmation) representing all
tendered Senior Discount Notes, in proper form for transfer, together with
a properly completed and duly executed Letter of Transmittal, with any
required signature guarantees and any other documents required by the
Letter of Transmittal, are received by the Exchange Agent within three New
York Stock Exchange trading days after the date of execution of the Notice
of Guaranteed Delivery.
DETERMINATION OF VALIDITY. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Senior Discount Notes will be determined by the Company, in its
sole discretion, which determination shall be final and binding on all parties.
The Company reserves the absolute right, in its sole and absolute discretion, to
reject any and all tenders determined by it not to be in proper form or the
acceptance for exchange of which may, in the view of counsel to the Company, be
unlawful. The Company also reserves the absolute right, subject to applicable
law, to waive any of the conditions of the Exchange Offer as set forth under
"-- Conditions to the Exchange Offer" or any defect or irregularity in any
tender of Senior Discount Notes of any particular holder whether or not similar
defects or irregularities are waived in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding on all parties. No tender of Senior Discount Notes will be
deemed to have been validly made until all defects or irregularities with
respect to such tender have been cured or waived. Neither the Company, any
affiliates or assigns of the Company, the Exchange Agent or any other person
shall be under any duty to give any notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification.
RESALES OF EXCHANGE NOTES
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties unrelated to the Company, the Company
believes that holders of Senior Discount Notes (other than any holder that is
(i) a broker-dealer that acquired Senior Discount Notes as a result of
market-making activities or other trading activities or (ii) an "affiliate" of
the Company within the meaning of Rule 405 under
27
<PAGE> 29
the Securities Act), who exchange their Senior Discount Notes for Exchange Notes
pursuant to the Exchange Offer may offer for resale, resell and otherwise
transfer such Exchange Notes without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holders' business and
such holders have no arrangement or understanding with any person to participate
in a distribution (within the meaning of the Securities Act) of such Exchange
Notes. Any holder who tenders Senior Discount Notes in the Exchange Offer with
the intention to participate, or for the purpose of participating, in a
distribution of the Exchange Notes or who is an affiliate of the Company may not
rely upon such interpretations by the staff of the Commission and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction. Failure to comply with such requirements in such
instance may result in such holder incurring liabilities under the Securities
Act for which the holder is not indemnified by the Company. The staff of the
Commission has not considered the Exchange Offer in the context of a no-action
letter, and there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Senior Discount Notes, where such Senior Discount Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection with
any resale of such Exchange Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed that, for a period not to exceed 180 days after the
Expiration Date, it will furnish additional copies of this Prospectus, as
amended or supplemented, to any broker-dealer that reasonably requests such
documents for use in connection with any such resale. See "Plan of
Distribution."
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Senior Discount Notes may
be withdrawn at any time prior to the Expiration Date.
In order for a withdrawal to be effective, a written, telegraphic or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at its address set forth under "-- Exchange Agent" prior to
the Expiration Date. Any such notice of withdrawal must specify the name of the
person who tendered the Senior Discount Notes to be withdrawn, the aggregate
principal amount of Senior Discount Notes to be withdrawn, and (if certificates
for such Senior Discount Notes have been tendered) the name of the registered
holder of the Senior Discount Notes as set forth on the Senior Discount Notes,
if different from that of the person who tendered such Senior Discount Notes. If
certificates for Senior Discount Notes have been delivered or otherwise
identified to the Exchange Agent, the notice of withdrawal must specify the
certificate number on the particular Senior Discount Notes to be withdrawn and
the signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Senior Discount Notes tendered for the
account of an Eligible Institution. If Senior Discount Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in "-- Procedures
for Tendering Senior Discount Notes," the notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawal of
Senior Discount Notes and must otherwise comply with the procedures of DTC.
Withdrawals of tenders of Senior Discount Notes may not be rescinded. Senior
Discount Notes properly withdrawn will not be deemed validly tendered for
purposes of the Exchange Offer, but may be retendered at any subsequent time
prior to the Expiration Date by following any of the procedures described above
under "-- Procedures for Tendering Senior Discount Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, which determination shall be final and binding on all parties.
Neither the Company, any affiliates of the Company, the Exchange Agent or any
other person shall be under any duty to give any notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. Any Senior Discount Notes which have been tendered
but which are withdrawn will be returned to the holder thereof promptly after
withdrawal.
28
<PAGE> 30
INTEREST ON THE EXCHANGE NOTES
Interest will not accrue on the Senior Discount Notes or the Exchange Notes
prior to October 15, 2002. From and after October 15, 2002, the Exchange Notes
will bear interest, which will be payable in cash, at a rate of 11 7/8% per
annum on each April 15 and October 15, commencing April 15, 2003.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer or any extension
of the Exchange Offer, the Company will not be required to accept for exchange,
or to exchange, any Senior Discount Notes for any Exchange Notes, and may, at
any time and from to time, terminate the Exchange Offer or waive any conditions
to or amend the Exchange Offer in any respect (whether or not any Senior
Discount Notes have theretofore been accepted for exchange), if the Exchange
Offer is determined by the Company, in its sole and absolute discretion, to
violate applicable law or any applicable interpretation of the staff of the
Commission.
If such waiver or amendment constitutes a material change to the Exchange
Offer, the Company will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered holders of the Senior
Discount Notes, and the Company will extend the Exchange Offer to the extent
required by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Delivery of the Letters of Transmittal and any
other required documents, questions, requests for assistance, and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent as follows:
BY FACSIMILE
(212) 780-0592
Attention: Customer Service
Confirm by telephone: (800) 548-6565
BY MAIL
United States Trust Company of New York
P.O. Box 843
Cooper Station
New York, New York 10276
Attention: Corporate Trust Services
BY HAND BEFORE 4:30 P.M.
United States Trust Company of New York
111 Broadway
New York, New York 10006
Attention: Lower Level Corporate Trust Window
BY OVERNIGHT COURIER AND BY HAND AFTER 4:30 P.M.
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
DELIVERY TO OTHER THAN THE ABOVE ADDRESSES OR FACSIMILE NUMBER WILL NOT
CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail. Additional solicitation may be
made personally or by telephone or other means by officers, directors or
employees of the Company.
29
<PAGE> 31
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offer. The Company has
agreed to pay the Exchange Agent reasonable and customary fees for its services
and will reimburse it for its reasonable out-of-pocket expenses in connection
therewith. The Company will also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus and related documents to the beneficial
owners of Senior Discount Notes, and in handling or tendering for their
customers.
Holders who tender their Senior Discount Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that if
Exchange Notes are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of the Senior Discount Notes tendered,
or if a transfer tax is imposed for any reason other than the exchange of Senior
Discount Notes in connection with the Exchange Offer, then the amount of any
such transfer tax (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
30
<PAGE> 32
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes as contemplated in this Prospectus,
the Company will receive, in exchange, an equal number of Senior Discount Notes
in like principal amount. The form and terms of the Exchange Notes will be
identical in all material respects to the form and terms of the Senior Discount
Notes, except as otherwise described under "The Exchange Offer -- Terms of the
Exchange Offer."
The net proceeds to the Company from the sale of the Senior Discount Notes
were approximately $242.4 million, after deducting the estimated discount and
commissions and other expenses payable by the Company. The net proceeds to the
Company from the Equity Private Placement were approximately $32.2 million. As
of December 15, 1997, the Company has applied approximately $25.7 million of
such net proceeds to repay outstanding indebtedness (plus accrued interest of
the Company consisting of notes to SCANA, First National Bank of West Point and
notes issued in payment of the purchase prices for the Montgomery System and
Columbus System). The Company has applied or intends to apply the remaining net
proceeds of the Offering and the Equity Private Placement as follows: (i) for
capital expenditures associated with the continued expansion of the Company's
networks in Montgomery and Columbus; (ii) for capital expenditures associated
with construction of Integrated Broadband Networks in Panama City Beach/Panama
City, Charleston and Augusta as part of the Company's expansion plan (which
includes approximately $3.9 million for the cash portion of the purchase price
of the Beach Cable System); (iii) to fund development and initial construction
costs associated with expansion to new cities, including possible strategic
acquisitions of businesses that become part of the Company's expansion plan; and
(iv) for additional working capital and other general corporate purposes,
including funding operating deficits. The actual allocation of funds among these
uses will depend on future developments in or affecting the Company's business,
the competitive climate in which it operates and the emergence of future
opportunities. Prior to the application of the net proceeds from the Offering
and Equity Private Placement as described above, such funds will be invested in
short-term, investment grade securities.
The note to SCANA that was repaid consisted of $11.0 million of principal
plus accrued interest (approximately $305,300). The note accrued interest at the
rate of 12% per annum and was payable upon demand after January 1, 1998.
The note to First National Bank of West Point that was repaid consisted of
$3.0 million of principal plus accrued interest (approximately $51,000). The
note accrued interest at the rate of prime plus .5% per annum and was payable on
December 15, 1997.
The note that was repaid that was issued in payment of the purchase price
for the Montgomery System (the "Montgomery Note") consisted of $6.0 million of
principal plus accrued interest (approximately $163,500). The Montgomery Note
bore interest at 9% per year, and the Montgomery Note was due and payable on
March 31, 2000. ITC Holding was a co-obligor under the Montgomery Note. See
"Certain Transactions."
The note that was repaid that was issued in payment of the purchase price
for the Columbus System (the "Columbus Note") consisted of $5.0 million of
principal plus accrued interest (approximately $136,300). The Columbus Note bore
interest at 9% per year, and the Columbus Note was due and payable on September
29, 2000. ITC Holding was a guarantor of the Columbus Note. See "Certain
Transactions."
The Company estimates the cost of constructing an Interactive Broadband
Network in a city at approximately $35 million to $50 million. Actual costs may
vary significantly from this range and will depend in part on the number of
miles of network to be constructed, the geographic and demographic
characteristics of the city, other factors affecting construction costs, costs
associated with the cable franchise in each city, the number of subscribers, the
mix of services purchased, the cost of subscriber equipment paid for or financed
by the Company and other factors. Although there can be no assurance, the
Company believes that the proceeds from the Offering and the Equity Private
Placement and amounts expected to be available under the New
31
<PAGE> 33
Credit Facility, will provide sufficient funds to expand the Montgomery and
Columbus networks as currently planned and fund the expansion into Panama City
Beach/Panama City, Charleston and Augusta. The Company may need to seek
additional financing in the event the New Credit Facility is not entered into or
actual costs vary. In addition, the Company will need to seek additional
financing to expand into additional cities, for new business activities or in
the event it decides to make additional acquisitions. Sources of additional
capital may include cash flow from operations, and public and private equity and
debt financings. See "Risk Factors -- Significant Capital Requirements."
In addition, as part of its business strategy, the Company intends to
continue to expand into additional cities in the southeastern United States and
will continue to evaluate potential acquisitions, joint ventures and strategic
alliances. Except for the recent acquisition of the Beach Cable System, the
Company currently has no agreement with respect to any acquisition, although
from time to time it has discussions with other companies and assesses
opportunities on an on-going basis. A portion of the proceeds of the Offering,
as well as additional sources of capital such as credit facilities and other
borrowings, and public and private debt and equity issuances, may be used to
fund any such construction in additional cities, acquisitions, joint ventures
and strategic alliances. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its capital stock in the
foreseeable future. It is the current policy of the Company's Board of Directors
to retain earnings to finance the expansion of the Company's operations. Future
declaration and payment of dividends, if any, will be determined in light of the
then-current conditions, including the Company's earnings, operations, capital
requirements, financial condition, and other factors deemed relevant by the
Board of Directors. In addition, the Company's ability to pay dividends is
limited by the terms of the Indenture and is expected to be limited by the terms
of the New Credit Facility. See "Description of Certain Indebtedness -- New
Credit Facility" and "Description of the Exchange Notes."
32
<PAGE> 34
CAPITALIZATION
The following table sets forth the cash and capitalization of the Company
as of September 30, 1997 on a historical basis and as adjusted to reflect the
Offering, the Equity Private Placement and the application of the net proceeds
therefrom. See "Use of Proceeds," "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Company's financial statements and the notes thereto,
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------
<S> <C> <C>
AS
ACTUAL ADJUSTED(a)
----------- ------------
<CAPTION>
<S> <C> <C>
Cash................................................... $ 0 $251,068,421
=========== ============
Long-term debt, including current maturities:
Montgomery Note...................................... $ 6,000,000 $ --
Columbus Note........................................ 5,000,000 --
SCANA line of credit................................. 11,000,000 --
Senior Discount Notes and Exchange Notes............. -- 247,523,576
Other long term debt................................. 1,956,785 456,785
----------- ------------
Total long-term debt, including current
maturities...................................... 23,956,785 247,980,361(c)
----------- ------------
Stockholders equity:
Preferred Stock, $.01 par value, 50,000 shares
authorized at September 30, 1997, 26,052 shares
issued and outstanding at September 30, 1997;
47,500 shares issued and outstanding, as
adjusted.......................................... 261 475(d)
Common Stock $.01 par value, 15,000 shares authorized
at September 30, 1997, 0 shares issued and
outstanding at September 30, 1997 and as
adjusted.......................................... -- --
Additional paid-in-capital........................... 29,214,530 63,854,867(b)
Accumulated deficit.................................. (8,147,737) (8,147,737)
----------- ------------
Total stockholders' equity........................ 21,067,054 55,707,605
----------- ------------
Total capitalization.............................. $45,023,839 $303,687,966
=========== ============
</TABLE>
- ---------------
(a) Since the Exchange Notes are substantially identical to the Senior Discount
Notes, no adjustments have been made or are necessary to reflect the
exchange.
(b) Of the $250.0 million gross proceeds from the Offering, $247.5 million has
been allocated to the initial Accreted Value of the Notes and $2.5 million
has been allocated to additional paid-in capital to reflect the issuance of
the Warrants. No assurance can be given that the value allocated to the
Warrants will be indicative of the price at which the Warrants may actually
trade.
(c) Excludes $50.0 million expected to be available under the New Credit
Facility.
(d) Excludes the 1,658 shares of Preferred Stock issuable upon exercise of the
Warrants issued in the Offering. See "Description of the Warrants."
Additionally, excludes 753 shares of Preferred Stock issuable to SCANA upon
exercise of warrants. See "Description of Capital Stock."
33
<PAGE> 35
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial and
operating data for the Company. The selected financial and operating data as of
and for the years ended December 31, 1992, 1993 and 1994, the four months ended
April 30, 1995, the eight months ended December 31, 1995 and the year ended
December 31, 1996 have been derived from the audited financial statements of the
Predecessor Company and the Company. The selected financial and operating data
as of and for the nine months ended September 30, 1996 and 1997 have been
derived from the unaudited consolidated financial statements of the Company and,
in the opinion of the Company, include all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of such information.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire year.
The selected financial and operating data set forth below should be read in
conjunction with "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
the notes thereto included elsewhere in this Prospectus. The financial and
operating data for periods after April 28, 1995 (the date the Company acquired
the Predecessor Company, the owner and operator of the Montgomery System), are
not comparable to the financial and operating data for prior periods as a result
of the amortization of the cost in excess of net assets in connection with the
Montgomery Acquisition and the acquisition of the Columbus System on September
29, 1995. See notes 1 and 2 to the Company's Consolidated Financial Statements
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (a)
---------------------------------------------------------
YEAR YEAR YEAR FOUR MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 30,
1992 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $ 1,306,883 $ 1,706,138 $ 2,111,952 $ 857,161
Operating expenses:
General and
administrative......... 566,248 479,868 587,579 175,724
Programming charges...... 604,820 710,158 1,042,186 409,325
Depreciation and
amortization........... 607,080 641,583 768,496 259,336
Field and technical...... 398,142 365,780 303,600 98,293
Sales and marketing...... 211,664 202,813 128,909 16,590
----------- ----------- ----------- ----------
Total operating
expenses............... 2,387,954 2,400,202 2,830,770 959,268
----------- ----------- ----------- ----------
Operating loss............. (1,081,071) (694,064) (718,818) (102,107)
----------- ----------- ----------- ----------
Other income and
expenses................. (372,432) (255,933) (155,417) (21,878)
----------- ----------- ----------- ----------
Loss before minority
interest and income tax
benefit.................. (1,453,503) (949,997) (874,235) (123,985)
Minority interest.......... -- -- -- --
Income tax benefit......... -- -- -- --
----------- ----------- ----------- ----------
Net loss................... (1,453,503) (949,997) (874,235) (123,985)
Preferred stock
dividends................ -- (285,645) (591,175) (230,407)
----------- ----------- ----------- ----------
Net loss after preferred
stock dividends.......... $(1,453,503) $(1,235,642) $(1,465,410) $ (354,392)
=========== =========== =========== ==========
PER SHARE DATA:
Net loss per share (d).....
Weighted average common
share
equivalents
outstanding............
OTHER FINANCIAL DATA:
Capital expenditures....... $ 504,313 $ 1,427,433 $ 717,325 $ 42,504
Net cash provided by (used
in) operating
activities............... (1,174,278) 5,062 82,590 144,076
EBITDA (f)................. (466,783) 52,481 124,836 157,229
Ratio of earnings to fixed
charges (g).............. -- -- -- --
OTHER OPERATING DATA:
Cable subscribers..........
Average monthly cable
revenue per subscriber...
Homes passed...............
Cable penetration level
(h)......................
<CAPTION>
SUCCESSOR COMPANY (a)
------------------------------------------------------------
EIGHT
MONTHS NINE NINE
ENDED YEAR MONTHS MONTHS
DECEMBER ENDED ENDED ENDED
31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 (b) 1996 1996 1997
----------- ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $ 2,196,998 $ 5,334,183 $ 3,825,728 $ 7,044,686
Operating expenses:
General and
administrative......... 1,027,001 2,346,201 1,588,764 2,368,525
Programming charges...... 1,029,959 2,513,693 1,781,851 3,263,652
Depreciation and
amortization........... 745,004 1,640,025 (c) 1,118,403 2,263,982(c)
Field and technical...... 417,273 877,870 666,090 988,435
Sales and marketing...... 58,414 659,667 339,934 947,284
----------- ----------- ----------- -----------
Total operating
expenses............... 3,277,651 8,037,456 5,495,042 9,831,878
----------- ----------- ----------- -----------
Operating loss............. (1,080,653) (2,703,273) (1,669,314) (2,787,192)
----------- ----------- ----------- -----------
Other income and
expenses................. (549,169) (795,478) (c) (536,873) (1,049,583)(c)
----------- ----------- ----------- -----------
Loss before minority
interest and income tax
benefit.................. (1,629,822) (3,498,751) (2,206,187) (3,836,775)
Minority interest.......... 109,837 -- -- --
Income tax benefit......... 334,451 373,323 373,323 --
----------- ----------- ----------- -----------
Net loss................... (1,185,534) (3,125,428) (1,832,864) (3,836,775)
Preferred stock
dividends................ -- -- -- --
----------- ----------- ----------- -----------
Net loss after preferred
stock dividends.......... $(1,185,534) $(3,125,428) (c) $(1,832,864) $(3,836,775)(c)
=========== =========== =========== ===========
PER SHARE DATA:
Net loss per share (d)..... $ 157.65 $ 229.37 (e) $ 147.12 $ 159.10(e)
Weighted average common
share
equivalents
outstanding............ 7,520 13,626 (e) 12,458 24,116(e)
OTHER FINANCIAL DATA:
Capital expenditures....... $ 1,291,080 $14,416,135 10,822,681 $22,034,377
Net cash provided by (used
in) operating
activities............... (742,928) (1,998,007) (761,090) (320,854)
EBITDA (f)................. (207,068) (803,228) (292,719) (473,328)
Ratio of earnings to fixed
charges (g).............. -- -- -- --
OTHER OPERATING DATA:
Cable subscribers.......... 14,219 18,169 16,570 30,008
Average monthly cable
revenue per subscriber... $ 25.47 $ 26.71 $ 25.25 $ 27.34
Homes passed............... 47,131 91,457
Cable penetration level
(h)...................... 35.16% 32.81%
</TABLE>
34
<PAGE> 36
<TABLE>
<CAPTION>
SUCCESSOR COMPANY (a)
-------------------------------------------
PREDECESSOR COMPANY (a) SEPTEMBER 30,
------------------------------------------ 1997
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, -------------
1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------ (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................ $ (5,509,640) $ (1,394,676) $ (3,559,715) $ 3,498,482 $ (3,201,202) $ (16,204,619)
Property and equipment, net............ 4,115,575 4,684,479 4,833,142 6,976,268 21,477,209 41,493,409
Total assets........................... 4,314,146 4,972,191 4,987,354 19,346,317 29,941,745 50,073,981
Total liabilities...................... 5,779,937 2,968,729 4,734,947 12,992,682 15,743,318 29,006,927
Minority interest...................... -- -- -- 84,479 -- --
Accumulated deficit.................... (3,355,146) (4,305,143) (6,056,198) (1,185,534) (4,310,962) (8,147,737)
Total stockholders' equity............. (1,465,791) 2,003,462 252,407 6,269,156 14,198,427 21,067,054
</TABLE>
- ---------------
(a) "Successor Company" refers to KNOLOGY and its subsidiaries. KNOLOGY,
initially capitalized as a limited liability company in March 1995, was
established for the purpose of acquiring the Predecessor Company. The
Montgomery Acquisition, which was accounted for as a purchase, was
consummated on April 28, 1995, and the Company acquired the remaining
minority interest in the Predecessor Company in January 1996. See note 1 to
the Company's Consolidated Financial Statements included elsewhere in this
Prospectus.
(b) Includes the operations of the Columbus System from September 29, 1995. The
acquisition of the Columbus System was accounted for as a purchase. See note
1 to the Company's Consolidated Financial Statements included elsewhere in
this Prospectus.
(c) On a pro forma basis, after giving effect to the Offering and the Equity
Private Placement and the application of the net proceeds therefrom, the
Company's interest expense would have increased by approximately $19,030,000
and $13,879,000 and depreciation and amortization would have increased by
approximately $577,000 and $430,000 as a result of amortization of debt
issuance costs for the year ended December 31, 1996 and the nine months
ended September 30, 1997, respectively, and its net loss after preferred
stock dividends would have been approximately $22,733,000 and $18,145,000
for the year ended December 31, 1996 and the nine months ended September 30,
1997, respectively.
(d) Net loss per share is computed using the weighted average number of shares
of common stock and dilutive common stock equivalent shares from convertible
preferred stock (using the if converted method). As the Company has no
common stock outstanding, the preferred stock is assumed to be converted for
purposes of this calculation. The Predecessor Company net losses per share
are not shown, as they are not comparable with the Successor Company's.
(e) On a pro forma basis net loss per share after giving effect to the Offering
and the Equity Private Placement and the application of the net proceeds
therefrom, would have been $648.14 and $398.23 for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively and the
weighted average common share equivalents outstanding would have been 35,074
and 45,564 at December 31, 1996 and September 30, 1997, respectively. All
options and warrants have been excluded from the calculation of net loss per
share as they are anti-dilutive.
(f) EBITDA represents earnings before preferred stock dividends, interest
expense, income taxes, depreciation and amortization. EBITDA is provided
because it is a measure commonly used in the industry. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered an alternative to net income as a
measure of performance or to cash flow as a measure of liquidity. EBITDA is
not necessarily comparable with similarly titled measures for other
companies.
(g) Earnings consist of income before minority interest, preferred stock
dividends, income taxes, plus fixed charges. Fixed charges consist of
interest charges and amortization of debt issuance costs and the portion of
rent expense under operating leases representing interest (estimated to be
1/3 of such expense). Earnings were insufficient to cover fixed charges for
the years ended December 31, 1992, 1993 and 1994, the four months ended
April 30, 1995, the eight months ended December 31, 1995, the year ended
December 31, 1996 and the nine months ended September 30, 1996 and 1997 by
$1,453,503, $949,997, $874,235, $123,985, $1,629,822, $3,498,751, $2,206,187
and $3,836,775, respectively. On a pro forma basis, after giving effect to
the Offering and the Equity Private Placement, the Company's earnings would
have been insufficient to cover its fixed charges for the year ended
December 31, 1996 and the nine months ended September 30, 1997 by
$23,106,207 and $18,145,103, respectively.
(h) Determined by dividing the number of subscribers by the number of homes
passed. Because the Company does not begin to market its services in an area
until its network has been expanded and the Company typically needs 60 to 90
days once marketing has commenced to build its subscriber base, the
Company's penetration rate is adversely affected during rapid expansion of
the networks.
35
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with the financial
statements and notes thereto included elsewhere in this Prospectus. Unless
otherwise noted, dollar amounts have been rounded.
GENERAL
KNOLOGY offers its customers Broadband Services, including cable
television, telephone service (local telephone, long distance and long distance
access services), and high-speed Internet access service (using cable modems).
The Company provides these video, voice and data services in two cities,
Montgomery, Alabama and Columbus, Georgia over its Interactive Broadband
Networks. The Company plans to expand its networks in these cities and build
networks in additional mid-sized cities in the southeastern United States.
The Company acquired substantially all of the capital stock of KNOLOGY of
Montgomery (formerly Montgomery Cablevision) on April 28, 1995 in exchange for a
promissory note in the aggregate principal amount of $6.0 million (repaid
following the Offering) and completed the purchase of the balance of such
entity's outstanding capital stock in January 1996 for $14,000 in cash plus 200
shares of the Company's Preferred Stock. The Company accounted for the
Montgomery Acquisition under the purchase method of accounting. Since the
Company had no significant operations prior to such acquisition, Montgomery
Cablevision is considered the Company's predecessor, and the amounts included in
the consolidated financial statements as of and for the year ended December 31,
1994 and for the four months ended April 30, 1995 reflect the accounts of
Montgomery Cablevision prior to its acquisition by the Company. The Company
acquired the assets of the American Cable Company and American Cable Company
Partnership ("American Cable") cable television business in Columbus, Georgia in
September 1995 in exchange for a promissory note in the aggregate principal
amount of $5.0 million (repaid following the Offering). The Company accounted
for the acquisition under the purchase method of accounting. Financial and
operating data for periods after April 28, 1995 (the date the Company acquired
Montgomery Cablevision) are not comparable to the financial and operating data
for prior periods as a result of the amortization of the cost in excess of net
assets in connection with the Montgomery Acquisition and the acquisition of the
Columbus System on September 29, 1995. See notes 1 and 2 to the Company's
Consolidated Financial Statements included elsewhere in this Prospectus.
Substantially all of the Company's revenues through September 1997 come
from its cable television operations. In July 1997 the Company began to offer
Internet access and telephone service in Montgomery. In Columbus, high-speed
Internet access service was introduced in September 1997 and telephone service
was introduced in the fourth quarter of 1997. Subscriber revenue consists of
fixed monthly fees for cable programming and premium television services, as
well as fees from pay-per-view movies and events (such as boxing matches and
concerts) which involve a charge for each viewing. Miscellaneous revenues result
principally from converter rentals, installation fees, franchise fees, late
payment charges and the wholesaling of network capacity. Revenues from Internet
access services are expected to consist primarily of fixed monthly fees, and
revenues from the Company's telephone services are expected to consist primarily
of fixed monthly fees, variable fees (billed monthly) that are based primarily
on usage and fees for enhanced services such as call waiting or voice mail.
Additional revenues will be derived from installation services and leases or
sales of equipment such as cable modems. TCI in Montgomery, and TCI and Charter
in Columbus have been and are expected to continue to compete aggressively on
price for cable services.
The Company's principal operating expenses through September 1997 consisted
of programming charges (for cable television), general and administrative
expenses, depreciation and amortization expense, field and technical expenses
and sales and marketing costs. Programming charges consist primarily of monthly
fees to the National Cable Television Cooperative, Inc. (the "National Cable
Television Cooperative") and programming providers, and are generally based on
the average number of subscribers to each program and other factors. General and
administrative expenses consist of general management, customer service and
corporate administration expenses. Depreciation and amortization include
depreciation of the Company's
36
<PAGE> 38
Interactive Broadband Networks and equipment, and amortization of goodwill and
other intangible assets related to acquisitions. Field and technical expenses
include costs of field personnel engaged in network operations, maintenance and
monitoring and network operating expenses, including pole rental fees. Sales and
marketing costs include cost of sales personnel and marketing expenses.
Operating expenses related to the Company's Internet access services and
telephone services are expected to include primarily costs of Internet access,
telephone access and transport charges payable to local and long distance
carriers.
Since acquiring the Montgomery and Columbus Systems, the Company has been
expanding the Systems and preparing to introduce new Broadband Services.
Accordingly, the Company's operating expenses and capital expenditures have
increased significantly and are expected to continue to increase as the Company
continues to expand the Systems and expands into new markets.
The Company has incurred net losses in each quarter since its inception,
and as of September 30, 1997, the Company had an accumulated deficit of $8.1
million. The Company anticipates that it will continue to incur net losses
during the next several years as it continues to expand its operations as a
result of substantially increased depreciation and amortization from the
construction of new networks and operating expenses incurred as it builds its
customer base. There can be no assurance that growth in the Company's revenue or
subscriber base will continue or that the Company will be able to achieve or
sustain profitability or positive cash flow. See "Risk Factors -- History of
Losses; Expectation of Future Losses and Negative Cash Flows from Operations."
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
REVENUES. The Company's revenues increased 84.1%, or $3.2 million, from
$3.8 million for the nine months ended September 30, 1996 to $7.0 million for
the nine months ended September 30, 1997. The Company generated subscriber
revenues of $3.4 million for the nine months ended September 30, 1996, as
compared to $6.1 million for the nine months ended September 30, 1997,
respectively, and included approximately $85,000 and $228,000 for pay-per-view
fees for the nine months ended September 30, 1996 and September 30, 1997,
respectively. The increase in subscriber revenues resulted principally from
additional subscribers being added as the Company's Systems were extended to new
areas within Montgomery and Columbus and, to some extent, from higher revenue
per subscriber resulting from increased demand for premium services.
Miscellaneous revenues for the nine months ended September 30, 1996 and for the
nine-month period ended September 30, 1997 were $489,000 and $899,000,
respectively. The increase in miscellaneous revenues was due to the increased
number of subscribers and expansion of the Systems.
EXPENSES. The Company's operating expenses increased 78.9%, or $4.3
million from $5.5 million, for the nine months ended September 30, 1996, to $9.8
million for the nine months ended September 30, 1997. Programming charges were
$1.8 million and $3.3 million which represent 46.6% and 46.3% of sales,
respectively. General and administrative expenses were $1.6 million and $2.4
million, depreciation and amortization costs were $1.1 million and $2.3 million,
field and technical expenses were $666,000 and $988,000, and sales and marketing
costs were $340,000 and $947,000, respectively, for such periods. The increases
in the Company's programming charges, general and administrative expenses, field
and technical costs and sales and marketing expenses reflect the Company
expanding the Systems, increasing its number of employees in connection with
such expansion and preparing to introduce Broadband Services.
NET LOSS. For the nine months ended September 30, 1996, the Company
incurred net losses of $1.8 million, and for the nine months ended September 30,
1997, the Company incurred net losses of $3.8 million. The Company expects its
net losses to continue to increase as new Broadband Services are introduced and
as the Company continues to expand its business. See "Risk Factors -- History of
Losses; Expectation of Future Losses and Negative Cash Flows from Operations."
37
<PAGE> 39
YEAR ENDED DECEMBER 31, 1994, FOUR MONTHS ENDED APRIL 30, 1995, EIGHT
MONTHS ENDED DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996
REVENUES. The Company generated revenues of $2.1 million for the year
ended December 31, 1994, $857,000 for the four months ended April 30, 1995, $2.2
million for the eight months ended December 31, 1995, and $5.3 million for the
year ending December 31, 1996. The Company generated subscriber revenues of $2.0
million, $811,000 and $2.0 million and $4.7 million, respectively, and included
approximately $23,000, $7,000, $58,000 and $141,000 for pay-per-view fees,
respectively, for such periods. Miscellaneous revenues for the year ended
December 31, 1994, four months ended April 30, 1995, the eight months ended
December 31, 1995 and the year ended December 31, 1996 were $108,000, $46,000,
$181,000 and $652,000, respectively.
EXPENSES. The Company's operating expenses for the year ended December 31,
1994 were $2.8 million, for the four months ended April 30, 1995 were $959,000,
for the eight months ended December 31, 1995 were $3.3 million and for the year
ended December 31, 1996 were $8.0 million. Programming charges were $1.0
million, $409,000, $1.0 million and $2.5 million, general and administrative
expenses were $588,000, $176,000, $1.0 million and $2.3 million, depreciation
and amortization costs were $768,000, $259,000, $745,000 and $1.6 million, field
and technical expenses were $304,000, $98,000, $417,000 and $878,000, and sales
and marketing costs were $129,000, $17,000, $58,000 and $660,000, respectively,
for such periods.
NET LOSS. For the year ended December 31, 1994, the Company incurred net
losses of $874,000. For the four months ended April 30, 1995, the Company
incurred net losses of $124,000. For the eight months ended December 31, 1995,
the Company incurred net losses of $1.2 million. For the year ended December 31,
1996, the Company incurred net losses of $3.1 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company has required significant capital for operating and investing
activities in the development of its business. For the year ended December 31,
1996 and nine months ended September 30, 1997, the Company invested
approximately $16.4 million and $22.4 million, respectively, in operating and
investing activities. The Company's investing activities for the year ended
December 31, 1996 and the nine months ended September 30, 1997, primarily
consisted of capital expenditures of $14.4 million and $22.0 million,
respectively. The Company's net cash used in operating activities was $2.0
million and $321,000 for the year ended December 31, 1996 and the nine months
ended September 30, 1997, respectively. The Company's funding through September
30, 1997 has been provided primarily by private sales of equity securities
aggregating $29.2 million (not including the Equity Private Placement) and loans
aggregating $24.0 million, including approximately $11.0 million in borrowings
from SCANA and promissory notes aggregating $11.0 million due in 2000 used for
the purchase of the Montgomery and Columbus Systems. As of September 30, 1997,
the Company had negative working capital of approximately $16.2 million,
compared to negative working capital of $3.2 million as of December 31, 1996.
On May 7, 1997, the Company signed a letter of intent with SCANA, whereby
SCANA agreed to provide the Company with a revolving credit facility of up to
$40.0 million. Although definitive documents were not executed, the Company and
SCANA negotiated an interim agreement and note under which the Company has
borrowed $11.0 million as of September 30, 1997 to fund its operations. A
portion of the proceeds from the Equity Private Placement and the Offering have
been used to repay the borrowings from SCANA. See "Use of Proceeds."
On October 22, 1997, the Company received net proceeds of approximately
$242.4 million from the Offering. Interest will not accrue on the Exchange Notes
prior to October 15, 2002. From and after October 15, 2002, the Notes will bear
interest, which will be payable in cash, at a rate of 11 7/8% per annum on April
15 and October 15 of each year, commencing April 15, 2003. See "Description of
the Exchange Notes."
In connection with the Offering, the Company completed the Equity Private
Placement, pursuant to which the Company issued approximately 21,400 additional
shares of Preferred Stock at $1,500 per share for aggregate proceeds of
approximately $32.2 million, of which approximately $28.0 million was purchased
by ITC Holding, Century Telephone, SCANA, South Atlantic and AT&T Venture Funds.
38
<PAGE> 40
The Company has received a commitment letter from First Union for a $50.0
million five-year senior secured credit facility to be used for working capital
and other purposes, including capital expenditures. See "Description of Certain
Indebtedness -- New Credit Facility." It is currently contemplated that the
Company's obligations under the New Credit Facility will be secured by all
current and future assets of the Company. The New Credit Facility will require
the Company to maintain certain financial ratios. See "Description of Certain
Indebtedness -- New Credit Facility." The failure of the Company to maintain
such ratios would constitute an event of default under the New Credit Facility,
notwithstanding the ability of the Company to meet its debt service obligations.
An event of default under the New Credit Facility would allow the lenders
thereunder to accelerate the maturity of the indebtedness under the New Credit
Facility. In such event, a significant portion of the Company's other
indebtedness, including the Notes, may become immediately due and payable.
The Company's business requires substantial investment to finance capital
expenditures and related expenses to expand the Interactive Broadband Networks
in Montgomery and Columbus, to construct additional Interactive Broadband
Networks, to fund subscriber equipment, to fund operating deficits in new
systems until it builds its customer base and to maintain the quality of its
networks. The Company currently expects to spend at least $36.0 million in the
fourth quarter of 1997 and through 1998 to expand and upgrade the Montgomery and
Columbus networks. In addition, the Company estimates the cost of constructing
networks in additional cities and funding initial subscriber equipment at
approximately $35 million to $50 million per city (including, in the case of the
Panama City System, the cost of acquiring the Beach Cable System). Actual costs
may vary significantly from this range and will depend in part on the number of
miles of network to be constructed, the geographic and demographic
characteristics of the city, other factors affecting construction costs, costs
associated with the cable franchise in each city, the number of subscribers, the
mix of services purchased, the cost of subscriber equipment paid for or financed
by the Company and other factors. Although there can be no assurance, the
Company believes that the proceeds from the Offering and the Equity Private
Placement and amounts expected to be available under the New Credit Facility,
will provide sufficient funds to expand the Systems as currently planned and
fund the expansion into Panama City Beach/Panama City, Charleston and Augusta.
There can be no assurance the Company will consummate the acquisition of the
Beach Cable System. The Company may need to seek additional financing in the
event the New Credit Facility is not entered into or actual costs vary. In
addition, the Company will need additional financing to expand into additional
cities for new business activities or in the event it decides to make additional
acquisitions. See "Risk Factors -- Significant Capital Requirements."
EFFECTS OF ACCOUNTING STANDARDS
In October 1995, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock Based Compensation, which is
effective for awards after January 1, 1996. The Company has elected to continue
to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its employee
stock based award programs. See note 7 to the Company's Consolidated Financial
Statements included elsewhere in this Prospectus.
SFAS No. 128, Earnings Per Share, issued by the Financial Accounting
Standards Board, sets out new guidelines for the calculation and presentation of
earnings per share. The Company does not anticipate that the adoption of the
statement will materially impact its earnings per share calculation.
IMPACT OF INFLATION
The Company believes that inflation has not had a material effect on the
results of operations to date.
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BUSINESS
GENERAL
KNOLOGY offers residential and business customers Broadband Services,
including cable television, telephone and high-speed Internet access service.
The Company provides these Broadband Services using high-capacity hybrid
fiber-coaxial networks that are two-way interactive. The Company operates
Interactive Broadband Networks in two cities, Montgomery, Alabama and Columbus,
Georgia, and plans to expand to additional mid-sized cities in the southeastern
United States. KNOLOGY has been providing cable television service since 1995
and commenced providing telephone and high-speed Internet access service in July
1997. The Company believes its ability to provide numerous services over the
same network and to bundle the services at an attractive price, coupled with its
emphasis on customer service, provides it with a competitive advantage.
KNOLOGY commenced providing cable television service by acquiring cable
television systems in Montgomery and Columbus and using those systems as a base
for constructing new Interactive Broadband Networks. Since acquiring the
Montgomery System in April 1995, the Company has extended the Montgomery network
from approximately 275 miles and 8,252 subscribers to approximately 575 miles
with 18,267 subscribers and 52,138 homes passed as of September 30, 1997. Since
its acquisition of the Columbus System in September 1995, the Company has
extended the Columbus network from approximately 180 miles and 5,109 subscribers
to approximately 434 miles with 11,741 subscribers and 38,620 homes passed as of
September 30, 1997. The Company's penetration rates (the ratio of the number of
subscribers to homes passed) were 35.0% and 30.4% in Montgomery and Columbus,
respectively, as of September 30, 1997. The Company believes that its ability to
increase and maintain its subscribers has been due largely to its commitment to
customer service, the greater number of channels and the greater reliability and
quality of the picture and sound offered by the Company over its Interactive
Broadband Networks compared to the more traditional cable networks operated by
the Company's competitors. The Company expects the number of its cable
television subscribers to continue to increase as it expands its Systems in
Montgomery and Columbus, focuses on marketing to multiple dwelling units,
increases the number of Broadband Services offered and introduces its
OLOVision(R) digital video service, which will use compression technology to
significantly increase the number of television channels.
KNOLOGY commercially launched its high-speed OLOBahn(R) Internet access
service (using cable modems) and its OLOTel(R) local and long distance telephone
services in July 1997. These services are presently offered in Montgomery. In
Columbus, high-speed Internet access service was introduced in September 1997
and telephone service was introduced in the fourth quarter of 1997. While the
Company expects its subscribers for cable television (which are primarily
residential) to serve as the Company's initial customer base for its telephone
and Internet services, the Company has begun to target small- and medium-sized
businesses using a bundled offering emphasizing telephone and Internet access
services. KNOLOGY offers its OLOTel(R) services using its Interactive Broadband
Networks and interconnections with BellSouth under a nine-state interconnection
agreement, and it resells long distance service to customers in Montgomery to
provide telephone service outside the reach of the Company's networks. In
addition, the Company also offers long distance access services over its
Interactive Broadband Networks to long distance carriers.
The Company believes that its Interactive Broadband Networks could in the
future enable it to provide additional Broadband Services, including (i)
interactive energy management services (in partnership with power companies),
which involve monitoring by the customer of energy usage and cost; (ii) security
services, including closed-circuit television security monitoring and alarm
systems; (iii) high-speed data transmission connecting homes and offices
("extranets"); and (iv) wholesale transport and interconnection ("local loop")
services to connect long distance carriers to their customers. The Company
expects to commence trials of certain of these services in 1998.
The Company intends to expand to additional mid-sized cities in the
southeastern United States. In December 1997, the Company acquired the Beach
Cable System for approximately $3.9 million in cash and 2,485 shares of
Preferred Stock valued at approximately $3.7 million, subject to adjustment. The
Company intends to apply for a cable franchise in the adjacent Panama City. The
Beach Cable System, which currently
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passes approximately 10,500 homes, consists of a new cable television network
which the Company believes can be adapted for delivery of Broadband Services.
The Company plans to start construction of an Interactive Broadband Network that
would significantly expand the Beach Cable System into Panama City. See
"-- Markets and Subscribers -- New Markets." The Company has applied for cable
franchises in Charleston, South Carolina and Augusta, Georgia, and intends to
apply for additional franchises in other cities.
BROADBAND SERVICES STRATEGY
The Company has developed the following strategy for the implementation and
operation of its Broadband Services business.
BUILD RELIABLE INTERACTIVE BROADBAND NETWORKS. By constructing and
operating its own Interactive Broadband Networks, the Company provides its
residential and business customers with access to high-quality networks capable
of supporting a wide range of Broadband Services. The Company's networks contain
extra, unused capacity that will be available for planned and future Broadband
Services, and such capacity has been designed to be expanded later if warranted
by customer demand. The Company believes that this will provide a competitive
advantage over cable, telephone and wireless systems that do not have the
capability to provide a wide range of broadband services. The Company also
believes that its newly constructed, Interactive Broadband Networks will give it
a quality and reliability advantage over upgraded lower-capacity coaxial cable
systems. KNOLOGY's Interactive Broadband Networks utilize a 750 MHz signal
(designed to allow for upgrade to 1,000 MHz) and are protected by redundant
paths for communications segments, including a SONET ring connecting hubs for
restoration and security purposes. By comparison, most traditional cable
television systems utilize 450 MHz to 550 MHz signals and do not have
significant redundancy protection. The Company uses a specially designed
powering system which is backed up at each hub site by a generator and UPS to
allow service to continue in case of a power outage. The Interactive Broadband
Networks are monitored 24-hours per day, seven days per week, at KNOLOGY's
network operations center.
PROVIDE BUNDLED OFFERINGS. The Company believes that by bundling Broadband
Services it can distinguish itself from the competition. The Company believes
that savings on a bundle of services and the advantages of one-stop shopping
(including a single point of purchase and one relationship to manage all
services included in the bundle) will be attractive to new customers,
particularly since most of its prospective customers presently buy services from
multiple sources. The Company also believes that because of the cost savings
associated with purchasing a bundle of services from the Company, customers will
be less likely to switch should competitors offer lower prices on individual
services. The ability to realize an overall return on a bundle of services
should give the Company greater pricing flexibility.
BE FIRST TO MARKET WITH MULTIPLE BROADBAND SERVICES. The Company believes
that it is or will be the first provider of a bundled video, voice and data
Broadband Services package in Montgomery and Columbus and intends to be first to
market a bundled video, voice and data Broadband Services package in each of the
cities in which it proposes to construct and operate Interactive Broadband
Networks. KNOLOGY seeks to capitalize on its position as a new communications
company that brings competition and choice to cities where it provides service.
The Company believes that a large number of companies may seek to provide
multiple Broadband Services over the next several years, and that market share
earned by the early entrants will create financial barriers to entry in the
Company's target markets. Since constructing Broadband Services networks
requires a large capital investment, the Company expects that later entrants
will have greater difficulty in demonstrating economic returns that support such
an investment. In addition, constructing networks uses space on various rights
of way, which may be limited or more expensive for later entrants.
EXPAND TO ADDITIONAL MARKETS. The Company intends to expand to additional
mid-sized cities in the southeastern United States. The Company intends to
target cities (1) that have a geographic density such that network plant can be
constructed to pass an average of 70 homes per mile, (2) that generally have
populations of at least 100,000 and (3) in which the Company believes it can
capture a substantial portion of the cable television customers and can be the
leading provider of Broadband Services. The Company believes that such cities
will support a Broadband Services business and that most of the large cable
companies and other service providers currently are focusing primarily on major
metropolitan areas.
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FOCUS ON THE CUSTOMER. Customer service is an essential element of the
Company's operations. The Company believes the quality and responsiveness of its
customer service differentiates it from its competitors. Customer service
representatives in each market handle customer-related functions such as order
taking, customer activations, billing inquiries and collections and service
upgrades and administer the Company's customer satisfaction program. Under its
customer satisfaction program, the Company follows up with new customers
regarding satisfaction with the service, and uses installation customer surveys,
market research and focus groups to improve its service and marketing. In
addition, the Company provides 24-hour customer service, operates customer phone
centers in each of the Company's service areas, and is building a back-up
customer phone center in West Point, Georgia. The Company monitors its networks
24 hours a day, seven days a week and strives to resolve problems prior to the
customer being aware of any service interruptions.
PURSUE STRATEGIC RELATIONSHIPS WITH OTHER SERVICE PROVIDERS. KNOLOGY
offers certain of its Broadband Services in conjunction with or through
strategic partners. KNOLOGY was founded in 1995 by ITC Holding, which holds
significant interests in a variety of communications companies, including
Interstate Telephone Company, an independent local exchange carrier serving
communities in western Georgia and eastern Alabama for over 100 years, and
MindSpring, a large Internet service provider and which until October 1997
included ITC/\DeltaCom, a provider of retail long distance services to mid-sized
and major regional businesses using ITC/\DeltaCom's own fiber optic network in
the southern United States (now owned by ITC Holding's stockholders). The
Company uses ITC/\DeltaCom's fiber optic network to provide long distance
service as part of the Company's bundle of Broadband Services, uses a direct
link to the Internet procured through ITC/\DeltaCom and jointly operates a
network operations center with ITC/\DeltaCom in West Point, Georgia. Interstate
Telephone Company provides the Company with telephone billing and switching
services, and MindSpring provides the Company with Internet content and back-up
customer service on computer-related customer inquiries. Strategic partners also
include SCANA, which is supporting the Company's entrance into Charleston,
providing assistance in areas including government relations, franchise
approval, marketing efforts and access to sites for its equipment, which is an
important part of network construction.
INDUSTRY STRUCTURE AND TECHNOLOGY
GENERAL
As a result of the passage of the 1996 Telecom Act, cable television
companies are permitted to provide telephone service and vice versa, local
telephone companies are permitted to provide long distance service and vice
versa, and all are permitted to provide numerous ancillary services.
Municipalities are required to grant cable television franchises to qualified
applicants. This change in the regulatory landscape, along with the substantial
growth in use of the Internet, has led, and is generally expected to continue to
lead, to a rush by communications companies and other companies (such as power
companies) to provide a full range of voice, video and data communications
services to consumers. Most of this activity has occurred through cross
investment in other technologies, rather than the expansion of one technology to
provide multiple services, except in isolated cases (such as cable television
companies offering cable modem services).
The Company believes that for the next several years its competitors will
continue to offer individual services, such as telephone and cable television,
in the Company's service areas. Compared to the individual services offered by
its competitors, the Company believes that its bundled service offerings are
more attractive to consumers. Although the process of building broadband
networks and expanding to other services has begun, the Company believes that
most of the large cable companies and other service providers currently are
focusing primarily on major metropolitan areas and that by being among the first
providers of a wide range of Broadband Services in its targeted markets the
Company will have a competitive advantage. See " -- Broadband Services
Strategy."
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COMMUNICATIONS TECHNOLOGIES AND SERVICES
Set forth below is a brief description of the current communications
industry structure and the technology generally used by each system (although
numerous variations exist, and some systems combine a variety of technologies),
including certain hurdles each set of providers faces in offering new services.
CABLE TELEVISION. Cable television systems generally consist of coaxial
cable (which carries signals via radio frequency) and/or fiber optic cable
(which carries signals via light waves generated by a laser) that runs along
aerial or underground rights of way past the homes in a service area, connecting
to each house individually through a cable connection box located outside of the
house. Subscriber homes have internal wiring running from the cable connection
box to one or more boxes or "jacks" into which television sets and set-top
terminals (which are used for special services, descrambling, "pay-per-view" and
other features) may be connected. Coaxial cable networks have numerous
amplifiers located along the network to restore the strength of the signal,
which is diminished as it travels. The use of amplifiers produces interference
or noise which will cause the signal to degrade as the number of amplifiers
increases. Networks which are primarily fiber optic do not use amplifiers in the
fiber optic portion of the network. Fiber optic networks use larger lasers to
send signals further from the headend. The number of channels or features that a
cable system can offer is limited by the capacity of the cable network and the
electronic equipment which compresses and amplifies the signal. Additional
equipment may compensate for a lower capacity network, but too much equipment
results in noise or interference, leading to a lower quality signal.
Many traditional cable companies have sought to compete by increasing
capacity through the use of additional equipment, and customers have experienced
increased interference. Most cable television systems generally use one way (non
interactive) cable, and accordingly do not have the ability to provide telephone
service which requires use of a two-way interactive cable. Several cable
companies, including large cable companies, are beginning to offer high-speed
data transmission and have announced plans to offer Internet access using cable
modems. However, such service generally cannot deliver high-speed performance
until the cable system infrastructure has been upgraded to increase capacity and
add two-way interactivity.
WIRELESS CABLE. Wireless cable or multichannel multipoint distribution
service technology allows the transmission of television programming, including
high speed computer data, high definition television and facsimile
transmissions, via microwave frequencies from a single location. Wireless cable
was designed to serve primarily rural areas where laying traditional coaxial
cable is not economically feasible. The wireless cable system's signal is sent
from a centrally located facility equipped with transmitters, antennas,
satellite dishes and scrambling and descrambling equipment, and is received by
subscribers with rooftop antennas and the necessary converters. Because wireless
cable signals are sent via microwaves, they require line-of-sight transmission
from the central source to the subscribers. Obstructions such as large buildings
and trees or uneven terrain can interfere with reception, although repeaters
that aid in reaching subscribers in certain obstructed areas are being developed
to alleviate these shortcomings. As a result, the Company believes that at
present this technology is not well suited to providing Broadband Services in
urban areas such as those targeted by the Company.
DTH, DBS AND OTHER SATELLITE TECHNOLOGIES. Direct-to-home satellite
television ("DTH") companies provide the satellite transmission of television
products and services. As part of the programming package, DTH companies
generally include hardware and software for the reception and decryption of
satellite television programming. The majority of DTH programming is transmitted
on C-band radio frequency, which typically requires dish sizes ranging from six
to twelve feet in diameter, depending upon the geographic location of the
subscriber. In 1982, the FCC allocated spectrum within the Ku-band for DBS
systems. The Ku-band historically has allowed for higher power transmission than
C-band, enabling recipients to receive Ku-band signals using smaller satellite
dishes (ranging in size from 15 to 18 inches in diameter). DBS systems generally
offer more channels (often over 100 channels in all) than cable systems,
although DBS providers usually do not offer local programming. Unlike cable
television, DBS and DTH do not require ground construction to install, maintain
or upgrade services. Rather, the programming is transmitted from a ground
station to the subscriber via a communications satellite. These systems require
the subscriber to purchase or
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lease a satellite dish to receive signals and a receiver system to process and
descramble signals for television viewing.
The small satellite dishes available at present are not two-way
interactive, and therefore not suitable for telephone or Internet services,
although businesses that can afford to do so purchase larger dishes with two-way
interactivity can receive each of the Broadband Services. Residential systems
have been designed using telephone lines to transmit to the Internet and
satellite transmission for reception from the Internet, which typically involves
much greater quantities of data. This approach still is subject to dial-up
delays, but has many of the same advantages over two-way telephone
communications as Broadband Services. However, satellite transmission may cause
an echo during voice transmissions due to the long distance to and from the
satellite.
WIRELINE TELEPHONY. Local wireline telephone systems consist of a network
of switches, transmission facilities between switches, and the "local loop"
connections between customer premises and the nearest local exchange switch. A
call initiated by a customer can be routed by the local exchange switch either
directly to the called party, if that party is served by the same switch, to
another local or toll switch for delivery to the called party, or through one or
more switches to the POP of a long distance carrier that transmits the call to a
more distant local switch for ultimate delivery to the called party. The
transmission facilities connecting switches are comprised primarily of very high
capacity fiber optic cables. However, local loops generally consist of twisted
copper wire pairs that run along aerial or underground rights-of-way to each of
the premises served. These local loops generally carry analog transmissions and
have relatively low transmission capacity, sufficient to carry only one two-way
voice conversation. Local loop capacity can be expanded somewhat by using
advanced techniques such as ISDN, which permits voice and data transmissions to
occur simultaneously and can support some level of video teleconferencing.
However, ISDN currently is not available in all areas.
Local loops (even with ISDN) generally do not have sufficient capacity for
large scale provision of video services. Telephone service is the most common
way of communicating with the Internet, but telephone lines do not have enough
capacity for rapid downloading of large volumes of data (such as graphics),
leading many Internet users to experience delays and ISPs to experience
overloading of their circuits.
WIRELESS TELEPHONY (CELLULAR AND PCS). Wireless telephone technology is
based upon the division of a given market area into a number of smaller
geographic areas, or "cells." Each cell has "base stations" or "cell sites,"
which are physical locations equipped with transmitter-receivers and other
equipment that communicate by radio signal with cellular telephones located
within range of the cell. Cells generally have an operating range from two to 25
miles. Each cell site is connected to a mobile telephone switching office
("MTSO"), which, in turn, is connected to the local landline telephone network.
When a subscriber in a particular cell dials a number, the cellular telephone
sends the call by radio signal to the cell's transmitter-receiver, which then
sends it to the MTSO. The MTSO then completes the call by connecting it with the
landline telephone network or another cellular telephone unit. Incoming calls
are received by the MTSO, which instructs the appropriate cell to complete the
communications link by radio signal between the cell's transmitter-receiver and
the cellular telephone. Like wireline local loops, wireless telephony
technologies generally do not have sufficient capacity for large scale provision
of video and data services.
INTERNET ACCESS. Most Internet access takes place over telephone lines
using computer modems. This form of transmission works well for smaller amounts
of data, but telephone lines generally are not capable of handling large volumes
of information, multimedia applications or high-speed data transmissions,
resulting in lengthy delays. Also, ISPs have limited numbers of ports available
for customers to dial in to the Internet, and their customers may experience
difficulties obtaining access to the Internet or be disconnected if activity is
too limited. A few satellite companies provide broadband access to the Internet
from desktop PCs using a small dish antenna and receiver kit comparable to that
used for satellite television reception, although such systems generally provide
only one-way satellite transmission, requiring communications in the other
direction to be over telephone lines. High-speed cable modems used over
traditional non-interactive cable networks similarly permit high-speed broadband
reception from the Internet, but require communications from the user to the
Internet to be over telephone lines.
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THE COMPANY'S INTERACTIVE BROADBAND NETWORKS
The Company's Interactive Broadband Networks are high-capacity, two-way
interactive, hybrid fiber-coaxial network with a 750 MHz signal (designed to
allow upgrades to 1,000 MHz). Each network includes hub sites with a minimum of
four fiber pairs running from each hub to nodes, each of which serves an average
of 500 homes. This design incorporates redundant fibers running between hubs for
restoration and security purposes, forming a SONET ring. By comparison, most
traditional cable television systems are 450 MHz to 550 MHz and do not have
significant redundancy protection. The Company provides power to its system from
the hub sites, each of which is equipped with a generator and UPS to allow
service to continue in case of a power outage. For each of the Broadband
Services to be offered, the Company has added electronic equipment at various
hub sites and cards in various electronic housings along the network.
The Company's Interactive Broadband Networks are capable of supporting
numerous channels of basic and premium cable television (including pay-per-view)
services (approximately 78 channels are offered by the Company today, without
digital compression), telephone, Internet access and other Broadband Services.
The Company's Interactive Broadband Networks have been designed with extra
capacity, so that new services can be added as content and technology become
available.
Local telephone service is offered over the Company's Interactive Broadband
Networks in much the same way local phone companies provide service, since the
network structure includes a return path suitable for voice transmission. To
provide local telephone service, the Company provides switching services and
installs a network interface box outside the customer's home, and may, depending
on the location of telephone and cable boxes or "jacks" inside the home, add
inside wiring as well. The Company can offer multiple lines of telephone service
using its Interactive Broadband Networks. The Company's networks are
interconnected with those of other local phone companies through a nine-state
interconnection agreement with BellSouth. The Company provides long distance
service in Montgomery by reselling the services of long distance providers.
High speed Internet access services are provided by the Company using a
high speed cable modem in much the same way customers currently receive Internet
services over a modem linked to the local telephone network. The cable modems
presently being used with the Company's Interactive Broadband Networks are 20
times faster (512.0 kilobits/second for two-way equivalent speed modems and up
to 4,000 kilobits/second for modems that primarily transmit one-way) than 28.8
kilobits/second modems presently used with telephone lines and are of higher
quality. The customer's cable line (with cable modem) is connected directly into
the Internet. Since the cable modem connects through a cable line rather than
through a telephone line, the Internet connection is always active, and there is
no need to dial up for access to the Internet or wait to connect through a port
leased by an ISP.
THE COMPANY'S BROADBAND SERVICES
CABLE TELEVISION. The Company offers its customers three levels of cable
television services: basic, enhanced basic and premium. Enhanced basic service
is the Company's most heavily subscribed service. This service consists of
approximately 64 channels of programming, including television signals available
off-air, a limited number of television signals from so-called "super stations"
(such as WGN (Chicago)), numerous satellite-delivered nonbroadcast channels
(such as Cable News Network, MTV, Entertainment and Sports Programming Network
("ESPN"), The Discovery Channel and Nickelodeon), displays of information
featuring news, weather, stock and financial market reports and public,
government and educational access channels.
Basic service, a more limited version of the Company's enhanced basic
package, is offered on a discounted basis to customers but this service consists
primarily of off-air channels. The Company also offers a variety of premium
services to its customers for an extra monthly charge. Premium services include
various channels that consist of feature motion pictures presented without
commercial interruptions (such as Home Box Office ("HBO"), Showtime and Cinemax)
or other special channels. Customers generally pay fixed monthly fees for cable
programming and premium television services, which constitute the principal
sources of revenue to the Company. Each customer receives one television set-top
terminal for no additional charge but then pays a nominal monthly rental fee for
each additional set-top terminal. The Company also provides its
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customers access to additional channels offering pay-per-view feature movies,
live and taped sports events, concerts and other special features which involve
a charge for each viewing, access to home shopping networks and specialty
services (such as access to the Sega Channel interface, which allows for
downloading of video games). Digital audio service is also available for an
additional monthly subscription fee.
Programming for the Company's cable television systems, each of which
provides a range of 65-75 channels (78 channels including pay-per-view), comes
from over 70 national and local networks, including most major networks such as
ESPN, HBO, Showtime, Disney and CourtTV, and local networks such as local
affiliates of ABC, CBS, NBC and Fox. Since January 1, 1996, the Company's
arrangements with many of these networks, constituting approximately 60% of the
Company's channels, have been handled through the National Cable Television
Cooperative, which obtains programming from most major networks and provides it
to its members. By obtaining programming through the cooperative (for which the
Company has paid a one time membership fee and pays ongoing monthly programming
and administrative fees), the Company benefits from volume discounts not
otherwise available to the Company and which more than offset the fees to the
cooperative. In addition, the cooperative handles the contracting and billing
arrangements for the Company with the networks. The Company also obtains
programming directly from networks such as ESPN and the Disney Channel, which
presently do not deal with the cooperative, and deals directly with a variety of
networks on matters such as support for the Company's promotional efforts.
The Company intends to offer its OLOVision(R) digital video service
beginning in 1998, which uses compression technology to significantly increase
the number of television channels (to over 100 channels). Digital technology
converts numerous analog signals (now used to transmit video and voice) into a
digital format and compresses many such signals into the space normally occupied
by one analog signal. At the home, a set-top video terminal (which would be
provided by the Company for a fee) would convert the digital signal back into
analog channels that can be viewed on a normal television set. These set-top
video terminals are currently available and the Company believes that they will
soon be available at a cost which makes offering this service economically
attractive. The Company intends to add OLOVision(R) as an additional service
without reducing the current number of expanded basic channels. Digital
technology also is expected to permit the Company to offer near video-on-demand
(movies or other programs that commence in frequent intervals, such as every 15
minutes) to customers for a fee per viewing.
TELEPHONY. The Company's OLOTel(R) service includes residential and
business local and long distance telephone services. Local telephone service
includes several bundled packages and additional services similar to those
offered by the RBOCs, including BellSouth. The Company's customers pay a fixed
monthly rate for all local calling. Customers may elect call waiting, call
forwarding, voice mail and other value added services, which generally involve
an additional fixed charge per month per telephone line. The Company generally
prices its services at rates comparable to those of its competitors, although
typically the Company's value-added services are less expensive than those of
its competition. The Company offers all customers of its cable television
services a discount on telephone service. Long distance service offers features
and is priced at levels comparable to those of the Company's competitors. In
addition, the Company also offers long distance access services to long distance
carriers over its Interactive Broadband Network.
The Company may seek to provide local telephone service to long distance
companies who need local connections at the terminating (or possibly
originating) end of long distance traffic, and for wireless telephone companies
that need to connect with wireline providers to terminate calls outside their
cellular or PCS networks.
INTERNET SERVICES. The Company's OLOBahn(R) service offers customers
high-speed connections to the Internet (20 times faster than 28.8
kilobits/second dial-up service) using cable modems. The Internet connection
using a cable modem is always active, so the customers do not have to dial in
and wait for access. Since the customer's service is offered over the coaxial
network in the home, no second phone line is required and there is no disruption
of service when the phone rings or when the television is on. The Company
charges a fixed monthly fee for connection to the Internet and does not offer
different plans based on the amount of interconnection time or quantity of data
received, although the Company does charge a higher rate to customers who desire
higher speeds, which requires more capacity. The Company offers discounts on its
high-
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speed Internet service to customers who also receive the Company's cable
television service or telephone service. The Company offers discounts on and
co-markets MindSpring's on-line services for those customers who want Internet
services through an ISP. The Company also plans to sell high-speed Internet
access service directly to ISPs who wish to resell the service to their
customers.
FUTURE BROADBAND SERVICES. The Company believes that its Interactive
Broadband Networks could in the future enable it to provide additional Broadband
Services, including (i) interactive energy management services (in partnership
with power companies), which involve active monitoring by the customer of energy
usage and cost; (ii) security services, including closed-circuit television
security monitoring and alarm systems; (iii) high-speed data transmission
connecting homes and offices ("extranets"); and (iv) wholesale transport and
interconnection (local loop) services to connect long distance carriers to their
customers. The Company expects to commence trials of certain of these services
in 1998. See "Risk Factors -- Demand for Bundle of Broadband Services is
Uncertain."
Proposed interactive energy management services would involve a utility
sending and receiving consumption and pricing information over the Company's
network to and from customers' homes to enable customers to monitor energy
consumption. Proposed security services are expected to include primary security
monitoring through closed-circuit television and back-up alarm networking.
High-speed data transmission would utilize cable modems for high-speed
connections to offices, suppliers, customers, or others. Initially, such
services would be available only to and from specified groups of users on the
Company's networks. The Company would need to design external networks or
"extranets" for the users to permit the transfer of data within their specified
groups. The Company also plans to offer high-speed transmission and other
computer networking services in conjunction with local computer companies. The
Company may offer wholesale transport and interconnection services to long
distance and other telecommunications companies. It is presently negotiating an
agreement to provide these services to ITC/\DeltaCom for traffic that originates
or terminates in Montgomery and Columbus and other cities where the Company
constructs Interactive Broadband Networks.
MARKETS AND SUBSCRIBERS
CURRENT MARKETS. The Company's Interactive Broadband Networks currently
serve Montgomery, Alabama and Columbus, Georgia.
The Company acquired substantially all of the outstanding stock of
Montgomery Cablevision, one of the two franchisees serving the Montgomery,
Alabama cable television market, in April 1995 (and the remaining stock in
January 1996). At the time the Company acquired the Montgomery System, the
network consisted of approximately 275 miles of 550 MHz coaxial cable. Since
August 1995, the Company has been expanding the Montgomery System with its new
Interactive Broadband Network. The Montgomery System currently consists of
approximately 575 miles and passes approximately 52,138 homes, or about 62.1% of
the homes in the franchise area. The Company intends to continue the buildout of
the Montgomery network to extend approximately 950 miles and pass nearly all of
the homes in its franchise area and expects to complete construction in 1998.
The Company also intends to upgrade the preexisting system in 1998.
The Company acquired the assets of the entity holding one of three
franchises serving the Columbus, Georgia cable television market in September
1995. At the time the Company acquired the Columbus System, the network
consisted of approximately 180 miles of 550 MHz coaxial cable. Since February
1996, the Company has been expanding the Columbus System with its new
Interactive Broadband Network. The Columbus System currently consists of
approximately 430 miles and passes approximately 38,620 homes, or about 64.4% of
the homes in the franchise area. The Company intends to continue the buildout of
the Columbus network to extend approximately 800 miles and pass nearly all of
the homes in its franchise area and expects to complete construction in 1998.
The Company also intends to upgrade the preexisting system in 1998.
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The following table sets forth cable television delivery data with respect
to each of these service areas and the Company's service as of September 30,
1997:
<TABLE>
<CAPTION>
HOMES IN CABLE
CABLE FRANCHISE MILES OF HOMES CABLE PENETRATION CHANNELS
SERVICE AREA HOUSEHOLDS(1) AREA(2) PLANT PASSED SUBSCRIBERS LEVEL(3) OFFERED
- ------------ ------------- --------- -------- ------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Montgomery, AL................. 151,010 84,000 575 52,138 18,267 35.0% 78
Columbus, GA................... 131,250 60,000 434 38,620 11,741 30.4% 78
</TABLE>
- ---------------
(1) Represents cable households in Designated Market Areas as determined by
Nielsen Media Research. Source: Broadcasting and Cable Yearbook 1997, a
Broadcasting(R) and R.R. Bowker(R) Publication.
(2) Represents the total homes in the Company's franchise area. Source: TV and
Cable Factbook, 1997 Edition.
(3) Determined by dividing the applicable number of subscribers by the number of
homes passed. Because the Company does not begin to market its services in
an area until its network has been expanded and the Company typically needs
60 to 90 days once marketing has commenced to build its subscriber base, the
Company's penetration rate is adversely affected during rapid expansion of
the networks.
The Company believes that its ability to increase and maintain its
subscribers has been due largely to its commitment to customer service, the
greater number of channels and the greater reliability and quality of the
picture and sound offered by the Company over its Interactive Broadband Networks
compared to the more traditional cable networks operated by the Company's
competitors.
The Company commercially launched its high-speed OLOBahn(R) Internet access
service (using cable modems) and its OLOTel(R) local telephone, long distance
and long distance access services in July 1997 in Montgomery. In Columbus,
high-speed Internet access service was introduced in September 1997 and
telephone service was introduced in the fourth quarter of 1997. While the
Company expects its subscribers for cable television (which are primarily
residential) to serve as the Company's initial customer base for its telephone
and Internet services, the Company has begun to target small- and medium-sized
businesses using a bundled offering emphasizing telephone and Internet services.
KNOLOGY offers its OLOTel(R) services using its Interactive Broadband Network
and interconnections with BellSouth under a nine-state interconnection
agreement, and it resells long distance service to provide telephone service
outside the reach of the Company's networks. In addition, the Company also
offers long distance access services to long distance carriers over its
Interactive Broadband Networks.
NEW MARKETS. The Company intends to expand to additional mid-sized cities
in the southeastern United States, targeting cities (1) that have a geographic
density such that network plant can be constructed to pass an average of 70
homes per mile, (2) that generally have populations of at least 100,000 and (3)
in which the Company believes it can capture a substantial portion of the cable
television customers and can be the leading provider of Broadband Services. The
Company believes that such cities will support a Broadband Services business,
and that currently most of the large cable companies and other service providers
are focusing primarily on major metropolitan areas. In December 1997, the
Company acquired a cable television system in Panama City Beach, Florida for
approximately $3.9 million in cash and 2,485 shares of Preferred Stock valued at
approximately $3.7 million, subject to adjustment. The Company intends to apply
for a cable franchise in adjacent Panama City. The Beach Cable System, which
currently passes approximately 10,500 homes, consists of a new cable television
network which the Company believes can be adapted for delivery of Broadband
Services. The Company plans to start construction of an Interactive Broadband
Network that would significantly expand the existing Beach Cable System into
Panama City. The Company has applied for cable franchises in Charleston, South
Carolina and Augusta, Georgia, and intends to apply for additional franchises in
other cities. Consummation of this expansion plan is subject to a number of
significant contingencies. See "Risk Factors."
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<PAGE> 50
The table below shows cable data for Panama City, Florida, Charleston,
South Carolina and Augusta, Georgia.
<TABLE>
<CAPTION>
CABLE
CABLE PENETRATION CHANNELS
SERVICE AREA HOUSEHOLDS(1) LEVEL(1) CURRENT CABLE PROVIDERS OFFERED
- ----------------------------------------- ---------- ----------- ----------------------- --------
<S> <C> <C> <C> <C>
Panama City, FL(2)....................... 75,750 67% Comcast Cablevision 62
Charleston, SC........................... 140,300 63% Comcast Cablevision 60
Augusta, GA.............................. 137,820 62% Charter Communications 60
Jones Intercable 60
</TABLE>
- ---------------
(1) Represents cable households in Designated Market Areas as determined by
Nielsen Media Research. Source: Broadcasting and Cable Yearbook 1997, a
Broadcasting(R) and R.R. Bowker(R) Publication.
(2) Does not include Panama City Beach. Jones Spacelink is a cable provider in
Panama City Beach with 36 channels offered.
NETWORK CONSTRUCTION AND OPERATIONS
NETWORK CONSTRUCTION. KNOLOGY uses contractors for the construction of its
Interactive Broadband Networks. The Company serves as the manager of the
construction process, directing and supervising the various construction crews.
The Company has 10 employees dedicated to monitoring and facilitating the
construction of the Company's networks, including a Vice President of Network
Construction and Maintenance who was hired in May 1997. The Company's approach
to construction also reflects its commitment to customer service, as the Company
notifies potential customers before commencing underground construction and
restores any damaged property.
The Company plans to build its networks in new service areas, including
Panama City Beach/Panama City, Charleston and Augusta, over three year periods,
based on the actual miles of network built during 1997 in Montgomery and
Columbus. During 1996 the Company experienced significant difficulty in meeting
its construction schedules, primarily as a result of delays in installation of
the aerial portions of the cable construction in Montgomery, and to a lesser
extent, Columbus. The principal difficulty resulting in such delays arose from
pole change-outs and "make-ready" time and expense requirements. Construction
moratoriums imposed by the telephone and power companies for about six weeks
during the Olympics caused additional delays, particularly in Columbus. In
addition, on three occasions the Mayor of Montgomery requested that the Company
temporarily cease underground construction following complaints. Although the
Company believed that it was performing such construction in an acceptable
manner, the Company voluntarily complied with the Mayor's requests and
reallocated its crews to other locations. The Company believes that during 1997
it has improved its relationships with the divisions of the telephone and power
companies extending make-ready work completions, has substantially improved the
quality of its contractors and has developed methods of working directly with
customers to improve installation. There can be no assurance that the Company
will not experience construction-related difficulties in the future. See "Risk
Factors -- Network Construction Uncertainties."
NETWORK OPERATIONS AND MAINTENANCE. Technicians located in each of the
Company's service areas schedule and perform installations and repairs and
monitor the performance of the Interactive Broadband Networks. KNOLOGY's
Interactive Broadband Networks utilize a 750 MHz signal (designed to allow for
upgrade to 1,000 MHz) and are protected by redundant paths for communications
segments, including a SONET ring connecting hubs for restoration and security
purposes. By comparison, most traditional cable television systems utilize 450
MHz to 550 MHz signals and do not have significant redundancy protection.
KNOLOGY operates a network operations center in West Point, Georgia, and
monitors its networks 24 hours a day, seven days a week and strives to resolve
problems prior to the customer being aware of any service interruptions. The
network operations center monitors network activity, receiving real-time
information regarding network performance, power supply status, and telephony
customer premise equipment activation. The Company's technicians perform
maintenance and repair of the network on an ongoing basis. The Company plans to
maintain the quality of its networks to avoid service interruptions and extend
the networks' operational life.
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<PAGE> 51
FRANCHISES. Cable television systems generally are constructed and
operated under the authority of nonexclusive permits or "franchises" granted by
local and/or state governmental authorities. Franchises typically contain many
conditions, such as time limitations on commencement and completion of system
construction, customer service standards, minimum number of channels and the
provision of free service to schools and certain other public institutions. The
Company believes that the conditions in its franchises in Montgomery and
Columbus are fairly typical. Franchises generally provide for the payment of
fees to the issuing authority ranging from 3% to 5% of revenues from cable
television service. The franchise fees in Montgomery and Columbus each equal 5%
of gross revenues; the Company is presently working with each of such
municipalities on defining the services that are to be included in gross
revenue. Franchises must be renewed periodically. The Columbus franchise must be
renewed in mid-1998, and the Company expects such franchise to be renewed by the
relevant governmental agency. Under the terms of its franchise agreement with
the City of Montgomery, the Company must extend its broadband network to cover
the entire city by August 1999, and must meet progress requirements of
approximately 200 miles of cable per year until completion. The Company expects
to comply with this requirement. Both franchises require the consent of the
franchising authority prior to a transfer of the franchise or a transfer or
change in ownership or operating control of the franchisee. See "Legislation and
Regulation."
INTERCONNECTION. The Company relies on local telephone companies and other
companies to provide communications capacity for the Company's local and long
distance telephone service. The Company obtains access to BellSouth's telephone
network under a nine-state interconnection agreement. The terms of such
interconnection agreement have been approved by the Georgia and Alabama state
public utility commissions. Approvals of other state public utility commissions
will be required in connection with the Company's provision of telephone service
in other states. In addition, the 1996 Telecom Act established certain
requirements and standards for interconnection arrangements, and the Company's
interconnection agreement with BellSouth is based in part on such requirements.
However, these requirements and standards are still being developed and
implemented by the FCC in conjunction with the states through a process of
negotiation and arbitration. To the extent that the standards as implemented are
unfavorable to the Company, the Company's interconnection arrangement with
BellSouth could be adversely affected. One area in which standards could be
unfavorable to the Company is permitted charges for access to BellSouth
facilities. The Company's ability to offer telephony services at competitive
rates depends upon maintaining interconnection and access on competitive terms.
The 1996 Telecom Act creates incentives for local exchange carriers to permit
access to their facilities by denying such carriers the ability to provide long
distance services until there is the specified amount of competition at the
local level. BellSouth is not yet permitted to offer long distance services.
There can be no assurance that BellSouth or other local exchange carriers will
not be less accommodating to the Company once they are permitted to offer long
distance service. The interconnection agreement expires in April 1999 and there
can be no assurance that it will be renewed on favorable terms, or at all. See
"Risk Factors -- Dependence on Interconnections" and "Legislation and
Regulation -- Federal Regulation of Telecommunications Services."
ARRANGEMENTS WITH ACSI. The Company has arrangements with a subsidiary of
American Communication Services, Inc. ("ACSI") that have helped fund the cost of
constructing portions of the Interactive Broadband Networks in Montgomery and
Columbus. Under these arrangements, the Company has installed additional fiber
optic cable for ACSI next to the Company's new fiber optic cable. ACSI pays an
ongoing royalty fee, one-half of certain costs incurred in connection with
restoration service following outages and of variable and recurring costs
relating to the ACSI portion of the network, and an annual maintenance fee based
on the pro-rated costs of constructing the network. ACSI is expected to use its
fiber for competitive access services for businesses, which would connect
customers directly to the POPs of long distance telephone companies. The Company
has agreed that, to the extent the Company provides long distance service to
certain customers, dedicated access from its POP to any interexchange carriers
other than ITC/\DeltaCom must be carried on ACSI's fiber, subject to certain
most favored customer terms and conditions. The Company presently does not
intend to use interexchange carriers other than ITC/\DeltaCom, and therefore
does not expect the requirement to use ACSI fiber to have a significant impact
on the Company. However, there can be no assurance that the Company will not
seek to use other carriers in the future.
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<PAGE> 52
SALES AND MARKETING
MARKETING STRATEGY. The Company believes that it is or will be the first
provider of a bundled video, voice and data Broadband Services package in
Montgomery and Columbus and intends to be first to market a bundled video, voice
and data Broadband Services package in each of the cities in which it proposes
to construct and operate Interactive Broadband Networks. KNOLOGY seeks to
capitalize on its position as a new communications company that brings
competition and choice to cities where it provides service. The Company's
marketing strategy since commencing construction of its Interactive Broadband
Networks has been to focus on attracting new cable television subscribers in
areas to which its network has expanded. The Company plans to dedicate
additional marketing resources to pursuing new customers in areas already served
by the network to increase its penetration rate once its networks are fully
constructed. In particular, the Company expects to focus its marketing efforts
on multiple dwelling units, many of which are subject to exclusivity
arrangements with other cable providers that have not yet expired or which
involve more complex arrangements with the property owner.
The Company plans to use the availability of its bundle of Broadband
Services to pursue potential customers in existing service areas who did not
purchase the Company's cable television service. Marketing of telephone service
and high-speed Internet access service commenced in July 1997 in Montgomery. In
Columbus, high-speed Internet access service was introduced in September 1997
and telephone service was introduced in the fourth quarter of 1997. While the
Company expects its subscribers for cable television (which are primarily
residential) to serve as the Company's initial customer base for its telephone
and Internet services, the Company has begun to target small- and medium-sized
businesses using a bundled offering emphasizing telephone and Internet access
services. In marketing its bundle of services, the Company offers savings on one
or more of such services. The Company believes that cost savings on a bundle of
services and the advantages of one-stop shopping (including a single point of
purchase and one relationship to manage all services included in the bundle)
will be attractive to new customers, particularly since most of its prospective
customers presently buy services from multiple sources.
CABLE TELEVISION SALES AND MARKETING. To attract cable television
subscribers in newly served areas, the Company mounts extensive marketing
campaigns in such areas prior to initiation of service by means of door-to-door
solicitations and flyers ("door hangers"), with direct mail and telemarketing to
follow up on the door-to-door solicitation. The Company has a sales staff in
each of its markets, including a sales manager, approximately 8 to 10 sales
representatives and 10 to 12 customer service representatives in each market.
The Company also uses its own installation and repair crews and those of outside
contractors to get the new service installed quickly. The Company's goal in
newly served areas is to achieve a 30% to 35% penetration rate within 60 to 90
days after commencing service. The Company's sales representatives receive
commissions based on the value created by each sale, and accordingly are
encouraged to focus on sales of premium services and enhanced basic service.
The Company also uses these solicitation efforts to market its cable
services in its existing areas to obtain customers who previously have not
received any cable service or to switch to the Company's service from that of
the competing franchise holder. The Company also provides technical and
engineering support and training of sales and service representatives from its
headquarters in West Point, Georgia.
TELEPHONE AND INTERNET SALES AND MARKETING. The Company's initial
marketing of its telephone and Internet Broadband Services has focused on
subscribers for the Company's cable television services through direct mail,
including placing promotional inserts in its billing materials, door-to-door
solicitations, door hangers and telemarketing. Customers of the Company's cable
television services are offered discounted rates for telephone service and
high-speed Internet services. The Company emphasizes a bundle of Broadband
Services that includes savings on one or more services as additional services
are added. The Company is exploring having ISPs serve as customer-resellers or
distributors for the Company. The Company has sales managers for telephone and
Internet services, and sales representatives focusing on Broadband Services.
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<PAGE> 53
CUSTOMER SERVICE
Customer service is an essential element of the Company's operations and
marketing, and the Company believes the quality and responsiveness of its
customer service differentiates it from its competitors. A significant number of
the Company's employees are dedicated to customer service activities, including
order taking, customer activations, billing inquiries and collections, service
upgrades and provision of customer premises equipment, and administration of the
Company's customer satisfaction program. Under its customer satisfaction
program, the Company follows up with new customers regarding satisfaction with
the service, and uses installation customer surveys, market research and focus
groups to improve its service and marketing. In addition, the Company provides
24-hour customer service, operates customer phone centers in each of the
Company's service areas, and is building a back-up customer phone center in West
Point, Georgia. The Company's commitment to customer service is also reflected
in its approach to construction, where the Company notifies potential customers
before commencing underground construction and restores any damaged property.
The Company monitors its networks 24 hours a day, seven days a week and strives
to resolve problems prior to the customer being aware of any service
interruptions.
COMPETITION
TELEVISION
Cable television competes for customers in local markets with other
providers of television services and other providers of entertainment, news and
information. The competitors in these markets include broadcast television and
radio, satellite and wireless video distribution systems and directly
competitive cable television operations, newspapers, magazines and other printed
sources of information and entertainment. The enactment of the 1996 Telecom Act
may initiate more competition with cable television, because it allows local
exchange carriers to provide video services in their local service areas, in
direct competition with local cable companies.
OTHER CABLE SYSTEMS. There are directly competitive cable television
operations in each of Montgomery and Columbus, and are expected to be
competitive cable television providers in the cities in which the Company would
construct Interactive Broadband Networks. In addition, Federal law prohibits
cities from granting exclusive cable franchises and from unreasonably refusing
to grant additional, competitive franchises, so additional cable television
competitors could obtain franchises in the future. An increasing number of
cities are exploring the feasibility of owning their own cable systems in a
manner similar to city-provided utility services.
Montgomery. The Company's direct competitor for cable television
subscribers in Montgomery is TCI, which is the largest provider of cable
television services in the United States. TCI operates a network consisting of
approximately 1,000 miles of 450 MHz coaxial cable with a fiber optic
"backbone," passing approximately 70,000 homes. The Company believes that TCI's
facility is not interactive and presently does not have the capability to
provide telephone or other Broadband Services. At present, TCI is competing
aggressively on price to maintain or increase its market share.
Columbus. The holders of the franchises serving the Columbus, Georgia
market are (1) TCI, which operates a network that serves approximately 32,300
homes, and (2) Charter, a large, multiple systems operator based in St. Louis,
Missouri, which operates a network that serves approximately 28,000 homes. Under
the terms of the relevant franchises, both other companies may overbuild to
compete with the other providers (including the Company) throughout the entire
city. The Company believes that TCI's and Charter's facilities are not
interactive, and that neither presently has the capability to provide telephone
or other Broadband Services. At present, TCI and Charter are competing
aggressively on price to maintain or increase their market shares.
OTHER TELEVISION PROVIDERS. There are alternative methods of distributing
the same or similar video programming offered by cable television systems,
although cable television systems currently account for a substantial percentage
of total subscribership to multichannel video programming distributors
("MVPDs"). Further, these technologies have been encouraged by Congress and the
FCC to offer services in direct
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competition with existing cable systems. In addition to broadcast television
stations, the Company competes in a variety of areas with other multichannel
programming service providers on a direct over-the-air basis. Multichannel
programming services are distributed by communications satellites directly to
HSDs serving residences, private businesses and various nonprofit organizations.
Cable programmers have developed marketing efforts directed to HSD owners.
A more significant competitive impact is expected from medium power and
higher power communications DBS satellites that transmit signals that can be
received by dish antennas much smaller in size. DirecTV, a subsidiary of GM
Hughes Electronics, and United States Satellite Broadcasting Company, a
subsidiary of Hubbard Broadcasting, began offering multichannel programming
services in 1994 via high-power communications satellites that require a dish
antenna of only approximately 18 inches. Other DBS providers include PrimeStar
and EchoStar. Although DBS providers presently serve a relatively small
percentage of pay television subscribers at this time, their share has been
growing steadily. Competition from both medium and high power DBS services could
become substantial as developments in technology continue to increase satellite
transmitter power and decrease the cost and size of equipment needed to receive
these transmissions; however, the Company believes that equipment and
programming costs presently are limiting DBS's market share in cabled areas.
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
subscribers receiving satellite transmissions; that DBS is not currently subject
to local regulation of service 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 subscribers. 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; and intermittent
interference from atmospheric conditions and terrestrially generated radio
frequency noise. The long term effect of competition from these services cannot
be predicted; however, the Company nonetheless believes that such competition
could be substantial in the near future.
Multichannel multipoint distribution systems ("MMDS") represent another
type of video distribution service. MMDS systems deliver programming services
over microwave channels received by subscribers with a special antenna. 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. Although there are relatively few MMDS systems in the
United States that are currently in operation or under construction, many
markets have been licensed or tentatively licensed. The FCC has taken a series
of actions intended to facilitate the development of these "wireless cable
systems" as 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 channels, and thus compete more effectively with cable television.
Developments in compression technology have significantly increased the number
of channels that can be made available from other over-the-air technologies.
Subscribership to MMDS services is projected to continue to increase over the
next several years.
The Company also competes with master antenna television ("MATV") systems
and satellite master antenna television ("SMATV") systems, which provide
multichannel program services directly to hotel, motel, apartment, condominium
and similar multiunit complexes within a cable television system's franchise
area, generally free of any regulation by state and local governmental
authorities. The 1996 Telecom Act changes the definition of a "cable system" to
include only systems that cross public rights-of-way. Therefore, SMATV systems
that serve buildings that are not commonly owned or managed, but which do not
cross public rights-of-way, are no longer considered cable systems and no longer
require a franchise to operate.
Prior to enactment of the 1996 Telecom Act, local exchange carriers
("LECs") were prohibited from offering video programming directly to subscribers
in their telephone service areas (except in limited circumstances in rural
areas). The 1996 Telecom Act eliminated restrictions on LECs and the Company may
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face increased competition from local telephone companies which, in most cases,
have greater financial resources than the Company. Several major LECs, including
BellSouth, have announced plans to acquire cable television systems or provide
video services to the home through fiber optic technology.
The 1996 Telecom Act provides LECs with four options for providing video
programming directly to customers in their local exchange areas. Telephone
companies may provide video programming by radio-based systems, common carrier
systems, "open video" systems, or "cable systems." LECs that elect to provide
service via "open video" systems must allow others to use up to two-thirds of
their activated channel capacity. They will be relieved of regulation as "common
carriers," and are not required to obtain local franchises, but are still
subject to many other regulations applicable to cable systems. LECs operating as
"cable systems" are subject to all rules governing cable systems, including
franchising requirements. It is unclear which model LECs will ultimately choose,
but the video distribution services developed by local telephone companies are
likely to represent a direct competitive threat to the Company.
The ability of local telephone companies to compete with the Company by
acquiring an existing cable system however, is limited. The 1996 Telecom Act
prohibits a LEC or its affiliate from acquiring more than a 10% financial or
management interest in any cable operator providing cable service in its
telephone service area. It further prohibits a cable operator or its affiliate
from acquiring more than a 10% financial or management interest in any LEC
providing telephone exchange service in its franchise area. A LEC and cable
operator that have a telephone service area and cable franchise area in the same
market may not enter into a joint venture to provide telecommunications services
or video programming. There are exceptions to these limitations for rural
facilities, very small cable systems, and small LECs in non-urban areas.
TELEPHONE
The Company is likely to face intense competition in providing local and
long distance telephone and other broadband telecommunications services. The
1996 Telecom Act is expected to have a substantial impact on the degree of
competition because it permits providers to enter markets that were previously
closed to them. Specifically, the 1996 Telecom Act pre-empts state policies that
have historically protected LECs from significant competition in local service
markets. In addition, the 1996 Telecom Act supersedes the antitrust consent
decree that prohibited the RBOCs from providing long distance services, and
establishes the terms and conditions under which RBOC entry into the long
distance market will be permitted. The overall effect of these provisions is to
blur the distinctions that previously existed between local and long distance
services.
One major impact of the 1996 Telecom Act may be a trend toward the use and
acceptance of bundled service packages, consisting of local and long distance
telephony, combined with other elements such as cable television and wireless
telecommunications service. As a result, the Company will be competing with the
incumbent LEC, BellSouth, with traditional providers of long distance services
such as AT&T, MCI, Sprint and WorldCom, and with competitive local service
providers, and may face competition from other providers of cable television
service, such as TCI. The Company also may compete with ACSI or a successor to
ACSI's facilities in Montgomery or Columbus. The Company's ability to compete
successfully will depend on the attributes of the overall bundle of services the
Company is able to offer, including price, features, and customer service.
Presently, the RBOCs' networks are the only route to the vast majority of
customers.
Wireless telephone service (cellular and PCS) now is generally viewed by
consumers as a supplement to, not a replacement for, wireline telephone service.
In particular, wireless service is more expensive than wireline local service
and is generally priced on a usage-sensitive basis. In addition, the
transmission quality of wireless service is not comparable to wireline service.
However, it is possible that in the future the rate and quality differential
between wireless and wireline service will decrease, leading to more direct
competition between providers of these two types of services. In that event, the
Company's telecommunications operations may also face competition from wireless
operators.
INTERNET SERVICES
Internet service is provided by ISPs, which provide both Internet access
and on-line services, providers of satellite-based Internet services, long
distance carriers that offer Internet access services, and other cable
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<PAGE> 56
television companies offering Internet access services. The Company principally
provides Internet access service. At present, the Company is bundling its
high-speed Internet service with MindSpring's on-line "content" service, as well
as offering high-speed capacity to all other ISPs for their customer bases.
A large number of companies provide businesses and individuals with direct
access to the Internet and a variety of supporting services. In addition, many
companies (such as America Online, CompuServe, MSN, Prodigy and WebTV) offer
"online" services consisting of access to closed, proprietary information
networks with services similar to those available on the Internet, in addition
to direct access to the Internet. Such companies generally offer Internet
services over telephone lines using computer modems. The Company believes that
this form of transmission works well for smaller amounts of data, but telephone
lines generally are not capable of handling large volumes of information,
multimedia applications or high-speed data transmissions, resulting in lengthy
delays. Also, ISPs have limited numbers of ports available for customers to dial
in to the Internet, and their customers may experience difficulties obtaining
access to the Internet or be disconnected if activity is too limited. A few ISPs
also offer high-speed ISDN connections to the Internet; however, the Company
believes that broadband transmission is the most efficient means of transmitting
large volumes of data and information on a high-speed basis to and from the
Internet.
A few satellite companies provide broadband access to the Internet from
desktop PCs using a small dish antenna and receiver kit comparable to that used
for satellite television reception. DirecPC, principally owned and operated by
Hughes, is one of the largest providers of satellite-based Internet services in
the United States.
Long distance companies are aggressively entering the Internet access
markets. Long distance carriers have substantial transmission capabilities that
traditionally carry data to millions of customers and have an established
billing system infrastructure that permits them easily to add new services. For
example, AT&T began providing Internet access in the United States through a new
service called WorldNet, offering its long distance customers five free hours of
Internet access per month for a one-year period. MCI is offering InternetMCI in
competition with AT&T's WorldNet service. The Company expects competition for
the end-consumer from such companies to be vigorous due to such competitors'
greater resources, operating history and name recognition.
Other cable television companies can enter the Internet services market.
Traditional cable networks provide only one-way transmission and must be
upgraded (and often reconfigured) to permit two-way data transmission, which
would require significant investments on the part of service providers.
Broadband technology must be incorporated to enable digital data to be
transmitted over a separate channel. The Company is not aware of any cable
television competitors in its existing service areas providing Internet access
service using cable modems. However, owners of newer or upgraded cable
television networks have the ability to provide Internet services using cable
modems. The Company believes that some of the existing cable television
providers (such as Time Warner and Continental Cable) are beginning to provide
such services in certain of their major markets or clusters, including certain
major metropolitan areas in the southeast. @Home, a joint venture among TCI and
several other large cable companies, is offering high-speed Internet service
using cable modems in areas where its affiliates have hybrid fiber-coaxial
networks. The Company believes that high-speed Internet services ultimately will
be offered by other cable providers and companies such as @Home in most of the
Company's present and future service areas.
EMPLOYEES
At September 30, 1997, the Company had 120 full-time employees of which 20
are customer service representatives, 34 are technicians or others performing
installation, maintenance and repair on the Company's networks, 22 are involved
principally in sales and marketing, 10 are involved in matters relating to
construction of the Company's networks and 34 have management or administrative
responsibilities.
The Company considers its relations with its employees to be good and
structures its compensation and benefit plans to facilitate the attraction and
retention of high caliber personnel. The Company will need to recruit additional
employees to implement its expansion plan, including general managers for each
new city
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and additional personnel for installation, sales, customer service and network
construction. The Company recruits from several major industries for employees
with skills in voice, video and data technologies. The Company believes it will
not be difficult to retain personnel with the necessary qualifications.
PROPERTIES
The Company leases (and in two cases owns) parcels of real property in each
of its market areas for one or more business offices, sites for electronic
equipment used by its cable television systems and a "headend" earth station
that receives programming via satellite for re-transmission over the broadband
network. The Company also leases temporary offices (the landlord under which is
owned or controlled by a relative of a director of the Company and ITC Holding)
for its headquarters in West Point, Georgia, where a number of the ITC Companies
have their headquarters. The Company is currently constructing a new
headquarters facility, which it plans to occupy upon completion in January 1998.
The Company's principal physical assets consist of fiber optic and coaxial
broadband network and equipment, located either at the equipment site or along
the network. The Company's distribution equipment along the network is generally
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 Company's franchises from the cities of
Montgomery and Columbus give the Company rights of way for its network. The
physical components of the networks require maintenance and periodic upgrading
to keep pace with technological advances. The Company believes that its
properties, taken as a whole, are in good operating condition and are suitable
for the Company's business operations.
LEGAL PROCEEDINGS
The Company is a party to legal proceedings in the ordinary course of its
business, including disputes with contractors or vendors, which the Company
believes are not material to the Company or its business. The Company also is a
party to regulatory proceedings affecting the relevant segments of
communications industry generally.
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LEGISLATION AND REGULATION
The cable television industry currently is regulated by the FCC, some state
governments and most local governments. Telecommunications services are
regulated by the FCC and state public utility commissions. In addition,
legislative and regulatory proposals under consideration by Congress and federal
agencies may materially affect the cable television and telecommunications
industries. The following is a summary of federal laws and regulations affecting
the growth and operation of the cable television and telecommunications
industries and a description of certain state and local laws.
CABLE COMMUNICATIONS POLICY ACT OF 1984
The Cable Communications Policy Act of 1984 (the "1984 Cable Act"), which
amended the Communications Act of 1934, as amended (the "Communications Act"),
established comprehensive national standards and guidelines for the regulation
of cable television systems and identified the boundaries of permissible
federal, state and local government regulation. The FCC was charged with
responsibility for adopting rules to implement the 1984 Cable Act. Among other
things, the 1984 Cable Act affirmed the right of franchising authorities (state
or local, depending on the practice in individual states) to award one or more
franchises within their jurisdictions. It also prohibited non-grandfathered
cable television systems from operating without a franchise in such
jurisdictions. The 1984 Cable Act provides that in granting or renewing
franchises, franchising authorities may establish requirements for cable-related
facilities and equipment, but may not establish or enforce requirements for
video programming or information services other than in broad categories.
CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT OF 1992
In October 1992, Congress enacted the 1992 Cable Act which permitted a
greater degree of regulation of the cable industry with respect to, among other
things: (i) cable system rates for both basic and certain cable programming
services; (ii) program access and exclusivity arrangements; (iii) access to
cable channels by unaffiliated programming services; (iv) leased access terms
and conditions; (v) horizontal and vertical ownership of cable systems; (vi)
customer service requirements; (vii) television broadcast signal carriage and
retransmission consent; (viii) technical standards; and (ix) cable equipment
compatibility. Additionally, the legislation encouraged competition with
existing cable television systems by allowing municipalities to own and operate
their own cable television systems without a franchise, preventing franchising
authorities from granting exclusive franchises or unreasonably refusing to award
additional franchises covering an existing cable system's service area, and
prohibiting the common ownership of cable systems and co-located MMDS or SMATV
systems. The 1992 Cable Act also precluded video programmers affiliated with
cable television companies from favoring cable operators over competitors and
required such programmers to sell their programming to other multichannel video
distributors. The legislation required the FCC to initiate a number of
rulemaking proceedings to implement various provisions of the statute, the
majority of which have been completed. Various cable operators challenged the
constitutionality of several sections of the 1992 Cable Act, although the courts
have disposed of most of these challenges.
On June 28, 1996, the Supreme Court upheld cable operators' ability to
enforce prospective written policies against carrying programming that depicts
sexual or excretory activities on commercial leased access channels. The Court
also ruled that cable operators may not be required to block, scramble and
segregate indecent commercial leased access programming, finding that this
statutory provision violated cable operators' First Amendment rights. The Court
also struck down on First Amendment grounds the statutory provision that enabled
cable operators to prohibit obscene material, sexually explicit conduct or
material soliciting unlawful acts on Public, Educational and Government ("PEG")
channels.
TELECOMMUNICATIONS ACT OF 1996
On February 8, 1996, the 1996 Telecom Act was enacted. Some of the
provisions of the 1996 Telecom Act became effective immediately, but other
provisions will not take effect until they are implemented by the FCC. The 1996
Telecom Act radically altered the regulatory structure of telecommunications
markets by
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mandating that states permit competition for local exchange services. The 1996
Telecom Act also requires incumbent local exchange carriers ("ILECs") to provide
competitors with access to ILEC facilities on an unbundled basis and to provide
competitors with telecommunications services for resale at wholesale rates.
Another significant feature of the 1996 Telecom Act is the replacement of the
consent decree prohibiting the RBOCs from providing long distance service, with
a statutory procedure for the RBOCs to apply to the FCC for authority to provide
long distance services.
The 1996 Telecom Act also included significant changes in the regulation of
cable operators. Specifically, the 1996 Telecom Act reverses much of the cable
rate regulation established by the 1992 Cable Act over a three-year period. The
rates for cable programming service ("CPS" or "non-basic") tiers offered by
small cable operators in small cable systems are deregulated immediately. The
FCC's authority to regulate the CPS tier rates of all other cable operators will
expire on March 31, 1999. The legislation also (i) repeals the anti-trafficking
provisions of the 1992 Cable Act; (ii) limits the rights of franchising
authorities to require certain technology and prohibit or condition the
provision of telecommunications services by the cable operator; (iii) requires
cable operators to fully block or scramble both the audio and video on
sexually-explicit or indecent programming on channels primarily dedicated to
sexually-oriented programming; (iv) allows cable operators to refuse to carry
access programs containing "obscenity, indecency or nudity"; (v) adjusts the
pole attachment laws; and (vi) allows cable operators to enter
telecommunications markets which historically have been closed to them, while
also allowing some telecommunications providers to begin providing competitive
cable service in their local service areas.
FEDERAL REGULATION OF CABLE SERVICES
The FCC, the principal federal regulatory agency with jurisdiction over
cable television, has promulgated regulations covering many aspects of cable
television operations, and is required to adopt additional regulations or repeal
or modify existing regulations to implement the 1996 Telecom Act. The FCC may
enforce its regulations through the imposition of fines, the issuance of cease
and desist orders and/or the imposition of other administrative sanctions, such
as the revocation of FCC licenses needed to operate certain transmission
facilities often used in connection with cable operations. A brief summary of
certain federal regulations follows.
RATE REGULATION. Prior to implementation of the 1992 Cable Act, most cable
systems were largely free to adjust cable service rates without governmental
approval. The 1992 Cable Act authorized rate regulation for certain cable
communications services and equipment in communities where the cable operator is
not subject to "effective competition." The 1992 Cable Act requires the FCC to
resolve complaints about rates for non-basic cable programming services and to
reduce any such rates found to be unreasonable. It also limits the ability of
many cable systems to raise rates for basic and certain non-basic cable
programming services (collectively, the "Regulated Services"). Cable services
offered on a per channel or on a per program basis are not subject to rate
regulation by either franchising authorities or the FCC. Notwithstanding the
above, the 1996 Telecom Act immediately deregulates the CPS rates of "small
cable operators" and will deregulate the CPS rates of all other cable operators
by March 31, 1999.
The 1992 Cable Act requires communities to certify with the FCC before
regulating basic cable rates. Upon certification, the local community obtains
the right to evaluate the reasonableness of basic rates under standards
established by the FCC. Certified franchising authorities are also empowered to
regulate rates charged for additional outlets and for the installation, lease,
and sale of equipment used by customers to receive the basic service tier, such
as converter boxes and remote control units. These equipment rates must be based
on actual cost plus a reasonable profit, as defined by the FCC. Cable operators
may be required to refund overcharges with interest. The 1992 Cable Act permits
communities to certify at any time, so it is possible that the Company's
franchising authorities may choose in the future to certify to regulate the
Company's basic rates. After the 1996 Telecom Act, FCC review of CPS rates is
triggered by franchising authority complaints filed with the FCC within 180 days
of a rate increase. A franchising authority may not file a complaint until it
has received multiple subscriber complaints with respect to a rate increase.
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The FCC's rate regulations do not apply where a cable operator demonstrates
that it is subject to "effective competition." Under the 1992 Cable Act, a
system is subject to effective competition where (i) fewer than 30% of the
households in the franchise area subscribe to the cable service of a cable
system; (ii) the franchise area is served by at least two unaffiliated MVPDs
each of which offers comparable video programming to at least 50% of the
households in the franchise area and the number of households subscribing to
programming services offered by MVPDs other than the largest MVPD exceeds 15% of
the households in the franchise area; or (iii) a MVPD operated by the
franchising authority offers video programming to at least 50% of the households
in the franchise area. The 1996 Telecom Act also provides that effective
competition exists if a local exchange carrier or its affiliate provides video
programming in the franchise area. The Company believes that it is subject to
effective competition in the areas that it currently serves.
In implementing the 1992 Cable Act, the FCC adopted a benchmark methodology
as the principal method of regulating rates for Regulated Services. Cable
operators with rates above the level established by the FCC's benchmark
methodology may attempt to justify such rates using a cost-of-service
methodology. The FCC has instituted rate relief for small cable operators. Cable
operators with fewer than 400,000 nationwide subscribers are eligible to file a
streamlined cost-of-service analysis to justify their per-channel rates in those
systems serving 15,000 or fewer subscribers. Per-channel rates that fall below a
prescribed benchmark are presumed reasonable.
The 1992 Cable Act also requires cable systems 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 converter
boxes or other technological limitations does not permit it to do so. The
statute provides an exemption for cable systems that do not have the
technological capability to offer programming in the manner required. This
exemption is available until a system obtains such capability, but not later
than December 2002. Systems facing effective competition are not subject to the
tier buy-through prohibition.
The 1996 Telecom Act deregulates immediately CPS rates for small cable
operators that have less than 50,000 subscribers in the franchise area. A "small
operator" is an operator that, with its affiliates, serves less than 1% of all
subscribers in the United States (defined by the FCC as 617,000 subscribers) and
is not affiliated with entities with annual aggregate gross revenues of more
than $250 million. Rates for basic service continue to be regulated, however,
unless the cable system had a single regulated tier as of December 31, 1994. For
all other cable systems, the FCC's rate regulation authority for CPS tiers
expires March 31, 1999. Rates for basic tiers will continue to be subject to
regulation.
The 1996 Telecom Act allows cable operators to pass through franchise fees
and regulatory fees to subscribers without any prior notice. Notices of other
rate changes may be given by any reasonable written means, at the cable
operator's "sole discretion." Bulk discounts for multi-dwelling units no longer
must meet any uniform rate requirement.
CARRIAGE OF BROADCAST TELEVISION SIGNALS. The 1992 Cable Act established
signal carriage requirements. These requirements allow commercial television
broadcast stations which are "local" to a cable system, to elect every three
years whether to require the cable system to carry the station, subject to
certain exceptions, or whether to require the cable system to negotiate for
"retransmission consent" to carry the station. The first
must-carry/retransmission consent elections were made in June 1993. The second
elections were made in October 1996. Stations are generally considered local to
a cable system where the system is located in the station's 1992 Area of
Dominant Influence ("ADI"), as determined by Arbitron. This method for
determining whether a station is local to a cable system may change at the time
of the October 1999 election because Arbitron no longer updates ADIs and the
1996 Telecom Act requires the FCC to use commercial publications which delineate
markets based on viewing patterns. Cable systems must obtain retransmission
consent for the carriage of all "distant" commercial broadcast stations, except
for certain "superstations" (i.e., commercial satellite-delivered independent
stations such as WGN). All commercial stations entitled to must-carriage were to
have been carried by June 1993, and any non-must-carry stations (other than
superstations) for which retransmission consent had not been obtained could no
longer be carried after October 5, 1993. The Company
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carries some stations pursuant to retransmission consents and pays fees for such
consents or has agreed to carry additional services pursuant to retransmission
consent agreements.
Local non-commercial television stations are also given mandatory carriage
rights, subject to certain exceptions, within the larger of (i) a 50-mile radius
of the station's city of license; or (ii) the station's Grade B contour (a
measure of signal strength). Non-commercial stations are not given the option to
negotiate for retransmission consent. All non-commercial stations entitled to
carriage were to have been carried by December 1992.
NONDUPLICATION OF NETWORK PROGRAMMING. Cable television systems that have
1,000 or more subscribers must, upon the appropriate request of a local
television station, delete or "black out" the simultaneous or nonsimultaneous
network programming of a distant same-network station when the local station has
contracted for such programming on an exclusive basis.
DELETION OF SYNDICATED PROGRAMMING. Cable television systems that have
1,000 or more subscribers must, upon the appropriate request of a local
television station, delete or "black out" the simultaneous or nonsimultaneous
syndicated programming of a distant station when the local station has
contracted for such programming on an exclusive basis.
REGISTRATION PROCEDURES AND REPORTING REQUIREMENTS. Prior to commencing
operation in a particular community, all cable television systems must file a
registration statement with the FCC listing the broadcast signals they will
carry and certain other information. Additionally, cable operators periodically
are required to file various informational reports with the FCC. Cable operators
that operate in certain frequency bands, including the Company, are required on
an annual basis to file the results of their periodic cumulative leakage testing
measurements. Operators that fail to make this filing or who exceed the FCC's
allowable cumulative leakage index risk being prohibited from operating in those
frequency bands in addition to other sanctions.
TECHNICAL REQUIREMENTS. Historically, the FCC has imposed technical
standards applicable to the cable channels on which broadcast stations are
carried, and has prohibited franchising authorities from adopting standards
which were in conflict with or more restrictive than those established by the
FCC. The FCC has applied its standards to all classes of channels which carry
downstream National Television System Committee ("NTSC") video programming. The
FCC also has adopted standards applicable to cable television systems using
frequencies in the 108-137 MHz and 225-400 MHz bands in order to prevent harmful
interference with aeronautical navigation and safety radio services and has also
established limits on cable system signal leakage. The 1992 Cable Act requires
the FCC to update periodically its technical standards. The 1996 Telecom Act
requires that the FCC adopt minimal regulations to assure compatibility among
televisions, VCRs and cable systems, leaving all features, functions, protocols
and other product and service options for selection through open competition in
the market. The 1996 Telecom Act also prohibits States or franchising
authorities from prohibiting, conditioning or restricting a cable system's use
of any type of subscriber equipment or transmission technology.
FRANCHISE AUTHORITY. The 1984 Cable Act affirmed the right of franchising
authorities (the cities, counties or political subdivisions in which a cable
operator provides cable service) to award franchises within their jurisdictions
and prohibited non-grandfathered cable systems from operating without a
franchise in such jurisdictions. The Company holds cable franchises in all of
the franchise areas in which it provides service. The 1992 Cable Act encouraged
competition with existing cable systems by (i) allowing municipalities to
operate their own cable systems without franchises; (ii) preventing franchising
authorities from granting exclusive franchises or from unreasonably refusing to
award additional franchises covering an existing cable system's service area;
and (iii) prohibiting (with limited exceptions) the common ownership of cable
systems and co-located MMDS or SMATV systems (a prohibition which is limited by
the 1996 Telecom Act to cases in which the cable operator is not subject to
effective competition).
The 1996 Telecom Act exempts from cable franchise requirements those
telecommunications services provided by a cable operator or its affiliate
although municipalities retain authority to regulate the manner in which a cable
operator uses the public rights-of-way to provide telecommunications services.
Franchise authorities may not require a cable operator to provide
telecommunications service or facilities, other than
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institutional networks, as a condition of franchise grant, renewal, or transfer.
Similarly, franchise authorities may not impose any conditions on the provision
of such service.
FRANCHISE FEES. Although franchising authorities may impose franchise fees
under the 1984 Cable Act, as modified by the 1996 Telecom Act, such payments
cannot exceed 5% of a cable system's annual gross revenues derived from the
operation of the cable system to provide cable services. Franchise fees apply
only to revenues for cable services. Franchising authorities are permitted to
charge a fee for any telecommunications providers' use of public rights-of-way
"on a competitively neutral and nondiscriminatory basis."
FRANCHISE RENEWAL. The 1984 Cable Act established renewal procedures and
criteria designed to protect incumbent franchisees against arbitrary denials of
renewal. These formal procedures are mandatory only if timely invoked by either
the cable operator or the franchising authority. Even after the formal renewal
procedures are invoked, franchising authorities and cable operators remain free
to negotiate a renewal outside the formal process. Although the procedures
provide substantial protection to incumbent franchisees, renewal is by no means
assured, as the franchisee must meet certain statutory standards. Even if a
franchise is renewed, a franchising authority may impose new and more onerous
requirements such as upgrading facilities and equipment, although the
municipality must take into account the cost of meeting such requirements.
The 1992 Cable Act made several changes to the process which may make it
easier in some cases for a franchising authority to deny renewal. The cable
operator's timely request to commence renewal proceedings must be in writing and
the franchising authority must commence renewal proceedings not later than six
months after receipt of such notice. Within a four-month period beginning with
the submission of the renewal proposal the franchising authority must grant or
deny the renewal. Franchising authorities may consider the "level" of
programming service provided by a cable operator in deciding whether to renew.
Franchising authorities currently may deny renewal based on failure to
substantially comply with the material terms of the franchise, even if the
franchising authority has "effectively acquiesced" to such past violations. The
franchising authority is estopped only if, after giving the cable operator
notice and opportunity to cure, the authority fails to respond to a written
notice from the cable operator of its failure or inability to cure. Courts may
not reverse a denial of renewal based on procedural violations found to be
"harmless error."
CHANNEL SET-ASIDES. The 1984 Cable Act permits local franchising
authorities to require cable operators to set aside certain channels for public,
educational and governmental access programming. The 1984 Cable Act further
requires cable television systems with 36 or more activated channels to
designate a portion of their channel capacity for commercial leased access by
unaffiliated third parties. The 1992 Cable Act requires leased access rates to
be set according to an FCC-prescribed formula.
OWNERSHIP. The 1996 Telecom Act eliminates the 1984 Act provisions
prohibiting LECs from providing video programming directly to customers within
their local exchange telephone service areas, except in rural areas or by
specific waiver. Under the 1996 Telecom Act, LECs may provide video programming
by radio-based systems, common carrier systems, "open video" systems, or "cable
systems." LECs that elect to provide "open video" systems must allow others to
use up to two-thirds of their activated channel capacity. These LECs are
relieved of regulation as "common carriers," and are not required to obtain
local franchises, but are still subject to many other regulations applicable to
cable systems. LECs operating as "cable systems" are subject to all rules
governing cable systems, including franchising requirements.
The 1996 Telecom Act prohibits a LEC or its affiliate from acquiring more
than a 10% financial or management interest in any cable operator providing
cable service in its telephone service area. It also prohibits a cable operator
or its affiliate from acquiring more than a 10% financial or management interest
in any LEC providing telephone exchange service in its franchise area. A LEC and
cable operator whose telephone service area and cable franchise area are in the
same market may not enter into a joint venture to provide telecommunications
services or video programming. There are exceptions to these limitations for
rural facilities, very small cable systems, and small LECs in non-urban areas.
The FCC's rules prohibit the common ownership, operation, control or
interest in a cable system and a local television broadcast station whose
predicted Grade B contour covers any portion of the community served by the
cable system. The 1996 Telecom Act repeals this statutory restriction on
broadcast-cable cross-
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ownership, but does not require the FCC to repeal its cross-ownership rule.
Nevertheless, the FCC intends to review this rule. The 1996 Telecom Act also
eliminates the FCC's restriction against the ownership or control of both a
broadcast network and a cable system, but it authorizes the FCC to adopt
regulations which will ensure carriage, channel positioning and
nondiscriminatory treatment of non-affiliated broadcast stations by cable
systems which are owned by a broadcast network.
The 1992 Cable Act prohibits the common ownership, affiliation, control or
interest in cable television systems and MMDS facilities or SMATV systems with
overlapping service areas. However, a cable system may acquire a co-located
SMATV system if it provides cable service to the SMATV system in accordance with
the terms of its cable television franchise. The 1996 Telecom Act provides that
these rules shall not apply where the cable operator is subject to effective
competition.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number of
cable systems a single cable operator may own. In general, no cable operator may
hold an attributable interest in cable systems which pass more than 30% of all
homes nationwide. Attributable interests for these purposes include voting
interests of 5% or more (unless there is another single holder of more than 50%
of the voting stock), officerships, directorships and general partnership
interests.
INSIDE WIRING OF MULTIFAMILY DWELLING UNITS. The FCC recently adopted
rules to promote competition among multichannel video program distributors
("MVPDs") in multifamily dwelling units ("MDUs"). The rules provide generally
that, in cases where the MVPD owns the wiring inside an MDU, but has no right of
access to the premises, the MDU owner may give the cable operator notice that it
intends to permit another MVPD to provide service there. An MVPD then must elect
whether to remove the inside wiring, sell the inside wiring to the MDU owner (at
a price not to exceed the replacement cost of the wire, on a per-foot basis), or
abandon the inside wiring.
PRIVACY. The 1984 Cable Act imposes a number of restrictions on the manner
in which cable system operators can collect and disclose data about individual
system customers. The statute also requires that the system operator
periodically provide all customers with written information about its policies
regarding the collection and handling of data about customers, their privacy
rights under federal law and their enforcement rights. In the event that a cable
operator is found to have violated the customer privacy provisions of the 1984
Cable Act, it could be required to pay damages, attorneys' fees and other costs.
Under the 1992 Cable Act, the privacy requirements are strengthened to require
that cable operators take such actions as are necessary to prevent unauthorized
access to personally identifiable information.
FRANCHISE TRANSFER. The 1996 Telecom Act repeals most of the
anti-trafficking restrictions imposed by the 1992 Cable Act, which prevented a
cable operator from selling or transferring ownership of a cable system within
36 months of acquisition. However, a local franchise may still require prior
approval of a transfer or sale. The 1992 Cable Act requires franchising
authorities to act on a franchise transfer request within 120 days after receipt
of all information required by FCC regulations and the franchising authority.
Approval is deemed granted if the franchising authority fails to act within such
period.
COPYRIGHT. Cable television systems are subject to federal compulsory
copyright licensing covering carriage of broadcast signals. In exchange for
making semi-annual payments to a federal copyright royalty pool and meeting
certain other obligations, cable operators obtain a statutory license to
retransmit broadcast signals. The amount of the royalty payment varies,
depending on the amount of system revenues from certain sources, the number of
distant signals carried, and the location of the cable system with respect to
over-the-air television stations. Adjustments in copyright royalty rates are
made through an arbitration process supervised by the U.S. Copyright Office.
Various bills have been introduced in Congress in the past several years
that would eliminate or modify the cable television compulsory license. Without
the compulsory license, cable operators might need to negotiate rights from the
copyright owners for each program carried on each broadcast station
retransmitted by the cable system.
Copyright music performed in programming supplied to cable television
systems by pay cable networks (such as HBO) and cable programming networks (such
as USA Network) has generally been licensed by the
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networks through private agreements with the American Society of Composers and
Publishers ("ASCAP") and BMI, Inc. ("BMI"), the two major performing rights
organizations in the United States. ASCAP and BMI offer "through to the viewer"
licenses to the cable networks which cover the retransmission of the cable
networks' programming by cable television systems to their subscribers.
REGULATORY FEES AND OTHER MATTERS. The FCC requires payment of annual
"regulatory fees" by the various industries it regulates, including the cable
television industry. In 1996, cable television systems were required to pay
regulatory fees of $0.55 per subscriber. In 1997, the fee was $0.54 per
subscriber. Per-subscriber regulatory fees may be passed on to subscribers as
"external cost" adjustments to rates for basic cable service. Fees are also
assessed for other FCC licenses, including licenses for business radio, cable
television relay systems ("CARS") and earth stations. These fees, however, may
not be collected directly from subscribers as long as the FCC's rate regulations
remain applicable to the cable system.
In December 1994, the FCC adopted new cable television and broadcast
technical standards to support a new Emergency Alert System. Cable system
operators must install and activate equipment necessary to implement the new
Emergency Broadcast System by December 31, 1998 or October 1, 2002, depending on
the size of the system.
FCC regulations also address the carriage of local sports programming;
restrictions on origination and cablecasting by cable system operators;
application of the rules governing political broadcasts; customer service
standards; home wiring and limitations on advertising contained in nonbroadcast
children's programming.
FEDERAL REGULATION OF TELECOMMUNICATIONS SERVICES
Telecommunications services are subject to varying degrees of federal,
state and local regulation. The FCC exercises jurisdiction over all facilities
of and services offered by telecommunications carriers to the extent those
facilities are used to provide, originate or terminate interstate or
international communications.
The 1996 Telecom Act has substantially revised communications regulation in
the United States. The legislation is intended to allow providers to enter
communications markets that have historically been closed to them as a result of
legal restrictions and due to practical and economic considerations. At the same
time, implementation of the 1996 Telecom Act and regulatory actions at the state
level may leave incumbent providers in previously closed markets in a position
to defend their markets aggressively. The Company is unable to predict the
ultimate outcome of federal and state proceedings to implement the legislation.
INTERCONNECTION. The 1996 Telecom Act establishes local exchange
competition as a national policy by preempting laws that prohibit competition in
the local exchange and by establishing uniform requirements and standards for
local network interconnection, local network unbundling and service resale. The
1996 Telecom Act also requires incumbent local exchange carriers to enter into
mutual compensation arrangements with new local telephone companies for
transport and termination of local calls on each others' networks. The Act's
interconnection, unbundling and resale standards have been developed in the
first instance by the FCC and will be implemented by the states in numerous
proceedings and through a process of negotiation and arbitration. In August
1996, the FCC adopted a wide-ranging decision regarding the statutory
interconnection obligations of the LECs. Among other things, the order
established pricing principles to use by the states in determining rates for
unbundled local network elements and established a method for calculating
discounts to reflect costs saved by the LECs in offering their retail services
to other carriers on a wholesale basis. In July 1997, the United States Court of
Appeals for the 8th Circuit struck down the pricing rules established by the
FCC. The court ruled that the FCC did not have jurisdiction under the 1996
Telecom Act to establish pricing rules to be applied by the states.
Consequently, the pricing of unbundled network elements and wholesale services
is a matter solely within the jurisdiction of state commissions at the present
time. The court generally upheld the FCC's non-pricing requirements for
unbundling of network elements and offering of wholesale services. In a
subsequent decision in October 1997, the United States Court of Appeals for the
8th Circuit ruled that LECs were not obligated to provide pre-existing
combinations of unbundled network elements. This decision may hamper the ability
of carriers that do not own their own local facilities to provide competitive
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local services. Each of the July 1997 and the October 1997 decisions of the
United States Court of Appeals for the 8th Circuit has been appealed to the
United States Supreme Court.
NUMBER PORTABILITY. Another new statutory provision requires that all
carriers providing local exchange service give users the ability to retain, at
the same location, existing telephone numbers without impairment of quality,
reliability or convenience (i.e., "number portability"). Number portability will
remove one barrier to entry faced by new competitors, which would otherwise face
the difficult task of persuading customers to switch local service providers
despite having to change telephone numbers. The FCC has adopted an order
requiring the implementation of interim number portability and mandating that
permanent number portability be available in the 100 largest metropolitan areas
by December 31, 1998. However, an appeal challenging that decision is pending.
UNIVERSAL SERVICE AND ACCESS CHARGE REFORM. The FCC has adopted rules
implementing the universal service requirements of the 1996 Telecom Act.
Pursuant to those rules, all telecommunications providers must contribute to a
newly established Universal Service Fund. Carriers providing service to
customers in high-cost and rural areas, as well as to low-income customers, will
be eligible to collect subsidies from the fund. The fund also will subsidize
service provided to schools, libraries and rural health care providers at
discounted rates. The FCC also completed a proceeding in which it revised the
rules governing access charges imposed by LECs on interexchange carriers
("IXCs") distance carriers for use of the local network to complete long
distance calls. The policies adopted in that proceeding are intended to move the
LECs' charges for access services closer to cost.
RBOC ENTRY INTO LONG DISTANCE. The 1996 Telecom Act also opens the way for
RBOCs and their affiliates to provide long distance telecommunications services
between a local access and transport area and points outside that area. Prior to
the 1996 Telecom Act, RBOCs were generally prohibited from offering such
"interLATA" services. Under the 1996 Telecom Act such services may be offered by
a RBOC outside of its local exchange service states immediately. RBOCs may offer
interLATA services from within such states (in-region) when the FCC determines
either that the RBOC is providing access and interconnection to a competing
exchange service provider under a state-approved agreement or that no such
provider has requested such access and interconnection within ten months after
enactment, and the state has approved the RBOC's general terms for providing
such access and interconnection. In either case, the FCC also must conclude that
the RBOC has satisfied a "competitive checklist" of interconnection and other
requirements specified in the 1996 Telecom Act and that RBOC entry is in the
public interest. BellSouth has applications pending at the FCC for authority to
offer interLATA services in South Carolina and Louisiana. If either application
is approved, BellSouth likely would file additional applications for other
states in its territory, including states in which the Company provides
interLATA services. Because of its existing base of local customers and its
extensive telecommunications network, it is anticipated that BellSouth will be a
significant competitor in the interLATA market after it obtains interLATA
authority from the FCC.
TARIFFS. Pursuant to its forbearance authority, the FCC recently
determined that it will no longer require domestic nondominant interexchange
carriers to file tariffs listing their rates, term and conditions. This decision
has been stayed by the U.S. Court of Appeals for the District of Columbia
Circuit. Nondominant providers of exchange access services provided to
interexchange carriers no longer are required to file tariffs at the FCC.
Tariffs detailing the rates, terms and conditions of service are still required
for international services.
ADDITIONAL REQUIREMENTS. The FCC imposes a number of additional
obligations on all telecommunications carriers, including the obligation to: (1)
interconnect with other carriers and not to install equipment that cannot be
connected with the facilities of other carriers; (2) ensure that their services
are accessible and usable by persons with disabilities; (3) provide
Telecommunications Relay Service ("TRS"), either directly or through
arrangements with other carriers or service providers (TRS enables hearing
impaired individuals to communicate by telephone with hearing individuals
through an operator at a relay center); (4) comply with verification procedures
in connection with changing the presubscribed interexchange carrier of a
customer so as to prevent "slamming," a practice by which a customer's chosen
long distance carrier is switched without the customer's knowledge; (5) protect
the confidentiality of proprietary information obtained
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from other carriers, manufacturers and customers; (6) pay annual regulatory fees
to the FCC; and (7) contribute to the Telecommunications Relay Services Fund.
FORBEARANCE. The 1996 Telecom Act permits the FCC to scale back its
regulation of common carriers. The Act permits the FCC to forbear from applying
statutory provisions or regulations if the FCC determines that enforcement is
not necessary to ensure that a carrier's terms are reasonable and
nondiscriminatory, or to protect consumers, and that forbearance is in the
public interest and, in particular, that it will promote competition. The FCC
has exempted certain carriers from tariffing and reporting requirements pursuant
to this provision of the 1996 Telecom Act. The FCC may take similar action in
the future to reduce or eliminate other requirements. Such actions could free
the Company from regulatory burdens, but might also increase the pricing
flexibility of the Company's competitors.
STATE AND LOCAL REGULATION
CABLE TELEVISION REGULATION
MONTGOMERY, ALABAMA. The Company's subsidiary, KNOLOGY of Montgomery,
holds a franchise with the City of Montgomery extending through March 6, 2005.
The franchise requires the payment of a franchise fee of five percent (5%) of
"annual gross subscriber revenues" and five percent (5%) of "annual net
auxiliary services revenue derived from its operation of the franchised cable
television system within the franchised area limits." The Company is required to
file annual financial reports with the city and is subject to audit and
assessment for a period of three years after payment.
The original franchise agreement, dated March 6, 1990, required Montgomery
Cablevision to complete two hundred (200) miles of service per time period for
five time periods," with the first time period consisting of eighteen (18)
months and each successive time period consisting of twelve (12) months. The
Company was granted a three month grace period (after each of the aforementioned
time periods) in which to cure any "defects or deficiencies." The franchise
provided for a $250,000 penalty for each time period in which Montgomery
Cablevision failed to complete the aforementioned construction objectives and
also the potential cancellation of the franchise for non-compliance. On April 4,
1995, the City Council passed a resolution extending the Company's time period
to meet such requirements until August 4, 1996 and the remaining requirements
annually thereafter through August 4, 1999. In management's opinion, KNOLOGY of
Montgomery is currently in compliance with this ordinance.
At the end of 1996, the City of Montgomery adopted an ordinance which
places heightened notice and public education requirements on cable companies
seeking to install new facilities in residential areas and prescribed penalties
for violation of the notice requirement. Under Alabama law, a county may require
that a provider of cable services receive a franchise prior to using the public
rights of ways, easements, etc. of the county outside the incorporated areas of
a municipality. The Company does not serve any unincorporated areas in the State
of Alabama. Should it extend cable services into such areas, the Company may be
required to obtain a franchise and to pay certain franchise fees on its revenues
derived from cable services provided therein.
COLUMBUS, GEORGIA. The Company's subsidiary, KNOLOGY of Columbus, holds a
franchise providing the right to operate a cable system within the corporate
limits of Columbus, Georgia, through June 1, 1998. The franchise requires the
Company to provide a minimum of 11 viewing channels, including all local
television channels, as basic service. The franchise purports to limit rate
increases for basic cable service to five percent (5%) per year and provides for
thirty days advance notice to the City Clerk of a proposed rate increase or new
charge. The Company is also required to indemnify the city of Columbus for any
damages resulting from the construction or operation of its cable system. As
part of the franchise, the Company agreed to install facilities to offer service
to all residents of Columbus in any area with a population density of
thirty-five (35) homes per mile or more in an area within one half mile of the
"facilities headend" as of January 1, 1989. The Company also agreed to provide
service within one and one half miles of its headend beginning January 1, 1990,
upon receipt of written request from potential subscribers, provided such
potential subscribers pay the equitable share of the cost of line construction
where density is less than thirty-five occupied dwelling units per mile. The
Company is also obligated under the franchise to provide free connection and
monthly basic service
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to all occupied governmental buildings that are within the Company's service
area. The Company believes it is in compliance with all such franchise
requirements.
The Columbus franchise provides for payment of a franchise fee of five
percent (5%) of the "gross revenues" of KNOLOGY of Columbus, exclusive of
installation charges.
The Company also holds a franchise with the town of Bibb City, Georgia
(adjacent to the city of Columbus and part of the Columbus System), extending
through October 5, 2000. The terms of the franchise, including the payment of a
franchise fee, are substantially the same as the Columbus franchise, with the
exception that there is no build out commitment. The Company believes it is in
compliance with the terms of such franchise.
The Company also holds a franchise with Harris County, Georgia (adjacent to
the city of Columbus and part of the Columbus System), extending through the
year 2006. The terms of the franchise, including the payment of a franchise fee,
are substantially the same as the Columbus franchise, with the exception that
there is no build out commitment. The Company believes it is in compliance with
the terms of such franchise. Under Georgia law, a county may require that a
provider of cable services receive a franchise prior to using the public rights
of ways, easements, etc. outside the incorporated areas of a municipality. The
Company does not serve any unincorporated areas in the state of Georgia. Should
it extend cable services into such areas, the Company may be required to obtain
a franchise and to pay certain franchise fees on its revenues derived from cable
services provided in such areas.
PANAMA CITY BEACH, FLORIDA. KNOLOGY of Panama City Beach, Inc. has a
non-exclusive franchise to operate a cable television system in the City of
Panama City Beach, Florida, during a fifteen-year term (which began on July 23,
1992). Pursuant to the franchise agreement, KNOLOGY of Panama City Beach, Inc.
pays a monthly franchise fee of three percent (3%) of its gross revenues, and it
is required to offer cable service throughout the entire city of Panama City
Beach, Florida. Additionally, pursuant to the agreement, the franchisee must
make available a channel for programs originated by the City of Panama City
Beach, Florida.
KNOLOGY of Panama City Beach, Inc. also holds a non-exclusive license from
Bay County, Florida to operate a cable television system in unincorporated areas
of the county for a fifteen-year term (which began on January 19, 1993). The
license does not require the Company to pay any franchise fees.
OTHER. KNOLOGY will need to obtain franchises in cities to which it plans
to expand. The Communications Act provides that municipalities may not
unreasonably refuse to award competitive franchises. The Company believes that
it will be able to obtain franchises in its expansion cities on acceptable terms
and within acceptable time frames, although there can be no assurance that this
will occur.
TELEPHONY REGULATION
As discussed above, the 1996 Telecom Act contains provisions that prohibit
states and localities from adopting or imposing any legal requirement that may
prohibit, or have the effect of prohibiting, market entry by new providers of
interstate or intrastate telecommunications services. The FCC is required to
preempt any such state or local requirement to the extent necessary to enforce
the 1996 Telecom Act's open market entry requirements. State and localities may,
however, continue to regulate the provision of intrastate telecommunications
services and require carriers to obtain certificates or licenses before
providing service. Alabama, Georgia, Florida, and South Carolina have adopted a
statutory and regulatory scheme that requires certification of communications
providers, subject in some cases to certain restrictions on the scope of the
services of competitive local exchange carriers, which are discussed below.
ALABAMA. CLECs seeking to provide service in Alabama are required to
obtain a certificate from the Alabama Public Service Commission ("APSC") and
meet certain minimum reporting and service requirements, including the filing of
informational tariffs. All telecommunications carriers in Alabama must comply
with certain "anti-slamming" procedures in connection with changing a customer's
telecommunications provider.
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The Company obtained such a certificate and began providing service in July
1997. It is possible that CLECs (such as the Company) will be required to
contribute at some point in the future to an intrastate fund to support
universal service objectives. The APSC has required BellSouth to provide
interconnection, on an unbundled basis, to CLECs and to otherwise take certain
steps necessary to allow for network interoperability and competitive entry. The
APSC has certain ongoing proceedings which may affect the terms of the
interconnection agreement between the Company and BellSouth, especially after
the expiration of its existing interconnection agreement in April 1999. The APSC
has recently approved the interconnection agreement.
On October 8, 1996, the APSC granted all ILECs in Alabama other than
BellSouth and GTE an interim modification and suspension of certain provisions
of Section 251 of the 1996 Telecom Act. This modification and suspension is set
to expire on September 20, 1998. It is possible that further modifications and
suspensions of the 1996 Telecom Act's provisions will be granted to small ILECs,
which would serve to impede entry by CLECs into many rural areas of the state.
The APSC has commenced a proceeding to determine whether BellSouth has
satisfied the "competitive checklist" and other prerequisites for obtaining
authority to provide long distance services. Any decision issued by the APSC
will be strictly advisory; the FCC will make the ultimate determination as to
whether BellSouth can provide interLATA services in Alabama at the time
BellSouth files an application at the FCC. Approval by the FCC of an application
to provide long distance service would enable BellSouth to offer "one stop
shopping" for telecommunications services within Alabama.
The 1996 Telecom Act exempts from cable franchise requirements those
telecommunications services provided by a cable operator or its affiliate. The
Company's franchise with the city of Montgomery requires payment of a franchise
fee of five percent (5%) of "annual gross subscriber revenues" and five percent
(5%) of "annual net auxiliary services revenue derived from its operation of the
franchised cable television system within the franchised area limits." The 1996
Telecom Act prohibits the application of cable franchise fees to revenues
derived from the provision of telecommunications services; however, the city of
Montgomery has recently imposed a five percent (5%) franchise fee on
telecommunications services provided by another franchised competitive access
provider and it is not known what position the city of Montgomery may take in
regard to the imposition of such fees on telecommunication services that may be
provided by the Company. In Montgomery, BellSouth does not pay franchise fees on
telecommunications service. To the extent that the Company (notwithstanding the
Telecom Act) is required to pay these fees and competitors do not pay the same
level of fees as the Company, the Company could be placed at a competitive
disadvantage. The ability of the city of Montgomery to impose a divergent fee
structure on comparable services is limited by requirements in the 1996 Telecom
Act that any fee imposed on telecommunications providers be "fair and
reasonable," and "competitively neutral and nondiscriminatory."
In addition to the above, the Company will be subject to ad valorem
taxation in the state of Alabama as a utility and be required to collect and
remit utility gross receipts taxes and other regulatory fees from its customers
for its telecommunications services.
GEORGIA. The Georgia Public Service Commission ("GPSC") has adopted
interim filing requirements for CLECs seeking to apply for new certificates of
authority. The Company obtained such a certificate in September 1997. Amendments
to the certificate will be required in connection with the Company's provision
of telephone service in additional cities in Georgia. The Company has also
obtained certificates of authority from the GPSC to resell interexchange
telecommunications services and to provide alternate operator services. CLECs
will be required to contribute to a state universal access fund, along with all
other telecommunications companies. Under the Telecommunication and Competition
Development Act of 1995 (the "Georgia Competition Act"), until July 1, 1998 only
previously certificated "Tier 2" LECs, with under two million access lines, were
authorized to obtain operating authority to provide service in an area currently
served by another Tier 2 LEC. This restriction may limit the ability of CLECs to
compete with small ILECs.
Under the Georgia Competition Act, ILECs are also required to allow resale
of their services and interconnection on reasonable terms to CLECs. The GPSC has
initiated several rulemaking proceedings to implement the provisions of the
Georgia Competition Act and the 1996 Telecom Act, including a proceeding to
determine the rates which BellSouth may charge for unbundled network elements.
The results of these
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proceedings will impact the terms of the interconnection agreement with
BellSouth, which has been approved by the GPSC.
The GPSC also has a pending proceeding to determine whether BellSouth has
satisfied the competitive checklist and is otherwise qualified to begin
providing long distance services. The GPSC's decision on this issue will be
strictly advisory. The FCC will make the ultimate determination as to whether
BellSouth is qualified to provide interLATA service in Georgia at the time
BellSouth files an application with the FCC.
The Company's franchises with the cities of Columbus and Bibb City, Georgia
and Harris County, Georgia to provide cable television also require the payment
of a franchise fee of five percent (5%) of annual gross subscriber revenues
(exclusive of installation charges). The 1996 Telecom Act prohibits the
application of such franchise fee to revenues derived from the provision of
telecommunications services; however, it is not known what position the
municipalities may take in regard to the imposition of such franchise fees. To
the extent that competitors do not pay the same level of fees as the Company,
the Company could be placed at a competitive disadvantage. The ability of the
city of Columbus to impose divergent fee structure on comparable services is
limited by requirements in the 1996 Telecom Act that any fee imposed on
telecommunications providers be "fair and reasonable," and "competitively
neutral and nondiscriminatory."
The Company will be subject to taxation in the State of Georgia as a
utility for its telecommunications services.
OTHER. The Company intends to provide telecommunications services in each
city in which it constructs an Interactive Broadband Network. Before providing
such services in a state the Company generally will be required to obtain
certification from the applicable state public service commission, file a price
list and otherwise comply with the state's regulatory requirements, including
the payment of fees and taxes and making contributions to the state's universal
service fund. The Company will also need to obtain the approval of its
interconnection agreement with BellSouth from the state public service
commission.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are listed below.
Directors of the Company are elected at the annual meeting of stockholders.
Executive officers of the Company are appointed at the first meeting of the
Board of Directors after each annual meeting of stockholders. Directors and
executive officers of the Company are elected to serve until they resign or are
removed, or are otherwise disqualified to serve, or until their successors are
elected and qualified. The ages of the persons set forth below are as of
November 30, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
- ---------------------------- --- --------------------------------------------------------
<S> <C> <C>
William E. Morrow........... 35 President, Chief Executive Officer and Director
James K. McCormick.......... 41 Chief Financial Officer and Secretary
Marcus R. Luke.............. 42 Chief Technology Officer
Felix L. Boccucci, Jr....... 40 Vice President of Business Development
Bret T. McCants............. 38 Vice President of Network Construction and Maintenance
Peggy B. Warner............. 46 Vice President of Marketing and Carrier Sales
Ancel A. Hamilton, Jr....... 48 Vice President of Operations
O. Gene Gabbard............. 57 Chairman of the Board and Director
Richard Bodman(1)........... 59 Director
Donald W. Burton(2)......... 53 Director
Campbell B. Lanier, III..... 47 Director
Clarence Marshall(1)........ 56 Director
William H. Scott, III(2).... 50 Director
Andrew M. Walker............ 55 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation and Stock Option Committee.
WILLIAM E. MORROW has been President, Chief Executive Officer and Director
of the Company since February 1997. Prior to joining the Company, from August
1996 to February 1997, Mr. Morrow served as Senior Vice President and General
Manager of Network Alliances for UtiliCom Networks. Prior to that time, Mr.
Morrow served in various capacities at Central and South West Corp. from March
1985 to August 1996, including Marketing, Area Management,
Governmental/Regulatory Lobbyist, Ventures/Business Development and Founder and
Managing Director of CSW Communications ("CSW") from December 1993 to August
1996. While at CSW Communications, Mr. Morrow oversaw the company's energy
management services over a 750 MHz two-way broadband network, the construction,
maintenance, operation and marketing of long-haul fiber capacity, and the
design, construction, operation and marketing of competitive access services.
JAMES K. MCCORMICK joined KNOLOGY Holdings, Inc. as Chief Financial Officer
and Secretary in September 1997. Prior to joining the Company, from November
1992 to September 1997, Mr. McCormick was Corporate Controller/Treasurer of
United Dairy Farmers, Inc. ("UDF"), a retailer/manufacturer operating in seven
Midwestern states. While at UDF, Mr. McCormick managed the employment practices,
inventory management, cash management, capital allocation, accounting and
financial reporting functions. Mr. McCormick also served as Director of Finance
at American Sign and Marketing Services, Inc. from June 1991 until November
1992. Prior to that time, Mr. McCormick served in various capacities at Andersen
Worldwide. From February 1989 until January 1991, he served as consulting
manager in the Strategic Services Division of Andersen Consulting's Melbourne,
Australia office and from October 1984 to February 1989, he served as Senior
Auditor, Emerging Business Division at Arthur Andersen LLP.
MARCUS R. LUKE, PH.D. has served as Chief Technology Officer of the Company
since August 1997. Prior thereto, he served as Vice President of Network
Construction of the Company, since November 1995, and
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Director of Engineering of Cybernet Holding, L.L.C., from May 1995 until
November 1995. Prior to joining the Company, Dr. Luke served as Southeast
Division Construction Manager for TCI from July 1993 to May 1995. From July 1987
to June 1993, he served as Area Technical Manager for TCI's southeast area,
which included Montgomery. Dr. Luke worked for Storer Communications Inc. from
1985 to 1987 as Vice President of Engineering. Prior to 1985, he spent 12 years
in various engineering and management positions with Storer Communications Inc.
FELIX L. BOCCUCCI, JR. has served as the Vice President of Business
Development of the Company since August 1997 and served as Chief Financial
Officer, Treasurer and Secretary of the Company from November 1995 through
August 1997. From October 1994 until December 1995, Mr. Boccucci served as Vice
President Finance Broadband of ITC Holding. Prior to such time, Mr. Boccucci
worked for GTE Corporation ("GTE"), a telecommunications company, which merged
with Contel Corporation ("Contel") in March 1991. From May 1993 to October 1994,
he served as a Senior Financial Analyst for GTE. From 1991 to 1993, Mr. Boccucci
served as Financial Director for GTE's Central Area Telephone Operations. From
1987 to 1991, he was the controller in charge of Contel's Eastern Region
Telephone Operations comprising 13 companies in twelve states.
BRET T. MCCANTS has served as Vice President of Network Construction and
Maintenance since April 1997. Prior to joining the Company, Mr. McCants was a
co-founder of CSW Communications and from January 1996 to April 1997 served as
Director of Operations and from 1994 to 1996 participated in the development and
managed the deployment of interactive energy management equipment to homes in
Laredo, Texas. Prior to joining CSW Communications, he served in various
capacities with Central Power and Light Company including as Corporate Manager
of Commercial and Small Industrial Marketing from 1992 to 1994 and as Business
Manager from 1990 to 1992. From 1982 to 1990, Mr. McCants also held several
positions in the Sales, Marketing and Engineering departments at Central Power
and Light Company.
ANCEL A. HAMILTON, JR. has been Vice President Operations since October
1997. Prior to joining the Company, from June 1994 to October 1997, Mr. Hamilton
served as Vice President -- Operations for InterCall where he managed call
center and network operations. Prior to joining InterCall, Mr. Hamilton served
as General Manager -- Information Services for SCANA Corporation from June 1991
to June 1994, where he managed all facets of the information systems function
including computer operations, programming and customer support. From 1983 until
1991, Mr. Hamilton served in numerous marketing and sales positions with
International Business Machines Corporation, primarily in the electric utility
and government arenas.
PEGGY B. WARNER is expected to join the Company as Vice President of
Marketing and Carrier Sales in December 1997. Prior to joining the Company, from
February 1995 to December 1997, Ms. Warner held various positions at SCANA
Communications, Inc., including Manager Sales, Marketing and Customer Service
and General Manager. While at SCANA Communications, Ms. Warner was responsible
for the company's fiber optic carriers' carrier and 800 MHz trunked radio lines
of business. Prior to that time, she was an Executive National Accounts Manager
with MCI Telecommunications Corporation where she developed and managed a
nationwide Government Systems regional sales organization between December 1993
and January 1994. Ms. Warner also held various other sales and marketing
management positions with MCI between May 1986 and January 1995. She was an
Account Manager with AT&T Information Systems between January 1983 and April
1986 and held various sales positions with BellSouth prior to 1983.
O. GENE GABBARD has been a Director of the Company since November 1995, and
was elected Chairman of the Board in April 1996. He has worked independently as
an entrepreneur and consultant since February 1993. Mr. Gabbard currently serves
as a director of ITC Holding and several ITC Companies, including PowerTel,
Inc., ITC'DeltaCom and MindSpring. From August 1990 through January 1993, he
served as Executive Vice President and Chief Financial Officer of MCI. He served
in various senior executive capacities, including Chairman of the Board,
President and Chief Executive Officer of Telecom*USA, Inc. from December 1988
until Telecom's merger with MCI in August 1990. From July 1984 to December 1988,
he was Chairman and/or President of SouthernNet, Inc. ("SouthernNet"), a long
distance telecommunications company which was the predecessor to Telecom*USA,
Inc. Since July 1997, Mr. Gabbard has served as a Managing Director of South
Atlantic Private Equity Fund IV, Limited
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Partnership. He also currently serves as a director of two telecommunications
technology companies, Dynatech Corporation and Adtran, Inc.
RICHARD BODMAN has been a Director of the Company since June of 1996. Mr.
Bodman is currently the Managing General Partner of AT&T Ventures. From August
1990 to May 1996, Mr. Bodman served as Senior Vice President of Corporate
Strategy and Development for AT&T. Mr. Bodman also is currently a director of
the following public companies: Lin Television, Tyco International Inc., Reed
Elsevier and NHP, Inc.
DONALD W. BURTON has been a Director of the Company since January 1996. He
has served as the Managing General Partner of South Atlantic Venture Funds since
January 1981 and as the General Partner of The Burton Partnership, L.P. since
January 1979. Since January 1981, he has served as President of South Atlantic
Capital Corporation. Mr. Burton also serves as a director of ITC Holding,
ITC/\DeltaCom, PowerTel, Inc., of MTL Inc. (a bulk transportation service
company), the Heritage Group of Mutual Funds and several private companies.
CAMPBELL B. LANIER, III has been a Director of the Company since November
1995. Mr. Lanier serves as Chairman of the Board and Chief Executive Officer of
ITC Holding and served as a director of the corporate predecessor of ITC Holding
from its inception in May 1985 through another predecessor company to October
1997. He is Chairman of the Board and a director of ITC/\DeltaCom, a director of
MindSpring, National Vision Associates, Ltd. (a full service optical retailer),
K&G Men's Centers (a discount retailer of men's clothing), Vice Chairman of the
Board of AvData Systems, Inc. ("AvData") (a company providing data
communications networks) and Chairman of the Board of PowerTel, Inc. He served
as Chairman of the Board of AvData from June 1988 to September 1990. Mr. Lanier
has served as a Managing Director of South Atlantic Private Equity Fund IV,
Limited Partnership since 1997.
CLARENCE MARSHALL has been a Director of the Company since October 1996.
Since November 1992 he has served as Vice President of Corporate Planning for
Century Telephone. From June 1963 to October 1992, Mr. Marshall served as an
electronics engineer, Director of Market Development and Director of
International Development for Rockwell International, Inc.
WILLIAM H. SCOTT, III has been a Director of the Company since November
1995. Mr. Scott served as President of the corporate predecessor of ITC Holding
from December 1991 until October 1997 and was a director of the corporate
predecessor of ITC Holding from May 1989 until October 1997. Mr. Scott is a
director of several ITC Companies, including ITC Holding, PowerTel, Inc.,
AvData, ITC/\DeltaCom, and MindSpring. From 1989 to 1991, he served as Executive
Vice President of the corporate predecessor of ITC Holding. From 1985 to 1989,
Mr. Scott was an officer and director of Async Corporation. Between 1984 and
1988, Mr. Scott held several offices with SouthernNet, including Chief Operating
Officer, Chief Financial Officer, and Vice President -- Administration. He was a
director of SouthernNet from 1984 to 1987.
ANDREW M. WALKER has served as a Director of the Company since July 1996
and served as Chief Executive Officer and President of the Company from July
1996 until February 1997. Since March 1997, he has been Chief Executive Officer
and a director of ITC/\DeltaCom, Inc. Mr. Walker was President and Chief
Executive Officer of the Managing Partners of each of Interstate FiberNet and
Gulf States FiberNet, both ITC Companies, from November 1994 until March 1997.
Mr. Walker worked for MCI from August 1990 to November 1994 as Vice President
Carrier Services. From January 1986 to August 1990 Mr. Walker served as a
Division President for Telecom*USA. Prior to January 1986, Mr. Walker held
different positions with the Christian Broadcasting Network, M/A-Com and Comsat
Laboratories.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board currently has two committees, the Audit Committee and the
Compensation and Stock Option Committee. The Audit Committee, among other
things, recommends the firm to be appointed as independent accountants to audit
the Company's financial statements, discusses the scope and results of the audit
with the independent accountants, reviews with management and the independent
accounts the Company's interim and year-end operating results, considers the
adequacy of the internal accounting controls and audit procedures of
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the Company and reviews the non-audit services to be performed by the
independent accountants. The current members of the Audit Committee are Messrs.
Marshall and Bodman.
The Compensation and Stock Option Committee reviews and recommends the
compensation arrangements for management of the Company and administers the
Company's stock option plans. The current members of the Compensation and Stock
Option Committee are Messrs. Scott and Burton.
DIRECTOR COMPENSATION
Directors of the Company receive no directors' fees. Directors are
reimbursed for their reasonable out-of-pocket travel expenditures incurred.
Directors of the Company are also eligible to receive grants of stock options
under the Company's Stock Option Plan. Mr. Gabbard earns an annual salary of
$40,000 for his services as Chairman of the Board of Directors. In May 1997, Mr.
Gabbard was granted an option to purchase 100 shares of Common Stock of the
Company as additional compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation and Stock Option Committee are
Messrs. Scott and Burton.
INCENTIVE COMPENSATION PLAN
1995 Stock Option Plan. The Company's 1995 Stock Option Plan (the "Stock
Option Plan") provides for the grant of options that are intended to qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), as well as the grant of non-qualifying options to
key employees (including key employees who are officers and directors of the
Company) and non-employee directors of the Company and its subsidiaries. The
Stock Option Plan, as it will be amended prior to the closing of the Offering,
authorizes the issuance of up to 1,144 shares of Common Stock pursuant to
options granted under the Stock Option Plan (subject to anti-dilution
adjustments in the event of a stock split, recapitalization or similar
transaction). The maximum number of shares subject to options that may be
awarded under the Stock Option Plan to any person is 422 shares. The
Compensation and Stock Option Committee of the Board of Directors will
administer the Stock Option Plan and will grant options to purchase Common
Stock.
The option exercise price for incentive stock options granted under the
Stock Option Plan may not be less than 100% of the fair market value of the
Common Stock on the date of grant of the option (or 110% in the case of an
incentive stock option granted to an optionee beneficially owning more than 10%
of the outstanding Common Stock). The option exercise price for non-incentive
stock options granted under the Stock Option Plan may not be less than the par
value of the Common Stock on the date of grant of the option. The maximum option
term is ten years (or five years in the case of an incentive stock option
granted to an optionee beneficially owning more than 10% of the outstanding
Common Stock). Options may be exercised at any time after grant, except as
otherwise provided in the particular option agreement. There is also a $100,000
limit on the value of Common Stock (determined at the time of grant) covered by
incentive stock options that become exercisable by an optionee in any year.
The Board of Directors may amend, suspend or terminate the Stock Option
Plan with respect to shares of Common Stock as to which options have not been
granted.
At September 30, 1997, options to purchase 919.94 shares of Common Stock
were outstanding pursuant to the Stock Option Plan.
EXECUTIVE COMPENSATION
During 1997 Messrs. Morrow, McCormick, Boccucci, McCants and Luke (the
"Named Executive Officers") expect to earn salaries at annual rates of $120,000,
$100,000, $93,500, $90,000, and $90,000, respectively. If certain performance
goals are met, Messrs. Morrow, McCormick, Boccucci, McCants and Luke expect to
earn bonuses of $50,000, $17,500, $32,725, $20,250, and $20,250, respectively.
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<PAGE> 74
Most of the Named Executive Officers were initially employed by the Company
during 1997 or are in a different position with the Company than the position
held by such Named Executive Officer in 1996. Additionally, as the Company has
reevaluated its compensation structure, compensation information for the year
ended 1996 is of limited relevance and is not presented.
On March 12, 1997, the Company granted Mr. Morrow options to purchase 300
shares of Common Stock. On August 28, 1997, the Company granted Mr. McCormick
options to purchase 100 shares of Common Stock. On April 1, 1996, the Company
granted Mr. Boccucci options to purchase 110.11 shares of Common Stock. On May
18, 1997, the Company granted Mr. McCants options to purchase 70 shares of
Common Stock. On April 1, 1996, the Company granted Mr. Luke options to purchase
42.7 shares of Common Stock. All such options have an exercise price of $1,200
per share, and were granted under the Stock Option Plan. These options generally
vest over five years unless such person's employment with the Company is
terminated, in which case options that have not vested at that time will
terminate.
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<PAGE> 75
CERTAIN TRANSACTIONS
The Company has adopted a policy requiring that any material transactions
between the Company and persons or entities affiliated with officers, directors
or principal stockholders of the Company be on terms no less favorable to the
Company than reasonably could have been obtained in arm's-length transactions
with independent third parties.
TRANSACTIONS WITH ITC COMPANIES
The Systems were originally acquired in 1995 by entities that were directly
and indirectly owned by ITC Holding. The Company has conducted several private
placements of its Preferred Stock which diluted the original ownership interest
of ITC Holding, even though ITC Holding also purchased shares of Preferred Stock
of the Company in private placements in December 1995, January 1996, May 1996
and January 1997. In connection with a reorganization, ITC Holding transferred
all of its 7,595 shares of Preferred Stock of the Company to InterCall, a
wholly-owned subsidiary of ITC Holding. ITC Holding subsequently purchased
additional Preferred Stock of the Company in the Equity Private Placement. As of
October 31, 1997, ITC Holding owned approximately 30.0% of the outstanding
capital stock of the Company (including shares held by InterCall). See
"Principal Stockholders." As of October 20, 1997, Mr. Lanier beneficially owned
approximately 21.4% of the common stock of ITC Holding, and Mr. Scott, Mr.
Burton and Mr. Gabbard beneficially owned approximately 2.0%, 5.8% and .5%,
respectively, of the common stock of ITC Holding as of such date.
Mr. Walker and Mr. Boccucci served as executive officers of ITC Holding
prior to October 1997 and Mr. Walker currently serves as Chief Executive Officer
and director of ITC/\DeltaCom, which until October 1997 was owned by ITC Holding
and now is owned by substantially the same stockholders as ITC Holding. Mr.
Lanier and Mr. Scott serve as executive officers and directors of ITC Holding
and as executive officers and directors of a number of ITC Companies, including
ITC/\DeltaCom. Mr. Gabbard is director of ITC Holding and is a director of
several ITC Companies, including ITC/\DeltaCom. Mr. Burton serves as a director
of several ITC Companies, including ITC Holding, ITC/\DeltaCom and PowerTel,
Inc. "See Management -- Directors and Executive Officers."
In 1995, ITC Holding extended a series of unsecured, interest-free loans to
KNOLOGY Holding, L.L.C. The maximum aggregate principal amount of such loans was
$824,405. In 1995, ITC Service Company, a wholly owned subsidiary of ITC
Holding, extended to the Company (or KNOLOGY Holding, L.L.C., as applicable) a
series of unsecured, interest free loans, the maximum aggregate principal amount
of which was $151,583, to be used for the payment of salaries of employees.
These loans were repaid by December 31, 1995. In 1995, ITC Holding also extended
a series of unsecured loans to KNOLOGY of Montgomery at annual interest rates
ranging from 9.25% to 10.5%. The maximum aggregate principal amount of such
loans was $1,791,781. The loans were paid in full (including all interest
thereon) by January 31, 1996.
In December 1995, the Company used proceeds from sales of its Preferred
Stock to extend an unsecured loan to ITC Holding in the aggregate principal
amount of $4,255,835 at an annual interest rate of 7%. In May 1996, the Company
extended an unsecured loan to ITC Holding in the aggregate principal amount of
$10,500,000 at an annual interest rate of 7%. Both of these loans were paid in
full together with interest thereon by December 31, 1996.
ITC Holding was a co-obligor under the Montgomery Note and was a co-party
to the stock purchase agreement relating to the Montgomery Acquisition. ITC
Holding also was a guarantor of the Columbus Note and is a co-party to the asset
purchase agreement relating to the purchase of the Columbus System. In
connection with a reorganization of ITC Holding, ITC Holding pre-paid the
Montgomery Note and the Columbus Note and the Company repaid ITC Holding amounts
equal to the principal and accrued interest under such notes. The Montgomery
Note and Columbus Note (or refinancings of such notes by ITC Holding) were
repaid with a portion of the proceeds from the Offering and the Equity Private
Placement.
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<PAGE> 76
ITC Holding provides certain administrative services to the Company,
including legal and tax planning services. In 1995 and 1996, the Company paid
ITC Holding approximately $1,000 and $24,000, respectively, for these services.
The Company leases its office space in West Point, Georgia from J. Smith
Lanier & Co., Inc. In 1995 and 1996, the Company paid approximately $36,000 and
$86,000, respectively, for insurance services to J. Smith Lanier & Co., Inc.,
some of whose stockholders, directors and/or officers also were directors and/or
stockholders of ITC Holding and are directors and/or stockholders of ITC
Holding.
The Company's computers are connected with ITC Holding's local area
network. The Company pays ITC Holding no remuneration for such connection and
believes that the value of such connection is approximately $1,000 per year.
The Company is a customer of a number of ITC Companies. In 1995, the
Company paid Interstate FiberNet approximately $62,830 to construct fiber routes
to be developed for future use in Auburn, Alabama and paid Interstate Telephone
approximately $5,735 for local telephone service. In addition, the Company
received management services from Interstate FiberNet. These services were
primarily engineering and construction related. Interstate FiberNet did not bill
the Company for these services. The Company believes the value of these services
to be approximately $50,000. In 1996, the Company paid the following additional
amounts to ITC Companies: approximately $1,350 to Interstate FiberNet for the
lease of circuits; approximately $16,145 to Interstate Telephone Company for
local telephone service; and approximately $11,373 to PowerTel, Inc. for
cellular services. The Company has chosen ITC'DeltaCom as its exclusive long
distance carrier.
SALES OF CAPITAL STOCK
In December 1995 and January 1996, in connection with the initial
capitalization of the Company, the Company issued 7,780 shares of Preferred
Stock for a purchase price of $1,000 per share to certain of the current
stockholders of the Company for an aggregate amount of $7,780,000. ITC Holding
contributed $4,000,000 plus all of its direct and indirect interests in Cybernet
Holding, L.L.C. (a predecessor of the Company) and in KNOLOGY of Columbus, Inc.
(then known as American Cable, Inc.) in exchange for Preferred Stock.
In April 1996, in connection with a private placement of Preferred Stock of
the Company, the Company issued 9,312 shares of Preferred Stock for a purchase
price of $1,200 per share to certain of the current stockholders of the Company
for an aggregate amount of $11,174,400. In connection with this private
placement, the Company, ITC Holding, South Atlantic, Century Telephone and AT&T
Venture Funds entered into an Agreement Among Shareholders, which was amended
and restated as of July 28, 1997, pursuant to which the parties thereto agreed
to take all action within their respective power as may be required, for as long
as Century Telephone (and its affiliates) and/or Venture Fund I, L.P. (and their
respective affiliates) own equity securities of the Company with a combined
voting power in excess of 5% of the aggregate voting power of all outstanding
equity securities of the Company (each, a "5% Stockholder" for so long as it
owns in excess of 5% of the outstanding equity securities of the Company), to
cause to be elected to the Board of Directors of the Company one director
designated by each such 5% Stockholder.
In February 1997, the Company issued 8,960 shares of Preferred Stock to
certain of the current stockholders of the Company for a purchase price of
$1,200 per share, for an aggregate amount of $10,752,000. As part of this
private placement, ITC Holding, Century Telephone, South Atlantic and AT&T
Venture Funds contributed $4,302,000, $2,096,400, $1,000,800 and $1,416,000,
respectively, in exchange for Preferred Stock of Preferred Stock. See
"Description of Capital Stock."
The Company is a party to a Stockholders' Agreement (the "Stockholders'
Agreement"), dated as of December 8, 1995, as amended, with all of the
stockholders of the Company. None of the parties to the Stockholders' Agreement
may transfer any share of any class or series of capital stock of the Company or
any right or option to acquire any share of capital stock of the Company held by
such party to third parties
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<PAGE> 77
(subject to limited exceptions) without having offered rights of first refusal
to purchase such securities to the Company.
The Company issued approximately 21,400 shares of Preferred Stock to
qualified investors in the Equity Private Placement for a purchase price of
$1,500 per share, for an aggregate amount of approximately $32.2 million. ITC
Holding, Century Telephone, South Atlantic, AT&T Venture Funds and SCANA
purchased approximately $10.0 million, $2.5 million, $5.5 million, $5.0 million
and $5.0 million of Preferred Stock, respectively, in the Equity Private
Placement.
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<PAGE> 78
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information at October 31, 1997,
regarding beneficial ownership of the capital stock of the Company by (i) each
person known by the Company to beneficially own more than 5% of the outstanding
capital stock of the Company, (ii) each director of the Company, (iii) each
executive officer of the Company and (iv) all directors and executive officers
as a group. The information as to beneficial ownership has been furnished by the
respective stockholders, directors and executive officers of the Company, and,
unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
AMOUNT AND NATURE AND PERCENT OF
NATURE OF SHARES TOTAL SHARES OF CAPITAL
NAME AND ADDRESS OF BENEFICIAL OWNERS AND DIRECTORS BENEFICIALLY OWNED(1)(2) STOCK OUTSTANDING(2)
- ----------------------------------------------------- ------------------------- -----------------------
<S> <C> <C>
ITC Holding Company, Inc.(3)......................... 14,267 30.0%
Century Telephone Enterprises, Inc.(4)............... 6,747 14.2
South Atlantic Venture Funds(5)...................... 7,521 15.8
Donald W. Burton(5).................................. 7,521 15.8
AT&T Venture Fund II, L.P.(6)........................ 7,113 15.0
Richard Bodman(6).................................... 7,113 15.0
SCANA Communications, Inc.(7)........................ 3,639 7.7
Campbell B. Lanier, III(8)(12)....................... 948 2.0
O. Gene Gabbard(12).................................. 312 *
William H. Scott, III(12)............................ 256 *
Andrew M. Walker(12)................................. 81 *
Felix L. Boccucci, Jr.(9)(10)(12).................... 54 *
Marcus R. Luke(10)(12)............................... 23 *
William E. Morrow(10)(12)............................ 20 *
James McCormick(10)(12).............................. 20 *
Bret McCants(10)(12)................................. 8 *
Ancel A. Hamilton, Jr.(12)........................... -- *
Peggy B. Warner(12).................................. -- *
Clarence Marshall(11)(12)............................ -- *
All executive officers and directors as a
group(9)(10) (13 persons).......................... 16,356 34.43
</TABLE>
- ---------------
* Less than one percent.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, a person is deemed to be the beneficial owner, for purposes of
this table, of any shares of capital stock if such person has or shares
voting power or investment power with respect to such security, or has the
right to acquire beneficial ownership at any time within 60 days from
October 31, 1997. As used herein, "voting power" is the power to vote or
direct the voting of shares and "investment power" is the power to dispose
or direct the disposition of shares.
(2) Each share of capital stock owned represented in this table represents a
share of Preferred Stock of the Company, except for an option to purchase
44 shares of Common Stock granted to Mr. Boccucci.
(3) The address of ITC Holding is 206 West 9th Street, P.O. Box 510, West
Point, Georgia 31833. Includes 7,595 shares held by InterCall, Inc., a
wholly owned subsidiary of ITC Holding.
(4) The address of Century Telephone Enterprises, Inc. is 100 Century Park
Drive, Monroe, Louisiana 71203.
(5) The address of Mr. Burton and of each entity comprising the South Atlantic
Venture Funds is 614 West Bay Street, Suite 200, Tampa, Florida 33606.
Includes 3,834 shares held by South Atlantic Venture Fund III, Limited
Partnership, of which South Atlantic Venture Partners III, Limited
Partnership is the sole general partner, of which Mr. Burton is the
managing partner; 2,138 shares held by South Atlantic Venture Fund IV,
Limited Partnership, of which Mr. Burton is a general partner; and 1,549
shares held by South Atlantic Venture Fund IV (QP), Limited Partnership, of
which Mr. Burton is a general partner.
(6) The address of each of AT&T Venture Fund II, L.P. and Mr. Bodman is 2
Wisconsin Circle, #610, Chevy Chase, Maryland 20815. Includes 711 shares
owned by Venture Fund I, L.P., of which Venture Management I, a general
partnership, is the general partner, of which Mr. Bodman is the managing
general partner. The general partner of AT&T Venture Fund II, L.P. is
Venture Management, L.L.C., of which Mr. Bodman is a manager.
(7) The address of SCANA Communications, Inc. is 440 Knox Abbott Drive, Suite
240, Cayce, SC 29033. Does not include warrants to purchase 753 shares of
Preferred Stock to be issued in connection with a construction credit
facility or Warrants to purchase 265.3007 shares of Preferred Stock issued
in connection with the Offering.
(8) Includes 170 shares held by Campbell B. Lanier, III Life Trust.
(9) Includes options to purchase 44 shares of Common Stock which are currently
exercisable.
(10) Does not include options to purchase 42.7, 66.11, 300, 100 and 70 shares of
Common Stock held by Messrs. Luke, Boccucci, Morrow, McCormick and McCants
respectively, which are not exercisable within 60 days from October 31,
1997.
(11) Does not include shares held by Century Telephone of which Mr. Marshall is
a vice president.
(12) The address of each of Messrs. Lanier, Gabbard, Scott, Walker, Boccucci,
Luke, Morrow, McCormick, McCants and Hamilton and Ms. Warner is c/o KNOLOGY
Holdings, Inc., 312 West 8th Street, West Point, Georgia 31833.
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<PAGE> 79
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
The Company has received a commitment letter (the "Commitment Letter") from
First Union National Bank and First Union Capital Markets Corp. (collectively,
"First Union") pursuant to which First Union has agreed, subject to the terms
and conditions set forth in the Commitment Letter (including the closing of the
Offering and the Equity Private Placement, the negotiation of definitive loan
documents and satisfactory completion by First Union of its due diligence
review), to provide a New Credit Facility of up to $50.0 million to KNOLOGY of
Montgomery, KNOLOGY of Columbus and future subsidiaries of the Company (the
"Borrowers"), which will be guaranteed by the Company, to be used for working
capital and other general corporate purposes, including capital expenditures and
permitted acquisitions.
The following summary of the material provisions of the Commitment Letter
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Commitment Letter, a copy of which is filed as an
exhibit to the Registration Statement (of which this Prospectus is a part).
Defined terms that are used but not defined in this section have the meanings
given to such terms in the Commitment Letter. Because the terms, conditions and
covenants of the New Credit Facility are subject to the negotiation, execution
and delivery of the definitive loan documents, certain of the actual terms,
conditions and covenants thereof may differ from those described below.
The New Credit Facility will mature on the fifth anniversary of its
closing. Amounts drawn under the New Credit Facility will bear interest, at the
Borrowers' option, at either the Alternate Base Rate or the LIBOR rate, plus an
Applicable Margin. The Applicable Margin will be an annual rate which will
fluctuate based on the Borrower's Total Leverage Ratio (as defined below) and
which will be between 1.25% and .25% for Base Rate borrowings and between 2.25%
and 1.25% for the LIBOR rate borrowings.
The Commitment Letter contemplates that the Borrowers will be required to
repay indebtedness outstanding under the New Credit Facility with the net cash
proceeds from sales of assets, other than in the ordinary course of business,
above a specified threshold and with 50% of the net cash proceeds from certain
issuances of equity securities by the Company, excluding an initial public
offering.
The Commitment Letter contemplates that the Borrowers' obligations under
the New Credit Facility will be secured by a first priority security interest in
all tangible and intangible assets of the Borrowers and that the Company's
obligations under its guarantee will be secured by a pledge of the stock of all
wholly-owned subsidiaries of the Company, including the Borrowers, and a first
priority security interest on all tangible and intangible assets of the Company.
The Commitment Letter contemplates that the New Credit Facility will
contain a number of negative covenants, including, among others, covenants
limiting the ability of the Borrowers and their present and future subsidiaries
to incur debt, create liens, pay dividends, make distributions or stock
repurchases, make investments (including a limitation on investments by the
Company in subsidiaries other than the Company's two existing subsidiaries and
new subsidiaries that operate franchises in Panama City, Charleston and Augusta
(collectively, the "Initial Borrowers") to an amount equal to the proceeds of
the New Credit Facility, net proceeds of future debt and equity offerings plus
approximately $75 million), engage in transactions with affiliates, sell assets
and engage in mergers and acquisitions. In addition, the Commitment Letter
contemplates that the New Credit Facility will contain affirmative covenants,
including, among others, covenants requiring compliance with laws, maintenance
of properties, books and records and insurance, payment of obligations and the
delivery of financial and other information. The Commitment Letter contemplates
that the New Credit Facility will require, as a condition to initial funding,
that the Initial Borrowers have received from the Company and expended $100
million of the proceeds of this Offering and Equity Private Placement to expand
network operations, to consummate permitted acquisitions or for working capital.
The Commitment Letter contemplates that the Company will be required to
comply with certain financial tests and to maintain certain financial ratios on
a consolidated basis. The Company must maintain
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<PAGE> 80
(i) a Total Leverage Ratio, as of the end of any fiscal quarter beginning with
the fiscal quarter ending June 30, 2001, no greater than 7.0 to 1.0 with
subsequent adjustments to be determined, (ii) a Senior Leverage Ratio, as of the
end of any fiscal quarter, no greater than 5.0 to 1.0 initially, with subsequent
adjustments to be determined, and (iii) a Consolidated Adjusted Cash Flow to
Cash Interest Expense ratio, as of the end of each fiscal quarter, no less than
1.5 to 1.0 through June 30, 2001, with subsequent adjustments to be determined,
and, as of the end of each fiscal quarter beginning with the fiscal quarter
ending June 30, 2001, a Consolidated Cash Flow to Cash Interest Expense ratio no
less than amounts to be determined. Total Leverage Ratio means, at any date, the
ratio of Consolidated Total Funded Debt of the Company (on a consolidated basis)
on such date, less cash equivalents in excess of $1.0 million immediately
available to the Borrowers for repayment of the New Credit Facility, to
Consolidated Cash Flow. Consolidated Total Funded Debt means the aggregate
indebtedness of a person for borrowed money, obligations for deferred purchase
prices, obligations under capital leases, debt of other persons secured by liens
on assets of such person, guaranty obligations, obligations with respect to
letters of credit, obligations to redeem, repurchase, exchange, defease or
otherwise make payments in respect of capital stock and termination payments
under hedging arrangements. Consolidated Cash Flow means, for any two
consecutive fiscal quarters, the sum, multiplied by two, of consolidated net
income (loss) of the Borrowers for such period, plus income and franchise taxes,
interest expense, amortization, depreciation and other non-cash charges, in each
case to the extent included in the determination of such income (loss), less
interest income and extraordinary gains. Senior Leverage Ratio means, at the end
of any fiscal quarter prior to June 30, 2001, the ratio of Consolidated Senior
Funded Debt (Consolidated Total Funded Debt minus the Notes) to Consolidated
Adjusted Cash Flow, or, at the end of any fiscal quarter after June 30, 2001,
the ratio of Consolidated Senior Funded Debt to Consolidated Cash Flow.
Consolidated Adjusted Cash Flow is calculated in the same manner as Consolidated
Cash Flow, but only for Borrowers designated by the Company to be Designated
Borrowers (based upon achieving certain minimum operating thresholds).
The Commitment Letter contemplates that the New Credit Facility will
include other customary events of default including, without limitation a change
of control provision similar to that of the Notes.
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<PAGE> 81
DESCRIPTION OF THE EXCHANGE NOTES
The Senior Discount Notes were, and the Exchange Notes will be, issued
under the Indenture, dated as of October 22, 1997, between the Company and
United States Trust Company of New York, trustee under the Indenture (the
"Trustee"). A copy of the Indenture is filed as an exhibit to the Registration
Statement (of which this Prospectus is a part). The following summary contains a
description of certain provisions of the Indenture, but does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of 1939,
as amended. For definitions of certain capitalized terms used in the following
summary, see "-- Certain Definitions."
GENERAL
The terms of the Exchange Notes will be identical in all material respects
to the Senior Discount Notes, except that (i) the Exchange Notes will have been
registered under the Securities Act and therefore will not be subject to certain
restrictions on transfer applicable to the Senior Discount Notes and (ii)
Holders of the Exchange Notes will not be entitled to certain rights of Holders
of Senior Discount Notes under the Registration Rights Agreement.
The Exchange Notes will be unsecured unsubordinated obligations of the
Company, initially limited to $444,100,000 aggregate principal amount at
maturity, and will mature on October 15, 2007. Although for federal income tax
purposes a significant amount of original issue discount, taxable as ordinary
income, will be recognized by a Holder as such discount accrues from the issue
date of the Exchange Notes, no interest will be payable on the Exchange Notes
prior to April 15, 2003. From and after October 15, 2002, interest on the
Exchange Notes will accrue at the rate of 11 7/8% per annum from October 15,
2002 or from the most recent Interest Payment Date to which interest has been
paid or provided for, payable semiannually (to Holders of record at the close of
business on April 1 or October 1 immediately preceding the Interest Payment
Date) on April 15 and October 15 of each year, commencing April 15, 2003.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
If, by the date that is six months after the Closing Date, the Company has
not consummated the Exchange Offer or caused a shelf registration statement with
respect to resales of the Exchange Notes to be declared effective, interest on
the Exchange Notes (in addition to the accrual of original issue discount during
the period ending October 15, 2002 and in addition to interest otherwise due on
the Exchange Notes after such date) will accrue at the rate of .5% per annum of
the Accreted Value on the preceding Semi-Annual Accrual Date and be payable in
cash semiannually on April 15 and October 15 of each year, commencing October
15, 1998, until the consummation of the registered Exchange Offer or the
effectiveness of a shelf registration statement. See "-- Registration Rights."
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Exchange Notes may be exchanged or transferred, at the office
or agency of the Company in the Borough of Manhattan, The City of New York
(which initially will be the corporate trust office of the Trustee at 114 West
47th Street, New York, New York 10036-1532); provided that, at the option of the
Company, payment of interest may be made by check mailed to the Holders at their
addresses as they appear in the Security Register.
The Exchange Notes will be issued only in fully registered form, without
interest coupons, in denominations of $1,000 of principal amount and any
integral multiple thereof. See "-- Book-Entry; Delivery and Form." No service
charge will be made for any registration of transfer or exchange of Exchange
Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
Subject to the covenants described below under "Covenants" and applicable
law, the Company may issue additional Notes under the Indenture. The Exchange
Notes offered hereby and any additional Notes subsequently issued would be
treated as a single class for all purposes under the Indenture.
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<PAGE> 82
OPTIONAL REDEMPTION
The Exchange Notes will be redeemable, at the Company's option, in whole or
in part, at any time or from time to time, on or after October 15, 2002 and
prior to maturity, upon not less than 30 nor more than 60 days' prior notice
mailed by first class mail to each Holder's last address, as it appears in the
Security Register, at the following Redemption Prices (expressed in percentages
of principal amount at maturity), plus accrued and unpaid interest, if any, to
the Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is prior to the Redemption Date to receive interest due
on an Interest Payment Date), if redeemed during the 12-month period commencing
October 15, of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
----------------------------------------------------- ----------------
<S> <C>
2002................................................. 105.93750%
2003................................................. 102.96875
2004 and thereafter.................................. 100.00000
</TABLE>
In addition, at any time prior to October 15, 2000, the Company may redeem
up to 35% of the Accreted Value of the Senior Discount Notes and the Exchange
Notes with the proceeds of one or more Public Equity Offerings following which a
Public Market occurs, at any time or from time to time in part, at a Redemption
Price (expressed as a percentage of Accreted Value on the Redemption Date) of
111.875%; provided that at least $288,665,000 aggregate principal amount at
maturity of Senior Discount Notes and Exchange Notes remains outstanding after
each such redemption.
If less than all of the Notes are to be redeemed at any time, the Trustee
will select the Notes, or portions thereof, for redemption in compliance with
the requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not listed on a national securities
exchange, on a pro rata basis, by lot or by such other method as the Trustee in
its sole discretion shall deem to be fair and appropriate; provided that no Note
of $1,000 in principal amount at maturity or less shall be redeemed in part. If
any Note is to be redeemed in part only, the notice of redemption relating to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Note.
REGISTRATION RIGHTS
The Company entered into the Registration Rights Agreement with the
Placement Agents and SCANA, for the benefit of the holders of the Senior
Discount Notes, pursuant to which the Company has agreed to file the
Registration Statement (of which this Prospectus is a part) with the Commission.
The Registration Rights Agreement provides that the Company will use its best
efforts, at its cost, to file and cause to become effective the Registration
Statement with respect to the Exchange Offer. Upon the effectiveness of the
Registration Statement, the Company will offer the Exchange Notes in exchange
for surrender of the Senior Discount Notes. The Company has agreed to keep the
Exchange Offer open for not less than 20 business days after the date notice of
the Exchange Offer is mailed to holders of the Senior Discount Notes. For each
Senior Discount Note surrendered to the Company pursuant to the Exchange Offer,
the holder of such Senior Discount Note will receive an Exchange Note of equal
principal amount at maturity. The accreted value of each Exchange Note shall be
identical to, and shall be determined in the same manner as, the Accreted Value
of the Senior Discount Notes so surrendered and exchanged therefor. Under
existing Commission interpretations, the Exchange Notes would be freely
transferable by holders other than affiliates of the Company after the Exchange
Offer without further registration under the Securities Act if the holder of the
Exchange Notes represents that it is acquiring the Exchange Notes in the
ordinary course of its business, that it has no arrangement or understanding
with any person to participate in the distribution of the Exchange Notes and
that it is not an affiliate of the Company, as such terms are interpreted by the
Commission; provided that broker-dealers ("Participating Broker-Dealers")
receiving Exchange Notes in the Exchange Offer will have a prospectus delivery
requirement with respect to resales of such Exchange Notes. The Commission has
taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to Exchange Notes with the
prospectus contained in the Registration Statement under certain circumstances.
Under the Registration Rights Agreement, the Company is required to allow
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Participating Broker-Dealers and other persons, if any, with similar prospectus
delivery requirements to use this Prospectus in connection with the resale of
such Exchange Notes.
A holder of Senior Discount Notes who wishes to exchange such Senior
Discount Notes for Exchange Notes in the Exchange Offer will be required to
represent that, among other things, any Exchange Notes to be received by it will
be acquired in the ordinary course of its business and that at the time of the
commencement of the Exchange Offer it has no arrangement or understanding with
any person to participate in a distribution (within the meaning of the
Securities Act) of the Exchange Notes and that it is not an "affiliate" of the
Company, as defined in Rule 405 of the Securities Act, or if it is an affiliate,
that it will comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable.
The Company has filed the Registration Statement (of which this Prospectus
is a part) and will commence the Exchange Offer pursuant to the Registration
Rights Agreement. In the event that applicable interpretations of the staff of
the Commission do not permit the Company to effect the Exchange Offer, or under
certain other circumstances, the Company shall, at its cost, use its best
efforts to cause to become effective a shelf registration statement (the "Shelf
Registration Statement") with respect to resales of the Senior Discount Notes
and to keep the Shelf Registration Statement effective until the expiration of
the time period referred to in Rule 144(k) under the Securities Act (or for so
long as any Holder is an Affiliate of the Company), or such shorter period that
will terminate when all Senior Discount Notes covered by the Shelf Registration
Statement have been sold pursuant to the Shelf Registration Statement. The
Company has agreed, in the event a Shelf Registration Statement is filed, among
other things, to provide to each holder for whom the Shelf Registration
Statement was filed copies of the prospectus which is a part of the Shelf
Registration Statement, to notify each holder when the Shelf Registration
Statement for the Senior Discount Notes has become effective and to take certain
other actions as are required to permit unrestricted resales of the Senior
Discount Notes. A holder that sells its Senior Discount Notes pursuant to the
Shelf Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such a
Holder (including certain provisions containing indemnification obligations).
In the event that the Exchange Offer is not consummated and a Shelf
Registration Statement is not declared effective on or prior to the date that is
six months after the Closing Date, interest on the Senior Discount Notes (in
addition to the accrual of original issue discount during the period ending
October 15, 2002 and in addition to interest otherwise due on the Senior
Discount Notes after such date) will accrue at the rate of .5% per annum of the
Accreted Value on the preceding Semi-Annual Accrual Date and be payable in cash
semiannually on April 15 and October 15 of each year, commencing October 15,
1998, until the Exchange Offer is consummated or the Shelf Registration
Statement is declared effective.
Senior Discount Notes not tendered in the Exchange Offer shall accrue
interest at the rate of 11 7/8% per annum and be subject to all of the terms and
conditions specified in the Indenture and to the transfer restrictions described
in "Transfer Restrictions."
This summary of certain provisions of the Registration Rights Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
RANKING
The Indebtedness evidenced by the Exchange Notes will rank pari passu in
right of payment with the Senior Discount Notes and all other existing and
future unsubordinated indebtedness of the Company and senior in right of payment
to all existing and future subordinated indebtedness of the Company. After
giving pro forma effect to the Offering and the Equity Private Placement, as of
September 30, 1997, the Company would have had (on an unconsolidated basis)
$456,785 of indebtedness outstanding other than the Senior Discount Notes and
the Exchange Notes. The Company is permitted to incur additional indebtedness to
finance the acquisition of equipment, inventory and network assets and up to $50
million of other indebtedness
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and is permitted to secure any such indebtedness. The Exchange Notes will be
effectively subordinated to such security interests to the extent of such
security interests.
The Company is a holding company which conducts substantially all of its
business through subsidiaries. The Company's subsidiaries will have no direct
obligation to pay amounts due on the Senior Discount Notes and the Exchange
Notes and will not guarantee the Senior Discount Notes and the Exchange Notes.
As a result, the Senior Discount Notes are, and the Exchange Notes will be,
effectively subordinated to all existing and future indebtedness and other
liabilities (including trade payables) of the Company's subsidiaries. After
giving pro forma effect to the Offering and the Equity Private Placement as of
September 30, 1997, the Company's subsidiaries would have had approximately $4.1
million of liabilities (excluding intercompany payables). The Company will be
dependent upon access to the cash flow or assets of its subsidiaries to make
payments on the Exchange Notes and the Company's ability to obtain such access
may be limited by law. See "Risk Factors -- Holding Company Structure; Priority
of Secured Debt."
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the definition of any other capitalized term used herein for which
no definition is provided.
"Accreted Value" is defined to mean, for any Specified Date, the amount
calculated pursuant to (i), (ii), (iii) or (iv) for each $1,000 of principal
amount at maturity of Notes:
(i) if the Specified Date occurs on one or more of the following dates
(each a "Semi-Annual Accrual Date"), the Accreted Value will equal the
amount set forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
------------------------------------------ ---------
<S> <C>
April 15, 1998............................ $ 595.04
October 15, 1998.......................... $ 630.37
April 15, 1999............................ $ 667.80
October 15, 1999.......................... $ 707.45
April 15, 2000............................ $ 749.46
October 15, 2000.......................... $ 793.96
April 15, 2001............................ $ 841.10
October 15, 2001.......................... $ 891.04
April 15, 2002............................ $ 943.95
October 15, 2002.......................... $1,000.00
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (a) $562.96 and (b) an
amount equal to the product of (1) the Accreted Value for the first
Semi-Annual Accrual Date less $562.96 multiplied by (2) a fraction, the
numerator of which is the number of days from the issue date of the Notes
to the Specified Date, using a 360-day year of twelve 30-day months, and
the denominator of which is the number of days elapsed from the issue date
of the Notes to the first Semi-Annual Accrual Date, using a 360-day year of
twelve 30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value for
the Semi-Annual Accrual Date immediately preceding such Specified Date and
(b) an amount equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (2) a
fraction, the numerator of which is the number of days from the immediately
preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day
year of twelve 30-day months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
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"Acquired Assets" means (i) the Capital Stock of any Person that becomes a
Restricted Subsidiary after the Closing Date and (ii) the real or personal
property of any Person that becomes a Restricted Subsidiary after the Closing
Date.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary; provided that Indebtedness of such
Person which is redeemed, defeased, retired or otherwise repaid at the time of
or immediately upon consummation of the transactions by which such Person
becomes a Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income (or loss) of any Person (other than a Restricted Subsidiary)
in which any Person (other than the Company or any of its Restricted
Subsidiaries) has a joint interest and the net income (or loss) of any
Unrestricted Subsidiary, except (x) with respect to net income, to the extent of
the amount of dividends or other distributions actually paid to the Company or
any of its Restricted Subsidiaries by such other Person or such Unrestricted
Subsidiary during such period and (y) with respect to net losses, to the extent
of the amount of cash contributed by the Company or any Restricted Subsidiary to
such Person during such period; (ii) solely for the purposes of calculating the
amount of Restricted Payments that may be made pursuant to clause (C) of the
first paragraph of the "Limitation on Restricted Payments" covenant described
below (and in such case, except to the extent includable pursuant to clause (i)
above), the net income (or loss) of any Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with the
Company or any of its Restricted Subsidiaries or all or substantially all of the
property and assets of such Person are acquired by the Company or any of its
Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by such Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
such Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (v) except for purposes of calculating, the amount
of Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of the "Limitation on Restricted Payments" covenant described below,
any amount paid or accrued as dividends on Preferred Shares (other than accrued
dividends which, pursuant to the terms of the Preferred Shares, will not be
payable prior to the first anniversary after the Stated Maturity of the Notes)
of the Company or any Restricted Subsidiary owned by Persons other than the
Company and any of its Restricted Subsidiaries; and (vi) all extraordinary gains
and extraordinary losses.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or line
of business of such Person; provided that the property and assets acquired are
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the
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Capital Stock of any Restricted Subsidiary or (ii) all or substantially all of
the assets that constitute a division or line of business of the Company or any
of its Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not governed by the
provisions of the Indenture applicable to mergers, consolidations and sales of
all or substantially all of the assets of the Company; provided that "Asset
Sale" shall not include (a) sales, transfers or other dispositions of inventory,
receivables and other current assets, (b) sales, transfers or other dispositions
of assets with a fair market value (as certified in an Officers' Certificate)
not in excess of $500,000 in any transaction or series of related transactions
or (c) sales, transfers or other dispositions of assets for consideration at
least equal to the fair market value of the assets sold, transferred or
otherwise disposed of to the extent the consideration received would constitute
property or assets of the kind described in clause (B) of the "Limitation on
Assets Sales" covenant described below, provided that after giving pro forma
effect to such exchange, the Consolidated Leverage Ratio shall be no greater
than the Consolidated Leverage Ratio immediately prior to such exchange.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Shares and Preferred Shares.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i)(a) prior to the occurrence of a
Public Market, a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of Voting Stock representing a
greater percentage of the total voting power of the Voting Stock of the Company,
on a fully diluted basis, than is held by the Existing Stockholders on such date
and (b) after the occurrence of a Public Market, a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 35% of the total voting power of the Voting Stock of the Company, on a
fully diluted basis, and such ownership represents a greater percentage of the
total voting power of the Voting Stock of the Company, on a fully diluted basis,
than is held by the Existing Stockholders on such date; or (ii) individuals who
on the Closing Date constitute the Board of Directors (together with any new
directors whose election by the Board of Directors or whose nomination by the
Board of Directors for election by the Company's stockholders was approved by a
vote of at least two-thirds of the members of the Board of Directors then in
office who either were members of the Board of Directors on the Closing Date or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the members of the Board of Directors
then in office.
"Closing Date" means the date on which the Notes are originally issued
under the Indenture.
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"Common Shares" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's equity, other than Preferred Shares of
such Person, whether outstanding on the Closing Date or issued thereafter,
including, without limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, for any period, the sum of the amounts for
such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income, (v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, and (vi) all other non-cash items
reducing Adjusted Consolidated Net Income (other than items that will require
cash payments and for which an accrual or reserve is, or is required by GAAP to
be, made), less all non-cash items increasing Adjusted Consolidated Net Income,
all as determined on a consolidated basis for the Company and its Restricted
Subsidiaries in conformity with GAAP; provided that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the quotient of (1)
the number of outstanding Common Shares of such Restricted Subsidiary not owned
on the last day of such period by the Company or any of its Restricted
Subsidiaries divided by (2) the total number of outstanding Common Shares of
such Restricted Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting, all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; excluding, however, (i) any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in connection
with the offering of the Notes and the Warrants, all as determined on a
consolidated basis (without taking into account Unrestricted Subsidiaries) in
conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis outstanding on such Transaction Date to
(ii) the aggregate amount of Consolidated EBITDA for the then most recent four
fiscal quarters for which financial statements of the Company have been filed
with the Commission or provided to the Trustee pursuant to the "Commission
Reports and Reports to Holders" covenant described below (such four fiscal
quarter period being the "Four Quarter Period"); provided that, in making the
foregoing calculation, (A) pro forma effect shall be given to any Indebtedness
to be Incurred or repaid on the Transaction Date; (B) pro forma effect shall be
given to Asset Dispositions and Asset Acquisitions (including giving pro forma
effect to the application of proceeds of any Asset Disposition) that occur from
the beginning of the Four Quarter Period through the Transaction Date (the
"Reference Period"), as if they had occurred and such proceeds had been applied
on the first day of such Reference Period; (C) pro forma effect shall be given
to asset dispositions and asset acquisitions (including giving pro forma effect
to the application of proceeds of any asset disposition) that have been made by
any Person that has become a Restricted Subsidiary or has been merged with or
into the Company or any Restricted Subsidiary during such Reference Period and
that would have constituted Asset Dispositions or Asset Acquisitions had such
transactions occurred when
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such Person was a Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the
first day of such Reference Period; provided that to the extent that clause (B)
or (C) of this sentence requires that pro forma effect be given to an Asset
Acquisition or Asset Disposition, such pro forma calculation shall be based upon
the four full fiscal quarters immediately preceding the Transaction Date of the
Person, or division or line of business of the Person, that is acquired or
disposed of for which financial information is available; and (D) the aggregate
amount of Indebtedness outstanding as of the end of the Reference Period will be
deemed to include the total amount of funds outstanding and/or available on the
Transaction Date under any revolving credit or similar facilities of the Company
or its Restricted Subsidiaries.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Redeemable Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Credit Agreement" means the $50.0 million credit facility to be entered
into by the Company and its Restricted Subsidiaries, First Union National Bank
and First Union Capital Markets Corp. pursuant to a commitment letter dated
September 29, 1997.
"Credit Facilities" means revolving credit or working capital facilities or
similar facilities made available from time to time to the Company and its
Restricted Subsidiaries.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Existing Stockholders" means ITC Holding, Campbell B. Lanier, III and
SCANA Corporation and their Affiliates, and Campbell B. Lanier, III's spouse and
any one or more of his lineal descendants and their spouses; provided, however,
that any such person other than Campbell B. Lanier, III shall only be deemed to
be an "Existing Stockholder" to the extent such person's Capital Stock of the
Company was received, directly or indirectly, from Campbell B. Lanier, III.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution; provided that for purposes of clause (viii) of
the second paragraph of the "Limitation on Indebtedness" covenant, (x) the fair
market value of any security registered under the Exchange Act shall be the
average of the closing prices, regular way, of such security for the 20
consecutive trading days immediately preceding the capital contribution or sale
of Capital Stock and (y) in the event the aggregate fair market value of any
other property (other than cash or cash equivalents) received by the Company
exceeds $10 million, the fair market value of such property shall be determined
by a nationally recognized investment banking firm and set forth in their
written opinion which shall be delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including, without limitation, those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indenture shall be computed in conformity with GAAP applied on a consistent
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basis, except that computations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the Indenture shall be
made without giving effect to (i) the amortization of any expenses incurred in
connection with the offering of the Notes and the Warrants and (ii) except as
otherwise provided, the amortization of any amounts required or permitted by
Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Holder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an Incurrence of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, except Trade Payables, (v) all Capitalized Lease Obligations of
such Person, (vi) all Indebtedness of other Persons secured by a Lien on any
asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided that the amount of such Indebtedness shall be the lesser of (A)
the fair market value of such asset at such date of determination and (B) the
amount of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed
by such Person to the extent such Indebtedness is Guaranteed by such Person and
(viii) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date (or, in the case of a revolving credit or other similar facility, the total
amount of funds outstanding and/or available on the date of determination) of
all unconditional obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the contingency giving
rise to the obligation, provided (A) that the amount outstanding at any time of
any Indebtedness issued with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at the time of its issuance as determined in
conformity with GAAP, (B) that money borrowed and set aside at the time of the
Incurrence of any Indebtedness in order to prefund the payment of the interest
on such Indebtedness shall not be deemed to be "Indebtedness" and (C) that
Indebtedness shall not include any liability for federal, state, local or other
taxes.
"Interest Rate Agreement" means 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, option or futures contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to
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customers in the ordinary course of business that are, in conformity with GAAP,
recorded as accounts receivable on the balance sheet of the Company or its
Restricted Subsidiaries) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
bonds, notes, debentures or other similar instruments issued by, such Person and
shall include (i) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary and (ii) the fair market value of the Capital Stock (or any other
Investment), held by the Company or any of its Restricted Subsidiaries, of (or
in) any Person that has ceased to be a Restricted Subsidiary, including, without
limitation, by reason of any transaction permitted by clause (iii) of the
"Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant described below. For purposes of the definition of
"Unrestricted Subsidiary" and the "Limitation on Restricted Payments" covenant
described below, (i) "Investment" shall include the fair market value of the
assets (net of liabilities (other than liabilities to the Company or any of its
Subsidiaries)) of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair market value
of the assets (net of liabilities (other than liabilities to the Company or any
of its Subsidiaries)) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments and (iii) any property
transferred to or from any Person shall be valued at its fair market value at
the time of such transfer.
"ITC Holding" means ITC Holding Company, Inc., a Delaware corporation, and
after ITC Holding transfers its shares of capital stock in the Company to ITC
West Point, Inc., ITC West Point, Inc.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP, and (b) with respect
to any capital contribution or issuance or sale of Capital Stock, options,
warrants or other rights to acquire Capital Stock or Indebtedness, the proceeds
of such capital contribution or issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of attorney's fees, accountants'
fees, underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees incurred in connection with such issuance
or sale and net of taxes paid or payable as a result thereof.
"Offer to Purchase" means an offer by the Company to purchase Notes from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Payment Date"); (iii) that any Note not tendered will continue to
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accrue interest (or original issue discount) pursuant to its terms; (iv) that,
unless the Company defaults in the payment of the purchase price, any Note
accepted for payment pursuant to the Offer to Purchase shall cease to accrue
interest (or original issue discount) on and after the Payment Date; (v) that
Holders electing to have a Note purchased pursuant to the Offer to Purchase will
be required to surrender the Note, together with the form entitled "Option of
the Holder to Elect Purchase" on the reverse side of the Note completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the Business Day immediately preceding the Payment Date; (vi) that
Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
immediately preceding the Payment Date, a facsimile transmission or letter
setting forth the name of such Holder, the principal amount at maturity of Notes
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased; and (vii) that Holders whose Notes are
being purchased only in part will be issued new Notes equal in principal amount
to the unpurchased portion of the Notes surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount at maturity of
$1,000 or integral multiples thereof. On the Payment Date, the Company shall (i)
accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The Paying Agent shall promptly mail to the Holders of Notes so accepted payment
in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount at
maturity to any unpurchased portion of the Note surrendered; provided that each
Note purchased and each new Note issued shall be in a principal amount at
maturity of $1,000 or integral multiples thereof. The Company will publicly
announce the results of an Offer to Purchase as soon as practicable after the
Payment Date. The Trustee shall act as the Paying Agent for an Offer to
Purchase. The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that the Company is required to
repurchase Notes pursuant to an Offer to Purchase.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) a Temporary Cash
Investment; (iii) commission, payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses in accordance with GAAP; (iv) stock, obligations or securities
received in satisfaction of judgments; (v) Investments in prepaid expenses,
negotiable instruments held for collection, and lease, utility and workers'
compensation, performance and other similar deposits; (vi) loans or advances to
employees of the Company or a Restricted Subsidiary made in the ordinary course
of business that do not in the aggregate exceed $500,000 at any time
outstanding; and (vii) Interest Rate Agreements and Currency Agreements to the
extent permitted under clause (iv) of the "Limitation on Indebtedness" covenant
described below.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provisions, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory and common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provisions, if any, as shall be required in conformity with
GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the
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ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company or
any of its Restricted Subsidiaries; (vi) Liens (including extensions and
renewals thereof) upon real or personal property (including, without limitation,
Acquired Assets) acquired after the Closing Date; provided that (a) such Lien is
created solely for the purpose of securing Indebtedness Incurred, in accordance
with the "Limitation on Indebtedness" covenant described below, to finance the
cost (including, without limitation, the cost of design, development,
construction, acquisition, installation, improvement, transportation or
integration) of the real or personal property subject thereto and such Lien is
created prior to, at the time of or within six months after the latest of the
acquisition, the completion of construction or the commencement of full
operation of such real or personal property; provided that in the case of
Acquired Assets, the Lien secures the Indebtedness Incurred to purchase the
Capital Stock of the Person to make such Person a Restricted Subsidiary, (b) the
principal amount of the Indebtedness secured by such Lien does not exceed 100%
of such cost and (c) any such Lien shall not extend to or cover any real or
personal property other than such real or personal property and any improvements
on such real or personal property and any proceeds thereof; (vii) leases or
subleases granted to others that do not materially interfere with the ordinary
course of business of the Company and its Restricted Subsidiaries, taken as a
whole; (viii) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of the Company or its Restricted
Subsidiaries relating to such property or assets; (ix) any interest or title of
a lessor in the property subject to any Capitalized Lease or operating lease;
(x) Liens arising from filing Uniform Commercial Code financing statements
regarding leases; (xi) Liens on property of, or on shares of Capital Stock or
Indebtedness of, any Person existing at the time such Person becomes, or becomes
a part of, any Restricted Subsidiary; provided that such Liens do not extend to
or cover any property or assets of the Company or any Restricted Subsidiary
other than the property or assets acquired and any proceeds thereof; (xii) Liens
in favor of the Company or any Restricted Subsidiary; (xiii) Liens arising from
the rendering of a final judgment or order against the Company or any Restricted
Subsidiary that does not give rise to an Event of Default; (xiv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the products
and proceeds thereof; (xv) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (xvi) Liens encumbering customary initial
deposits and margin deposits, and other Liens that are either within the general
parameters customary in the industry and incurred in the ordinary course of
business, in each case securing Indebtedness under Interest Rate Agreements and
Currency Agreements and forward contracts, options, futures contracts, futures
options or similar agreements or arrangements designed solely to protect the
Company or any of its Restricted Subsidiaries from fluctuations in interest
rates, currencies or the price of commodities; (xvii) Liens arising out of
conditional sale, title retention, consignment or similar arrangements for the
sale of goods entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business in accordance with the past practices of the
Company and its Restricted Subsidiaries prior to the Closing Date; (xviii) Liens
on or sales of receivables, including related intangible assets and proceeds
thereof; (xix) Liens that secure Indebtedness with an aggregate principal amount
not to exceed $5 million at any time outstanding; and (xx) Liens made in the
ordinary course of business on assets subject to rights-of-way, pole attachment,
use of conduit, use of trenches or similar agreements securing the Company's or
any Restricted Subsidiary's obligations under such agreements.
"Preferred Shares" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference equity, whether
outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of such preferred or preference stock.
"Public Equity Offering" means an underwritten primary public offering of
Common Shares of the Company pursuant to an effective registration statement
under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 15% of the total issued and outstanding
Common Shares of the Company has been distributed by
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means of an effective registration statement under the Securities Act or sales
pursuant to Rule 144 under the Securities Act.
"Redeemable Stock" means any class or series of Capital Stock of any Person
that by its terms or otherwise is (i) required to be redeemed prior to the
Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable in any material respect
to the holders of such Capital Stock than the provisions contained in
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described below are to the holders of the Notes and such Capital Stock
specifically provides that such Person will not repurchase or redeem any such
stock pursuant to such provisions prior to the Company's repurchase of such
Notes as are required to be repurchased pursuant to the "Limitation on Asset
Sales" and "Repurchase of Notes upon a Change of Control" covenants described
below.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"Specified Date" means any Redemption Date, any Payment Date for an Offer
to Purchase or any date on which the Notes first become due and payable after an
Event of Default.
"Stated Maturity" means (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Strategic Subordinated Indebtedness" means Indebtedness of the Company
Incurred to finance the acquisition of a Person engaged in the
Telecommunications Business that by its terms, or by the terms of any agreement
or instrument pursuant to which such Indebtedness is Incurred, (i) is expressly
made subordinate in right of payment to the Notes and (ii) provides that no
payment of principal, premium or interest on, or any other payment with respect
to, such Indebtedness may be made prior to the payment in full of all of the
Company's obligations under the Notes; provided that such Indebtedness may
provide for and be repaid at any time from the proceeds of the sale of Capital
Stock (other than Redeemable Stock) of the Company after the Incurrence of such
Indebtedness.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Telecommunications Business" means the development, ownership or operation
of one or more cable television, telephone, telecommunications or information
systems or the provision of telephony, telecommunications or information
services (including, without limitation, any voice, video transmission, data or
Internet services) and any related, ancillary or complementary business.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits
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maturing within one year of the date of acquisition thereof issued by a bank or
trust company which is organized under the laws of the United States of America,
any state thereof or any foreign country recognized by the United States of
America, and which bank or trust company has capital, surplus and undivided
profits aggregating in excess of $50 million (or the foreign currency equivalent
thereof) and has outstanding debt which is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
commercial paper, maturing not more than one year after the date of acquisition,
issued by a corporation (other than an Affiliate of the Company) organized and
in existence under the laws of the United States of America, any state thereof
or any foreign country recognized by the United States of America with a rating
at the time as of which any investment therein is made of "P-1" (or higher)
according to Moody's Investors Service, Inc. or "A-1" (or higher) according to
Standard & Poor's Ratings Services, and (v) securities with maturities of six
months or less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by Standard & Poor's Ratings Services or Moody's Investors Service,
Inc.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
"Limitation on Restricted Payments" covenant described below. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that (i) no Default or Event of Default shall have occurred
and be continuing at the time of or after giving effect to such designation and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately after such designation would, if Incurred at such time, have been
permitted to be Incurred for all purposes of the Indenture. Any such designation
by the Board of Directors shall be evidenced to the Trustee by promptly filing
with the Trustee a copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
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COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and Indebtedness
existing on the Closing Date); provided that the Company may Incur Indebtedness
if, after giving effect to the Incurrence of such Indebtedness and the receipt
and application of the proceeds thereof, the Consolidated Leverage Ratio would
be greater than zero and (x) less than or equal to 7 to 1, for Indebtedness
Incurred on or prior to September 30, 1999, or (y) less than or equal to 5 to 1,
for Indebtedness Incurred thereafter.
Notwithstanding the foregoing, the Company, and (except as specified below)
any Restricted Subsidiary, may Incur each and all of the following: (i)
Indebtedness in an aggregate principal amount outstanding or available at any
time not to exceed $50 million, less any amount of such Indebtedness permanently
repaid as provided under the "Limitation on Asset Sales" covenant described
below; (ii) Indebtedness owed (A) to the Company and evidenced by an
unsubordinated promissory note or (B) to any Restricted Subsidiaries; provided
that any event which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Indebtedness (other
than to the Company or another Restricted Subsidiary) shall be deemed, in each
case, to constitute an Incurrence of such Indebtedness not permitted by this
clause (ii); (iii) Indebtedness issued in exchange for, or the net proceeds of
which are used to refinance or refund, then outstanding Indebtedness (other than
Indebtedness Incurred under clause (i), (ii), (iv), (vi), (ix) or (x) of this
paragraph) and any refinancings of such new Indebtedness in an amount not to
exceed the amount so refinanced or refunded (plus premiums, accrued interest,
fees and expenses); provided that Indebtedness the proceeds of which are used to
refinance or refund the Notes or Indebtedness that is pari passu in right of
payment with, or subordinated in right of payment to, the Notes shall only be
permitted under this clause (iii) if (A) in case the Notes are refinanced in
part or the Indebtedness to be refinanced is pari passu in right of payment with
the Notes, such new Indebtedness, by its terms or by the terms of any agreement
or instrument pursuant to which such new Indebtedness is outstanding, is
expressly made pari passu in right of payment with, or subordinate in right of
payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced
is subordinated in right of payment to the Notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made subordinate in
right of payment to the Notes at least to the extent that the Indebtedness to be
refinanced is subordinated to the Notes and (C) such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does not
mature prior to the Stated Maturity of the Indebtedness to be refinanced or
refunded, and the Average Life of such new Indebtedness is at least equal to the
remaining Average Life of the Indebtedness to be refinanced or refunded; and
provided further that in no event may Indebtedness of the Company be refinanced
by means of any Indebtedness of any Restricted Subsidiary pursuant to this
clause (iii); (iv) Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business, (B) under Currency Agreements
and Interest Rate Agreements; provided that such agreements (a) are designed
solely to protect the Company or its Subsidiaries against fluctuations in
foreign currency exchange rates or interest rates and (b) do not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder or (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in each case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
(other than Guarantees of Indebtedness Incurred by any Person acquiring all or
any portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition; (v) Indebtedness of the Company, to the extent
the net proceeds thereof are promptly (A) used to purchase Notes tendered in an
Offer to Purchase made as a result of a Change of Control or (B) deposited to
defease
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all of the Notes as described below under "Defeasance;" (vi) Guarantees of the
Notes and Guarantees of Indebtedness of the Company by any Restricted
Subsidiary, provided the Guarantee of such Indebtedness is permitted by and made
in accordance with the "Limitation on Issuance of Guarantees by Restricted
Subsidiaries" covenant described below; (vii) Indebtedness Incurred to finance
the cost (including the cost of design, development, acquisition, construction,
installation, improvement, transportation or integration) to acquire equipment,
inventory or network assets (including acquisitions by way of Capitalized Lease
and acquisitions of the Capital Stock of a Person that becomes a Restricted
Subsidiary to the extent of the fair market value of the equipment, inventory or
network assets so acquired) by the Company or a Restricted Subsidiary after the
Closing Date; (viii) Indebtedness of the Company not to exceed, at any one time
outstanding, two times (A) the Net Cash Proceeds received by the Company after
the Closing Date as a capital contribution or from the issuance and sale of its
Capital Stock (other than Redeemable Stock) to a Person that is not a Subsidiary
of the Company, to the extent such Net Cash Proceeds have not been used pursuant
to clause (C)(2) of the first paragraph or clause (iii), (iv) or (vi) of the
second paragraph of the "Limitation on Restricted Payments" covenant described
below to make a Restricted Payment and (B) 80% of the fair market value of
property (other than cash and cash equivalents) received by the Company after
the Closing Date from a capital contribution or from the issuance and sale of
its Capital Stock (other than Redeemable Stock) to a Person that is not a
Subsidiary of the Company, to the extent such capital contribution or sale of
Capital Stock has not been used pursuant to clause (iii), (iv) or (ix) of the
second paragraph of the "Limitation on Restricted Payments" covenant described
below to make a Restricted Payment; provided that such Indebtedness does not
mature prior to the Stated Maturity of the Notes and has an Average Life longer
than the Notes; (ix) Strategic Subordinated Indebtedness; and (x) Indebtedness
(in addition to Indebtedness permitted under clauses (i) through (ix) above) in
an aggregate principal amount outstanding or available at any time not to exceed
$25 million, less any amount of such Indebtedness permanently repaid as provided
under the "Limitation on Asset Sales" covenant described below.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that the Company or a
Restricted Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded due solely to the result of
fluctuations in the exchange rates of currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included and (2) any
Liens granted pursuant to the equal and ratable provisions referred to in the
"Limitation on Liens" covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on or with respect to its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Capital Stock (other than
Redeemable Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) pro rata dividends or distributions on Common Shares
of Restricted Subsidiaries held by minority stockholders, provided that such
dividends do not in the aggregate exceed the minority stockholders' pro rata
share of such Restricted Subsidiaries' net income from the first day of the
fiscal quarter beginning immediately following the Closing Date) held by Persons
other than the Company or any of its Restricted Subsidiaries, (ii) purchase,
redeem, retire or otherwise acquire for value any shares of Capital Stock of (A)
the Company or an Unrestricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any Person or (B) a
Restricted Subsidiary (including options, warrants or other rights to acquire
such shares of Capital Stock) held by any Affiliate of the Company (other than a
Wholly Owned Restricted Subsidiary) or any holder (or
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any Affiliate of such holder) of 5% or more of the Capital Stock of the Company,
(iii) make any voluntary or optional principal payment, or voluntary or optional
redemption, repurchase, defeasance, or other acquisition or retirement for
value, of Indebtedness of the Company that is subordinated in right of payment
to the Notes (other than, in each case, the purchase, repurchase or acquisition
of Indebtedness in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in any case due within one year after
the date of such purchase, repurchase or acquisition) or (iv) make any
Investment, other than a Permitted Investment, in any Person (such payments or
any other actions described in clauses (i) through (iv) above being collectively
"Restricted Payments") if, at the time of, and after giving effect to, the
proposed Restricted Payment: (A) a Default or Event of Default shall have
occurred and be continuing, (B) the Company could not Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant or (C) the aggregate amount of all Restricted Payments (the amount, if
other than in cash, to be determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board Resolution)
made after the Closing Date shall exceed the sum of (1) 50% of the aggregate
amount of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated
Net Income is a loss, minus 100% of the amount of such loss) (excluding, for
purposes of such computation, income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter immediately following the Closing Date and
ending on the last day of the last fiscal quarter preceding the Transaction Date
for which reports have been filed with the Commission or provided to the Trustee
pursuant to the "Commission Reports and Reports to Holders" covenant plus (2)
the aggregate Net Cash Proceeds received by the Company after the Closing Date
from a capital contribution or the issuance and sale permitted by the Indenture
to a Person who is not a Subsidiary of the Company of (a) its Capital Stock
(other than Redeemable Stock), (b) any options, warrants or other rights to
acquire Capital Stock of the Company (in each case, exclusive of any Redeemable
Stock or any options, warrants or other rights that are redeemable at the option
of the holder, or are required to be redeemed, prior to the Stated Maturity of
the Notes) and (c) Indebtedness of the Company that has been exchanged for or
converted into Capital Stock of the Company (other than Redeemable Stock), in
each case except to the extent such Net Cash Proceeds are used to Incur
Indebtedness pursuant to clause (viii) of the second paragraph under the
"Limitation on Indebtedness" covenant, plus (3) an amount equal to the net
reduction in Investments (other than reductions in Permitted Investments and
reductions in Investments made pursuant to clause (vi) of the second paragraph
of this "Limitation on Restricted Payments" covenant) in any Person resulting
from payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Company or any
Restricted Subsidiary or from the Net Cash Proceeds from the sale of any such
Investment (except, in each case, to the extent any such payment or proceeds are
included in the calculation of Adjusted Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investments"), not to exceed, in
each case, the amount of Investments previously made by the Company or any
Restricted Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at such
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the Notes,
including premium, if any, and accrued and unpaid interest, with the proceeds
of, or in exchange for, Indebtedness Incurred under clause (iii) of the second
paragraph of part (a) of the "Limitation on Indebtedness" covenant; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company (or
options, warrants or other rights to acquire such Capital Stock) in exchange
for, or out of the proceeds of a substantially concurrent offering of, shares of
Capital Stock (other than Redeemable Stock) of the Company (or options, warrants
or other rights to acquire such Capital Stock); (iv) the making of any principal
payment or the repurchase, redemption, retirement, defeasance or other
acquisition for value of Indebtedness of the Company which is subordinated in
right of payment to the Notes in exchange for, or out of the proceeds of, a
substantially concurrent offering of shares of the Capital Stock (other than
Redeemable Stock) of the Company (or options, warrants or other rights to
acquire such Capital Stock); (v) payments or distributions to dissenting
stockholders pursuant to applicable
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law in connection with a consolidation, merger or transfer of assets that
complies with the provisions of the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the property and
assets of the Company; (vi) Investments in any Person the primary business of
which is related, ancillary or complementary to the business of the Company and
its Restricted Subsidiaries on the date of such Investments; provided that the
aggregate amount of Investments made pursuant to this clause (vi) does not
exceed the sum of (x) $25 million plus (y) the amount of Net Cash Proceeds
received by the Company after the Closing Date as a capital contribution or from
the sale of its Capital Stock (other than Redeemable Stock) to a Person who is
not a Subsidiary of the Company, except to the extent such Net Cash Proceeds are
used to Incur Indebtedness pursuant to clause (viii) under the "Limitation on
Indebtedness" covenant or to make Restricted Payments pursuant to clause (C)(2)
of the first paragraph, or clauses (iii) or (iv) of this paragraph, of this
"Limitation on Restricted Payments" covenant, plus (z) the net reduction in
Investments made pursuant to this clause (vi) resulting from distributions on or
repayments of such Investments or from the Net Cash Proceeds from the sale of
any such Investment (except in each case to the extent any such payment or
proceeds are included in the calculation of Adjusted Consolidated Net Income) or
from such Person becoming a Restricted Subsidiary (valued in each case as
provided in the definition of "Investments"), provided that the net reduction in
any Investment shall not exceed the amount of such Investment; (vii) the
purchase, redemption, acquisition, cancellation or other retirement for value of
shares of Capital Stock of the Company to the extent necessary, in the judgment
of the Board of Directors, to prevent the loss or secure the renewal or
reinstatement of any license or franchise held by the Company or any Restricted
Subsidiary from any governmental agency; (viii) the purchase, redemption,
retirement or other acquisition for value of shares of Capital Stock of the
Company, or options to purchase such shares, held by directors, employees, or
former directors or employees of the Company or any Restricted Subsidiary (or
their estates or beneficiaries under their estates) upon their death,
disability, retirement, termination of employment or pursuant to the terms of
any agreement under which such shares of Capital Stock or options were issued;
provided that the aggregate consideration paid for such purchase, redemption,
retirement or other acquisition for value of such shares of Capital Stock or
options after the Closing Date does not exceed $2 million in any calendar year,
or $5 million in the aggregate; (ix) Investments acquired as a capital
contribution to the Company or in exchange for Capital Stock (other than
Redeemable Stock) of the Company; (x) repurchases of Warrants pursuant to a
Repurchase Offer; or (xi) any purchase of any fractional share of Preferred
Stock (or other Capital Stock of the Company issuable upon exercise of the
Warrants) in connection with an exercise of the Warrants; provided that, except
in the case of clauses (i), (iii) and (iv), no Default or Event of Default shall
have occurred and be continuing, or occur as a consequence of the actions or
payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (ix)
thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clauses (iii), (iv) and (vi) thereof, shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this "Limitation
on Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital Stock
of the Company are used for the redemption, repurchase or other acquisition of
the Notes, or Indebtedness that is pari passu in right of payment with the
Notes, then the Net Cash Proceeds of such issuance shall be included in clause
(C) of the first paragraph of this "Limitation on Restricted Payments" covenant
only to the extent such proceeds are not used for such redemption, repurchase or
other acquisition of Indebtedness.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to
the Company or any other Restricted Subsidiary, (iii) make loans or advances to
the Company or any other Restricted Subsidiary or (iv) transfer any of its
property or assets to the Company or any other Restricted Subsidiary.
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The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders than those encumbrances
or restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such Person
acquired by the Company or any Restricted Subsidiary and existing at the time of
such acquisition and not incurred in contemplation thereof, which encumbrances
or restrictions are not applicable to any Person or the property or assets of
any Person other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of property or assets
of the Company or any Restricted Subsidiary in any manner material to the
Company or any Restricted Subsidiary; (v) with respect to a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary; or (vi) contained in the
terms of any Indebtedness or any agreement pursuant to which such Indebtedness
was issued if (A) the encumbrance or restriction applies only in the event of a
payment default or a default with respect to a financial covenant contained in
such Indebtedness or agreement; provided that in the case of the Credit
Agreement the encumbrance or restriction may apply if an event of default (other
than an event of default resulting solely from the breach of a representation or
warranty) occurs and is continuing under the Credit Agreement; provided that,
with respect to any event of default (other than a payment default, a bankruptcy
event with respect to the Company or the loss of a material license or fiber
network) under the Credit Agreement, such encumbrance or restriction may not
prohibit dividends to the Company to pay scheduled interest on the Notes for
more than 180 days in any consecutive 360-day period, (B) the encumbrance or
restriction is not materially more disadvantageous to the Holders than is
customary in comparable financings (as determined by the Company) and (C) the
Company determines (as evidenced by a resolution of the Board of Directors) that
any such encumbrance or restriction is not reasonably expected to materially
affect the Company's ability to make principal or interest payments on the
Notes.
Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent the
Company or any Restricted Subsidiary from (1) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted in the "Limitation on Liens"
covenant described below or (2) restricting the sale or other disposition of
property or assets of the Company or any of its Restricted Subsidiaries that
secure Indebtedness of the Company or any of its Restricted Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary, (ii) issuances of director's qualifying shares, or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law, (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would have been permitted
to be made under the "Limitation on Restricted Payments" covenant if made on the
date of such issuance or sale or (iv) issuances or sales of Common Shares of a
Restricted Subsidiary, provided that the Company or such Restricted Subsidiary
applies the Net Cash Proceeds, if any, of any such sale in accordance with
clause (A) or (B) of the first paragraph of the "Limitation on Asset Sales"
covenant described below.
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Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is pari passu in
right of payment with, or subordinate in right of payment to, the Notes
("Guaranteed Indebtedness"), unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Guarantee (a "Subsidiary Guarantee") of payment of the Notes by
such Restricted Subsidiary and (ii) such Restricted Subsidiary waives, and will
not in any manner whatsoever claim or take the benefit or advantage of, any
rights of reimbursement, indemnity or subrogation or any other rights against
the Company or any other Restricted Subsidiary as a result of any payment by
such Restricted Subsidiary under its Subsidiary Guarantee; provided that this
paragraph shall not be applicable to (x) any Guarantee of any Restricted
Subsidiary that existed at the time such Person became a Restricted Subsidiary
and was not Incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or (y) any Guarantee of any Restricted
Subsidiary of Indebtedness Incurred (I) under Credit Facilities pursuant to
clause (i) of the second paragraph of the "Limitation on Indebtedness" covenant
or (II) pursuant to clause (vii) of the second paragraph of the "Limitation on
Indebtedness" covenant. If the Guaranteed Indebtedness is (A) pari passu in
right of payment with the Notes, then the Guarantee of such Guaranteed
Indebtedness shall be pari passu in right of payment with, or subordinated in
right of payment to, the Subsidiary Guarantee or (B) subordinated in right of
payment to the Notes, then the Guarantee of such Guaranteed Indebtedness shall
be subordinated in right of payment to the Subsidiary Guarantee at least to the
extent that the Guaranteed Indebtedness is subordinated in right of payment to
the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Stockholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of the Company or with any
Affiliate of the Company or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable in any material respect to the Company or
such Restricted Subsidiary than could be obtained, at the time of such
transaction or, if such transaction is pursuant to a written agreement, at the
time of the execution of the agreement providing therefor, in a comparable
arm's-length transaction with a Person that is not such a holder or an
Affiliate.
The foregoing limitation does not limit, and shall not apply to: (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view; (ii) any transaction
solely between the Company and any of its Wholly Owned Restricted Subsidiaries
or solely between Wholly Owned Restricted Subsidiaries; (iii) the payment of
reasonable and customary regular fees to directors of the Company who are not
employees of the Company; (iv) any payments or other transactions pursuant to
any tax-sharing agreement between the Company and any other Person with which
the Company files a consolidated tax return or with which the Company is part of
a consolidated group for tax purposes; or (v) any Restricted Payments not
prohibited by the "Limitation on Restricted Payments" covenant. Notwithstanding
the foregoing, any transaction covered by the first paragraph of this
"Limitation on Transactions with Stockholders and Affiliates" covenant and not
covered by clauses (ii) through (v) of this paragraph, the aggregate amount of
which exceeds $5 million in value, must be approved or determined to be fair in
the manner provided for in clause (i)(A) or (B) above.
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Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character, or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision for all of the
Notes and all other amounts due under the Indenture to be directly secured
equally and ratably with (or, if the obligation or liability to be secured by
such Lien is subordinated in right of payment to the Notes, prior to) the
obligation or liability secured by such Lien.
The foregoing limitation does not apply to: (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of the
Holders; (iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such other
Restricted Subsidiary; (iv) Liens securing Indebtedness which is Incurred to
refinance secured Indebtedness which is permitted to be Incurred under clause
(iii) of the second paragraph of the "Limitation on Indebtedness" covenant;
provided that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets securing
the Indebtedness being refinanced; (v) Liens securing obligations under Credit
Facilities Incurred under clause (i) of the second paragraph of the "Limitation
on Indebtedness" covenant; or (vi) Permitted Liens.
Limitation on Sale-Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any sale-leaseback transaction involving any of its assets or
properties whether now owned or hereafter acquired, whereby the Company or a
Restricted Subsidiary sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any other
assets or properties which the Company or such Restricted Subsidiary, as the
case may be, intends to use for substantially the same purpose or purposes as
the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between the Company and
any Wholly Owned Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries; or (iv) the Company or such Restricted Subsidiary, within 12
months after the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from such sale in
accordance with clause (A) or (B) of the first paragraph of the "Limitation on
Asset Sales" covenant described below.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by the Company
or such Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 75% of the consideration received
consists of cash or Temporary Cash Investments. In the event and to the extent
that the Net Cash Proceeds received by the Company or any of its Restricted
Subsidiaries from one or more Asset Sales occurring on or after the Closing Date
in any period of 12 consecutive months exceed $5 million, then the Company shall
or shall cause the relevant Restricted Subsidiary to (i) within 12 months after
the date Net Cash Proceeds so received exceed $5 million (A) apply an amount
equal to such excess Net Cash Proceeds to permanently repay unsubordinated
Indebtedness of the Company or any Restricted Subsidiary providing a Subsidiary
Guarantee pursuant to the "Limitation on Issuances of Guarantees by Restricted
Subsidiaries" covenant described above or Indebtedness of any other Restricted
Subsidiary, in each case owing to a Person other than the Company or any of its
Subsidiaries, or (B) invest an amount equal to such excess Net Cash Proceeds, or
the amount of such Net Cash Proceeds not so applied pursuant to clause (A) (or
enter into a definitive agreement committing to so invest within 12 months after
the date of such agreement), in capital assets of a nature or type or that are
used in a business (or in a Person having capital assets of a nature or type, or
engaged in a business) similar or related to the nature or type of the property
and assets of, or the business of, the Company
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and its Restricted Subsidiaries existing on the date of such investment (as
determined in good faith by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution) and (ii) apply (no later than
the end of the 12-month period referred to in clause (i)) such excess Net Cash
Proceeds (to the extent not applied pursuant to clause (i)) as provided in the
following paragraph of this "Limitation on Asset Sales" covenant. The amount of
such excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 12-month period as set forth in clause (i) of the preceding
sentence and not applied as so required by the end of such period shall
constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $5 million, the Company
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate Accreted Value of Notes equal to the Excess Proceeds on such date, at
a purchase price equal to 100% of the Accreted Value of the Notes on the
relevant Payment Date plus, in each case, accrued interest (if any) to the
Payment Date.
Commission Reports and Reports to Holders
The Company shall file with the Commission all such reports and other
information as it would be required to file with the Commission by Sections
13(a) or 15(d) under the Exchange Act if it were subject thereto (unless the
Commission will not accept such a filing, in which case the Company shall
provide such documents to the Trustee). The Company shall supply the Trustee and
each Holder or shall supply to the Trustee for forwarding to each such Holder,
without cost to such Holder, copies of such reports and other information;
provided, however, that copies of such reports may omit exhibits, which the
Company will deliver at its cost to any Holder upon request.
REPURCHASE OF EXCHANGE NOTES UPON A CHANGE OF CONTROL
The Company shall commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Exchange Notes then
outstanding, at a purchase price equal to 101% of the Accreted Value thereof on
the relevant Payment Date, plus accrued interest (if any) to the Payment Date.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Exchange Notes) required by the foregoing covenant (as
well as may be contained in other securities of the Company which might be
outstanding at the time). The foregoing covenant requiring the Company to
repurchase the Exchange Notes will, unless consents are obtained, require the
Company to repay all indebtedness then outstanding which by its terms would
prohibit such Exchange Note repurchase, either prior to or concurrently with
such Exchange Note repurchase.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) defaults in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) defaults in the payment of interest on any Note
when the same becomes due and payable, which default continues for a period of
30 days; (c) defaults in the performance of or breaches of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company or the failure to make or
consummate an Offer to Purchase in accordance with the "Limitation on Asset
Sales" or the "Repurchase of Exchange Notes upon a Change of Control" covenant
described above; (d) defaults in the performance of or breaches of any covenant
or agreement of the Company in the Indenture or under the Notes (other than a
default specified in clause (a), (b) or (c) above), which default or breach
continues for a period of 30 consecutive days after written notice by the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding; (e) there occurs with respect to any issue or issues of
Indebtedness of the Company or any Significant Subsidiary having an outstanding
principal amount of $5 million or more in the aggregate for all such issues of
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all such Persons, whether such Indebtedness now exists or shall hereafter be
created, (I) an event of default that has caused the holder thereof to declare
such Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days of such acceleration and/or (II) the
failure to make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or extended
within 30 days of such payment default; (f) any final judgment or order (not
covered by insurance) for the payment of money in excess of $5 million in the
aggregate for all such final judgments or orders against all such Persons
(treating any deductibles, self-insurance or retention as not so covered) shall
be rendered against the Company or any Significant Subsidiary and shall not be
paid or discharged, and there shall be any period of 30 consecutive days
following entry of the final judgment or order that causes the aggregate amount
for all such final judgments or orders outstanding and not paid or discharged
against all such Persons to exceed $5 million during which a stay of enforcement
of such final judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; (g) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Company or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Subsidiary or for all or substantially all of the
property and assets of the Company or any Significant Subsidiary or (C) the
winding up or liquidation of the affairs of the Company or any Significant
Subsidiary and, in each case, such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (h) the Company or any
Significant Subsidiary (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under any
such law, (B) consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Subsidiary or for all or substantially all of the
property and assets of the Company or any Significant Subsidiary or (C) effects
any general assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare the Accreted Value
of, premium, if any, and accrued interest on the Notes to be immediately due and
payable. Upon a declaration of acceleration, such Accreted Value, premium, if
any, and accrued interest shall be immediately due and payable. In the event of
a declaration of acceleration because an Event of Default set forth in clause
(e) above has occurred and is continuing, such declaration of acceleration shall
be automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied or cured by the
Company or the relevant Significant Subsidiary or waived by the holders of the
relevant Indebtedness within 60 days after the declaration of acceleration with
respect thereto. If an Event of Default specified in clause (g) or (h) above
occurs with respect to the Company, the Accreted Value of, premium, if any, and
accrued interest on the Notes then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of at least a majority in principal
amount of the outstanding Notes, by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the Accreted Value of, premium, if any, and interest on
the Notes that have become due solely by such declaration of acceleration, have
been cured or waived and (ii) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction. For information as to
the waiver of defaults, see "-- Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may 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. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture
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or the Notes unless: (i) the Holder gives the Trustee written notice of a
continuing Event of Default; (ii) the Holders of at least 25% in aggregate
principal amount of outstanding Notes make a written request to the Trustee to
pursue the remedy; (iii) such Holder or Holders offer the Trustee indemnity
satisfactory to the Trustee against any costs, liability or expense; (iv) the
Trustee does not comply with the request within 60 days after receipt of the
request and the offer of indemnity; and (v) during such 60-day period, the
Holders of a majority in aggregate principal amount of the outstanding Notes do
not give the Trustee a direction that is inconsistent with the request. However,
such limitations do not apply to the right of any Holder of a Note to receive
payment of the Accreted Value of, premium, if any, or interest on, such Note or
to bring suit for the enforcement of any such payment, on or after the due date
expressed in the Notes, which right shall not be impaired or affected without
the consent of the Holder.
The Indenture will require certain officers of the Company to certify, on
or before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the performance of the Company and its Restricted Subsidiaries
under the Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into the Company unless: (i) the Company shall be the
continuing Person, or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or that acquired or leased
such property and assets of the Company shall be a corporation organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof, and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, all of the obligations of the Company on
all of the Notes and under the Indenture; (ii) immediately after giving effect
to such transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis, the Company or any Person becoming the successor obligor of the
Notes shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma basis,
the Company, or any Person becoming the successor obligor of the Notes, as the
case may be, could Incur at least $1.00 of Indebtedness under the first
paragraph of the "Limitation on Indebtedness" covenant described above;
provided, however, that this clause (iv) shall not apply to a consolidation,
merger or sale of all (but not less than all) of the assets of the Company if
all Liens and Indebtedness of the Company or any Person becoming the successor
obligor of the Notes, as the case may be, and its Restricted Subsidiaries
outstanding immediately after such transaction would, if Incurred at such time,
have been permitted to be Incurred (and all such Liens and Indebtedness, other
than Liens or Indebtedness of the Company and its Restricted Subsidiaries
outstanding immediately prior to the transaction, shall be deemed to have been
Incurred) for all purposes of the Indenture; and (v) the Company delivers to the
Trustee an Officers' Certificate (attaching the arithmetic computations to
demonstrate compliance with clauses (iii) and (iv) above) and an Opinion of
Counsel, in each case stating that such consolidation, merger or transfer and
such supplemental indenture comply with this provision and that all conditions
precedent provided for herein relating to such transaction have been complied
with; provided, however, that clauses (iii) and (iv) above do not apply if, in
the good faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of incorporation of the Company, and
such transaction shall not have as one of its purposes the evasion of the
foregoing limitations.
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DEFEASANCE
Defeasance and Discharge. The Indenture will provide that the Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, (B) the Company has delivered to the
Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
the Company's exercise of its option under this "Defeasance" provision and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must be based upon (and
accompanied by a copy of) a ruling of the Internal Revenue Service to the same
effect unless there has been a change in applicable federal income tax law after
the Closing Date such that a ruling is no longer required or (y) a ruling
directed to the Trustee received from the Internal Revenue Service to the same
effect as the aforementioned Opinion of Counsel and (ii) an Opinion of Counsel
to the effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 123 days following the
deposit, the trust fund will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law, (C) immediately after giving effect to such deposit on a pro forma basis,
no Event of Default, or event that after the giving of notice or lapse of time
or both would become an Event of Default, shall have occurred and be continuing
on the date of such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound, and (D) if at such time the Notes
are listed on a national securities exchange, the Company has delivered to the
Trustee an Opinion of Counsel to the effect that the Notes will not be delisted
as a result of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under "Consolidation,
Merger and Sale of Assets" and all the covenants described herein under
"Covenants," clause (d) under "Events of Default" with respect to such
covenants, clause (c) under "Events of Default" with respect to clauses (iii)
and (iv) under "Consolidation, Merger and Sale of Assets," and clauses (e) and
(f) under "Events of Default" shall be deemed not to be Events of Default, upon,
among other things, the deposit with the Trustee, in trust, of money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with the terms of
the Indenture and the Notes, the satisfaction of the provisions described in
clauses (B)(ii), (C) and (D) of the preceding paragraph and the delivery by the
Company to the Trustee of an Opinion of Counsel to the effect that, among other
things, the Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and defeasance of certain covenants and
Events of Default and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated
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Maturity but may not be sufficient to pay amounts due on the Notes at the time
of the acceleration resulting from such Event of Default. However, the Company
will remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, (ii) reduce the Accreted Value or principal of, or
premium, if any, or interest on, any Note, (iii) change the place or currency of
payment of principal of, or premium, if any, or interest on, any Note, (iv)
impair the right to institute suit for the enforcement of any payment on or
after the Stated Maturity (or, in the case of a redemption, on or after the
Redemption Date) of any Note, (v) reduce the above-stated percentage of
outstanding Notes the consent of whose Holders is necessary to modify or amend
the Indenture, (vi) waive a default in the payment of principal of, premium, if
any, or interest on the Notes or (vii) reduce the percentage or aggregate
principal amount of outstanding Notes the consent of whose Holders is necessary
for waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Exchange Notes will initially be
represented by one or more permanent global Notes in definitive, fully
registered form without interest coupons (each a "Global Note") and will be
deposited with the Trustee as custodian for, and registered in the name of, a
nominee of DTC. Except in the limited circumstances described below under
"Certificated Notes," owners of beneficial interests in a Global Note will not
be entitled to receive physical delivery of Certificated Notes (as defined
below).
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Note for
all purposes under the Indenture and the Exchange Notes. No beneficial owner of
an interest in a Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the Indenture.
Payments of the principal of, and interest on, a Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof. None
of the Company, the Trustee, or any Paying Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in a Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC will take any action permitted to be taken by
a holder of Exchange Notes (including the presentation of Exchange Notes for
exchange as described below) only at the direction
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of one or more participants to whose account the DTC interests in a Global Note
is credited and only in respect of such portion of the aggregate principal
amount of Exchange Notes as to which such participant or participants has or
have given such direction. However, if there is an Event of Default under the
Exchange Notes, DTC will exchange the applicable Global Note for Certificated
Exchange Notes, which it will distribute to its participants.
The Company understands that DTC is a limited-purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants of DTC,
it is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Notes in exchange for the
Global Notes. Holders of an interest in a Global Note may receive a Certificated
Note in accordance with DTC's rules and procedures in addition to those provided
for under the Indenture.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Exchange Notes or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Exchange Notes or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporator, stockholder, officer, director,
employee or controlling person of the Company or of any successor Person
thereof. Each Holder, by accepting the Exchange Notes, waives and releases all
such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise of the rights and powers vested in it under the Indenture as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
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DESCRIPTION OF THE WARRANTS
In connection with the Offering, the Company issued Warrants to purchase
1,658.2694 shares of Preferred Stock. The following is a description of such
Warrants.
GENERAL
The Warrants were issued pursuant to the Warrant Agreement between the
Company and United States Trust Company of New York, warrant agent under the
Warrant Agreement (the "Warrant Agent"). The following summary of certain
provisions of the Warrant Agreement does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the provisions of the
Warrant Agreement, including the definitions of certain terms therein. Wherever
particular defined terms of the Warrant Agreement, not otherwise defined herein,
are referred to, such defined terms are incorporated herein by reference. A copy
of the Warrant Agreement has been filed with the Commission as an exhibit to the
Registration Statement (of which this Prospectus is a part).
Each Warrant is evidenced by a Warrant Certificate which entitles the
holder thereof to purchase .003734 shares of Preferred Stock from the Company at
a price (the "Exercise Price") of $.01 per share, subject to adjustment as
provided in the Warrant Agreement. The Warrants may be exercised at any time
beginning one year after the Closing Date and prior to the close of business on
the tenth anniversary of the Closing Date. Warrants that are not exercised by
such date will expire. The Warrants will become separately transferable from the
Senior Discount Notes on the earliest to occur of (i) the date that is six
months following the Closing Date, (ii) the commencement of the Exchange Offer
and (iii) the effective date of a shelf registration statement with respect to
the Senior Discount Notes. See "Description of the Exchange
Notes -- Registration Rights."
Upon the occurrence of a merger with a person in connection with which the
consideration to shareholders of the Company is not all cash and where the
Preferred Stock (or other securities) issuable upon exercise of the Warrants
would not be registered under the Exchange Act, the Company or its successor by
merger will be required, upon the expiration of the time periods discussed
below, to offer to repurchase the Warrants for cash.
CERTAIN DEFINITIONS
The Warrant Agreement contains, among others, the following definitions:
A "Repurchase Event" is defined to occur on any date when the Company (i)
consolidates with or merges into or with another Person (but only where the
holders of Preferred Stock (or any capital stock issuable upon conversion of the
Preferred Stock) receive consideration in exchange for all or part of such
stock), if the Preferred Stock (or other securities) thereafter issuable upon
exercise of the Warrants is not registered under the Exchange Act or (ii) sells
all or substantially all of its assets to another Person, if the Preferred Stock
(or other securities) thereafter issuable upon exercise of the Warrants is not
registered under the Exchange Act; provided that in each case a "Repurchase
Event" shall not be deemed to have occurred if the consideration for such
transaction consists solely of cash.
A "Financial Expert"' is one of the persons listed in Appendix A to the
Warrant Agreement, all of which are nationally recognized investment banking
firms.
An "Independent Financial Expert" is a Financial Expert that does not (and
whose directors, executive officers and 5% stockholders do not) have a direct or
indirect financial interest in the Company or any of its subsidiaries or
affiliates, which has not been for at least five years and, at the time that it
is called upon to give independent financial advice to the Company, is not (and
none of its directors, executive officers or 5% stockholders is) a promoter,
director or officer of the Company or any of its subsidiaries or affiliates.
CERTAIN TERMS
Repurchase
Following the occurrence of a Repurchase Event, the Company must make an
offer to repurchase for cash all outstanding Warrants (a "Repurchase Offer").
The holders of the Warrants may, until 5:00 p.m.
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(New York City time) on the date (the "Final Surrender Time") at least 30 but
not more than 60 days following the date on which the Company gives notice of
such Repurchase Offer to such holders, surrender all or part of their Warrants
for repurchase by the Company. Except as otherwise provided in the Warrant
Agreement, Warrants received by the Warrant Agent in proper form for purchase
during a Repurchase Offer prior to the Final Surrender Time are to be
repurchased by the Company at a price in cash (the "Repurchase Price") equal to
the value (the "Relevant Value") on the Valuation Date (as defined in the
Warrant Agreement) relating thereto of the Warrant Shares (and other securities
issuable upon exercise of the Warrants), had the Warrants then been exercised,
less the Exercise Price therefor. The "Relevant Value" of the Warrant Shares (or
other securities) shall be (i) if the Warrant Shares (or other securities) are
registered under the Exchange Act, the average of the closing sales prices (on
the stock exchange that is the primary trading market for the Warrant Shares (or
other securities)) of the Warrant Shares (or other securities) for the 20
consecutive trading days immediately preceding such Valuation Date or, if the
Warrant Shares (or other securities) have been registered under the Exchange Act
for less than 20 days trading days before such date, then the average of the
closing sales prices for all of the trading days before such date for which
closing sales prices are available or (ii) if the Warrant Shares (or other
securities) are not registered under the Exchange Act or if the value cannot be
computed under clause (i) above, the value determined (without giving effect to
any discount for lack of liquidity, the fact that the Company has no class of
equity securities registered under the Exchange Act or the fact that the Warrant
Shares (or other securities) issuable upon exercise of the Warrants represent a
minority interest in the Company) by an Independent Financial Expert.
If clause (ii) of the preceding paragraph is applicable, the Board of
Directors of the Company is required to select an Independent Financial Expert
not more than five business days following a Repurchase Event. Within two days
after its selection of the Independent Financial Expert, the Company must
deliver to the Warrant Agent a notice setting forth the name of such Independent
Financial Expert. The Company must use its best efforts (including by selecting
another Independent Financial Expert) to cause the Independent Financial Expert
to deliver to the Company, with a copy to the Warrant Agent, a value report (a
"Value Report") which states the Relevant Value of the Warrant Shares (or other
securities) being valued as of the Valuation Date and contains a brief statement
as to the nature and scope of the methodologies upon which the determination was
made. The Warrant Agent will have no duty with respect to the Value Report of
any Independent Financial Expert, except to keep it on file and available for
inspection by the holders of the Warrants. The determination of the Independent
Financial Expert as to the Relevant Value in accordance with the provisions of
the Warrant Agreement shall be conclusive on all persons.
The requirement that the Company make a Repurchase Offer will, unless
consents are obtained, require the Company to repay all indebtedness then
outstanding which by its terms would prohibit such Repurchase Offer. There can
be no assurance that the Company will have sufficient funds available at the
time of any Repurchase Event to repurchase the Warrants and any such
indebtedness, as well as to repurchase any other securities of the Company that
by their terms require the Company to repurchase such securities upon the
occurrence of such an event.
Exercise
In order to exercise all or any of the Warrants represented by a Warrant
Certificate, the holder thereof is required to surrender to the Warrant Agent
the Warrant Certificate, a duly executed copy of the subscription form set forth
in the Warrant Certificate, and payment in full of the Exercise Price for each
share of Preferred Stock (or fraction thereof) or other security issuable upon
exercise of such Warrants, which payment may be made in cash or by certified or
official bank or bank cashier's check payable to the order of the Company or
through the surrender of unexercised Warrant Certificates. Upon the exercise of
any Warrant in accordance with the Warrant Agreement, the Warrant Agent will
instruct the Company to transfer promptly to or upon the written order of the
holder of such Warrant Certificate appropriate evidence of ownership of any
shares of Preferred Stock or other security or property to which it is entitled
as a result of such exercise, registered or otherwise placed in such name or
names as it may direct in writing, and will deliver such evidence of ownership
to the person or persons entitled to receive the same and fractional shares, if
any, or following an initial public offering of the Preferred Stock (or any
capital stock issuable upon conversion of the Preferred Stock) an amount in
cash, in lieu of any fractional shares, if any. All shares of Preferred Stock or
other
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securities issuable by the Company upon the exercise of the Warrants must be
validly issued, fully paid and nonassessable. If the Company conducts an initial
public offering of equity securities (other than nonconvertible preferred
shares, Preferred Stock (or any capital stock issuable upon conversion of the
Preferred Stock)), the Company will give holders of Warrants and Warrant Shares
the opportunity to convert such Warrants into warrants to purchase such equity
securities and the opportunity to convert such Warrant Shares into such equity
securities. Such conversion opportunity will be on terms and conditions
determined to be fair and reasonable by the Company's Board of Directors.
Holders of Warrants will be able to exercise their Warrants only if a
registration statement relating to the Warrant Shares underlying the Warrants is
then effective and available, or the exercise of such Warrants is exempt from
the registration requirements of the Securities Act, and such securities are
qualified for sale or exempt from qualification under the applicable securities
laws of the states or other jurisdictions in which the various holders of the
Warrants reside.
Anti-dilution Provisions
The Warrant Agreement contains provisions adjusting the Exercise Price and
the number of shares of Preferred Stock or other securities issuable upon
exercise of a Warrant in the event of (i) a division, consolidation or
reclassification of the shares of Preferred Stock (or any capital stock issuable
upon conversion of the Preferred Stock), (ii) the issuance of rights, options,
warrants or convertible or exchangeable securities to all holders of shares of
Preferred Stock (or any capital stock issuable upon conversion of the Preferred
Stock) entitling such holders to subscribe for or purchase shares of Preferred
Stock (or any capital stock issuable upon conversion of the Preferred Stock) at
a price per share which is lower than the then current value of such shares,
subject to certain exceptions, (iii) the issuance of shares of Preferred Stock
(or any capital stock issuable upon conversion of the Preferred Stock) at a
price per share that is lower than the then current value of such shares, except
for issuances in connection with certain acquisitions, mergers or similar
transactions with third parties, (iv) certain distributions to all holders of
shares of Preferred Stock (or any capital stock issuable upon conversion of the
Preferred Stock) of evidences of indebtedness or assets and (v) in the
discretion of the Company's Board of Directors, in certain other circumstances.
No Rights as Stockholders
The holders of unexercised Warrants are not entitled, as such, to receive
dividends or other distributions, receive notice of any meeting of the
stockholders, consent to any action of the stockholders, receive notice of any
other stockholder proceedings, or to any other rights as stockholders of the
Company.
Mergers, Consolidations, etc.
Except as provided below, in the event that the Company consolidates with,
merges with or into, or sells all or substantially all of its property and
assets to another person, each Warrant thereafter shall entitle the holder
thereof to receive upon exercise thereof the number of shares of capital stock
or other securities or property which the holder of Preferred Stock (or other
securities issuable upon exercise of the Warrants) is entitled to receive upon
completion of such consolidation, merger or sale of assets. If the Company
merges or consolidates with, or sells all or substantially all of the property
and assets of the Company to, another person and, in connection therewith,
consideration to the holders of Preferred Stock (or other securities issuable
upon exercise of the Warrants) in exchange for their shares is payable solely in
cash, or in the event of the dissolution, liquidation or winding-up of the
Company, then the holders of the Warrants will be entitled to receive
distributions on an equal basis with the holders of Preferred Stock or other
securities issuable upon exercise of the Warrants assuming the Warrants had been
exercised immediately prior to such event, less the Exercise Price. Upon receipt
of such payment, if any, the Warrants will expire and the rights of the holders
thereof will cease. If the Company has made a Repurchase Offer that has not
expired at the time of such transaction, the holders of the Warrants will be
entitled to receive the higher of (i) the amount payable to the holders of the
Warrants described above and (ii) the Repurchase Price payable to the holders of
the Warrants pursuant to such Repurchase Offer. In case of any such merger,
consolidation or sale of assets, the surviving or acquiring person and, in the
event of any dissolution, liquidation or winding-up of the Company, the Company
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must deposit promptly with the Warrant Agent the funds, if any, necessary to pay
to the holders of the Warrants. After such funds and the surrendered Warrant
Certificates are received, the Warrant Agent must make payment by delivering a
check in such amount as is appropriate (or, in the case of consideration other
than cash, such other consideration as is appropriate) to such person or persons
as it may be directed in writing by the holders surrendering such Warrants.
Registration Requirements
The holders of the Warrants will be entitled to piggyback registration
rights for the Warrant Shares in connection with (i) an initial public offering
of the Preferred Stock (or other securities) issuable upon exercise of the
Warrants (or any capital stock issuable upon conversion of the Preferred Stock),
if any stockholder of the issuer participates in such public offering, or (ii)
certain public offerings of shares of Preferred Stock (or other securities)
issuable upon exercise of the Warrants (or any capital stock issuable upon
conversion of the Preferred Stock) conducted subsequent to the initial public
offering of such stock. If only the Company sells shares in the initial public
offering or all of the Warrant Shares (or other securities issuable upon
exercise of the Warrants) are not sold in the initial public offering or any
subsequent offering, the Company will be required to use its best efforts to
cause to be declared effective, no later than 180 days after the closing date of
the initial public offering (but in no event prior to the first anniversary of
the Closing Date), a shelf registration statement (the "Warrant Shelf
Registration Statement") with respect to the issuance of the Warrant Shares (or
other securities issuable upon exercise of the Warrants). The Company is
required to use reasonable efforts to maintain the effectiveness of the Warrant
Shelf Registration Statement until such time as all Warrants have been exercised
or, if earlier, the tenth anniversary of the Closing Date. During any
consecutive 365-day period while the Warrants are exercisable, the Company will
have the ability to suspend the availability of such registration statement for
up to 60 days (except during the 60 days immediately prior to the expiration of
the Warrants) if the Company's Board of Directors determines in good faith that
there is a valid purpose for the suspension and provides notice of such
determination to the holders at their addresses appearing in the register of
Warrants maintained by the Warrant Agent. Holders of Warrants will not be named
as selling securityholders in the Warrant Shelf Registration Statement. The
Warrant Agreement requires the Company to pay the expenses associated with such
registration.
Holders of Warrants will be able to exercise their Warrants only if a
registration statement relating to the Preferred Stock (or other securities)
issuable upon exercise of the Warrants is then effective and available, or the
exercise of such Warrants is exempt from the registration requirements of the
Securities Act, and such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states or other
jurisdictions in which the various holders of the Warrants reside.
Reservation of Shares
The Company has authorized and will reserve for issuance such number of
shares of Preferred Stock as will be issuable upon the exercise of all
outstanding Warrants. Such shares of Preferred Stock, when issued and paid for
in accordance with the Warrant Agreement, will be duly and validly issued, fully
paid and nonassessable, free of preemptive rights and free from all taxes,
liens, charges and security interests.
Reports
At all times from and after the earlier of (i) a Registration with respect
to the Notes and (ii) the date that is six months after the Closing Date, in
either case, whether or not the Company is then required to file reports with
the Commission, the Company shall file with the Commission all such reports and
other information as it would be required to file with the Commission by Section
13(a) or 15(d) under the Exchange Act if it were subject thereto (unless the
Commission will not accept such a filing, in which case the Company shall
provide such documents to the Warrant Agent). The Company shall supply the
Warrant Agent and each Warrantholder or shall supply to the Warrant Agent for
forwarding to each such holder, without cost to such holder, copies of such
reports and other information; provided, however, that copies of such reports
may omit exhibits, which the Company will deliver at its cost to any
Warrantholder upon request. In addition, at all times prior to the earlier of
the date of the Registration and six months after the Closing
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Date, the Company shall, at its cost, deliver to each Warrantholder quarterly
and annual reports (commencing with the first quarter ending after the Closing
Date) substantially equivalent to those which would be required by the Exchange
Act. In addition, at all times prior to the Registration, upon the request of
any Warrantholder or any prospective purchaser of the Warrants designated by a
Warrantholder, the Company shall supply to such holder or such prospective
purchaser the information required under Rule 144A under the Securities Act;
provided, however, that copies of such reports and other information may omit
exhibits, which the Company will supply to any Warrantholder or prospective
purchaser upon request.
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DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company and
certain provisions of the Company's Certificate of Incorporation and Bylaws does
not purport to be complete and is qualified in its entirety by reference to the
provisions of the Company's Certificate of Incorporation and Bylaws, which are
included as exhibits to the Registration Statement (of which this Prospectus is
a part) and by provisions of applicable law.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Pursuant to the Company's Certificate of Incorporation, the Company has the
authority to issue 200,000 shares of common stock, par value $.01 per share (the
"Common Stock") and 100,000 shares of Preferred Stock, par value $.01 per share.
As of October 31, 1997, there were no shares of Common Stock issued and
outstanding. As of October 31, 1997, 47,500 shares of Preferred Stock were
issued and outstanding and held of record by 64 stockholders. Additionally, in
December 1997, the Company issued 2,485 shares of Preferred Stock valued at
approximately $3.7 million, subject to adjustment, in connection with the
acquisition of the Beach Cable System. As of October 31, 1997, the Company had
outstanding options to purchase an aggregate of 1,105.8 shares of Common Stock
at exercise prices of $1,200 and $1,500 per share. All outstanding options
provide for antidilution adjustments in the event of certain mergers,
consolidations, reorganizations, recapitalizations, stock dividends, stock
splits or other changes in the corporate structure of the Company.
The rights of the holders of Common Stock discussed below are subject to
the rights of the holders of preferred stock and to such rights as the Board of
Directors may hereafter confer on future holders of other series of preferred
stock.
COMMON STOCK
VOTING RIGHTS. Each holder of Common Stock shall be entitled to attend all
special and annual meetings of the stockholders of the Company and together with
the holders of all other classes of stock entitled to attend and vote at such
meetings, to vote upon any matter or thing (including, without limitation, the
election of one or more directors) properly considered and acted upon by the
stockholders. Holders of Common Stock are entitled to one vote per share.
LIQUIDATION RIGHTS. In the event of any dissolution, liquidation or
winding up of the Company, whether voluntary or involuntary, holders of Common
Stock and the holders of all other classes of stock entitled to participate
therewith, shall become entitled to participate in the distribution of any
assets of the Company remaining after the Company shall have paid, or provided
for payment of, all debts and liabilities of the Company and after the Company
shall have paid, or set aside for payment, to the holders of any class of stock
having preference over the Common Stock in the event of dissolution, liquidation
or winding up the full preferential amounts (if any) to which they are entitled.
DIVIDENDS. Dividends may be paid on the Common Stock and on any class or
series of stock entitled to participate therewith when and as declared by the
Board of Directors out of any assets legally available therefor.
PREFERRED STOCK
VOTING RIGHTS. Except as otherwise required by law, the holders of shares
of Preferred Stock shall be entitled to attend all special and annual meetings
of the stockholders of the Company and together with the holders of all other
classes of stock entitled to attend and vote at such meetings, to vote upon any
matter or thing (including, without limitation, the election of one or more
directors) properly considered and acted upon by the stockholders. Holders of
Preferred Stock are entitled to one vote per share.
LIQUIDATION RIGHTS. In the event of any dissolution, liquidation or
winding up of the Company, whether voluntary or involuntary, the holders of
shares of Preferred Stock are entitled to receive out of the assets of the
Company legally available for distribution to stockholders before any payment or
distribution is made on the Common Stock or any other class of stock of the
Company ranking junior to the Preferred Stock as to
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liquidation preference, cash in the amount of $1,000 per share (the "Preferred
Stock Liquidation Distribution"). After the Preferred Stock Liquidation
Distribution has been made and after the holders of shares of any other class or
series of stock having preference over the Common Stock in the event of
dissolution, liquidation or winding up have received the full preferential
amounts to which they are entitled, the holders of shares of Preferred Stock
shall participate equally with the holders of shares of Common Stock and any
other class or series of stock entitled to participate with the Common Stock in
the event of dissolution, liquidation or winding up in the distribution of any
remaining assets of the Company. If the assets distributable upon such
dissolution, liquidation or winding up are insufficient to pay cash in an amount
equal to the Preferred Stock Liquidation Distribution to the holders of shares
of Preferred Stock, then such assets or the proceeds thereof will be distributed
among the holders of the Preferred Stock ratably in proportion to the respective
amounts of the Preferred Stock Liquidation Distribution to which they otherwise
would be entitled.
CONVERSION INTO COMMON STOCK. The shares of Preferred Stock shall
automatically be converted into fully paid and nonassessable shares of Common
Stock at the rate of one share of Common Stock for each share of Preferred Stock
(as adjusted for any stock split or reclassification): (a) upon the issuance by
the Securities and Exchange Commission of an order of effectiveness as to any
registration statement for the sale of any shares of Common Stock under the
Securities Act; or (b) if not previously converted, on December 8, 2005.
AUTHORIZED PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors to
issue, from time to time and without further stockholder action, except as
required by applicable law, one or more series of preferred stock, and to fix
the relative rights and preferences of the shares, including voting powers,
dividend rights, liquidation preferences, redemption rights, conversion
privileges and other rights. The issuance of additional preferred stock may have
the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders. Preferred stock issued with
voting, conversion or redemption rights may adversely affect the voting power of
the holders of Common Stock and Preferred Stock, and could discourage attempts
to obtain control of the Company.
WARRANTS
The Company has agreed to issue to SCANA warrants to purchase 753 shares of
Preferred Stock in connection with a construction credit facility. Additionally,
the Company issued Warrants to purchase 1,658.2694 shares of Preferred Stock
pursuant to the Warrant Agreement in connection with the Offering. See
"Description of the Warrants."
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes, subject to the limitations set forth
below, the material U.S. federal income tax consequences associated with the
exchange of the Senior Discount Notes for the Exchange Notes and with the
ownership and disposition of the Notes. The discussion is based upon provisions
of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), its
legislative history, judicial authority, current administrative rulings and
practice, and existing and proposed Treasury Regulations, including regulations
concerning the treatment of debt instruments issued with original issue discount
(the "OID Regulations"), all as in effect and existing on the date hereof.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the validity of the statements and
conclusions set forth below. Any such changes or interpretations may be
retroactive and could adversely affect a holder of the Notes. This discussion
assumes that the Notes are or will be held as capital assets (as defined in
Section 1221 of the Code) by the holders thereof. Except as otherwise described
herein, this discussion applies only to a person who is a holder who purchased
Senior Discount Notes pursuant to the Offering at the "issue price" (as defined
below) and who is (i) a citizen or resident of the United States for United
States federal income tax purposes, (ii) treated as a corporation, partnership
or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source, or
(iv) a trust that is subject to the primary supervision of a court within the
United States and the control of a United States person as described in Section
7701(a)(30) of the Code (a "U.S. Holder"). This discussion does not purport to
deal with all aspects of U.S. federal income taxation that might be relevant to
particular holders in light of their personal investment circumstances or
status, nor does it discuss the U.S. federal income tax consequences to certain
types of holders subject to special treatment under the U.S. federal income tax
laws, such as certain financial institutions, insurance companies, dealers in
securities or foreign currency, tax-exempt organizations, or persons that hold
Notes that are a hedge against, or that are hedged against, currency risk or
that are part of a straddle or conversion transaction, or persons whose
functional currency is not the U.S. dollar. Moreover, the effect of any
applicable state, local or foreign tax laws is not discussed.
Hogan & Hartson L.L.P., tax counsel to the Company, has reviewed the
following discussion and is of the opinion that, to the extent it constitutes
matters of law or legal conclusions or purports to describe certain provisions
of the federal tax laws, the discussion is a correct summary in all material
respects of the matters discussed therein.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH PURCHASER IS
STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF
SUCH PURCHASER'S PERSONAL TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, OF
THE EXCHANGE OF THE SENIOR DISCOUNT NOTES FOR THE EXCHANGE NOTES AND THE
OWNERSHIP AND DISPOSITION OF THE NOTES.
THE EXCHANGE
The exchange of Senior Discount Notes for Exchange Notes will not be
treated as an exchange for federal income tax purposes because the Exchange
Notes will not differ materially in kind or extent from the Senior Discount
Notes and because the exchange will occur by operation of the original terms of
the Senior Discount Notes. As a result, U.S. Holders who exchange their Senior
Discount Notes for Exchange Notes will not recognize any income, gain or loss
for federal income tax purposes. A U.S. Holder will have the same adjusted issue
price, adjusted basis and holding period in the Exchange Notes immediately after
the exchange as it had in the Senior Discount Notes immediately before the
exchange.
ORIGINAL ISSUE DISCOUNT
GENERAL. The Notes will bear OID, and each U.S. Holder will be required to
include in income (regardless of whether such U.S. Holder is a cash or accrual
basis taxpayer) in each year, in advance of the
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receipt of cash payments on such Notes, that portion of the OID, computed on a
constant yield basis, attributable to each day during such year on which the
U.S. Holder held the Notes. See "Taxation of Original Issue Discount" below.
THE AMOUNT OF ORIGINAL ISSUE DISCOUNT. The amount of OID with respect to
each Note is equal to the excess of (i) its "stated redemption price at
maturity" over (ii) its "issue price." Under the OID Regulations, the "stated
redemption price at maturity" of each Note includes all payments to be made in
respect thereof, including any stated interest payments. Accordingly, payments
on the Notes (including principal and stated interest payments) are not
separately included in a U.S. Holder's income as interest, but rather are
treated first as payments of previously accrued OID and then as payments of
principal.
Because the original purchasers of the Senior Discount Notes also acquired
Warrants, each Senior Discount Note was treated for U.S. federal income tax
purposes as having been issued as part of an "investment unit" (a "Unit")
consisting of such Senior Discount Notes and the associated Warrants. For U.S.
federal income tax purposes, the issue price of a Unit must be allocated between
the Senior Discount Note and the Warrant. Under the OID Regulations, the issue
price of a Unit should be equal to the first price at which a substantial amount
of the Units were sold for money (excluding sales to bond houses, brokers or
similar persons acting in the capacity of an underwriter, placement agent or
wholesaler). The issue price of a Unit must be allocated between its component
parts based on their relative fair market values on the date of issuance. Based
on the foregoing, the Company intends to treat a Note as having been originally
issued with an issue price of $577.36 and a Warrant as having been issued with
an issue price of $5.60. This allocation by the Company reflects its judgment as
to the relative values of those instruments at the time of original issuance. No
assurance can be given, however, that the IRS will not challenge the allocation
by the Company of the issue price of the Notes and Warrants. If the Company's
allocation is successfully challenged, the issue price, OID accrual and gain or
loss on sale would be different from that resulting under the allocation
determined by the Company.
TAXATION OF ORIGINAL ISSUE DISCOUNT. A U.S. holder of a debt instrument
issued with OID is required to include in gross income for U.S. federal income
tax purposes an amount equal to the sum of the "daily portions" of such OID for
all days during the taxable year on which the holder holds the debt instrument.
The daily portions of OID required to be included in a holder's gross income in
a taxable year is determined upon a constant yield basis by allocating to each
day during the taxable year on which the holder holds the debt instrument a pro
rata portion of the OID on such debt instrument which is attributable to the
"accrual period" in which such day is included. Accrual periods with respect to
a Note may be of any length selected by the U.S. Holder and may vary in length
over the term of the Note as long as (i) no accrual period is longer than one
year and (ii) each scheduled payment of interest or principal on the Note occurs
on either the final or first day of an accrual period. The amount of the OID
attributable to each "accrual period" is the product of (i) the "adjusted issue
price" at the beginning of such accrual period and (ii) the "yield to maturity"
of the debt instrument (stated in a manner appropriately taking into account the
length of the accrual period). The "yield to maturity" is the discount rate
that, when used in computing the present value of all payments to be made under
the Note, produces an amount equal to the issue price of the Note. The "adjusted
issue price" of a Note at the beginning of an accrual period is generally
defined as the issue price of the Note plus the aggregate amount of OID that
accrued in all prior accrual periods, less any cash payments on the Note.
Accordingly, a U.S. Holder of a Note is required to include OID thereon in gross
income for U.S. federal tax purposes in advance of the receipt of cash in
respect of such income. The amount of OID allocable to an initial short accrual
period may be computed using any reasonable method if all other accrual periods,
other than a final short accrual period, are of equal length. The amount of OID
allocable to the final accrual period at maturity of a Note is the difference
between (x) the amount payable at the maturity of the Note and (y) the Note's
adjusted issue price as of the beginning of the final accrual period.
EFFECT OF MANDATORY AND OPTIONAL REDEMPTIONS ON OID. In the event of a
Change of Control, the Company will be required to offer to redeem all of the
Notes at redemption prices specified elsewhere herein. In the event that the
Company receives net proceeds from one or more Public Equity Offerings, the
Company may, at any time prior to October 15, 2000, use all or a portion of such
net proceeds to redeem Notes in amounts and at redemption prices specified
elsewhere herein. Under the OID Regulations, computation of the
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yield and maturity of the Notes is not affected by such redemption rights and
obligations if, based on all the facts and circumstances as of the issue date,
the stated payment schedule of the Notes (that does not reflect a Change of
Control or such Public Equity Offerings) is significantly more likely than not
to occur. The Company has determined that, based on all of the facts and
circumstances as of the issue date, it is significantly more likely than not
that the Notes will be paid according to their stated schedule.
The Company may redeem the Notes, in whole or in part, at any time on or
after October 15, 2002, at redemption prices specified elsewhere herein plus
accrued and unpaid interest to the date of redemption. The OID Regulations
contain rules for determining the "maturity date" and the stated redemption
price at maturity of an instrument that may be redeemed prior to its stated
maturity date at the option of the issuer. Under the OID Regulations, solely for
purposes of the accrual of OID, it is assumed that the issuer will exercise any
option to redeem a debt instrument if such exercise will lower the
yield-to-maturity of the debt instrument. The Company believes that it will not
be presumed to redeem the Notes prior to their stated maturity under these rules
because the exercise of such option would not lower the yield-to-maturity of the
Notes.
TAX BASIS. A U.S. Holder's initial tax basis in a Note generally is equal
to the purchase price paid by such U.S. Holder for such Note (or the portion of
the Unit purchase price allocable to such Notes). A U.S. Holder's tax basis in a
Note is increased by the amount of OID and market discount that is included in
such U.S. Holder's income pursuant to the foregoing rules and is decreased by
the amount of any cash payments received.
MARKET DISCOUNT, ACQUISITION PREMIUM
If a U.S. Holder acquires a Note for an amount that is less than its
revised issue price (generally, adjusted issued price) at the time of
acquisition, the amount of such difference will be treated as "market discount"
for U.S. federal income tax purposes, unless such difference is less than a
specified de minimis amount. Under the market discount rules, a U.S. Holder is
required to treat any principal payment on, or any gain on the sale, exchange,
retirement or other disposition of, a Note as ordinary income to the extent of
the market discount which has not previously been included in income and is
treated as having accrued on such Note at the time of such payment or
disposition. If a U.S. Holder makes a gift of a Note, accrued market discount,
if any, is recognized as if such U.S. Holder had sold such Note for a price
equal to its fair market value. In addition, the U.S. Holder may be required to
defer, until the maturity of the Note or the earlier disposition of the Note in
a taxable transaction, the deduction of a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such Note.
Any market discount is considered to accrue on a straight-line basis during
the period from the date of acquisition to the maturity date of the Note, unless
the U.S. Holder elects to accrue market discount on a constant interest method.
A U.S. Holder of a Note may elect to include market discount in income currently
as it accrues (on either a straight-line basis or constant interest method), in
which case the rules described above regarding the deferral of interest
deductions will not apply. This election to include market discount in income
currently, once made, applies to all market discount obligations acquired on or
after the first day of the first taxable year to which the election applies and
may not be revoked without the consent of the IRS.
A U.S. Holder who acquires a Note for an amount that is greater than the
adjusted issue price of such Note but equal to or less than the sum of all
amounts payable on such Note after the purchase date is considered to have
purchased such Note at an "acquisition premium." Under the acquisition premium
rules of the Code and the OID Regulations, the amount of OID which such holder
must include in its gross income with respect to such Note for any taxable year
is reduced by the portion of such acquisition premium properly allocable to such
year.
SALE OR REDEMPTION OF NOTES
Unless a nonrecognition provision applies, the sale, exchange, redemption
(including pursuant to an offer by the Company) or other disposition of a Note
is a taxable event for U.S. federal income tax purposes. In such event, a U.S.
Holder will recognize gain or loss equal to the difference between (i) the
amount of cash
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plus the fair market value of any property received upon such sale, exchange,
redemption or other taxable disposition and (ii) the U.S. Holder's adjusted tax
basis therein. Except with respect to accrued market discount, such gain or loss
should be capital gain or loss and will be long-term capital gain or loss if the
Note will have been held by the U.S. Holder for more than one year at the time
of such sale, exchange, redemption or other disposition. The distinction between
capital gain or loss and ordinary income is important for purposes of the
limitations on a U.S. Holder's ability to offset capital losses against ordinary
income and because U.S. Holders that are individuals may be entitled to a
preferential tax rate on long-term capital gains. On August 5, 1997, legislation
was enacted which, among other things, reduces to 20% the maximum rate of tax on
long-term capital gains on most capital assets held by an individual for more
than 18 months. Gain on most capital assets held by an individual more than one
year and up to 18 months is subject to tax at a maximum rate of 28%.
HIGH-YIELD DISCOUNT OBLIGATIONS
The Notes will constitute "applicable high yield discount obligations"
("AHYDOs") because the yield to maturity of such Notes equals or exceeds the sum
of the applicable federal rate in effect at the time of the issuance of the
Notes (the "AFR") plus five percentage points. For October 1997, the long-term
AFR is 6.57% and the mid-term AFR is 6.24% (based on semi-annual compounding).
The appropriate AFR depends upon the weighted average maturity of the Notes.
Under Sections 163(e) and 163(i) of the Code, a C corporation that is an issuer
of debt obligations subject to the AHYDO rules may not deduct any portion of OID
on the obligations until such portion is actually paid. A debt obligation is
generally subject to the AHYDO rules if (i) its maturity date is more than five
years from the date of issue, (ii) its yield to maturity equals or exceeds the
sum of the AFR plus five percentage points, and (iii) it bears "significant
OID." A debt obligation will bear significant OID for this purpose if, as of the
close of any accrual period ending more than five years after issuance, the
total amount of income includable by a holder with respect to the debt
instrument exceeds the sum of (i) the total amount of "interest" paid under the
obligation before the close of such accrual period and (ii) the product of the
issue price of the debt instrument and its yield to maturity.
NON-U.S. HOLDERS
THE NOTES
Subject to the discussion of "backup" withholding below, payments of
principal, if any, and interest (including OID) by the Company or its agent (in
its capacity as such) to any holder who is a beneficial owner of a Note but is
not a U.S. Holder is not subject to U.S. federal withholding tax provided, in
the case of interest (including OID) that (i) such holder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote, (ii) such holder is not a controlled
foreign corporation for U.S. tax purposes that is related to the Company through
stock ownership, and (iii) either (A) the beneficial owner of the Note certified
to the Company or its agent, under penalties of perjury, that he is not a U.S.
Holder and provides his name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers
securities in the ordinary course of its trade or business (a "financial
institution") certified to the Company or its agent, under penalties of perjury,
that the certification described in clause (A) hereof has been received from the
beneficial owner by it or by another financial institution acting for the
beneficial owner. A holder of a Note who is not a U.S. Holder, and who does not
meet the requirements of the preceding sentence, would generally be subject to
U.S. federal withholding tax at a flat rate of 30% (or a lower applicable treaty
rate) on payments of interest (including OID) on the Notes.
Regulations recently issued by the IRS, which will be effective for
payments made after December 31, 1998, make certain modifications to the
certification procedures applicable to Non-U.S. Holders. Prospective investors
should consult their tax advisors regarding the certification requirements for
Non-U.S. Holders.
If a holder of a Note who is not a U.S. Holder is engaged in a trade or
business in the United States and interest (including OID) on the Note is
effectively connected with the conduct of such trade or business, such holder,
although exempt from U.S. federal withholding tax as discussed in the preceding
paragraph (or by
117
<PAGE> 119
reason of the delivery of properly completed Form 4224), is subject to U.S.
federal income tax on such interest (including OID) and on any gain realized on
the sale, exchange or other dispositions of a Note in the same manner as if it
were a U.S. Holder. In addition, if such Non-U.S. Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits for that taxable year, unless it
qualifies for a lower rate under an applicable income tax treaty.
Subject to the discussion of "backup" withholding below, any capital gain
realized upon the sale, exchange or retirement of a Note by a holder who is not
a U.S. Holder will not be subject to U.S. federal income or withholding taxes
unless (i) such gain is effectively connected with a U.S. trade or business of
the holder, or (ii) in the case of an individual, such holder is present in the
United States for 183 days or more in the taxable year of the retirement or
disposition and certain other conditions are met.
Notes held by an individual who is neither a citizen nor a resident of the
United States for U.S. federal income tax purposes at the time of such
individual's death is not subject to U.S. federal estate tax, provided that the
income from the Notes was not or would not have been effectively connected with
a U.S. trade or business of such individual and that such individual qualified
for the exemption from U.S. federal withholding tax (without regard to the
certification requirements) that is described above.
FIRPTA TREATMENT OF NON-U.S. HOLDERS
Under the Foreign Investment in Real Property Tax Act of 1980, as amended
("FIRPTA"), foreign persons generally are subject to U.S. federal income tax on
capital gain realized on the disposition of any interest (other than solely as a
creditor) in a corporation that is a United States real property holding
corporation (a "USRPHC"). For this purpose, a foreign person is defined as any
holder who is a foreign corporation (other than certain foreign corporations
that elect to be treated as domestic corporations), a non-resident alien
individual, a non-resident fiduciary of a foreign estate or trust, or a foreign
partnership. Under FIRPTA, a corporation is a USRPHC if the fair market value of
the United States real property interests held by the corporation is 50 percent
or more of the aggregate fair market value of certain assets of the corporation.
The Company does not currently believe that it is a USRPHC. Thus, a foreign
person that holds Warrants, or shares of the Preferred Stock of the Company
acquired pursuant to the exercise of such Warrants, generally will not be
subject to the U.S. federal income tax on a sale or other disposition of the
Warrants or shares of Preferred Stock. Even if a corporation meets the test for
a USRPHC, a foreign person would generally not be subject to tax, or withholding
in respect to such tax, on gain from a sale or other disposition of such
corporation's stock solely by reason of the corporation's USRPHC status if the
stock is regularly traded on an established securities market ("regularly
traded") during the calendar year in which such sale or disposition occurs,
provided that such holder does not own, actually or constructively, stock with a
fair market value in excess of five percent (5%) of the fair market value of all
such stock outstanding at any time during the shorter of the five-year period
preceding such disposition or the holder's holding period. At present, the
Company's stock is not regularly traded and no assurance can be made as to the
development of a trading market for its stock.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The "backup" withholding and information reporting requirements may apply
to certain payments of principal and interest (including OID) on a Note and to
certain payments of proceeds of the sale or retirement of a Note. The Company,
its agent, a broker, the Trustee or any paying agent, as the case may be, is
required to withhold tax from any payment that is subject to backup withholding
at a rate of 31% of such payment if the holder fails to furnish his taxpayer
identification number (social security number or employer identification
number), to certify that such holder is not subject to backup withholding, or to
otherwise comply with the applicable requirements of the backup withholding
rules. Certain holders (including, among others, all corporations) are not
subject to the backup withholding and reporting requirements.
Under current Treasury Regulations, backup withholding and information
reporting do not apply to payments made by the Company or any agent thereof (in
its capacity as such) to a holder of a Note who has provided the required
certification under penalties of perjury that it is not a U.S. Holder as set
forth in clause
118
<PAGE> 120
(iii) in the first paragraph under "Non-U.S. Holders" or has otherwise
established an exemption (provided that neither the Company nor such agent has
actual knowledge that the holder is a U.S. Holder or that the conditions of any
other exemption are not in fact satisfied).
Payments of the proceeds from the sale by a holder who is not a U.S. Holder
of a Note made to or through a foreign office of a broker will not be subject to
U.S. information reporting or backup withholding, except that if the broker is a
U.S. person, a controlled foreign corporation for U.S. tax purposes or a foreign
person 50% or more of whose gross income is effectively connected with a United
States trade or business for a specified three-year period, U.S. information
reporting may apply to such payments. Payments of the proceeds from the sale of
a Note to or through the United States office of a broker is subject to U.S.
information reporting and backup withholding unless the holder or beneficial
owner certifies as to its non-U.S. status or otherwise establishes an exemption
from U.S. information reporting and backup withholding.
Regulations recently issued by the IRS, which will be effective for
payments made after December 31, 1998, make certain modifications to the
certification procedures applicable to Non-U.S. Holders. Prospective investors
should consult their tax advisors regarding the certification requirements for
Non-U.S. Holders.
Any amounts withheld under the backup withholding rules from a payment to a
holder may be claimed as a credit against such holder's United States federal
income tax liability.
The Company is required to furnish certain information to the IRS, and will
furnish annually to record holders of Notes, information with respect to
interest and OID accruing during the calendar year. The OID information will be
based upon the adjusted issue price of the debt instrument as if the holder were
the original holder of the debt instrument. No assurance can be given that the
IRS will not challenge the accuracy of the reported information. Moreover, if a
holder uses an allocation of the issue price of a Unit between the Note and the
Warrant comprising the Unit that is different from that used by the Company, the
computation of OID with respect to such holder's Note may differ from that
reported by the Company to the IRS and to such holder. Subsequent holders who
purchase Notes for an amount other than the adjusted issue price and/or on a
date other than the last day of an accrual period will be required to determine
for themselves the amount of OID, if any, they are required to include in gross
income for U.S. federal income tax purposes.
119
<PAGE> 121
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Senior Discount Notes where such Senior Discount Notes were
acquired as a result of market-making activities or other trading activities.
The Company has agreed that, for a period not to exceed 180 days after the
Expiration Date, it will furnish additional copies of this Prospectus, as
amended or supplemented, to any broker-dealer that reasonably requests such
documents for use in connection with any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The Exchange Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to list the Exchange
Notes on any national securities exchange or to seek approval for quotation
through any automated quotation system. The Company has been advised by the
Placement Agents that following completion of the Exchange Offer, the Placement
Agents intend to make a market in the Exchange Notes. However, the Placement
Agents are not obligated to do so and any market-marking activities with respect
to the Exchange Notes may be discontinued at any time without notice.
Accordingly, no assurance can be given that an active public or other market
will develop for the Exchange Notes or as to the liquidity of or the trading
market for the Exchange Notes. If a trading market does not develop or is not
maintained, holders of the Exchange Notes may experience difficulty in reselling
the Exchange Notes or may be unable to sell them at all. If a market for the
Exchange Notes develops, any such market may cease at any time. If a public
trading market develops for the Exchange Notes, future trading prices of the
Exchange Notes will depend on many factors, including, among other things,
prevailing interest rates, the market for similar securities, the financial
conditions and results of operations of the Company and other factors beyond the
control of the Company, including general economic conditions. Notwithstanding
the registration of the Exchange Notes in the Exchange Offer, holders who are
"affiliates" of the Company (within the meaning of Rule 405 under the Securities
Act) may publicly offer for sale or resell the Exchange Notes only in compliance
with the provisions of Rule 144 under the Securities Act or any other available
exemptions under the Securities Act.
The Company has agreed to pay all expenses incident to the Exchange Offer
other than commissions or concessions of any brokers or dealers, and will
indemnify the holders of the Senior Discount Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
120
<PAGE> 122
LEGAL MATTERS
The legality of the Exchange Notes offered hereby are being passed upon for
the Company by Hogan & Hartson L.L.P., Washington, D.C., special counsel for the
Company. Hogan & Hartson L.L.P. also provides legal services to ITC Holding,
ITC'DeltaCom, their affiliated companies and Campbell B. Lanier III. Anthony S.
Harrington, a partner of the firm, beneficially owns 76 shares of Preferred
Stock of the Company, 34,800 shares of common stock of ITC Holding and 80,180
shares of common stock of ITC'DeltaCom.
EXPERTS
The consolidated balance sheets of KNOLOGY Holdings, Inc. and subsidiaries
(Successor Company) and KNOLOGY of Montgomery, (Predecessor Company) as of
December 31, 1995 and 1996 and the related consolidated statements of
operations, stockholders' (deficit) equity, and cash flows for the year ended
December 31, 1994, the four months ended April 30, 1995, the eight months ended
December 31, 1995 and the year ended December 31, 1996 included in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as stated in their report with respect thereto and is
included herein in reliance upon the authority of said firm as experts in giving
said report.
The statements of operations, partner's deficit and cash flows of American
Cable Company Partnership for the year ended December 31, 1994 and the nine
months ended September 29, 1995 included in this Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as stated
in their report with respect thereto and is included herein in reliance upon the
authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company is not currently subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Upon effectiveness of the Registration Statement (of which this
Prospectus is a part), the Company will become subject to the informational
requirements of the Exchange Act. In addition, the Indenture provides that,
regardless of whether the Company is then required to file reports with the
Commission, the Company shall file with the Commission all such reports and
other information as would be required to be filed with the Commission if the
Company were subject to the reporting requirements of the Exchange Act. The
Company will supply, or cause the Trustee to supply, to each holder of Exchange
Notes, without cost, copies of such reports or other information.
The Company has filed the Registration Statement (of which this Prospectus
is a part) under the Securities Act with respect to the Exchange Offer. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all the information set forth in the Registration Statement. For
further information about the Company and the Exchange Offer, reference is made
to the Registration Statement and to the financial statements, exhibits and
schedules filed therewith. The statements contained in this Prospectus about the
contents of any contract or other document referred to are not necessarily
complete, and in each instance, reference is made to a copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of each such
document may be obtained from the Commission at its principal office in
Washington D.C. upon payment of the charges prescribed by the Commission or, in
the case of certain such documents, by accessing the Commission's World Wide Web
site at http://www.sec.gov.
The Company is required by the terms of the Indenture to furnish the
Trustee with annual reports containing consolidated financial statements audited
by their independent public accountants and with quarterly reports containing
unaudited condensed consolidated financial statements for each of the first
three quarters of each fiscal year.
121
<PAGE> 123
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<S> <C>
KNOLOGY HOLDINGS, INC.
Report of Independent Public Accountants....................................... F-2
Consolidated Balance Sheets -- December 31, 1995 and 1996 and September 30,
1997 (unaudited).............................................................. F-3
Consolidated Statements of Operations for the Year Ended December 31, 1994, the
Four Months Ended April 30, 1995, the Eight Months Ended December 31, 1995,
the Year Ended December 31, 1996, and the Nine Months Ended September 30, 1996
and 1997 (unaudited).......................................................... F-4
Consolidated Statements of Cash Flows for the Year Ended December 31, 1994, the
Four Months Ended April 30, 1995, the Eight Months Ended December 31, 1995,
the Year Ended December 31, 1996, and the Nine Months Ended September 30, 1996
and 1997 (unaudited).......................................................... F-5
Consolidated Statements of Stockholders' (Deficit) Equity for the Year Ended
December 31, 1994, the Four Months Ended April 30, 1995, the Eight Months
Ended December 31, 1995, the Year Ended December 31, 1996, and the Nine Months
Ended September 30, 1997 (unaudited).......................................... F-6
Notes to Consolidated Financial Statements..................................... F-7
AMERICAN CABLE COMPANY PARTNERSHIP
Report of Independent Public Accountants....................................... F-22
Statements of Operations for the Year Ended December 31, 1994 and for the Nine
Months Ended September 29, 1995............................................... F-23
Statements of Partners' Deficit for the Year Ended December 31, 1994 and for
the Nine Months Ended September 29, 1995...................................... F-24
Statements of Cash Flows for the Year Ended December 31, 1994 and for the Nine
Months Ended September 29, 1995............................................... F-25
Notes to Financial Statements.................................................. F-26
</TABLE>
F-1
<PAGE> 124
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To KNOLOGY Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of KNOLOGY
HOLDINGS, INC. (a Delaware corporation) AND SUBSIDIARIES (SUCCESSOR COMPANY) AND
KNOLOGY OF MONTGOMERY, INC. (PREDECESSOR COMPANY) (an Alabama corporation) as of
December 31, 1995 and 1996 and the related consolidated statements of
operations, stockholders' (deficit) equity, and cash flows for the year ended
December 31, 1994, the four months ended April 30, 1995, the eight months ended
December 31, 1995 and the year ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of KNOLOGY Holdings, Inc. and
subsidiaries (Successor Company) and KNOLOGY of Montgomery, Inc. (Predecessor
Company) as of December 31, 1995 and 1996 and the results of their operations
and their cash flows for the year ended December 31, 1994, the four months ended
April 30, 1995, the eight months ended December 31, 1995 and the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective April 28, 1995,
KNOLOGY Holdings, Inc. acquired a majority ownership interest in KNOLOGY of
Montgomery, Inc. in a business combination accounted for as a purchase. As a
result of this acquisition, the financial information for the periods after the
acquisition is presented on a different cost basis than for the periods before
the acquisition and, therefore, is not comparable.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
May 14, 1997 (except
with respect to Note 10,
as to which the date is
December 19, 1997)
F-2
<PAGE> 125
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996, AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 300,494 $ 83,092 $ 0
Accounts receivable -- trade, less allowance for doubtful accounts of $17,113,
$23,342 and $34,696 in 1995, 1996 and 1997, respectively...................... 362,374 885,463 1,449,988
Interest receivable -- affiliate (Note 8)...................................... 12,097 1,345 0
Advances to affiliate (Note 8)................................................. 4,255,836 0 0
Deferred tax assets (Note 6)................................................... 5,686 0 0
Prepaid expenses............................................................... 99,970 280,920 83,289
----------- ----------- -----------
Total current assets....................................................... 5,036,457 1,250,820 1,533,277
----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Cable system and installation equipment........................................ 7,054,087 20,965,636 39,091,948
Test and office equipment...................................................... 199,114 421,997 935,668
Automobiles and trucks......................................................... 90,437 286,422 623,264
Inventory...................................................................... 261,574 1,605,922 4,504,702
Leasehold improvements......................................................... 8,531 170,272 273,848
----------- ----------- -----------
7,613,743 23,450,249 45,429,430
Less accumulated depreciation and amortization................................. (637,475) (1,973,040) (3,936,021)
----------- ----------- -----------
Property and equipment, net................................................ 6,976,268 21,477,209 41,493,409
----------- ----------- -----------
COST IN EXCESS OF NET ASSETS ACQUIRED, NET OF ACCUMULATED AMORTIZATION OF $54,426,
$202,516 AND $391,803 IN 1995, 1996 AND 1997, RESPECTIVELY....................... 6,924,017 6,877,607 6,688,320
----------- ----------- -----------
ORGANIZATIONAL COSTS, NET OF ACCUMULATED AMORTIZATION OF $59,228, $157,535 AND
$220,935 IN 1995, 1996 AND 1997, RESPECTIVELY.................................... 404,764 326,590 322,056
----------- ----------- -----------
OTHER.............................................................................. 4,811 9,519 36,919
----------- ----------- -----------
Total assets............................................................... $19,346,317 $29,941,745 $50,073,981
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 3)..................................... $ 146,133 $ 1,027,873 $12,687,754
Accounts payable............................................................... 283,549 1,894,178 2,872,802
Accounts payable -- affiliate (Note 8)......................................... 157,546 7,073 0
Accrued liabilities............................................................ 610,048 907,247 1,427,607
Unearned revenue............................................................... 336,894 615,651 749,733
Other.......................................................................... 3,805 0 0
----------- ----------- -----------
Total current liabilities.................................................. 1,537,975 4,452,022 17,737,896
NONCURRENT LIABILITIES:
Long-term debt (Note 3)........................................................ 11,075,698 11,291,296 11,269,031
----------- ----------- -----------
DEFERRED TAX LIABILITIES, NET OF ALLOWANCE OF $1,356,820, $2,475,223 AND $3,916,928
IN 1995, 1996 AND 1997, RESPECTIVELY (NOTE 6)...................................... 379,009 0 0
Total liabilities.......................................................... 12,992,682 15,743,318 29,006,927
----------- ----------- -----------
MINORITY INTEREST.................................................................. 84,479 0 0
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 4 AND 5)
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par value per share; 15,000 shares
authorized, 7,520 shares issued and outstanding in 1995; 50,000 shares
authorized, 17,092 and 26,052 shares issued and outstanding in 1996 and
1997.......................................................................... 75 171 261
Common stock, $.01 par value per share; 15,000 shares authorized, no shares
issued and outstanding........................................................ 0 0 0
Additional paid-in capital..................................................... 7,454,615 18,509,218 29,214,530
Accumulated deficit............................................................ (1,185,534) (4,310,962) (8,147,737)
----------- ----------- -----------
Total stockholders' equity................................................. 6,269,156 14,198,427 21,067,054
----------- ----------- -----------
Total liabilities and stockholders' equity................................. $19,346,317 $29,941,745 $50,073,981
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 126
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994,
THE FOUR MONTHS ENDED APRIL 30, 1995, THE EIGHT MONTHS ENDED DECEMBER 31, 1995,
THE YEAR ENDED DECEMBER 31, 1996,
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------------ -----------------------------------------------------------
FOUR EIGHT NINE NINE
YEAR MONTHS MONTHS YEAR MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, APRIL 30, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996 1996 1997
------------ --------- ------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Subscriber...................... $ 2,004,419 $ 811,103 $ 2,016,082 $ 4,682,666 $ 3,337,029 $ 6,145,495
Miscellaneous................... 107,533 46,058 180,916 651,517 488,700 899,191
----------- --------- ----------- ----------- ----------- -----------
Total...................... 2,111,952 857,161 2,196,998 5,334,183 3,825,729 7,044,686
----------- --------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
General and administrative...... 587,579 175,724 1,027,001 2,346,201 1,588,761 2,368,525
Programming charges............. 1,042,186 409,325 1,029,959 2,513,693 1,781,853 3,263,652
Depreciation and amortization... 768,496 259,336 745,004 1,640,025 1,118,403 2,263,982
Field and technical............. 303,600 98,293 417,273 877,870 666,091 988,435
Sales and marketing............. 128,909 16,590 58,414 659,667 339,934 947,284
----------- --------- ----------- ----------- ----------- -----------
Total...................... 2,830,770 959,268 3,277,651 8,037,456 5,495,042 9,831,878
----------- --------- ----------- ----------- ----------- -----------
OPERATING LOSS...................... (718,818) (102,107) (1,080,653) (2,703,273) (1,669,314) (2,787,192)
----------- --------- ----------- ----------- ----------- -----------
OTHER INCOME AND EXPENSES:
Affiliate interest income (Note
8)............................ 0 0 12,098 273,799 251,303 38,984
Other interest income........... 0 0 6,646 46,221 6,890 40,443
Affiliate interest expense (Note
8)............................ (165,455) (2,017) (58,856) 0 0 0
Other interest expense.......... (65,120) (19,861) (509,057) (1,055,498) (795,066) (1,099,465)
Other income (expense), net..... 75,158 0 0 (60,000) 0 (29,545)
----------- --------- ----------- ----------- ----------- -----------
Total...................... (155,417) (21,878) (549,169) (795,478) (536,873) (1,049,583)
----------- --------- ----------- ----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST AND
INCOME TAX BENEFIT................ (874,235) (123,985) (1,629,822) (3,498,751) (2,206,187) (3,836,775)
MINORITY INTEREST (NOTE 2).......... 0 0 109,837 0 0 0
----------- --------- ----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAX BENEFIT...... (874,235) (123,985) (1,519,985) (3,498,751) (2,206,187) (3,836,775)
INCOME TAX BENEFIT.................. 0 0 334,451 373,323 373,323 0
----------- --------- ----------- ----------- ----------- -----------
NET LOSS............................ (874,235) (123,985) (1,185,534) (3,125,428) (1,832,864) (3,836,775)
PREFERRED STOCK DIVIDENDS........... (591,175) (230,407) 0 0 0 0
----------- --------- ----------- ----------- ----------- -----------
NET LOSS AFTER PREFERRED STOCK
DIVIDENDS......................... $(1,465,410) $(354,392) $(1,185,534) $(3,125,428) $(1,832,864) $(3,836,775)
=========== ========= =========== =========== =========== ===========
PRIMARY NET LOSS PER SHARE (NOTE 2):
Weighted average shares
outstanding -- 7,520, 13,626,
12,458 and 24,116 shares in
1995, 1996, September 30, 1996
and 1997, respectively........ $ 0 $ 0 $ (157.65) $ (229.37) $ (147.12) $ (159.10)
=========== ========= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 127
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1994,
THE FOUR MONTHS ENDED APRIL 30, 1995, THE EIGHT MONTHS ENDED DECEMBER 31, 1995,
THE YEAR ENDED DECEMBER 31, 1996,
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------------ ------------------------------------------------------------
FOUR EIGHT NINE NINE
YEAR MONTHS MONTHS YEAR MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, APRIL 30, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996 1996 1997
------------ --------- ------------ ------------ -------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................ $ (874,235) $(123,985) $(1,185,534) $(3,125,428) $(1,832,864) $(3,836,775)
--------- --------- ----------- ------------ ----------- -----------
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization... 768,496 259,336 745,004 1,640,025 1,118,403 2,263,982
(Gain) loss on disposition of
assets........................ (75,158) 0 0 21,370 (95,364) 56,316
Deferred income tax benefit..... 0 0 (334,451) (373,323) (373,323) 0
Minority interest............... 0 0 (109,837) 0 0
Changes in current assets and
liabilities:
Accounts receivable......... (22,485) (11,069) (205,159) (512,337) (154,216) (563,180)
Prepaid expenses............ (6,479) 7,955 (86,156) (180,950) 82,116 197,631
Accounts payable............ 102,646 79,608 (246,687) (39,648) (85,735) 927,922
Accrued liabilities and
interest.................. 163,468 28,528 372,966 293,394 63,666 520,360
Unearned revenue............ 26,337 (96,297) 336,894 278,757 45,048 134,082
Other....................... 0 0 (29,968) 133 (13,384) (21,192)
--------- --------- ----------- ------------ ----------- -----------
Total adjustments....... 956,825 268,061 442,606 1,127,421 587,211 3,515,921
--------- --------- ----------- ------------ ----------- -----------
Net cash provided by
(used in) operating
activities............ 82,590 144,076 (742,928) (1,998,007) (1,245,653) (320,854)
--------- --------- ----------- ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................ (717,325) (42,504) (1,291,080) (14,416,135) (10,338,118) (22,034,377)
Organizational cost expenditures.... 0 0 (453,736) (20,133) (1,901) (70,879)
Purchase of investment.............. 0 0 0 (5,000) 0 0
--------- --------- ----------- ------------ ----------- -----------
Net cash used in
investing activities.. (717,325) (42,504) (1,744,816) (14,441,268) (10,340,019) (22,105,256)
--------- --------- ----------- ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Advances to) repayments from
affiliate......................... 0 0 (4,255,836) 4,255,836 729,636 0
Proceeds from issuances of debt and
short-term borrowings............. 855,820 0 51,389 1,258,238 114,995 0
Principal payments on debt and
short-term borrowings............. (258,873) (104,889) (478,624) (160,900) (41,335) 11,637,616
Proceeds from initial capitalization
of Successor Company.............. 0 0 200,000 0 0
Proceeds from issuance of preferred
stock, net of related offering
expenses.......................... 0 0 7,254,690 10,868,699 10,952,445 10,705,402
--------- --------- ----------- ------------ ----------- -----------
Net cash provided by
(used in) financing
activities............ 596,947 (104,889) 2,771,619 16,221,873 11,755,741 22,343,018
--------- --------- ----------- ------------ ----------- -----------
NET (DECREASE) INCREASE IN CASH......... (37,788) (3,317) 283,875 (217,402) 170,069 (83,092)
CASH AT BEGINNING OF PERIOD............. 57,724 19,936 16,619 300,494 300,494 83,092
--------- --------- ----------- ------------ ----------- -----------
CASH AT END OF PERIOD................... $ 19,936 $ 16,619 $ 300,494 $ 83,092 470,563 0
========= ========= =========== ============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest.......................... $ 235,851 $ 22,027 $ 46,762 $ 1,016,039 $ 788,850 $ 835,669
========= ========= =========== ============ =========== ===========
Cash paid during the period for
income taxes...................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
========= ========= =========== ============ =========== ===========
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Preferred stock dividends........... $ 591,175 $ 230,407 $ 0 $ 0 $ 0 $ 0
========= ========= =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 128
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1994,
THE FOUR MONTHS ENDED APRIL 30, 1995,
THE EIGHT MONTHS ENDED DECEMBER 31, 1995,
THE YEAR ENDED DECEMBER 31, 1996,
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL PREFERRED STOCK TREASURY STOCK STOCKHOLDERS'
--------------- PAID-IN --------------- ------------------ ACCUMULATED (DEFICIT)
SHARES AMOUNT CAPITAL SHARES AMOUNT SHARES AMOUNT DEFICIT EQUITY
------ ------ ----------- ------ ------ ------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
BALANCE AT DECEMBER 31,
1993...................... 1,000 $ 10 $ 6,563,598 197 $197 (5,104) $(255,200) $(4,590,788) $ 1,717,817
Dividends on preferred
stock................... 0 0 0 0 0 0 0 (591,175) (591,175)
Net loss.................. 0 0 0 0 0 0 0 (874,235) (874,235)
----- ---- ----------- ------ ----- ------ --------- ----------- -----------
BALANCE AT DECEMBER 31,
1994...................... 1,000 10 6,563,598 197 197 (5,104) (255,200) (6,056,198) 252,407
Dividends on preferred
stock................... 0 0 0 0 0 0 0 (230,407) (230,407)
Net loss.................. 0 0 0 0 0 0 0 (123,985) (123,985)
----- ---- ----------- ------ ----- ------ --------- ----------- -----------
BALANCE AT APRIL 30, 1995... 1,000 10 6,563,598 197 197 (5,104) (255,200) (6,410,590) (101,985)
SUCCESSOR COMPANY:
Initial capital
contribution.............. 0 0 200,000 0 0 0 0 0 200,000
Acquisition of Predecessor
Company................... (1,000) (10) (6,563,598) (197) (197) 5,104 255,200 6,410,590 101,985
Conversion of capital to
preferred stock........... 0 0 (2) 20 2 0 0 0 0
Issuance of preferred stock,
net of related offering
expenses of $65,310....... 0 0 7,254,617 7,500 73 0 0 0 7,254,690
Net loss.................... 0 0 0 0 0 0 0 (1,185,534) (1,185,534)
----- ---- ----------- ------ ----- ------ --------- ----------- -----------
BALANCE AT DECEMBER 31,
1995........................ 0 0 7,454,615 7,520 75 0 0 (1,185,534) 6,269,156
Issuance of preferred stock,
net of related offering
expenses of $379,701...... 0 0 11,054,603 9,572 96 0 0 0 11,054,699
Net loss.................... 0 0 0 0 0 0 0 (3,125,428) (3,125,428)
----- ---- ----------- ------ ----- ------ --------- ----------- -----------
BALANCE AT DECEMBER 31,
1996........................ 0 0 18,509,218 17,092 171 0 $ 0 (4,310,962) $14,198,427
Issuance of preferred stock,
net of related offering
expenses of $46,598....... 0 0 10,705,312 8,960 90 0 0 0 10,705,402
Net loss.................... 0 0 0 0 0 0 0 (3,836,775) (3,836,775)
----- ---- ----------- ------ ----- ------ --------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1997
(UNAUDITED)................. 0 $ 0 $29,214,530 26,052 $261 0 $ 0 (8,147,737) 21,067,054
===== ==== =========== ====== ===== ====== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 129
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
KNOLOGY Holdings, Inc. (formerly CyberNet Holding, Inc.) and its
subsidiaries (the "Company" or "Successor Company") provide integrated,
interactive broadband communications services, including cable television, to
multiple areas in the Southeast. The Company was initially capitalized as ITC
Broadband Services, L.L.C. (subsequently changed to CyberNet Holding, L.L.C.) in
March 1995, at which time it was ultimately wholly owned by the corporate
predecessor of ITC Holding Company, Inc. (together with such predecessor, "ITC
Holding"). Due to subsequent equity transactions (Note 7), the Company is no
longer a consolidated subsidiary of ITC Holding.
CyberNet Holding, L.L.C. was established for the purpose of the acquisition
of KNOLOGY of Montgomery, Inc. (formerly, Montgomery Cablevision &
Entertainment) ("KNOLOGY of Montgomery" or "Predecessor Company"), a provider of
cable television services in Montgomery, Alabama. This acquisition was
consummated on April 28, 1995 when the Company purchased the equity interests of
InterRedec, Inc. ("InterRedec") in KNOLOGY of Montgomery in exchange for a note
bearing interest at 9%, with principal and interest due in five years (Note 3).
The transaction was accounted for as a purchase. As of December 31, 1995, the
Company owned 80% of the common stock and approximately 97% of the preferred
stock of KNOLOGY of Montgomery. In January 1996, the Company exchanged 200
shares of its preferred stock and $14,000 in cash for the 200 common shares and
5 preferred shares of KNOLOGY of Montgomery held by the minority shareholder. As
a result of this exchange, KNOLOGY of Montgomery is now a wholly owned
subsidiary of the Company.
In August 1995, CyberNet Holding, L.L.C. established American Cable, L.L.C.
(95% owned by CyberNet Holding, L.L.C. and 5% owned by ITC Holding). On
September 29, 1995, American Cable, L.L.C. purchased certain assets of American
Cable Company Partnership and American Cable Company (collectively, "American"),
a provider of cable television services in Columbus, Georgia, in exchange for a
note bearing interest at 9%, with principal and interest due in five years (Note
3). The transaction was accounted for as a purchase (Note 9).
The following table summarizes the net assets purchased by the Company in
connection with its acquisitions of KNOLOGY of Montgomery and American and the
amount attributable to cost in excess of net assets acquired (in thousands):
<TABLE>
<CAPTION>
KNOLOGY OF
MONTGOMERY AMERICAN TOTAL
---------- -------- --------
<S> <C> <C> <C>
Purchase price............................... $ 6,000 $ 5,000 $11,000
Assumption of note payable................... (2,191) 0 (2,191)
Assumption of preferred stock dividends
payable.................................... (1,107) 0 (1,107)
Net (assets) liabilities..................... 1,002 (1,725) (723)
------- ------- -------
Cost in excess of net assets acquired........ $ 3,704 $ 3,275 $6,979
======= ======= =======
</TABLE>
The acquisitions of these assets have been accounted for as noncash
transactions for purposes of the consolidated statements of cash flows.
In November 1995, KNOLOGY of Columbus, Inc. (formerly American Cable,
Inc.), a Delaware corporation was established. In consideration for shares in
KNOLOGY of Columbus, CyberNet Holding,
F-7
<PAGE> 130
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND NATURE OF BUSINESS--(CONTINUED)
L.L.C. and ITC Holding conveyed their ownership interests in American Cable,
L.L.C. to KNOLOGY of Columbus.
In November 1995, the Company (a Delaware corporation) was established. In
December 1995, in exchange for shares of the Company's preferred stock, ITC
Holding conveyed its direct and indirect interests in CyberNet Holding, L.L.C.
and KNOLOGY of Columbus to the Company (Note 7).
CyberNet Holding L.L.C. and American Cable, L.L.C. were dissolved in
February and October 1996, respectively.
The Company has experienced operating losses as a result of efforts to
build out its broadband systems and expand into new markets. The Company expects
to continue to focus on increasing its customer base and expanding its broadband
operations. Accordingly, the Company expects that its operating expenses and
capital expenditures will continue to increase significantly, all of which will
have a negative impact on short-term operating results. In addition, the Company
may change its pricing policies to respond to a changing competitive
environment. In the opinion of management, the Company's projected cash flows
from operations and existing credit position, including the financing
arrangements discussed in Note 10, will be sufficient to meet the capital and
operating needs of the Company through at least 1997. However, there can be no
assurance that growth in the Company's revenue or customer base will continue or
that the Company will be able to achieve or sustain profitability and/or
positive cash flow.
See Risk Factors in this document for further information.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION
As a result of the KNOLOGY of Montgomery acquisition discussed in Note 1,
the capital structure of and the basis of accounting for the Company differs
from those of KNOLOGY of Montgomery prior to the acquisition. Financial data of
the Company with respect to all reporting periods subsequent to April 28, 1995
(the "Successor Period") reflect the acquisition under the purchase method of
accounting. Therefore, financial data with respect to KNOLOGY of Montgomery
prior to the acquisition (the "Predecessor Period") generally will not be
comparable to that of the Company with respect to the items described below.
As a result of the acquisitions of KNOLOGY of Montgomery and American
discussed in Note 1, the statements of operations for the Successor Period
includes amortization of cost in excess of net assets acquired and interest
expense on debt incurred in connection with the acquisitions. Also, as a result
of purchase accounting, the fair values of the property and equipment at the
date of their acquisition became their new "cost" bases with respect to the
Company. Accordingly, the depreciation of property and equipment for the
Successor Period is based on the newly established cost basis of these assets.
Other effects of purchase accounting in the Successor Period are not
significant.
The statements of operations, stockholders' (deficit) equity, and cash
flows for 1995 are divided between the four months ended April 30, 1995, when
InterRedec held the controlling interest in the Predecessor Company, and the
eight months ended December 31, 1995, when the Successor Company held the
controlling interest following the transfer of ownership discussed in Note 1. In
addition, the financial statements as of December 31, 1995 and for the eight
months then ended include the accounts of KNOLOGY Holdings, Inc., CyberNet
Holding, L.L.C., KNOLOGY of Columbus, American Cable, L.L.C., and KNOLOGY of
Montgomery. For the year ended December 31, 1995, the equity share of KNOLOGY of
Montgomery not
F-8
<PAGE> 131
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
owned by the Company is reflected in the accompanying balance sheets and
statements of operations as minority interest. The financial statements as of
December 31, 1996 and for the year then ended include the accounts of KNOLOGY
Holdings, Inc., KNOLOGY of Montgomery and KNOLOGY of Columbus. All significant
intercompany transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent 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.
CASH AND CASH EQUIVALENTS
The Company considers all short-term highly liquid investments with an
original maturity date of three months or less to be cash equivalents. Cash and
cash equivalents are stated at cost, which approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are provided for using the straight-line method over the estimated useful lives
of the assets, commencing when the asset is installed or placed in service.
Maintenance, repairs, and minor renewals are charged to expense as incurred. The
cost and accumulated depreciation of property and equipment disposed of are
removed from the related accounts, and any gain or loss is included in income.
Depreciation and amortization are provided over the estimated useful lives as
follows:
<TABLE>
<S> <C>
Cable system and installation equipment.................. Seven to ten years
Test and office equipment................................ Five to seven years
Automobiles and trucks................................... Five years
Leasehold improvements................................... Five years
</TABLE>
Inventories are valued at the lower of cost or market (determined on a
first-in, first-out basis) and include converter boxes and cable and electronic
cable hook-up equipment. These items are transferred to cable system and
installation equipment when installed.
COST IN EXCESS OF NET ASSETS ACQUIRED
This amount represents the excess of cost over the fair value of the net
assets acquired by the Company in its 1995 purchases of KNOLOGY of Montgomery
and American discussed in Note 1. These costs are being amortized using the
straight-line method over 40 years.
F-9
<PAGE> 132
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
ORGANIZATIONAL COSTS
Organizational costs represent direct costs, primarily legal and salary
costs, incurred in making the Company viable. All indirect costs, such as travel
and entertainment, and other general and administrative costs have been expensed
as incurred. The deferred costs are being amortized using the straight-line
method over a five-year period from the date of inception.
LONG-LIVED ASSETS
In 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and cost in excess of net assets acquired related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. The effect of adopting SFAS No. 121 was not
material.
The Company periodically reviews the values assigned to long-lived assets
such as inventory, property and equipment, and cost in excess of net assets
acquired to determine whether any impairments are other than temporary.
Management believes that the long-lived assets in the accompanying balance
sheets are appropriately valued.
REVENUE RECOGNITION
Subscriber revenues are recognized in the month of service. Subscriber fees
billed in advance are included in the accompanying balance sheets as unearned
revenue and are deferred until the month the service is provided.
BARTER TRANSACTIONS
The Company engages in certain exchanges of services for advertising and
promotional services. The Company records these transactions at the market value
of the services provided.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes,
as set forth in SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred taxes are determined based on the difference between the
financial and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. Deferred
tax benefit represents the change in the deferred tax asset and liability
balances (Note 6).
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock and dilutive common stock equivalent shares from convertible
preferred stock (using the if-converted method). As the Company has no common
stock outstanding, the convertible preferred stock is assumed to be converted
F-10
<PAGE> 133
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
for purposes of this calculation. The Predecessor Company's net losses per share
are not shown, as they are not comparable with the Successor Company's. All
options and warrants currently outstanding have been excluded from the
calculation as they are anti-dilutive.
SOURCES OF SUPPLIES
The Company uses a single vendor for its supply of cable. However, if this
vendor were unable to meet the Company's needs, management believes that other
sources for cable exist on comparable terms and operating results would not be
adversely affected.
CREDIT RISK
The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. The Company's risk of loss is
limited due to advance billings to customers for services and the ability to
terminate access on delinquent accounts. The concentration of credit risk is
mitigated by the large number of customers comprising the customer base. The
carrying amount of the Company's receivables approximates their fair values.
3. LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1996 and September 30, 1997
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
InterRedec, bearing interest at 9%, payable on March 31,
2000, plus interest, unsecured (a).................... $ 6,000,000 $ 6,000,000 $6,000,000
Francine, Inc., bearing interest at 9%, payable on
September 29, 2000, plus interest, unsecured (b)...... 5,000,000 5,000,000 5,000,000
Sterling Bank, bearing interest at prime plus 1%,
payable in monthly installments of $5,190, plus
interest, through September 1996, unsecured (c)....... 32,665 0 0
Sterling Bank, bearing interest at prime plus 1.5%,
payable in monthly installments of $1,425, plus
interest, through May 1999, unsecured (c)............. 50,329 36,316 27,816
Compass Bank, bearing interest at 8.75%, payable in
monthly installments of $1,632 through September 1998,
secured............................................... 48,453 31,659 18,676
SunTrust Bank, bearing interest at 8.25%, payable in
monthly installments of $828 through September 1997,
secured............................................... 15,384 6,828 1,013
Former stockholders of KNOLOGY of Montgomery, bearing
interest at prime, plus 2%, payable on May 16, 1996,
unsecured (c)......................................... 75,000 0 0
First National Bank of West Point line of credit,
bearing interest at prime, maturing March 1997,
unsecured............................................. 0 900,000 0
Compass Bank, bearing interest at prime plus 1.0%,
payable in monthly installments of $5,426 through
November 1999, secured................................ 0 170,000 124,333
</TABLE>
F-11
<PAGE> 134
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
3. LONG-TERM DEBT--(CONTINUED)
<S> <C> <C> <C>
First National Bank of West Point, note bearing interest
at 8.5%, payable in monthly installments of $945
through March 1999, secured........................... 0 23,200 15,974
Troup capitalized lease obligation, at a rate of 10%,
payable in quarterly installments of $6,304 through
December 2006, secured................................ $ 0 151,166 $ 148,489
SCANA Communications, Inc. note bearing interest at 12%,
payable January 1, 1998, unsecured.................... 0 0 11,000,000
First National Bank of West Point, note bearing interest
at 8.5%, payable in monthly installments of $4,109
through June 2000, secured............................ 0 0 120,484
First National Bank of West Point, note bearing interest
at prime plus .5%, maturing December 15, 1997,
unsecured............................................. 0 0 1,500,000
----------- ----------- -----------
11,221,831 12,319,169 23,956,785
Less current maturities................................. 146,133 1,027,873 12,687,754
----------- ----------- -----------
$11,075,698 $11,291,296 $11,269,031
=========== =========== ===========
</TABLE>
- ---------------
(a) ITC Holding is a co-obligor under this note.
(b) ITC Holding is a guarantor of this note.
(c) The prime rate was 8.5% at December 31, 1995, 8.25% at December 31, 1996 and
8.5% at September 30, 1997, respectively.
Following are maturities of long-term debt for each of the next five years
as of December 31, 1996:
<TABLE>
<S> <C>
1997........................................................... $ 1,027,873
1998........................................................... 124,509
1999........................................................... 91,230
2000........................................................... 11,025,214
2001........................................................... 25,214
Thereafter..................................................... 25,129
-----------
Total................................................ $12,319,169
===========
</TABLE>
The fair values of long-term debt exclusive of affiliated debt, including
current maturities, at December 31, 1995 and 1996 are estimated to be
approximately $8,838,000 and $9,397,000, respectively, based on a valuation
technique that considers cash flows discounted at current rates.
4. OPERATING LEASES
The Company leases office space, utility poles, and other assets for
varying periods. Leases that expire are generally expected to be renewed or
replaced by other leases.
F-12
<PAGE> 135
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. OPERATING LEASES--(CONTINUED)
Future minimum rental payments required under the operating leases that
have initial or remaining noncancelable lease terms in excess of one year as of
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................................. $128,144
1998.............................................................. 122,929
1999.............................................................. 124,694
2000.............................................................. 94,411
2001.............................................................. 73,115
--------
Total minimum lease payments............................ $543,293
========
</TABLE>
Total rental expense for all operating leases was approximately $77,000,
$27,000, $66,000, and $70,000 for the year ended December 31, 1994, the four
months ended April 30, 1995, the eight months ended December 31, 1995, and the
year ended December 31, 1996, respectively.
5. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
Effective January 1996, the Company joined the National Cable Television
Cooperative ("NCTC"), which coordinates programming for member cable companies.
In addition, the Company has entered into contracts with various entities not in
NCTC to provide programming to be aired by the Company. As compensation for the
programming, the Company pays a monthly fee to NCTC or the individual supplier.
The fee is generally based on the number of average subscribers to the program,
although some fees are adjusted based on the total number of subscribers to the
system and/or the system penetration percentage. Certain contracts have minimum
monthly fees. The Company has estimated that approximately $3.9 million in
future payments related to these contracts are required in 1997.
BUILD-OUT REQUIREMENTS
Under a franchise agreement with the city of Montgomery, Alabama, KNOLOGY
of Montgomery is subject to the terms and conditions specified by City Ordinance
Number 16-90. One such condition contains a build-out clause which requires
KNOLOGY of Montgomery to complete 200 miles of service per year over the
five-year period commencing March 6, 1990, with certain grace periods specified
in the agreement. Failure to meet the build-out requirements would subject
KNOLOGY of Montgomery to a penalty for each time period during which KNOLOGY of
Montgomery failed to meet the build-out requirements and would permit the city
of Montgomery to revoke its franchise. In connection with the proposed sale of
InterRedec's interest in KNOLOGY of Montgomery discussed in Note 1, City
Resolution Number 58-95 was approved by the Montgomery City Council on April 4,
1995. This resolution extended KNOLOGY of Montgomery's time frame to meet the
second year's requirements until August 4, 1996 and the remaining requirements
annually thereafter through August 4, 1999. In management's opinion, KNOLOGY of
Montgomery is currently in compliance with this ordinance.
LEGAL PROCEEDINGS
In the normal course of business, the Company is subject to various
litigation; however, in management's opinion, there are no legal proceedings
pending against the Company which would have a material adverse effect on the
financial position, results of operations, or liquidity of the Company.
F-13
<PAGE> 136
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of deferred tax assets and liabilities as of December 31, 1995 and
1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................... $ 1,663 $ 3,875
Other................................................ 48 92
Valuation allowance.................................. (1,357) (2,475)
------ ------
Total deferred tax assets....................... 354 1,492
Deferred tax liabilities--depreciation and amortization... (739) (1,492)
------ ------
Net deferred tax liabilities.............................. (385) 0
Portion included in current assets........................ 6 0
------ ------
Net deferred taxes........................................ $ (379) $ 0
====== ======
</TABLE>
The Company has available, at December 31, 1996, unused operating loss
carryforwards of approximately $3,875,000 expiring in various years from 2005 to
2011 unless utilized. Management has recorded a valuation allowance of
approximately $1,357,000 and $2,475,000 in 1995 and 1996, respectively, on these
operating loss carryforwards, the majority of which contain limitations on
utilization.
A reconciliation of the income tax provision computed at statutory tax
rates to the income tax provision for the year ended December 31, 1994, the four
months ended April 30, 1995, the eight months ended December 31, 1995, and the
year ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
COMPANY COMPANY
-------------------- ---------------------
FOUR MONTHS EIGHT MONTHS
ENDED ENDED
APRIL 30, DECEMBER 31,
1994 1995 1995 1996
---- ----------- ------------ ----
<S> <C> <C> <C> <C>
Income tax benefit at statutory rate........ (34)% (34)% (34)% (34)%
State income taxes, net of federal
benefit................................... (2) (2) (2) (2)
Tax benefits recorded by ITC Holding........ 0 0 14 0
Prior year actualization.................... 0 0 0 (6)
Goodwill.................................... 0 0 0 (1)
Deferred tax valuation allowance............ 36 36 0 32
--- --- --- ---
0% 0% (22)% (11)%
=== === === ===
</TABLE>
A limited liability company is treated as a partnership for income tax
purposes. Therefore, through November 1995, the income tax benefits generated by
CyberNet Holding, L.L.C. and American Cable, L.L.C. were recorded by ITC Holding
as the corporate owner of these entities. Following the formation of KNOLOGY of
Columbus and KNOLOGY Holdings, Inc. and the subsequent transfer of ownership
interests in CyberNet Holding, L.L.C. and KNOLOGY of Columbus from ITC Holding
in December 1995 (Notes 1 and 8), the Company recognized the income tax benefits
generated by its subsidiaries in the accompanying
F-14
<PAGE> 137
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES--(CONTINUED)
statements of operations for the Successor Period. Effective December 1995, the
Company and its subsidiaries began filing a consolidated federal income tax
return. Each entity files separate state income tax returns.
For the period following the acquisition of KNOLOGY of Montgomery by
CyberNet Holding, L.L.C. through the formation of the Company, KNOLOGY of
Montgomery filed separate income tax returns. Subsequent to the formation of the
Company, KNOLOGY of Montgomery is included in the Company's consolidated federal
income tax return.
7. EQUITY INTERESTS
SUCCESSOR COMPANY CAPITAL TRANSACTIONS
The Company has authorized 200,000 shares of $.01 par value common stock
and 100,000 shares of $.01 par value convertible preferred stock. In December
1995, the Company offered 7,780 shares of preferred stock for subscription at
$1,000 per share. At December 31, 1995, subscriptions had been accepted for
7,520 shares and consideration of $1,000 per share had been received. In
December 1995, as additional consideration for 4,000 shares, ITC Holding
conveyed its direct and indirect ownership interests in CyberNet Holding, L.L.C.
and KNOLOGY of Columbus to the Company. In January 1996, the remaining
subscriptions for 260 shares were accepted. Included in this amount are 200
shares which were exchanged for the minority interest of KNOLOGY of Montgomery
(Note 1). In April 1996, the Company offered and accepted 9,312 shares of
preferred shares for subscription at $1,200 per share. The amount of the
consideration paid in excess of the par value, net of expenses incurred in
connection with the issuance, is included in additional paid-in capital on the
accompanying balance sheets. Each share of convertible preferred stock is
automatically convertible into common stock on a one-for-one basis at the
earlier of either the effective date of a public offering of common stock by the
Company or on December 8, 2005. In the event of liquidation of the Company,
whether voluntary or involuntary, the holders of convertible preferred stock are
entitled to receive preferential distributions of $1,000 per share before any
distributions to common stockholders. The holders of the preferred stock are not
entitled to any other preferences, including dividends.
SUCCESSOR COMPANY STOCKHOLDERS' AGREEMENT
The Company entered into a stockholders' agreement (the "Stockholders'
Agreement"), dated as of December 8, 1995 and amended as of January 25, 1996 and
April 19, 1996, with all of the stockholders of the Company. None of the parties
to the Stockholders' Agreement may transfer any class or series of capital stock
of the Company or any right or option to acquire any share of capital stock of
the Company held by such party to third parties (subject to limited exceptions)
without having first offered such securities to the Company. The Stockholders'
Agreement will irrevocably terminate upon the consummation of an initial public
offering.
SUCCESSOR COMPANY STOCK OPTION PLAN
Under the Company's 1995 stock option plan (the "Stock Option Plan"), as
adopted in December 1995, 844 shares of common stock are reserved and authorized
for issuance upon the exercise of the options. All employees of the Company are
eligible to receive options under the Stock Option Plan. The Stock Option Plan
is administered by the compensation and stock option committee of the board of
directors. Options granted under the Stock Option Plan are intended to qualify
as "incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended.
F-15
<PAGE> 138
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. EQUITY INTERESTS--(CONTINUED)
The Company granted 502.95 options for shares of common stock to all
employees at $1,200 per share during 1996. At December 31, 1996, there were
351.98 options outstanding with option prices of $1,200. All options were
granted at an exercise price equal to the estimated fair value of the common
stock at the dates of grant as determined by the board of directors based on
equity transactions and other analyses. The options expire ten years from the
date of grant.
Options for 110.11 shares granted to one executive officer become
exercisable as to 40% on January 1, 1997 and as to an additional 20% annually
thereafter through January 1, 2000. Options for 72.7 shares granted to one other
executive officer and another employee become exercisable as to 40% on January
1, 1998 and as to an additional 20% annually thereafter through January 1, 2001.
On October 29, 1996, options to purchase an additional 13 shares were issued to
this employee, exercisable on the same vesting schedule. The remaining options
become exercisable as to 40% two years from the date of issuance and as to an
additional 20% annually for the three following years.
PREDECESSOR COMPANY STOCK TRANSACTIONS
On June 16, 1993, KNOLOGY of Montgomery effected a recapitalization whereby
InterRedec forgave $4,658,000 in debt in exchange for an increase in its equity
ownership, 5,104 shares of common stock were repurchased for total proceeds of
$255,200 from various shareholders, and the remaining outstanding common and
preferred shares were adjusted such that InterRedec owned 80% of the outstanding
$.01 par value common stock and approximately 97% of the outstanding $1 par
value preferred stock. The repurchased shares are reflected as treasury stock in
the accompanying statements of stockholders' (deficit) equity at cost.
The cost associated with the cumulative nonvoting preferred stock following
the recapitalization is $31,000 per share. The shares of cumulative nonvoting
preferred stock may be called for redemption by KNOLOGY of Montgomery at any
time, and upon such call, KNOLOGY of Montgomery shall pay $32,750 per share in
cash plus an amount equal to all dividends accrued and unpaid thereon to the
date of such redemption. KNOLOGY of Montgomery is accreting the difference
between the redemption price and the face value of the shares over a five-year
period as a charge to retained earnings and a corresponding increase to
additional paid-in capital. The holders of the cumulative nonvoting preferred
stock shall be entitled to receive, out of the unreserved and unrestricted
surplus or net profits of the corporation, cash dividends as declared by the
board of directors. As of January 1996, all of the cumulative nonvoting
preferred stock of KNOLOGY of Montgomery is held by the Company. No such
dividends have been declared as of December 31, 1996, but KNOLOGY of Montgomery
is accruing dividends at a rate of prime plus 2%. The preferred stock has no
conversion privileges. For the eight months ended December 31, 1995 and the year
ended December 31, 1996, these preferred stock accretion and dividend amounts
were eliminated in consolidation.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which defines a fair value-based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost for those plans using the method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." Entities electing to remain with the accounting
methodology required by APB Opinion No. 25 must make pro forma disclosures of
net income and, if
F-16
<PAGE> 139
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. EQUITY INTERESTS--(CONTINUED)
presented, earnings per share as if the fair value-based method of accounting
defined in SFAS No. 123 had been applied.
The Company has elected to account for its stock-based compensation plans
under APB Opinion No. 25, under which no compensation cost has been recognized
by the Company. However, the Company has computed, for pro forma disclosure
purposes, the value of all options for shares of the Company's common stock to
employees of the Company using the minimum value option pricing model and the
following weighted average assumptions in 1996:
<TABLE>
<S> <C>
Risk-free interest rate........................................ 6.31%
Expected dividend yield........................................ 0%
Expected lives................................................. Seven years
Expected forfeiture rate....................................... 7%
</TABLE>
The weighted average fair value of options granted was $1,200 for 1996. The
total value of options for the Company's stock granted to employees of the
Company during 1996 was computed as approximately $154,000, which would be
amortized on a pro forma basis over the five-year vesting period of the options.
If the Company had accounted for these plans in accordance with SFAS No. 123,
the Company's net loss for the year ended December 31, 1996 would have increased
as follows:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- -----------
<S> <C> <C>
Net loss for the year ended December 31, 1996...... $(3,125,428) $(3,155,917)
</TABLE>
A summary of the status of the Company's stock option plan at December 31,
1996 is presented in the following table:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
PRICE PER
SHARES SHARE
------ ----------------
<S> <C> <C>
Outstanding at December 31, 1995..................... 0.00 $ 0
Granted......................................... 502.95 1,200
Forfeited....................................... 150.97 1,200
------
Outstanding at December 31, 1996..................... 351.98 1,200
======
</TABLE>
No options were exercisable at December 31, 1996.
8. RELATED-PARTY TRANSACTIONS
Following the recapitalization of KNOLOGY of Montgomery (Note 7),
InterRedec and KNOLOGY of Montgomery entered into a revolving credit agreement
and note up to $2,000,000. Included in interest expense -- affiliate for the
year ended December 31, 1994 are interest costs of approximately $166,000
incurred by KNOLOGY of Montgomery related to this note. In connection with the
Company's purchase of InterRedec's interest in KNOLOGY of Montgomery (Note 1),
the Company assumed this note payable to InterRedec. For the four months ended
April 30, 1995, interest on the note payable was forgiven as part of the sale.
During the Successor Period, the note and the related interest expense were
eliminated for consolidation purposes.
F-17
<PAGE> 140
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED-PARTY TRANSACTIONS--(CONTINUED)
The current portion of long-term debt at December 31, 1995 includes notes
due to former stockholders of KNOLOGY of Montgomery. These notes were repaid,
with interest, in 1996.
ITC Holding occasionally provides certain administrative services, such as
legal and tax planning services, for the Company. The costs of these services
are charged to the Company based primarily on the salaries and related expenses
for certain of the ITC Holding executives and an estimate of their time spent on
projects specific to the Company. ITC Holding also leases office space to the
Company in West Point, Georgia. For the period from inception (March 10, 1995)
through December 31, 1995 and the year ended December 31, 1996, the Company
recorded $1,000 and $24,000 in selling, operations, and administrative expenses
related to these services. In the opinion of management, the methodology used to
calculate the amounts charged to the Company is reasonable.
Certain of ITC Holding's other wholly owned or majority-owned subsidiaries
provide the Company with various services and/or receive services provided by
the Company. These entities include Interstate Telephone Company and Valley
Telephone Company, which provide local and long-distance telephone services;
DeltaCom, Inc., which provides long-distance and related services; InterCall,
Inc., which provides conference calling services; and InterState FiberNet, which
leases capacity on certain of its fiber routes. ITC Holding also holds equity
investments in the following entities which do business with the Company:
PowerTel, Inc., which provides cellular services, and MindSpring Enterprises,
Inc. ("MindSpring"), which is a regional provider of Internet services. In
management's opinion, the Company's transactions with these affiliated entities
are generally representative of arm's-length transactions.
For the period from inception (March 10, 1995) through December 31, 1995
and the year ended December 31, 1996, the Company received services from these
affiliated entities in the amounts of $14,000 and $48,000, respectively, which
are reflected in selling, operations, and administration expenses in the
Company's statements of operations. In addition, in 1996, the Company received
services from these affiliated entities in the amount of $11,000, which is
reflected in field and technical expenses in the Company's statement of
operations. At December 31, 1995 and 1996, amounts payable for these services of
$158,000 and $7,000, respectively, are recorded in the Company's balance sheets
as accounts payable -- affiliate.
In December 1996, the Company invested $5,000 in an airplane co-owned by
ITC Holding and several of its subsidiaries and other affiliated entities.
Amounts reflected as advances to affiliate at December 31, 1995 and which
were outstanding for the majority of 1996 represent excess funds from the
issuance of the Company's convertible preferred stock which were loaned to ITC
Holding at an annual interest rate of 7%. The Company recorded interest income
of approximately $12,000 and $274,000 for the period from inception (March 10,
1995) through December 31, 1995 and for the year ended December 31, 1996,
respectively, on these advances, of which approximately $12,000 and $1,000,
respectively, is reflected as interest receivable -- affiliate in the
accompanying balance sheets as of December 31, 1995 and 1996, respectively. The
advances were repaid in December 1996.
An affiliate of the Company processed payments for the Company during 1995.
Amounts included in accounts payable -- affiliate reflect amounts owed to the
affiliate for reimbursement of these payments as of December 31, 1995. These
amounts were repaid in 1996, and the affiliate is no longer processing payments.
Relatives of the stockholders of ITC Holding are stockholders and employees
of the Company's insurance provider. The costs charged to the Company for
insurance services were approximately $86,000 and
F-18
<PAGE> 141
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED-PARTY TRANSACTIONS--(CONTINUED)
$36,000 for the year ended December 31, 1996 and for the period from inception
(March 10, 1995) through December 31, 1995, respectively.
In 1995, an affiliate constructed fiber routes on behalf of the Company in
Auburn, Alabama. The Company intends to develop the Auburn, Alabama, area in the
future; however, since the exact plans and timing for development are uncertain,
the Company recorded the $62,830 costs of constructing these routes as field and
technical expense for the eight months ended December 31, 1995. This affiliate
also provided certain engineering and construction-related management services
to the Company in 1995. The Company was not billed for these services, which are
estimated to have a value of approximately $50,000.
The chief executive officer of an affiliate served since July 15, 1996 as
president and chief executive officer and as a director of the Company. He
served in his capacity as chief executive officer and president of the Company
at the request of the Company and ITC Holding and received no compensation from
the Company for the year ended December 31, 1996. He resigned as chief executive
officer and president of the Company effective February 20, 1997. The value of
his services provided through February 20, 1997 is estimated to total
approximately $20,000.
9. ACQUISITION
As discussed in Note 1, in 1995, the Company acquired certain assets of
American Cable Company Partnership and American Cable Company in a transaction
accounted for as a purchase (the "Acquisition").
The assets acquired are now held by KNOLOGY of Columbus and have been
included in the consolidated financial statements since October 1, 1995. The
following unaudited pro forma results of operations for the years ended December
31, 1994 and 1995 assumes the Acquisition occurred on January 1, 1994. The pro
forma information is presented for informational purposes only and may not be
indicative of the actual results of operations had the Acquisition occurred on
the assumed date, nor is the information necessarily indicative of future
results of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
Operating revenues................................. $ 3,483,852 $ 4,192,781
Income before extraordinary items.................. $(2,632,705) $(2,343,846)
Net income......................................... $(2,632,705) $(2,343,846)
Earnings per share (a)............................. -- $ (311.68)
</TABLE>
- ---------------
(a) Earnings per share are computed based on 7,520 shares outstanding.
10. SUBSEQUENT EVENTS
STOCK OPTION PLAN
Subsequent to December 31, 1996, the compensation committee of the board of
directors granted options for 557 and 286 shares of the Company's common stock
under the terms of the Stock Option Plan at exercise prices of $1,200 and $1,500
per share, respectively. Options for 24 shares were canceled subsequent to
December 31, 1996.
F-19
<PAGE> 142
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT EVENTS--(CONTINUED)
PRIVATE EQUITY OFFERING
In February 1997, the Company offered and accepted subscriptions for 8,960
shares of preferred stock at $1,200 per share. The proceeds, net of issuance
expenses of $46,598, were $10,705,402.
FINANCING ARRANGEMENTS
On May 7, 1997, the Company signed a letter of intent with SCANA
Corporation ("SCANA") whereby SCANA agreed to provide the Company with a
revolving credit facility of up to $40 million (the "SCANA Credit Facility") to
fund construction for completion of its broadband network in Montgomery,
Alabama, and Columbus, Georgia, as well as up to $5 million for expansion into
other cities and for working capital. The SCANA Credit Facility would be subject
to receiving certain authorizations and approvals and would allow monthly
drawdowns of between $500,000 and $5 million. Interest would accrue from the
date of each drawdown on all outstanding principal, plus any accrued but unpaid
interest at 12% per annum. On December 31, 1998, all outstanding amounts
including unpaid interest would automatically convert to a term loan, payable in
quarterly installments to be repaid over no more than five years. There would be
no penalty for early repayment. SCANA would also receive warrants to purchase
preferred stock at $1,500 per share in an amount equal to 10% of each drawdown
plus any incremental accrued interest. The Company would be responsible for
legal and filing fees incurred in connection with the SCANA Credit Facility up
to a maximum of $40,000.
On June 2, 1997, the Company borrowed $3 million under a promissory note
from SCANA at 12% interest with an original maturity of June 30, 1997. In July
1997, and again in September 1997, the Company and SCANA amended the promissory
note agreement to increase the borrowings to $10 million and to extend the
maturity date until January 1, 1998. On September 29, 1997, the Company borrowed
an additional $1 million at 12% interest under an oral agreement with SCANA with
similar terms. Under the terms of the SCANA Credit Facility discussed above,
SCANA will receive warrants to purchase 753 shares of the Company's preferred
stock. On October 24, 1997, the Company repaid all of these borrowings.
On May 13, 1997, the Company obtained a $3.0 million bridge loan facility
from First National Bank of West Point (the "Bridge Facility") to provide
additional liquidity until long-term financing could be arranged. Interest
accrued at the prime rate (as announced by SunTrust Bank, Atlanta) plus .5% per
annum on all outstanding principal amounts, plus accrued but unpaid interest. As
amended on September 18, 1997, the Bridge Facility was payable on demand, with a
final maturity date of December 15, 1997. On December 15, 1997, the Company
repaid all of these borrowings.
The Company received a commitment letter for a $50.0 million five-year
revolving credit facility (the "New Credit Facility") from First Union National
Bank, which will be used for working capital and other purposes, including
capital expenditures and permitted acquisitions. At the Company's option,
interest will accrue based on either the Alternate Base Rate plus applicable
margin (8.25% at October 15, 1997) or the LIBOR rate plus applicable margin
(8.03% at October 15, 1997). Obligations under the New Credit Facility will be
secured by substantially all tangible and intangible assets of the Company and
its current and future subsidiaries. The New Credit Facility will include a
number of covenants including, among others, covenants limiting the ability of
the Company and its subsidiaries and their present and future subsidiaries to
incur debt, create liens, pay dividends, make distributions or stock
repurchases, make certain investments, engage in transactions with affiliates,
sell assets and engage in certain mergers and acquisitions. The New Credit
Facility also will include covenants requiring compliance with certain financial
ratios on a consolidated basis.
F-20
<PAGE> 143
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT EVENTS--(CONTINUED)
In connection with a reorganization of ITC Holding, ITC Service Company
pre-paid the Montgomery Note and the Columbus Note prior to the closing of the
Notes Offering. The Company owed to ITC Service Company amounts equal to the
principal and accrued interest under such notes. Interest accrued at an interest
rate equal to the interest rate ITC Service Company may have been obligated to
pay on funds it may have needed to borrow. This note was paid on October 24,
1997.
ACQUISITION
On December 5, 1997, the Company purchased the Beach Cable System in Panama
City Beach, Florida, for approximately $3.9 million in cash and 2,485 shares of
Preferred Stock valued at approximately $3.7 million, subject to adjustment.
EQUITY PRIVATE PLACEMENT
During the fourth quarter of 1997, the Company issued approximately 21,400
shares of preferred stock at an offering price of $1,500 per share (the "Equity
Offering") for net proceeds of approximately $32.2 million.
SENIOR DISCOUNT NOTES OFFERING
Also in the fourth quarter of 1997, the Company issued units consisting of
senior discount notes due 2007 (the "Notes") and warrants to purchase Preferred
Stock (the "Notes Offering") for gross proceeds of approximately $250.0 million.
The Notes were offered at a substantial discount from face value, with no
interest payable for the first five years. Approximately $2.5 million of the
gross proceeds has been allocated to the warrants. The indenture relating to the
Notes contains certain covenants that, among other things, limit the ability of
the Company to incur indebtedness, pay dividends, prepay subordinated
indebtedness, repurchase capital stock, make investments, engage in transactions
with stockholders and affiliates, create liens, sell assets and engage in
mergers and consolidations. The proceeds from the Equity and Notes Offerings
have been, and will be, used to repay certain indebtedness of the Company, fund
expansion of the Company's business, and for additional working capital and
general corporate purposes.
F-21
<PAGE> 144
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Cable
Company Partnership:
We have audited the accompanying statements of operations, partner's
deficit, and cash flows of AMERICAN CABLE COMPANY PARTNERSHIP (a Louisiana
partnership) for the year ended December 31, 1994 and the nine months ended
September 29, 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of American
Cable Company Partnership for the year ended December 31, 1994 and for the nine
months ended September 29, 1995 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
September 10, 1997
F-22
<PAGE> 145
AMERICAN CABLE COMPANY PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1995
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 29,
1994 1995
------------ -------------
<S> <C> <C>
REVENUES:
Subscriber..................................................... $1,201,455 $1,002,831
Miscellaneous.................................................. 170,445 135,791
---------- ----------
Total revenues............................................ 1,371,900 1,138,622
---------- ----------
OPERATING EXPENSES:
Programming charges............................................ 602,511 532,219
Depreciation and amortization.................................. 492,691 377,069
General and administrative..................................... 705,004 495,477
Field and technical............................................ 179,215 151,776
Sales and marketing............................................ 28,919 37,820
---------- ----------
Total operating expenses.................................. 2,008,340 1,594,361
---------- ----------
NET OPERATING LOSS.................................................. (636,440) (455,739)
---------- ----------
OTHER INCOME AND EXPENSES:
Interest income, net........................................... (1,572) (177)
Other income, net.............................................. 2,586 148
---------- ----------
1,014 (29)
---------- ----------
NET LOSS............................................................ $ (635,426) $ (455,768)
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-23
<PAGE> 146
AMERICAN CABLE COMPANY PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1994 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1995
<TABLE>
<CAPTION>
MANAGING
GENERAL GENERAL
PARTNER PARTNER TOTAL
----------- -------- -----------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1993................................ $(2,309,540) $130,979 $(2,178,561)
Net loss............................................. (635,426) 0 (635,426)
----------- -------- -----------
BALANCE, DECEMBER 31, 1994................................ (2,944,966) 130,979 (2,813,987)
Net loss............................................. (455,768) 0 (455,768)
----------- -------- -----------
BALANCE, SEPTEMBER 29, 1995............................... $(3,400,734) $130,979 $(3,269,755)
=========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE> 147
AMERICAN CABLE COMPANY PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1995
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 29,
1994 1995
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... $(635,426) $(455,768)
--------- ---------
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization............................. 492,691 377,069
Changes in assets and liabilities:
Accounts receivable.................................. (85,306) (10,775)
Prepaid expenses..................................... 22,465 10,160
Due to managing general partner...................... 209,000 50,000
Accounts payable and accrued liabilities............. 93,760 (69,812)
Other................................................ 8,718 1,202
--------- ---------
Total adjustments............................... 741,328 357,844
--------- ---------
Net cash provided by (used in) operating
activities................................... 105,902 (97,924)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................... (48,524) (9,670)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligation........................... (7,265) (4,771)
Principal proceeds (payments) on debt.......................... 23,617 (6,146)
--------- ---------
Net cash provided by (used in) financing
activities................................... 16,352 (10,917)
--------- ---------
NET INCREASE (DECREASE) IN CASH..................................... 73,730 (118,511)
CASH AT BEGINNING OF PERIOD......................................... 69,228 142,958
--------- ---------
CASH AT END OF PERIOD............................................... $ 142,958 $ 24,447
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest....................... $ 4,849 $ 3,862
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE> 148
AMERICAN CABLE COMPANY PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND SEPTEMBER 29, 1995
1. ORGANIZATION
American Cable Company Partnership (the "Partnership") was formed on June
1, 1990 in Louisiana to provide cable television services to subscribers in
Columbus, Georgia, and surrounding areas under a nonexclusive cable television
franchise right.
The partnership consists of Frantzen Investment Corporation, managing
general partner, and American Cable Holding Company, general partner. The
managing general partner is responsible for managing and operating the
Partnership. Profits are allocated as follows:
- 100% to the managing general partner to the extent of its unrecovered
loss amount
- The remainder, if any, 100% to the managing general partner until such
time that the sum of $3,000,000 has been allocated to the managing
general partner; thereafter, 100% to the general partner until such
time that the sum of $3,315,790 has been allocated to the general
partner; thereafter, 47.5% to the managing general partner and 52.5%
to the general partner
Losses are allocated 100% to the managing general partner until all loans
are repaid to the managing general partner up to a maximum loss allocation
amount. All amounts in excess of the maximum loss allocation amount will be
allocated 47.5% to the managing general partner and 52.5% to the general
partner. In the periods presented, the maximum loss amount was not achieved;
accordingly, all losses were allocated to the managing general partner.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
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.
CASH AND CASH EQUIVALENTS
The Partnership considers all short-term highly liquid investments with an
original maturity of three months or less to be cash equivalents. Cash and cash
equivalents are stated at cost, which approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment purchased are stated at cost. Depreciation and
amortization are provided for using the straight-line method over the estimated
useful lives of the assets, commencing when the asset is installed or placed in
service. Maintenance, repairs, and minor renewals are charged to expense as
incurred. The cost and accumulated depreciation of property and equipment
disposed of are removed from the related accounts, and any gain or loss is
reflected as income. There were no material retirements in the periods
presented. Depreciation and amortization are provided over the estimated useful
lives as follows:
<TABLE>
<S> <C>
Cable system and installation equipment......................... Ten years
Test and office equipment....................................... Seven years
Automobiles and trucks.......................................... Five years
</TABLE>
Inventory, such as converter boxes and cable and electronic cable hook-up
equipment, is included in cable system and installation equipment.
F-26
<PAGE> 149
AMERICAN CABLE COMPANY PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
ORGANIZATIONAL COSTS
Organizational costs represent direct costs, primarily legal and salaries,
incurred in making the Partnership viable. All nondirect costs, such as travel
and entertainment and other general and administrative costs, have been expensed
as incurred. The deferred costs are being amortized over a five-year period from
the date of inception.
LONG-LIVED ASSETS
In 1995, the Partnership adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and cost in excess of net assets acquired related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. The effect of adopting SFAS No. 121
was not material.
The Partnership periodically reviews the values assigned to long-lived
assets, such as property and equipment, to determine whether any impairments are
other than temporary. Management believes that the long-lived assets in the
accompanying balance sheets are appropriately valued.
DUE TO MANAGING GENERAL PARTNER
The managing general partner either advances funds to or borrows funds from
the Partnership. Funds advanced to the Partnership are used to cover
construction and working capital requirements. The advances and borrowings are
netted and are reflected in due to managing general partner in the accompanying
balance sheets.
REVENUE RECOGNITION
Subscriber revenues are recognized in the month of service. Subscriber fees
billed in advance are included in the balance sheets as unearned revenue and are
deferred until the month the service is provided.
ADVERTISING COSTS
The Partnership expenses all advertising costs as incurred.
INCOME TAXES
The Internal Revenue Code and applicable state statutes provide that income
and expenses of a partnership are not separately taxable to the Partnership but
rather accrue directly to the partners. Accordingly, no provision for federal or
state income taxes has been made in the accompanying financial statements.
SOURCES OF SUPPLIES
The Partnership attempts to maintain multiple vendors for each required
product. However, the Partnership has limited suppliers for its converters and
cable, which represent important components of its system. If the suppliers are
unable to meet the Partnership's needs as it builds out its network
infrastructure, then delays and increased costs in the expansion of the
Partnership's network infrastructure could result, which would adversely affect
operating results.
F-27
<PAGE> 150
AMERICAN CABLE COMPANY PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
CREDIT RISK
The Partnership's accounts receivable potentially subject the Partnership
to credit risk, as collateral is generally not required. The Partnership's risk
of loss is limited due to advance billings to customers for services and the
ability to terminate access on delinquent accounts. The concentration of credit
risk is mitigated by the large number of customers comprising the customer base.
The carrying amount of the Partnership's receivables approximates their fair
values.
3. COMMITMENTS AND CONTINGENCIES
LEASES
The Partnership leases office space, utility poles, and other assets for
varying periods. Leases that expire are generally expected to be renewed or
replaced by other leases. None of these leases have noncancelable terms in
excess of one year as of September 30, 1995.
Total expense for all operating leases was approximately $60,000, $48,000,
and $37,000 for the years ended December 31, 1993 and 1994 and for the nine
months ended September 30, 1995, respectively.
The Partnership leases certain computer equipment under a capital lease.
Future minimum rental payments required under the capital lease that has
noncancelable lease terms in excess of one year as of September 30, 1995 are as
follows:
<TABLE>
<S> <C>
1995............................................................... $ 2,446
1996............................................................... 9,786
1997............................................................... 9,786
1998............................................................... 4,077
-------
Total minimum lease payments............................. 26,095
Less amounts representing interest................................. 4,433
-------
Present value of future minimum capital lease payments............. 21,662
Less current obligations under capital lease....................... 7,193
-------
Long-term capital lease obligation................................. $14,469
=======
</TABLE>
The capital lease was accounted for as a noncash transaction in the
Partnership's statement of cash flows for the year ended December 31, 1993.
LEGAL PROCEEDINGS
In the normal course of business, the Partnership is subject to various
litigation; however, in management's opinion, there are no legal proceedings
pending against the Partnership which would have a material adverse effect on
the financial position, results of operations, or liquidity of the Partnership.
4. SUBSEQUENT EVENT
On September 29, 1995, KNOLOGY of Columbus, Inc. (formerly, American Cable,
L.L.C.), a wholly owned subsidiary of KNOLOGY Holdings, Inc. (formerly Cybernet
Holding, Inc.), purchased certain assets of the Partnership and American Cable
Company (a wholly owned subsidiary of the Partnership) in exchange for a note
bearing interest at 9% with principal and interest due in five years. The note
is held by the Partnership. The transaction was accounted for as a purchase by
KNOLOGY of Columbus.
F-28
<PAGE> 151
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR THE LETTER OF TRANSMITTAL NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS OR
THE LETTER OF TRANSMITTAL. NEITHER THIS PROSPECTUS NOR THE LETTER OF TRANSMITTAL
CONSTITUTES AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------
$444,100,000
KNOLOGY
HOLDINGS, INC.
11 7/8% SENIOR DISCOUNT
NOTES DUE 2007
------------------------
PROSPECTUS
------------------------
DATED , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 152
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law ("DGCL"), a
corporation may indemnify its directors, officers, employees and agents and its
former directors, officers, employees and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees) as well as judgments, fines and
settlements, actually and reasonably incurred in connection with the defense of
any action, suit or proceeding in which they or any of them were or are made
parties or are threatened to be made parties by reason of their serving or
having served in such capacity. The DGCL provides, however, that such person
must have acted in good faith and in a manner such person reasonably believed to
be in (or not opposed to) the best interests of the corporation and, in the case
of a criminal action, such person must have had no reasonable cause to believe
his or her conduct was unlawful. In addition, the DGCL does not permit
indemnification in an action or suit by or in the right of the corporation,
where such person has been adjudged liable to the corporation, unless, and only
to the extent that, a court determines that such person fairly and reasonably is
entitled to indemnity for costs the court deems proper in light of liability
adjudication. Indemnity is mandatory to the extent a claim, issue or matter has
been successfully defended.
The Company's Certificate of Incorporation (the "Certificate") contains
provisions that provide that no director of the Company shall be liable for
breach of fiduciary duty as a director except for (1) any breach of the
directors' duty of loyalty to the Company or its stockholders; (2) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; (3) liability under Section 174 of the DGCL; or (4) any
transaction from which the director derived an improper personal benefit. Under
the Bylaws of the Company, the Company is required to advance expenses incurred
by an officer or director in defending or participating in any action which such
director or officer is made a party to or is threatened to be made a party to by
reason of his or her serving or having served as an officer or director if the
director or officer undertakes to repay such amount if it is determined that the
director or officer is not entitled to indemnification. In addition, the Company
intends to enter into indemnity agreements with each of its directors pursuant
to which the Company will agree to indemnify the directors as permitted by the
DGCL.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
1.1 Placement Agreement, dated October 16, 1997, between KNOLOGY Holdings, Inc. and
Morgan Stanley & Co. Incorporated, for itself and the other Placement Agents named
therein (the "Placement Agents").
2.1 Agreement and Plan of Merger, dated December 5, 1997, by and among KNOLOGY
Holdings, Inc., KNOLOGY of Panama City, Inc., Beach Cable, Inc. and L. Charles
Hilton.
3.1 Certificate of Incorporation of KNOLOGY Holdings, Inc.
3.2 Amended and Restated Bylaws of KNOLOGY Holdings, Inc.
4.1 Indenture dated as of October 22, 1997 between KNOLOGY Holdings, Inc. and United
States Trust Company of New York, as Trustee, relating to the 11 7/8% Senior
Discount Notes Due 2007 of KNOLOGY Holdings, Inc.
4.2 Registration Rights Agreement, dated October 22, 1997, between KNOLOGY Holdings,
Inc., the Placement Agents and SCANA Communications, Inc.
4.3 Form of Senior Discount Note (contained in Indenture filed as Exhibit 4.1).
4.4 Form of Exchange Note (contained in Indenture filed as Exhibit 4.1).
</TABLE>
II-1
<PAGE> 153
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
*5.1 Opinion of Hogan & Hartson L.L.P.
*8.1 Tax Opinion of Hogan & Hartson L.L.P.
10.1 Unit Purchase Agreement, dated as of October 16, 1997 between KNOLOGY Holdings,
Inc. and SCANA Communications, Inc.
10.2 Warrant Agreement, dated as of October 22, 1997, between KNOLOGY Holdings, Inc.
and United States Trust Company of New York (including form of Warrant
Certificate).
10.3 Warrant Registration Rights Agreement, dated as of October 22, 1997, between
KNOLOGY Holdings, Inc. and United States Trust Company of New York.
*10.4 Sub-Lease Indenture dated November 1, 1995 by and between J. Smith Lanier & Co.
Financial Services, Inc. and ITC Holding Company, Inc.
*10.5 Lease Agreement dated April 15, 1996 by and between D.L. Jordan and American Cable
Company, Inc.
*10.6 Lease Agreement dated April 19, 1996 by and between B.E. Satterwhite and American
Cable Company, Inc.
*10.7 Master Capacity Lease dated June 20, 1996 by and between Interstate Fibernet and
Cybernet Holding.
*10.8 Lease Agreement dated August 19, 1996 by and between Vaughn/Taylor, L.L.C. and
Montgomery Cablevision and Entertainment, Inc.
*10.9 Lease Agreement dated August 20, 1996 by and between William H. McLemore and
Montgomery Cablevision and Entertainment, Inc.
*10.10 Lease Agreement dated November 7, 1996 by and between Samuel B. Hewitt and
American Cable Company, Inc.
*10.11 Site Agreement dated November 19, 1996 by and between John Walter Stowers and
Montgomery Cablevision and Entertainment, Inc.
*10.12 Office Lease Agreement dated February 15, 1997 by and between Scott P. Pinckard
and Cybernet Holdings, Inc.
*10.13 Lease Agreement dated April 2, 1997 by and between Interstate Telephone Company
and Cybernet Holding, Inc.
*10.14 Lease Agreement dated May 15, 1997 by and between Southern Boulevard Corporation
and Cybernet Holding d/b/a Montgomery Cablevision and Entertainment, Inc.
*10.15 Lease Agreement dated August 23, 1997 by and between Interstate Fibernet and
KNOLOGY Holdings, Inc.
*10.16 Telecommunications Facility Lease and Capacity Agreement, dated September 10,
1996, by and between Troup EMC Communications, Inc. and Cybernet Holding, Inc.
*10.17 Letter of Intent dated December 15, 1997 between KNOLOGY Holdings, Inc. and
MindSpring Enterprises, Inc.
*10.18 Pole Attachment Agreement dated May 21, 1990 by and between the Georgia Power
Company and American Cable Company.
*10.19 License Agreement for Pole Attachments dated June 19, 1990 by and between South
Central Bell Telephone Company and Montgomery Cablevision and Entertainment, Inc.
*10.20 Agreement for Attachments of Cables, Amplifiers, and Associated Equipment for the
Provision of Cable Television Service dated March 1, 1993 by and between Alabama
Power Company and Montgomery Cablevision and Entertainment, Inc.
*10.21 License Agreement for Pole Attachments and/or Conduit Occupancy dated July 28,
1993 by and between BellSouth Telecommunications, Inc. and American Cable Company.
</TABLE>
II-2
<PAGE> 154
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
*10.22 License Agreement dated September 29, 1995 by and between Montgomery Cablevision
and Entertainment, Inc. and American Communications Services of Montgomery, Inc.
*10.23 License Agreement dated January 17, 1996 by and between American Cable, Inc. and
American Communication Services of Columbus, Inc.
*10.24 Addendum to License Agreement dated April 21, 1997 by and between American Cable,
Inc. and American Communication Services of Columbus, Inc.
*10.25 Subscriber Billing Service Agreement dated May 22, 1990 by and between Montgomery
Cablevision and Entertainment, Inc. and First Data Resources, Inc.
*10.26 Billing and Collection Services Agreement dated April 2, 1997 by and between
Interstate Telephone Company and Cybernet Holding, Inc.
*10.27 Operator and Related Services Agreement dated April 14, 1997 by and between
Eastern Telecom and Cybernet Holding, Inc.
*10.28 Agreement for Telecommunication Services dated May 1, 1997 by and between Cybernet
Holding, Inc. and DeltaCom, Inc.
*10.29 First Addendum to Service Agreement dated July 7, 1997 by and between KNOLOGY
Holdings, Inc. and DeltaCom, Inc.
10.30 Interconnection Agreement by and among BellSouth Communications, Inc., Cybernet
Holding, Inc., American Cable, Inc. and Montgomery Cablevision & Entertainment,
Inc., dated April 15, 1997.
10.31 Amendment To Interconnection Agreement by and among BellSouth Telecommunications,
Inc., Cybernet Holding, Inc., American Cable, Inc. and Montgomery Cablevision &
Entertainment, dated May 1, 1997.
10.32 Second Amendment To Interconnection Agreement by and among BellSouth
Telecommunications, Inc., Cybernet Holding, Inc., American Cable, Inc. and
Montgomery Cablevision & Entertainment, dated July 7, 1997.
10.33 Commitment Letter from First Union National Bank to KNOLOGY Holdings, Inc., dated
October 15, 1997.
10.33.1 Commitment Extension Letter from First Union National Bank to KNOLOGY Holdings,
Inc., dated December 12, 1997.
10.34 Certificate of Membership with National Cable Television Cooperative, dated
January 29, 1996, of Cybernet Holding, Inc.
10.35 Stockholders' Agreement among KNOLOGY Holdings, Inc. and Certain Stockholders
Thereof dated as of December 8, 1995.
10.36 Amendment No. 1 to Stockholders' Agreement dated as of January 25, 1996.
10.37 Amendment No. 2 to Stockholders' Agreement dated as of April 18, 1996.
10.38 Amended and Restated Agreement Among Shareholders Among KNOLOGY Holdings, Inc. and
Certain Shareholders thereof dated as of July 28, 1997.
10.39 Ordinance (Harris County, Georgia) dated April 6, 1982.
10.40 Ordinance (Harris County, Georgia) to Amend Cable Franchise Ordinance of April 6,
1982, dated November 5, 1996.
10.41 Ordinance (Bibb City, Georgia) dated October 5, 1990.
10.42 Ordinance No. 88-53 (Columbus, Georgia) dated May 17, 1988.
10.43 Ordinance No. 89-3 (Columbus, Georgia) dated January 10, 1989.
10.44 Ordinance No. 16-90 (Montgomery, Alabama) dated March 6, 1990.
*10.45 Ordinance No. 50-76 (Montgomery, Alabama).
</TABLE>
II-3
<PAGE> 155
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
*10.45.1 Ordinance No. 9-90 (Montgomery, Alabama) dated January 16, 1990.
10.46 Resolution No. 58-95 (Montgomery, Alabama) dated April 6, 1995.
10.47 Resolution No. 92-7 (Panama City Beach, Florida) dated July 23, 1992.
10.48 License (Bay County, Florida) dated January 5, 1993.
10.49 Resolution No. 97-22 (Panama City Beach, Florida) dated December 3, 1997.
10.50 Resolution No. 2075 (Bay County, Florida) dated November 18, 1997.
*10.51 Collocation Agreement between Interstate FiberNet and Cybernet Holding, Inc.,
dated July 1, 1997.
11.1 Computation of Earnings Per Share of Common Stock.
12.1 Statement regarding Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of KNOLOGY Holdings, Inc.
23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).
24.1 Power of attorney (included on signature page).
25.1 Statement on Form T-1 of Eligibility of Trustee.
27.1 Financial Data Schedule for the year ended December 31, 1996.
27.2 Financial Data Schedule for the nine month period ended September 30, 1997.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Brokers, et al.
99.4 Form of Letter to Clients.
</TABLE>
- ---------------
* To be filed by amendment
(b) Financial Statement Schedules
The following financial statement schedule is filed herewith:
Schedule I--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are inapplicable
or the information required to be set forth therein is provided in the Combined
Financial Statements of the Company or notes thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes 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
II-4
<PAGE> 156
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 this Registration Statement
through the date of responding to the request.
The undersigned registrant hereby undertakes 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 this Registration Statement when it became effective.
The undersigned registrant hereby undertakes 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;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in this
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 Securities and
Exchange 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 this Registration Statement when it becomes
effective; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement.
The undersigned registrant hereby undertakes that for the purpose of
determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes 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.
II-5
<PAGE> 157
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECURITIES ACT, THE COMPANY HAS DULY CAUSED
THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF WEST POINT, GEORGIA, ON THIS 24TH DAY
OF DECEMBER, 1997.
KNOLOGY Holdings, Inc.
By /s/ WILLIAM E. MORROW
------------------------------------
WILLIAM E. MORROW
CHIEF EXECUTIVE OFFICER
------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints O. Gene Gabbard, William E. Morrow and James K.
McCormick, jointly and severally, each in his own capacity, his true and lawful
attorneys-in-fact, with full power of substitution, for him and his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents with full power and authority to do so and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Securities Act, this Registration Statement
has been signed below by the following persons, in the capacities indicated
below, on this 24th day of December, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ O. GENE GABBARD Chairman of the Board and Director
- ---------------------------------------------
O. GENE GABBARD
/s/ WILLIAM E. MORROW President, Chief Executive Officer and
- --------------------------------------------- Director (Principal executive officer)
WILLIAM E. MORROW
/s/ JAMES K. MCCORMICK Chief Financial Officer and Secretary
- --------------------------------------------- (Principal financial officer and principal
JAMES K. MCCORMICK accounting officer)
/s/ RICHARD BODMAN Director
- ---------------------------------------------
RICHARD BODMAN
/s/ DONALD W. BURTON Director
- ---------------------------------------------
DONALD W. BURTON
/s/ CAMPBELL B. LANIER, III Director
- ---------------------------------------------
CAMPBELL B. LANIER, III
</TABLE>
II-6
<PAGE> 158
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ CLARENCE MARSHALL Director
- ---------------------------------------------
CLARENCE MARSHALL
Director
- ---------------------------------------------
WILLIAM H. SCOTT, III
/s/ ANDREW M. WALKER Director
- ---------------------------------------------
ANDREW M. WALKER
</TABLE>
II-7
<PAGE> 159
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
1.1 Placement Agreement, dated October 16, 1997, between KNOLOGY Holdings, Inc. and
Morgan Stanley & Co. Incorporated, for itself and the other Placement Agents named
therein (the "Placement Agents").
2.1 Agreement and Plan of Merger, dated December 5, 1997, by and among KNOLOGY
Holdings, Inc., KNOLOGY of Panama City, Inc., Beach Cable, Inc. and L. Charles
Hilton.
3.1 Certificate of Incorporation of KNOLOGY Holdings, Inc.
3.2 Amended and Restated Bylaws of KNOLOGY Holdings, Inc.
4.1 Indenture dated as of October 22, 1997 between KNOLOGY Holdings, Inc. and United
States Trust Company of New York, as Trustee, relating to the 11 7/8% Senior
Discount Notes Due 2007 of KNOLOGY Holdings, Inc.
4.2 Registration Rights Agreement, dated October 22, 1997, between KNOLOGY Holdings,
Inc., the Placement Agents and SCANA Communications, Inc.
4.3 Form of Senior Discount Note (contained in Indenture filed as Exhibit 4.1).
4.4 Form of Exchange Note (contained in Indenture filed as Exhibit 4.1).
*5.1 Opinion of Hogan & Hartson L.L.P.
*8.1 Tax Opinion of Hogan & Hartson L.L.P.
10.1 Unit Purchase Agreement, dated as of October 16, 1997 between KNOLOGY Holdings,
Inc. and SCANA Communications, Inc.
10.2 Warrant Agreement, dated as of October 22, 1997, between KNOLOGY Holdings, Inc.
and United States Trust Company of New York (including form of Warrant
Certificate).
10.3 Warrant Registration Rights Agreement, dated as of October 22, 1997, between
KNOLOGY Holdings, Inc. and United States Trust Company of New York.
*10.4 Sub-Lease Indenture dated November 1, 1995 by and between J. Smith Lanier & Co.
Financial Services, Inc. and ITC Holding Company, Inc.
*10.5 Lease Agreement dated April 15, 1996 by and between D.L. Jordan and American Cable
Company, Inc.
*10.6 Lease Agreement dated April 19, 1996 by and between B.E. Satterwhite and American
Cable Company, Inc.
*10.7 Master Capacity Lease dated June 20, 1996 by and between Interstate Fibernet and
Cybernet Holding.
*10.8 Lease Agreement dated August 19, 1996 by and between Vaughn/Taylor, L.L.C. and
Montgomery Cablevision and Entertainment, Inc.
*10.9 Lease Agreement dated August 20, 1996 by and between William H. McLemore and
Montgomery Cablevision and Entertainment, Inc.
*10.10 Lease Agreement dated November 7, 1996 by and between Samuel B. Hewitt and
American Cable Company, Inc.
*10.11 Site Agreement dated November 19, 1996 by and between John Walter Stowers and
Montgomery Cablevision and Entertainment, Inc.
*10.12 Office Lease Agreement dated February 15, 1997 by and between Scott P. Pinckard
and Cybernet Holdings, Inc.
*10.13 Lease Agreement dated April 2, 1997 by and between Interstate Telephone Company
and Cybernet Holding, Inc.
</TABLE>
<PAGE> 160
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
*10.14 Lease Agreement dated May 15, 1997 by and between Southern Boulevard Corporation
and Cybernet Holding d/b/a Montgomery Cablevision and Entertainment, Inc.
*10.15 Lease Agreement dated July 10, 1997 by and between Interstate Fibernet and KNOLOGY
Holdings, Inc.
*10.16 Telecommunications Facility Lease and Capacity Agreement, dated September 10,
1996, by and between Troup EMC Communications, Inc. and Cybernet Holding, Inc.
*10.17 Letter of Intent dated December 15, 1997 between KNOLOGY Holdings, Inc. and Mind
Spring Enterprises, Inc.
*10.18 Pole Attachment Agreement dated May 21, 1990 by and between the Georgia Power
Company and American Cable Company.
*10.19 License Agreement for Pole Attachments dated June 19, 1990 by and between South
Central Bell Telephone Company and Montgomery Cablevision and Entertainment, Inc.
*10.20 Agreement for Attachments of Cables, Amplifiers, and Associated Equipment for the
Provision of Cable Television Service dated March 1, 1993 by and between Alabama
Power Company and Montgomery Cablevision and Entertainment, Inc.
*10.21 License Agreement for Pole Attachments and/or Conduit Occupancy dated July 28,
1993 by and between BellSouth Telecommunications, Inc. and American Cable Company.
*10.22 License Agreement dated September 29, 1995 by and between Montgomery Cablevision
and Entertainment, Inc. and American Communications Services of Montgomery, Inc.
*10.23 License Agreement dated January 17, 1996 by and between American Cable, Inc. and
American Communication Services of Columbus, Inc.
*10.24 Addendum to License Agreement dated April 21, 1997 by and between American Cable,
Inc. and American Communication Services of Columbus, Inc.
*10.25 Subscriber Billing Service Agreement dated May 22, 1990 by and between Montgomery
Cablevision and Entertainment, Inc. and First Data Resources, Inc.
*10.26 Billing and Collection Services Agreement dated April 2, 1997 by and between
Interstate Telephone Company and Cybernet Holding, Inc.
*10.27 Operator and Related Services Agreement dated April 14, 1997 by and between
Eastern Telecom and Cybernet Holding, Inc.
*10.28 Agreement for Telecommunication Services dated May 1, 1997 by and between Cybernet
Holding, Inc. and DeltaCom, Inc.
*10.29 First Addendum to Service Agreement dated July 7, 1997 by and between KNOLOGY
Holdings, Inc. and DeltaCom, Inc.
10.30 Interconnection Agreement by and among BellSouth Communications, Inc., Cybernet
Holding, Inc., American Cable, Inc. and Montgomery Cablevision & Entertainment,
Inc., dated April 15, 1997.
10.31 Amendment To Interconnection Agreement by and among BellSouth Telecommunications,
Inc., Cybernet Holding, Inc., American Cable, Inc. and Montgomery Cablevision &
Entertainment, dated May 1, 1997.
10.32 Second Amendment To Interconnection Agreement by and among BellSouth
Telecommunications, Inc., Cybernet Holding, Inc., American Cable, Inc. and
Montgomery Cablevision & Entertainment, dated July 7, 1997.
10.33 Commitment Letter from First Union National Bank to KNOLOGY Holdings, Inc.,
effective September 29, 1997.
10.33.1 Commitment Extension Letter from First Union National Bank to KNOLOGY Holdings,
Inc. dated December 12, 1997.
</TABLE>
<PAGE> 161
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<C> <S>
10.34 Certificate of Membership with National Cable Television Cooperative, dated
January 29, 1996, of Cybernet Holding, Inc.
10.35 Stockholders' Agreement among KNOLOGY Holdings, Inc. and Certain Stockholders
Thereof dated as of December 8, 1995.
10.36 Amendment No. 1 to Stockholders' Agreement dated as of January 25, 1996.
10.37 Amendment No. 2 to Stockholders' Agreement dated as of April 18, 1996.
10.38 Amended and Restated Agreement Among Shareholders Among KNOLOGY Holdings, Inc. and
Certain Shareholders thereof dated as of July 28, 1997.
10.39 Ordinance (Harris County, Georgia) dated April 6, 1982.
10.40 Ordinance (Harris County, Georgia) to Amend Cable Franchise Ordinance of April 6,
1982, dated November 5, 1996.
10.41 Ordinance (Bibb City, Georgia) dated October 5, 1990.
10.42 Ordinance No. 88-53 (Columbus, Georgia) dated May 17, 1988.
10.43 Ordinance No. 89-3 (Columbus, Georgia) dated January 10, 1989.
10.44 Ordinance No. 16-90 (Montgomery, Alabama) dated March 6, 1990.
*10.45 Ordinance No. 50-76 (Montgomery, Alabama).
*10.45.1 Ordinance No. 9-90 (Montgomery, Alabama) dated January 16, 1990.
10.46 Resolution No. 58-95 (Montgomery, Alabama) dated April 6, 1995.
10.47 Resolution No. 92-7 (Panama City Beach, Florida) dated July 23, 1992.
10.48 License (Bay County, Florida) dated January 5, 1993.
10.49 Resolution No. 97-22 (Panama City Beach, Florida) dated December 3, 1997.
10.50 Resolution No. 2075 (Bay County, Florida) dated November 18, 1997.
*10.51 Collocation Agreement between Interstate FiberNet and Cybernet Holding, Inc.,
dated July 1, 1997.
11.1 Computation of Earnings Per Share of Common Stock.
12.1 Statement regarding Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of KNOLOGY Holdings, Inc.
23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1).
24.1 Power of attorney (included on signature page).
25.1 Statement on Form T-1 of Eligibility of Trustee.
27.1 Financial Data Schedule for the year ended December 31, 1996.
27.2 Financial Data Schedule for the nine month period ended September 30, 1997.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Brokers, et al.
99.4 Form of Letter to Clients.
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 1.1
KNOLOGY HOLDINGS, INC.
PLACEMENT AGREEMENT
October 16, 1997
Morgan Stanley & Co. Incorporated,
for itself and the other
Placement Agents named below
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036-8293
Dear Sirs:
KNOLOGY Holdings, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Manager") and the other purchasers named
in Schedule I hereto (together with the Manager, the "Placement Agents") 373,050
of its Units (the "Units"). Each Unit consists of one 11-7/8% Senior Discount
Note due 2007 (a "Note") to be issued pursuant to the provisions of an
Indenture, dated as of the Closing Date (as defined below) (the "Indenture"),
between the Company and United States Trust Company of New York (in such
capacity, the "Trustee") and one Warrant (a "Warrant") entitling the holder
thereof to purchase .003734 shares (collectively, the "Warrant Shares") of
Preferred Stock, par value $.01 per share, of the Company (collectively, the
"Preferred Stock"), to be issued pursuant to the provisions of a Warrant
Agreement, dated as of the Closing Date (the "Warrant Agreement"), between the
Company and United States Trust Company of New York (in such capacity, the
"Warrant Agent"). Concurrently with the Offering, the Company proposes to (i)
conduct a private placement of its Preferred Stock (the "Equity Private
Placement") and (ii) sell 71,050 Units to SCANA Communications, Inc. ("SCANA")
(the "SCANA Placement").
The Units will be offered without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), to qualified
institutional buyers in compliance with the exemption from registration provided
by Rule 144A under the Securities Act, in offshore transactions in reliance on
Regulation S under the Securities Act ("Regulation S") and to institutional
accredited investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) that deliver a letter in the form annexed to the Final
Memorandum.
The Placement Agents and their direct and indirect transferees will
be entitled to the benefits of (i) a registration rights agreement relating to
the Notes (the "Notes Registration Rights Agreement"), to be dated the Closing
Date and to be substantially in the form attached hereto as Exhibit A-1 and (ii)
a registration rights agreement relating to the
<PAGE> 2
2
Warrants (the "Warrants Registration Rights Agreement"), to be dated the Closing
Date and to be substantially in the form attached hereto as Exhibit A-2.
In connection with the sale of the Units, the Company has prepared a
preliminary private placement memorandum (the "Preliminary Memorandum") and will
prepare a final private placement memorandum (the "Final Memorandum" and, with
the Preliminary Memorandum, each a "Memorandum") setting forth or including a
description of the terms of the Units, the Notes and the Warrants and the
Preferred Stock, the terms of the offering and a description of the Company and
its business.
1. Representations and Warranties. The Company represents and
warrants to, and agrees with, you that as of the date hereof:
(a) The Preliminary Memorandum does not contain and the Final
Memorandum, in the form used by the Placement Agents to confirm sales and on the
Closing Date, will not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this Section 1(a) do not apply to
statements or omissions in either Memorandum based upon information relating to
any Placement Agent furnished to the Company in writing by such Placement Agent
through you expressly for use therein.
(b) Each of the Company and its active subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described in each
Memorandum and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole; Schedule 1
to the form of opinion of Hogan & Hartson L.L.P. attached hereto as Exhibit B-1
sets forth each jurisdiction in which the conduct of the Company or any of its
subsidiaries' business or its ownership or leasing of property requires the
Company or any of its subsidiaries to be qualified as a foreign corporation or
partnership, other than jurisdictions in which the failure to be qualified in
all such jurisdictions would not, in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole. There are no
active subsidiaries of the Company other than KNOLOGY of Columbus, Inc., a
Delaware corporation, and KNOLOGY of Montgomery, Inc., an Alabama corporation.
(c) This Agreement has been duly authorized, executed and delivered
by the Company.
<PAGE> 3
3
(d) The Notes have been duly authorized by the Company and, when
executed and authenticated in accordance with the terms of the Indenture and
delivered to and paid for by the Placement Agents in accordance with the terms
of this Agreement, will (x) be valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as (A)
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (B) rights of acceleration, if
applicable, and the availability of equitable remedies may be limited by
equitable principles of general applicability and (y) be entitled to the
benefits of the Indenture.
(e) The Warrants have been duly authorized and, when executed,
countersigned by the Warrant Agent in accordance with the terms of the Warrant
Agreement and delivered to and paid for by the Placement Agents in accordance
with the terms of this Agreement, will (x) be valid and binding obligation of
the Company enforceable in accordance with their terms, except as (A) the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and (B) the
availability of equitable remedies may be limited by equitable principles of
general applicability and (y) be entitled to the benefits of the Warrant
Agreement and the Warrants Registration Rights Agreement.
(f) The Warrant Shares have been duly authorized and reserved for
issuance upon the exercise of the Warrants and, when issued and delivered upon
exercise of the Warrants in accordance with the terms of the Warrant Agreement,
will be validly issued, fully paid and non-assessable and will not be subject to
any preemptive or similar rights or taxes, liens, charges and security
interests.
(g) Each of the Indenture and the Notes Registration Rights Agreement
has been duly authorized by the Company and, when executed and delivered by the
Company, will be a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms except as (x) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally, (y) rights of acceleration, if
applicable, and the availability of equitable remedies may be limited by
equitable principles of general applicability and (z) the rights to
indemnification and contribution under the Notes Registration Rights Agreement
may be limited by state or federal securities laws or the policies underlying
such laws.
(h) Each of the Warrant Agreement and the Warrants Registration
Rights Agreement has been duly authorized by the Company and, when executed and
delivered by the Company, will be a valid and binding agreement of, the Company,
enforceable against the Company in accordance with its terms except as (x) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally, (y) the availability of equitable
remedies may be limited by equitable principles of general applicability and (z)
the rights to indemnification and contribution under the Warrant
<PAGE> 4
4
Registration Rights Agreement may be limited by state or federal securities
laws or the policies underlying such laws.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement, the Indenture, the
Warrant Agreement, the Notes Registration Rights Agreement, the Warrants
Registration Rights Agreement, the Notes and the Warrants (collectively, the
"Transaction Documents"), the issuance, sale and delivery of the Units, the
Notes and the Warrants and the issuance of the Warrant Shares upon exercise of
the Warrants will not contravene any provision of applicable law or the
certificate of incorporation or by-laws of the Company or any of its
subsidiaries or any material agreement or other material instrument binding upon
the Company or any of its subsidiaries or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or any
of its subsidiaries, and no permit, license, consent, approval, authorization or
order of, or filing, declaration or qualification with, any governmental body or
agency is required for the performance by the Company of its obligations under
the Transaction Documents, except (i) such as may be required by the securities
or Blue Sky laws of the various states in connection with the offer and sale of
the Units, the Notes or the Warrants or the issuance of the Warrant Shares upon
the exercise of the Warrants and (ii) such as are required to be obtained after
the date hereof and specifically set forth in the Transaction Documents.
Schedule 2 to the form of opinion of Hogan & Hartson L.L.P. attached hereto as
Exhibit B-1 sets forth all material agreements and instruments to which the
Company or any of its subsidiaries is a party.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and its subsidiaries, taken as a whole, from that set forth in the
Preliminary Memorandum. Furthermore, except in each case as described in the
Final Memorandum, (i) the Company and its subsidiaries have not incurred any
material liability or obligation, direct or contingent, nor entered into any
material transaction not in the ordinary course of business; (ii) neither the
Company nor any of its subsidiaries has purchased any of the Company's
outstanding capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on the Company's capital stock; and (iii) there has not
been any material change in the capital stock, short-term debt or long-term debt
of the Company and its subsidiaries, taken as a whole.
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of its or any of its subsidiaries' properties is subject other than
proceedings accurately described in all material respects in each Memorandum and
proceedings that would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole, or on the power or ability of the Company to
perform its obligations under the Transaction Documents or to consummate the
transactions contemplated by the Final Memorandum.
<PAGE> 5
5
(l) Neither the Company nor any affiliate (as defined in Rule 501(b)
of Regulation D under the Securities Act, an "Affiliate") of the Company has
directly, or through any agent, (i) sold, offered for sale, solicited offers to
buy or otherwise negotiated in respect of, any security (as defined in the
Securities Act) which is or will be integrated with the sale of the Units, Notes
or Warrants in a manner that would require the registration under the Securities
Act of the Units, the Notes or the Warrants or (ii) engaged in any form of
general solicitation or general advertising (as those terms are used in
Regulation D under the Securities Act) in connection with the offering of the
Units or in any manner involving a public offering within the meaning of Section
4(2) of the Securities Act.
(m) The Company is not and, after giving effect to the offering and
sale of the Units and the application of the proceeds thereof as described in
the Final Memorandum, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(n) It is not necessary in connection with the offer, sale and
delivery of the Units to the Placement Agents in the manner contemplated by this
Agreement to register the Units, the Notes or the Warrants under the Securities
Act or to qualify the Indenture under the Trust Indenture Act of 1939, as
amended.
(o) The Company and each of its subsidiaries (i) have all necessary
consents, authorizations, approvals, orders, certificates and permits of and
from, and has made all declarations and filings with, all federal, state, local
and other governmental, administrative or regulatory authorities, all
self-regulatory organizations and all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct their business in the
manner described in each Memorandum, except to the extent that the failure to
obtain such consents, authorizations, approvals, orders, certificates and
permits or make such declarations and filings would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole, and (ii) have not
received any notice of proceedings relating to revocation or modification of any
such consent, authorization, approval, order, certificate or permit which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would reasonably be expected to result in a material adverse change in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, except as
described in or contemplated by each Memorandum.
(p) The Company and each of its subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants, including all such laws and regulations concerning electromagnetic
radio frequency emissions ("Environmental Laws"), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws
<PAGE> 6
6
to conduct its businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries, taken as a
whole.
(q) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(r) None of the Company, its Affiliates or any person acting on its
or their behalf (other than the Placement Agents) has engaged in any directed
selling efforts (as that term is defined in Regulation S) with respect to the
Units, the Notes or the Warrants and the Company and its Affiliates and any
person acting on its or their behalf (other than the Placement Agents) have
complied with the offering restrictions requirement of Regulation S.
(s) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(t) The Company and each of its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to its business, in each case
free and clear of all liens, encumbrances and defects, except such as are
described in each Memorandum and, such as do not materially affect the value of
such property and do not interfere with the use made or proposed to be made of
such property by them; and any real property and buildings held under lease by
them are held under valid, subsisting and enforceable leases with such
exceptions as are not material and do not materially interfere with the use made
and proposed to be made of such property and buildings by them, in each case
except as described in or contemplated by each Memorandum.
(u) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all material patents, patent rights, licenses, inventions,
copyrights, know-
<PAGE> 7
7
how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names currently employed by them in connection with
their businesses as now operated, and neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole.
(v) No material labor dispute exists with its employees or the
employees of any of its subsidiaries, except as described in or contemplated by
each Memorandum, or, to its knowledge, is imminent; and it is not aware of any
existing, threatened or imminent labor disturbance by the employees of any of
its principal suppliers, manufacturers or contractors that could result in any
material adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and its subsidiaries, taken as a
whole.
(w) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; neither it nor any of its subsidiaries has been refused any insurance
coverage sought or applied for; and neither it nor any of its subsidiaries has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition, financial or otherwise,
or the earnings, business or operations of the Company and its subsidiaries,
taken as a whole, except as described in or contemplated by each Memorandum.
(x) The financial statements included in each Memorandum comply as to
form in all material respects with the applicable accounting requirements of the
Securities Act and the related published rules and regulations.
(y) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
2. Offering. You have advised the Company that the Placement Agents
will make an offering of the Units purchased by the Placement Agents hereunder
on the terms set forth in the Final Memorandum as soon as practicable after this
Agreement is entered into as in your judgment is advisable.
3. Purchase and Delivery. The Company hereby agrees to sell to the
several Placement Agents, and the Placement Agents, upon the basis of the
representations and warranties contained herein, but subject to the conditions
hereinafter stated, agree,
<PAGE> 8
8
severally and not jointly, to purchase from the Company the respective amount of
Units set forth in Schedule I hereto opposite their names at a purchase price of
$543.2564 per Unit, for an aggregate purchase price of $202,661,800.02.
Payment for the Units shall be made against delivery of the Units at
a closing (the "Closing") to be held at the office of Shearman & Sterling, 599
Lexington Avenue, New York, New York, at 9:00 A.M., local time, on October 22,
1997, or at such other time on the same or such other date, not later than
November 5, 1997, as shall be designated in writing by you. The time and date of
such payment are herein referred to as the Closing Date. Payment for the Units
shall be made to the Company in federal funds or other funds immediately
available in New York City.
Certificates for the Notes and the Warrants shall be in definitive
form and registered in such names and in such denominations as you shall request
in writing not less than one full business day prior to the Closing Date. The
certificates evidencing the Notes and the Warrants shall be delivered to you on
the Closing Date for the respective accounts of the several Placement Agents,
with any transfer taxes payable in connection with the transfer of the Units,
the Notes or the Warrants to the Placement Agents duly paid, against payment of
the purchase price therefor.
4. Conditions to Closing. The several obligations of the Placement
Agents under this Agreement to purchase the Units will be subject to the
following conditions:
(a) Subsequent to the date of this Agreement and prior to the Closing
Date,
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by
any "nationally recognized statistical rating organization," as such term
is defined for purposes of Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise,
or in the earnings, business or operations, of the Company and its
subsidiaries, taken as a whole, from that set forth in the Preliminary
Memorandum that, in your judgment, is material and adverse and that makes
it, in your judgment, impracticable to market the Units on the terms and in
the manner contemplated in the Final Memorandum.
(b) You shall have received on the Closing Date a certificate, dated
the Closing Date and signed by an executive officer of the Company, to the
effect set forth in
<PAGE> 9
9
clause (a)(ii) above and to the effect that the representations and warranties
of the Company contained in this Agreement are true and correct in all material
respects as of the Closing Date and that the Company has complied in all
material respects with all of the agreements and satisfied all of the conditions
on its part to be performed or satisfied on or before the Closing Date.
The officer signing and delivering any such certificate may rely upon
the best of his knowledge as to proceedings threatened.
(c) You shall have received on the Closing Date an opinion of Hogan &
Hartson L.L.P. counsel for the Company, dated the Closing Date, in the form set
forth in Exhibit B-1.
The opinion of Hogan & Hartson L.L.P. shall be rendered to you at the
request of the Company and shall so state therein.
(d) You shall have received on the Closing Date an opinion of
Brantley & Wilkerson, P.C., Alabama communications counsel for the Company,
dated the Closing Date, in the form set forth in Exhibit B-2.
The opinion of Brantley & Wilkerson, P.C. shall be rendered to you at
the request of the Company and shall so state therein.
(e) You shall have received on the Closing Date an opinion of Arnall,
Golden & Gregory, Georgia communications counsel for the Company, dated the
Closing Date, in the form set forth in Exhibit B-3.
The opinion of Arnall, Golden & Gregory shall be rendered to you at
the request of the Company and shall so state therein.
(f) You shall have received on the Closing Date an opinion of
Shearman & Sterling, counsel for the Placement Agents, dated the Closing Date,
in form and substance satisfactory to you.
(g) You shall have received on each of the date hereof and the
Closing Date a letter, dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to you, from the Company's
independent public accountants, containing statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Final Memorandum.
<PAGE> 10
10
(h) You shall have received such other certificates and documents as
you or your counsel may request.
(i) On or prior to the Closing Date, all conditions to closing under
the Equity Private Placement shall have been satisfied and the Company shall
have received at least $25 million in proceeds from the Equity Private
Placement.
(j) On or prior to the Closing Date, all conditions to closing the
sale of Units to SCANA in the SCANA Placement shall have been satisfied and the
closing thereunder shall have occurred or be scheduled to occur with the closing
hereunder.
(k) SCANA shall have executed the Notes Registration Rights
Agreements.
5. Covenants of the Company. In further consideration of the
agreements of the Placement Agents contained in this Agreement, the Company
covenants as follows:
(a) To furnish to you, without charge, during the period mentioned in
paragraph (c) below, as many copies of the Final Memorandum and any supplements
and amendments thereto as you may reasonably request and to use its best efforts
to deliver such copies to you by 10:00 a.m. (New York City time) on the business
day next following the execution of this Agreement.
(b) Before amending or supplementing either Memorandum, to furnish to
you a copy of each such proposed amendment or supplement and not to use any such
proposed amendment or supplement to which you reasonably object.
(c) If, during such period after the date hereof and prior to the
date on which all of the Units shall have been sold by the Placement Agents, any
event shall occur or condition exist as a result of which it is necessary in
your judgment to amend or supplement the Final Memorandum in order to make the
statements therein, in the light of the circumstances when such Memorandum is
delivered to a purchaser, not misleading, or if, in the opinion of counsel to
the Placement Agents, it is necessary to amend or supplement such Memorandum to
comply with applicable law, forthwith to prepare and furnish, at its own
expense, to the Placement Agents, either amendments or supplements to such
Memorandum so that the statements in such Memorandum as so amended or
supplemented will not, in the light of the circumstances when such Memorandum is
delivered to a purchaser, be misleading or so that such Memorandum, as so
amended or supplemented, will comply with applicable law.
(d) To endeavor to qualify the Units, the Notes and the Warrants for
offer and sale under the securities or Blue Sky laws of such jurisdictions as
you shall reasonably request.
<PAGE> 11
11
(e) Whether or not any sale of the Units is consummated, to pay all
expenses incident to the performance of its obligations under this Agreement,
including: (i) the preparation of each Memorandum and all amendments and
supplements thereto, (ii) the preparation, issuance and delivery of the Notes
and the Warrants, (iii) the fees and disbursements of the Company's counsel and
accountants and the Trustee and the Warrant Agent and their respective counsel,
(iv) the qualification of the Units, the Notes and the Warrants under securities
or Blue Sky laws in accordance with the provisions of Section 5(d), including
filing fees and the fees and disbursements of counsel for the Placement Agents
in connection therewith and in connection with the preparation of any Blue Sky
or legal investment memoranda, (v) the printing and delivery to the Placement
Agents in quantities as hereinabove stated of copies of the Memorandum and any
amendments or supplements thereto, (vi) any fees charged by rating agencies for
the rating of such Notes, (vii) all document production charges and expenses of
counsel to the Placement Agents (but not including their fees for professional
services) in connection with the preparation of this Agreement, (viii) the fees
and expenses, if any, incurred in connection with the admission of the Units,
the Notes, the Warrants or the Warrant Shares for trading in PORTAL or any other
appropriate market system, (ix) the costs and expenses of the Company relating
to investor presentations on any "road show" undertaken in connection with the
marketing of the Units, including, without limitation, expenses associated with
the production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expense of the representatives
and officers of the Company and any such consultants, and the cost of any
aircraft chartered in connection with the road show, and (x) all other costs and
expenses incident to the performance of the obligations of the Company hereunder
for which provision is not otherwise made in this Section.
(f) Neither the Company nor any Affiliate will sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in the Securities Act) which could be integrated with the sale of the
Units, the Notes or the Warrants in a manner which would require the
registration under the Securities Act of the Units, the Notes or the Warrants.
(g) Not to solicit any offer to buy or offer or sell the Units, the
Notes or the Warrants by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities Act)
or in any manner involving a public offering within the meaning of Section 4(2)
of the Securities Act.
(h) While any of the Units, the Notes or the Warrants remain
outstanding, the Company will make available, upon request, to any seller of
Units, the Notes or the Warrants the information specified in Rule 144A(d)(4)
under the Securities Act, unless the Company is then subject to Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
<PAGE> 12
12
(i) None of the Company, its Affiliates or any person acting on its
or their behalf (other than the Placement Agents) will engage in any directed
selling efforts (as that term is defined in Regulation S) with respect to the
Units, the Notes or the Warrants and the Company and its Affiliates and each
person acting on its or their behalf (other than the Placement Agents) will
comply with the offering restrictions of Regulation S.
(j) To use its best efforts to permit the Units, the Notes and the
Warrants to be (i) designated PORTAL securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers, Inc.
relating to trading in the PORTAL Market and (ii) listed on the Luxembourg Stock
Exchange.
(k) To use the net proceeds received by it from the sale of the Units
pursuant to this Agreement in the manner specified in the Final Memorandum under
the caption "Use of Proceeds."
(l) The Company will, and will cause the Trustee to, refuse to
register any transfer of any Notes sold pursuant to Regulation S if such
transfer is not made in accordance with the provisions of Regulation S.
(m) The Company will, and will cause the Warrant Agent (with respect
to the Warrants) and the Transfer Agent and Registrar (with respect to the
Warrant Shares) to, refuse any transfer of Warrants or Warrant Shares, as
applicable, sold pursuant to Regulation S if such transfer is not made in
accordance with the provisions of Regulation S.
6. Offering of Notes; Restrictions on Transfer. (a) Each Placement
Agent, severally and not jointly, represents and warrants to the Company that
such Placement Agent is a qualified institutional buyer as defined in Rule 144A
under the Securities Act (a "QIB"). Each Placement Agent, severally and not
jointly, agrees with the Company that (i) it will not solicit offers for, or
offer or sell, any Units, by any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities Act)
or in any manner involving a public offering within the meaning of Section 4(2)
of the Securities Act and (ii) it will solicit offers for Units only from, and
will offer Units only to, persons that it reasonably believes to be (A) in the
case of offers inside the United States, (x) QIBs or (y) other institutional
accredited investors (as defined in Rule 501(a) (1), (2), (3) or (7) under the
Securities Act) ("institutional accredited investors") that, prior to their
purchase of the Units, deliver to such Placement Agent a letter containing the
representations and agreements set forth in Appendix A to the Memorandum and (B)
in the case of offers outside the United States, to persons other than U.S.
persons ("foreign purchasers," which term shall include dealers or other
professional fiduciaries in the United
<PAGE> 13
13
States acting on a discretionary basis for foreign beneficial owners (other than
an estate or trust)) that, in each case, in purchasing such Units are deemed to
have represented and agreed as provided in the Final Memorandum under the
caption "Transfer Restrictions."
(b) Each Placement Agent, severally and not jointly, represents,
warrants, and agrees with respect to offers and sales outside the United States
that:
(i) it understands that no action has been or will be taken in any
jurisdiction by the Company that would permit a public offering of the
Units, the Notes, or the Warrants or possession or distribution of either
Memorandum or any other offering or publicity material relating to the
Units, the Notes or the Warrants, in any country or jurisdiction where
action for that purpose is required;
(ii) such Placement Agent will comply with all applicable laws and
regulations in each jurisdiction in which it acquires, offers, sells or
delivers Units, the Notes or the Warrants or has in its possession or
distributes either Memorandum or any such other material, in all cases at
its own expense;
(iii) the Units, the Notes and the Warrants have not been and will not
be registered under the Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S.
persons except in accordance with Regulation S under the Securities Act or
pursuant to an exemption from the registration requirements of the
Securities Act;
(iv) such Placement Agent has offered Units, and will offer and sell
Units, (A) as part of its distribution at any time and (B) otherwise until
40 days after the Closing Date with respect to the Notes (or if after such
date, the date the Notes and Warrants become separately transferable), and
one year after the Closing Date with respect to the Warrants, only in
accordance with Rule 903 of Regulation S or another exemption from the
registration requirements of the Securities Act. Accordingly, neither such
Placement Agent, its Affiliates nor any persons acting on its or their
behalf have engaged or will engage in any directed selling efforts (within
the meaning of Regulation S) with respect to the Units, the Notes or the
Warrants, and any such Placement Agent, its Affiliates and any such persons
have complied and will comply with the offering restrictions requirements
of Regulation S;
(v) such Placement Agent has (A) not offered or sold, during the
period of six months from the Closing Date, and will not offer or sell any
Units, Notes or Warrants to persons in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in
<PAGE> 14
14
the United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995 (the "Regulations"); (B) complied and will comply with all
applicable provisions of the Financial Services Act 1986 and the
Regulations with respect to anything done by it in relation to the Units,
Notes or Warrants in, from or otherwise involving the United Kingdom; and
(C) only issued or passed on and will only issue or pass on to any person
in the United Kingdom any document received by it in connection with the
issue of the Units, the Notes or the Warrants if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on;
(vi) such Placement Agent understands that the Units, the Notes and
the Warrants have not been and will not be registered under the Securities
and Exchange Law of Japan, and represents that it has not offered or sold,
and agrees that it will not offer or sell, any Units, Notes or Warrants,
directly or indirectly in Japan or to any resident of Japan except (A)
pursuant to an exemption from the registration requirements of the
Securities and Exchange Law of Japan and (B) in compliance with any other
applicable requirements of Japanese law; and
(vii) such Placement Agent agrees that, at or prior to confirmation of
sales of the Units it will have sent to each distributor, dealer or person
receiving a selling concession, fee or other remuneration that purchases
Units from it during the restricted period a confirmation or notice to
substantially the following effect:
"The Units, the Notes or the Warrants covered hereby have not
been registered under the U.S. Securities Act of 1933 (the
"Securities Act") and may not be offered and sold within the United
States or to, or for the account or benefit of, U.S. persons (i) as
part of their distribution at any time or (ii) otherwise until 40
days after the closing date with respect to the Notes (or if after
such date, the date the Notes and Warrants become separately
transferable) and one year after the closing date with respect to
the Warrants, except in either case in accordance with Regulation S
(or Rule 144A, if available) under the Securities Act. Terms used
above have the meaning given to them by Regulation S."
Terms used in this Section 6 have the meanings given to them by Regulation S.
7. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Placement Agent, and each person, if any, who
controls such Placement Agent within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, or is under common control
with, or is controlled by, such Placement Agent, from and against any and all
losses, claims, damages and liabilities
<PAGE> 15
15
(including, without limitation, any legal or other expenses reasonably incurred
by any Placement Agent or any such controlling of affiliated person in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained in
either Memorandum (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any Placement
Agent furnished to the Company in writing by such Placement Agent through you
expressly for use therein; provided, however, that the foregoing indemnity
agreement with respect to a Memorandum shall not inure to the benefit of any
Placement Agent (or any other person indemnified pursuant to this paragraph (a))
to the extent that any such losses, claims, damages or liabilities result from
the fact that such Placement Agent sold Units to a person to whom there was not
sent or given by or on behalf of such Placement Agent a copy of the Final
Memorandum at or prior to the written confirmation of the sale of the Units to
such person, and if the losses, claims, damages or liabilities result from an
untrue statement or alleged untrue statement or an omission or alleged omission
contained in the Preliminary Memorandum that was corrected in the Final
Memorandum.
(b) Each Placement Agent agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors and officers and each
person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to such Placement Agent, but only with
reference to information relating to such Placement Agent furnished to the
Company in writing by such Placement Agent through you expressly for use in
either Memorandum or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either paragraph (a) or (b) of this Section 7 above, such
person (the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and
<PAGE> 16
16
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all such
indemnified parties and that all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by Morgan Stanley &
Co. Incorporated in the case of parties indemnified pursuant to paragraph (a) of
this Section 7 and by the Company in the case of parties indemnified pursuant to
paragraph (b) of this Section 7. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this paragraph,
the indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 60 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(d) To the extent the indemnification provided for in paragraph (a)
or (b) of this Section 7 is unavailable to an indemnified party or insufficient
in respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Placement Agents, on the other hand, from the
offering of the Units or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and the Placement Agents on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Placement Agents on the other hand in connection with the offering of
the Units shall be deemed to be in the same respective proportions as the net
proceeds from the offering of such Units (before deducting expenses) received by
the Company and the total discounts and
<PAGE> 17
17
commissions received by the Placement Agents in respect thereof bear to the
aggregate offering price of such Units. The relative fault of the Company on the
one hand and of the Placement Agents on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Placement Agents and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Placement Agents'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the respective number of Units they have purchased hereunder, and
not joint.
(e) The Company and the Placement Agents agree that it would not be
just or equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation (even if the Placement Agents were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in paragraph (d) above shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7, no Placement Agent shall be required to contribute any amount in
excess of the amount by which the total price at which the Units resold by it in
the initial placement of such Units were offered to investors exceeds the amount
of any damages that such Placement Agent has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution provisions contained in this Section 7
and the representations and warranties of the Company contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of the Placement Agents or any person controlling the Placement Agents or by or
on behalf of the Company, any of its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of the
Units. The remedies provided for in this Section 7 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
8. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of
<PAGE> 18
18
Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade,
(ii) trading of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
federal or New York State authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and adverse and (b) in
the case of any of the events specified in clauses (a)(i) through (iv), such
event singly or together with any other such event makes it, in your judgment,
impracticable to market the Units on the terms and in the manner contemplated in
the Final Memorandum.
9. Miscellaneous. If, on the Closing Date, any one or more of the
Placement Agents shall fail or refuse to purchase Units that it has agreed to
purchase hereunder on such date, and the aggregate number of Units which such
defaulting Placement Agent or Placement Agents agreed but failed or refused to
purchase is not more than one-tenth of the aggregate number of Units to be
purchased on such date, the other Placement Agents shall be obligated severally
in the proportions that the number of Units set forth opposite their respective
names in Schedule I bears to the aggregate number of Units set forth opposite
the names of all such non-defaulting Placement Agents, or in such other
proportions as you may specify, to purchase the Units which such defaulting
Placement Agent agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Units that any Placement Agent has agreed
to purchase pursuant to Section 3 be increased pursuant to this Section 9 by an
amount in excess of one-ninth of such number of Units without the written
consent of such Placement Agent. If, on the Closing Date, any Placement Agent
shall fail or refuse to purchase Units which it or they have agreed to purchase
hereunder on such date and the aggregate number of Units with respect to which
such default occurs is more than one-tenth of the aggregate number of Units to
be purchased on such date and arrangements satisfactory to you and the Company
for the purchase of such Units are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any
non-defaulting Placement Agent or of the Company. In any such case either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Final Memorandum or in any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting Placement
Agent from liability in respect of any default of such Placement Agent under
this Agreement.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
If this Agreement shall be terminated by the Placement Agents, or any
of them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall
<PAGE> 19
19
be unable to perform its obligations under this Agreement, the Company will
reimburse the Placement Agents or such Placement Agents as have so terminated
this Agreement with respect to themselves, severally, for all out-of-pocket
expenses (including the fees and disbursements of their counsel) reasonably
incurred by such Placement Agents in connection with this Agreement or the
offering contemplated hereunder.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
The headings of the sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed a part of this Agreement.
Please confirm your agreement to the foregoing by signing in the
space provided below for that purpose and returning to us a copy hereof,
whereupon this Agreement shall constitute a binding agreement between us.
Very truly yours,
KNOLOGY Holdings, Inc.
By /s/ William Morrow
--------------------------
Name: William Morrow
Title: CEO
Agreed as of the date first above written
Morgan Stanley & Co. Incorporated
Acting severally on behalf
of itself and the other
Placement Agent named herein.
By Morgan Stanley & Co. Incorporated
By /s/ Robert Shepardson
----------------------------
Name: Robert Shepardson
Title: Principal
<PAGE> 20
SCHEDULE I
Number of Units
Placement Agent To Be Purchased
--------------- ---------------
Morgan Stanley & Co. Incorporated 242,482.5
J.P. Morgan Securities Inc. 111,915.0
First Union Capital Markets Corp. 18,652.5
Total........................ 373,050.0
=========
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
KNOLOGY HOLDINGS, INC.,
KNOLOGY OF PANAMA CITY, INC.,
BEACH CABLE, INC.
AND
L. CHARLES HILTON, JR.
DATED AS OF DECEMBER 5, 1997
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TABLE OF CONTENTS
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AGREEMENT AND PLAN OF MERGER........................................................................1
ARTICLE I THE MERGER...............................................................................1
SECTION 1.1. The Merger.............................................................................1
SECTION 1.2. Effective Time.........................................................................1
SECTION 1.3. Effect of the Merger...................................................................2
SECTION 1.4. Articles of Incorporation; Bylaws......................................................2
SECTION 1.5. Directors and Officers.................................................................2
SECTION 1.6. Closing................................................................................2
SECTION 1.7. Subsequent Actions.....................................................................3
SECTION 1.8. Tax and Accounting Treatment of the Merger.............................................3
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES......................................3
SECTION 2.1. Conversion of Securities...............................................................3
SECTION 2.2. Exchange of Certificates...............................................................7
SECTION 2.3. Subscriber Adjustments.................................................................7
SECTION 2.4. Stock Transfer Books...................................................................7
SECTION 2.5. Satisfaction of Indebtedness...........................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER......................8
SECTION 3.1. Organization and Qualification.........................................................8
SECTION 3.2. Articles of Incorporation and Bylaws...................................................8
SECTION 3.3. Capitalization.........................................................................8
SECTION 3.4. Authority..............................................................................9
SECTION 3.5. No Conflict; Required Filings and Consents.............................................9
SECTION 3.6. Financial Statements..................................................................10
SECTION 3.7. Absence of Certain Changes or Events..................................................10
SECTION 3.8. Ownership and Condition of the Assets.................................................11
SECTION 3.9. System Agreements.....................................................................11
SECTION 3.10. Real Property........................................................................11
SECTION 3.11. Environmental Matters................................................................12
SECTION 3.12. Litigation...........................................................................13
SECTION 3.13. Compliance with Laws.................................................................14
SECTION 3.14. Copyright and Trademark..............................................................15
SECTION 3.15. Franchises...........................................................................16
SECTION 3.16. System Information...................................................................16
SECTION 3.17. Taxes and Assessments................................................................17
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SECTION 3.18. Employment Matters...................................................................17
SECTION 3.19. Transactions with Related Parties....................................................18
SECTION 3.20. Insurance............................................................................18
SECTION 3.21. Net Working Capital..................................................................19
SECTION 3.22. Brokers..............................................................................19
SECTION 3.23. Disclosure...........................................................................19
SECTION 3.24. Pooling of Interests.................................................................19
SECTION 3.25. Programming Contracts................................................................19
ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER...........................20
SECTION 4.1. Title to Company Common Stock.........................................................20
SECTION 4.2. Authority and Capacity................................................................20
SECTION 4.3. Absence of Violation..................................................................20
SECTION 4.4. Restrictions and Consents.............................................................20
SECTION 4.5. Binding Obligation....................................................................20
SECTION 4.6. No Registration Under the Securities Act..............................................21
SECTION 4.7. Acquisition for Investment............................................................21
SECTION 4.8. Evaluation of Merits and Risks of Investment..........................................21
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ACQUIROR..............................................22
SECTION 5.1. Organization and Qualification........................................................22
SECTION 5.2. Certificate of Incorporation and Bylaws...............................................22
SECTION 5.3. Capitalization........................................................................22
SECTION 5.4. Authority.............................................................................23
SECTION 5.5. No Conflict; Required Filings and Consents............................................23
SECTION 5.6. Financial Statements..................................................................23
SECTION 5.7. Absence of Certain Changes or Events..................................................24
SECTION 5.8. Litigation............................................................................24
SECTION 5.9. Taxes and Assessments.................................................................25
SECTION 5.10. Brokers..............................................................................25
SECTION 5.11. Disclosure...........................................................................25
SECTION 5.12. Private Placement Memorandum.........................................................25
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF MERGER SUB...........................................26
SECTION 6.1. Organization and Qualification........................................................26
SECTION 6.2. Certificate of Incorporation and Bylaws...............................................26
SECTION 6.3. Authority.............................................................................26
SECTION 6.4. No Conflict; Required Filings and Consents............................................27
SECTION 6.5. Disclosure............................................................................27
ARTICLE VII COVENANTS.............................................................................28
SECTION 7.1. Affirmative Covenants of the Company..................................................28
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SECTION 7.2. Negative Covenants of the Company.....................................................28
ARTICLE VIII ADDITIONAL AGREEMENTS................................................................30
SECTION 8.1. Consents and Approvals; Filings and Notices...........................................30
SECTION 8.2. Access and Information................................................................30
SECTION 8.3. Confidentiality.......................................................................30
SECTION 8.4. Further Action; Reasonable Best Efforts...............................................31
SECTION 8.5. Public Announcements..................................................................31
SECTION 8.6. No Solicitation.......................................................................31
SECTION 8.7. Service Agreements....................................................................31
SECTION 8.8. Pooling Accounting....................................................................32
ARTICLE IX CLOSING CONDITIONS.....................................................................32
SECTION 9.1. Conditions to Obligations of Acquiror and Merger Sub..................................32
SECTION 9.2. Conditions to Obligations of the Company and the Stockholder..........................34
ARTICLE X TERMINATION, AMENDMENT AND WAIVER.......................................................35
SECTION 10.1. Termination..........................................................................35
SECTION 10.2. Effect of Termination................................................................35
SECTION 10.3. Amendment............................................................................36
SECTION 10.4. Waiver...............................................................................36
ARTICLE XI SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; REMEDIES.................................36
SECTION 11.1. Survival of Representations..........................................................36
SECTION 11.2. Agreement of Stockholder to Indemnify................................................37
SECTION 11.3. Agreement of Acquiror to Indemnify...................................................37
SECTION 11.4. Conditions of Indemnification........................................................37
SECTION 11.5. No Recourse Against the Company......................................................39
SECTION 11.6. Remedies Cumulative..................................................................39
ARTICLE XII GENERAL PROVISIONS....................................................................39
SECTION 12.1. Notices..............................................................................39
SECTION 12.2. Certain Definitions..................................................................40
SECTION 12.3. Headings.............................................................................42
SECTION 12.4. Severability.........................................................................42
SECTION 12.5. Entire Agreement.....................................................................42
SECTION 12.6. Specific Performance.................................................................43
SECTION 12.7. Assignment...........................................................................43
SECTION 12.8. Third Party Beneficiaries............................................................43
SECTION 12.9. Governing Law........................................................................43
SECTION 12.10. Counterparts........................................................................43
SECTION 12.11. Fees and Expenses...................................................................44
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SCHEDULES
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Schedule 2.1 Proforma Calculation
Schedule 3.3 Indebtedness
Schedule 3.5 Company Consents
Schedule 3.8 Assets and Personal Property
Schedule 3.9 System Agreements
Schedule 3.10 Real Property Interests
Schedule 3.11 Environmental Permits and Licenses
Schedule 3.15 Franchises
Schedule 3.16 System Information
Schedule 3.18 Employment Matters
Schedule 3.19 Transactions with Related Parties
Schedule 5.3 Capitalization
Schedule 5.5 Acquiror Consents
Schedule 5.8 Litigation
Schedule 6.4 Merger Sub Consents
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EXHIBITS
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EXHIBIT A FORM OF PAYOFF LETTER
EXHIBIT B FORM OF NONCOMPETITION AGREEMENT
EXHIBIT C FORM OF LEGAL OPINION
EXHIBIT D FORM OF STOCKHOLDERS' AGREEMENT
EXHIBIT E FORM OF HEADEND LEASE
EXHIBIT F FORM OF SUBSCRIBERS CERTIFICATE
EXHIBIT G FORM OF BROKER'S CERTIFICATE
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Index of Defined Terms
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Accounting Firm.......................................................... 2.1(c)(iii)
Acquiror................................................................. PREAMBLE
Acquiror Assets.......................................................... 12.2(a)
Acquiror Balance Sheet Date.............................................. 5.6
Acquiror Financing Transactions.......................................... 12.2.(b)
Acquiror Indemnified Persons............................................. 11.2
Acquiror Material Adverse Effect......................................... 12.2(c)
Acquiror Preferred Stock................................................. 2.1(a)
affiliate................................................................ 12.2(d)
Agreement................................................................ PREAMBLE
Articles of Merger....................................................... 1.2
Basic Rate............................................................... 2.1(b)(iv)
Basic Subscriber ....................................................... 2.1(b)(iv)
Basket Amount............................................................ 11.4(e)
Bell South............................................................... 3.20
Broker................................................................... 3.22
business day............................................................. 12.2(e)
Cable Act................................................................ 3.13(d)
CLI...................................................................... 3.13(b)
Closing.................................................................. 1.6
Closing Date............................................................. 1.6
Closing Indebtedness..................................................... 2.5
Code..................................................................... 1.8
Communications Act....................................................... 3.13(a)
Company.................................................................. PREAMBLE
Company Assets........................................................... 12.2(f)
Company Balance Sheet.................................................... 3.6
Company Common Stock..................................................... 2.1(a)
Company Material Adverse Effect.......................................... 12.2(g)
control, controlled by, under common control with........................ 12.2(h)
Delaware Law............................................................. PREAMBLE
Effective Time........................................................... 1.2
Encumbrances............................................................. 12.2(i)
Environmental Laws....................................................... 3.11(d)(i)
FCC...................................................................... 3.13(a)
FCC Licenses............................................................. 3.13(e)
Florida Law.............................................................. PREAMBLE
Franchise Agreements..................................................... 3.15(b)
Government Entity........................................................ 12.2(j)
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Hazardous Materials...................................................... 3.11(d)(ii)
Headend Lease............................................................ 9.1(i)
Headend Site............................................................. 3.10
Indemnified Party........................................................ 11.4(a)
Indemnifying Party....................................................... 11.4(a)
Laws..................................................................... 12.2(k)
Losses................................................................... 12.2(l)
Merger................................................................... 1.1
Merger Sub............................................................... PREAMBLE
New Hotel Account........................................................ 2.1(b)(iv)
New Subscriber........................................................... 2.1(b)(v)
person................................................................... 12.2(m)
Private Placement Memorandum............................................. 5.12
Programming Contracts ................................................... 3.25
Purchase Price........................................................... 2.1(a)
Qualified New Subscriber................................................. 2.1(c)(ii)
Rights of Way............................................................ 3.10
Securities Act........................................................... 4.6
Stockholder.............................................................. PREAMBLE
subsidiary............................................................... 12.2(n)
Surviving Corporation.................................................... 1.1
System................................................................... PREAMBLE
Target Subscriber Number................................................. 2.1(b)(i)
Taxes.................................................................... 12.2(o)
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is
entered into this 5th day of December, 1997, by and among KNOLOGY HOLDINGS,
INC., a Delaware corporation ("Acquiror"), KNOLOGY OF PANAMA CITY, INC., a
Delaware corporation and a wholly-owned subsidiary of Acquiror ("Merger Sub"),
BEACH CABLE, INC., a Florida corporation (the "Company") and L. CHARLES HILTON,
JR., the sole stockholder of the Company (the "Stockholder").
WHEREAS, the Company is the owner and operator of a cable
television system serving areas in and around Panama City Beach, Florida (the
"System"); and
WHEREAS, the parties hereto wish to provide that, upon the
terms and subject to the conditions of this Agreement and in accordance with the
Florida Business Corporation Act ("Florida Law") and the Delaware General
Corporation Law ("Delaware Law"), Merger Sub will merge with and into the
Company.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth in
this Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER.
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with Florida Law and Delaware Law, at the Effective
Time (as defined in Section 1.2) Merger Sub shall be merged with and into the
Company (the "Merger"). As a result of the Merger, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation of the Merger (sometimes referred to herein as the
"Surviving Corporation") and a wholly-owned subsidiary of Acquiror. The name of
the Surviving Corporation shall be "KNOLOGY of Panama City, Inc."
SECTION 1.2. EFFECTIVE TIME.
At the Closing (as defined in Section 1.6), the parties hereto
shall cause the Merger to be consummated by filing articles of merger (the
"Articles of
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Merger"), with the Florida Department of State and the Secretary of State of the
State of Delaware in such form as required by, and executed in accordance with
the relevant provisions of Florida Law and Delaware Law, respectively and in
such form as approved by the Company and Acquiror prior to such filings (the
date and time of the last to occur of such filings or such subsequent date or
time specified in the Articles of Merger being the "Effective Time").
SECTION 1.3. EFFECT OF THE MERGER.
At the Effective Time, the effect of the Merger shall be as
provided in the applicable provisions of Florida Law and Delaware Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, except as otherwise provided herein, all the property, rights, privileges,
powers and franchises of Merger Sub and the Company shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Merger Sub and the Company
shall become the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.4. ARTICLES OF INCORPORATION; BYLAWS.
At the Effective Time, (a) the articles of incorporation of
the Company, as in effect immediately prior to the Effective Time and as amended
by the Articles of Merger, shall be the articles of incorporation of the
Surviving Corporation, and (b) the bylaws of the Company, as in effect
immediately prior to the Effective Time, shall be the bylaws of the Surviving
Corporation.
SECTION 1.5. DIRECTORS AND OFFICERS.
The directors of Merger Sub (or such other or additional
individuals as Acquiror may designate prior to Closing) shall be the initial
directors of the Surviving Corporation, each to hold office in accordance with
the articles of incorporation and bylaws of the Surviving Corporation; and the
officers of Merger Sub (or such other or additional individuals as Acquiror may
designate prior to Closing) shall be the initial officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
SECTION 1.6. CLOSING.
Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place as promptly as practicable
after satisfaction of the latest to occur or, if permissible, waiver of the
conditions set forth in Article IX hereof (the "Closing Date"), at the offices
of Hogan & Hartson L.L.P., 8300 Greensboro Drive, Suite 1100, McLean, Virginia
22102, unless another date or place is agreed to in writing by the parties
hereto.
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SECTION 1.7. SUBSEQUENT ACTIONS.
If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to continue in, vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties, privileges, franchises or assets of either of its
constituent corporations acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger or otherwise to carry out this
Agreement, the officers and directors of the Surviving Corporation shall be
directed and authorized to execute and deliver, in the name and on behalf of
either of such constituent corporations, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of each
of such corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties, privileges, franchises or
assets in the Surviving Corporation or otherwise to carry out this Agreement.
SECTION 1.8. TAX AND ACCOUNTING TREATMENT OF THE MERGER.
The parties shall use reasonable efforts to qualify the Merger
as (a) tax-free reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), for federal income tax
purposes, and (b) a pooling of interests under generally accepted accounting
principles for accounting purposes.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.1. CONVERSION OF SECURITIES.
At the Effective Time, by virtue of the Merger and without any
action on the part of the parties hereto or the holders of the following
securities:
(a) Company Common Stock. Subject to the adjustments set
forth in Section 2.1(b) and Section 2.1(c), all of the shares of common stock,
no par value per share, of the Company ("Company Common Stock"), issued and
outstanding immediately prior to the Effective Time (excluding any shares
described in Section 2.1(c)), shall be converted into that number of shares of
preferred stock, par value $.01 per share, of Acquiror ("Acquiror Preferred
Stock") equal to (i) the amount of SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS
($7,500,000), (A) increased or decreased by, as applicable, the adjustment based
on the number of
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Basic Subscribers and New Subscribers (each as defined below) pursuant to
Section 2.1(b) and Section 2.1(c) and (B) decreased by the amount of Closing
Indebtedness (as defined in Section 2.5) (the net amount determined pursuant to
this clause (i) being referred to as the ("Purchase Price")), divided by (ii)
One Thousand Five Hundred Dollars ($1,500). All shares of Company Common Stock
shall cease to be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each certificate previously evidencing any such
shares shall thereafter represent only the right to receive the shares of
Acquiror Preferred Stock and the cash payable in lieu of fractional shares
pursuant to Section 2.1(f). The holders of certificates previously evidencing
such shares of Company Common Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares of
Company Common Stock, except as otherwise provided herein.
(b) Adjustments to the Purchase Price. The Purchase Price
to be paid on the Closing Date shall be subject to the following adjustments:
(i) If the number of Basic Subscribers and New
Subscribers as of the Effective Time is less than four thousand four hundred
seventy-six (4,476) (the "Target Subscriber Number"), the Purchase Price shall
be reduced by an amount equal to One Thousand Five Hundred Dollars ($1,500),
multiplied by the difference between the Target Subscriber Number and the actual
number of Basic Subscribers and New Subscribers as of the Effective Time.
(ii) If the number of Basic Subscribers and New
Subscribers as of the Effective Time is greater than the Target Subscriber
Number, the Purchase Price shall be increased by an amount equal to One Thousand
Five Hundred Dollars ($1,500), multiplied by the difference between the actual
number of Basic Subscribers and New Subscribers as of the Effective Time and the
Target Subscriber Number.
(iii) For purposes of this Agreement, the term
"Basic Subscriber" shall mean each bona fide subscriber for basic service of the
System who (A) if connected prior to the date hereof has paid the full
connection fee, if any, in effect as of such connection date, or if connected on
or after the date hereof, has paid the full connection fee in effect on the date
hereof and (B) has made at least two (2) monthly payments at the basic service
rate for the service of the System and in each case, whose account is not more
than sixty (60) days delinquent from the first day of the month for which such
service was rendered. In computing the number of Basic Subscribers with respect
to all commercial or bulk billing accounts of the System (other than the New
Hotel Accounts described below), the number of Basic Subscribers for the System
will include the result obtained by dividing the aggregate of the gross billings
from such accounts from the provision of basic service (excluding any
installation or non-recurring charges) for the calendar month
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immediately preceding the Closing by the average standard monthly rate charged
to single-family households for basic service for the System (the "Basic Rate").
In computing the number of Basic Subscribers with respect to each New Hotel
Account (as defined below), the number of Basic Subscribers under such account
will include the result obtained by dividing the monthly bulk subscription
amount stated in the written subscription agreement for such account, divided by
the Basic Rate. "New Hotel Account" shall mean any third party commercial hotel
or motel, condominium or multiple unit residential account of the System covered
by a written subscription agreement reasonably acceptable to Buyer for which
Seller has not submitted its first invoice but for which Seller has completed
all installation work necessary to provide fiber optic cable television service
to such account in accordance with such agreement.
(iv) For purposes of this Agreement, the term
"New Subscriber" shall mean each bona fide subscriber for basic service of the
System who (A) if connected prior to the date hereof has paid the full
connection fee, if any, in effect as of such connection date, or if connected on
or after the date hereof, has paid the full connection fee in effect on the date
hereof and (B) has not made two (2) monthly payments at the basic service rate
for the service of the System and in each case, whose account is not more than
sixty (60) days delinquent from the first day of the month for which such
service was rendered.
(v) Schedule 2.1 contains a pro forma
calculation of the number of Basic Subscribers and the number of New Subscribers
as if the Closing occurred as of December 5, 1997. Schedule 2.1 is attached
hereto solely for the purpose of demonstrating by example the manner in which
the number of Basic Subscribers and the number of New Subscribers for
adjustments to the Purchase Price shall be calculated as of the Closing Date.
(c) Procedures for Final Adjustments to Purchase Price.
The Purchase Price, taking into account the adjustments pursuant to Section
2.1(b), will be determined finally in accordance with the following procedures:
(i) At least five (5) days prior to the Closing
Date, the Stockholder shall prepare and deliver to Acquiror a preliminary
certificate which shall set forth the Stockholder's good faith estimate of the
initial adjustments to the Purchase Price based on the number of Basic
Subscribers and New Subscribers to be made as of the Closing Date under Section
2.1(b), certified by the Stockholder to be true, complete and accurate. The
preliminary certificate shall contain all information reasonably necessary to
determine the initial adjustments to the Purchase Price to be made as of the
Closing Date under Section 2.1(b), and such other information as may be
reasonably requested by Acquiror.
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(ii) No earlier than ninety (90) days and no
later than one hundred and twenty (120) days after the Closing Date, Acquiror
will deliver to the Stockholder a certificate setting forth Acquiror's
determination of the final adjustments to the Purchase Price based on the number
of Basic Subscribers and the number of Qualified New Subscribers (as defined
below), certified by Acquiror to be true, complete and accurate. If the
Stockholder disputes the amount of the final adjustments to the Purchase Price
determined by Acquiror, the Stockholder shall deliver to Acquiror within twenty
(20) days after his receipt of Acquiror's certificate a certificate setting
forth his determination of the amount of the Purchase Price based on the number
of Basic Subscribers and the number of Qualified New Subscribers. If the
Stockholder notifies Acquiror of his acceptance of Acquiror's certificate, or if
the Stockholder fails to deliver his certificate within such twenty (20) day
period, Acquiror's determination of the Purchase Price shall be final,
conclusive and binding on the parties. For purposes of this Agreement, the term
"Qualified New Subscriber" shall mean a New Subscriber who has made at least two
(2) monthly payments at the basic service rate for the service of the System.
(iii) Acquiror and the Stockholder shall use good
faith efforts to resolve any dispute involving the adjustments to the Purchase
Price. If the parties are unable to resolve the dispute within fifteen (15) days
following the delivery of Acquiror's certificate pursuant to paragraph (ii)
above, the Stockholder or Acquiror may submit the dispute to a nationally
recognized independent public accounting firm (which has not performed any
service since January 1, 1991 for either the Stockholder or Acquiror or any of
their respective affiliates), to act as an arbitrator (the "Accounting Firm"),
in which event such party shall deliver to the other party notice thereof. All
determinations made by the Accounting Firm of the dispute shall be final and
binding on the parties, and a judgment may be entered thereon in any court of
competent jurisdiction. Any reasonable fees and expenses of the Accounting Firm
shall be split equally between Acquiror and the Stockholder.
(d) Treasury Stock. All shares of capital stock of the
Company held in the treasury of the Company immediately prior to the Effective
Time shall be canceled and extinguished without any conversion thereof and no
Acquiror Preferred Stock or other consideration shall be delivered or
deliverable in exchange therefor.
(e) Merger Sub Stock. Each share of common stock, par
value $.01 per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one (1) duly and
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
(f) No Fractional Shares. No fraction of a share of
Acquiror Preferred Stock shall be issued in connection with the Merger. In lieu
of any such fractional share, the Stockholder shall have the right to receive an
amount in cash,
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without interest, determined by multiplying (i) One Thousand
Five Hundred Dollars ($1,500) by (ii) the fractional interest in Acquiror
Preferred Stock to which such holder would otherwise be entitled pursuant to
Section 2.1(a).
SECTION 2.2. EXCHANGE OF CERTIFICATES
At the Closing, the Stockholder shall deliver to Acquiror
certificates evidencing all of the outstanding shares of Company Common Stock as
of the Effective Time duly endorsed in blank or with duly executed stock powers
attached. In exchange therefor, Acquiror shall deliver to the Stockholder at
Closing a certificate evidencing the whole shares of Acquiror Preferred Stock
issuable pursuant to Section 2.1(a), and cash in an amount equal to the cash
payable in lieu of fractional shares pursuant to Section 2.1(f).
SECTION 2.3. SUBSCRIBER ADJUSTMENTS.
In the event that there is a difference in the adjustments to
the Purchase Price as initially determined and the Purchase Price as finally
determined pursuant to Section 2.1(c), the Stockholder shall deliver to Acquiror
the certificate evidencing the shares of Acquiror Preferred Stock issued to the
Stockholder at Closing, and Acquiror shall cancel such certificate, and issue a
new certificate to the Stockholder evidencing the number of shares of Acquiror
Preferred Stock to be issued to the Stockholder based upon the Purchase Price as
finally determined pursuant to Section 2.1(c). The parties acknowledge and agree
that the adjustment pursuant to this Section 2.3 may result in a decrease in the
Purchase Price paid on the Closing Date.
SECTION 2.4. STOCK TRANSFER BOOKS.
At the Effective Time, the stock transfer books of the Company
with respect to all shares of capital stock of the Company shall be closed and
no further registration of transfers of such shares of capital stock shall
thereafter be made on the records of the Company.
SECTION 2.5. SATISFACTION OF INDEBTEDNESS.
Immediately after the Effective Time, Acquiror shall cause to
be paid (a) all principal and accrued interest outstanding as of the Effective
Time under that certain promissory note dated July 1, 1994, payable to Hilton,
Inc. in the original principal amount of $3,000,000 and (b) certain additional
indebtedness payable to Hilton, Inc. in the approximate amount of $118,000
(collectively, the "Closing Indebtedness"). Payment of the Closing Indebtedness
shall be made in
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accordance with a written payoff letter from the holder of the Closing
Indebtedness in substantially the form attached hereto as Exhibit A.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER
The Company and the Stockholder hereby jointly and severally
represent and warrant to Acquiror and Merger Sub as follows:
SECTION 3.1. ORGANIZATION AND QUALIFICATION.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Florida. The Company has the
requisite power and authority to own, lease and operate the System and the
Company Assets, to carry on its business as now being conducted and to perform
the terms of this Agreement and the transactions contemplated hereby. The
Company is duly qualified to conduct its business, and is in good standing, in
each jurisdiction in which the ownership or leasing of the Company Assets or the
nature of its activities in connection with the conduct of its business makes
such qualification necessary. The Company has no subsidiaries or any equity
interest or other investment in any person.
SECTION 3.2. ARTICLES OF INCORPORATION AND BYLAWS.
The Company has heretofore delivered to Acquiror a complete
and correct copy of the articles of incorporation and the bylaws of the Company,
each as amended to date. Such articles of incorporation and bylaws are in full
force and effect. The Company is not in violation of any of the provisions of
its articles of incorporation or bylaws or other organizational or governing
document.
SECTION 3.3. CAPITALIZATION.
(a) The authorized capital stock of the Company consists
of one million (1,000,000) shares of Company Common Stock, of which one hundred
(100) shares are issued and outstanding. All of the issued and outstanding
shares of Company Common Stock are owned beneficially and of record by the
Stockholder, free and clear of all Encumbrances. There are no options, warrants
or other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of the Company or obligating
the Company to issue or sell any shares of capital stock of, or other equity
interests in the Company, including any securities directly or indirectly
convertible into or exercisable or exchangeable
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for any capital stock or other equity securities of the Company. There are no
outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any shares of its capital stock or make any investment (in the form of a
loan, capital contribution or otherwise) in any other person. All of the issued
and outstanding shares of Company Common Stock have been duly authorized and
validly issued in accordance with applicable laws and are fully paid and
nonassessable and not subject to preemptive rights. No shares of capital stock
of the Company have been reserved for any purpose.
(b) Except as set forth in Schedule 3.3, the Company has
no outstanding indebtedness for borrowed money and all such indebtedness is
prepayable in full, without premium or penalty, in accordance with its terms.
SECTION 3.4. AUTHORITY.
The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Acquiror and Merger Sub, constitutes a
legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
applicability relating to or affecting creditors' rights generally and by the
application of general principles of equity.
SECTION 3.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in Schedule 3.5, the execution
and delivery of this Agreement by the Company do not, and the performance by the
Company of its obligations under this Agreement will not, (i) conflict with or
violate the articles of incorporation or bylaws of the Company, (ii) conflict
with or violate any Law applicable to the Company, the System or the Company
Assets, or (iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company is a party or
by which the Company is bound or by which the System or any of the Company
Assets is subject.
(b) Except as set forth in Schedule 3.5, the execution
and delivery of this Agreement by the Company does not, and the performance of
this Agreement by the Company will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any Government
Entity, except for the filing and
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recordation of appropriate merger documents as required by Florida Law and
Delaware Law.
SECTION 3.6. FINANCIAL STATEMENTS.
The Company has prepared and furnished to Acquiror (a) the
unaudited balance sheet of the Company as of the end of the fiscal year ending
December 31, 1996, and the unaudited statement of income and cash flows for such
fiscal year and (b) the unaudited balance sheet of the Company as of October 31,
1997, and the unaudited statement of income and cash flows for the ten months
then ended. The financial statements referred to in this Section 3.6 and the
financial statements of the Company provided to Acquiror pursuant to this
Agreement present fairly, in all material respects, the financial condition of
the Company as of the respective dates and the results of operations and cash
flows for the respective periods indicated and have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
(except that such unaudited statements do not contain all required footnotes and
are subject to normal recurring year-end adjustments). Except as reflected in
the unaudited balance sheet of the Company as of October 31, 1997 (the "Company
Balance Sheet Date"), the Company has no liabilities, contingent or absolute,
matured or unmatured, known or unknown, except for liabilities incurred in the
ordinary course of business since the Company Balance Sheet Date.
SECTION 3.7. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since the Company Balance Sheet Date, there has been no
Company Material Adverse Effect. Since the Company Balance Sheet Date, the
Company has conducted its business in the ordinary course, and the Company has
not (a) paid any dividend or distribution in respect of, or redeemed or
repurchased any of, its capital stock; (b) incurred loss of, or significant
injury to, any of the Company Assets, whether as the result of any natural
disaster, labor trouble, accident, other casualty, or otherwise; (c) incurred,
or become subject to, any obligation or liability (absolute or contingent,
matured or unmatured, known or unknown), except current liabilities incurred in
the ordinary course of business; (d) mortgaged, pledged or subjected to any
Encumbrance any of the Company Assets; (e) sold, exchanged, transferred or
otherwise disposed of any of the Company Assets except in the ordinary course of
business, or canceled any debts or claims; (f) written down the value of any
Company Assets or written off as uncollectible any accounts receivable of the
Company, except write downs and write offs in the ordinary course of business,
none of which, individually or in the aggregate, are material; (g) entered into
any transactions other than in the ordinary course of business; (h) made any
change in any method of accounting or accounting practice; or (i) made any
agreement to do any of the foregoing.
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SECTION 3.8. OWNERSHIP AND CONDITION OF THE ASSETS.
The Company is the sole and exclusive legal and equitable
owner of and has good and marketable title to the Company Assets and, except as
set forth in Schedule 3.8, such Company Assets are free and clear of all
Encumbrances. No person or Government Entity has an option to purchase, right of
first refusal or other similar right with respect to all or any part of the
Company Assets. Schedule 3.8 contains a complete description of all material
items of Personal Property. All of the Personal Property is in good working
order and repair, ordinary wear and tear excepted, and is suitable and adequate
for the uses for which it is intended or is being used.
SECTION 3.9. SYSTEM AGREEMENTS.
Other than agreements with individual subscribers to the
System which are all entered into pursuant to the standard form subscriber
agreement for the System, Schedule 3.9 lists all agreements to which the Company
is a party or by which the Company is bound, and the Company has delivered to
Acquiror true and correct copies of all such agreements. Each such agreement is
in full force and effect and constitutes a legal, valid and binding obligation
of, and is legally enforceable against, the respective parties thereto. All
necessary governmental approvals with respect thereto have been obtained, all
necessary filings or registrations therefor have been made, and there have been
no threatened cancellations thereof and are no outstanding disputes thereunder.
The Company has in all material respects performed all the obligations
thereunder required to be performed by the Company to date. No party is in
default in any material respect under any of the agreements described in
Schedule 3.9, and there has not occurred any event which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute such a default. Except for the Headend Lease (as defined in
Section 9.1), there are no leases or other agreements under which the Company is
lessee or lessor of any Company Asset, or holds, manages or operates any Company
Asset owned by any third party, or under which any Company Asset owned by the
Company is held, operated or managed by a third party.
SECTION 3.10. REAL PROPERTY.
Schedule 3.10 contains a list and brief description of all
leasehold interests in real estate, easements, rights to access and other
rights-of-way (a) for access to and use of headend and hub sites, (b) for
railroad and interstate highway crossing licenses and permits and (c) under, if
any, franchises, pole attachment agreements, and commercial and bulk billing
agreements (collectively, the "Rights-of-Way"). Except for the Rights-of-Way,
there are no other real property interests which are owned, leased, used or held
for use by the Company other than the office,
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<PAGE> 20
tower and land comprising the headend site of the System (the "Headend Site")
which shall be leased to Acquiror by the Stockholder pursuant to Section 9.1(i).
The Rights-of-Way described in Schedule 3.10 and the Headend Site constitute all
real property interests necessary to conduct the business and operations of the
Company as now conducted. Except for the Rights-of-Way and the Headend Site, the
Company is not aware of any easement or other real property interest, that is
required, or that has been asserted by a Government Entity or other person to be
required, to conduct the business and operations of the Company. The Company has
delivered to Acquiror true and complete copies of all deeds, leases, easements,
rights-of-way and other instruments pertaining to the Rights-of-Way and the
Headend Site (including any and all amendments and other modifications of such
instruments). All Rights-of-Way and the Headend Site (including the improvements
thereon) (i) is in good condition and repair consistent with its present use,
(ii) is available to the Company for immediate use in the conduct of the
Company's business and operations, and (iii) complies in all material respects
with all applicable building or zoning codes and in the regulations of any
Government Entity having jurisdiction.
SECTION 3.11. ENVIRONMENTAL MATTERS.
(a) The Company has complied in all material respects and
is in material compliance with all Environmental Laws (as defined below). There
are no pending or, to the knowledge of the Company or the Stockholder,
threatened actions, suits, claims, legal proceedings or other proceedings based
on, and the Company has not directly or indirectly received any notice of any
complaint, order, directive, citation, notice of responsibility, notice of
potential responsibility, or information request from any Government Entity or
any other person arising out of or attributable to: (i) the current or past
presence at any part of the Rights-of-Way or Headend Site of Hazardous Materials
(as defined below) or any substances that pose a hazard to human health or an
impediment to working conditions; (ii) the current or past release or threatened
release into the environment from the Rights-of-Way or Headend Site (including,
without limitation, into any storm drain, sewer, septic system or publicly owned
treatment works) of any Hazardous Materials or any substances that pose a hazard
to human health or an impediment to working conditions; (iii) the off-site
disposal of Hazardous Materials originating on or from the Rights-of-Way or
Headend Site; (iv) any facility operations or procedures of the System which do
not conform to requirements of the Environmental Laws; or (v) any violation of
Environmental Laws at any part of the Rights-of-Way or Headend Site or otherwise
arising from the Company's activities involving Hazardous Materials.
(b) The Company has been duly issued, and currently has
and will maintain through the Effective Time, all permits, licenses,
certificates and approvals required to be maintained by the Company under any
Environmental
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<PAGE> 21
Law with respect to the use or ownership of the Rights-of-Way or Headend Site by
the Company. A true and complete list of such permits, licenses, certificates
and approvals, all of which are valid and in full force and effect, is set out
in Schedule 3.11. Except in accordance with such permits, licenses, certificates
and approvals, there has been no discharge of any Hazardous Materials or any
other material regulated by such permits, licenses, certificates or approvals.
(c) To the knowledge of the Company and the Stockholder,
neither the Rights-of-Way nor the Headend Site contains any underground storage
tanks, or underground piping associated with such tanks, used currently or in
the past for Hazardous Materials.
(d) As used herein, these terms shall have the following
meanings:
(i) "Environmental Laws" means all applicable
foreign, federal, state and local laws (including the common law), rules,
requirements and regulations relating to pollution, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or protection of human health as it relates to the
environment including, without limitation, laws and regulations relating to
releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials or relating to management of asbestos in
buildings.
(ii) "Hazardous Materials" means wastes,
substances, or materials (whether solids, liquids or gases) that are deemed
hazardous, toxic, pollutants, or contaminants, including without limitation,
substances defined as "hazardous substances", "toxic substances", "radioactive
materials", or other similar designations in, or otherwise subject to regulation
under, any Environmental Laws.
SECTION 3.12. LITIGATION.
There is no action, suit, investigation, claim, arbitration or
litigation pending or, to the knowledge of the Company and the Stockholder,
threatened against or involving the Company, the Company Assets, the System or
the business and operations of the Company, at law or in equity, or before or by
any court, arbitrator or Government Entity. The Company is not operating under
or subject to any judgment, writ, order, injunction, award or decree of any
court, judge, justice or magistrate, including any bankruptcy court or judge, or
any order of or by any Government Entity.
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<PAGE> 22
SECTION 3.13. COMPLIANCE WITH LAWS.
(a) No rate complaints applicable to the System have been
filed with the Federal Communications Commission (the "FCC") on Form 329 and
there have been no certification requests filed with the FCC on Form 328 by any
communities served by the System. The Company is authorized under all applicable
franchises and FCC rules, regulations and orders to distribute the transmissions
(whether television, satellite, radio or otherwise) of video programming or
other information that the Company makes available to subscribers of the System
and to utilize all carrier frequencies generated by the operations of the
System, and is licensed to operate all of the facilities required under
applicable Laws to be licensed, including, without limitation, any business
radio and any cable television relay service system being operated as part of
the System. No written requests have been issued with respect to the System
during the three (3) years preceding the date of this Agreement from the FCC,
the United States Copyright Office or any other person challenging or
questioning the right to operate the System or any FCC-licensed or registered
facility used in conjunction with the operation of the System, or challenging or
questioning the System's compulsory copyright license or any payments made
pursuant thereto. The Company's operation of the System, and of any FCC-licensed
or registered facility used in conjunction with the Company's operation of the
System, are in compliance in all material respects with the FCC's rules and
regulations and the provisions of the Communications Act of 1934, as amended
(the "Communications Act"). The Company has not violated any Laws or any duty or
obligation with regard to protecting the privacy rights of any past or present
subscribers of the System.
(b) All system tests and all Cumulative Leakage Index
("CLI") related tests required to be conducted under Laws applicable to the
System have been conducted in accordance with such Laws. The Company has (i)
maintained appropriate log books and other record keeping which accurately and
completely reflect in all material respects all results required under FCC rules
and regulations to be shown thereon; (ii) to the extent required by the rules
and regulations of the FCC, corrected any radiation leakage of the System
required to be corrected in connection with monitoring obligations under the
rules and regulations of the FCC, and (iii) otherwise complied in all material
respects with all applicable CLI rules and regulations in connection with the
operation of the System.
(c) All of the broadcast television signals carried by
the System are carried either pursuant to the must-carry requirements or
pursuant to executed retransmission consent agreements, except for
"superstations" that were "superstations" on May 1, 1991, and are distributed by
satellite carrier.
(d) The Company is in compliance in all material respects
with all Laws applicable to the business and operations of the Company. Without
limiting
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<PAGE> 23
the foregoing, the Company's operation of the System has not violated in any
material respect and does not violate in any material respect Title VI of the
Communications Act, and all other provisions of the Cable Communications Policy
Act of 1984, and the Cable Television Consumer Protection and Competition Act of
1992, as such statutes may be amended from time to time (the "Cable Act"). The
Company has delivered to Acquiror complete and correct copies of all reports and
filings for the past three (3) years made or filed pursuant to the Cable Act,
the Communications Act or FCC rules or regulations with respect to the operation
of the System, including, without limitation, FCC Forms 159 (Remittance Advice),
159C, 393, 1200, 1205, 1210, 1215, 1220, 1225 and 1230, copies of correspondence
with any Government Entity relating to rate regulation or general or specific
rates charged to subscribers of the System including, without limitation, copies
of any requests for certification to regulate rates on FCC Form 328 or any
complaints on FCC Form 329 filed with the FCC with respect to rates charged to
subscribers and any documentation supporting an exemption from the rate
regulation provisions of the Cable Act. The Company has provided Acquiror with
true and complete copies of all requests for franchise renewal which have been
filed since 1992 with any Government Entity with respect to the System.
(e) Other than the Radio Station License (File Number
9404123586), there are no other licenses, permits and other authorizations
issued by the FCC to the Company (the "FCC Licenses") that are currently used in
the business and operations of the System.
SECTION 3.14. COPYRIGHT AND TRADEMARK.
The System is in compliance in all material respects with
Section 111 of the Copyright Act of 1976 and all rules of the United States
Copyright Office relative to the compulsory copyright license with respect to
the operation of the System. All notices, reports and statements of account
required to be filed, and all royalty fees and other amounts required to be
deposited, in each case with the United States Copyright Office, the Register of
Copyrights and the Copyright Royalty Tribunal, in connection with the ownership
and operation of the System have been duly filed or deposited, as the case may
be, and all such notices, reports and statements of account are accurate and
complete in all material respects. No other rights under any patents,
inventions, copyrights, trademarks, trade names, service marks or licenses are
required by the Company in connection with the operation of the System as it now
is conducted, and the Company does not have any knowledge nor has the Company
received any notice to the effect that any service relating to the business of
the System may infringe on any patent, invention, copyright, trademark, trade
name, service mark, license or other legally protectible right of another.
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<PAGE> 24
SECTION 3.15 FRANCHISES.
(a) Schedule 3.15 contains a complete list and
description (including dates of expiration) of all franchises, together with all
amendments thereto, required to operate and carry on the cable television
business of the System. The Company is not a party to or has any interest in any
franchise other than those described on Schedule 3.15. Said franchises are valid
and in full force and effect, without restriction other than those contained
therein, and no notice of cancellation, default or dispute has been received by
or is known to the Company or the Stockholder. The Company is in compliance with
the requirements of each of said franchises in all material respects. There are
no requirements under the franchises or any of the other licenses compliance
with which would necessitate additional capital expenditures by the holders of
said franchises or licenses. Except as set forth in Schedule 3.15, the System is
the only cable television system presently serving the areas covered by such
franchises and, to the knowledge of the Company and the Stockholder, no other
cable television system is presently contemplated by any person in the area now
served by the System. No cable television franchises other than those listed on
Schedule 3.15 have been issued with respect to the areas served by the System.
(b) The Company has provided to Acquiror true and
complete copies of Resolution Number 92-7 of the City of Panama City Beach,
Florida, and License dated January 5, 1993, issued by the Board of County
Commissioners of Bay County, Florida (collectively, the "Franchise Agreements"),
which constitute all of the ordinances, agreements and documents, together with
all amendments and modifications thereto, authorizing or governing the
construction maintenance and operation of the System. Each of the Franchise
Agreements is in full force and effect, and constitutes a valid and binding
obligation of, and is legally enforceable in accordance with its terms against,
the parties thereto. Except as set forth in Schedule 3.15, the Company has
complied in all material respects with all provisions of the Franchise
Agreements and is not in default in any material respect thereunder, and there
has not occurred any event which (whether with or without notice, lapse of time,
or the happening or occurrence of any other event) would constitute a default.
SECTION 3.16. SYSTEM INFORMATION.
(a) Schedule 3.16 sets forth the following complete, true
and correct information in all material respects as of the date of this
Agreement with respect to the System: (i) a description of the basic and tier
services available from the System, the rates charged by the Company for each,
together with any other charges by the Company for services to subscribers; (ii)
rental payments under current real property and personal property lease
obligations; (iii) pole attachment rentals; (iv) personal property taxes payable
with respect to the Assets; (v) the
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<PAGE> 25
signals carried on the System; (vi) approximate number of miles of activated
aerial and underground plant in the System and approximate number of dwelling
units passed; (vii) agreements with or commitments or obligations to subscribers
for free service or service with rates departing from the System's standard rate
schedule; (viii) listing and description of all performance bonds maintained by
the Company with respect to the System; (ix) the channel and megahertz capacity
of the System, the stations and programming services carried by the System, the
channel position of each such station and service, and all aeronautical
frequencies used by the System; (x) Federal Aviation Administration tower
clearances and approvals; and (xi) the number of Basic Subscribers.
(b) The System and the Company Assets meet the technical
standards of Part 76, Subpart K, of the rules and regulations of the FCC in all
material respects. Schedule 3.16 sets forth a complete, true and correct
description of the cable network system of the Company. The Company has provided
to Acquiror and its representatives access to the blue prints, schematics,
as-built drawings and engineering records maintained with respect to the System.
SECTION 3.17. TAXES AND ASSESSMENTS.
The Company has (i) duly and timely paid all Taxes which have
become due and payable by it (subject to the right of the Company to contest any
such Taxes); (ii) the Company has received no notice of, nor does the Company
have any knowledge of, any notice of deficiency or assessment or proposed
deficiency or assessment from any taxing Government Entity; and (iii) to the
Company's knowledge, there are no audits pending and there are no outstanding
agreements or waivers by the Company that extend the statutory period of
limitations applicable to any federal, state, local, or foreign tax returns or
Taxes.
SECTION 3.18. EMPLOYMENT MATTERS.
(a) Neither the Company nor any Employee Benefit Plan (as
such term is defined in ERISA) maintained by the Company or to which the Company
has or has had the obligation to contribute in respect of any Company employees
is in violation of any provisions of Law; no reportable event, within the
meaning of ERISA, Section 4043(c)(1), (2), (3), (5), (6), (7) or (10), has
occurred and is continuing with respect to any such Employee Benefit Plan and no
prohibited transaction, within the meaning of Title I of ERISA, has occurred
with respect to any such Employee Benefit Plan. No Employee Benefit Plan
maintained by the Company is a Multiemployer Plan (as such term is defined in
ERISA), is subject to Title IV of ERISA or provides post-retirement medical,
life insurance or other benefits except to the extent required to comply with
the health care continuation coverage requirements of ERISA and the Code.
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<PAGE> 26
(b) There are no collective bargaining agreements
applicable to any Company employees and the Company has no duty to bargain with
any labor organization with respect to any such persons. There is not pending
any demand for recognition or any other request or demand from a labor
organization for representative status with respect to any persons employed by
the Company.
(c) Schedule 3.18 contains a true and complete list of
names, positions and rates of compensation of all employees of the Company. With
respect to any persons employed by the Company, the Company is in compliance
with all Laws respecting employment conditions and practices, has withheld all
amounts required by any applicable Laws to be withheld from wages or any Taxes
or penalties for failure to comply with any of the foregoing.
(d) With respect to any persons employed by the Company,
(i) the Company has not engaged in any unfair labor practice within the meaning
of the National Labor Relations Act and has not violated any legal requirement
prohibiting discrimination on the basis of race, color, national origin, sex,
religion, age, marital status, or handicap in its employment conditions or
practices; and (ii) there are no pending or, to the knowledge of the Company and
the Stockholder, threatened unfair labor practice charges or discrimination
complaints relating to race, color, national origin, sex, religion, age, marital
status, or handicap against the Company before any Government Entity nor, to the
knowledge of the Company and the Stockholder, does any basis therefor exist.
SECTION 3.19. TRANSACTIONS WITH RELATED PARTIES.
Except as set forth in Schedule 3.19, neither any present or
former officer, director, stockholder or person known by the Company or the
Stockholder to be an affiliate of the Company, nor any person known by the
Company or the Stockholder to be an affiliate of any such person, is currently a
party to any transaction or agreement with the Company, including, without
limitation, any agreement providing for the employment of, furnishing of
services by, rental of Company Assets from or to, or otherwise requiring
payments to, any such officer, director, stockholder or affiliate.
SECTION 3.20. INSURANCE.
The Company has made available to Acquiror copies of all
policies of title, property, fire, casualty, liability, life, workmen's
compensation, libel and slander, and other forms of insurance of any kind
relating to the Company Assets, the System or the business and operations of the
Company. All such policies: (a) are in full force and effect and enforceable;
and (b) are sufficient for compliance by the Company with all requirements of
applicable Law and of all licenses, franchises and other agreements to which the
Company is a party other than the
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<PAGE> 27
License Agreement with Bell South Telecommunications, Inc. d/b/a Southern Bell
Telephone and Telegraph ("Bell South").
SECTION 3.21. NET WORKING CAPITAL.
The net working capital of the Company as calculated in
accordance with the unaudited balance sheet of the Company as of October 31,
1997 shall not be less than negative $185,000 as of the Closing Date.
SECTION 3.22. BROKERS.
Except for J.A. Davis and United Telesystems, Inc. (the
"Broker") (whose compensation is solely the obligation of the Stockholder), no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company or the
Stockholder.
SECTION 3.23. DISCLOSURE.
No representations or warranties by the Company or the
Stockholder in this Agreement and no statement or information contained in the
Schedules hereto or any certificate furnished or to be furnished by the Company
or the Stockholder to Acquiror pursuant to the provisions of this Agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in light of the circumstances
under which it was made, in order to make the statements herein or therein not
misleading.
SECTION 3.24. POOLING OF INTERESTS.
Neither the Company nor the Stockholder nor, to the knowledge
of the Company or the Stockholder, any of the directors or officers of the
Company has taken any action which would interfere with Acquiror's ability to
account for the Merger as a pooling of interests under generally accepted
accounting principles.
SECTION 3.25. PROGRAMMING CONTRACTS.
Other than any programming contract or similar agreement with
The Disney Channel (the "Disney Contract"), the Company has paid and is paying
the programming rate currently in effect on all of the programming contracts to
which the Company is a party (the "Programming Contracts").
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ARTICLE IV
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
In addition to the representations and warranties made by the
Stockholder in Article III hereof, the Stockholder hereby represents and
warrants to Acquiror and Merger Sub as follows:
SECTION 4.1. TITLE TO COMPANY COMMON STOCK.
The Stockholder is and as of the Effective Time will be the
sole legal, beneficial and record owner of all of the issued and outstanding
shares of capital stock of the Company.
SECTION 4.2. AUTHORITY AND CAPACITY.
The Stockholder has full legal right, capacity, power and
authority to execute and deliver this Agreement and all other documents,
instruments, certificates and agreements executed or to be executed by the
Stockholder pursuant hereto, and to consummate the transactions contemplated
hereby and thereby.
SECTION 4.3. ABSENCE OF VIOLATION.
The execution, delivery and performance by the Stockholder of
this Agreement and all other documents, instruments, certificates and agreements
contemplated hereby to which the Stockholder is a party, the fulfillment of and
the compliance with the respective terms and provisions hereof and thereof, and
the consummation of the transactions contemplated hereby and thereby, do not and
will not (a) conflict with, or violate any provision of, any Laws having
applicability to the Stockholder; or (b) conflict with, or result in any breach
of, or constitute a default under, any agreement to which the Stockholder is a
party.
SECTION 4.4. RESTRICTIONS AND CONSENTS.
There are no agreements, Laws or other restrictions of any
kind to which the Stockholder is party or subject that would prevent or restrict
the execution, delivery or performance of this Agreement by the Stockholder.
SECTION 4.5. BINDING OBLIGATION.
This Agreement constitutes, and each document, instrument,
certificate and agreement to be executed by the Stockholder pursuant hereto,
when
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executed and delivered in accordance with the provisions hereof, shall
constitute, a valid and binding obligation of the Stockholder, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general applicability relating to or affecting creditors' rights generally and
by the application of general principles of equity.
SECTION 4.6. NO REGISTRATION UNDER THE SECURITIES ACT.
The Stockholder understands that the shares of Acquiror
Preferred Stock to be issued to the Stockholder under this Agreement have not
been and will not be registered under the Securities Act of 1933, as amended
(the "Securities Act"), in reliance upon exemptions contained in the Securities
Act or interpretations thereof, and cannot be offered for sale, sold or
otherwise transferred unless such shares of Acquiror Preferred Stock are so
registered or qualify for exemption from registration under the Securities Act.
SECTION 4.7. ACQUISITION FOR INVESTMENT.
The shares of Acquiror Preferred Stock being issued to the
Stockholder pursuant to this Agreement are being acquired by the Stockholder in
good faith solely for his own account, for investment and not with a view toward
resale or other distribution within the meaning of the Securities Act. Such
shares will not be offered for sale, sold or otherwise transferred by the
Stockholder without either registration or exemption from registration under the
Securities Act.
SECTION 4.8. EVALUATION OF MERITS AND RISKS OF INVESTMENT.
The Stockholder has such knowledge and experience in financial
and business matters that the Stockholder is capable of evaluating the merits
and risks of the Stockholder's investment in the shares of Acquiror Preferred
Stock being acquired hereunder. The Stockholder understands and is able to bear
any economic risks associated with such investment (including, without
limitation, the necessity of holding such shares for an indefinite period of
time, inasmuch as the shares have not been registered under the Securities Act).
The Stockholder is an "accredited investor", as that term is defined in
Regulation D promulgated under the Securities Act. The Stockholder confirms that
Acquiror has made available to the Stockholder and its representatives and
agents the opportunity to ask questions of the officers and management employees
of Acquiror about the business and financial condition of Acquiror as the
Stockholder has requested.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company and the
Stockholder as follows:
SECTION 5.1. ORGANIZATION AND QUALIFICATION.
Acquiror is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Acquiror has the
requisite power and authority to own, lease and operate the Acquiror Assets, to
carry on its business as now being conducted and to perform the terms of this
Agreement and the transactions contemplated hereby. Acquiror is duly qualified
to conduct its business, and is in good standing, in each jurisdiction where the
ownership or leasing of the Acquiror Assets or the nature of its activities in
connection with the conduct of its business makes such qualification necessary.
SECTION 5.2. CERTIFICATE OF INCORPORATION AND BYLAWS.
Acquiror has heretofore delivered to the Company a complete
and correct copy of the certificate of incorporation and the bylaws of Acquiror,
each as amended to date. Such certificate of incorporation and bylaws are in
full force and effect. Acquiror is not in violation of any of the provisions of
its certificate of incorporation or bylaws or other organizational or governing
document.
SECTION 5.3. CAPITALIZATION.
The authorized capital stock of Acquiror consists of: (i) two
hundred thousand (200,000) shares of common stock, par value $.01 per share, of
which no shares are issued and outstanding; and (ii) one hundred thousand
(100,000) shares of Acquiror Preferred Stock, of which forty-seven thousand five
hundred (47,500) shares are issued and outstanding. Except as set forth in
Schedule 5.3, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of Acquiror or obligating Acquiror to issue or sell any shares of
capital stock of, or other equity interests in Acquiror, including any
securities directly or indirectly convertible into or exercisable or
exchangeable for any capital stock or other equity securities of Acquiror.
Except as set forth in Schedule 5.3, there are no outstanding obligations of
Acquiror to repurchase, redeem or otherwise acquire any shares of its capital
stock or make any investment (in the form of a loan, capital contribution or
otherwise) in any other person.
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SECTION 5.4. AUTHORITY.
The execution and delivery of this Agreement by Acquiror and
the consummation by Acquiror of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Acquiror are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Acquiror and, assuming the due
authorization, execution and delivery by the Company and the Stockholder,
constitutes a legal, valid and binding obligation of Acquiror, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general applicability relating to or affecting creditors' rights generally and
by the application of general principles of equity.
SECTION 5.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in Schedule 5.5, the execution
and delivery of this Agreement by Acquiror do not, and the performance by
Acquiror of its obligations under this Agreement will not, (i) conflict with or
violate the certificate of incorporation or bylaws of Acquiror, (ii) conflict
with or violate any Law applicable to Acquiror or the Acquiror Assets, or (iii)
result in any breach of or constitute a default under any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Acquiror is a party or by which Acquiror is
bound, or by which any of the Acquiror Assets is subject.
(b) Except as set forth in Schedule 5.5, the execution
and delivery of this Agreement by Acquiror does not, and the performance of this
Agreement by Acquiror will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Government Entity, except for
the filing and recordation of appropriate merger documents as required by
Florida Law and Delaware Law.
SECTION 5.6. FINANCIAL STATEMENTS.
Acquiror has prepared and furnished to the Company (a) the
audited balance sheet of Acquiror as of the end of the fiscal year ending
December 31, 1996, and the audited statement of income and cash flows for such
fiscal year and (b) the unaudited balance sheet of Acquiror as of October 31,
1997, and the unaudited statement of income and cash flows for the nine months
then ended. The financial statements referred to in this Section 5.6 and the
financial statements of Acquiror provided to the Company pursuant to this
Agreement present fairly, in all material respects, the financial condition of
Acquiror as of the respective dates and the results of operations and cash flows
for the respective periods indicated and have been prepared in accordance with
generally accepted accounting principles applied
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on a consistent basis (except that such unaudited statements do not contain all
required footnotes and are subject to normal recurring year-end adjustments).
Except as reflected in the unaudited balance sheet of Acquiror as of October 31,
1997 (the "Acquiror Balance Sheet Date"), Acquiror has no liabilities,
contingent or absolute, matured or unmatured, known or unknown, except for
liabilities incurred in the ordinary course of business since the Acquiror
Balance Sheet Date that would not have an Acquiror Material Adverse Effect.
SECTION 5.7. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since the Acquiror Balance Sheet Date, there has been no
Acquiror Material Adverse Effect. Since the Acquiror Balance Sheet Date and
except for the Acquiror Financing Transactions, Acquiror has conducted its
business in the ordinary course, and Acquiror has not (a) paid any dividend or
distribution in respect of, or redeemed or repurchased any of, its capital
stock; (b) incurred loss of, or significant injury to, any of the Acquiror
Assets, whether as the result of any natural disaster, labor trouble, accident,
other casualty, or otherwise; (c) incurred, or become subject to, any obligation
or liability (absolute or contingent, matured or unmatured, known or unknown),
except current liabilities incurred in the ordinary course of business; (d)
mortgaged, pledged or subjected to any Encumbrance any of the Acquiror Assets;
(e) sold, exchanged, transferred or otherwise disposed of any of the Acquiror
Assets except in the ordinary course of business, or canceled any debts or
claims; (f) written down the value of any Acquiror Assets or written off as
uncollectible any accounts receivable of Acquiror, except write downs and write
offs in the ordinary course of business, none of which, individually or in the
aggregate, are material; (g) entered into any transactions other than in the
ordinary course of business; (h) made any change in any method of accounting or
accounting practice; or (i) made any agreement to do any of the foregoing.
SECTION 5.8. LITIGATION.
Except as set forth in Schedule 5.8, there is no action, suit,
investigation, claim, arbitration or litigation pending or, to the knowledge of
Acquiror, threatened against or involving Acquiror, the Acquiror Assets or the
business and operations of Acquiror, at law or in equity, or before or by any
court, arbitrator or Government Entity that would be reasonably likely to have
an Acquiror Material Adverse Effect. Acquiror is not operating under or subject
to any judgment, writ, order, injunction, award or decree of any court, judge,
justice or magistrate, including any bankruptcy court or judge, or any order of
or by any Government Entity that would be reasonably likely to have an Acquiror
Material Adverse Effect.
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SECTION 5.9. TAXES AND ASSESSMENTS.
Acquiror has (i) duly and timely paid all Taxes which have
become due and payable by it (subject to the right of Acquiror to contest any
such Taxes); (ii) Acquiror has received no notice of, nor does Acquiror have any
knowledge of, any notice of deficiency or assessment or proposed deficiency or
assessment from any taxing Government Entity that would be reasonably likely to
have an Acquiror Material Adverse Effect; and (iii) to Acquiror's knowledge,
there are no audits pending and there are no outstanding agreements or waivers
by Acquiror that extend the statutory period of limitations applicable to any
federal, state, local, or foreign tax returns or Taxes.
SECTION 5.10. BROKERS.
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Acquiror.
SECTION 5.11. DISCLOSURE.
No representations or warranties by Acquiror in this Agreement
and no statement or information contained in the Schedules hereto or any
certificate furnished or to be furnished by Acquiror to the Company pursuant to
the provisions of this Agreement, contains or will contain any untrue statement
of a material fact or omits or will omit to state any material fact necessary,
in light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
SECTION 5.12. PRIVATE PLACEMENT MEMORANDUM.
No statement or information contained in that certain Private
Placement Memorandum of Acquiror (the "Private Placement Memorandum") dated
October 3, 1997 (a copy of which has been provided to the Company and the
Stockholder), contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary, in light of the
circumstances under which it was made, in order to make the statements herein or
therein not misleading. The Private Placement Memorandum discloses information
regarding (a) the cable television systems owned and operated by Acquiror,
including (i) a description of the services available from the cable television
systems, (ii) the number of subscribers to the cable television systems, (iii)
approximate number of miles of activated aerial and underground plant in the
cable television systems and approximate number of dwelling units passed, and
(iv) the channel and megahertz capacity of the cable television systems; (b) the
Acquiror Assets including (i) the
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ownership and good operating condition of the Acquiror Assets, and (ii) the
suitability of the Acquiror Assets for the business and operations of Acquiror;
(c) the real property interests which are owned, leased, used or held for use by
Acquiror in the business and operations of Acquiror as now conducted; (d) the
absence of any material breach or default by Acquiror of any agreements to which
Acquiror is a party or by which Acquiror is bound; (e) the business, operations
and conduct of Acquiror; and (f) the licenses, certificates, franchises,
permits, contracts and agreements of Acquiror necessary for the business and
operations of Acquiror, and the absence of any material breach or default by
Acquiror thereunder.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF MERGER SUB
Acquiror and Merger Sub jointly and severally represent and
warrant to the Company as follows:
SECTION 6.1. ORGANIZATION AND QUALIFICATION.
Merger Sub is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Merger Sub was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement. As of the date of this Agreement, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement, Merger Sub has not incurred,
directly or indirectly, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
SECTION 6.2. CERTIFICATE OF INCORPORATION AND BYLAWS.
Merger Sub has heretofore made available to the Company a
complete and correct copy of the certificate of incorporation and the bylaws of
Merger Sub, each as amended to date. Such certificate of incorporation and
bylaws are in full force and effect. Merger Sub is not in violation of any of
the provisions of its certificate of incorporation or bylaws or other
organizational or governing document.
SECTION 6.3. AUTHORITY.
Merger Sub has the necessary corporate power and authority to
enter into this Agreement, to perform its obligations hereunder and to
consummate the
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transactions contemplated hereby. The execution and delivery of this Agreement
by Merger Sub and the consummation by Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Merger Sub
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Merger Sub and, assuming the due authorization, execution and delivery by the
Company, the Stockholder and Acquiror, constitutes a legal, valid and binding
obligation of Merger Sub, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity.
SECTION 6.4. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in Schedule 6.4, the execution
and delivery of this Agreement by Merger Sub do not, and the performance by
Merger Sub of its obligations under this Agreement will not, (i) conflict with
or violate the certificate of incorporation or bylaws of Merger Sub, (ii)
conflict with or violate any Law applicable to Merger Sub or its assets and
properties, or (iii) result in any breach of or constitute a default under any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Merger Sub is a party or by
which Merger Sub is bound, or by which any of its properties or assets is
subject.
(b) Except as set forth in Schedule 6.4, the execution
and delivery of this Agreement by Merger Sub does not, and the performance of
this Agreement by Merger Sub will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any Government
Entity, except for the filing and recordation of appropriate merger documents as
required by Florida Law and Delaware Law.
SECTION 6.5. DISCLOSURE.
No representations or warranties by Merger Sub in this
Agreement and no statement or information contained in the Schedules hereto or
any certificate furnished or to be furnished by Merger Sub to the Company
pursuant to the provisions of this Agreement, contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary, in light of the circumstances under which it was made, in order
to make the statements herein or therein not misleading.
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ARTICLE VII
COVENANTS
SECTION 7.1. AFFIRMATIVE COVENANTS OF THE COMPANY.
The Company and the Stockholder hereby covenant and agree
that, prior to the Effective Time, unless otherwise expressly contemplated by
this Agreement or consented to in writing by Acquiror, the Company shall (a)
operate its business in the usual and ordinary course consistent with past
practices and in accordance with applicable Laws; (b) preserve substantially
intact its business organization, maintain its rights and franchises, use its
best efforts to retain the services of its respective principal officers and key
employees and maintain its relationship with its respective suppliers,
contractors, distributors, customers and others having business relationships
with it; (c) maintain and keep its properties and assets in as good repair and
condition as at present, ordinary wear and tear excepted; and (d) keep in full
force and effect insurance comparable in amount and scope of coverage to that
currently maintained.
SECTION 7.2. NEGATIVE COVENANTS OF THE COMPANY.
Except as expressly contemplated by this Agreement or
otherwise consented to in writing by Acquiror, from the date hereof until the
Effective Time, the Company shall not, and the Stockholder shall cause the
Company not to, do any of the following:
(a) (i) increase the compensation payable to or to become
payable to any of its directors, officers or employees, except for increases in
salary, wages or bonuses payable or to become payable in the ordinary course of
business and consistent with past practice; (ii) grant any severance or
termination pay to, or enter into or modify any employment or severance
agreement with, any of its directors, officers or employees; or (iii) adopt or
amend any employee benefit plan or arrangement, except as may be required by
applicable Law;
(b) declare, set aside or pay any dividend on, or make
any other distribution in respect of, any of its capital stock;
(c) (i) redeem, repurchase or otherwise reacquire any
share of its capital stock or any securities or obligations convertible into or
exchangeable for any share of its capital stock, or any options, warrants or
conversion or other rights to acquire any shares of its capital stock or any
such securities or obligations; (ii) effect any reorganization or
recapitalization; or (iii) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other securities in respect
of, in lieu of, or in substitution for, shares of its capital stock;
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(d) (i) issue, deliver, award, grant or sell, or
authorize or propose the issuance, delivery, award, grant or sale (including the
grant of any Encumbrances) of, any shares of any class of its capital stock
(including shares held in treasury) or other equity securities, any securities
or obligations directly or indirectly convertible into or exercisable or
exchangeable for any such shares, or any rights, warrants or options to acquire,
any such shares or securities or any rights, warrants or options directly or
indirectly to acquire any such shares or securities; or (ii) amend or otherwise
modify the terms of any such securities, obligations, rights, warrants or
options in a manner inconsistent with the provisions of this Agreement or the
effect of which shall be to make such terms more favorable to the holders
thereof;
(e) acquire or agree to acquire, by merging or
consolidating with, by purchasing an equity interest in or a portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets of any other person (other than the
purchase of inventory in the ordinary course of business and consistent with
past practice), or make or commit to make any capital expenditures other than
(i) capital expenditures in the ordinary course of business consistent with past
practice and (ii) capital costs described in Section 8.7;
(f) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its assets except for dispositions of
inventory in the ordinary course of business and consistent with past practice
other than the Headend Lease described in Section 9.1(i);
(g) propose or adopt any amendments to its certificate of
incorporation or bylaws;
(h) (i) change any of its methods of accounting in effect
at January 1, 1997, or (ii) make or rescind any express or deemed election
relating to taxes, settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to taxes,
or change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the federal income
tax returns for the taxable year ending December 31, 1997, except, in the case
of clause (i) or clause (ii), as may be required by law or generally accepted
accounting principles, consistently applied;
(i) (i) prepay, before the scheduled maturity thereof,
any of its long-term debt, or incur any obligation for borrowed money, whether
or not evidenced by a note, bond, debenture or similar instrument, other than
trade payables incurred in the ordinary course of business consistent with past
practices, or (ii) pay any portion of the Closing Indebtedness;
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(j) enter into or modify in any material respect any
agreement which, if in effect as of the date hereof, would have been required to
be disclosed on Schedule 3.10;
(k) take any action that would or could reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being untrue or in any of the conditions to the Merger set forth
in Article IX not being satisfied; or
(l) agree in writing or otherwise to do any of the
foregoing.
ARTICLE VIII
ADDITIONAL AGREEMENTS
SECTION 8.1. CONSENTS AND APPROVALS; FILINGS AND NOTICES.
The Company and the Stockholder shall use reasonable efforts
to as promptly as possible make all filings with, provide all notices to and
obtain all consents and approvals from third parties required to be obtained by
the Company in connection with the transactions contemplated hereunder,
including, without limitation, all filings with, notices to and consents and
approvals from the FCC, Government Entities and other persons.
SECTION 8.2. ACCESS AND INFORMATION.
From the date hereof to the Effective Time, the Company shall
afford to Acquiror and its officers, employees, accountants, consultants, legal
counsel, representatives of current and prospective sources of financing for the
Merger and other representatives of Acquiror full and complete access during
normal business hours to the properties, books, records, contracts, facilities,
premises, and equipment relating to the Company Assets, the System and the
Company (including without limitation, operating and financial information with
respect to the System) as Acquiror may reasonably request.
SECTION 8.3. CONFIDENTIALITY.
Each party shall hold in strict confidence all documents and
information concerning the other and its business and properties (except that
either party may disclose such documents and information to any Government
Entity reviewing the transactions contemplated hereby or as required in either
party's judgment pursuant to any legal requirement or in furtherance of the
transactions contemplated herein), and if the transaction contemplated hereby
should not be
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consummated, such confidence shall be maintained, and all such documents and
information (in whatever form) and copies thereof shall immediately thereafter
be destroyed, or returned to the party originally furnishing same.
SECTION 8.4. FURTHER ACTION; REASONABLE BEST EFFORTS.
Each of the parties shall use reasonable best efforts to take,
or cause to be taken, all appropriate action, and do, or cause to be done, all
things necessary, proper or advisable under applicable Laws or otherwise to
consummate and make effective the transactions contemplated by this Agreement as
promptly as practicable, including, without limitation, using its reasonable
best efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Government Entities and parties to
contracts with the Company and Acquiror as are necessary for the transactions
contemplated herein.
SECTION 8.5. PUBLIC ANNOUNCEMENTS.
Each of the Stockholders, Acquiror and the Company shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Merger and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by Law or as disclosed in the Private Placement Memorandum.
SECTION 8.6. NO SOLICITATION.
During the term of this Agreement, neither the Company, the
Stockholder nor any of its affiliates or any person acting on behalf of such
party shall (a) solicit or favorably respond to indications of interest from, or
enter into negotiations with, any third party for any proposed merger,
consolidation, sale or acquisition of the Company, the Company Assets or any
capital stock of the Company or (b) furnish or cause to be furnished any
nonpublic information concerning the System to any person other than in the
ordinary course of business or pursuant to applicable Law and after prior
written notice to Acquiror.
SECTION 8.7. SERVICE AGREEMENTS.
The parties acknowledge and agree that the Stockholder is also
a twenty-five percent (25%) stockholder of Hilton, Inc., a corporation that owns
and operates several hotels in Bay County, Florida, and that these hotels are
currently under contract with both long distance and local telephone service
carriers. At the expiration of these contracts, the Stockholder and Acquiror
will use their respective best efforts to negotiate telephone service agreements
with such hotels, provided that such agreements are competitive in both price
and service.
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SECTION 8.8. POOLING ACCOUNTING.
Each of Acquiror, the Company and the Stockholder shall use
its best efforts to cause the transactions contemplated by this Agreement to be
accounted for as a pooling of interests in accordance with generally accepted
accounting principles, and each of the parties agrees that it will take no
action, and shall use its best efforts to cause its affiliates to take no
action, that would cause such accounting treatment not to be obtained.
ARTICLE IX
CLOSING CONDITIONS
SECTION 9.1. CONDITIONS TO OBLIGATIONS OF ACQUIROR AND MERGER SUB.
The obligations of Acquiror and Merger Sub to effect the
Merger and the other transactions contemplated in this Agreement are also
subject to the following conditions, any or all of which may be waived, in whole
or in part, to the extent permitted by applicable law:
(a) Representations and Warranties. The representations
and warranties of the Company and the Stockholder made in this Agreement shall
be true and correct in all material respects, on and as of the Effective Time
with the same effect as though such representations and warranties had been made
on and as of the Effective Time (provided that any representation or warranty
contained herein that is qualified by a materiality standard shall not be
further qualified hereby), except for representations and warranties that speak
as of a specific date or time other than the Effective Time (which need only be
true and correct in all material respects as of such date or time). Acquiror
shall have received a certificate of the Stockholder to that effect.
(b) Agreements and Covenants. The agreements and
covenants of the Company and the Stockholder required to be performed on or
before the Effective Time shall have been performed in all material respects.
Acquiror shall have received a certificate of the Stockholder to that effect.
(c) Legal Proceedings. No action or proceeding before any
Government Entity shall have been instituted or threatened (and not subsequently
settled, dismissed, or otherwise terminated) which is reasonably expected to
restrain, prohibit, enjoin or invalidate the Merger or other transactions
contemplated by this Agreement other than an action or proceeding instituted or
threatened by Acquiror or Merger Sub.
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(d) No Company Material Adverse Effect. Since the date of
this Agreement, no Company Material Adverse Effect shall have occurred and be
continuing.
(e) Required Consents. The Company shall have delivered
to Acquiror at or before Closing all consents or notices necessary to be
obtained or made by the Company in connection with the transactions contemplated
by this Agreement, including, without limitation, any required consents and
notices under the Franchise Agreements (including a certificate of completion
from the appropriate Government Entity).
(f) Noncompetition Agreement. The Stockholder shall have
executed and delivered to Acquiror at or before Closing a noncompetition
agreement in substantially the form attached hereto as Exhibit B providing,
among other things, that the Stockholder shall not compete with the business of
Acquiror or the Company for a period of three (3) years after the Effective
Time.
(g) Legal Opinion. Acquiror shall have received an
opinion from Hilton, Hilton, Kolk & Roesch, corporate counsel to the Company and
the Stockholder, in substantially the form attached hereto as Exhibit C.
(h) Stockholders Agreement. The Stockholder shall have
executed and delivered to Acquiror at or before Closing an agreement in
substantially the form attached hereto as Exhibit D pursuant to which the
Stockholder shall agree to be bound by the terms and conditions of Acquiror's
Stockholders' Agreement (a copy of which has been provided to the Stockholder).
(i) Headend Lease. The Stockholder shall have executed
and delivered to Acquiror at or before Closing a triple-net lease agreement in
substantially the form attached hereto as Exhibit E (the "Headend Lease")
pursuant to which, among other things, an affiliate of the Stockholder shall
agree to lease to Acquiror for a term of fifteen (15) years after the Effective
Time, the office, tower and land comprising the headend site of the System for
an aggregate rental of $5,146 per month, with the rental to be adjusted every
five (5) years by an amount equal to any increase in the Consumer Price Index.
(j) Certificate Regarding Number of Subscribers. The
Stockholder shall have executed and delivered to Acquiror at or before Closing a
certificate in substantially the form attached hereto as Exhibit F certifying as
to the number of Basic Subscribers and New Subscribers of the System as of the
Effective Time.
(k) Broker's Certificate. The Broker shall have executed
and delivered a certificate in substantially the form attached hereto as Exhibit
G certifying that the Broker shall have been paid by the Stockholder all fees
and other
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compensation due and payable to the Broker in connection with the consummation
of the transactions set forth herein.
(l) Other Closing Documents. The Stockholder and the
Company shall have executed and/or delivered to Acquiror such additional
documents, certificates, opinions and agreements as Acquiror may reasonably
request.
SECTION 9.2. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDER.
The obligations of the Company and the Stockholder to effect
the Merger and the other transactions contemplated in this Agreement are also
subject to the following conditions any or all of which may be waived, in whole
or in part, to the extent permitted by applicable law:
(a) Representations and Warranties. The representations
and warranties of Acquiror and Merger Sub made in this Agreement shall be true
and correct in all material respects, on and as of the Effective Time with the
same effect as though such representations and warranties had been made on and
as of the Effective Time (provided that any representation or warranty contained
herein that is qualified by a materiality standard shall not be further
qualified hereby), except for representations and warranties that speak as of a
specific date or time other than the Effective Time (which need only be true and
correct in all material respects as of such date or time). The Company shall
have received a certificate of the Chief Executive Officer or Chief Financial
Officer of Acquiror to that effect.
(b) Agreements and Covenants. The agreements and
covenants of Acquiror and Merger Sub required to be performed on or before the
Effective Time shall have been performed in all material respects. The Company
shall have received a certificate of the Chief Executive Officer or Chief
Financial Officer of Acquiror to that effect.
(c) Legal Proceedings. No action or proceeding before any
Government Entity shall have been instituted or threatened (and not subsequently
settled, dismissed, or otherwise terminated) which is reasonably expected to
restrain, prohibit, enjoin or invalidate the Merger or other transactions
contemplated by this Agreement other than an action or proceeding instituted or
threatened by the Company.
(d) Acquiror shall have delivered to the Stockholder at
or before Closing a copy of the resolutions of the directors of Acquiror,
certified as being correct and complete and then in full force and effect,
authorizing the appointment of the Stockholder to a seat on Acquiror's Board of
Directors for a period of one (1) year commencing on the Effective Time.
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ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1. TERMINATION.
This Agreement may be terminated at any time prior to the
Effective Time:
(a) by mutual written consent of Acquiror and the
Company;
(b) by Acquiror if the Company or the Stockholder shall
have breached any of its representations, warranties, covenants or agreements
contained in this Agreement, or any such representation or warranty shall have
become untrue, in any such case such that the conditions precedent to the
obligations of Acquiror to close specified in Section 9.2 will not be satisfied
and such breach has not been promptly cured within ten (10) days following
receipt by Acquiror of written notice of such breach;
(c) by the Company if Acquiror or Merger Sub shall have
breached any of its representations, warranties, covenants or agreements
contained in this Agreement, or any such representation or warranty shall have
become untrue, in any such case such that the conditions precedent to the
obligation of the Company to close specified in Section 9.3, will not be
satisfied and such breach has not been promptly cured within ten (10) days
following receipt by Acquiror of written notice of such breach;
(d) by either Acquiror or the Company if any decree,
permanent injunction, judgment, order or other action by any court of competent
jurisdiction or any Government Entity preventing or prohibiting consummation of
the Merger shall have become final and nonappealable; or
(e) by either Acquiror or the Company if the Effective
Time has not occurred on or prior to March 31, 1998 (unless such date shall be
extended by the mutual written consent of the parties); provided, that the right
to terminate this Agreement under this Section 10.1(e) shall not be available to
any party whose breach of representations, warranties, covenants or agreements
contained in this Agreement has been the cause of, or resulted in, the failure
of the Effective Time to occur by such date or the inability of such condition
to be satisfied.
SECTION 10.2. EFFECT OF TERMINATION.
If this Agreement is terminated pursuant to Section 10.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation
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on the part of any party hereto, except that the provisions of Sections 8.3 and
12.11 shall not be extinguished but shall survive such termination, and nothing
herein shall relieve any party from liability for any breach hereof and each
party shall be entitled to any remedies at law or in equity for such breach.
SECTION 10.3. AMENDMENT.
This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
SECTION 10.4. WAIVER.
At any time prior to the Effective Time, the parties may (a)
extend the time for the performance of any of the obligations or other acts of
the other party, (b) waive any inaccuracies in the representations and
warranties contained in this Agreement or in any document delivered pursuant to
this Agreement and (c) waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; REMEDIES
SECTION 11.1. SURVIVAL OF REPRESENTATIONS.
All representations, warranties, covenants, indemnities and
other agreements made by any party to this Agreement herein or pursuant hereto,
shall be deemed made on and as of the Effective Time as though such
representations, warranties, covenants, indemnities and other agreements were
made on and as of such date, and all such representations, warranties,
covenants, indemnities and other agreements shall survive the Effective Time and
any investigation, audit or inspection at any time made by or on behalf of any
party hereto, as follows: (a) unless otherwise specified below, representations
and warranties shall survive for a period of eighteen (18) months after the
Effective Time; (b) representations and warranties with respect to Taxes shall
survive until the expiration of the applicable statute of limitations; (c)
representations, warranties and covenants for matters relating to title to the
capital stock of the Company and the Company Assets shall continue in full force
and effect in perpetuity; and (d) the covenants and agreements in this Article
XI and the covenants and agreements which by their terms survive the Effective
Time shall continue in full force and effect until fully discharged.
Notwithstanding anything herein to the contrary, any representation, warranty,
covenant or agreement which is the subject of a claim which is asserted
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<PAGE> 45
in writing prior to the expiration of the applicable period set forth above
shall survive with respect to such claim or dispute until the final resolution
thereof.
SECTION 11.2. AGREEMENT OF STOCKHOLDER TO INDEMNIFY.
Subject to the conditions and provisions of this Article XI,
the Stockholder hereby agree to indemnify, defend and hold harmless Acquiror and
its officers, directors, employees, agents and representatives (collectively,
the "Acquiror Indemnified Persons") from and against and in respect of all
Losses resulting from, imposed upon or incurred by the Acquiror Indemnified
Persons, directly or indirectly, by reason of or resulting from (a) any
misrepresentation or breach of any representation or warranty, or noncompliance
with any conditions or other agreements, given or made by the Stockholder or the
Company in this Agreement or in any document, certificate or agreement furnished
by or on behalf of any such party pursuant to this Agreement, (b) the business
or operations of the System prior to the Effective Time or (c) any amounts owed
to either The Disney Channel under the Disney Contract or to Bell South under
the License Agreement with Bell South which relate to the period prior to the
Closing. It shall be a condition to the right of any Acquiror Indemnified Person
to indemnification pursuant to this Section that such Acquiror Indemnified
Person shall assert a claim for such indemnification within the applicable
survival periods set forth in Section 11.1 hereof.
SECTION 11.3. AGREEMENT OF ACQUIROR TO INDEMNIFY.
Subject to the conditions and provisions of this Article XI,
Acquiror hereby agrees to indemnify, defend and hold harmless the Stockholder
from and against and in respect of all Losses resulting from, imposed upon or
incurred by the Stockholder, directly or indirectly, by reason of or resulting
from (a) any misrepresentation or breach of any representation or warranty, or
noncompliance with any conditions or other agreements, given or made by Acquiror
or Merger Sub in this Agreement or in any document, certificate or agreement
furnished by or on behalf of Acquiror or Merger Sub pursuant to this Agreement,
or (b) the business or operations of the Systems after the Effective Time. It
shall be a condition to the rights of the Stockholder to indemnification
pursuant to this Section that such party shall assert a claim for such
indemnification within the applicable survival periods set forth in Section 11.1
hereof.
SECTION 11.4. CONDITIONS OF INDEMNIFICATION.
The obligations and liabilities of the Stockholder and
Acquiror hereunder with respect to their respective indemnities pursuant to this
Article XI, resulting from any Third Party Claim shall be subject to the
following terms and conditions:
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<PAGE> 46
(a) The party seeking indemnification (the "Indemnified
Party") must give the other party (the "Indemnifying Party"), notice of any
Third Party Claim which is asserted against, resulting to, imposed upon or
incurred by the Indemnified Party and which may give rise to liability of the
Indemnifying Party pursuant to this Article XI, stating (to the extent known or
reasonably anticipated) the nature and basis of such Third Party Claim and the
amount thereof; provided that the failure to give such notice shall not affect
the rights of the Indemnified Party hereunder except to the extent that the
Indemnifying Party shall have suffered actual material damage by reason of such
failure.
(b) Subject to Section 11.4(c) below, the Indemnifying
Party shall have the right to undertake, by counsel or other representatives of
its own choosing, the defense of such Third Party Claim at the Indemnifying
Party's risk and expense.
(c) In the event that (i) the Indemnifying Party shall
elect not to undertake such defense, (ii) within a reasonable time after notice
from the Indemnified Party of any such Third Party Claim, the Indemnifying Party
shall fail to undertake to defend such Third Party Claim, or (iii) there is a
reasonable probability that such Third Party Claim may materially and adversely
affect the Indemnified Party other than as a result of money damages or other
money payments, then the Indemnified Party (upon further written notice to the
Indemnifying Party) shall have the right to undertake the defense, compromise or
settlement of such Third Party Claim, by counsel or other representatives of its
own choosing, on behalf of and for the account and risk of the Indemnifying
Party. In the event that the Indemnified Party undertakes the defense of a Third
Party Claim under this Section 11.4(c), the Indemnifying Party shall pay to the
Indemnified Party, in addition to the other sums required to be paid hereunder,
the reasonable costs and expenses incurred by the Indemnified Party in
connection with such defense, compromise or settlement as and when such costs
and expenses are so incurred.
(d) Anything in this Section 11.4 to the contrary
notwithstanding, (i) the Indemnifying Party shall not, without the Indemnified
Party's written consent, settle or compromise such Third Party Claim or consent
to entry of any judgment which does not include as an unconditional term thereof
the giving by the claimant or the plaintiff to the Indemnified Party of a
release from all liability in respect of such Third Party Claim in form and
substance satisfactory to the Indemnified Party; (ii) in the event that the
Indemnifying Party undertakes defense of such Third Party Claim, the Indemnified
Party, by counsel or other representative of its own choosing and at its sole
cost and expense, shall have the right to participate in the defense, compromise
or settlement thereof and each party and its counsel and other representatives
shall cooperate with the other party and its counsel and representatives in
connection therewith; and (iii) in the event that
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<PAGE> 47
the Indemnifying Party undertakes defense of such Third Party Claim, the
Indemnifying Party shall have an obligation to keep the Indemnified Party
informed of the status of the defense of such Third Party Claim and furnish the
Indemnified Party with all documents, instruments and information that the
Indemnified party shall reasonably request in connection therewith.
(e) Neither the Stockholder nor Acquiror shall be liable
to the other in respect of any indemnification hereunder except to the extent
that the aggregate amount of Losses, together with all other Losses of the party
to be indemnified under this Agreement, is (i) in excess of One Hundred Thousand
Dollars ($100,000) (the "Basket Amount"), except for indemnification for claims
made pursuant to Section 11.2(c) which shall not be subject to such Basket
Amount; provided, that once an indemnified party has incurred Losses in excess
of the Basket Amount, such indemnified party shall be indemnified for all Losses
without regard to the Basket Amount, and (ii) less than Seven Million Five
Hundred Thousand Dollars ($7,500,000).
SECTION 11.5. NO RECOURSE AGAINST THE COMPANY.
The Stockholder hereby irrevocably waives any and all right to
recourse against the Company with respect to any misrepresentation or breach of
any representation, warranty or indemnity, or noncompliance with any conditions
or covenants, given or made by the Stockholder or the Company in this Agreement
and any document, certificate and agreement entered into or delivered pursuant
hereto. The Stockholder shall not be entitled to contribution from, subrogation
to or recovery against the Company with respect to any liability of the
Stockholder or the Company that may arise under or pursuant to this Agreement or
the transactions contemplated hereby.
SECTION 11.6. REMEDIES CUMULATIVE.
The remedies provided herein shall be cumulative and shall not
preclude the assertion by the parties hereto of any other rights or the seeking
of any other remedies against the other, or their respective successors or
assigns.
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1. NOTICES.
All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the
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<PAGE> 48
date delivered, mailed or transmitted, and shall be effective upon receipt, if
delivered personally, mailed by registered or certified mail (postage prepaid,
return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like changes of address) or
sent by electronic transmission to the telecopier number specified below:
(a) If to Acquiror and Merger Sub:
Knology Holdings, Inc.
312 West 8th Street
West Point, Georgia 31833
Telecopier No.: (706) 645-1446
Attention: Felix L. Boccucci
(b) If to the Company and the Stockholder:
Beach Cable, Inc.
4116 U.S. Highway
231 North
Panama City, Florida 32402
Telecopier No.: (850) 769-3456
Attention: L. Charles Hilton, Jr.
SECTION 12.2. CERTAIN DEFINITIONS.
For purposes of this Agreement, the term:
(a) "Acquiror Assets" shall mean the assets, rights and
properties, whether owned, leased or licensed, real, personal or mixed, tangible
or intangible, that are used, useful or held for use in connection with the
business of Acquiror.
(b) "Acquiror Financing Transactions" shall mean the
transactions described in either the Private Placement Memorandum or that
certain Offering Memorandum of Acquiror dated October 16, 1997 (a copy of which
has been provided to the Company and the Stockholder).
(c) "Acquiror Material Adverse Effect" means any material
adverse effect on the Acquiror Assets or the business, operations or condition
(financial or otherwise) of Acquiror.
(d) "affiliate" means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the first mentioned person.
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<PAGE> 49
(e) "business day" shall mean any day other than a day on
which banks in the State of Georgia are authorized or obligated to be closed.
(f) "Company Assets" shall mean the assets, rights and
properties, whether owned, leased or licensed, real, personal or mixed, tangible
or intangible, that are used, useful or held for use in connection with the
business of the Company.
(g) "Company Material Adverse Effect" means any material
adverse effect on the System, the Company Assets or the business, operations or
condition (financial or otherwise) of the Company.
(h) "control" (including the terms "controlled by" and
"under common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock or as
trustee or executor, by contract or credit arrangement or otherwise.
(i) "Encumbrances" means mortgages, liens, pledges,
encumbrances, security interests, deeds of trust, options, encroachments,
reservations, orders, decrees, judgments, restrictions, charges, contract
rights, claims or equity of any kind.
(j) "Government Entity" means any United States or other
national, state, municipal or local government, domestic or foreign, any
subdivision, agency, entity, commission or authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing, importing
or other governmental or quasi-governmental authority.
(k) "Laws" means all foreign, federal, state and local
statues, laws, ordinances, regulations, rules, resolutions, orders,
determinations, writes, injunctions, awards (including, without limitation,
awards of any arbitrator), judgments and decrees applicable to the specified
persons or entities.
(l) "Losses" means all demands, losses, claims, actions
or causes of action, assessments, damages, liabilities, costs and expenses,
including, without limitation, interest, penalties and reasonable attorneys'
fees and disbursements.
(m) "person" means an individual, corporation,
partnership, association, trust, unincorporated organization, other entity or
group.
(n) "Personal Property" means all of the equipment,
plant, inventory, spare parts, supplies and other tangible personal property
which are owned, leased, used or held for use by the Company primarily in
connection with the business and operations of the System.
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<PAGE> 50
(o) "subsidiary" means a corporation, partnership, joint
venture or other entity of which the Company owns, directly or indirectly, at
least 50% of the outstanding securities or other interests the holders of which
are generally entitled to vote for the election of the board of directors or
other governing body or otherwise exercise control of such entity.
(p) "Taxes" shall mean all federal, state, local and
foreign taxes (including, without limitation, income, profit, franchise, sales,
use, real property, personal property, ad valorem, excise, employment, social
security and wage withholding taxes) and installments of estimated taxes,
assessments, deficiencies, levies, imports, duties, license fees, registration
fees, withholdings or other similar charges of every kind, character or
description imposed by any governmental authorities, and any interest, penalties
or additions to tax imposed thereon or in connection therewith.
SECTION 12.3. HEADINGS.
The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
SECTION 12.4. SEVERABILITY.
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 12.5. ENTIRE AGREEMENT.
This Agreement (together with the Exhibits, the Schedules and
the other documents delivered pursuant hereto) constitutes the entire agreement
of the parties and supersede all prior agreements and undertakings, both written
and oral, between the parties, or any of them, with respect to the subject
matter hereof and, except as otherwise expressly provided herein, are not
intended to confer upon any other person any rights or remedies hereunder.
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<PAGE> 51
SECTION 12.6. SPECIFIC PERFORMANCE.
The transactions contemplated by this Agreement are unique.
Accordingly, each of the parties acknowledges and agrees that, in addition to
all other remedies to which it may be entitled, each of the parties hereto is
entitled to a decree of specific performance, provided such party is not in
material default hereunder.
SECTION 12.7. ASSIGNMENT.
Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party; provided, however, that notwithstanding the foregoing, Acquiror and
Merger Sub shall have the right to assign, pledge and grant a security interest
in all of its right, title and interest in and to this Agreement to one or more
lenders, including without limitation First Union National Bank and a syndicate
of banks, to secure all payment and performance obligations that may exist from
time to time of Acquiror and/or one or more of its subsidiaries to such lenders,
without the prior written consent of the Company or the Stockholder. Subject to
the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
SECTION 12.8. THIRD PARTY BENEFICIARIES.
This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement, except for
the Acquiror Indemnified Persons under Article XI hereof.
SECTION 12.9. GOVERNING LAW.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Georgia, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law.
SECTION 12.10. COUNTERPARTS.
This Agreement may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed and delivered shall be deemed to be an original but all
of which taken together shall constitute one and the same agreement.
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<PAGE> 52
SECTION 12.11. FEES AND EXPENSES.
Except as otherwise provided for in this Agreement, each party
hereto shall pay its own fees, costs and expenses incurred in connection with
this Agreement and in the preparation for and consummation of the transactions
provided for herein.
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<PAGE> 53
IN WITNESS WHEREOF, the parties hereto have caused this
AGREEMENT AND PLAN OF MERGER to be executed and delivered as of the date first
written above.
KNOLOGY HOLDINGS, INC.
By: /s/ Felix L. Boccucci, Jr.
----------------------------------------
Felix L. Boccucci, Jr.
Vice President of Business Development
KNOLOGY OF PANAMA CITY, INC.
By: /s/ Felix L. Boccucci, Jr.
----------------------------------------
Felix L. Boccucci, Jr.
Assistant Secretary
BEACH CABLE, INC.
By: /s/ L. Charles Hilton, Jr.
----------------------------------------
L. Charles Hilton, Jr.
Chairman and Chief Executive Officer
/s/ L. Charles Hilton, Jr.
--------------------------------------------
L. Charles Hilton, Jr.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
CYBERNET HOLDING, INC.
1. NAME
The name of this corporation is Cybernet Holding, Inc. (the
"Corporation").
2. REGISTERED OFFICE AND AGENT
The registered office of the Corporation shall be located at 1018
Centre Road, Wilmington, Delaware 19805 in the County of New Castle. The
registered agent of the Corporation at such address shall be Corporation Service
Company.
3. PURPOSE AND POWERS
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law"). The
Corporation shall have all power necessary or helpful to engage in such acts and
activities.
4. CAPITAL STOCK
4.1. AUTHORIZED SHARES
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is thirty thousand (30,000)
shares. Fifteen thousand (15,000) of such shares shall be Preferred Stock,
having par value of $.01 per share ("Preferred Stock"). The remaining fifteen
thousand (15,000) of such shares shall be Common Stock, all of one class, having
a par value of $0.01 per share ("Common Stock").
4.2. COMMON STOCK
4.2.1. RELATIVE RIGHTS
The Common Stock shall be subject to all of the rights, privileges,
preferences and priorities of the Preferred Stock as set forth in the
certificate of designations filed to establish the respective series of
Preferred Stock. Each share of Common Stock shall have the same relative rights
as and be identical in all respects to all the other shares of Common Stock.
<PAGE> 2
4.2.2. DIVIDENDS
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of shares of any class of stock having preference over
the Common Stock as to the payment of dividends, the full amount of dividends
and of sinking fund or retirement payments, if any, to which such holders are
respectively entitled in preference to the Common Stock, then dividends may be
paid on the Common Stock and on any class or series of stock entitled to
participate therewith as to dividends, out of any assets legally available for
the payment of dividends thereon, but only when and as declared by the Board of
Directors of the Corporation.
4.2.3. DISSOLUTION, LIQUIDATION, WINDING UP
In the event of any dissolution, liquidation, or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Common Stock
shall become entitled to participate in the distribution of any assets of the
Corporation remaining after the Corporation shall have paid, or set aside for
payment, to the holders of any class of stock having preference over the Common
Stock in the event of dissolution, liquidation or winding up the full
preferential amounts (if any) to which they are entitled.
4.2.4. VOTING RIGHTS
Each holder of shares of Common Stock shall be entitled to attend
all special and annual meetings of the stockholders of the Corporation and,
share for share and without regard to class, together with the holders of all
other classes of stock entitled to attend such meetings and to vote (except any
class or series of stock having special voting rights), to cast one vote for
each outstanding share of Common Stock so held upon any matter or thing
(including, without limitation, the election of one or more directors) properly
considered and acted upon by the stockholders.
4.3. PREFERRED STOCK
The Board of Directors is authorized, subject to limitations
prescribed by the Delaware General Corporation Law and the provisions of this
Certificate of Incorporation, to provide, by resolution and by filing a
certificate of designations pursuant to the Delaware General Corporation Law,
for the issuance of the shares of Preferred Stock in series, to establish from
time to time the number of shares to be included in each such series, and to fix
the designation, powers, preferences and other rights of the shares of each such
series and to fix the qualifications, limitations and restrictions thereon.
The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following: (1) the
number
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<PAGE> 3
of shares constituting that series and the distinctive designation of that
series; (2) the dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(3) whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights; (4) whether
that series shall have conversion privileges, and, if so, the terms and
conditions of such conversion, including provision for adjustment of the
conversion rate in such events as the Board of Directors shall determine; (5)
whether or not the shares of that series shall be redeemable, and, if so, the
terms and conditions of such redemption, including the dates upon or after which
they shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and at different
redemption dates; (6) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund; (7) the rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution, or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of that series; and (8) any other relative powers, preferences, and rights of
that series, and qualifications, limitations or restrictions on that series.
5. INCORPORATOR; INITIAL DIRECTORS
5.1. INCORPORATOR
The name and mailing address of the incorporator (the
"Incorporator") is Sonya L. Reed 1018 Centre Road, Wilmington, Delaware 19805.
The powers of the Incorporator shall terminate upon the filing of this
Certificate of Incorporation.
5.2. INITIAL DIRECTORS
The following persons, having the following mailing addresses, shall
serve as the directors of the Corporation until the first annual meeting of the
stockholders of the Corporation or until their successors are elected and
qualified:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
<S> <C>
Cambpell B. Lanier, III 1239 O.G. Skinner Drive
West Point, Georgia 31883
Clarence J. Prestwood 1239 O.G. Skinner Drive
West Point, Georgia 31883
Donald W. Burton 610 West Bay Street, Suite 200
Tampa, Florida 88606-2704
</TABLE>
-3-
<PAGE> 4
<TABLE>
<S> <C>
William H. Scott, III 1239 O.G. Skinner Drive
West Point, Georgia 31883
William B. Blount 10 Court Square
Montgomery, Alabama 36104
O. Gene Gabbard 102 Marseille Place
Cary, North Carolina 27511
</TABLE>
6. BOARD OF DIRECTORS
6.1. NUMBER; ELECTION
The number of directors of the Corporation shall be such number as
from time to time shall be fixed by, or in the manner provided in, the bylaws of
the Corporation. Unless and, except to the extent that the bylaws of the
Corporation shall otherwise require, the election of directors of the
Corporation need not be by written ballot.
6.2. LIMITATION OF LIABILITY
No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this provision shall not eliminate or limit the
liability of a director (a) for any breach of the director's duty of loyalty to
the Corporation or its stockholders; (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (c) for
the types of liability set forth in Section 174 of the Delaware General
Corporation Law; or (d) for any transaction from which the director received any
improper personal benefit.
7. INDEMNIFICATION
To the extent permitted by law, the Corporation shall fully
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person is or was a director or officer or employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director or officer or employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding.
The Corporation may advance expenses (including attorneys' fees)
incurred by a director or officer in advance of the final disposition of such
action, suit or proceeding upon the receipt of an undertaking by or on behalf of
the director
-4-
<PAGE> 5
or officer to repay such amount if it shall ultimately be determined that such
director or officer is not entitled to indemnification
The Corporation may advance expenses (including attorneys' fees)
incurred by an employee or agent in advance of the final disposition of such
action, suit or proceeding upon such terms and conditions, if any, as the Board
of Directors deems appropriate.
8. AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the
Delaware General Corporation Law, the Board of Directors of the Corporation is
expressly authorized and empowered to adopt, amend and repeal the bylaws of the
Corporation.
IN WITNESS WHEREOF, the undersigned, being the Incorporator
hereinabove named, for the purpose of forming a corporation pursuant to the
Delaware General Corporation Law, hereby certifies that the facts hereinabove
stated are truly set forth, and accordingly executes this Certificate of
Incorporation this 3 day of November, 1995.
Incorporator
By: /s/ Sonya L. Reed
----------------------------
-5-
<PAGE> 6
CERTIFICATE OF DESIGNATION
OF
PREFERRED STOCK
OF
CYBERNET HOLDING, INC.
Cybernet Holding, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that (i) no shares of any class or series of
stock have been issued and (ii) pursuant to the authority contained in Section
4.3 of its Certificate of Incorporation, and in accordance with the provisions
of Section 151(g) of the General Corporation Law of the State of Delaware, its
Board of Directors, by unanimous written consent, on December 6, 1995, duly
adopted the following resolution creating a series of Preferred Stock designated
as the Preferred Stock, which resolution remains in full force and effect as of
the date hereof:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation and in accordance with the provisions of its
Certificate of Incorporation, there is hereby created and authorized a series of
Preferred Stock of the Corporation, and the designation and amount of such
series, and the powers, preferences and other rights and the qualifications,
limitations of restrictions thereof, are as follows:
PREFERRED STOCK
1. DESIGNATION AND AMOUNT.
The series of Preferred Stock created and authorized hereby shall be
designated as "Preferred Stock," having a par value of $0.01 per share (the
"Preferred Stock"). The number of shares constituting the Preferred Stock is
15,000.
2. RIGHTS ON LIQUIDATION.
In the event of any dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of shares of
Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to stockholders (whether
representing capital or surplus), before any payment or distribution shall be
made on the Common Stock or any other class of stock of the Corporation ranking
junior to the Preferred Stock as to liquidation preference, cash in the amount
of one thousand dollars ($1,000) per share (the "Preferred Stock Liquidation
Distribution"). After the Preferred Stock Liquidation Distribution has been made
and after the holders of shares of any other class or
<PAGE> 7
series of stock having preference over the Common Stock in the event of
dissolution, liquidation or winding up have received the full preferential
amounts to which they are entitled, the holders of shares of Preferred Stock
shall participate equally with the holders of shares of Common Stock and any
other class or series of stock entitled to participate with the Common Stock in
the event of dissolution, liquidation or winding up in the distribution of any
remaining assets of the Corporation. If the assets distributable upon such
dissolution, liquidation or winding up (as provided above) shall be insufficient
to pay cash in an amount equal to the amount of the Preferred Stock Liquidation
Distribution to the holders of shares of Preferred Stock, then such assets or
the proceeds thereof shall be distributed among the holders of the Preferred
Stock ratably in proportion to the respective amounts of the Preferred Stock
Liquidation Distribution to which they otherwise would be entitled. Neither a
consolidation nor a merger of the Corporation with or into any other corporation
or corporations, nor the sale of transfer of all or any part of the assets of
the Corporation, shall be deemed to be a dissolution, liquidation or winding up
within the meaning of this paragraph.
3. VOTING RIGHTS.
Except as otherwise required by law, the holders of shares of Preferred
Stock shall be entitled to attend all special and annual meetings of the
stockholders of the Corporation and, share for share and without regard to
class, together with the holders of all other classes of stock entitled to
attend such meetings and to vote (except any class or series of stock having
special voting rights), to cast one vote for each share registered in the name
of each such holder upon any matter or thing (including, without limitation, the
election of one or more directors) properly considered and acted upon by the
stockholders.
4. CONVERSION.
The shares of Preferred Stock shall automatically be converted into fully
paid and nonassessable shares of Common Stock of the Corporation at the rate of
one share of Common Stock for each share of Preferred Stock (as adjusted for any
stock split or reclassification): (a) upon the issuance by the Securities and
Exchange Commission of an order of effectiveness (or evidence thereof
satisfactory to the Corporation) as to any registration statement for the sale
of any shares of Common Stock of the Corporation under the Securities Act of
1933, as amended (or any successor law) (other than an order relating to an
offering made primarily or exclusively to employees); or (b) if not previously
converted, on December 8, 2005 (in either case, the "Conversion Date"). The
Corporation shall give notice of such conversion, in such form as may be
approved by the Board of Directors of the Corporation, by first-class mail,
postage prepaid, to each holder of record of shares of Preferred Stock at the
holder's address as recorded in the stock records of the Corporation, within 90
days before or after the Conversion Date (although the failure to give such
notice shall not affect the validity or effectiveness of such
2
<PAGE> 8
conversion). On and after the Conversion Date, each holder of shares of
Preferred Stock shall be entitled to receive a certificate for the appropriate
number of shares of Common Stock and shall thereafter have the same relative
rights as each other holder of shares of Common Stock. All shares of Preferred
Stock outstanding on the Conversion Date shall, whether or not the certificates
for such shares shall have been surrendered for cancellation, be deemed to be no
longer outstanding for any purpose and all rights with respect to such shares
(except the right of the holders of the certificates for such shares to receive
certificates for shares of Common Stock) shall thereupon cease and terminate.
The issuance of any certificates for Common Stock on conversion of any
share or shares of Preferred Stock shall be made without charge to the holder of
the shares of Preferred Stock so converted or any tax in respect to the issuance
of such certificates. The Corporation covenants that: (i) all shares of Common
Stock which may be issued upon conversion of the shares of Preferred Stock will
upon issuance be fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof; (ii) the Corporation will not
close its books against the transfer of shares of Preferred Stock or of Common
Stock issued or issuable upon conversion of the shares of Preferred Stock in any
manner which would interfere with the timely conversion of the shares of the
Preferred Stock; and (iii) the Corporation will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of
effecting the conversion of shares of the Preferred Stock, the full number of
shares of Common Stock which would be deliverable upon the conversion of all
outstanding shares of the Preferred Stock. Shares of Preferred Stock converted
pursuant to this paragraph shall be canceled and retired and shall not be
reissued.
IN WITNESS WHEREOF, Cybernet Holding, Inc. has caused this Certificate of
Designation to be executed on its behalf on December 7, 1995.
CYBERNET HOLDING, INC.
By: /s/ Clarence J. Prestwood
-------------------------------
President
Attest:
/s/ Felix L. Boccucci
- ----------------------------------
3
<PAGE> 9
CERTIFICATE OF AMENDMENT
OF
CERTIFICATION OF INCORPORATION
OF
CYBERNET HOLDING, INC.
CYBERNET HOLDING, INC. (the "Corporation"), a corporation organized
and existing under the General Corporation law of the State of Delaware, does
hereby certify as follows:
FIRST: That in accordance with the requirements of Section 242 of
the General Corporation Law of the State of Delaware, the Board of Directors of
the Corporation, acting by written consent signed by all of the directors of the
Corporation pursuant to Section 141(f) of the General Corporation Law of the
State of Delaware, duly adopted resolutions: (1) proposing and declaring
advisable increasing the number of shares of authorized Preferred Stock, par
value $.01 per share, of the Corporation from 15,000 to 50,000, (2) proposing
and declaring advisable the amendment of the Certificate of Incorporation of the
Corporation to reflect such increase and (3) recommending that such increase and
amendment be submitted to the stockholders of the Corporation for their
consideration, action and approval.
SECOND: That the amendment to the Certificate of Incorporation of
the Corporation is as follows:
Section "4.1." of the Certificate of Incorporation is
hereby amended in its entirety as follows:
4.1. Authorized Shares
The total number of shares of all classes of stock that
the Corporation shall have the authority to issue is sixty-five
thousand (65,000) shares. Fifty thousand (50,000) of such shares
shall be Preferred Stock, having par value $0.1 per share
("Preferred Stock"). The remaining fifteen thousand (15,000) of such
shares shall be Common Stock, all of one class, having a par value
of $0.01 per share ("Common Stock")."
SECOND: That thereafter, pursuant to resolution of the Board of
Directors, the stockholders of the Corporation, acting by unanimous written
consent in accordance with Section 228 and 229 of the General Corporation Law of
the State of Delaware, duly approved such increase and the aforesaid amendment
to the Certificate of Incorporation of the Corporation to reflect such increase.
THIRD: That the aforesaid amendment to the Certificate of
Incorporation of the Corporation was duly adopted in accordance with the
provisions of Sections 141(f), 228, 229 and 242 of the General Corporation Law
of the State of Delaware.
<PAGE> 10
FOURTH: That upon this Certificate of Amendment of Certificate of
Incorporation of Cybernet Holding, Inc. becoming effective, the number of shares
authorized Preferred Stock of the Corporation shall be 50,000.
IN WITNESS WHEREOF, Cybernet Holding, Inc. has caused this
Certificate of Amendment of Certificate of Incorporation of Cybernet Holding,
Inc. To be signed by Clarence J. Prestwood, its President, and attested by Felix
L. Boccucci, Jr., its Secretary, on April 18th 1996.
CYBERNET HOLDING, INC.
By: /s/ Clarence J. Prestwood
--------------------------------
President
Attest:
/s/ Felix L. Boccucci
- ------------------------------
[CORPORATE SEAL]
2
<PAGE> 11
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATION
OF
PREFERRED STOCK
OF
CYBERNET HOLDING, INC.
CYBERNET HOLDING, INC. (the "Corporation"), a corporation organized
and existing under the General Corporation law of the State of Delaware, does
hereby certify as follows:
FIRST: That in accordance with the requirements of Section 242 of
the General Corporation Law of the State of Delaware, the Board of Directors of
the Corporation, acting by written consent signed by all of the directors of the
Corporation pursuant to Section 141(f) of the General Corporation Law of the
State of Delaware, duly adopted resolutions: (1) proposing and declaring
advisable increasing the number of shares of authorized Preferred Stock, par
value $.01 per share, of the Corporation from 15,000 to 50,000, (2) proposing
and declaring advisable the amendment of the Certificate of Designation of
Preferred Stock of the Corporation to reflect such increase and (3) recommending
that such increase and amendment be submitted to the stockholders of the
Corporation for their consideration, action and approval.
SECOND: That the amendment to the Certificate of Designation of
Preferred Stock of the Corporation is as follows:
ARTICLE 1 of the Certificate of Designation of Preferred Stock of
the Corporation hereby is amended to read in its entirety as follows:
"1. DESIGNATION AND AMOUNT.
The series of Preferred Stock created and authorized hereby
shall be designated as "Preferred Stock", having a par value of $0.01 per
share (the "Preferred Stock"). The number of shares constituting the
Preferred Stock is 50,000."
SECOND: That thereafter, pursuant to resolution of the Board of
Directors, the stockholders of the Corporation, acting by unanimous written
consent in accordance with Section 228 and 229 of the General Corporation Law of
the State of Delaware, duly approved such increase and the aforesaid amendment
to the Certificate of Designation of Preferred Stock of the Corporation to
reflect such increase.
<PAGE> 12
THIRD: That the aforesaid amendment to the Certificate of
Designation of Preferred Stock of the Corporation was duly adopted in accordance
with the provisions of Sections 141(f), 228, 229 and 242 of the General
Corporation Law of the State of Delaware.
FOURTH: That upon this Certificate of Amendment of Certificate of
Designation of Preferred Stock of Cybernet Holding, Inc. becoming effective, the
number of shares of authorized Preferred Stock of the Corporation shall be
50,000.
IN WITNESS WHEREOF, Cybernet Holding, Inc. has caused this
Certificate of Amendment of Certificate of Designation of Preferred Stock of
Cybernet Holding, Inc. to be signed by Clarence J. Prestwood, its President, and
attested by Felix L. Boccucci, Jr., its Secretary, on April 18, 1996.
CYBERNET HOLDING, INC.
By: /s/ Clarence J. Prestwood
--------------------------------
President
Attest:
/s/ Felix L. Boccucci
- ---------------------------------
[CORPORATE SEAL]
2
<PAGE> 13
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CYBERNET HOLDING, INC.
CYBERNET HOLDING, INC. (the "Corporation"), a corporation organized
and existing under the General Corporation law of the State of Delaware, does
hereby certify as follows:
FIRST: That in accordance with the requirements of Section 242 of
the General Corporation Law of the State of Delaware, the Board of Directors of
the Corporation, acting by written consent signed by all of the directors of the
Corporation pursuant to Section 141(f) of the General Corporation Law of the
State of Delaware, duly adopted resolutions: (1) proposing and declaring
advisable changing the name of the Corporation to "KNOLOGY Holdings, Inc."; (2)
proposing and declaring advisable the amendment of the Certificate of
Incorporation of the Corporation to reflect such name change; and (3)
recommending that such name change and amendment be submitted to the
stockholders of the Corporation for their consideration, action and approval.
SECOND: That the amendment to the Certificate of Incorporation of
the Corporation is as follows:
Section "1." of the Certificate of Incorporation is hereby amended
in its entirety as follows:
1. NAME
The name of this corporation is KNOLOGY Holdings, Inc. (the
"CORPORATION").
SECOND: That thereafter, pursuant to resolution of the Board of
Directors, the stockholders of the Corporation, acting by written consent in
accordance with Section 228 and 229 of the General Corporation Law of the State
of Delaware, duly approved such name change and the aforesaid amendment to the
Certificate of Incorporation of the Corporation to reflect such name change.
Written notice of such actions have been given as provided in Section 228(d) of
the General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment to the Certificate of
Incorporation of the Corporation was duly adopted in accordance with the
provisions of Sections 141(f), 228, 229 and 242 of the General Corporation Law
of the State of Delaware.
FOURTH: That upon this Certificate of Amendment of Certificate of
Incorporation of Cybernet Holding, Inc. becoming effective, the name of the
Corporation shall be changed to KNOLOGY Holdings, Inc.
<PAGE> 14
IN WITNESS WHEREOF, Cybernet Holding, Inc. has caused this
Certificate of Amendment of Certificate of Incorporation of Cybernet Holding,
Inc. to be duly signed by William Morrow, its President, on May 6, 1997.
CYBERNET HOLDING, INC.
By: /s/ William E. Morrow
-------------------------------
President
William Morrow
2
<PAGE> 15
CERTIFICATE OF AMENDMENT
OF
CERTIFICATION OF INCORPORATION
OF
KNOLOGY HOLDINGS, INC.
KNOLOGY Holdings, Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation law of the State of Delaware, does
hereby certify as follows:
FIRST: That in accordance with the requirements of Section 242 of
the General Corporation Law of the State of Delaware, the Board of Directors of
the Corporation, acting by written consent signed by all of the directors of the
Corporation pursuant to Section 141(f) of the General Corporation Law of the
State of Delaware, duly adopted resolutions: (1) proposing and declaring
advisable increasing the number of shares of authorized Preferred Stock, par
value $.01 per share, of the Corporation from 50,000 to 100,000, (2) proposing
and declaring advisable increasing the number of shares of Common Stock, par
value $.01 per share, of the Corporation from 15,000 to 200,000, (3) proposing
and declaring advisable the amendment of the Certificate of Incorporation of the
Corporation to reflect such increase and (4) recommending that such increase and
amendment be submitted to the stockholders of the Corporation for their
consideration, action and approval.
SECOND: That the amendment to the Certificate of Incorporation of
the Corporation is as follows:
Section "4.1." of the Certificate of Incorporation is
hereby amended in its entirety as follows:
4.1. Authorized Shares
The total number of shares of all classes of stock that
the Corporation shall have the authority to issue is three hundred
thousand (300,000) shares. One hundred thousand (100,000) of such
shares shall be Preferred Stock, having par value $.01 per share
("Preferred Stock"). The remaining two hundred thousand (200,000) of
such shares shall be Common Stock, all of one class, having a par
value of $0.01 per share ("Common Stock")."
SECOND: That thereafter, pursuant to resolution of the Board of
Directors, the stockholders of the Corporation, acting by written consent in
accordance with Sections 228 and 229 of the General Corporation Law of the State
of Delaware, duly approved such increase and the aforesaid amendment to the
1
<PAGE> 16
Certificate of Incorporation of the Corporation to reflect such increase.
Written notice of such actions have been given as provided in Section 228(d) of
the General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment to the Certificate of
Incorporation of the Corporation was duly adopted in accordance with the
provisions of Sections 141(f), 228, 229 and 242 of the General Corporation Law
of the State of Delaware.
FOURTH: That upon this Certificate of Amendment of Certificate of
Incorporation of KNOLOGY Holdings, Inc. becoming effective, the number of shares
of authorized Preferred Stock of the Corporation shall be 100,000 and the number
of shares of authorized Common Stock of the Corporation shall be 200,000.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Certificate of Incorporation of the Corporation to be duly executed
and acknowledged in accordance with Section 103 of the General Corporation Law
of the State of Delaware on this 14th day of October 1997.
KNOLOGY HOLDINGS, INC.
By: /s/ William Morrow
---------------------------
Name: William Morrow
Title: President
2
<PAGE> 17
AMENDED
CERTIFICATE OF DESIGNATION
OF
PREFERRED STOCK
OF
KNOLOGY HOLDINGS, INC.
KNOLOGY Holdings, Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation law of the State of Delaware, does
hereby certify as follows:
FIRST: That in accordance with the requirements of Section 151 of
the General Corporation Law of the State of Delaware, the Board of Directors of
the Corporation, acting by written consent signed by all of the directors of the
Corporation pursuant to Section 141(f) of the General Corporation Law of the
State of Delaware, duly adopted resolutions: (1) proposing and declaring
advisable increasing the number of shares of authorized Preferred Stock, par
value $.01 per share, of the Corporation from 50,000 to 100,000, (2) proposing
and declaring advisable the Amended Certificate of Designation of Preferred
Stock of the Corporation to reflect such increase and (3) recommending that such
increase and amendment be submitted to the stockholders of the Corporation for
their consideration, action and approval.
SECOND: That the Amended Certificate of Designation of Preferred
Stock of the Corporation is as follows:
Section "1." of the Certificate of Designation of
Preferred Stock is hereby amended in its entirety as follows:
1. DESIGNATION AND AMOUNT.
The series of Preferred Stock created and authorized
hereby shall be designated as "Preferred Stock", having a par value
of $0.01 per share (the "Preferred Stock"). The number of shares
constituting the Preferred Stock is 100,000."
SECOND: That thereafter, pursuant to resolution of the Board of
Directors, the stockholders of the Corporation, acting by written consent in
accordance with Sections 228 and 229 of the General Corporation Law of the State
of Delaware, duly approved such increase and the aforesaid Amended Certificate
of Designation of Preferred Stock of the Corporation to reflect such increase.
<PAGE> 18
THIRD: That the aforesaid Amended Certificate of Designation of
Preferred Stock of the Corporation was duly adopted in accordance with the
provisions of Sections 141(f), 151, 228 and 229 of the General Corporation Law
of the State of Delaware.
FOURTH: That upon this Amended Certificate of Designation of
Preferred Stock of KNOLOGY Holdings, Inc. becoming effective, the number of
shares of designated Preferred Stock of the Corporation shall be 100,000.
IN WITNESS WHEREOF, the Corporation has caused the Amended
Certificate of Designation of Preferred Stock to be duly executed and
acknowledged, in accordance with Section 103 of the General Corporation Law of
the State of Delaware on this 14th day of October 1997.
KNOLOGY HOLDINGS, INC.
By: /s/ William Morrow
----------------------------
Name: William Morrow
Title: President
2
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
KNOLOGY HOLDINGS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. OFFICES......................................................1
1.1. Registered Office......................................1
1.2. Other Offices..........................................1
2. MEETINGS OF STOCKHOLDERS.....................................1
2.1. Place of Meetings......................................1
2.2. Annual Meetings........................................1
2.3. Special Meetings.......................................1
2.4. Notice of Meetings.....................................2
2.5. Waivers of Notice......................................2
2.6. Business at Special Meetings...........................2
2.7. List of Stockholders...................................2
2.8. Quorum at Meetings.....................................3
2.9. Voting and Proxies.....................................3
2.10. Required Vote.........................................3
2.11. Action Without a Meeting..............................4
3. DIRECTORS....................................................4
3.1. Powers ................................................4
3.2. Number and Election....................................4
3.3. Nomination of Directors................................5
3.4. Vacancies..............................................5
3.5. Meetings...............................................5
3.5.1. Regular Meetings...............................5
3.5.2. Special Meetings...............................5
3.5.3. Telephone Meetings.............................6
3.5.4. Action Without Meeting.........................6
3.5.5. Waiver of Notice of Meeting....................6
3.6. Quorum and Vote at Meetings............................6
3.7. Committees of Directors................................6
3.8. Compensation of Directors..............................7
4. OFFICERS.....................................................7
4.1. Positions..............................................7
4.2. Chairperson............................................7
4.3. President..............................................7
4.4. Vice President.........................................8
4.5. Secretary..............................................8
4.6. Assistant Secretary....................................8
4.7. Treasurer..............................................8
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
4.8. Assistant Treasurer....................................9
4.9. Term of Office.........................................9
4.10. Compensation..........................................9
4.11. Fidelity Bonds........................................9
5. CAPITAL STOCK................................................9
5.1. Certificates of Stock; Uncertificated Shares...........9
5.2. Lost Certificates......................................10
5.3. Record Date............................................10
5.3.1. Actions by Stockholders.........................10
5.3.2. Payments........................................11
5.4. Stockholders of Record.................................11
6. INSURANCE....................................................11
7. GENERAL PROVISIONS...........................................12
7.1. Inspection of Books and Records........................12
7.2. Dividends..............................................12
7.3. Reserves...............................................12
7.4. Execution of Instruments...............................12
7.5. Fiscal Year............................................12
7.6. Seal ..................................................12
</TABLE>
-ii-
<PAGE> 4
AMENDED AND RESTATED BYLAWS
OF
KNOLOGY HOLDINGS, INC.
1. OFFICES
1.1. REGISTERED OFFICE
The initial registered office of the Corporation shall be in
Wilmington, Delaware, and the initial registered agent in charge thereof shall
be Corporation Service Company.
1.2. OTHER OFFICES
The Corporation may also have offices at such other places, both
within and without the State of Delaware, as the Board of Directors may from
time to time determine or as may be necessary or useful in connection with the
business of the Corporation.
2. MEETINGS OF STOCKHOLDERS
2.1. PLACE OF MEETINGS
All meetings of the stockholders shall be held at such place as may
be fixed from time to time by the Board of Directors, the Chairperson or the
President.
2.2. ANNUAL MEETINGS
The Corporation shall hold annual meetings of stockholders,
commencing with the year 1996, on such date and at such time as shall be
designated from time to time by the Board of Directors, the Chairperson or the
President, at which stockholders shall elect a Board of Directors and transact
such other business as may properly be brought before the meeting.
2.3. SPECIAL MEETINGS
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the Board of Directors,
the Chairperson or the President.
-1-
<PAGE> 5
2.4. NOTICE OF MEETINGS
Written notice of any meeting of stockholders, stating the place,
date and hour of the meeting, and (if it is a special meeting) the purpose or
purposes for which the meeting is called, shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting (except to the extent that such notice is waived
or is not required as provided in the General Corporation Law of the State of
Delaware (the "DELAWARE GENERAL CORPORATION LAW") or these Bylaws). Such notice
shall be given in accordance with, and shall be deemed effective as set forth
in, Section 222 (or any successor section) of the Delaware General Corporation
Law.
2.5. WAIVERS OF NOTICE
Whenever the giving of any notice is required by statute, the
Certificate of Incorporation or these Bylaws, a waiver thereof, in writing and
delivered to the Corporation, signed by the person or persons entitled to said
notice, whether before or after the event as to which such notice is required,
shall be deemed equivalent to notice. Attendance of a stockholder at a meeting
shall constitute a waiver of notice (1) of such meeting, except when the
stockholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting, and (2) (if it is a special meeting) of
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice, unless the stockholder
objects to considering the matter at the beginning of the meeting.
2.6. BUSINESS AT SPECIAL MEETINGS
Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice (except to the extent that such
notice is waived or is not required as provided in the Delaware General
Corporation Law or these Bylaws).
2.7. LIST OF STOCKHOLDERS
After the record date for a meeting of stockholders has been fixed,
at least ten days before such meeting, the officer who has charge of the stock
ledger of the Corporation shall make a list of all stockholders entitled to vote
at the meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place in the city where the meeting
is to be held, which place is to be specified in the notice of the meeting, or
at the place where the meeting is to
-2-
<PAGE> 6
be held. Such list shall also, for the duration of the meeting, be produced and
kept open to the examination of any stockholder who is present at the time and
place of the meeting.
2.8. QUORUM AT MEETINGS
Stockholders may take action on a matter at a meeting only if a
quorum exists with respect to that matter. Except as otherwise provided by
statute or by the Certificate of Incorporation, the holders of a majority of the
stock issued and outstanding and entitled to vote at the meeting, and who are
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business. Once a share is
represented for any purpose at a meeting (other than solely to object (1) to
holding the meeting or transacting business at the meeting, or (2) (if it is a
special meeting) to consideration of a particular matter at the meeting that is
not within the purpose or purposes described in the meeting notice), it is
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for the
adjourned meeting. The holders of a majority of the voting shares represented at
a meeting, whether or not a quorum is present, may adjourn such meeting from
time to time. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting
2.9. VOTING AND PROXIES
Unless otherwise provided in the Delaware General Corporation Law or
in the Corporation's Certificate of Incorporation, and subject to the other
provisions of these Bylaws, each stockholder shall be entitled to one vote on
each matter, in person or by proxy, for each share of the Corporation's capital
stock that has voting power and that is held by such stockholder. No proxy shall
be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. A duly executed appointment of proxy shall be
irrevocable if the appointment form states that it is irrevocable and if, and
only as long as, it is coupled with an interest sufficient in law to support an
irrevocable power.
2.10. REQUIRED VOTE
If a quorum exists, action on a matter (other than the election of
directors) is approved if the votes cast favoring the action exceed the votes
cast opposing the action, unless the Certificate of Incorporation or the
Delaware General Corporation Law requires a greater number of affirmative votes
(in which case such different requirement shall apply). Directors shall be
elected by a plurality of the
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votes cast by the shares entitled to vote in the election (provided a quorum
exists), and the election of directors need not be by written ballot.
2.11. ACTION WITHOUT A MEETING
Any action required or permitted to be taken at a stockholders'
meeting may be taken without a meeting if the action is taken by persons who
would be entitled to vote at a meeting and who hold shares having voting power
to cast not less than the minimum number of votes that would be necessary to
authorize or take the action at a meeting at which all stockholders entitled to
vote were present and voted. The action must be evidenced by one or more written
consents describing the action taken, signed by the stockholders entitled to
take action without a meeting, and delivered to the Corporation for inclusion in
the minute book. No consent shall be effective to take the corporate action
specified unless the number of consents required to take such action are
delivered to the Corporation within sixty days of the delivery of the
earliest-dated consent. All stockholders entitled to vote on the record date of
such written consent who do not participate in taking the action shall be given
written notice thereof in accordance with the Delaware General Corporation Law.
3. DIRECTORS
3.1. POWERS
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, which may exercise all such
powers of the Corporation and do all such lawful acts and things, subject to any
limitation set forth in the Certificate of Incorporation, these Bylaws, or
agreements among stockholders which are otherwise lawful.
3.2. NUMBER AND ELECTION
The number of directors which shall constitute the whole board shall
not be fewer than one nor more than fifteen. The first board shall consist of
six directors. Thereafter, within the limits above specified, the number of
directors shall be determined by resolution of the Board of Directors.
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<PAGE> 8
3.3. NOMINATION OF DIRECTORS
The Board of Directors shall nominate candidates to stand for
election as directors; and other candidates also may be nominated by any
Corporation stockholder, provided such other nomination(s) are submitted in
writing to the Secretary of the Corporation no later than 90 days prior to the
meeting of stockholders at which such directors are to be elected, together with
the identity of the nominor and the number of shares of the Corporation's stock
owned, directly or indirectly, by the nominor. The directors shall be elected at
the annual meeting of the stockholders, except as provided in Section 3.4.
hereof, and each director elected shall hold office until such director's
successor is elected and qualified or until the director's earlier resignation
or removal. Directors need not be stockholders.
3.4. VACANCIES
Vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by the stockholders or by a
majority of the directors then in office, although fewer than a quorum, or by a
sole remaining director. Each director so chosen shall hold office until the
next election of directors, and until such director's successor is elected and
qualified, or until the director's earlier resignation or removal. In the event
that one or more directors resigns from the board, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office until the next election of directors, and
until such director's successor is elected and qualified, or until the
director's earlier resignation or removal.
3.5. MEETINGS
3.5.1. REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board of Directors.
3.5.2. SPECIAL MEETINGS
Special meetings of the Board may be called by the Chairperson or
President on one day's notice to each director, either personally or by
telephone, express delivery service (so that the scheduled delivery date of the
notice is at least one day in advance of the meeting), telegram or facsimile
transmission, and on five days' notice by mail (effective upon deposit of such
notice in the mail). Special meetings shall be called by the President or
Secretary in like manner and on like
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<PAGE> 9
notice on the written request of one-third of the total number of directors. The
notice need not describe the purpose of a special meeting.
3.5.3. TELEPHONE MEETINGS
Members of the Board of Directors may participate in a meeting of the
board by any communication by means of which all participating directors can
simultaneously hear each other during the meeting. A director participating in a
meeting by this means is deemed to be present in person at the meeting.
3.5.4. ACTION WITHOUT MEETING
Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting if the action is taken by all
members of the Board. The action must be evidenced by one or more written
consents describing the action taken, signed by each director, and delivered to
the Corporation for inclusion in the minute book.
3.5.5. WAIVER OF NOTICE OF MEETING
A director may waive any notice required by statute, the Certificate
of Incorporation or these Bylaws before or after the date and time stated in the
notice. Except as set forth below, the waiver must be in writing, signed by the
director entitled to the notice, and delivered to the Corporation for inclusion
in the minute book. Notwithstanding the foregoing, a director's attendance at or
participation in a meeting waives any required notice to the director of the
meeting unless the director at the beginning of the meeting objects to holding
the meeting or transacting business at the meeting and does not thereafter vote
for or assent to action taken at the meeting.
3.6. QUORUM AND VOTE AT MEETINGS
At all meetings of the board, a quorum of the Board of Directors
consists of a majority of the total number of directors prescribed pursuant to
Section 3.2. of these Bylaws (or, if no number is prescribed, the number in
office immediately before the meeting begins). The vote of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation or by these Bylaws.
3.7. COMMITTEES OF DIRECTORS
The Board of Directors may by resolution create one or more
committees and appoint members of the Board of Directors to serve on the
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committees at the pleasure of the Board of Directors. To the extent specified in
a resolution adopted by the Board of Directors, each committee may exercise the
full authority of the Board of Directors, except as limited by Section 141 (or
any successor section) of the Delaware General Corporation Law. All provisions
of the Delaware General Corporation Law and these Bylaws relating to meetings,
action without meetings, notice (and waiver thereof), and quorum and voting
requirements of the Board of Directors apply, as well, to such committees and
their members.
3.8. COMPENSATION OF DIRECTORS
The Board of Directors shall have the authority to fix the
compensation of directors. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
4. OFFICERS
4.1. POSITIONS
The officers of the Corporation shall be a Chairperson, a President,
a Secretary and a Treasurer, and such other officers as the Board of Directors
(or an officer authorized by the Board of Directors) from time to time may
appoint, including one or more Vice Chairpersons, Executive Vice Presidents,
Vice Presidents, Assistant Secretaries and Assistant Treasurers. Each such
officer shall exercise such powers and perform such duties as shall be set forth
below and such other powers and duties as from time to time may be specified by
the Board of Directors or by any officer(s) authorized by the Board of Directors
to prescribe the duties of such other officers. Any number of offices may be
held by the same person, except that in no event shall the President and the
Secretary be the same person. Each of the Chairperson, President, and/or any
Vice President may execute bonds, mortgages and other documents under the seal
of the Corporation, except where required or permitted by law to be otherwise
executed and except where the execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the Corporation.
4.2. CHAIRPERSON
The Chairperson shall (when present) preside at all meetings of the
Board of Directors and stockholders, and shall exercise such other powers and
duties as may be specified by the Board of Directors.
4.3. PRESIDENT
The President shall be the chief executive officer of the
Corporation, shall have overall responsibility and authority for management of
the operations of
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<PAGE> 11
the Corporation (subject to the authority of the Board of Directors), and shall
ensure that all orders and resolutions of the Board of Directors and
stockholders are carried into effect. The President shall also be chief
operating officer of the Corporation and shall have full responsibility and
authority for management of the day-to-day operations of the Corporation,
subject to the authority of the Board of Directors. The President may execute
bonds, mortgages and other contracts, under the seal of the Corporation, if
required, except where required or permitted by law to be otherwise signed and
executed and except where the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent of the
Corporation.
4.4. VICE PRESIDENT
In the absence of the President or in the event of the President's
inability or refusal to act, the Vice President (or in the event there be more
than one Vice President, the Vice Presidents in the order designated, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting shall have all the powers of,
and be subject to all the restrictions upon, the President.
4.5. SECRETARY
The Secretary shall have responsibility for preparation of minutes of
meetings of the Board of Directors and of the stockholders and for
authenticating records of the Corporation. The Secretary shall give, or cause to
be given, notice of all meetings of the stockholders and special meetings of the
Board of Directors. The Secretary or an Assistant Secretary may also attest all
instruments signed by any other officer of the Corporation.
4.6. ASSISTANT SECRETARY
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors (or if there shall
have been no such determination, then in the order of their election), shall, in
the absence of the Secretary or in the event of the Secretary's inability or
refusal to act, perform the duties and exercise the powers of the Secretary.
4.7. TREASURER
The Treasurer shall be the chief financial officer of the Corporation
and shall have responsibility for the custody of the corporate funds and
securities and shall see to it that full and accurate accounts of receipts and
disbursements are kept in books belonging to the Corporation. The Treasurer
shall render to the Chairperson, the President, and the Board of Directors, upon
request, an account of all financial transactions and of the financial condition
of the Corporation.
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<PAGE> 12
4.8. ASSISTANT TREASURER
The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors (or if
there shall have been no such determination, then in the order of their
election), shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer.
4.9. TERM OF OFFICE
The officers of the Corporation shall hold office until their
successors are chosen and qualify or until their earlier resignation or removal.
Any officer may resign at any time upon written notice to the Corporation. Any
officer elected or appointed by the Board of Directors may be removed at any
time, with or without cause, by the affirmative vote of a majority of the Board
of Directors.
4.10. COMPENSATION
The compensation of officers of the Corporation shall be fixed by the
Board of Directors or by any committee established by resolution of the Board of
Directors for that purpose or any officer(s) authorized by the Board of
Directors to prescribe the compensation of such other officers.
4.11. FIDELITY BONDS
The Corporation may secure the fidelity of any or all of its officers
or agents by bond or otherwise.
5. CAPITAL STOCK
5.1. CERTIFICATES OF STOCK; UNCERTIFICATED SHARES
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors may provide by resolution that some or all
of any or all classes or series of the Corporation's stock shall be
uncertificated shares. Any such resolution shall not apply to shares represented
by a certificate until such certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates, and upon request every holder
of uncertificated shares, shall be entitled to have a certificate (representing
the number of shares registered in certificate form) signed in the name of the
Corporation by the Chairperson, President or any Vice President, and by the
Treasurer, Secretary or any Assistant Treasurer or Assistant Secretary of the
Corporation. Any or all the signatures on the certificate may be facsimile. In
case any officer, transfer agent or registrar whose signature or
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<PAGE> 13
facsimile signature appears on a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue.
5.2. LOST CERTIFICATES
The Board of Directors, Chairperson, President or Secretary may
direct a new certificate of stock to be issued in place of any certificate
theretofore issued by the Corporation and alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
that the certificate of stock has been lost, stolen or destroyed. When
authorizing such issuance of a new certificate, the board or any such officer
may, as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or such owner's legal
representative, to advertise the same in such manner as the board or such
officer shall require and/or to give the Corporation a bond, in such sum as the
board or such officer may direct, as indemnity against any claim that may be
made against the Corporation on account of the certificate alleged to have been
lost, stolen or destroyed or on account of the issuance of such new certificate
or uncertificated shares.
5.3. RECORD DATE
5.3.1. ACTIONS BY STOCKHOLDERS
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders (or to take any other
action), the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors and shall not be less than ten nor more than sixty
days before the meeting or action requiring a determination of stockholders.
In order that the Corporation may determine the stockholders entitled
to consent to corporate action without a meeting, the Board of Directors may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and shall
not be more than ten days after the date upon which the resolution fixing the
record date is adopted by the Board of Directors.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting,
unless the Board of Directors fixes a new record date.
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<PAGE> 14
If no record date is fixed by the Board of Directors, the record date
shall be at the close of business on the day next preceding the day on which
notice is given, or if notice is not required or is waived, at the close of
business on the day next preceding the day on which the meeting is held or such
other action is taken, except that (if no record date is established by the
Board of Directors) the record date for determining stockholders entitled to
consent to corporate action without a meeting is the first date on which a
stockholder delivers a signed written consent to the Corporation for inclusion
in the minute book.
5.3.2. PAYMENTS
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
5.4. STOCKHOLDERS OF RECORD
The Corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends, to
receive notifications, to vote as such owner, and to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise may be provided by the Delaware General Corporation Law.
6. INSURANCE
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation
(or is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise) against liability
asserted against or incurred by such person in such capacity or arising from
such person's status as such (whether or not the Corporation would have the
power to indemnify such person against the same liability).
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7. GENERAL PROVISIONS
7.1. INSPECTION OF BOOKS AND RECORDS
Any stockholder, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the right during the
usual hours for business to inspect for any proper purpose the Corporation's
stock ledger, a list of its stockholders, and its other books and records, and
to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a stockholder. In every instance
where an attorney or other agent shall be the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing which authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office or at its principal place of business.
7.2. DIVIDENDS
The Board of Directors may declare dividends upon the capital stock
of the Corporation, subject to the provisions of the Certificate of
Incorporation and the laws of the State of Delaware.
7.3. RESERVES
The directors of the Corporation may set apart, out of the funds of
the Corporation available for dividends, a reserve or reserves for any proper
purpose and may abolish any such reserve.
7.4. EXECUTION OF INSTRUMENTS
All checks, drafts or other orders for the payment of money, and
promissory notes of the Corporation shall be signed by such officer or officers
or such other person or persons as the Board of Directors may from time to time
designate.
7.5. FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of
the Board of Directors.
7.6. SEAL
The corporate seal shall be in such form as the Board of Directors
shall approve. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
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<PAGE> 16
7.6 SEAL
The corporate seal shall be in such form as the Board of Directors
shall approve. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
* * * * *
The foregoing Bylaws were adopted by the Board of Directors on April
24, 1996, and amended as of September 19, 1997 (to change the name of the
Corporation).
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EXHIBIT 4.1
EXECUTION COPY
KNOLOGY HOLDINGS, INC.,
Issuer
and
UNITED STATES TRUST COMPANY OF NEW YORK,
Trustee
---------------------
Indenture
Dated as of October 22, 1997
---------------------
11-7/8% Senior Discount Notes due 2007
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Sections Indenture Sections
------------ ------------------
<S> <C>
Section 310(a)(1) ... 7.10
(a)(2) ... 7.10
(b) ... 7.08
Section 313(c) ... 7.06; 10.02
Section 314(a) ... 4.17; 10.02
(a)(4) ... 4.16; 10.02
(c)(1) ... 10.03
(c)(2) ... 10.03
(e) ... 10.04
Section 315(b) ... 7.05; 10.02
Section 316(a)(1)(A) ... 6.05
(a)(1)(B) ... 6.04
(b) ... 6.07
Section 317(a)(1) ... 6.08
(a)(2) ... 6.09
Section 318(a) ... 10.01
(c) ... 10.01
</TABLE>
Note: The Cross-Reference Table shall not for any purpose be deemed to be a
part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS(1)
<TABLE>
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<S> <C>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions...............................................................................2
SECTION 1.02. Incorporation by Reference of Trust Indenture Act........................................22
SECTION 1.03. Rules of Construction....................................................................22
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating..........................................................................23
SECTION 2.02. Restrictive Legends......................................................................24
SECTION 2.03. Execution, Authentication and Denominations..............................................26
SECTION 2.04. Registrar and Paying Agent...............................................................27
SECTION 2.05. Paying Agent to Hold Money in Trust......................................................28
SECTION 2.06. Transfer and Exchange....................................................................29
SECTION 2.07. Book-Entry Provisions for Global Notes.................................................. 30
SECTION 2.08. Special Transfer Provisions..............................................................32
SECTION 2.09. Replacement Notes........................................................................35
SECTION 2.10. Outstanding Notes........................................................................35
SECTION 2.11. Temporary Notes..........................................................................36
SECTION 2.12. Cancellation.............................................................................36
SECTION 2.13. CUSIP Numbers............................................................................37
SECTION 2.14. Defaulted Interest.......................................................................37
SECTION 2.15. Issuance of Additional Notes.............................................................37
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption; Mandatory Redemption................................................37
SECTION 3.02. Notices to Trustee.......................................................................38
SECTION 3.03. Selection of Notes to Be Redeemed........................................................38
SECTION 3.04. Notice of Redemption.....................................................................38
SECTION 3.05. Effect of Notice of Redemption...........................................................39
SECTION 3.06. Deposit of Redemption Price..............................................................40
SECTION 3.07. Payment of Notes Called for Redemption...................................................40
</TABLE>
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(1)Note: The Table of Contents shall not for any purposes be deemed to be a part
of the Indenture.
<PAGE> 4
<TABLE>
<CAPTION>
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SECTION 3.08. Notes Redeemed in Part.................................................................. 40
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.........................................................................40
SECTION 4.02. Maintenance of Office or Agency..........................................................41
SECTION 4.03. Limitation on Indebtedness...............................................................41
SECTION 4.04. Limitation on Restricted Payments....................................................... 43
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries..................................................................46
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries.............................................................................48
SECTION 4.07. Limitation on Issuances of Guarantees by Restricted Subsidiaries.........................48
SECTION 4.08. Limitation on Transactions with Stockholders and Affiliates..............................49
SECTION 4.09. Limitation on Liens......................................................................49
SECTION 4.10. Limitation on Asset Sales................................................................50
SECTION 4.11. Repurchase of Notes upon a Change of Control.............................................51
SECTION 4.12. Existence................................................................................51
SECTION 4.13. Payment of Taxes and Other Claims........................................................51
SECTION 4.14. Maintenance of Properties and Insurance..................................................51
SECTION 4.15. Notice of Defaults.......................................................................52
SECTION 4.16. Compliance Certificates..................................................................52
SECTION 4.17. Commission Reports and Reports to Holders............................................... 53
SECTION 4.18. Waiver of Stay, Extension or Usury Laws................................................. 53
SECTION 4.19. Limitation on Sale-Leaseback Transactions................................................54
SECTION 4.20. Calculation of Original Issue Discount and Certain Information
Concerning Tax Reporting.................................................................54
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc..............................................................54
SECTION 5.02. Successor Substituted....................................................................55
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default........................................................................56
SECTION 6.02. Acceleration.............................................................................57
</TABLE>
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<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 6.03. Other Remedies...........................................................................58
SECTION 6.04. Waiver of Past Defaults..................................................................58
SECTION 6.05. Control by Majority......................................................................58
SECTION 6.06. Limitation on Suits......................................................................58
SECTION 6.07. Rights of Holders to Receive Payment.................................................... 59
SECTION 6.08. Collection Suit by Trustee...............................................................59
SECTION 6.09. Trustee May File Proofs of Claim.........................................................60
SECTION 6.10. Priorities...............................................................................60
SECTION 6.11. Undertaking for Costs....................................................................60
SECTION 6.12. Restoration of Rights and Remedies.......................................................61
SECTION 6.13. Rights and Remedies Cumulative...........................................................61
SECTION 6.14. Delay or Omission Not Waiver.............................................................61
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General..................................................................................61
SECTION 7.02. Certain Rights of Trustee................................................................62
SECTION 7.03. Individual Rights of Trustee.............................................................63
SECTION 7.04. Trustee's Disclaimer.....................................................................63
SECTION 7.05. Notice of Default........................................................................63
SECTION 7.06. Reports by Trustee to Holders............................................................63
SECTION 7.07. Compensation and Indemnity...............................................................63
SECTION 7.08. Replacement of Trustee...................................................................64
SECTION 7.09. Successor Trustee by Merger, Etc.........................................................65
SECTION 7.10. Eligibility..............................................................................65
SECTION 7.11. Money Held in Trust......................................................................65
SECTION 7.12. Withholding Taxes........................................................................66
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations.....................................................66
SECTION 8.02. Defeasance and Discharge of Indenture....................................................67
SECTION 8.03. Defeasance of Certain Obligations........................................................69
SECTION 8.04. Application of Trust Money...............................................................71
SECTION 8.05. Repayment to Company.....................................................................71
SECTION 8.06. Reinstatement............................................................................71
SECTION 8.07. Defeasance and Certain Other Events of Default...........................................72
</TABLE>
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<TABLE>
<CAPTION>
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ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders...............................................................72
SECTION 9.02. With Consent of Holders..................................................................72
SECTION 9.03. Revocation and Effect of Consent.........................................................73
SECTION 9.04. Notation on or Exchange of Notes.........................................................74
SECTION 9.05. Trustee to Sign Amendments, Etc..........................................................74
SECTION 9.06. Conformity with Trust Indenture Act......................................................75
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. Trust Indenture Act of 1939..............................................................75
SECTION 10.02. Notices..................................................................................75
SECTION 10.03. Certificate and Opinion as to Conditions Precedent.......................................76
SECTION 10.04. Statements Required in Certificate or Opinion............................................76
SECTION 10.05. Rules by Trustee, Paying Agent or Registrar..............................................77
SECTION 10.06. Payment Date Other Than a Business Day................................................. .77
SECTION 10.07. Governing Law............................................................................77
SECTION 10.08. No Adverse Interpretation of Other Agreements............................................77
SECTION 10.09. No Recourse Against Others...............................................................77
SECTION 10.10 Successors...............................................................................78
SECTION 10.11 Duplicate Originals......................................................................78
SECTION 10.12 Separability.............................................................................78
SECTION 10.13 Table of Contents, Headings, Etc.........................................................78
ARTICLE ELEVEN
MEETINGS OF HOLDERS
SECTION 11.01. Purposes for Which Meetings May Be Called................................................78
SECTION 11.02. Manner of Calling Meetings...............................................................79
SECTION 11.03. Call of Meetings by the Company or Holders...............................................79
SECTION 11.04. Who May Attend and Vote at Meetings......................................................79
SECTION 11.05. Quorum; Action...........................................................................80
SECTION 11.06. Regulations May Be Made by Trustee; Conduct of the Meeting; Voting
Rights; Adjournment......................................................................80
SECTION 11.07. Voting at the Meeting and Record to Be Kept..............................................81
SECTION 11.08. Exercise of Rights of Trustee or Holders May Not Be Hindered or
Delayed by Call of Meeting...............................................................81
</TABLE>
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<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 11.09. Procedures Not Exclusive.................................................................82
EXHIBIT A Form of Note.............................................................................A-1
EXHIBIT B Form of Certificate......................................................................B-1
EXHIBIT C Form of Certificate to Be Delivered in Connection with Transfers
Pursuant to Non-QIB Accredited Investors.................................................C-1
EXHIBIT D Form of Certificate to Be Delivered in Connection with Transfers
Pursuant to Regulation S.................................................................D-1
</TABLE>
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<PAGE> 8
INDENTURE, dated as of October 22, 1997, between KNOLOGY
HOLDINGS, INC., a Delaware corporation (the "Company"), and United States Trust
Company of New York, a bank and trust company organized under the New York
banking law (the "Trustee").
RECITALS
The Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance initially of up to $444,100,000
aggregate principal amount at maturity of the Company's 11-7/8% Senior Discount
Notes due 2007 (the "Notes") issuable as provided in this Indenture. The Company
has agreed to issue and sell a total of 444,100 units (the "Units") each of
which consists of one Note and one warrant (each, a "Warrant"), each Warrant
initially entitling the holder thereof to purchase .003734 shares of Preferred
Stock, par value $0.01 per share, of the Company, of which 373,050 Units are to
be purchased by the Placement Agents, pursuant to the terms of a Placement
Agreement, dated October 16, 1997, between the Company and Morgan Stanley & Co.
Incorporated, J.P. Morgan Securities Inc. and First Union Capital Markets Corp.,
as placement agents (the "Placement Agreement"), and of which 71,050 Units are
to be purchased by SCANA Communications, Inc. ("SCANA"), pursuant to the terms
of a Unit Purchase Agreement, dated October 16, 1997 between the Company and
SCANA. The Notes and the Warrants included in each Unit will become separately
transferable at the close of business upon the earliest to occur of (i) the date
that is six months following the Closing Date, (ii) the commencement of an
exchange offer with respect to the Notes undertaken pursuant to the Notes
Registration Rights Agreement and (iii) the effectiveness of a shelf
registration statement with respect to the Notes (the "Separation Date"). All
things necessary to make this Indenture a valid agreement of the Company, in
accordance with its terms, have been done, and the Company has done all things
necessary to make the Notes, when executed by the Company and authenticated and
delivered by the Trustee hereunder and duly issued by the Company, the valid
obligations of the Company as hereinafter provided.
This Indenture is subject to, and shall be governed by, the
provisions of the Trust Indenture Act of 1939 that are required to be a part of
and to govern indentures qualified under the Trust Indenture Act of 1939.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of
the Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders, the Company and the Trustee, as
follows.
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<PAGE> 9
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Accreted Value" means, for any Specified Date, the amount
calculated pursuant to (i), (ii), (iii) or (iv) for each $1,000 of principal
amount at maturity of Notes:
(i) if the Specified Date occurs on one or more of the following
dates (each a "Semi-Annual Accrual Date"), the Accreted Value shall equal the
amount set forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRETED
----------- --------
ACCRUAL DATE VALUE
------------ -----
<S> <C>
April 15, 1998 $595.04
October 15, 1998 $630.37
April 15, 1999 $667.80
October 15, 1999 $707.45
April 15, 2000 $749.46
October 15, 2000 $793.96
April 15, 2001 $841.10
October 15, 2001 $891.04
April 15, 2002 $943.95
October 15, 2002 $1,000.00
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual
Accrual Date, the Accreted Value shall equal the sum of (a) $562.96 and (b) an
amount equal to the product of (1) the Accreted Value for the first Semi-Annual
Accrual Date less $562.96 multiplied by (2) a fraction, the numerator of which
is the number of days from the issue date of the Notes to the Specified Date,
using a 360-day year of twelve 30-day months, and the denominator of which is
the number of days elapsed from the issue date of the Notes to the first
Semi-Annual Accrual Date, using a 360-day year of twelve 30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value shall equal the sum of (a) the Accreted Value for the
Semi-Annual Accrual Date immediately preceding such Specified Date and (b) an
amount equal to the product of (1) the Accreted Value for the immediately
following Semi-Annual Accrual Date less the Accreted Value for the immediately
preceding Semi-Annual Accrual Date multiplied by (2) a fraction, the numerator
of which is the number of days from the immediately preceding Semi-Annual
Accrual Date to the Specified Date, using a 360-day year of twelve 30-day
months, and the denominator of which is 180; or
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<PAGE> 10
(iv) if the Specified Date occurs after the last Semi-Annual
Accrual Date, the Accreted Value shall equal $1,000.
"Acquired Assets" means (i) the Capital Stock of any Person
that becomes a Restricted Subsidiary after the Closing Date and (ii) the real or
personal property of any Person that becomes a Restricted Subsidiary after the
Closing Date.
"Acquired Indebtedness" means Indebtedness of a Person
existing at the time such Person becomes a Restricted Subsidiary or assumed in
connection with an Asset Acquisition by a Restricted Subsidiary; provided that
Indebtedness of such Person which is redeemed, defeased, retired or otherwise
repaid at the time of or immediately upon consummation of the transactions by
which such Person becomes a Restricted Subsidiary or such Asset Acquisition
shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period determined in conformity with GAAP; provided that the following
items shall be excluded in computing Adjusted Consolidated Net Income (without
duplication): (i) the net income (or loss) of any Person (other than a
Restricted Subsidiary) in which any Person (other than the Company or any of its
Restricted Subsidiaries) has a joint interest and the net income (or loss) of
any Unrestricted Subsidiary, except (x) with respect to net income, to the
extent of the amount of dividends or other distributions actually paid to the
Company or any of its Restricted Subsidiaries by such other Person or such
Unrestricted Subsidiary during such period and (y) with respect to net losses,
to the extent of the amount of cash contributed by the Company or any Restricted
Subsidiary to such Person during such period; (ii) solely for the purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of Section 4.04 (and in such case, except to
the extent includable pursuant to clause (i) above), the net income (or loss) of
any Person accrued prior to the date it becomes a Restricted Subsidiary or is
merged into or consolidated with the Company or any of its Restricted
Subsidiaries or all or substantially all of the property and assets of such
Person are acquired by the Company or any of its Restricted Subsidiaries; (iii)
the net income of any Restricted Subsidiary to the extent that the declaration
or payment of dividends or similar distributions by such Restricted Subsidiary
of such net income is not at the time permitted by the operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to such Restricted Subsidiary; (iv) any
gains or losses (on an after-tax basis) attributable to Asset Sales; (v) except
for purposes of calculating, the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of Section 4.04, any amount paid
or accrued as dividends on Preferred Shares (other than accrued dividends which,
pursuant to the terms of the Preferred Shares, will not be payable prior to the
first anniversary after the Stated Maturity of the Notes) of the Company or any
Restricted Subsidiary owned by Persons other than the Company and any of its
Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary
losses.
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<PAGE> 11
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means any Registrar, Co-Registrar, Paying Agent or
authenticating agent.
"Agent Members" has the meaning provided in Section 2.07(a).
"Asset Acquisition" means (i) an investment by the Company or
any of its Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary or shall be merged into or
consolidated with the Company or any of its Restricted Subsidiaries; provided
that such Person's primary business is related, ancillary or complementary to
the businesses of the Company and its Restricted Subsidiaries on the date of
such investment or (ii) an acquisition by the Company or any of its Restricted
Subsidiaries of the property and assets of any Person other than the Company or
any of its Restricted Subsidiaries that constitute substantially all of a
division or line of business of such Person; provided that the property and
assets acquired are related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the
Company or any of its Restricted Subsidiaries (other than to the Company or
another Restricted Subsidiary) of (i) all or substantially all of the Capital
Stock of any Restricted Subsidiary or (ii) all or substantially all of the
assets that constitute a division or line of business of the Company or any of
its Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback transaction) in one
transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not governed by Article
Five; provided that "Asset Sale" shall not include (a) sales, transfers or other
dispositions of inventory, receivables and other current assets, (b) sales,
transfers or other dispositions of assets with a fair market value (as certified
in an Officers' Certificate) not in excess of $500,000 in any transaction or
series of related transactions or (c) sales, transfers or other dispositions of
assets
- 4 -
<PAGE> 12
for consideration at least equal to the fair market value of the assets sold,
transferred or otherwise disposed of to the extent the consideration received
would constitute property or assets of the kind described in clause (B) of
Section 4.10, provided that after giving pro forma effect to such exchange, the
Consolidated Leverage Ratio shall be no greater than the Consolidated Leverage
Ratio immediately prior to such exchange.
"Average Life" means, at any date of determination with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the products of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security and
(b) the amount of such principal payment by (ii) the sum of all such principal
payments.
"Board of Directors" means the Board of Directors of the
Company or any committee of such Board of Directors duly authorized to act under
this Indenture.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in The City of New York, or in the city of
the Corporate Trust Office of the Trustee, are authorized by law to close.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether outstanding on
the Closing Date or issued thereafter, including, without limitation, all Common
Shares and Preferred Shares.
"Capitalized Lease" means, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present
value of the rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i)(a) prior to the
occurrence of a Public Market, a "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the ultimate
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of Voting
Stock representing a greater percentage of the total voting power of the Voting
Stock of the Company, on a fully diluted basis, than is held by the Existing
Stockholders on such date and (b) after the occurrence of a Public Market, a
"person" or
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<PAGE> 13
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 35% of the total voting power of the Voting Stock of
the Company, on a fully diluted basis, and such ownership represents a greater
percentage of the total voting power of the Voting Stock of the Company, on a
fully diluted basis, than is held by the Existing Stockholders on such date; or
(ii) individuals who on the Closing Date constitute the Board of Directors
(together with any new directors whose election by the Board of Directors or
whose nomination by the Board of Directors for election by the Company's
stockholders was approved by a vote of at least two-thirds of the members of the
Board of Directors then in office who either were members of the Board of
Directors on the Closing Date or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of the Board of Directors then in office.
"Closing Date" means the date on which the Notes are
originally issued under this Indenture.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the TIA, then the body performing
such duties at such time.
"Common Shares" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's equity, other than Preferred
Shares of such Person, whether outstanding on the Closing Date or issued
thereafter, including, without limitation, all series and classes of such common
stock.
"Company" means the party named as such in the first paragraph
of this Indenture until a successor replaces it pursuant to Article Five of this
Indenture and thereafter means the successor.
"Company Order" means a written request or order signed in the
name of the Company (i) by its Chairman, a Vice Chairman, its President or a
Vice President and (ii) by its Treasurer, an Assistant Treasurer, its Secretary
or an Assistant Secretary and delivered to the Trustee; provided, however, that
such written request or order may be signed by any two of the officers or
directors listed in clause (i) above in lieu of being signed by one of such
officers or directors listed in such clause (i) and one of the officers listed
in clause (ii) above.
"Consolidated EBITDA" means, for any period, the sum of the
amounts for such period of (i) Adjusted Consolidated Net Income, (ii)
Consolidated Interest Expense to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, (iii) income taxes, to the extent
such amount was deducted in calculating Adjusted Consolidated Net Income (other
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<PAGE> 14
than income taxes (either positive or negative) attributable to extraordinary
and non-recurring gains or losses or sales of assets), (iv) depreciation
expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (v) amortization expense, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income, and (vi) all other
non-cash items reducing Adjusted Consolidated Net Income (other than items that
will require cash payments and for which an accrual or reserve is, or is
required by GAAP to be, made), less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for the
Company and its Restricted Subsidiaries in conformity with GAAP; provided that,
if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the Adjusted
Consolidated Net Income attributable to such Restricted Subsidiary multiplied by
(B) the quotient of (1) the number of outstanding Common Shares of such
Restricted Subsidiary not owned on the last day of such period by the Company or
any of its Restricted Subsidiaries divided by (2) the total number of
outstanding Common Shares of such Restricted Subsidiary on the last day of such
period.
"Consolidated Interest Expense" means, for any period, the
aggregate amount of interest in respect of Indebtedness (including, without
limitation, amortization of original issue discount on any Indebtedness and the
interest portion of any deferred payment obligation, calculated in accordance
with the effective interest method of accounting, all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, the net costs associated with Interest Rate Agreements;
and Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; excluding, however, (i) any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in connection
with the offering of the Notes and the Warrants, all as determined on a
consolidated basis (without taking into account Unrestricted Subsidiaries) in
conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date,
the ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries on a consolidated basis outstanding on such Transaction
Date to (ii) the aggregate amount of Consolidated EBITDA for the then most
recent four fiscal quarters for which financial statements of the Company have
been filed with the Commission or provided to the Trustee pursuant to Section
4.17 (such four fiscal quarter period being the "Four Quarter Period"); provided
that, in making the foregoing calculation, (A) pro forma effect shall be given
to any Indebtedness to be Incurred or repaid on the Transaction Date; (B) pro
forma effect shall be given to Asset
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<PAGE> 15
Dispositions and Asset Acquisitions (including giving pro forma effect to the
application of proceeds of any Asset Disposition) that occur from the beginning
of the Four Quarter Period through the Transaction Date (the "Reference
Period"), as if they had occurred and such proceeds had been applied on the
first day of such Reference Period; (C) pro forma effect shall be given to asset
dispositions and asset acquisitions (including giving pro forma effect to the
application of proceeds of any asset disposition) that have been made by any
Person that has become a Restricted Subsidiary or has been merged with or into
the Company or any Restricted Subsidiary during such Reference Period and that
would have constituted Asset Dispositions or Asset Acquisitions had such
transactions occurred when such Person was a Restricted Subsidiary as if such
asset dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such Reference Period; provided
that to the extent that clause (B) or (C) of this sentence requires that pro
forma effect be given to an Asset Acquisition or Asset Disposition, such pro
forma calculation shall be based upon the four full fiscal quarters immediately
preceding the Transaction Date of the Person, or division or line of business of
the Person, that is acquired or disposed of for which financial information is
available; and (D) the aggregate amount of Indebtedness outstanding as of the
end of the Reference Period shall be deemed to include the total amount of funds
outstanding and/or available on the Transaction Date under any revolving credit
or similar facilities of the Company or its Restricted Subsidiaries.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Redeemable Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Corporate Trust Office" means the office of the Trustee at
which the corporate trust business of the Trustee shall, at any particular time,
be principally administered, which office is, at the date of this Indenture,
located at 114 West 47th Street, New York, NY 10036, Attention: Corporate Trust
Department.
"Credit Agreement" means the $50.0 million credit facility to
be entered into by the Company and its Restricted Subsidiaries, First Union
National Bank and First Union Capital Markets Corp. pursuant to a commitment
letter dated September 29, 1997.
"Credit Facilities" means revolving credit or working capital
facilities or similar facilities made available from time to time to the Company
and its Restricted Subsidiaries.
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<PAGE> 16
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees,
and their respective successors.
"Event of Default" has the meaning provided in Section 6.01.
"Excess Proceeds" has the meaning provided in Section 4.10.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means any securities of the Company
containing terms identical to the Notes (except that such Exchange Notes shall
be registered under the Securities Act) that are issued and exchanged for the
Notes pursuant to the Registration Rights Agreement and this Indenture.
"Existing Stockholders" means ITC Holding, Campbell B. Lanier,
III and SCANA Corporation and their Affiliates, and Campbell B. Lanier, III's
spouse and any one or more of his lineal descendants and their spouses;
provided, however, that any such person other than Campbell B. Lanier, III shall
only be deemed to be an "Existing Stockholder" to the extent such person's
Capital Stock of the Company was received, directly or indirectly, from Campbell
B. Lanier, III.
"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined in good faith by the Board of Directors, whose determination shall
be conclusive if evidenced by a Board Resolution; provided that for purposes of
clause (viii) of the second paragraph of Section 4.03, (x) the fair market value
of any security registered under the Exchange Act shall be the average of the
closing prices, regular way, of such security for the 20 consecutive trading
days immediately preceding the capital contribution or sale of Capital Stock and
(y) in the event the aggregate fair market value of any other property (other
than cash or cash equivalents) received by the Company exceeds $10 million, the
fair market value of such property shall be determined by a nationally
recognized investment banking firm and set forth in their written opinion which
shall be delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time, including, without
limitation, those set forth in the
- 9 -
<PAGE> 17
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations contained or referred to in this Indenture shall be
computed in conformity with GAAP applied on a consistent basis, except that
computations made for purposes of determining compliance with the terms of the
covenants and with other provisions of this Indenture shall be made without
giving effect to (i) the amortization of any expenses incurred in connection
with the offering of the Notes and the Warrants and (ii) except as otherwise
provided, the amortization of any amounts required or permitted by Accounting
Principles Board Opinion Nos. 16 and 17.
"Global Notes" has the meaning provided in Section 2.01.
"Guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services (unless such purchase arrangements are on arm's-length
terms and are entered into in the ordinary course of business), to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Holder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an Incurrence of Acquired Indebtedness; provided that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date
of determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, except Trade Payables, (v) all Capitalized Lease
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<PAGE> 18
Obligations of such Person, (vi) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such Indebtedness is assumed by
such Person; provided that the amount of such Indebtedness shall be the lesser
of (A) the fair market value of such asset at such date of determination and (B)
the amount of such Indebtedness, (vii) all Indebtedness of other Persons
Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such
Person and (viii) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements. The amount
of Indebtedness of any Person at any date shall be the outstanding balance at
such date (or, in the case of a revolving credit or other similar facility, the
total amount of funds outstanding and/or available on the date of determination)
of all unconditional obligations as described above and, with respect to
contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, provided (A) that the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the face amount of such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at the time of its issuance
as determined in conformity with GAAP, (B) that money borrowed and set aside at
the time of the Incurrence of any Indebtedness in order to prefund the payment
of the interest on such Indebtedness shall not be deemed to be "Indebtedness"
and (C) that Indebtedness shall not include any liability for federal, state,
local or other taxes.
"Indenture" means this Indenture as originally executed or as
it may be amended or supplemented from time to time by one or more indentures
supplemental to this Indenture entered into pursuant to the applicable
provisions of this Indenture.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act.
"Interest Payment Date" means each semiannual interest payment
date on April 15 and October 15 of each year, commencing April 15, 2003.
"Interest Rate Agreement" means 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, option or futures contract or other
similar agreement or arrangement.
"Investment" in any Person means any direct or indirect
advance, loan or other extension of credit (including, without limitation, by
way of Guarantee or similar arrangement; but excluding advances to customers in
the ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable on the balance sheet of the Company or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the account
or use of others), or any purchase or acquisition of Capital Stock, bonds,
notes, debentures or other similar instruments issued by, such Person and shall
include (i) the designation of a Restricted
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<PAGE> 19
Subsidiary as an Unrestricted Subsidiary and (ii) the fair market value of the
Capital Stock (or any other Investment), held by the Company or any of its
Restricted Subsidiaries, of (or in) any Person that has ceased to be a
Restricted Subsidiary, including, without limitation, by reason of any
transaction permitted by clause (iii) of Section 4.06. For purposes of the
definition of "Unrestricted Subsidiary" and Section 4.04, (i) "Investment" shall
include the fair market value of the assets (net of liabilities (other than
liabilities to the Company or any of its Subsidiaries)) of any Restricted
Subsidiary at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary, (ii) the fair market value of the assets (net of
liabilities (other than liabilities to the Company or any of its Subsidiaries))
of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary shall be considered a reduction in
outstanding Investments and (iii) any property transferred to or from any Person
shall be valued at its fair market value at the time of such transfer.
"ITC Holding" means ITC Holding Company, Inc., a Delaware
corporation, and after ITC Holding transfers its shares of capital stock in the
Company to ITC West Point, Inc., ITC West Point, Inc.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof or any agreement to give any security interest).
"Net Cash Proceeds" means, (a) with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of (i) brokerage commissions and
other fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or
not such taxes will actually be paid or are payable) as a result of such Asset
Sale without regard to the consolidated results of operations of the Company and
its Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary as a reserve against any
liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP, and
(b) with respect to any capital contribution or issuance or sale of Capital
Stock, options, warrants or other rights to acquire Capital Stock or
Indebtedness, the proceeds of such capital contribution or issuance or sale in
the form of cash or cash equivalents, including payments in respect of deferred
payment obligations (to the extent corresponding to the
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<PAGE> 20
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Non-U.S. Person" means a person who is not a "U.S. person"
(as defined in Regulation S).
"Notes" means any of the securities, as defined in the first
paragraph of the recitals hereof, that are authenticated and delivered under
this Indenture. For all purposes of this Indenture, the term "Notes" shall
include the Notes initially issued on the Closing Date, any Exchange Notes to be
issued and exchanged for any Notes pursuant to the Registration Rights Agreement
and this Indenture and any other Notes issued after the Closing Date under this
Indenture. For purposes of this Indenture, all Notes shall vote together as one
series of Notes under this Indenture.
"Offer to Purchase" means an offer by the Company to purchase
Notes from the Holders commenced by mailing a notice to the Trustee and each
Holder stating: (i) the covenant pursuant to which the offer is being made and
that all Notes validly tendered shall be accepted for payment on a pro rata
basis; (ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date"); (iii) that any Note not tendered shall
continue to accrue interest (or original issue discount) pursuant to its terms;
(iv) that, unless the Company defaults in the payment of the purchase price, any
Note accepted for payment pursuant to the Offer to Purchase shall cease to
accrue interest (or original issue discount) on and after the Payment Date; (v)
that Holders electing to have a Note purchased pursuant to the Offer to Purchase
shall be required to surrender the Note, together with the form entitled "Option
of the Holder to Elect Purchase" on the reverse side of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the Business Day immediately preceding the Payment Date; (vi) that
Holders shall be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
immediately preceding the Payment Date, a facsimile transmission or letter
setting forth the name of such Holder, the principal amount at maturity of Notes
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased; and (vii) that Holders whose Notes are
being purchased only in part shall be issued new Notes equal in principal amount
to the unpurchased portion of the Notes surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount at maturity of
$1,000 or integral multiples thereof. On the Payment Date, the Company shall (i)
accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent
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<PAGE> 21
money sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The Paying Agent shall promptly mail to the Holders of Notes so accepted payment
in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount at
maturity to any unpurchased portion of the Note surrendered; provided that each
Note purchased and each new Note issued shall be in a principal amount at
maturity of $1,000 or integral multiples thereof. The Company shall publicly
announce the results of an Offer to Purchase as soon as practicable after the
Payment Date. The Trustee shall act as the Paying Agent for an Offer to
Purchase. The Company shall comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that the Company is required to
repurchase Notes pursuant to an Offer to Purchase.
"Officer" means, with respect to the Company, (i) the Chairman
of the Board, the Chief Executive Officer, the President, any Vice President or
the Chief Financial Officer, and (ii) the Treasurer or any Assistant Treasurer,
or the Secretary or any Assistant Secretary.
"Officers' Certificate" means a certificate signed by one
Officer listed in clause (i) of the definition thereof and one Officer listed in
clause (ii) of the definition thereof or two officers listed in clause (i) of
the definition thereof. Each Officers' Certificate (other than certificates
provided pursuant to TIA Section 314(a)(4)) shall include the statements
provided for in TIA Section 314(e).
"Offshore Global Note" has the meaning provided in Section
2.01.
"Offshore Notes Exchange Date" has the meaning provided in
Section 2.01.
"Offshore Physical Notes" has the meaning provided in Section
2.01.
"Opinion of Counsel" means a written opinion signed by legal
counsel, who may be an employee of or counsel to the Company, that meets the
requirements of Section 11.04 hereof. Each such Opinion of Counsel shall include
the statements provided for in TIA Section 314(e).
"Paying Agent" has the meaning provided in Section 2.04,
except that, for the purposes of Article Eight, the Paying Agent shall not be
the Company or a Subsidiary of the Company or an Affiliate of any of them. The
term "Paying Agent" includes any additional Paying Agent.
"Permanent Offshore Global Notes" has the meaning provided in
Section 2.01.
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<PAGE> 22
"Permitted Investment" means (i) an Investment in the Company
or a Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) a Temporary Cash
Investment; (iii) commission, payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses in accordance with GAAP; (iv) stock, obligations or securities
received in satisfaction of judgments; (v) Investments in prepaid expenses,
negotiable instruments held for collection, and lease, utility and workers'
compensation, performance and other similar deposits; (vi) loans or advances to
employees of the Company or a Restricted Subsidiary made in the ordinary course
of business that do not in the aggregate exceed $500,000 at any time
outstanding; and (vii) Interest Rate Agreements and Currency Agreements to the
extent permitted under clause (iv) of the second paragraph of Section 4.03.
"Permitted Liens" means (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provisions, if any, as shall be
required in conformity with GAAP shall have been made; (ii) statutory and common
law Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other similar Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provisions, if any, as
shall be required in conformity with GAAP shall have been made; (iii) Liens
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company or
any of its Restricted Subsidiaries; (vi) Liens (including extensions and
renewals thereof) upon real or personal property (including, without limitation,
Acquired Assets) acquired after the Closing Date; provided that (a) such Lien is
created solely for the purpose of securing Indebtedness Incurred, in accordance
with Section 4.03, to finance the cost (including, without limitation, the cost
of design, development, construction, acquisition, installation, improvement,
transportation or integration) of the real or personal property subject thereto
and such Lien is created prior to, at the time of or within six months after the
latest of the acquisition, the completion of construction or the commencement of
full operation of such real or personal property; provided that in the case of
Acquired Assets, the Lien secures the Indebtedness
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<PAGE> 23
Incurred to purchase the Capital Stock of the Person to make such Person a
Restricted Subsidiary, (b) the principal amount of the Indebtedness secured by
such Lien does not exceed 100% of such cost and (c) any such Lien shall not
extend to or cover any real or personal property other than such real or
personal property and any improvements on such real or personal property and any
proceeds thereof; (vii) leases or subleases granted to others that do not
materially interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property or
assets under construction arising from progress or partial payments by a
customer of the Company or its Restricted Subsidiaries relating to such property
or assets; (ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xi) Liens on property
of, or on shares of Capital Stock or Indebtedness of, any Person existing at the
time such Person becomes, or becomes a part of, any Restricted Subsidiary;
provided that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets acquired
and any proceeds thereof; (xii) Liens in favor of the Company or any Restricted
Subsidiary; (xiii) Liens arising from the rendering of a final judgment or order
against the Company or any Restricted Subsidiary that does not give rise to an
Event of Default; (xiv) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof; (xv) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods; (xvi) Liens
encumbering customary initial deposits and margin deposits, and other Liens that
are either within the general parameters customary in the industry and incurred
in the ordinary course of business, in each case securing Indebtedness under
Interest Rate Agreements and Currency Agreements and forward contracts, options,
futures contracts, futures options or similar agreements or arrangements
designed solely to protect the Company or any of its Restricted Subsidiaries
from fluctuations in interest rates, currencies or the price of commodities;
(xvii) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business in accordance
with the past practices of the Company and its Restricted Subsidiaries prior to
the Closing Date; (xviii) Liens on or sales of receivables, including related
intangible assets and proceeds thereof; (xix) Liens that secure Indebtedness
with an aggregate principal amount not to exceed $5 million at any time
outstanding; and (xx) Liens made in the ordinary course of business on assets
subject to rights-of-way, pole attachment, use of conduit, use of trenches or
similar agreements securing the Company's or any Restricted Subsidiary's
obligations under such agreements.
"Person" means an individual, a corporation, a partnership, a
limited liability company, an association, a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Physical Notes" has the meaning provided in Section 2.01.
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<PAGE> 24
"Preferred Shares" means, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's preferred or preference equity,
whether outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of such preferred or preference stock.
"principal" of a debt security, including the Notes, means the
principal amount due on the Stated Maturity as shown on such debt security.
"Private Placement Legend" means the legend initially set
forth on the Notes in the form set forth in Section 2.02.
"Public Equity Offering" means an underwritten primary public
offering of Common Shares of the Company pursuant to an effective registration
statement under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public
Equity Offering has been consummated and (ii) at least 15% of the total issued
and outstanding Common Shares of the Company has been distributed by means of an
effective registration statement under the Securities Act or sales pursuant to
Rule 144 under the Securities Act.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Redeemable Stock" means any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Notes, (ii) redeemable at the option of the
holder of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable in any material respect
to the holders of such Capital Stock than the provisions contained in Section
4.10 and Section 4.11 are to the holders of the Notes and such Capital Stock
specifically provides that such Person shall not repurchase or redeem any such
stock pursuant to such provisions prior to the Company's repurchase of such
Notes as are required to be repurchased pursuant to Section 4.10 and Section
4.11.
"Redemption Date" means, when used with respect to any Note to
be redeemed, the date fixed for such redemption by or pursuant to this
Indenture.
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<PAGE> 25
"Redemption Price" means, when used with respect to any Note
to be redeemed, the price at which such Note is to be redeemed pursuant to this
Indenture.
"Registrar" has the meaning provided in Section 2.04.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Closing Date, between the Company, SCANA
Communications, Inc. and Morgan Stanley & Co. Incorporated, J.P. Morgan
Securities Inc. and First Union Capital Markets Corp. and certain permitted
assigns specified therein.
"Registration Statement" means the Registration Statement as
defined and described in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the April 1 or October 1 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer", when used with respect to the Trustee,
means the chairman or any vice chairman of the board of directors, the chairman
or any vice chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, any
assistant vice president, the secretary, any assistant secretary, the treasurer,
any assistant treasurer, the cashier, any assistant cashier, any trust officer
or assistant trust officer, the controller or any assistant controller or any
other officer of the Trustee in its Corporate Trust Department customarily
performing functions similar to those performed by any of the above-designated
officers and in each case having direct responsibility for the administration of
this Indenture and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"Restricted Payments" has the meaning provided in Section
4.04.
"Restricted Subsidiary" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the Securities Act of 1933, as
amended..
"Security Register" has the meaning provided in Section 2.04.
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<PAGE> 26
"Separation Date" has the meaning provided in the recitals to
this Indenture.
"Significant Subsidiary" means, at any date of determination,
any Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"Specified Date" means any Redemption Date, any Payment Date
for an Offer to Purchase or any date on which the Notes first become due and
payable after an Event of Default.
"Stated Maturity" means (i) with respect to any debt security,
the date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Strategic Subordinated Indebtedness" means Indebtedness of
the Company Incurred to finance the acquisition of a Person engaged in the
Telecommunications Business that by its terms, or by the terms of any agreement
or instrument pursuant to which such Indebtedness is Incurred, (i) is expressly
made subordinate in right of payment to the Notes and (ii) provides that no
payment of principal, premium or interest on, or any other payment with respect
to, such Indebtedness may be made prior to the payment in full of all of the
Company's obligations under the Notes; provided that such Indebtedness may
provide for and be repaid at any time from the proceeds of the sale of Capital
Stock (other than Redeemable Stock) of the Company after the Incurrence of such
Indebtedness.
"Subsidiary" means, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
voting power of the outstanding Voting Stock is owned, directly or indirectly,
by such Person and one or more other Subsidiaries of such Person.
"Telecommunications Business" means the development, ownership
or operation of one or more cable television, telephone, telecommunications or
information systems or the provision of telephony, telecommunications or
information services (including, without limitation, any voice, video
transmission, data or Internet services) and any related, ancillary or
complementary business.
"Temporary Cash Investment" means any of the following: (i)
direct obligations of the United States of America or any agency thereof or
obligations fully and unconditionally
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<PAGE> 27
guaranteed by the United States of America or any agency thereof, (ii) time
deposit accounts, certificates of deposit and money market deposits maturing
within one year of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States of America, any
state thereof or any foreign country recognized by the United States of America,
and which bank or trust company has capital, surplus and undivided profits
aggregating in excess of $50 million (or the foreign currency equivalent
thereof) and has outstanding debt which is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
commercial paper, maturing not more than one year after the date of acquisition,
issued by a corporation (other than an Affiliate of the Company) organized and
in existence under the laws of the United States of America, any state thereof
or any foreign country recognized by the United States of America with a rating
at the time as of which any investment therein is made of "P-1" (or higher)
according to Moody's Investors Service, Inc. or "A-1" (or higher) according to
Standard & Poor's Ratings Services, and (v) securities with maturities of six
months or less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by Standard & Poor's Ratings Services or Moody's Investors Service,
Inc.
"Temporary Offshore Global Notes" has the meaning provided in
Section 2.01.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act
of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb), as in effect on the
date this Indenture was executed, except as provided in Section 9.06.
"Trade Payables" means, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
"Transaction Date" means, with respect to the Incurrence of
any Indebtedness by the Company or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"Trustee" means the party named as such in the first paragraph
of this Indenture until a successor replaces it in accordance with the
provisions of Article Seven of this Indenture and thereafter means such
successor.
"Unit" has the meaning provided in the recitals to this
Indenture.
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<PAGE> 28
"United States Bankruptcy Code" means the Bankruptcy Reform
Act of 1978, as amended and as codified in Title 11 of the United States Code,
as amended from time to time hereafter, or any successor federal bankruptcy law.
"U.S. Global Notes" has the meaning provided in Section 2.01.
"U.S. Government Obligations" means securities that are (i)
direct obligations of the United States of America for the payment of which its
full faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof at any time prior
to the Stated Maturity of the Notes, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on or principal of any
such U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of interest on
or principal of the U.S. Government Obligation evidenced by such depository
receipt.
"U.S. Physical Notes" has the meaning provided in Section
2.01.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Restricted Subsidiary (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Subsidiary; provided that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under Section 4.04. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that (i) no Default or Event
of Default shall have occurred and be continuing at the time of or after giving
effect to such designation and (ii) all Liens and Indebtedness of such
Unrestricted Subsidiary outstanding immediately after such designation would, if
Incurred at such time, have been permitted to be Incurred for all purposes of
this Indenture. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
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"Voting Stock" means, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the election
of directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" means, with respect to any Subsidiary of any
Person, the ownership of all of the outstanding Capital Stock of such Subsidiary
(other than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) by such Person or one or more Wholly Owned
Subsidiaries of such Person.
"Warrants" has the meaning provided in the recitals to this
Indenture.
SECTION 1.02. Incorporation by Reference of Trust Indenture
Act. Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company or any other
obligor on the Notes.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. Rules of Construction. Unless the context
otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in the
plural include the singular;
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<PAGE> 30
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision;
(vii) all ratios and computations based on GAAP contained in this
Indenture shall be computed in accordance with the definition of GAAP set forth
in Section 1.01; and
(viii) all references to Sections or Articles refer to Sections or
Articles of this Indenture unless otherwise indicated.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating. The Notes and the Trustee's
certificate of authentication shall be substantially in the form annexed hereto
as Exhibit A with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture. The Notes may
have notations, legends or endorsements required by law, stock exchange
agreements to which the Company is subject or usage. The Company shall approve
the form of the Notes and any notation, legend or endorsement on the Notes. Each
Note shall be dated the date of its authentication.
The terms and provisions contained in the form of the Notes
annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a
part of this Indenture. To the extent applicable, the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more permanent global Notes in registered
form, substantially in the form set forth in Exhibit A (the "U.S. Global
Notes"), registered in the name of the nominee of the Depositary, deposited with
the Trustee, as custodian for the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the U.S. Global Notes may from time to time be increased or decreased
by adjustments made on the records of the Trustee, as custodian for the
Depositary or its nominee, in accordance with the instructions given by the
Holder thereof, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of one or more temporary
global Notes in registered form substantially in the form set forth in Exhibit A
(the "Temporary Offshore Global Notes"), registered in the name of the nominee
of the Depositary, deposited with the Trustee, as custodian
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for the Depositary, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. On or after the later of (i) December 1, 1997
and (ii) the Separation Date, in either case upon receipt by the Trustee and the
Company of a certificate substantially in the form of Exhibit B hereto, one or
more permanent global Notes in registered form substantially in the form set
forth in Exhibit A (the "Permanent Offshore Global Notes"; and together with the
Temporary Offshore Global Notes, the "Offshore Global Notes") duly executed by
the Company and authenticated by the Trustee as hereinafter provided shall be
deposited with the Trustee, as custodian for the Depositary, and the Registrar
shall reflect on its books and records the date and a decrease in the principal
amount of the Temporary Offshore Global Notes in an amount equal to the
principal amount of the beneficial interest in the Temporary Offshore Global
Notes transferred.
Notes offered and sold in reliance on Regulation D under the
Securities Act shall be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in Exhibit A (the "U.S.
Physical Notes"). Notes issued pursuant to Section 2.07 in exchange for
interests in the Offshore Global Notes shall be in the form of permanent
certificated Notes in registered form substantially in the form set forth in
Exhibit A (the "Offshore Physical Notes").
The Offshore Physical Notes and U.S. Physical Notes are
sometimes collectively herein referred to as the "Physical Notes." The U.S.
Global Notes and the Offshore Global Notes are sometimes referred to herein as
the "Global Notes."
The definitive Notes shall be typed, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Notes may be listed, all as determined by the Officers executing such Notes, as
evidenced by their execution of such Notes.
SECTION 2.02. Restrictive Legends. Unless and until a Note is
exchanged for an Exchange Note in connection with an effective Registration
Statement pursuant to the Registration Rights Agreement, the U.S. Global Notes,
Temporary Offshore Global Notes and each U.S. Physical Note shall bear the
following legend on the face thereof:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN
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<PAGE> 32
"INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S
UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE
OF THE TRANSFER OF THIS SECURITY, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT
(A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE
UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS
NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE AND IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE ACCRETED VALUE OF NOTES AT THE TIME OF
TRANSFER OF LESS THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE
UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY
TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE
WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS;
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<PAGE> 33
Each Global Note, whether or not an Exchange Note, shall also
bear the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.08 OF
THE INDENTURE.
Prior to the Separation Date, each Note shall bear the
following legend on the face thereof:
THIS NOTE IS INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS, EACH OF WHICH
CONSISTS OF ONE NOTE AND ONE WARRANT INITIALLY ENTITLING THE HOLDER THEREOF TO
PURCHASE .003734 SHARES OF PREFERRED STOCK, PAR VALUE $.01 PER SHARE, OF KNOLOGY
HOLDINGS, INC. (A "WARRANT"). PRIOR TO THE CLOSE OF BUSINESS UPON THE EARLIEST
TO OCCUR OF (i) APRIL 22, 1998, (ii) THE COMMENCEMENT OF AN EXCHANGE OFFER WITH
RESPECT TO THE NOTES, AND (iii) THE EFFECTIVENESS OF A SHELF REGISTRATION
STATEMENT WITH RESPECT TO THE NOTES, THE NOTES EVIDENCED BY THIS CERTIFICATE MAY
NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR
EXCHANGED ONLY TOGETHER WITH, THE WARRANTS.
SECTION 2.03. Execution, Authentication and Denominations.
Subject to Article Four, the aggregate principal amount of Notes which may be
authenticated and delivered under this Indenture is unlimited. The Notes shall
be executed by two Officers of the Company.
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<PAGE> 34
The signature of these Officers on the Notes may be by facsimile or manual
signature in the name and on behalf of the Company.
If an Officer whose signature is on a Note no longer holds
that office at the time the Trustee or authenticating agent authenticates the
Note, the Note shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
At any time and from time to time after the execution of this
Indenture, the Trustee or an authenticating agent shall upon receipt of a
Company Order authenticate for original issue Notes in the aggregate principal
amount specified in such Company Order; provided that the Trustee shall be
entitled to receive an Officers' Certificate and an Opinion of Counsel of the
Company in connection with such authentication of Notes. Such Company Order
shall specify the amount of Notes to be authenticated and the date on which the
original issue of Notes is to be authenticated and in case of an issuance of
Notes pursuant to Section 2.15, shall certify that such issuance is in
compliance with Article Four.
The Trustee may appoint an authenticating agent to
authenticate Notes. An authenticating agent may authenticate Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such authenticating agent. An authenticating
agent has the same rights as an Agent to deal with the Company or an Affiliate
of the Company. The Trustee shall not be liable for the misconduct or negligence
of any authenticating agent appointed with due care.
The Notes shall be issuable only in registered form without
coupons and only in denominations of $1,000 in principal amount at maturity and
any integral multiple of $1,000 in excess thereof.
SECTION 2.04. Registrar and Paying Agent. The Company shall
maintain an office or agency where Notes may be presented for registration of
transfer or for exchange (the "Registrar"), an office or agency where Notes may
be presented for payment (the "Paying Agent") and an office or agency where
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served, which shall be in the Borough of Manhattan, The City of
New York and, if the Notes are listed on the Luxembourg Stock Exchange, in
Luxembourg. The Company shall cause the Registrar to keep a register of the
Notes and of their transfer and exchange (the "Security Register"). The Company
may have one or more co-Registrars and one or more additional Paying Agents.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture
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that relate to such Agent. The Company shall give prompt written notice to the
Trustee of the name and address of any such Agent and any change in the address
of such Agent. If the Company fails to maintain a Registrar, Paying Agent and/or
agent for service of notices and demands, the Trustee shall act as such
Registrar, Paying Agent and/or agent for service of notices and demands. The
Company may remove any Agent upon written notice to such Agent and the Trustee;
provided that no such removal shall become effective until (i) the acceptance of
an appointment by a successor Agent to such Agent as evidenced by an appropriate
agency agreement entered into by the Company and such successor Agent and
delivered to the Trustee or (ii) notification to the Trustee that the Trustee
shall serve as such Agent until the appointment of a successor Agent in
accordance with clause (i) of this proviso. The Company, any Subsidiary of the
Company, or any Affiliate of any of them may act as Paying Agent, Registrar or
co-Registrar, and/or agent for service of notice and demands.
The Company initially appoints the Trustee as Registrar,
Paying Agent, authenticating agent and agent for service of notice and demands.
The Trustee shall preserve in as current a form as is reasonably practicable the
most recent list available to it of the names and addresses of Holders and shall
otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar,
the Company shall furnish to the Trustee as of each Regular Record Date and at
such other times as the Trustee may request in writing a list in such form and
as of such date as the Trustee may reasonably require of the names and addresses
of Holders, including the aggregate principal amount of Notes held by each
Holder.
SECTION 2.05. Paying Agent to Hold Money in Trust. Not later
than 11:00 a.m. (New York City time) each due date of the principal, premium, if
any, and interest on any Notes, the Company shall deposit with the Paying Agent
money in immediately available funds sufficient to pay such principal, premium,
if any, and interest so becoming due. The Company shall require each Paying
Agent other than the Trustee to agree in writing that such Paying Agent shall
hold in trust for the benefit of the Holders or the Trustee all money held by
the Paying Agent for the payment of principal of, premium, if any, and interest
on the Notes (whether such money has been paid to it by the Company or any other
obligor on the Notes), and such Paying Agent shall promptly notify the Trustee
of any default by the Company (or any other obligor on the Notes) in making any
such payment. The Company at any time may require a Paying Agent to pay all
money held by it to the Trustee and account for any funds disbursed, and the
Trustee may at any time during the continuance of any payment default, upon
written request to a Paying Agent, require such Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed. Upon doing so,
the Paying Agent shall have no further liability for the money so paid over to
the Trustee. If the Company or any Subsidiary of the Company or any Affiliate of
any of them acts as Paying Agent, it shall, on or before each due date of any
principal of, premium, if any, or interest on the Notes, segregate and hold in a
separate trust fund for the benefit of the Holders a sum of money sufficient to
pay such principal, premium, if any, or interest so becoming due until such sum
of money shall be paid
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<PAGE> 36
to such Holders or otherwise disposed of as provided in this Indenture, and
shall promptly notify the Trustee of its action or failure to act.
SECTION 2.06. Transfer and Exchange. The Notes are issuable
only in registered form. The Notes shall initially be issued as part of an issue
of Units, each of which consists of one Note and one Warrant. Prior to the
Separation Date, the Notes may not be transferred or exchanged separately from,
but may be transferred or exchanged only together with, the Warrants issued in
connection with the Notes. A Holder may transfer a Note only by written
application to the Registrar stating the name of the proposed transferee and
otherwise complying with the terms of this Indenture. No such transfer shall be
effected until, and such transferee shall succeed to the rights of a Holder only
upon, final acceptance and registration of the transfer by the Registrar in the
Security Register. Prior to the registration of any transfer by a Holder as
provided herein, the Company, the Trustee, and any agent of the Company shall
treat the person in whose name the Note is registered as the owner thereof for
all purposes whether or not the Note shall be overdue, and neither the Company,
the Trustee, nor any such agent shall be affected by notice to the contrary.
Furthermore, any Holder of a Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interests in such Global Note may be
effected only through a book entry system maintained by the Holder of such
Global Note (or its agent) and that ownership of a beneficial interest in the
Note shall be required to be reflected in a book entry. When Notes are presented
to the Registrar or a co-Registrar with a request to register the transfer or to
exchange them for an equal principal amount of Notes of other authorized
denominations (including an exchange of Notes for Exchange Notes), the Registrar
shall register the transfer or make the exchange as requested if its
requirements for such transactions are met (including that such Notes are duly
endorsed or accompanied by a written instrument of transfer in form satisfactory
to the Trustee and Registrar duly executed by the Holder thereof or by an
attorney who is authorized in writing to act on behalf of the Holder); provided
that no exchanges of Notes for Exchange Notes shall occur until a Registration
Statement shall have been declared effective by the Commission and that any
Notes that are exchanged for Exchange Notes shall be cancelled by the Trustee.
To permit registrations of transfers and exchanges, the Company shall execute
and the Trustee shall authenticate Notes at the Registrar's request. No service
charge shall be made for any registration of transfer or exchange or redemption
of the Notes, but the Company may require payment of a sum sufficient to cover
any transfer tax or similar governmental charge payable in connection therewith
(other than any such transfer taxes or other similar governmental charge payable
upon exchanges pursuant to Section 2.11, 3.08 or 9.04).
The Registrar shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Notes selected for redemption under Section 3.03 and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
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SECTION 2.07. Book-Entry Provisions for Global Notes. (a) The
U.S. Global Notes and Offshore Global Notes initially shall (i) be registered in
the name of the Depositary for such Global Notes or the nominee of such
Depositary, (ii) be delivered to the Trustee as custodian for such Depositary
and (iii) bear legends as set forth in Section 2.02.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depositary, or the Trustee as its custodian, or
under the Global Note, and the Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee, from giving effect to any written certification, proxy
or other authorization furnished by the Depositary or impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a holder of any Note. Neither the Company nor the
Trustee shall be liable for any delay by the Depositary in identifying the
beneficial owners of the Notes and the Company and the Trustee may conclusively
rely on, and shall be protected in relying on, instructions from the Depositary
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of any Notes to be issued).
(b) Transfers of a Global Note shall be limited to
transfers of such Global Note in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in a
Global Note may be transferred in accordance with the rules and procedures of
the Depositary and the provisions of Section 2.08. In addition, U.S. Physical
Notes and Offshore Physical Notes shall be transferred to all beneficial owners
in exchange for their beneficial interests in the U.S. Global Notes or the
Offshore Global Notes, respectively, if (i) the Depositary notifies the Company
that it is unwilling or unable to continue as Depositary for the U.S. Global
Notes or the Offshore Global Notes, as the case may be, and a successor
depositary is not appointed by the Company within 90 days of such notice, (ii)
an Event of Default has occurred and is continuing and the Registrar has
received a request from the Depositary or (iii) in accordance with the rules and
procedures of the Depositary and the provisions of Section 2.08.
In the event that Certificated Notes are issued with
respect to the Global Notes, Holders in Luxembourg may contact the Transfer
Agent in Luxembourg to arrange for receipt of their Physical Notes. Thereafter,
such Holders will be able to effect transfers of their Physical Notes by
delivery thereof to such Transfer Agent with instructions for the transfer of
all or part thereof to the proposed transferee thereof. Based on such
instructions, such Transfer Agent will issue one or more new Physical Notes in
appropriate denominations and registered in the appropriate name(s), for
delivery pursuant to such instructions. Such Transfer Agent will notify the
Registrar to record appropriate entries to reflect such transfers in the
Register. The
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<PAGE> 38
final payment to be made on such Physical Notes will be made by the Paying Agent
in Luxembourg only against delivery thereto of such Certificated Notes.
(c) Any beneficial interest in one of the Global Notes
that is transferred to a person who takes delivery in the form of an interest in
the other Global Note shall, upon transfer, cease to be an interest in such
Global Note and become an interest in the other Global Note and, accordingly,
shall thereafter be subject to all transfer restrictions, if any, and other
procedures applicable to beneficial interests in such other Global Note for as
long as it remains such an interest.
(d) In connection with any transfer of a portion of the
beneficial interests in the U.S. Global Notes to beneficial owners pursuant to
paragraph (b) of this Section 2.07, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount at maturity of the U.S.
Global Notes in an amount equal to the principal amount at maturity of the
beneficial interest in the U.S. Global Notes to be transferred, and the Company
shall execute, and the Trustee shall authenticate and deliver, one or more U.S.
Physical Notes of like tenor and amount.
(e) In connection with the transfer of the entire U.S.
Global Note or Offshore Global Note to beneficial owners pursuant to paragraph
(b) of this Section 2.07, the U.S. Global Note or Offshore Global Note, as the
case may be, shall be deemed to be surrendered to the Trustee for cancellation,
and the Company shall execute, and the Trustee shall authenticate and deliver,
to each beneficial owner identified by the Depositary in exchange for its
beneficial interest in the U.S. Global Note or Offshore Global Note, as the case
may be, an equal aggregate principal amount at maturity of U.S. Physical Notes
or Offshore Physical Notes, as the case may be, of authorized denominations.
(f) Any U.S. Physical Note delivered in exchange for an
interest in the U.S. Global Note pursuant to paragraph (b) or (d) of this
Section 2.07 shall, except as otherwise provided by paragraph (f) of Section
2.08, bear the legend regarding transfer restrictions applicable to the U.S.
Physical Note set forth in Section 2.02.
(g) Any Offshore Physical Note delivered in exchange for
an interest in the Offshore Global Note pursuant to paragraph (b) of this
Section 2.07 shall, except as otherwise provided by paragraph (f) of Section
2.08, bear the legend regarding transfer restrictions applicable to the Offshore
Physical Note set forth in Section 2.02.
(h) The registered holder of a Global Note may grant
proxies and otherwise authorize any person, including Agent Members and persons
that may hold interests through Agent Members, to take any action which a Holder
is entitled to take under this Indenture or the Notes.
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<PAGE> 39
SECTION 2.08. Special Transfer Provisions. Unless and until a
Note is exchanged for an Exchange Note in connection with an effective
Registration Statement pursuant to the Registration Rights Agreement, the
following provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited
Investors. The following provisions shall apply with respect to the registration
of any proposed transfer of a Note to any Institutional Accredited Investor
which is not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Note, whether
or not such Note bears the Private Placement Legend, if (x) the requested
transfer is after the time period referred to in Rule 144(k) under the
Securities Act or (y) the proposed transferee has delivered to the Registrar (A)
a certificate substantially in the form of Exhibit C hereto and (B) if the
Accreted Value of the Notes being transferred is less than $100,000, an opinion
of counsel acceptable to the Company that such transfer is in compliance with
the Securities Act.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the Registrar of
(x) the documents, if any, required by paragraph (i) and (y) instructions given
in accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and a decrease in the
principal amount at maturity of the U.S. Global Note in an amount equal to the
principal amount at maturity of the beneficial interest in the U.S. Global Note
to be transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more U.S. Physical Notes of like tenor and
amount.
(b) Transfers to QIBs. The following provisions shall
apply with respect to the registration of any proposed transfer of a U.S.
Physical Note or an interest in the U.S. Global Note to a QIB (excluding
Non-U.S. Persons):
(i) If the Note to be transferred consists of (x) U.S. Physical
Notes, the Registrar shall register the transfer if such transfer is being made
by a proposed transferor who has checked the box provided for on the form of
Note stating, or has otherwise advised the Company and the Registrar in writing,
that the sale has been made in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form of Note
stating, or has otherwise advised the Company and the Registrar in writing, that
it is purchasing the Note for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such account
is a QIB within the meaning of Rule 144A, and is aware that the sale to it is
being made in reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
transferor is relying upon its foregoing representations in order to claim the
exemption from
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<PAGE> 40
registration provided by Rule 144A or (y) an interest in the U.S. Global Note,
the transfer of such interest may be effected only through the book entry system
maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the Note to
be transferred consists of U.S. Physical Notes, upon receipt by the Registrar of
the documents referred to in clause (i) and instructions given in accordance
with the Depositary's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the principal
amount at maturity of the U.S. Global Note in an amount equal to the principal
amount at maturity of the U.S. Physical Notes to be transferred, and the Trustee
shall cancel the U.S. Physical Note so transferred.
(c) Transfers of Interests in the Temporary Offshore
Global Note. The following provisions shall apply with respect to registration
of any proposed transfer of interests in the Temporary Offshore Global Note:
(i) The Registrar shall register the transfer of any Note (x) if
the proposed transferee is a Non-U.S. Person and the proposed transferor has
delivered to the Registrar a certificate substantially in the form of Exhibit D
hereto or (y) if the proposed transferee is a QIB and the proposed transferor
has checked the box provided for on the form of Note stating, or has otherwise
advised the Company and the Registrar in writing, that the sale has been made in
compliance with the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Note stating, or has otherwise advised
the Company and the Registrar in writing, that it is purchasing the Note for its
own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a QIB within the meaning of Rule
144A, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
it has requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon its
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, upon receipt by
the Registrar of the documents referred to in clause (i)(y) above and
instructions given in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date and an
increase in the principal amount at maturity of the U.S. Global Note in an
amount equal to the principal amount at maturity of the Temporary Offshore
Global Note to be transferred, and the Trustee shall decrease the principal
amount at maturity of the Temporary Offshore Global Note.
(d) Transfers of Interests in the Permanent Offshore
Global Note or Offshore Physical Notes to U.S. Persons. The following provisions
shall apply with respect to any
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<PAGE> 41
transfer of interests in the Permanent Offshore Global Note or Offshore Physical
Notes to U.S. Persons: The Registrar shall register the transfer of any such
Note without requiring any additional certification.
(e) Transfers to Non-U.S. Persons at Any Time. The
following provisions shall apply with respect to any transfer of a Note to a
Non-U.S. Person:
(i) Prior to December 1, 1997, the Registrar shall register any
proposed transfer of a Note to a Non-U.S. Person upon receipt of a certificate
substantially in the form of Exhibit D hereto from the proposed transferor.
(ii) On and after December 1, 1997, the Registrar shall register
any proposed transfer to any Non-U.S. Person if the Note to be transferred is a
U.S. Physical Note or an interest in the U.S. Global Note, upon receipt of a
certificate substantially in the form of Exhibit D hereto from the proposed
transferor.
(iii) (a) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the Registrar of
(x) the documents, if any, required by paragraph (ii) and (y) instructions in
accordance with the Depositary's and the Registrar's procedures, the Registrar
shall reflect on its books and records the date and a decrease in the principal
amount at maturity of the U.S. Global Note in an amount equal to the principal
amount at maturity of the beneficial interest in the U.S. Global Note to be
transferred, and (b) if the proposed transferee is an Agent Member, upon receipt
by the Registrar of instructions given in accordance with the Depositary's and
the Registrar's procedures, the Registrar shall reflect on its books and records
the date and an increase in the principal amount at maturity of the Offshore
Global Note in an amount equal to the principal amount at maturity of the U.S.
Physical Notes or the U.S. Global Note, as the case may be, to be transferred,
and the Trustee shall cancel the Physical Note, if any, so transferred or
decrease the principal amount at maturity of the U.S. Global Note.
(f) Private Placement Legend. Upon the transfer, exchange
or replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless either (i) the circumstances contemplated by the fourth paragraph of
Section 2.01 or paragraph (a)(i)(x) or (e)(ii) of this Section 2.08 exist or
(ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
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<PAGE> 42
(g) General. By its acceptance of any Note bearing the
Private Placement Legend, each Holder of such a Note acknowledges the
restrictions on transfer of such Note set forth in this Indenture and in the
Private Placement Legend and agrees that it shall transfer such Note only as
provided in this Indenture. The Registrar shall not register a transfer of any
Note unless such transfer complies with the restrictions on transfer of such
Note set forth in this Indenture. In connection with any transfer of Notes, each
Holder agrees by its acceptance of the Notes to furnish the Registrar or the
Company such certifications, legal opinions or other information as either of
them may reasonably require to confirm that such transfer is being made pursuant
to an exemption from, or a transaction not subject to, the registration
requirements of the Securities Act; provided that the Registrar shall not be
required to determine (but may rely on a determination made by the Company with
respect to) the sufficiency of any such certifications, legal opinions or other
information.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.07 or this Section
2.08. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Registrar.
SECTION 2.09. Replacement Notes. If a mutilated Note is
surrendered to the Trustee or if the Holder claims that the Note has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Note of like tenor and principal amount and bearing a
number not contemporaneously outstanding; provided that the requirements of the
second paragraph of Section 2.10 are met. If required by the Trustee or the
Company, an indemnity bond must be furnished that is sufficient in the judgment
of both the Trustee and the Company to protect the Company, the Trustee or any
Agent from any loss that any of them may suffer if a Note is replaced. The
Company may charge such Holder for its expenses and the expenses of the Trustee
in replacing a Note. In case any such mutilated, lost, destroyed or wrongfully
taken Note has become or is about to become due and payable, the Company in its
discretion may pay such Note instead of issuing a new Note in replacement
thereof.
Every replacement Note is an additional obligation of the
Company and shall be entitled to the benefits of this Indenture.
SECTION 2.10. Outstanding Notes. Notes outstanding at any time
are all Notes that have been authenticated by the Trustee except for those
cancelled by it, those delivered to it for cancellation and those described in
this Section 2.10 as not outstanding.
If a Note is replaced pursuant to Section 2.09, it ceases to
be outstanding unless and until the Trustee and the Company receive proof
satisfactory to them that the replaced Note is held by a bona fide purchaser.
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<PAGE> 43
If the Paying Agent (other than the Company or an Affiliate of
the Company) holds on the maturity date money sufficient to pay Notes payable on
that date, then on and after that date such Notes cease to be outstanding and
interest on them shall cease to accrue.
A Note does not cease to be outstanding because the Company or
one of its Affiliates holds such Note, provided, however, that in determining
whether the Holders of the requisite principal amount of the outstanding Notes
have given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Notes owned by the Company or any other obligor upon the Notes
or any Affiliate of the Company or of such other obligor shall be disregarded
and deemed not to be outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes which a
Responsible Officer of the Trustee knows to be so owned shall be so disregarded.
Notes so owned which have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Notes and that the pledgee is not
the Company or any other obligor upon the Notes or any Affiliate of the Company
or of such other obligor.
SECTION 2.11. Temporary Notes. Until definitive Notes are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Notes. Temporary Notes shall be substantially in the form of
definitive Notes but may have insertions, substitutions, omissions and other
variations determined to be appropriate by the Officers executing the temporary
Notes, as evidenced by their execution of such temporary Notes. If temporary
Notes are issued, the Company shall cause definitive Notes to be prepared
without unreasonable delay. After the preparation of definitive Notes, the
temporary Notes shall be exchangeable for definitive Notes upon surrender of the
temporary Notes at the office or agency of the Company designated for such
purpose pursuant to Section 4.02, without charge to the Holder. Upon surrender
for cancellation of any one or more temporary Notes the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Notes of authorized denominations. Until so
exchanged, the temporary Notes shall be entitled to the same benefits under this
Indenture as definitive Notes.
SECTION 2.12. Cancellation. The Company at any time may
deliver to the Trustee for cancellation any Notes previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and may deliver to the Trustee for cancellation any Notes previously
authenticated hereunder which the Company has not issued and sold. The Registrar
and the Paying Agent shall forward to the Trustee any Notes surrendered to them
for transfer, exchange or payment. The Trustee shall cancel all Notes
surrendered for transfer, exchange, payment or cancellation and shall destroy
them in accordance with its normal procedure. Except as expressly permitted by
this Indenture, the Company may not issue new Notes to replace Notes it has paid
in full or delivered to the Trustee for cancellation.
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<PAGE> 44
SECTION 2.13. CUSIP Numbers. The Company in issuing the Notes
may use "CUSIP", "CINS" or "ISIN" numbers (if then generally in use), and the
Trustee shall use CUSIP, CINS or ISIN numbers, as the case may be, in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice shall state that no representation is made as to the correctness of such
numbers either as printed on the Notes or as contained in any notice of
redemption or exchange and that reliance may be placed only on the other
identification numbers printed on the Notes. The Company shall promptly notify
the Trustee of any change in "CUSIP", "CINS" or "ISIN" numbers for the Notes.
SECTION 2.14. Defaulted Interest. If the Company defaults in a
payment of interest on the Notes, it shall pay, or shall deposit with the Paying
Agent money in immediately available funds sufficient to pay, the defaulted
interest, plus (to the extent lawful) any interest payable on the defaulted
interest, to the Persons who are Holders on a subsequent special record date. A
special record date, as used in this Section 2.14 with respect to the payment of
any defaulted interest, shall mean the 15th day next preceding the date fixed by
the Company for the payment of defaulted interest, whether or not such day is a
Business Day. At least 15 days before the subsequent special record date, the
Company shall mail to each Holder and to the Trustee a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest to be paid.
SECTION 2.15. Issuance of Additional Notes. The Company may,
subject to Article Four of this Indenture, issue additional Notes under this
Indenture. The Notes issued on the Closing Date and any additional Notes
subsequently issued shall be treated as a single class for all purposes under
this Indenture.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption; Mandatory Redemption. (a)
The Notes shall be redeemable, at the Company's option, in whole or in part, at
any time or from time to time, on or after October 15, 2002 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address, as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount at maturity), plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is prior to the Redemption Date to receive interest due
on an Interest Payment Date), if redeemed during the 12-month period commencing
October 15, of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
2002... 105.93750%
2003... 102.96875%
2004 and thereafter... 100.00000%
</TABLE>
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<PAGE> 45
(b) At any time prior to October 15, 2000, the
Company may redeem up to 35% of the Accreted Value of the Notes with the
proceeds of one or more Public Equity Offerings following which a Public Market
occurs, at any time or from time to time in part, at a Redemption Price
(expressed as a percentage of Accreted Value on the Redemption Date) of
111.875%; provided that at least $288,665,000 million aggregate principal amount
at maturity of Notes remains outstanding after each such redemption.
SECTION 3.02. Notices to Trustee. If the Company elects to
redeem Notes pursuant to Section 3.01(a) or (b), it shall notify the Trustee in
writing of the Redemption Date and the principal amount of Notes to be redeemed.
The Company shall give each notice provided for in this
Section 3.02 in an Officers' Certificate at least 45 days before the Redemption
Date (unless a shorter period shall be satisfactory to the Trustee).
SECTION 3.03. Selection of Notes to Be Redeemed. If less than
all of the Notes are to be redeemed at any time, the Trustee shall select the
Notes, or portions thereof, for redemption in compliance with the requirements
of the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, on a
pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate; provided that no Note of
$1,000 in principal amount at maturity or less shall be redeemed in part.
The Trustee shall make the selection from the Notes
outstanding and not previously called for redemption. Notes in denominations of
$1,000 in principal amount at maturity may only be redeemed in whole. The
Trustee may select for redemption portions (equal to $1,000 in principal amount
at maturity or any integral multiple thereof) of Notes that have denominations
larger than $1,000 in principal amount at maturity. Provisions of this Indenture
that apply to Notes called for redemption also apply to portions of Notes called
for redemption. The Trustee shall notify the Company and the Registrar promptly
in writing of the Notes or portions of Notes to be called for redemption.
SECTION 3.04. Notice of Redemption. With respect to any
redemption of Notes pursuant to Section 3.01, at least 30 days but not more than
60 days before a Redemption Date, the Company, in the case of a redemption
pursuant to Section 3.01(a) or (b), or the Trustee, in the case of a redemption
pursuant to Section 3.01(c), shall mail a notice of redemption by first-class
mail to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall
state:
(i) the Redemption Date;
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(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be surrendered to the
Paying Agent in order to collect the Redemption Price;
(v) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the Redemption Date and the only remaining right of the Holders is to receive
payment of the Redemption Price plus accrued interest to the Redemption Date
upon surrender of the Notes to the Paying Agent;
(vi) that, if any Note is being redeemed in part, the portion of
the principal amount (equal to $1,000 in principal amount at maturity or any
integral multiple thereof) of such Note to be redeemed and that, on and after
the Redemption Date, upon surrender of such Note, a new Note or Notes in
principal amount at maturity equal to the unredeemed portion thereof shall be
reissued; and
(vii) that, if any Note contains a CUSIP, CINS or ISIN number as
provided in Section 2.13, no representation is being made as to the correctness
of the CUSIP, CINS or ISIN number either as printed on the Notes or as contained
in the notice of redemption and that reliance may be placed only on the other
identification numbers printed on the Notes.
At the Company's request (which request may be revoked by the
Company at any time prior to the time at which the Trustee shall have given such
notice to the Holders), made in writing to the Trustee at least 45 days (or such
shorter period as shall be satisfactory to the Trustee) before a Redemption
Date, the Trustee shall give the notice of redemption pursuant to Section
3.01(a) or (b) in the name and at the expense of the Company. If, however, the
Company gives such notice to the Holders, the Company shall concurrently deliver
to the Trustee an Officers' Certificate stating that such notice has been given.
The Trustee shall give the notice of redemption if and as required pursuant to
Section 3.01(c).
SECTION 3.05. Effect of Notice of Redemption. Once notice of
redemption is mailed, Notes called for redemption become due and payable on the
Redemption Date and at the Redemption Price. Upon surrender of any Notes to the
Paying Agent, such Notes shall be paid at the Redemption Price, plus accrued
interest, if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed,
whether or not the Holder receives the notice. In any event, failure to give
such notice, or any defect therein,
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<PAGE> 47
shall not affect the validity of the proceedings for the redemption of Notes
held by Holders to whom such notice was properly given.
SECTION 3.06. Deposit of Redemption Price. On or prior to any
Redemption Date, the Company shall deposit with the Paying Agent (or, if the
Company is acting as its own Paying Agent, shall segregate and hold in trust as
provided in Section 2.05) money sufficient to pay the Redemption Price of and
accrued interest on all Notes to be redeemed on that date other than Notes or
portions thereof called for redemption on that date that have been delivered by
the Company to the Trustee for cancellation.
SECTION 3.07. Payment of Notes Called for Redemption. If
notice of redemption has been given in the manner provided above, the Notes or
portion of Notes specified in such notice to be redeemed shall become due and
payable on the Redemption Date at the Redemption Price stated therein, together
with accrued interest to such Redemption Date, and on and after such date
(unless the Company shall default in the payment of such Notes at the Redemption
Price and accrued interest to the Redemption Date, in which case the principal,
until paid, shall bear interest from the Redemption Date at the rate prescribed
in the Notes), such Notes shall cease to accrue interest. Upon surrender of any
Note for redemption in accordance with a notice of redemption, such Note shall
be paid and redeemed by the Company at the Redemption Price, together with
accrued interest, if any, to the Redemption Date; provided that installments of
interest whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders registered as such at the close of business on the
relevant Regular Record Date.
SECTION 3.08. Notes Redeemed in Part. Upon surrender of any
Note that is redeemed in part, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder a new Note equal in principal amount to
the unredeemed portion of such surrendered Note.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes. The Company shall pay the
principal of, premium, if any, and interest on the Notes on the dates and in the
manner provided in the Notes and this Indenture. An installment of principal,
premium, if any, or interest shall be considered paid on the date due if the
Trustee or Paying Agent (other than the Company, a Subsidiary of the Company, or
any Affiliate of any of them) holds on that date money designated for and
sufficient to pay the installment. If the Company or any Subsidiary of the
Company or any Affiliate of any of them acts as Paying Agent, an installment of
principal, premium, if any, or interest shall be considered paid on the due date
if the entity acting as Paying Agent complies with the last sentence of Section
2.05. As provided in Section 6.09, upon any bankruptcy or
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<PAGE> 48
reorganization procedure relative to the Company, the Trustee shall serve as the
Paying Agent, if any, for the Notes.
The Company shall pay interest on overdue principal, premium,
if any, and interest on overdue installments of interest, to the extent lawful,
at the rate per annum specified in the Notes.
SECTION 4.02. Maintenance of Office or Agency. The Company
shall maintain in the Borough of Manhattan, The City of New York, an office or
agency where Notes may be surrendered for registration of transfer or exchange
or for presentation for payment and where notices and demands to or upon the
Company in respect of the Notes and this Indenture may be served. The Company
shall give prompt written notice to the Trustee of the location, and any change
in the location, of such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the address of the Trustee set forth in Section
11.02.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby initially designates the Corporate Trust
Office of the Trustee as such office of the Company in accordance with Section
2.04.
SECTION 4.03. Limitation on Indebtedness. (a) The Company
shall not, and shall not permit any of its Restricted Subsidiaries to, Incur any
Indebtedness (other than the Notes and Indebtedness existing on the Closing
Date); provided that the Company may Incur Indebtedness if, after giving effect
to the Incurrence of such Indebtedness and the receipt and application of the
proceeds thereof, the Consolidated Leverage Ratio would be greater than zero and
(x) less than or equal to 7 to 1, for Indebtedness Incurred on or prior to
September 30, 1999, or (y) less than or equal to 5 to 1, for Indebtedness
Incurred thereafter.
Notwithstanding the foregoing, the Company, and (except as
specified below) any Restricted Subsidiary, may Incur each and all of the
following: (i) Indebtedness in an aggregate principal amount outstanding or
available at any time not to exceed $50 million, less any amount of such
Indebtedness permanently repaid as provided under Section 4.10; (ii)
Indebtedness owed (A) to the Company and evidenced by an unsubordinated
promissory note or (B) to any Restricted Subsidiaries; provided that any event
which results in any such Restricted Subsidiary
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<PAGE> 49
ceasing to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or another Restricted Subsidiary) shall
be deemed, in each case, to constitute an Incurrence of such Indebtedness not
permitted by this clause (ii); (iii) Indebtedness issued in exchange for, or the
net proceeds of which are used to refinance or refund, then outstanding
Indebtedness (other than Indebtedness Incurred under clause (i), (ii), (iv),
(vi), (ix) or (x) of this paragraph) and any refinancings of such new
Indebtedness in an amount not to exceed the amount so refinanced or refunded
(plus premiums, accrued interest, fees and expenses); provided that Indebtedness
the proceeds of which are used to refinance or refund the Notes or Indebtedness
that is pari passu in right of payment with, or subordinated in right of payment
to, the Notes shall only be permitted under this clause (iii) if (A) in case the
Notes are refinanced in part or the Indebtedness to be refinanced is pari passu
in right of payment with the Notes, such new Indebtedness, by its terms or by
the terms of any agreement or instrument pursuant to which such new Indebtedness
is outstanding, is expressly made pari passu in right of payment with, or
subordinate in right of payment to, the remaining Notes, (B) in case the
Indebtedness to be refinanced is subordinated in right of payment to the Notes,
such new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the Notes at
least to the extent that the Indebtedness to be refinanced is subordinated to
the Notes and (C) such new Indebtedness, determined as of the date of Incurrence
of such new Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the Indebtedness
to be refinanced or refunded; and provided further that in no event may
Indebtedness of the Company be refinanced by means of any Indebtedness of any
Restricted Subsidiary pursuant to this clause (iii); (iv) Indebtedness (A) in
respect of performance, surety or appeal bonds provided in the ordinary course
of business, (B) under Currency Agreements and Interest Rate Agreements;
provided that such agreements (a) are designed solely to protect the Company or
its Subsidiaries against fluctuations in foreign currency exchange rates or
interest rates and (b) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder or (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant to
such agreements, in each case Incurred in connection with the disposition of any
business, assets or Restricted Subsidiary (other than Guarantees of Indebtedness
Incurred by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition), in a
principal amount not to exceed the gross proceeds actually received by the
Company or any Restricted Subsidiary in connection with such disposition; (v)
Indebtedness of the Company, to the extent the net proceeds thereof are promptly
(A) used to purchase Notes tendered in an Offer to Purchase made as a result of
a Change of Control or (B) deposited to defease all of the Notes under Article
Eight; (vi) Guarantees of the Notes and Guarantees of Indebtedness of the
Company by any Restricted Subsidiary, provided the Guarantee of such
Indebtedness is permitted
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<PAGE> 50
by and made in accordance with Section 4.07; (vii) Indebtedness Incurred to
finance the cost (including the cost of design, development, acquisition,
construction, installation, improvement, transportation or integration) to
acquire equipment, inventory or network assets (including acquisitions by way of
Capitalized Lease and acquisitions of the Capital Stock of a Person that becomes
a Restricted Subsidiary to the extent of the fair market value of the equipment,
inventory or network assets so acquired) by the Company or a Restricted
Subsidiary after the Closing Date; (viii) Indebtedness of the Company not to
exceed, at any one time outstanding, two times (A) the Net Cash Proceeds
received by the Company after the Closing Date as a capital contribution or from
the issuance and sale of its Capital Stock (other than Redeemable Stock) to a
Person that is not a Subsidiary of the Company, to the extent such Net Cash
Proceeds have not been used pursuant to clause (C)(2) of the first paragraph or
clause (iii), (iv) or (vi) of the second paragraph of Section 4.04 to make a
Restricted Payment and (B) 80% of the fair market value of property (other than
cash and cash equivalents) received by the Company after the Closing Date from a
capital contribution or from the issuance and sale of its Capital Stock (other
than Redeemable Stock) to a Person that is not a Subsidiary of the Company, to
the extent such capital contribution or sale of Capital Stock has not been used
pursuant to clause (iii), (iv) or (ix) of the second paragraph of Section 4.04
to make a Restricted Payment; provided that such Indebtedness does not mature
prior to the Stated Maturity of the Notes and has an Average Life longer than
the Notes; (ix) Strategic Subordinated Indebtedness; and (x) Indebtedness (in
addition to Indebtedness permitted under clauses (i) through (ix) above) in an
aggregate principal amount outstanding or available at any time not to exceed
$25 million, less any amount of such Indebtedness permanently repaid as provided
under Section 4.10.
(b) Notwithstanding any other provision of this Section
4.03, the maximum amount of Indebtedness that the Company or a Restricted
Subsidiary may Incur pursuant to this Section 4.03 covenant shall not be deemed
to be exceeded due solely to the result of fluctuations in the exchange rates of
currencies.
(c) For purposes of determining any particular amount of
Indebtedness under this Section 4.03, (1) Guarantees, Liens or obligations with
respect to letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (2) any Liens
granted pursuant to the equal and ratable provisions referred to in Section 4.09
shall not be treated as Indebtedness. For purposes of determining compliance
with this Section 4.03, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
SECTION 4.04. Limitation on Restricted Payments. The Company
shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on or with
respect to its Capital Stock (other than (x) dividends or distributions payable
solely in shares of its Capital Stock (other than Redeemable
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Stock) or in options, warrants or other rights to acquire shares of such Capital
Stock and (y) pro rata dividends or distributions on Common Shares of Restricted
Subsidiaries held by minority stockholders, provided that such dividends do not
in the aggregate exceed the minority stockholders' pro rata share of such
Restricted Subsidiaries' net income from the first day of the fiscal quarter
beginning immediately following the Closing Date) held by Persons other than the
Company or any of its Restricted Subsidiaries, (ii) purchase, redeem, retire or
otherwise acquire for value any shares of Capital Stock of (A) the Company or an
Unrestricted Subsidiary (including options, warrants or other rights to acquire
such shares of Capital Stock) held by any Person or (B) a Restricted Subsidiary
(including options, warrants or other rights to acquire such shares of Capital
Stock) held by any Affiliate of the Company (other than a Wholly Owned
Restricted Subsidiary) or any holder (or any Affiliate of such holder) of 5% or
more of the Capital Stock of the Company, (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance,
or other acquisition or retirement for value, of Indebtedness of the Company
that is subordinated in right of payment to the Notes (other than, in each case,
the purchase, repurchase or acquisition of Indebtedness in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in any case due within one year after the date of such purchase, repurchase or
acquisition) or (iv) make any Investment, other than a Permitted Investment, in
any Person (such payments or any other actions described in clauses (i) through
(iv) above being collectively "Restricted Payments") if, at the time of, and
after giving effect to, the proposed Restricted Payment: (A) a Default or Event
of Default shall have occurred and be continuing, (B) the Company could not
Incur at least $1.00 of Indebtedness under the first paragraph of Section 4.03
or (C) the aggregate amount of all Restricted Payments (the amount, if other
than in cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) made
after the Closing Date shall exceed the sum of (1) 50% of the aggregate amount
of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net
Income is a loss, minus 100% of the amount of such loss) (excluding, for
purposes of such computation, income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter immediately following the Closing Date and
ending on the last day of the last fiscal quarter preceding the Transaction Date
for which reports have been filed with the Commission or provided to the Trustee
pursuant to Section 4.17 plus (2) the aggregate Net Cash Proceeds received by
the Company after the Closing Date from a capital contribution or the issuance
and sale permitted by this Indenture to a Person who is not a Subsidiary of the
Company of (a) its Capital Stock (other than Redeemable Stock), (b) any options,
warrants or other rights to acquire Capital Stock of the Company (in each case,
exclusive of any Redeemable Stock or any options, warrants or other rights that
are redeemable at the option of the holder, or are required to be redeemed,
prior to the Stated Maturity of the Notes) and (c) Indebtedness of the Company
that has been exchanged for or converted into Capital Stock of the Company
(other than Redeemable Stock), in each case except to the extent such Net Cash
Proceeds are used to Incur Indebtedness pursuant to clause (viii) of the second
paragraph of Section 4.03, plus (3) an amount equal to the net reduction in
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Investments (other than reductions in Permitted Investments and reductions in
Investments made pursuant to clause (vi) of the second paragraph of this Section
4.04 in any Person resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers of assets, in
each case to the Company or any Restricted Subsidiary or from the Net Cash
Proceeds from the sale of any such Investment (except, in each case, to the
extent any such payment or proceeds are included in the calculation of Adjusted
Consolidated Net Income), or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in each case, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Person or
Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date of declaration
thereof if, at such date of declaration, such payment would comply with the
foregoing paragraph; (ii) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness that is subordinated in
right of payment to the Notes, including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred under
clause (iii) of the second paragraph of Section 4.03(a); (iii) the repurchase,
redemption or other acquisition of Capital Stock of the Company (or options,
warrants or other rights to acquire such Capital Stock) in exchange for, or out
of the proceeds of a substantially concurrent offering of, shares of Capital
Stock (other than Redeemable Stock) of the Company (or options, warrants or
other rights to acquire such Capital Stock); (iv) the making of any principal
payment or the repurchase, redemption, retirement, defeasance or other
acquisition for value of Indebtedness of the Company which is subordinated in
right of payment to the Notes in exchange for, or out of the proceeds of, a
substantially concurrent offering of shares of the Capital Stock (other than
Redeemable Stock) of the Company (or options, warrants or other rights to
acquire such Capital Stock); (v) payments or distributions to dissenting
stockholders pursuant to applicable law in connection with a consolidation,
merger or transfer of assets that complies with Article Five; (vi) Investments
in any Person the primary business of which is related, ancillary or
complementary to the business of the Company and its Restricted Subsidiaries on
the date of such Investments; provided that the aggregate amount of Investments
made pursuant to this clause (vi) does not exceed the sum of (x) $25 million
plus (y) the amount of Net Cash Proceeds received by the Company after the
Closing Date as a capital contribution or from the sale of its Capital Stock
(other than Redeemable Stock) to a Person who is not a Subsidiary of the
Company, except to the extent such Net Cash Proceeds are used to Incur
Indebtedness pursuant to clause (viii) of the second paragraph of Section 4.03
or to make Restricted Payments pursuant to clause (C)(2) of the first paragraph,
or clause (iii) or (iv) of this paragraph, of this Section 4.04, plus (z) the
net reduction in Investments made pursuant to this clause (vi) resulting from
distributions on or repayments of such Investments or from the Net Cash Proceeds
from the sale of any such Investment (except in each case to the extent any such
payment or proceeds are included in the calculation of Adjusted Consolidated Net
Income) or from such Person becoming a Restricted Subsidiary (valued in each
case as provided in the definition of "Investments"), provided that
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the net reduction in any Investment shall not exceed the amount of such
Investment; (vii) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company to the extent
necessary, in the judgment of the Board of Directors, to prevent the loss or
secure the renewal or reinstatement of any license or franchise held by the
Company or any Restricted Subsidiary from any governmental agency; (viii) the
purchase, redemption, retirement or other acquisition for value of shares of
Capital Stock of the Company, or options to purchase such shares, held by
directors, employees, or former directors or employees of the Company or any
Restricted Subsidiary (or their estates or beneficiaries under their estates)
upon their death, disability, retirement, termination of employment or pursuant
to the terms of any agreement under which such shares of Capital Stock or
options were issued; provided that the aggregate consideration paid for such
purchase, redemption, retirement or other acquisition for value of such shares
of Capital Stock or options after the Closing Date does not exceed $2 million in
any calendar year, or $5 million in the aggregate; (ix) Investments acquired as
a capital contribution to the Company or in exchange for Capital Stock (other
than Redeemable Stock) of the Company; (x) repurchases of Warrants pursuant to a
Repurchase Offer; or (xi) any purchase of any fractional share of Preferred
Stock (or other Capital Stock of the Company issuable upon exercise of the
Warrants) in connection with an exercise of the Warrants; provided that, except
in the case of clauses (i), (iii) and (iv), no Default or Event of Default shall
have occurred and be continuing, or occur as a consequence of the actions or
payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding
paragraph (other than the Restricted Payment referred to in clause (ii) thereof,
an exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (ix)
thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clauses (iii), (iv) and (vi) thereof, shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this Section 4.04
have been met with respect to any subsequent Restricted Payments. In the event
the proceeds of an issuance of Capital Stock of the Company are used for the
redemption, repurchase or other acquisition of the Notes, or Indebtedness that
is pari passu in right of payment with the Notes, then the Net Cash Proceeds of
such issuance shall be included in clause (C) of the first paragraph of this
Section 4.04 only to the extent such proceeds are not used for such redemption,
repurchase or other acquisition of Indebtedness.
SECTION 4.05. Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries. The Company shall not, and shall
not permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to (i) pay dividends or make any
other distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or
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advances to the Company or any other Restricted Subsidiary or (iv) transfer any
of its property or assets to the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances
or restrictions: (i) existing on the Closing Date in this Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders than those encumbrances
or restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such Person
acquired by the Company or any Restricted Subsidiary and existing at the time of
such acquisition and not incurred in contemplation thereof, which encumbrances
or restrictions are not applicable to any Person or the property or assets of
any Person other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this Section
4.05 (A) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license, conveyance or
contract or similar property or asset, (B) existing by virtue of any transfer
of, agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by this Indenture or (C) arising or agreed to in the ordinary course
of business, not relating to any Indebtedness, and that do not, individually or
in the aggregate, detract from the value of property or assets of the Company or
any Restricted Subsidiary in any manner material to the Company or any
Restricted Subsidiary; (v) with respect to a Restricted Subsidiary and imposed
pursuant to an agreement that has been entered into for the sale or disposition
of all or substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary; or (vi) contained in the terms of any Indebtedness
or any agreement pursuant to which such Indebtedness was issued if (A) the
encumbrance or restriction applies only in the event of a payment default or a
default with respect to a financial covenant contained in such Indebtedness or
agreement; provided that in the case of the Credit Agreement the encumbrance or
restriction may apply if an event of default (other than an event of default
resulting solely from the breach of a representation or warranty) occurs and is
continuing under the Credit Agreement; provided that, with respect to any event
of default (other than a payment default, a bankruptcy event with respect to the
Company or the loss of a material license or fiber network) under the Credit
Agreement, such encumbrance or restriction may not prohibit dividends to the
Company to pay scheduled interest on the Notes for more than 180 days in any
consecutive 360-day period, (B) the encumbrance or restriction is not materially
more disadvantageous to the Holders than is customary in comparable financings
(as determined by the Company) and (C) the Company determines (as evidenced by a
resolution of the Board of Directors) that any such encumbrance or restriction
is not reasonably expected to materially affect the Company's ability to make
principal or interest payments on the Notes.
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Nothing contained in this Section 4.05 shall prevent the
Company or any Restricted Subsidiary from (1) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted in Section 4.09 or (2)
restricting the sale or other disposition of property or assets of the Company
or any of its Restricted Subsidiaries that secure Indebtedness of the Company or
any of its Restricted Subsidiaries.
SECTION 4.06. Limitation on the Issuance and Sale of Capital
Stock of Restricted Subsidiaries. The Company shall not sell, and shall not
permit any Restricted Subsidiary, directly or indirectly, to issue or sell, any
shares of Capital Stock of a Restricted Subsidiary (including options, warrants
or other rights to purchase shares of such Capital Stock) except (i) to the
Company or a Wholly Owned Restricted Subsidiary, (ii) issuances of director's
qualifying shares, or sales to foreign nationals of shares of Capital Stock of
foreign Restricted Subsidiaries, to the extent required by applicable law, (iii)
if, immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect to such issuance or sale would have
been permitted to be made under Section 4.04 if made on the date of such
issuance or sale or (iv) issuances or sales of Common Shares of a Restricted
Subsidiary, provided that the Company or such Restricted Subsidiary applies the
Net Cash Proceeds, if any, of any such sale in accordance with clause (A) or (B)
of the first paragraph of Section 4.10.
SECTION 4.07. Limitation on Issuances of Guarantees by
Restricted Subsidiaries. The Company shall not permit any Restricted Subsidiary,
directly or indirectly, to Guarantee any Indebtedness of the Company which is
pari passu in right of payment with, or subordinate in right of payment to, the
Notes ("Guaranteed Indebtedness"), unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to this Indenture
providing for a Guarantee (a "Subsidiary Guarantee") of payment of the Notes by
such Restricted Subsidiary and (ii) such Restricted Subsidiary waives, and shall
not in any manner whatsoever claim or take the benefit or advantage of, any
rights of reimbursement, indemnity or subrogation or any other rights against
the Company or any other Restricted Subsidiary as a result of any payment by
such Restricted Subsidiary under its Subsidiary Guarantee; provided that this
paragraph shall not be applicable to (x) any Guarantee of any Restricted
Subsidiary that existed at the time such Person became a Restricted Subsidiary
and was not Incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or (y) any Guarantee of any Restricted
Subsidiary of Indebtedness Incurred (I) under Credit Facilities pursuant to
clause (i) of the second paragraph of Section 4.03 or (II) pursuant to clause
(vii) of the second paragraph of Section 4.03. If the Guaranteed Indebtedness is
(A) pari passu in right of payment with the Notes, then the Guarantee of such
Guaranteed Indebtedness shall be pari passu in right of payment with, or
subordinated in right of payment to, the Subsidiary Guarantee or (B)
subordinated in right of payment to the Notes, then the Guarantee of such
Guaranteed Indebtedness shall be subordinated in right of payment to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated in right of payment to the Notes.
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Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary may provide by its terms that it shall be automatically
and unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the Company's
and each Restricted Subsidiary's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by this Indenture) or (ii) the release or discharge of the
Guarantee which resulted in the creation of such Subsidiary Guarantee, except a
discharge or release by or as a result of payment under such Guarantee.
SECTION 4.08. Limitation on Transactions with Stockholders and
Affiliates. The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, enter into, renew or extend any
transaction (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any holder
(or any Affiliate of such holder) of 5% or more of any class of Capital Stock of
the Company or with any Affiliate of the Company or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable in any material respect
to the Company or such Restricted Subsidiary than could be obtained, at the time
of such transaction or, if such transaction is pursuant to a written agreement,
at the time of the execution of the agreement providing therefor, in a
comparable arm's-length transaction with a Person that is not such a holder or
an Affiliate.
The foregoing limitation does not limit, and shall not apply
to: (i) transactions (A) approved by a majority of the disinterested members of
the Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view; (ii) any transaction
solely between the Company and any of its Wholly Owned Restricted Subsidiaries
or solely between Wholly Owned Restricted Subsidiaries; (iii) the payment of
reasonable and customary regular fees to directors of the Company who are not
employees of the Company; (iv) any payments or other transactions pursuant to
any tax-sharing agreement between the Company and any other Person with which
the Company files a consolidated tax return or with which the Company is part of
a consolidated group for tax purposes; or (v) any Restricted Payments not
prohibited by Section 4.04. Notwithstanding the foregoing, any transaction
covered by the first paragraph of this Section 4.08 and not covered by clauses
(ii) through (v) of this paragraph, the aggregate amount of which exceeds $5
million in value, must be approved or determined to be fair in the manner
provided for in clause (i)(A) or (B) above.
SECTION 4.09. Limitation on Liens. The Company shall not, and
shall not permit any Restricted Subsidiary to, create, incur, assume or suffer
to exist any Lien on any of its assets or properties of any character, or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without
making effective provision for all of the Notes and all other amounts due under
this Indenture to be directly secured equally and ratably with (or, if the
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obligation or liability to be secured by such Lien is subordinated in right of
payment to the Notes, prior to) the obligation or liability secured by such
Lien.
The foregoing limitation does not apply to: (i) Liens existing
on the Closing Date; (ii) Liens granted after the Closing Date on any assets or
Capital Stock of the Company or its Restricted Subsidiaries created in favor of
the Holders; (iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such other
Restricted Subsidiary; (iv) Liens securing Indebtedness which is Incurred to
refinance secured Indebtedness which is permitted to be Incurred under clause
(iii) of the second paragraph of Section 4.03; provided that such Liens do not
extend to or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets securing the Indebtedness being
refinanced; (v) Liens securing obligations under Credit Facilities Incurred
under clause (i) of the second paragraph of Section 4.03; or (vi) Permitted
Liens.
SECTION 4.10. Limitation on Asset Sales. The Company shall
not, and shall not permit any Restricted Subsidiary to, consummate any Asset
Sale, unless (i) the consideration received by the Company or such Restricted
Subsidiary is at least equal to the fair market value of the assets sold or
disposed of and (ii) at least 75% of the consideration received consists of cash
or Temporary Cash Investments. In the event and to the extent that the Net Cash
Proceeds received by the Company or any of its Restricted Subsidiaries from one
or more Asset Sales occurring on or after the Closing Date in any period of 12
consecutive months exceed $5 million, then the Company shall or shall cause the
relevant Restricted Subsidiary to (i) within 12 months after the date Net Cash
Proceeds so received exceed $5 million (A) apply an amount equal to such excess
Net Cash Proceeds to permanently repay unsubordinated Indebtedness of the
Company or any Restricted Subsidiary providing a Subsidiary Guarantee pursuant
to Section 4.07 or Indebtedness of any other Restricted Subsidiary, in each case
owing to a Person other than the Company or any of its Subsidiaries, or (B)
invest an amount equal to such excess Net Cash Proceeds, or the amount of such
Net Cash Proceeds not so applied pursuant to clause (A) (or enter into a
definitive agreement committing to so invest within 12 months after the date of
such agreement), in capital assets of a nature or type or that are used in a
business (or in a Person having capital assets of a nature or type, or engaged
in a business) similar or related to the nature or type of the property and
assets of, or the business of, the Company and its Restricted Subsidiaries
existing on the date of such investment (as determined in good faith by the
Board of Directors, whose determination shall be conclusive and evidenced by a
Board Resolution) and (ii) apply (no later than the end of the 12-month period
referred to in clause (i)) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraph of this
Section 4.10. The amount of such excess Net Cash Proceeds required to be applied
(or to be committed to be applied) during such 12-month period as set forth in
clause (i) of the preceding sentence and not applied as so required by the end
of such period shall constitute "Excess Proceeds."
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If, as of the first day of any calendar month, the aggregate
amount of Excess Proceeds not theretofore subject to an Offer to Purchase
pursuant to this Section 4.10 totals at least $5 million, the Company shall
commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate Accreted Value of Notes equal to the Excess Proceeds on such date, at
a purchase price equal to 100% of the Accreted Value of the Notes on the
relevant Payment Date plus, in each case, accrued interest (if any) to the
Payment Date.
SECTION 4.11. Repurchase of Notes upon a Change of Control.
The Company shall commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the Accreted Value thereof on the relevant
Payment Date, plus accrued interest (if any) to the Payment Date.
SECTION 4.12. Existence. Subject to Articles Four and Five,
the Company shall do or cause to be done all things necessary to preserve and
keep in full force and effect its existence and the existence of each of its
Restricted Subsidiaries in accordance with the respective organizational
documents of the Company and each such Subsidiary and the rights (whether
pursuant to charter, partnership certificate, agreement, statute or otherwise),
material licenses and franchises of the Company and each such Subsidiary;
provided that the Company shall not be required to preserve any such right,
license or franchise, or the existence of any Restricted Subsidiary, if the
maintenance or preservation thereof is no longer desirable in the conduct of the
business of the Company and its Restricted Subsidiaries taken as a whole.
SECTION 4.13. Payment of Taxes and Other Claims. The Company
shall pay or discharge and shall cause each of its Subsidiaries to pay or
discharge, or cause to be paid or discharged, before the same shall become
delinquent (i) all material taxes, assessments and governmental charges levied
or imposed upon (a) the Company or any such Subsidiary, (b) the income or
profits of any such Subsidiary which is a corporation or (c) the property of the
Company or any such Subsidiary and (ii) all material lawful claims for labor,
materials and supplies that, if unpaid, might by law become a lien upon the
property of the Company or any such Subsidiary; provided that the Company shall
not be required to pay or discharge, or cause to be paid or discharged, any such
tax, assessment, charge or claim the amount, applicability or validity of which
is being contested in good faith by appropriate proceedings and for which
adequate reserves have been established.
SECTION 4.14. Maintenance of Properties and Insurance. The
Company shall cause all properties used or useful in the conduct of its business
or the business of any of its Restricted Subsidiaries to be maintained and kept
in good condition, repair and working order and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be
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properly and advantageously conducted at all times; provided that nothing in
this Section 4.14 shall prevent the Company or any such Subsidiary from
discontinuing the use, operation or maintenance of any of such properties or
disposing of any of them, if such discontinuance or disposal is, in the judgment
of the Company, desirable in the conduct of the business of the Company or such
Subsidiary.
The Company shall provide or cause to be provided, for itself
and its Restricted Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds customarily insured against
by corporations similarly situated and owning like properties, including, but
not limited to, products liability insurance and public liability insurance,
with reputable insurers or with the government of the United States of America,
or an agency or instrumentality thereof, in such amounts, with such deductibles
and by such methods as shall be customary for corporations similarly situated in
the industry in which the Company or any such Restricted Subsidiary, as the case
may be, is then conducting business.
SECTION 4.15. Notice of Defaults. In the event that the
Company becomes aware of any Default or Event of Default, the Company, promptly
after it becomes aware thereof, shall give written notice thereof to the
Trustee.
SECTION 4.16. Compliance Certificates. (a) The Company shall
deliver to the Trustee, within 45 days after the end of each fiscal quarter (90
days after the end of the last fiscal quarter of each year), an Officers'
Certificate stating whether or not the signers know of any Default or Event of
Default that occurred during such fiscal quarter. In the case of the Officers'
Certificate delivered within 90 days after the end of the Company's fiscal year,
such certificate shall contain a certification from the principal executive
officer, principal financial officer or principal accounting officer of the
Company that a review has been conducted of the activities of the Company and
its Restricted Subsidiaries and the Company's and its Restricted Subsidiaries'
performance under this Indenture and that the Company has complied with all
conditions and covenants under this Indenture. For purposes of this Section
4.16(a), such compliance shall be determined without regard to any period of
grace or requirement of notice provided under this Indenture. If the officers of
the Company signing such certificate do know of such a Default or Event of
Default, the certificate shall describe any such Default or Event of Default and
its status. The first certificate to be delivered pursuant to this Section
4.16(a) shall be for the first fiscal quarter beginning after the execution of
this Indenture.
(b) The Company shall deliver to the Trustee, within 90
days after the end of the Company's fiscal year, a certificate signed by the
Company's independent certified public accountants stating (i) that their audit
examination has included a review of the terms of this Indenture and the Notes
as they relate to accounting matters, (ii) that they have read the most recent
Officers' Certificate delivered to the Trustee pursuant to paragraph (a) of this
Section 4.16 and (iii) whether, in connection with their audit examination,
anything came to their attention that caused them to believe that the Company
was not in compliance with any of the terms,
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covenants, provisions or conditions of Article Four and Section 5.01 of this
Indenture as they pertain to accounting matters and, if any Default or Event of
Default has come to their attention, specifying the nature and period of
existence thereof; provided that such independent certified public accountants
shall not be liable in respect of such statement by reason of any failure to
obtain knowledge of any such Default or Event of Default that would not be
disclosed in the course of an audit examination conducted in accordance with
generally accepted auditing standards in effect at the date of such examination.
SECTION 4.17. Commission Reports and Reports to Holders. At
all times from and after the earlier of (i) the date of the commencement of an
Exchange Offer or the effectiveness of the Shelf Registration Statement (the
"Registration") and (ii) the date that is six months after the Closing Date, in
either case, whether or not the Company is then required to file reports with
the Commission, the Company shall file with the Commission all such reports and
other information as it would be required to file with the Commission by Section
13(a) or 15(d) under the Exchange Act if it were subject thereto (unless the
Commission will not accept such a filing, in which case the Company shall
provide such documents to the Trustee). The Company shall supply the Trustee and
each Holder or shall supply to the Trustee for forwarding to each such Holder,
without cost to such Holder, copies of such reports and other information;
provided, however, that copies of such reports may omit exhibits, which the
Company shall deliver at its cost to any Holder upon request. In addition, at
all times prior to the earlier of the date of the Registration and six months
after the Closing Date, the Company shall, at its cost, deliver to each Holder
of the Notes quarterly and annual reports (commencing with the first quarter
after the quarter in which the Closing Date occurs) substantially equivalent to
those which would be required by the Exchange Act; provided, however, that
copies of such reports may omit exhibits, which the Company shall supply to any
Holder upon request. In addition, at all times prior to the Registration, upon
the request of any Holder or any prospective purchaser of the Notes designated
by a Holder, the Company shall supply to such Holder or such prospective
purchaser the information required under Rule 144A under the Securities Act.
SECTION 4.18. Waiver of Stay, Extension or Usury Laws. The
Company covenants (to the extent that it may lawfully do so) that it shall not
at any time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or that may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law and covenants that it shall not hinder, delay or impede the
execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law had been enacted.
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SECTION 4.19. Limitation on Sale-Leaseback Transactions. The
Company shall not, and shall not permit any Restricted Subsidiary to, enter into
any sale-leaseback transaction involving any of its assets or properties whether
now owned or hereafter acquired, whereby the Company or a Restricted Subsidiary
sells or transfers such assets or properties and then or thereafter leases such
assets or properties or any part thereof or any other assets or properties which
the Company or such Restricted Subsidiary, as the case may be, intends to use
for substantially the same purpose or purposes as the assets or properties sold
or transferred.
The foregoing restriction does not apply to any sale-leaseback
transaction if (i) the lease is for a period, including renewal rights, of not
in excess of three years; (ii) the lease secures or relates to industrial
revenue or pollution control bonds; (iii) the transaction is solely between the
Company and any Wholly Owned Restricted Subsidiary or solely between Wholly
Owned Restricted Subsidiaries; or (iv) the Company or such Restricted
Subsidiary, within 12 months after the sale or transfer of any assets or
properties is completed, applies an amount not less than the net proceeds
received from such sale in accordance with clause (A) or (B) of the first
paragraph of Section 4.10.
SECTION 4.20. Calculation of Original Issue Discount and
Certain Information Concerning Tax Reporting. The Company shall deliver to the
Trustee, within 40 days of the date of original issuance of the Notes, an
Officers' Certificate, setting forth (i) the amount of the original issue
discount on the Notes, expressed as a U.S. dollar amount per $1,000 of principal
amount at maturity, (ii) the yield to maturity for the Notes and (iii) a table
of the amount of the original issue discount on the Notes, expressed as a U.S.
dollar amount per $1,000 of principal amount at maturity, accrued for each day
from the date of original issuance of the Notes to their Stated Maturity.
On or before December 15 of each year during which any Notes
are outstanding, the Company shall furnish to the Trustee such information as
may be reasonably requested by the Trustee in order that the Trustee may prepare
the information which it is required to report for such year on Internal Revenue
Service Forms 1096 and 1099 pursuant to Section 6049 of the Internal Revenue
Code of 1986, as amended. Such information shall include the amount of original
issue discount includable in income for each $1,000 of principal amount at
maturity of outstanding Notes during such year.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc. The Company shall
not consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of all or substantially all of its property and assets (as an
entirety or substantially an entirety in one transaction or a series of related
transactions) to, any Person or permit any Person to merge with
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or into the Company unless: (i) the Company shall be the continuing Person, or
the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or that acquired or leased such property and assets
of the Company shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof, and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, all of the obligations of the Company on all of the Notes and under
this Indenture; (ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction on a pro forma basis, the
Company or any Person becoming the successor obligor of the Notes shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
the Company immediately prior to such transaction; (iv) immediately after giving
effect to such transaction on a pro forma basis, the Company, or any Person
becoming the successor obligor of the Notes, as the case may be, could Incur at
least $1.00 of Indebtedness under the first paragraph of Section 4.03; provided,
however, that this clause (iv) shall not apply to a consolidation, merger or
sale of all (but not less than all) of the assets of the Company if all Liens
and Indebtedness of the Company or any Person becoming the successor obligor of
the Notes, as the case may be, and its Restricted Subsidiaries outstanding
immediately after such transaction would, if Incurred at such time, have been
permitted to be Incurred (and all such Liens and Indebtedness, other than Liens
or Indebtedness of the Company and its Restricted Subsidiaries outstanding
immediately prior to the transaction, shall be deemed to have been Incurred) for
all purposes of this Indenture; and (v) the Company delivers to the Trustee an
Officers' Certificate (attaching the arithmetic computations to demonstrate
compliance with clauses (iii) and (iv) above) and an Opinion of Counsel, in each
case stating that such consolidation, merger or transfer and such supplemental
indenture comply with this provision and that all conditions precedent provided
for herein relating to such transaction have been complied with; provided,
however, that clauses (iii) and (iv) above do not apply if, in the good faith
determination of the Board of Directors of the Company, whose determination
shall be evidenced by a Board Resolution, the principal purpose of such
transaction is to change the state of incorporation of the Company, and such
transaction shall not have as one of its purposes the evasion of the foregoing
limitations.
SECTION 5.02. Successor Substituted. Upon any consolidation or
merger, or any sale, conveyance, transfer, lease or other disposition of all or
substantially all of the property and assets of the Company in accordance with
Section 5.01, the successor Person formed by such consolidation or into which
the Company is merged or to which such sale, conveyance, transfer, lease or
other disposition is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein;
provided that the Company shall not be released from its obligation to pay the
principal of, premium, if any, or interest on the Notes in the case of a lease
of all or substantially all of its property and assets.
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ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default. An "Event of Default" shall
occur with respect to the Notes if:
(a) the Company defaults in the payment of the principal of (or
premium, if any, on) any Note when the same becomes due and payable at maturity,
upon acceleration, redemption or otherwise;
(b) the Company defaults in the payment of interest on any Note
when the same becomes due and payable, which default continues for a period of
30 days;
(c) the Company defaults in the performance of or breaches Section
5.01 or fails to make or consummate an Offer to Purchase in accordance with
Section 4.10 or Section 4.11;
(d) the Company defaults in the performance of or breaches any
covenant or agreement of the Company in this Indenture or under the Notes (other
than a default specified in clause (a), (b) or (c) above), which default or
breach continues for a period of 30 consecutive days after written notice by the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding;
(e) there occurs with respect to any issue or issues of
Indebtedness of the Company or any Significant Subsidiary having an outstanding
principal amount of $5 million or more in the aggregate for all such issues of
all such Persons, whether such Indebtedness now exists or shall hereafter be
created, (I) an event of default that has caused the holder thereof to declare
such Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days of such acceleration and/or (II) the
failure to make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or extended
within 30 days of such payment default;
(f) any final judgment or order (not covered by insurance) for the
payment of money in excess of $5 million in the aggregate for all such final
judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 30 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
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exceed $5 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect;
(g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any Significant Subsidiary in
an involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, (B) appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company or
any Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a period
of 60 consecutive days; or
(h) the Company or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order for relief in
an involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) effects any general assignment for the benefit of
creditors.
SECTION 6.02. Acceleration. If an Event of Default (other than
an Event of Default specified in clause (g) or (h) above that occurs with
respect to the Company) occurs and is continuing under this Indenture, the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by written notice to the Company (and to the Trustee if
such notice is given by the Holders), may, and the Trustee at the request of
such Holders shall, declare the Accreted Value of, premium, if any, and accrued
interest on the Notes to be immediately due and payable. Upon a declaration of
acceleration, such Accreted Value, premium, if any, and accrued interest shall
be immediately due and payable. In the event of a declaration of acceleration
because an Event of Default set forth in clause (e) above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the event of default triggering such Event of Default pursuant
to clause (e) shall be remedied or cured by the Company or the relevant
Significant Subsidiary or waived by the holders of the relevant Indebtedness
within 60 days after the declaration of acceleration with respect thereto. If an
Event of Default specified in clause (g) or (h) above occurs with respect to the
Company, the Accreted Value of, premium, if any, and accrued interest on the
Notes then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder.
The Holders of at least a majority in principal amount of the
outstanding Notes, by written notice to the Company and to the Trustee, may
waive all past defaults and rescind
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and annul a declaration of acceleration and its consequences if (i) all existing
Events of Default, other than the nonpayment of the Accreted Value of, premium,
if any, and interest on the Notes that have become due solely by such
declaration of acceleration, have been cured or waived and (ii) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction.
SECTION 6.03. Other Remedies. If an Event of Default occurs
and is continuing, the Trustee may, and at the direction of the Holders of at
least a majority in principal amount of the outstanding Notes shall, pursue any
available remedy by proceeding at law or in equity to collect the payment of the
Accreted Value of, premium, if any, or interest on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding.
SECTION 6.04. Waiver of Past Defaults. Subject to Sections
6.02, 6.07 and 9.02, the Holders of at least a majority in principal amount of
the outstanding Notes, by notice to the Trustee, may waive an existing Default
or Event of Default and its consequences, except a Default in the payment of
principal of, premium, if any, or interest on any Note as specified in clause
(a) or (b) of Section 6.01 or in respect of a covenant or provision of this
Indenture which cannot be modified or amended without the consent of the Holder
of each outstanding Note affected. Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereto.
SECTION 6.05. Control by Majority. The Holders of at least a
majority in aggregate principal amount of the outstanding Notes may 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. However,
the Trustee may refuse to follow any direction that conflicts with law or this
Indenture, that may involve the Trustee in personal liability, or that the
Trustee determines in good faith may be unduly prejudicial to the rights of
Holders of Notes not joining in the giving of such direction and may take any
other action it deems proper that is not inconsistent with any such direction
received from Holders of Notes.
SECTION 6.06. Limitation on Suits. A Holder may not pursue any
remedy with respect to this Indenture or the Notes unless:
(i) the Holder gives the Trustee written notice of a continuing
Event of Default;
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(ii) the Holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the remedy;
(iii) such Holder or Holders offer (and if requested provide) the
Trustee indemnity satisfactory to the Trustee against any costs, liability or
expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
(v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request.
For purposes of Section 6.05 of this Indenture and this
Section 6.06, the Trustee shall comply with TIA Section 316(a) in making any
determination of whether the Holders of the required aggregate principal amount
of outstanding Notes have concurred in any request or direction of the Trustee
to pursue any remedy available to the Trustee or the Holders with respect to
this Indenture or the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
The limitations set forth in this Section 6.06 shall not apply
to the right of any Holder of a Note to receive payment of the Accreted Value
of, premium, if any, or interest on, such Note or to bring suit for the
enforcement of any such payment, on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of the
Holder.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
of a Note to receive payment of the principal of, premium, if any, or interest
on, such Note or to bring suit for the enforcement of any such payment, on or
after the due date expressed in the Notes, shall not be impaired or affected
without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of
Default in payment of principal, premium or interest specified in clause (a),
(b) or (c) of Section 6.01 occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
or any other obligor of the Notes for the whole amount of principal, premium, if
any, and accrued interest remaining unpaid, together with interest on overdue
principal, premium, if any, and, to the extent that payment of such interest is
lawful, interest on overdue installments of interest, in each case at the rate
specified in the Notes, and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the
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reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee
may file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07) and the Holders allowed in any judicial proceedings relative to
the Company (or any other obligor of the Notes), its creditors or its property
and shall be entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon conversion or exchange
of the Notes or upon any such claims and to distribute the same, and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to empower the Trustee to authorize or consent to, or accept or adopt on
behalf of any Holder, any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. Priorities. If the Trustee collects any money
pursuant to this Article Six, it shall pay out the money in the following order:
First: to the Trustee for all amounts due under Section 7.07;
Second: to Holders for amounts then due and unpaid for Accreted Value
of, premium, if any, and interest on the Notes in respect of which or for the
benefit of which such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable on such Notes for
principal, premium, if any, and interest, respectively; and
Third: to the Company or any other obligors of the Notes, as their
interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior written notice to the Company, may fix
a record date and payment date for any payment to Holders pursuant to this
Section 6.10.
SECTION 6.11. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court may
require any party litigant in such suit to file an undertaking
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to pay the costs of the suit, and the court may assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in the suit
having due regard to the merits and good faith of the claims or defenses made by
the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a
suit by a Holder pursuant to Section 6.07, or a suit by Holders of more than 10%
in principal amount of the outstanding Notes.
SECTION 6.12. Restoration of Rights and Remedies. If the
Trustee or any Holder has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then, and in every such case, subject to any determination in such
proceeding, the Company, the Trustee and the Holders shall be restored severally
and respectively to their former positions hereunder and thereafter all rights
and remedies of the Company, Trustee and the Holders shall continue as though no
such proceeding had been instituted.
SECTION 6.13. Rights and Remedies Cumulative. Except as
otherwise provided with respect to the replacement or payment of mutilated,
destroyed, lost or wrongfully taken Notes in Section 2.09, no right or remedy
herein conferred upon or reserved to the Trustee or to the Holders is intended
to be exclusive of any other right or remedy, and every right and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver. No delay or
omission of the Trustee or of any Holder to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article Six or by law to the Trustee or to
the Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General. The duties and responsibilities of the
Trustee shall be as provided by the TIA and as set forth herein. Notwithstanding
the foregoing, no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it. Whether or not herein expressly so provided, every
provision of this Indenture relating to the
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conduct or affecting the liability of or affording protection to the Trustee
shall be subject to the provisions of this Article Seven.
SECTION 7.02. Certain Rights of Trustee. Subject to TIA
Sections 315(a) through (d):
(i) the Trustee may rely, and shall be protected in acting or
refraining from acting, upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in any such document;
(ii) before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, which shall conform
to Section 11.04. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such certificate or opinion;
(iii) the Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any attorney or agent
appointed with due care;
(iv) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction;
(v) the Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within its
rights or powers or for any action it takes or omits to take in accordance with
the written direction of the Holders of a majority in principal amount of the
outstanding Notes relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture;
(vi) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate; and
(vii) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report,
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notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts or
matters as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company personally or by agent or attorney.
SECTION 7.03. Individual Rights of Trustee. The Trustee, in
its individual or any other capacity, may become the owner or pledgee of Notes
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.04. Trustee's Disclaimer. The Trustee (i) makes no
representation as to the validity or adequacy of this Indenture or the Notes,
(ii) shall not be accountable for the Company's use or application of the
proceeds from the Notes and (iii) shall not be responsible for any statement in
the Notes other than its certificate of authentication.
SECTION 7.05. Notice of Default. If any Default or any Event
of Default occurs and is continuing and if such Default or Event of Default is
known to a Responsible Officer of the Trustee, the Trustee shall mail to each
Holder in the manner and to the extent provided in TIA Section 313(c) notice of
the Default or Event of Default within 45 days after it occurs, unless such
Default or Event of Default has been cured; provided, however, that, except in
the case of a default in the payment of the principal of, premium, if any, or
interest on any Note, the Trustee shall be protected in withholding such notice
if and so long as the board of directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the Trustee in good faith
determine that the withholding of such notice is in the interest of the Holders.
SECTION 7.06. Reports by Trustee to Holders. Within 60 days
after each May 15, beginning with May 15, 1998, the Trustee shall mail to each
Holder as provided in TIA Section 313(c) a brief report dated as of such May 15,
if required by TIA Section 313(a).
SECTION 7.07. Compensation and Indemnity. The Company shall
pay to the Trustee such compensation as shall be agreed upon in writing for its
services. The compensation of the Trustee shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable out-of-pocket expenses and advances
incurred or made by the Trustee. Such expenses shall include the reasonable
compensation and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all
losses, liabilities, obligations, damages, penalties, judgments, actions, suits,
proceedings, reasonable costs and
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expenses (including reasonable fees and disbursements of counsel) of any kind
whatsoever which may be incurred by the Trustee in connection with any
investigative, administrative or judicial proceeding (whether or not such
indemnified party is designated a party to such proceeding) arising out of or in
connection with the acceptance or administration of its duties under this
Indenture; provided, however, that the Company need not reimburse any expense or
indemnify against any loss, obligation, damage, penalty, judgment, action, suit,
proceeding, reasonable cost or expense (including reasonable fees and
disbursements of counsel) of any kind whatsoever which may be incurred by the
Trustee in connection with any investigative, administrative or judicial
proceeding (whether or not such indemnified party is designated a party to such
proceeding) in which it is determined that the Trustee acted with negligence,
bad faith or willful misconduct. The Trustee shall notify the Company promptly
of any claim for which it may seek indemnity. Failure by the Trustee to so
notify the Company shall not relieve the Company of its obligations hereunder,
unless the Company is materially prejudiced thereby. The Company shall defend
the claim and the Trustee shall cooperate in the defense. Unless otherwise set
forth herein, the Trustee may have separate counsel and the Company shall pay
the reasonable fees and expenses of such counsel. The Company need not pay for
any settlement made without its consent, which consent shall not be unreasonably
withheld.
To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a lien prior to the Notes on all money or property
held or collected by the Trustee, in its capacity as Trustee, except money or
property held in trust to pay principal of, premium, if any, and interest on
particular Notes.
If the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in clause (g) or (h) of Section
6.01, the expenses and the compensation for the services shall be intended to
constitute expenses of administration under Title 11 of the United States
Bankruptcy Code or any applicable federal or state law for the relief of
debtors.
SECTION 7.08. Replacement of Trustee. A resignation or removal
of the Trustee and appointment of a successor Trustee shall become effective
only upon the successor Trustee's acceptance of appointment as provided in this
Section 7.08.
The Trustee may resign at any time by so notifying the Company
in writing at least 30 days prior to the date of the proposed resignation. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee by so notifying the Trustee in writing and may appoint a successor
Trustee with the consent of the Company. The Company may remove the Trustee if:
(i) the Trustee is no longer eligible under Section 7.10; (ii) the Trustee is
adjudged a bankrupt or an insolvent; (iii) a receiver or other public officer
takes charge of the Trustee or its property; or (iv) the Trustee becomes
incapable of acting.
If the Trustee resigns or is removed, or if a vacancy exists
in the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after
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the successor Trustee takes office, the Holders of a majority in principal
amount of the outstanding Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Company. If the successor Trustee does not
deliver its written acceptance required by the next succeeding paragraph of this
Section 7.08 within 30 days after the retiring Trustee resigns or is removed,
the retiring Trustee, the Company or the Holders of a majority in principal
amount of the outstanding Notes may petition any court of competent jurisdiction
for the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
7.07, (i) the retiring Trustee shall transfer all property held by it as Trustee
to the successor Trustee, (ii) the resignation or removal of the retiring
Trustee shall become effective and (iii) the successor Trustee shall have all
the rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each Holder.
If the Trustee is no longer eligible under Section 7.10, any
Holder who satisfies the requirements of TIA Section 310(b) may petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
The Company shall give notice of any resignation and any
removal of the Trustee and each appointment of a successor Trustee to all
Holders. Each notice shall include the name of the successor Trustee and the
address of its Corporate Trust Office.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's obligation under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein.
SECTION 7.10. Eligibility. This Indenture shall always have a
Trustee who satisfies the requirements of TIA Section 310(a)(1). The Trustee
shall have a combined capital and surplus of at least $25 million as set forth
in its most recent published annual report of condition.
SECTION 7.11. Money Held in Trust. The Trustee shall not be
liable for interest on any money received by it except as the Trustee may agree
with the Company. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law and except for money held in
trust under Article Eight of this Indenture.
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SECTION 7.12. Withholding Taxes. The Trustee, as agent for the
Company, shall exclude and withhold from each payment of principal and interest
and other amounts due hereunder or under the Notes any and all withholding taxes
applicable thereto as required by law. The Trustee agrees to act as such
withholding agent and, in connection therewith, whenever any present or future
taxes or similar charges are required to be withheld with respect to any amounts
payable in respect of the Notes, to withhold such amounts and timely pay the
same to the appropriate authority in the name of and on behalf of the Holders of
the Notes, that it shall file any necessary withholding tax returns or
statements when due, and that, as promptly as possible after the payment
thereof, it shall deliver to each Holder of a Note appropriate documentation
showing the payment thereof, together with such additional documentary evidence
as such Holders may reasonably request from time to time.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations. Except as
otherwise provided in this Section 8.01, the Company may terminate its
obligations under the Notes and this Indenture if:
(i) all Notes previously authenticated and delivered (other than
destroyed, lost or stolen Notes that have been replaced or Notes that are paid
pursuant to Section 4.01 or Notes for whose payment money or securities have
theretofore been held in trust and thereafter repaid to the Company, as provided
in Section 8.05) have been delivered to the Trustee for cancellation and the
Company has paid all sums payable by it hereunder; or
(ii) (A) the Notes mature within one year or all of them are to be
called for redemption within one year under arrangements satisfactory to the
Trustee for giving the notice of redemption, (B) the Company irrevocably
deposits in trust with the Trustee during such one-year period, under the terms
of an irrevocable trust agreement in form and substance satisfactory to the
Trustee, as trust funds solely for the benefit of the Holders for that purpose,
money or U.S. Government Obligations sufficient (in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee), without consideration of any
reinvestment of any interest thereon, to pay principal, premium, if, any, and
interest on the Notes to maturity or redemption, as the case may be, and to pay
all other sums payable by it hereunder, (C) no Default or Event of Default with
respect to the Notes shall have occurred and be continuing on the date of such
deposit, (D) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or instrument
to which the Company is a party or by which it is bound and (E) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion
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of Counsel, in each case stating that all conditions precedent provided for
herein relating to the satisfaction and discharge of this Indenture have been
complied with.
With respect to the foregoing clause (i), the Company's
obligations under Section 7.07 shall survive. With respect to the foregoing
clause (ii), the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06,
2.07, 2.08, 2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall
survive until the Notes are no longer outstanding. Thereafter, only the
Company's obligations in Sections 7.07, 8.05 and 8.06 shall survive. After any
such irrevocable deposit, the Trustee upon request shall acknowledge in writing
the discharge of the Company's obligations under the Notes and this Indenture
except for those surviving obligations specified above.
SECTION 8.02. Defeasance and Discharge of Indenture. The
Company shall be deemed to have paid and shall be discharged from any and all
obligations in respect of the Notes on the 123rd day after the date of the
deposit referred to in clause (A) of this Section 8.02, and the provisions of
this Indenture shall no longer be in effect with respect to the Notes, and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same, except as to (i) rights of registration of transfer and
exchange, (ii) substitution of apparently mutilated, defaced, destroyed, lost or
stolen Notes, (iii) rights of Holders to receive payments of principal thereof
and interest thereon, (iv) the Company's obligations under Section 4.02, (v) the
rights, obligations and immunities of the Trustee hereunder and (vi) the rights
of the Holders as beneficiaries of this Indenture with respect to the property
so deposited with the Trustee payable to all or any of them; provided that the
following conditions shall have been satisfied:
(A) with reference to this Section 8.02, the Company has
irrevocably deposited or caused to be irrevocably deposited with the Trustee (or
another trustee satisfying the requirements of Section 7.10) and conveyed all
right, title and interest for the benefit of the Holders, under the terms of an
irrevocable trust agreement in form and substance satisfactory to the Trustee as
trust funds in trust, specifically pledged to the Trustee for the benefit of the
Holders as security for payment of the principal of, premium, if any, and
interest, if any, on the Notes, and dedicated solely to, the benefit of the
Holders, in and to (1) money in an amount, (2) U.S. Government Obligations that,
through the payment of interest, premium, if any, and principal in respect
thereof in accordance with their terms, will provide, not later than one day
before the due date of any payment referred to in this clause (A), money in an
amount or (3) a combination thereof in an amount sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge,
without consideration of the reinvestment of such interest and after payment of
all federal, state and local taxes or other charges and assessments in respect
thereof payable by the Trustee, the principal of, premium, if any, and accrued
interest on the outstanding Notes at the Stated Maturity of such principal or
interest; provided
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that the Trustee shall have been irrevocably instructed to apply such money or
the proceeds of such U.S. Government Obligations to the payment of such
principal, premium, if any, and interest with respect to the Notes;
(B) such deposit shall not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or instrument
to which the Company is a party or by which it is bound;
(C) immediately after giving effect to such deposit on a pro forma
basis, no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or during the period ending on the 123rd day after such
date of deposit;
(D) the Company shall have delivered to the Trustee (1) either (x)
a ruling directed to the Trustee received from the Internal Revenue Service to
the effect that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of the Company's exercise of its option under
this Section 8.02 and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
option had not been exercised or (y) an Opinion of Counsel to the same effect as
the ruling described in clause (x) above accompanied by a ruling to that effect
published by the Internal Revenue Service, unless there has been a change in the
applicable federal income tax law since the date of this Indenture such that a
ruling from the Internal Revenue Service is no longer required and (2) an
Opinion of Counsel to the effect that (x) the creation of the defeasance trust
does not violate the Investment Company Act of 1940 and (y) after the passage of
123 days following the deposit (except, with respect to any trust funds for the
account of any Holder who may be deemed to be an "insider" for purposes of the
United States Bankruptcy Code, after one year following the deposit), the trust
funds will not be subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in a case
commenced by or against the Company under either such statute, and either (I)
the trust funds will no longer remain the property of the Company (and therefore
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally) or (II) if
a court were to rule under any such law in any case or proceeding that the trust
funds remained property of the Company, (a) assuming such trust funds remained
in the possession of the Trustee prior to such court ruling to the extent not
paid to the Holders, the Trustee shall hold, for the benefit of the Holders, a
valid and perfected security interest in such trust funds that is not avoidable
in bankruptcy or otherwise except for the effect of Section 552(b) of the United
States Bankruptcy Code on interest on the trust funds accruing after the
commencement of a case under such statute and (b) the Holders shall be entitled
to receive adequate protection of their interests in such trust funds if such
trust funds are used in such case or proceeding;
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(E) if the Notes are then listed on a national securities
exchange, the Company shall have delivered to the Trustee an Opinion of Counsel
to the effect that such deposit, defeasance and discharge will not cause the
Notes to be delisted; and
(F) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all conditions
precedent provided for herein relating to the defeasance contemplated by this
Section 8.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the 123-day
(or one year) period referred to in clause (D)(2)(y) of this Section 8.02, none
of the Company's obligations under this Indenture shall be discharged.
Subsequent to the end of such 123-day (or one year) period with respect to this
Section 8.02, the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05,
2.06, 2.07, 2.08, 2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.05 and 8.06 shall
survive until the Notes are no longer outstanding. Thereafter, only the
Company's obligations in Sections 7.07, 8.05 and 8.06 shall survive. If and when
a ruling from the Internal Revenue Service or an Opinion of Counsel referred to
in clause (D)(1) of this Section 8.02 is able to be provided specifically
without regard to, and not in reliance upon, the continuance of the Company's
obligations under Section 4.01, then the Company's obligations under such
Section 4.01 shall cease upon delivery to the Trustee of such ruling or Opinion
of Counsel and compliance with the other conditions precedent provided for
herein relating to the defeasance contemplated by this Section 8.02.
After any such irrevocable deposit, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
the Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 8.03. Defeasance of Certain Obligations. The Company
may omit to comply with any term, provision or condition set forth in clauses
(iii) and (iv) of Section 5.01 and Sections 4.03 through 4.17, Section 4.19 and
clause (c) of Section 6.01 with respect to clauses (iii) and (iv) of Section
5.01 and clause (d) of Section 6.01 with respect to Sections 4.03 through 4.17,
Section 4.19 and clauses (e) and (f) of Section 6.01 shall be deemed not to be
Events of Default, in each case with respect to the outstanding Notes if:
(i) with reference to this Section 8.03, the Company has
irrevocably deposited or caused to be irrevocably deposited with the Trustee (or
another trustee satisfying the requirements of Section 7.10) and conveyed all
right, title and interest to the Trustee for the benefit of the Holders, under
the terms of an irrevocable trust agreement in form and substance satisfactory
to the Trustee as trust funds in trust, specifically pledged to the Trustee for
the benefit of the Holders as security for payment of the principal of, premium,
if any, and interest, if any, on the Notes, and dedicated solely to, the benefit
of the Holders, in and to (A) money in an amount, (B) U.S. Government
Obligations that, through the payment of interest and principal in respect
thereof in accordance with
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their terms, will provide, not later than one day before the due date of any
payment referred to in this clause (i), money in an amount or (C) a combination
thereof in an amount sufficient, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, without consideration of the
reinvestment of such interest and after payment of all federal, state and local
taxes or other charges and assessments in respect thereof payable by the
Trustee, the principal of, premium, if any, and interest on the outstanding
Notes on the Stated Maturity of such principal or interest; provided that the
Trustee shall have been irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to the payment of such principal,
premium, if any, and interest with respect to the Notes;
(ii) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or instrument
to which the Company is a party or by which it is bound;
(iii) immediately after giving effect to such deposit on a pro forma
basis, no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or during the period ending on the 123rd day after such
date of deposit;
(iv) the Company has delivered to the Trustee an Opinion of Counsel
to the effect that (A) the creation of the defeasance trust does not violate the
Investment Company Act of 1940, (B) the Trustee, for the benefit of the Holders,
has a valid first-priority security interest in the trust funds, (C) the Holders
will not recognize income, gain or loss for federal income tax purposes as a
result of such deposit and defeasance of certain obligations and will be subject
to federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred and (D) after the passage of 123 days following the deposit (except,
with respect to any trust funds for the account of any Holder who may be deemed
to be an "insider" for purposes of the United States Bankruptcy Code, after one
year following the deposit), the trust funds will not be subject to the effect
of Section 547 of the United States Bankruptcy Code or Section 15 of the New
York Debtor and Creditor Law in a case commenced by or against the Company under
either such statute, and either (1) the trust funds will no longer remain the
property of the Company (and therefore will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally) or (2) if a court were to rule under any such law
in any case or proceeding that the trust funds remained property of the Company,
(x) assuming such trust funds remained in the possession of the Trustee prior to
such court ruling to the extent not paid to the Holders, the Trustee shall hold,
for the benefit of the Holders, a valid and perfected security interest in such
trust funds that is not avoidable in bankruptcy or otherwise (except for the
effect of Section 552(b) of the United States Bankruptcy Code on interest on the
trust funds
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accruing after the commencement of a case under such statute) and (y) the
Holders will be entitled to receive adequate protection of their interests in
such trust funds if such trust funds are used in such case or proceeding;
(v) if the Notes are then listed on a national securities
exchange, the Company shall have delivered to the Trustee an Opinion of Counsel
to the effect that such deposit defeasance and discharge will not cause the
Notes to be delisted; and
(vi) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all conditions
precedent provided for herein relating to the defeasance contemplated by this
Section 8.03 have been complied with.
SECTION 8.04. Application of Trust Money. Subject to Section
8.06, the Trustee or Paying Agent shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the
case may be, and shall apply the deposited money and the money from U.S.
Government Obligations in accordance with the Notes and this Indenture to the
payment of principal of, premium, if any, and interest on the Notes; but such
money need not be segregated from other funds except to the extent required by
law.
SECTION 8.05. Repayment to Company. Subject to Sections 7.07,
8.01, 8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the
Company upon request set forth in an Officers' Certificate any excess money held
by them at any time and thereupon shall be relieved from all liability with
respect to such money. The Trustee and the Paying Agent shall pay to the Company
upon request any money held by them for the payment of principal, premium, if
any, or interest that remains unclaimed for two years. After payment to the
Company, Holders entitled to such money must look to the Company for payment as
general creditors unless an applicable law designates another Person, and all
liability of the Trustee and such Paying Agent with respect to such money shall
cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with
Section 8.01, 8.02 or 8.03, as the case may be, by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to Section 8.01, 8.02 or
8.03, as the case may be, until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with Section 8.01, 8.02 or 8.03, as the case may be; provided that, if the
Company has made any payment of principal of, premium, if any, or interest on
any Notes because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money or U.S. Government Obligations held by the Trustee or Paying
Agent.
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SECTION 8.07. Defeasance and Certain Other Events of Default.
If, in the event the Company exercises its options to omit compliance with
certain covenants and provisions due and payable because of an Event of Default
that remains applicable, and the amount of money and/or Government Securities on
deposit with the Trustee is insufficient to pay amounts due on such Notes due to
a declaration of acceleration under Section 6.02, the Company shall remain
liable for such payments.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders. The Company, when
authorized by a resolution of its Board of Directors (as evidenced by a Board
Resolution delivered to the Trustee), and the Trustee may amend or supplement
this Indenture or the Notes without notice to or the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency in this
Indenture; provided that such amendments or supplements shall not, in the good
faith opinion of the Board of Directors as evidenced by a Board Resolution,
adversely affect the interests of the Holders in any material respect;
(2) to comply with Article Five;
(3) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the TIA;
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee; or
(5) to make any change that, in the good faith opinion of the
Board of Directors as evidenced by a Board Resolution, does not materially and
adversely affect the rights of any Holder.
SECTION 9.02. With Consent of Holders. Subject to Sections
6.04 and 6.07 and without prior notice to the Holders, the Company, when
authorized by its Board of Directors (as evidenced by a Board Resolution
delivered to the Trustee), and the Trustee may amend this Indenture and the
Notes with the written consent of the Holders of a majority in aggregate
principal amount of the Notes then outstanding, and the Holders of a majority in
aggregate principal amount of the Notes then outstanding by written notice to
the Trustee may waive future compliance by the Company with any provision of
this Indenture and the Notes.
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Notwithstanding the provisions of this Section 9.02, without
the consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section 6.04, may not:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note,
(ii) reduce the Accreted Value or principal of, or premium, if any,
or interest on, any Note,
(iii) change the place or currency of payment of principal of, or
premium, if any, or interest on, any Note,
(iv) impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a redemption, on or
after the Redemption Date) of any Note,
(v) reduce the above-stated percentage of outstanding Notes the
consent of whose Holders is necessary to modify or amend this Indenture,
(vi) waive a default in the payment of principal of, premium, if
any, or interest on the Notes or
(vii) reduce the percentage or aggregate principal amount of
outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of this Indenture or for waiver of certain
defaults.
It shall not be necessary for the consent of the Holders under
this Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
9.02 becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Company shall
mail supplemental indentures to Holders upon request. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture or waiver.
SECTION 9.03. Revocation and Effect of Consent. Until an
amendment or waiver becomes effective, a consent to it by a Holder is a
continuing consent by the Holder and every subsequent Holder of a Note or
portion of a Note that evidences the same debt as the Note of the consenting
Holder, even if notation of the consent is not made on any Note. However, any
such Holder or subsequent Holder may revoke the consent as to its Note or
portion of its Note. Such revocation shall be effective only if the Trustee
receives the notice of revocation
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before the time the amendment, supplement or waiver becomes effective. An
amendment, supplement or waiver shall become effective on receipt by the Trustee
of written consents from the Holders of the requisite percentage in principal
amount of the outstanding Notes.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last two sentences of the immediately preceding paragraph,
those persons who were Holders at such record date (or their duly designated
proxies) and only those persons shall be entitled to consent to such amendment,
supplement or waiver or to revoke any consent previously given, whether or not
such persons continue to be Holders after such record date. No such consent
shall be valid or effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder unless it is of the type described in any of clauses (i)
through (vii) of the second paragraph of Section 9.02. In case of an amendment
or waiver of the type described in clauses (i) through (vii) of the second
paragraph of Section 9.02, the amendment or waiver shall bind each Holder who
has consented to it and every subsequent Holder of a Note that evidences the
same indebtedness as the Note of the consenting Holder.
SECTION 9.04. Notation on or Exchange of Notes. If an
amendment, supplement or waiver changes the terms of a Note, the Trustee may
require the Holder to deliver it to the Trustee. At the Company's expense, the
Trustee may place an appropriate notation on the Note about the changed terms
and return it to the Holder and the Trustee may place an appropriate notation on
any Note thereafter authenticated. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms. Failure to make
the appropriate notation, or issue a new Note, shall not affect the validity and
effect of such amendment, supplement or waiver.
SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee
shall be entitled to receive, and shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of any amendment, supplement or
waiver authorized pursuant to this Article Nine is authorized or permitted by
this Indenture and that it shall be valid and binding upon the Company. Subject
to the preceding sentence, the Trustee shall sign such amendment, supplement or
waiver if the same does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. The Trustee may, but shall not be obligated to,
execute any such amendment, supplement or waiver that affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
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SECTION 9.06. Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article Nine shall conform to
the requirements of the TIA as then in effect.
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. Trust Indenture Act of 1939. Prior to the
effectiveness of the Registration Statement, this Indenture shall incorporate
and be governed by the provisions of the TIA that are required to be part of and
to govern indentures qualified under the TIA. After the effectiveness of the
Registration Statement, this Indenture shall be subject to the provisions of the
TIA that are required to be a part of this Indenture and shall, to the extent
applicable, be governed by such provisions.
SECTION 10.02. Notices. Any notice or communication shall be
sufficiently given if in writing and delivered in person, mailed by first-class
mail or sent by telecopier transmission addressed as follows:
if to the Company:
KNOLOGY Holdings, Inc.
312 West 8th Street
West Point, GA 31833
Telecopier No.: (706) 645-3903
Attention: Chief Financial Officer
if to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Telecopier No.: (212) 852-1626
Attention: Corporate Trust Department
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication to Holders shall be: (i) mailed to
each Holder at its address as it appears on the Security Register by first-class
mail, not later than the latest date, and not earlier than the earliest date,
prescribed for giving such notice, and (ii) for as long as the Notes are listed
on the Luxembourg Stock Exchange, in Luxembourg in a newspaper having
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general circulation, once in each of three successive calendar weeks, the first
publication to be not later than the latest date, and not earlier than the
earliest date, prescribed for giving such notice. Copies of any such
communication or notice to a Holder shall also be mailed to the Trustee and each
Agent at the same time.
Failure to transmit a notice or communication to a Holder as
provided in clause (i) of the preceding paragraph or any defect in any such
notice shall not affect its sufficiency with respect to other Holders. Except
for a notice to the Trustee, which is deemed given only when received, and
except as otherwise provided in this Indenture, if a notice or communication is
mailed in the manner provided in clause (i) of the preceding paragraph, it is
duly given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.
SECTION 10.03. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(i) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion of such
Counsel, all such conditions precedent have been complied with.
SECTION 10.04. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(i) a statement that each person signing such certificate or
opinion has read such covenant or condition and the definitions herein relating
thereto;
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<PAGE> 84
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinion contained in
such certificate or opinion is based;
(iii) a statement that, in the opinion of each such person, he has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
complied with; and
(iv) a statement as to whether or not, in the opinion of each such
person, such condition or covenant has been complied with; provided, however,
that, with respect to matters of fact, an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
SECTION 10.05. Rules by Trustee, Paying Agent or Registrar.
The Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 10.06. Payment Date Other Than a Business Day. If an
Interest Payment Date, Redemption Date, Payment Date, Stated Maturity or date of
maturity of any Note shall not be a Business Day, then payment of principal of,
premium, if any, or interest on such Note, as the case may be, need not be made
on such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on the Interest Payment Date, Payment Date or
Redemption Date, or at the Stated Maturity or date of maturity of such Note;
provided that no interest shall accrue for the period from and after such
Interest Payment Date, Payment Date, Redemption Date, Stated Maturity or date of
maturity, as the case may be.
SECTION 10.07. Governing Law. The laws of the State of New
York shall govern this Indenture and the Notes. The Trustee, the Company and the
Holders agree to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to this Indenture or
the Notes.
SECTION 10.08. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or any Subsidiary of the Company. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 10.09. No Recourse Against Others. No recourse for the
payment of the principal of, premium, if any, or interest on any of the Notes or
for any claim based thereon or otherwise in respect thereof, and no recourse
under or upon any obligation, covenant or agreement of the Company in this
Indenture, or in any of the Notes or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator, stockholder,
officer, director, employee or controlling person of the Company or of any
successor Person thereof. Each Holder, by accepting the Notes, waives and
releases all such liability.
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<PAGE> 85
SECTION 10.10 Successors. All agreements of the Company in
this Indenture and the Notes shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 10.11 Duplicate Originals. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement.
SECTION 10.12 Separability. In case any provision in this
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 10.13 Table of Contents, Headings, Etc. The Table of
Contents, Cross-Reference Table and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not to
be considered a part hereof and shall in no way modify or restrict any of the
terms and provisions hereof.
ARTICLE ELEVEN
MEETINGS OF HOLDERS
SECTION 11.01. Purposes for Which Meetings May Be Called.
A meeting of Holders may be called at any time and from time
to time pursuant to the provisions of this Article Eleven for any of the
following purposes:
(a) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to waive or to consent to the waiving of
any Default or Event of Default hereunder and its consequences, or to take any
other action authorized to be taken by Holders pursuant to any of the provisions
of Article Six;
(b) to remove the Trustee or appoint a successor Trustee pursuant
to the provisions of Article Seven;
(c) to consent to an amendment, supplement or waiver pursuant to
the provisions of Section 9.02; or
(d) to take any other action authorized to be taken by or on
behalf of the Holders of any specified aggregate principal amount of the Notes
under any other provision of this Indenture, or authorized or permitted by law.
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<PAGE> 86
SECTION 11.02. Manner of Calling Meetings.
The Trustee may at any time call a meeting of Holders to take
any action specified in Section 11.01, to be held at such time and at such place
in The City of New York, New York or elsewhere as the Trustee will determine.
Notice of every meeting of Holders, setting forth the time and place of such
meeting and in general terms the action proposed to be taken at such meeting,
will be mailed by the Trustee, first-class postage prepaid, to the Company and
to the Holders at their last addresses as they will appear on the registration
books of the Registrar not less than 10 nor more than 60 days prior to the date
fixed for a meeting.
Any meeting of Holders will be valid without notice if the
Holders of all outstanding Notes are present in Person or by proxy, or if notice
is waived before or after the meeting by the Holders of all outstanding Notes,
and if the Company and the Trustee are either present by duly authorized
representatives or have, before or after the meeting, waived notice.
SECTION 11.03. Call of Meetings by the Company or Holders.
In case at any time the Company, pursuant to a Board
Resolution, or the Holders of not less than 10% in aggregate principal amount of
the outstanding Notes will have requested the Trustee to call a meeting of
Holders to take any action specified in Section 11.01, by written request
setting forth in reasonable detail the action proposed to be taken at the
meeting, and the Trustee will not have mailed the notice of such meeting within
20 days after receipt of such request, then the Company or the Holders of Notes
in the amount above specified may determine the time and place in The City of
New York, New York or elsewhere for such meeting and may call such meeting for
the purpose of taking such action, by mailing or causing to be mailed notice
thereof as provided in Section 11.02, or by causing notice thereof to be
published at least once in each of two successive calendar weeks (on any
Business Day during such week) in a newspaper or newspapers printed in the
English language, customarily published at least five days a week of a general
circulation in The City of New York, State of New York and, in the event the
Notes are listed on the Luxembourg Stock Exchange, in Luxembourg, the first such
publication to be not less than 10 nor more than 60 days prior to the date fixed
for the meeting.
SECTION 11.04. Who May Attend and Vote at Meetings.
To be entitled to vote at any meeting of Holders, a Person
will (i) be a registered Holder of one or more Notes or (ii) be a Person
appointed by an instrument in writing as proxy for the registered Holder or
Holders of Notes. The only Persons who will be entitled to be present or to
speak at any meeting of Holders will be the Persons entitled to vote at such
meeting and their counsel and any representatives of the Trustee and its counsel
and any representatives of the Company and its counsel.
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<PAGE> 87
SECTION 11.05. Quorum; Action.
The Persons entitled to vote a majority in principal amount of
the outstanding Notes shall constitute a quorum. In the absence of a quorum
within 30 minutes of the time appointed for any such meeting, the meeting shall,
if convened at the request of Holders of Notes, be dissolved. In any other case
the meeting may be adjourned for a period of not less than 10 days as determined
by the chairman of the meeting prior to the adjournment of such meeting. In the
absence of a quorum at any such adjourned meeting, such adjourned meeting may be
further adjourned for a period of not less than 10 days as determined by the
chairman of the meeting prior to the adjournment of such adjourned meeting.
Notice of the reconvening of any adjourned meeting shall be given as provided in
Section 11.02, except that such notice need be given only once and not less than
five days prior to the date on which the meeting is scheduled to be reconvened.
Notice of the reconvening of an adjourned meeting shall state expressly the
percentage of the principal amount of the outstanding Notes which shall
constitute a quorum.
Subject to the foregoing, at the reconvening of any meeting
adjourned for a lack of a quorum, the Persons entitled to vote 25% in principal
amount of the outstanding Notes at the time shall constitute a quorum for the
taking of any action set forth in the notice of the original meeting.
At a meeting or an adjourned meeting duly reconvened and at
which a quorum is present as aforesaid, any action or matter, except as
otherwise specified herein, shall be effectively passed and decided if passed or
decided by the Persons entitled to vote not less than a majority in principal
amount of outstanding Notes represented and voting at such meeting.
Any action or matter passed or decision taken at any meeting
of Holders of Notes duly held in accordance with this Section 11.05 shall be
binding on all the Holders of Notes, whether or not present or represented at
the meeting.
SECTION 11.06. Regulations May Be Made by Trustee; Conduct of
the Meeting; Voting Rights; Adjournment.
Notwithstanding any other provision of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for any
action by or any meeting of Holders, in regard to proof of the holding of Notes
and of the appointment of proxies, and in regard to the appointment and duties
of inspectors of votes, and submission and examination of proxies, certificates
and other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it will think appropriate. Such regulations may fix a
record date and time for determining the Holders of record of Notes entitled to
vote at such meeting, in which case those and only those Persons who are Holders
of Notes at the record date and time so fixed, or their proxies, will be
entitled to vote at such meeting whether or not they will be such Holders at the
time of the meeting.
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<PAGE> 88
The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting will have been called by
the Company or by Holders as provided in Section 11.03, in which case the
Company or the Holders calling the meeting, as the case may be, will in like
manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the Holders of a majority
in principal amount of the Notes represented at the meeting and entitled to
vote.
At any meeting each Holder or proxy shall, subject to the
provisions of Section 11.04 hereof, be entitled to one vote for each $1,000
principal amount of Notes held or represented by such Holder; provided, however,
that no vote will be cast or counted at any meeting in respect of any Notes
challenged as not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman may adjourn any such meeting if he is unable to
determine whether any Holder or proxy will be entitled to vote at such meeting.
The chairman of the meeting will have no right to vote other than by virtue of
Notes held by him or instruments in writing as aforesaid duly designating him as
the proxy to vote on behalf of other Holders. Any meeting of Holders duly called
pursuant to the provisions of Section 11.02 or Section 11.03 may be adjourned
from time to time by vote of the Holders of a majority in aggregate principal
amount of the Notes represented at the meeting and entitled to vote, and the
meeting may be held as so adjourned without further notice.
SECTION 11.07. Voting at the Meeting and Record to Be Kept.
The vote upon any resolution submitted to any meeting of
Holders shall be by written ballots on which will be subscribed the signatures
of the Holders of Notes or of their representatives by proxy and the principal
amount of the Notes voted by the ballot. The permanent chairman of the meeting
shall appoint two inspectors of votes, who shall count all votes cast at the
meeting for or against any resolution and shall make and file with the secretary
of the meeting their verified written reports in duplicate of all votes cast at
the meeting. A record in duplicate of the proceedings of each meeting of Holders
shall be prepared by the secretary of the meeting and there shall be attached to
such record the original reports of the inspectors of votes on any vote by
ballot taken thereat and affidavits by one or more Persons having knowledge of
the facts, setting forth a copy of the notice of the meeting and showing that
such notice was mailed as provided in Section 11.02. The record shall be signed
and verified by the affidavits of the permanent chairman and the secretary of
the meeting and one of the duplicates will be delivered to the Company and the
other to the Trustee to be preserved by the Trustee, the latter to have attached
thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
SECTION 11.08. Exercise of Rights of Trustee or Holders May
Not Be Hindered or Delayed by Call of Meeting.
Nothing contained in this Article Eleven shall be deemed or
construed to authorize or permit, by reason of any call of a meeting of Holders
or any rights expressly or impliedly
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<PAGE> 89
conferred hereunder to make such call, any hindrance or delay in the exercise of
any right or rights conferred upon or reserved to the Trustee or to the Holders
under any of the provisions of this Indenture or of the Notes.
SECTION 11.09. Procedures Not Exclusive.
The procedures set forth in this Article Eleven are not
exclusive and the rights and obligations of the Company, the Trustee and the
Holders under other Articles of this Indenture (including, without limitation,
Articles Six, Seven, Eight and Nine) shall in no way be limited by the
provisions of this Article Eleven.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the date first written above.
KNOLOGY HOLDINGS, INC.
By: /s/ William E. Morrow
-------------------------------------
Name: Bill Morrow
Title: CEO
UNITED STATES TRUST COMPANY OF NEW YORK
By: /s/ Louis P. Young
-------------------------------------
Name: Louis P. Young
Title: Vice President
<PAGE> 91
EXHIBIT A
[FACE OF NOTE]
KNOLOGY HOLDINGS, INC.
11-7/8% Senior Discount Note due 2007
[CUSIP] [CINS] [__________]
No. $_________
The following information is supplied for purposes of Sections
1273 and 1275 of the Internal Revenue Code:
Issue Date: October 22, 1997
Yield to maturity for period from Issue Date to October 15, 2007: 11.97%,
compounded semiannually on April 15 and October 15 commencing April 15, 1998
(computed without giving effect to the additional payments f interest in the
event the issuer fails to commence the exchange offer and fails to cause the
shelf registration statement to be declared effective, each as referred to on
the reverse hereof)
Original issue discount under Section 1273 of the Internal Revenue Code (for
each $1,000 principal amount at maturity): $1,036.44
Issue Price (for each $1,000 principal amount at maturity): $557.36
KNOLOGY HOLDINGS, INC., a Delaware corporation (the "Company", which
term includes any successor under the Indenture hereinafter referred to), for
value received, promises to pay to _____________, or its registered assigns, the
principal sum of ____________ ($____) on October 15, 2007.
Interest Payment Dates: April 15 and October 15, commencing April 15,
2003.
Regular Record Dates: April 1 and October 1.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE> 92
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: KNOLOGY HOLDINGS, INC.
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the 11-7/8% Senior Discount Notes due 2007 described in the
within-mentioned Indenture.
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:
----------------------------------
Authorized Signatory
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<PAGE> 93
[REVERSE SIDE OF NOTE]
KNOLOGY HOLDINGS, INC.
11-7/8% Senior Discount Note due 2007
1. Principal and Interest.
The Company shall pay the principal of this Note on October 15, 2007.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
Interest shall be payable semiannually (to the holders of record of
the Notes at the close of business on the April 1 or October 1 immediately
preceding the Interest Payment Date) on each Interest Payment Date; provided
that no interest shall accrue on the principal amount of this Note prior to
October 15, 2002 and no interest shall be paid on this Note prior to April 15,
2003, except as provided for in the next paragraph.
If an exchange offer (the "Exchange Offer") registered under the
Securities Act is not consummated and a shelf registration statement (the "Shelf
Registration Statement") under the Securities Act with respect to resales of the
Notes is not declared effective by the Commission on or before April 22, 1998 in
accordance with the terms of the Registration Rights Agreement dated as of
October 22, 1997 between the Company, SCANA Communications, Inc. and Morgan
Stanley & Co. Incorporated, J.P. Morgan Securities Inc. and First Union Capital
Markets Corp., interest (in addition to the accrual of original issue discount
during the period ending October 15, 2002 and in addition to interest otherwise
due on the Notes after such date) will accrue at the rate of 0.5% from the rate
shown above accruing from April 22, 1998, payable in cash semiannually, in
arrears, on each Interest Payment Date, commencing October 15, 1998 until the
Exchange Offer is consummated or the Shelf Registration Statement is declared
effective. The Holder of this Note is entitled to the benefits of such
Registration Rights Agreement.
From and after October 15, 2002, interest on the Notes shall accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from October 15, 2002; provided that, if there is no existing default
in the payment of interest and this Note is authenticated between a Regular
Record Date referred to on the face hereof and the next succeeding Interest
Payment Date, interest shall accrue from such Interest Payment Date. Interest
shall be computed on the basis of a 360-day year of twelve 30-day months.
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<PAGE> 94
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum that is 2% in excess of the rate otherwise payable.
2. Method of Payment.
The Company shall pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each April 15 and October 15,
commencing April 15, 2003, to the persons who are Holders (as reflected in the
Security Register at the close of business on the April 1 or October 1
immediately preceding the Interest Payment Date), in each case, even if the Note
is cancelled on registration of transfer or registration of exchange after such
Regular Record Date; provided that, with respect to the payment of principal,
the Company shall make payment to the Holder that surrenders this Note to a
Paying Agent on or after October 15, 2007.
The Company shall pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. If a payment date is a
date other than a Business Day at a place of payment, payment may be made at
that place on the next succeeding day that is a Business Day and no interest
shall accrue for the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee shall act as authenticating agent, Paying
Agent and Registrar. The Company may change any authenticating agent, Paying
Agent or Registrar without notice. The Company, any Subsidiary or any Affiliate
of any of them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of October
22, 1997 (the "Indenture"), between the Company and United States Trust Company
of New York, trustee (the "Trustee"). Capitalized terms herein are used as
defined in the Indenture unless otherwise indicated. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such terms,
and Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
The Notes are general obligations of the Company.
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<PAGE> 95
5. Optional Redemption.
The Notes shall be redeemable, at the Company's option, in whole or
in part, at any time or from time to time, on or after October 15, 2002 and
prior to maturity, upon not less than 30 nor more than 60 days' prior notice
mailed by first class mail to each Holder's last address, as it appears in the
Security Register, at the following Redemption Prices (expressed in percentages
of principal amount at maturity), plus accrued and unpaid interest, if any, to
the Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is prior to the Redemption Date to receive interest due
on an Interest Payment Date), if redeemed during the 12-month period commencing
October 15, of the years set forth below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2002 105.93750%
2003 102.96875%
2004 and thereafter 100.00000%
</TABLE>
In addition, at any time prior to October 15, 2000, the Company may
redeem up to 35% of the Accreted Value of the Notes with the proceeds of one or
more Public Equity Offerings following which a Public Market occurs, at any time
or from time to time in part, at a Redemption Price (expressed as a percentage
of Accreted Value on the Redemption Date) of 111.875%; provided that at least
$288,665,000 million aggregate principal amount at maturity of Notes remains
outstanding after each such redemption.
Notes in original denominations larger than $1,000 in principal
amount at maturity may be redeemed in part. On and after the Redemption Date,
interest ceases to accrue on Notes or portions of Notes called for redemption,
unless the Company defaults in the payment of the Redemption Price.
6. Repurchase upon Change of Control.
Upon the occurrence of any Change of Control, each Holder shall have
the right to require the repurchase of its Notes by the Company in cash pursuant
to the offer described in the Indenture at a purchase price equal to 101% of
Accreted Value thereof plus accrued and unpaid interest, if any, to the date of
purchase (the "Payment Date").
A notice of such Change of Control shall be mailed within 30 days
after any Change of Control occurs to each Holder at its last address as it
appears in the Security Register. Notes in original denominations larger than
$1,000 in principal amount at maturity may be sold to the Company in part. On
and after the Payment Date, interest ceases to accrue on Notes or portions of
Notes surrendered for purchase by the Company, unless the Company defaults in
the payment of the purchase price.
7. Denominations; Transfer; Exchange.
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<PAGE> 96
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount at maturity and multiples of $1,000 in excess
thereof. A Holder may register the transfer or exchange of Notes in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Indenture. The Registrar need not
register the transfer or exchange of any Notes selected for redemption. Also, it
need not register the transfer or exchange of any Notes for a period of 15 days
before the day of mailing of a notice of redemption of Notes selected for
redemption.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent shall pay the
money back to the Company at its request. After that, Holders entitled to the
money must look to the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
If the Company deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to redemption or maturity, the
Company shall be discharged from the Indenture and the Notes, except in certain
circumstances for certain sections thereof, and (b) to the Stated Maturity, the
Company shall be discharged from certain covenants set forth in the Indenture.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not materially
and adversely affect the rights of any Holder.
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<PAGE> 97
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
engage in transactions with Affiliates or merge, consolidate or transfer
substantially all of its assets. Within 45 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each year), the
Company must report to the Trustee on compliance with such limitations.
13. Successor Persons.
When a successor Person or other entity assumes all the obligations
of its predecessor under the Notes and the Indenture, the predecessor person
shall be released from those obligations.
14. Defaults and Remedies.
The following events constitute "Events of Default" under the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest on any Note when
the same becomes due and payable, which default continues for a period of 30
days; (c) default in the performance of or breach of Article Five of the
Indenture or the failure to make or consummate an Offer to Purchase in
accordance with Section 4.10 or 4.11 of the Indenture; (d) default in the
performance of or breach of any covenant or agreement of the Company in the
Indenture or under the Notes (other than a default specified in clause (a), (b)
or (c) above), which default or breach continues for a period of 30 consecutive
days after written notice by the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding; (e) there occurs with
respect to any issue or issues of Indebtedness of the Company or any Significant
Subsidiary having an outstanding principal amount of $5 million or more in the
aggregate for all such issues of all such Persons, whether such Indebtedness now
exists or shall hereafter be created, (I) an event of default that has caused
the holder thereof to declare such Indebtedness to be due and payable prior to
its Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment default; (f) any
final judgment or order (not covered by insurance) for the payment of money in
excess of $5 million in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or retention
as not so covered) shall be rendered against the Company or any Significant
Subsidiary and shall not be paid or discharged, and there shall be any period of
30 consecutive days following entry of the final judgment or order that causes
the aggregate amount for all such final judgments or orders outstanding and not
paid or discharged
- 7 -
<PAGE> 98
against all such Persons to exceed $5 million during which a stay of enforcement
of such final judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; (g) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Company or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Subsidiary or for all or substantially all of the
property and assets of the Company or any Significant Subsidiary or (C) the
winding up or liquidation of the affairs of the Company or any Significant
Subsidiary and, in each case, such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (h) the Company or any
Significant Subsidiary (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under any
such law, (B) consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Subsidiary or for all or substantially all of the
property and assets of the Company or any Significant Subsidiary or (C) effects
any general assignment for the benefit of creditors.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least 25%
in aggregate principal amount of the Notes then outstanding shall, declare all
the Notes to be due and payable. If a bankruptcy or insolvency default with
respect to the Company occurs and is continuing, the Notes automatically become
due and payable. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Notes. Subject to certain limitations,
Holders of at least a majority in principal amount of the Notes then outstanding
may direct the Trustee in its exercise of any trust or power.
15. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
16. No Recourse Against Others.
No incorporator or any past, present or future partner, stockholder,
other equity holder, officer, director, employee or controlling person as such,
of the Company or of any successor Person shall have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation. Each
Holder by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for the issuance of the Notes.
- 8 -
<PAGE> 99
17. Authentication.
This Note shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this Note.
18. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company shall furnish a copy of the Indenture to any Holder upon
written request and without charge. Requests may be made to KNOLOGY Holdings,
Inc., 312 West 8th Street, West Point, GA 31833; Attention: Chief Financial
Officer.
- 9 -
<PAGE> 100
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- --------------------------------------------------------------------------------
Please print or typewrite name and address including zip code of assignee
- --------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing _______________________________________ attorney to transfer said
Note on the books of the Company with full power of substitution in the
premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES,
PERMANENT OFFSHORE GLOBAL NOTES AND
PERMANENT OFFSHORE PHYSICAL NOTES]
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date the Shelf Registration Statement is
declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided by Rule 144A
thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the conditions of
transfer set forth in this Note and the Indenture.
- 10 -
<PAGE> 101
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.
Date:
-----------------------------------------------
NOTICE: The signature to this assignment must
correspond with the name as written upon the
face of the within-mentioned instrument in
every particular, without alteration or any
change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Date:
-----------------------------------------------
NOTICE: To be executed by an executive officer
- 11 -
<PAGE> 102
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 4.10 or 4.11 of the Indenture, check the Box: _
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.10 or 4.11 of the Indenture, state the principal amount at
maturity: $___________________.
Date:
-----------
Your Signature:
-----------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
--------------------------------
- 12 -
<PAGE> 103
EXHIBIT B
Form of Certificate
United States Trust Company
of New York
114 W. 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
Re: KNOLOGY Holdings, Inc. (the "Company")
11-7/8% Senior Discount Notes due 2007 (the "Notes")
Dear Sirs:
This letter relates to U.S. $ __________ principal amount at
maturity of Notes represented by a Note (the "Legended Note") which bears a
legend outlining restrictions upon transfer of such Legended Note. Pursuant to
Section 2.01 of the Indenture dated as of October 22, 1997 (the "Indenture")
relating to the Notes, we hereby certify that we are (or we will hold such
securities on behalf of) a person outside the United States to whom the Notes
could be transferred in accordance with Rule 904 of Regulation S promulgated
under the U.S. Securities Act of 1933. Accordingly, you are hereby requested to
exchange the legended certificate for an unlegended certificate representing an
identical principal amount at maturity of Notes, all in the manner provided for
in the Indenture.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:
---------------------------------
Authorized Signature
<PAGE> 104
EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
______,__
United States Trust Company
of New York
114 W. 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
Re: KNOLOGY Holdings, Inc. (the "Company")
11-7/8% Senior Discount Notes due 2007 (the "Notes")
Dear Sirs:
In connection with our proposed purchase of $ aggregate principal
amount at maturity of the Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the Indenture dated
as of October 22, 1997 (the "Indenture"), relating to the Notes, and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Notes except in compliance with, such restrictions and conditions
and the Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes may not be offered
or sold except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Notes, we will do so only (A) to the Company
or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities
Act to a "qualified institutional buyer" (as defined therein), (C) to an
institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
you and to the Company a signed letter substantially in the form of this letter,
(D) outside the United States in accordance with Rule 904 of Regulation S under
the Securities Act, (E) pursuant to the exemption from registration provided by
Rule 144 under the Securities Act (if available), or (F) pursuant to an
effective registration statement under the Securities Act, and we further agree
to provide to any person purchasing any of the Notes from us a notice advising
such purchaser that resales of the Notes are restricted as stated herein.
<PAGE> 105
3. We understand that, on any proposed resale of any Notes, we
will be required to furnish to you and the Company such certifications, legal
opinions and other information as you and the Company may reasonably require to
confirm that the proposed sale complies with the foregoing restrictions. We
further understand that the Notes purchased by us will bear a legend to the
foregoing effect.
4. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.
5. We are acquiring the Notes purchased by us for our own account
or for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
----------------------------
Authorized Signature
<PAGE> 106
EXHIBIT D
Form of Certificate to Be Delivered in
Connection with Transfers Pursuant to Regulation S
__________,
United States Trust Company
of New York
114 W. 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
Re: KNOLOGY HOLDINGS, Inc. (the "Company")
11-7/8% Senior Discount Notes due 2007 (the "Notes")
Dear Sirs:
In connection with our proposed sale of U.S.$________
aggregate principal amount at maturity of the Notes, we confirm that such sale
has been effected pursuant to and in accordance with Regulation S under the U.S.
Securities Act of 1933 and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf reasonably
believed that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
------------------------------
Authorized Signature
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
Dated October 22 , 1997
between
KNOLOGY HOLDINGS, INC.
and
MORGAN STANLEY & CO. INCORPORATED
J.P. MORGAN SECURITIES INC.
FIRST UNION CAPITAL MARKETS CORP.,
and
SCANA COMMUNICATIONS, INC.
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into October 22, 1997, between KNOLOGY Holdings, Inc., a Delaware
corporation (the "Company"), and MORGAN STANLEY & CO. INCORPORATED, J.P.
MORGAN SECURITIES INC. and FIRST UNION CAPITAL MARKETS CORP. (the "Placement
Agents") and SCANA COMMUNICATIONS, INC. ("SCANA").
The Company has agreed to issue and sell a total of 444,100 units
(the "Units") each of which consists of one 11-7/8% Senior Discount Note due
2007 with a principal amount at maturity of $1,000 (a "Security") and one
warrant (each, a "Warrant"), each Warrant initially entitling the holder thereof
to purchase .003734 shares of Preferred Stock, par value $.01 per share, of the
Company (collectively, the "Preferred Stock"), of which 373,050 Units are to be
purchased by the Placement Agents and 71,050 Units are to be purchased by SCANA.
This Agreement is made pursuant to the Placement Agreement dated October 16,
1997, between the Company and the Placement Agents (the "Placement Agreement"),
which provides for the sale by the Company to the Placement Agents of 373,050
Units. In order to induce the Placement Agents to enter into the Placement
Agreement, the Company has agreed to provide to the Placement Agents and their
direct and indirect transferees the registration rights set forth in this
Agreement. The execution of this Agreement is a condition to the closing under
the Placement Agreement. In order to induce SCANA to purchase 71,050 Units, the
Company has agreed to provide SCANA and its direct and indirect transferees the
registration rights set forth in this Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from
time to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly, of
the
<PAGE> 3
power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by
contract or otherwise.
"Closing Date" shall mean the Closing Date as defined in the
Placement Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement and shall also include the Company's successors.
"Counsel for the Holders" shall mean, with respect to any
Registration Statement, one counsel selected by the Holders of a majority
in principal amount of Registrable Securities covered by such Registration
Statement.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities pursuant to Section 2(a)
hereof.
"Exchange Offer Registration" shall mean a registration under the
1933 Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Exchange Securities" shall mean securities issued by the Company
under the Indenture containing terms identical to the Securities (except
that the Exchange Securities will not contain restrictions on transfer)
and to be offered to Holders of Securities in exchange for Securities
pursuant to the Exchange Offer.
"Holder" shall mean the Placement Agents and SCANA, for so long as
they own any Registrable Securities, and each of their successors, assigns
and direct and indirect transferees who become registered owners of
Registrable Securities under the Indenture; provided that for purposes of
Sections 4 and 5 hereof, the term "Holder" shall include Participating
Broker-Dealers (as defined in Section 4(a)).
"Indenture" shall mean the Indenture relating to the Securities
dated as of the Closing Date between the Company and United States Trust
Company of New York, trustee, and as the same may be amended from time to
time in accordance with the terms thereof.
-2-
<PAGE> 4
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Securities; provided
that whenever the consent or approval of Holders of a specified percentage
of Registrable Securities is required hereunder, Registrable Securities
held by the Company or any of its affiliates (as such term is defined in
Rule 405 under the 1933 Act) (other than the Placement Agents, SCANA or
subsequent holders of Registrable Securities if such subsequent holders
are deemed to be such affiliates solely by reason of their holding of such
Registrable Securities) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage
or amount.
"Person" shall mean an individual, partnership, corporation, trust
or unincorporated organization or other entity, or a government or agency
or political subdivision thereof.
"Placement Agents" shall have the meaning set forth in the
preamble to this Agreement.
"Placement Agreement" shall have the meaning set forth in the
preamble to this Agreement.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus
as amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to such prospectus,
and in each case including all material incorporated by reference therein.
"Registrable Securities" shall mean the Securities; provided,
however, that the Securities shall cease to be Registrable Securities (i)
when a Registration Statement with respect to such Securities shall have
been declared effective under the 1933 Act and such Securities shall have
been disposed of pursuant to such Registration Statement, (ii) when such
Securities have been sold to the public pursuant to Rule 144 (or any
provision similar to Rule 144 then in force, but not Rule 144A) under the
1933 Act or (iii) when such Securities shall have ceased to be
outstanding.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or
blue sky laws (including reasonable fees and disbursements of counsel for
any underwriters or Holders in
-3-
<PAGE> 5
connection with blue sky qualification of any of the Exchange Securities
or Registrable Securities), (iii) all expenses of any Persons in preparing
or assisting in preparing, word processing, printing and distributing any
Registration Statement, any Prospectus, any amendments or supplements
thereto, any underwriting agreements, securities sales agreements and
other documents relating to the performance of and compliance with this
Agreement, (iv) all rating agency fees, (v) all fees and disbursements
relating to the qualification of the Indenture under applicable securities
laws, (vi) the fees and disbursements of the Trustee and its counsel,
(vii) the fees and disbursements of counsel for the Company and, in the
case of a Shelf Registration Statement, the fees and disbursements of one
counsel for the Holders (which counsel shall be selected by the Majority
Holders and which counsel may also be counsel for the Placement Agents)
and (viii) the fees and disbursements of the independent public
accountants of the Company, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, but excluding fees and expenses of counsel to the underwriters
(other than fees and expenses set forth in clause (ii) above) or the
Holders and underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of Registrable Securities by a
Holder.
"Registration Statement" shall mean any registration statement of
the Company that covers any of the Exchange Securities or Registrable
Securities pursuant to the provisions of this Agreement and all amendments
and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of
this Agreement which covers all of the Registrable Securities (but no
other securities unless approved by the Holders whose Registrable
Securities are covered by such Shelf Registration Statement) on an
appropriate form under Rule 415 under the 1933 Act, or any similar rule
that may be adopted by the SEC, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
-4-
<PAGE> 6
"Trustee" shall mean the trustee with respect to the Securities
under the Indenture.
"Underwritten Offering" shall mean a registration in which
Registrable Securities are sold to an Underwriter (as hereinafter defined)
for reoffering to the public.
2. Registration Under the 1933 Act.
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the Staff of the SEC, the Company shall use its best efforts
to cause to be filed, no later than 60 days after the Closing Date, an Exchange
Offer Registration Statement covering the offer by the Company to the Holders to
exchange all of the Registrable Securities for Exchange Securities and to have
such Registration Statement remain effective until the closing of the Exchange
Offer. The Company shall commence the Exchange Offer promptly after the Exchange
Offer Registration Statement has been declared effective by the SEC and use its
best efforts to have the Exchange Offer consummated not later than 60 days after
such effective date. The Company shall commence the Exchange Offer by mailing
the Prospectus related to the Exchange Offer and accompanying documents to each
Holder stating, in addition to such other disclosures as are required by
applicable law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Securities validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a period
of at least 20 business days from the date such notice is mailed) (the
"Exchange Dates");
(iii) that any Registrable Security not tendered will remain
outstanding and continue to accrue interest in accordance with its terms,
but will not retain any rights under this Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Security exchanged
pursuant to the Exchange Offer will be required to surrender such
Registrable Security, together with the enclosed letters of transmittal,
to the institution and at the address (located in the Borough of
Manhattan, The City of New York) specified in the notice prior to the
close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their election, not
later than the close of business on the last Exchange Date, by sending to
the institution and at the address (located in the Borough of Manhattan,
The City of New York) specified in the notice a telegram, telex, facsimile
transmission or letter setting forth the name
-5-
<PAGE> 7
of such Holder, the principal amount of Registrable Securities delivered
for exchange and a statement that such Holder is withdrawing his election
to have such Securities exchanged.
As soon as practicable after the last Exchange Date, the Company
shall:
(i) accept for exchange Registrable Securities or portions
thereof tendered and not validly withdrawn pursuant to the Exchange
Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof so accepted
for exchange by the Company and issue, and cause the Trustee to promptly
authenticate and mail to each Holder, an Exchange Security equal in
principal amount to the principal amount of the Registrable Securities
surrendered by such Holder.
The Company shall use its best efforts to complete the Exchange Offer as
provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other applicable laws and regulations in connection with
the Exchange Offer. The Exchange Offer shall not be subject to any conditions,
other than that the Exchange Offer does not violate applicable law or any
applicable interpretation of the Staff of the SEC. The Company shall inform the
Placement Agents of the names and addresses of the Holders to whom the Exchange
Offer is made, and the Placement Agents shall have the right, subject to
applicable law, to contact such Holders and otherwise facilitate the tender of
Registrable Securities in the Exchange Offer.
(b) In the event that (i) the Company determines that the Exchange
Offer Registration provided for in Section 2(a) above is not available or may
not be consummated as soon as practicable after the last Exchange Date because
it would violate applicable law or the applicable interpretations of the Staff
of the SEC, (ii) the Exchange Offer is not for any other reason consummated by
April 22, 1998 or (iii) the Exchange Offer has been completed and in the opinion
of counsel for the Placement Agents or SCANA a Registration Statement must be
filed and a Prospectus must be delivered by the Placement Agents or SCANA, as
the case may be, in connection with any offering or sale by them of Registrable
Securities which they acquired from the Company, the Company shall use its best
efforts to cause to be filed as soon as practicable after such determination,
date or notice of such opinion of counsel is given to the Company, as the case
may be, a Shelf Registration Statement providing for the sale by the Holders of
all of the Registrable Securities and to have such Shelf Registration Statement
declared effective by the SEC. In the event the Company is required to file a
Shelf Registration Statement solely as a result of the matters referred to in
clause (iii) of the preceding sentence, the Company shall file and use its best
efforts have declared effective by the SEC both an Exchange Offer Registration
Statement pursuant to Section 2(a) with respect to all Registrable Securities
and a Shelf Registration Statement (which may be a combined
-6-
<PAGE> 8
Registration Statement with the Exchange Offer Registration Statement) with
respect to offers and sales of Registrable Securities held by the Placement
Agents or SCANA after completion of the Exchange Offer. The Company agrees to
use its best efforts to keep the Shelf Registration Statement continuously
effective until the expiration of the time period referred to in Rule 144(k)
under the 1933 Act (or so long as any Holder is an Affiliate of the Company) or
such shorter period that will terminate when all of the Registrable Securities
covered by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement. The Company further agrees to supplement or amend the
Shelf Registration Statement if required by the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration Statement or by the 1933 Act or by any other rules and
regulations thereunder for shelf registration or if reasonably requested by a
Holder with respect to information relating to such Holder, and to use its best
efforts to cause any such amendment to become effective and such Shelf
Registration Statement to become usable as soon as thereafter practicable. The
Company agrees to furnish to the Holders of Registrable Securities copies of any
such supplement or amendment promptly after its being used or filed with the
SEC.
(c) The Company shall pay all Registration Expenses in connection
with the registration pursuant to Section 2(a) or Section 2(b). Each Holder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to the Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to Section
2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof
will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that, if, after it has been declared
effective, the offering of Registrable Securities pursuant to a Shelf
Registration Statement is interfered with by any stop order, injunction or other
order or requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have become effective during the
period of such interference until the offering of Registrable Securities
pursuant to such Registration Statement may legally resume. As provided for in
the Indenture, in the event that the Exchange Offer is not consummated and, if a
Shelf Registration Statement is required hereby, the Shelf Registration
Statement is not declared effective on or prior to April 22, 1998, the annual
interest rate on the Securities will increase by .5% until the date the Exchange
Offer is consummated or a Shelf Registration Statement is declared effective.
(e) Without limiting the remedies available to the Placement Agents
and the Holders, the Company acknowledges that any failure by the Company to
comply with its obligations under Section 2(a) and Section 2(b) hereof may
result in material irreparable injury to the Placement Agents or the Holders for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the
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<PAGE> 9
event of any such failure, the Placement Agents or any Holder may obtain such
relief as may be required to specifically enforce the Company's obligations
under Section 2(a) and Section 2(b) hereof.
3. Registration Procedures.
In connection with the obligations of the Company with respect to
the Registration Statements pursuant to Section 2(a) and Section 2(b) hereof,
the Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (x) shall be selected by
the Company and (y) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Securities by the selling
Holders thereof and (z) shall comply as to form in all material respects
with the requirements of the applicable form and include all financial
statements required by the SEC to be filed therewith, and use its best
efforts to cause such Registration Statement to become effective and
remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the applicable period and cause each
Prospectus to be supplemented by any required prospectus supplement and,
as so supplemented, to be filed pursuant to Rule 424 under the 1933 Act;
and keep each Prospectus current during the period described under Section
4(3) and Rule 174 under the 1933 Act that is applicable to transactions by
brokers or dealers with respect to the Registrable Securities or Exchange
Securities;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, to counsel for the Placement Agents, to counsel
for the Holders and to each Underwriter of an Underwritten Offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or Underwriter
may reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities; and (subject to the penultimate
paragraph of this Section 3) the Company consents to the use of such
Prospectus and any amendment or supplement thereto in accordance with
applicable law by each of the selling Holders of Registrable Securities
and any such Underwriters in connection with the offering and sale of the
Registrable Securities covered by and in the manner described in such
Prospectus or any amendment or supplement thereto in accordance with
applicable law;
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<PAGE> 10
(d) use its best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of
such jurisdictions as any Holder of Registrable Securities covered by a
Registration Statement shall reasonably request in writing by the time the
applicable Registration Statement is declared effective by the SEC, to
cooperate with such Holder in connection with any filings required to be
made with the National Association of Securities Dealers, Inc. and do any
and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in each such
jurisdiction of such Registrable Securities owned by such Holder;
provided, however, that the Company shall not be required to (i) qualify
as a foreign corporation or as a dealer in securities in any jurisdiction
where it would not otherwise be required to qualify but for this Section
3(d), (ii) file any general consent to service of process or (iii) subject
itself to taxation in any such jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Securities, counsel for the Holders and counsel for the
Placement Agents promptly and, if requested by any such Holder or counsel,
confirm such advice in writing (i) when a Registration Statement has
become effective and when any post-effective amendment thereto has been
filed and becomes effective, (ii) of any request by the SEC or any state
securities authority for amendments and supplements to a Registration
Statement and Prospectus or for additional information after the
Registration Statement has become effective, (iii) of the issuance by the
SEC or any state securities authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable
Securities covered thereby, the representations and warranties of the
Company contained in any underwriting agreement, securities sales
agreement or other similar agreement, if any, relating to the offering
cease to be true and correct in all material respects or if the Company
receives any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any jurisdiction
or the initiation of any proceeding for such purpose, (v) of the happening
of any event during the period a Shelf Registration Statement is effective
which makes any statement made in such Registration Statement or the
related Prospectus untrue in any material respect or which requires the
making of any changes in such Registration Statement or Prospectus in
order to make the statements therein not misleading in any material
respect and (vi) of any determination by the Company that a post-effective
amendment to a Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest possible moment and provide prompt notice to each Holder of the
withdrawal of any such order;
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<PAGE> 11
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of
each Registration Statement and any post-effective amendment thereto
(without documents incorporated therein by reference or exhibits thereto,
unless requested);
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold
and not bearing any restrictive legends and enable such Registrable
Securities to be in such denominations (consistent with the provisions of
the Indenture) and registered in such names as the selling Holders may
reasonably request at least one business day prior to the closing of any
sale of Registrable Securities;
(i) in the case of a Shelf Registration, upon the occurrence of any
event contemplated by Section 3(e)(v) hereof, use its best efforts to
prepare and file with the SEC a supplement or post-effective amendment to
a Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable
Securities, such Prospectus will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. The Company agrees to notify the Holders to
suspend use of the Prospectus as promptly as practicable after the
occurrence of such an event, and the Holders hereby agree to suspend use
of the Prospectus until the Company has amended or supplemented the
Prospectus to correct such misstatement or omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement, provide copies of such
document to the Placement Agents and their counsel (and, in the case of a
Shelf Registration Statement, the Counsel for the Holders) and make such
of the representatives of the Company as shall be reasonably requested by
the Placement Agents or their counsel (and, in the case of a Shelf
Registration Statement, Counsel for the Holders) available for discussion
of such document, and shall not at any time file or make any amendment to
the Registration Statement, any Prospectus or any amendment of or
supplement to a Registration Statement or a Prospectus or any document
which is to be incorporated by reference into a Registration Statement or
a Prospectus, of which the Placement Agents and their counsel (and, in the
case of a Shelf Registration Statement, Counsel for the Holders) shall not
have previously been advised and furnished a copy or to which the
Placement Agents or their counsel
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<PAGE> 12
(and, in the case of a Shelf Registration Statement, Counsel for
the Holders) shall reasonably object;
(k) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement;
(l) cause the Indenture to be qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"), in connection with the registration
of the Exchange Securities or Registrable Securities, as the case may be,
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and execute, and use its best efforts
to cause the Trustee to execute, all documents as may be required to
effect such changes and all other forms and documents required to be filed
with the SEC to enable the Indenture to be so qualified in a timely
manner;
(m) in the case of a Shelf Registration, upon the execution of
customary confidentiality agreements reasonably satisfactory to the
Company, make available for inspection by a representative of the Holders
of the Registrable Securities, any Underwriter participating in any
disposition pursuant to such Shelf Registration Statement, and attorneys
and accountants designated by the Holders, at reasonable times and in a
reasonable manner, all financial and other records, pertinent documents
and properties of the Company, and cause the respective officers,
directors and employees of the Company to supply all information
reasonably requested by and customarily given by an issuer to any such
representative, Underwriter, attorney or accountant in connection with a
Shelf Registration Statement;
(n) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Securities to be listed on any securities exchange
or any automated quotation system on which similar securities issued by
the Company are then listed if requested by the Majority Holders, to the
extent such Registrable Securities satisfy applicable listing
requirements;
(o) use its best efforts to cause the Exchange Securities to be
rated by two nationally recognized statistical rating organizations (as
such term is defined in Rule 436(g)(2) under the 1933 Act) to the extent
the Registrable Securities were so rated;
(p) if reasonably requested by any Holder of Registrable Securities
covered by a Shelf Registration Statement, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment such information with
respect to such Holder as such Holder reasonably requests to be included
therein and (ii) make all required filings of such Prospectus supplement
or such post-effective amendment as soon as the
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<PAGE> 13
Company has received notification of the matters to be incorporated
in such filing; and
(q) in the case of a Shelf Registration, enter into such customary
agreements and take all such other actions in connection therewith
(including those requested by the Holders of a majority in principal
amount of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities, including but
not limited to an Underwritten Offering, and in such connection, (i) to
the extent possible, make such representations and warranties to the
Holders and any Underwriters of such Registrable Securities with respect
to the business of the Company and its subsidiaries, the Registration
Statement, Prospectus and documents incorporated by reference therein or
deemed incorporated by reference therein, if any, in each case, in form,
substance and scope as are customarily made by issuers to underwriters in
underwritten offerings and confirm the same if and when requested, (ii)
use its best efforts to obtain opinions of counsel to the Company (which
counsel and opinions, in form, scope and substance, shall be reasonably
satisfactory to the Holders of a majority in principal amount of the
Registrable Securities being sold and such Underwriters and their
respective counsel) addressed to each selling Holder and Underwriter of
Registrable Securities, covering the matters customarily covered in
opinions requested in underwritten offerings, (iii) use its best efforts
to obtain "cold comfort" letters from the independent certified public
accountants of the Company (and, if necessary, any other certified public
accountant of any subsidiary of the Company, or of any business acquired
by the Company for which financial statements and financial data are or
are required to be included in the Registration Statement) addressed to
each selling Holder and Underwriter of Registrable Securities, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten offerings, and (iv) deliver such documents and certificates
as may be reasonably requested by the Holders of a majority in principal
amount of the Registrable Securities being sold or the Underwriters, and
which are customarily delivered in underwritten offerings, to evidence the
continued validity of the representations and warranties of the Company
made pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in an underwriting agreement.
In the case of a Shelf Registration Statement, the Company may
require each Holder of Registrable Securities to furnish to the Company such
information regarding the Holder and the proposed distribution by such
Holder of such Registrable Securities as the Company may from time to time
reasonably request in writing. No Holder of Registrable Securities may
include its Registrable Securities in such Shelf Registration Statement
unless and until such Holder furnishes such information to the Company. Each
Holder including Registrable Securities in a Shelf Registration shall agree
promptly to furnish to the Company any information regarding such Holder and
the proposed distribution by such Holder of such
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<PAGE> 14
Registrable Securities required to make the information previously furnished
to the Company by such Holder not materially misleading.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 3(e)(v) hereof, such Holder will
forthwith discontinue disposition of Registrable Securities pursuant to a
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof, and,
if so directed by the Company, such Holder will deliver to the Company (at
the Company's expense) all copies in such Holder's possession, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice. If the Company shall give any such notice to suspend the disposition
of Registrable Securities pursuant to a Registration Statement, the Company
shall extend the period during which the Registration Statement shall be
maintained effective pursuant to this Agreement by the number of days during
the period from and including the date of the giving of such notice to and
including the date when the Holders shall have received copies of the
supplemented or amended Prospectus necessary to resume such disposition. The
Company may give any such notice so long as there are no more than 90 days
in any 365 day period in which such suspensions are in effect.
The Holders of Registrable Securities covered by a Shelf
Registration Statement who desire to do so may sell such Registrable
Securities in an Underwritten Offering. In any such Underwritten Offering,
the investment banker or investment bankers and manager or managers (the
"Underwriters") that will administer the offering will be selected by the
Majority Holders of the Registrable Securities included in such offering;
provided that such investment banker or investment bankers and manager or
managers shall be reasonably acceptable to the Company.
4. Participation of Broker-Dealers in Exchange Offer.
(a) The Company understands that the Staff of the SEC has taken the
position that any broker-dealer that receives Exchange Securities for its
own account in the Exchange Offer in exchange for Securities that were
acquired by such broker-dealer as a result of market-making or other trading
activities (a "Participating Broker-Dealer"), may be deemed to be an
"underwriter" within the meaning of the 1933 Act and must deliver a
prospectus meeting the requirements of the 1933 Act in connection with any
resale of such Exchange Securities.
The Company understands that it is the Staff's position that if the
Prospectus contained in the Exchange Offer Registration Statement includes a
plan of distribution containing a statement to the above effect and the
means by which Participating Broker-Dealers may resell the Exchange
Securities, without naming the Participating Broker-Dealers
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<PAGE> 15
or specifying the amount of Exchange Securities owned by them, such
Prospectus may be delivered by Participating Broker-Dealers to satisfy their
prospectus delivery obligation under the 1933 Act in connection with resales
of Exchange Securities for their own accounts, so long as the Prospectus
otherwise meets the requirements of the 1933 Act.
(b) In light of the above, notwithstanding the other provisions of
this Agreement, the Company agrees that the provisions of this Agreement as
they relate to a Shelf Registration shall also apply to an Exchange Offer
Registration to the extent, and with such reasonable modifications thereto
as may be, reasonably requested by the Placement Agents or by one or more
Participating Broker-Dealers, in each case as provided in clause (ii) below,
in order to expedite or facilitate the disposition of any Exchange
Securities by Participating Broker-Dealers consistent with the positions of
the Staff recited in Section 4(a) above; provided that:
(i) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement, as
would otherwise be contemplated by Section 3(i), for a period
exceeding 180 days after the last Exchange Date (as such period may be
extended pursuant to the penultimate paragraph of Section 3 of this
Agreement) and Participating Broker-Dealers shall not be authorized by
the Company to deliver and shall not deliver such Prospectus after
such period in connection with the resales contemplated by this
Section 4; and
(ii) the application of the Shelf Registration procedures set forth
in Section 3 of this Agreement to an Exchange Offer Registration, to
the extent not required by the positions of the Staff of the SEC or
the 1933 Act and the rules and regulations thereunder, will be in
conformity with the reasonable request to the Company by the Placement
Agents or with the reasonable request in writing to the Company by one
or more broker-dealers who certify to the Placement Agents and the
Company in writing that they anticipate that they will be
Participating Broker-Dealers; and provided further that, in connection
with such application of the Shelf Registration procedures set forth
in Section 3 to an Exchange Offer Registration, the Company shall be
obligated (x) to deal only with one entity representing the
Participating Broker-Dealers, which shall be Morgan Stanley & Co.
Incorporated unless it elects not to act as such representative, (y)
to pay the fees and expenses of only one counsel representing the
Participating Broker-Dealers, which shall be counsel to the Placement
Agents unless such counsel elects not to so act, and (z) to cause to
be delivered only one, if any, "cold comfort" letter with respect to
the Prospectus in the form existing on the last Exchange Date and with
respect to each subsequent amendment or supplement, if any, effected
during the period specified in clause (i) above.
(c) The Placement Agents shall have no liability to the Company or
any Holder with respect to any request that it may make pursuant to Section
4(b) above.
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<PAGE> 16
5. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Placement
Agents, SCANA, each Holder and each Person, if any, who controls any
Placement Agent, SCANA or any Holder within the meaning of either Section 15
of the 1933 Act or Section 20 of the 1934 Act, or is under common control
with, or is controlled by, any Placement Agent, SCANA or any Holder, from
and against all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred by any Placement
Agent, SCANA, any Holder or any such controlling or affiliated Person in
connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment thereto) pursuant
to which Exchange Securities or Registrable Securities were registered under
the 1933 Act, including all documents incorporated therein by reference, or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, or caused by any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact necessary to make the statements therein in the
light of the circumstances under which they were made not misleading, except
(i) insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission
based upon information relating to the Placement Agents, SCANA or any Holder
furnished to the Company in writing by the Placement Agents, SCANA or any
selling Holder expressly for use therein and (ii) in the case of a Shelf
Registration, that the Company shall not be liable to any indemnified party
under the provisions of this Section 5 with respect to any preliminary
Prospectus to the extent that any such loss, claim, damage or liability
results from the fact that such indemnified party sold securities to a
person to whom there was not sent or given, at or prior to the written
confirmation of such sale, a final Prospectus (if the Company had previously
furnished copies thereof to the indemnified party), if the loss, claim,
damage or liability of such indemnified party results from an untrue
statement or alleged untrue statement or an omission or alleged omission
contained in the preliminary Prospectus that was corrected in the final
Prospectus. In connection with any Underwritten Offering permitted by
Section 3, the Company will also indemnify the Underwriters, if any, selling
brokers, dealers and similar securities industry professionals participating
in the distribution, their officers and directors and each Person who
controls such Persons (within the meaning of either Section 15 of the 1933
Act or Section 20 of the 1934 Act) to the same extent as provided above with
respect to the indemnification of the Holders, if requested in connection
with any Registration Statement.
(b) Each Holder (including a Placement Agent that is a Holder and
SCANA) agrees, severally and not jointly, to indemnify and hold harmless the
Company, the Placement Agents, SCANA and the other selling Holders, and each
of their respective
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<PAGE> 17
directors, each officer of the Company who signed the Registration Statement
and each Person, if any, who controls the Company, any of the Placement
Agents, SCANA and any other selling Holder within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act to the same extent
as the foregoing indemnity from the Company to the Placement Agents, SCANA
and the Holders, but only with reference to information relating to such
Holder furnished to the Company in writing by such Holder expressly for use
in any Registration Statement (or any amendment thereto) or any Prospectus
(or any amendment or supplement thereto).
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either paragraph (a) or paragraph (b)
above, such person (the "indemnified party") shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying party")
in writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified party
to represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of
such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii)
the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for
(a) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Placement Agents, SCANA and all Persons, if any, who
control any Placement Agent or SCANA within the meaning of either Section 15
of the 1933 Act or Section 20 of the 1934 Act, (b) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who signed the Registration Statement
and each Person, if any, who controls the Company within the meaning of
either such Section and (c) the fees and expenses of more than one separate
firm (in addition to any local counsel) for all Holders and all Persons, if
any, who control any Holders within the meaning of either such Section, and
that all such fees and expenses shall be reimbursed as they are incurred. In
such case involving the Placement Agents, SCANA and Persons who control any
Placement Agent or SCANA, such firm shall be designated in writing by Morgan
Stanley & Co. Incorporated. In such case involving the Holders and such
Persons who control Holders, such firm shall be designated in writing by the
Majority Holders. In all other cases, such firm shall be designated by the
Company. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent but, if settled with
such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by
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<PAGE> 18
reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this
paragraph, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i)
such settlement is entered into more than 60 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party for such fees and expenses
of counsel in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which such indemnified party is or could have been
a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter
of such proceeding.
(d) If the indemnification provided for in paragraph (a) or
paragraph (b) of this Section 5 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company and the Holders shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by the
Holders and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
Holders' respective obligations to contribute pursuant to this Section 5(d)
are several in proportion to the respective number of Registrable Securities
of such Holder that were registered pursuant to a Registration Statement.
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by pro
rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above.
The amount paid or payable by an indemnified party as a result of the
losses, claims, damages and liabilities referred to in paragraph (d) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 5, no Holder shall be
required to indemnify or contribute any amount in excess of the amount by
which the total price at which Registrable Securities were sold by such
Holder exceeds the amount of any
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<PAGE> 19
damages that such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The remedies provided
for in this Section 5 are not exclusive and shall not limit any rights or
remedies which may otherwise be available to any indemnified party at law or
in equity.
The indemnity and contribution provisions contained in this Section
5 shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf
of the Placement Agents, SCANA, any Holder or any Person controlling any
Placement Agent, SCANA or any Holder, or by or on behalf of the Company, its
officers or directors or any Person controlling the Company, (iii)
acceptance of any of the Exchange Securities and (iv) any sale of
Registrable Securities pursuant to a Shelf Registration Statement.
6. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered into,
and on or after the date of this Agreement will not enter into, any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any
way conflict with and are not inconsistent with the rights granted to the
holders of the Company's other issued and outstanding securities under any
such agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given unless the Company has obtained the written consent
of Holders of at least a majority in aggregate principal amount of the
outstanding Registrable Securities affected by such amendment, modification,
supplement, waiver or consent; provided, however, that no amendment,
modification, supplement, waiver or consent to any departure from the
provisions of Section 5 hereof shall be effective as against any Holder of
Registrable Securities unless consented to in writing by such Holder.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such
Holder to the Company by means of a notice given in accordance with the
provisions of this Section 6(c), which address initially is, with respect to
the Placement Agents, the address set forth in the Placement Agreement; and
(ii) if to the Company, initially at the Company's address set forth in the
Placement Agreement and
-18-
<PAGE> 20
thereafter at such other address, notice of which is given in accordance
with the provisions of this Section 6(c).
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied;
and on the next business day if timely delivered to an air courier
guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the person giving the same to the Trustee, at the
address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation and without the need for
an express assignment, subsequent Holders; provided that nothing herein
shall be deemed to permit any assignment, transfer or other disposition of
Registrable Securities in violation of the terms of the Placement Agreement.
If any transferee of any Holder shall acquire Registrable Securities, in any
manner, whether by operation of law or otherwise, such Registrable
Securities shall be held subject to all of the terms of this Agreement, and
by taking and holding such Registrable Securities such person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement and such person shall be entitled to
receive the benefits hereof. The Placement Agents (in their capacity as
Placement Agents) shall have no liability or obligation to the Company with
respect to any failure by a Holder to comply with, or any breach by any
Holder of, any of the obligations of such Holder under this Agreement.
(e) Purchases and Sales of Securities. The Company shall not, and
shall use its best efforts to cause its affiliates (as defined in Rule 405
under the 1933 Act) not to, purchase and then resell or otherwise transfer
any Securities.
(f) Third Party Beneficiary. Each Holder shall be a third party
beneficiary to the agreements made hereunder between the Company, on the one
hand, and the Placement Agents and SCANA, on the other hand, and shall have
the right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
-19-
<PAGE> 21
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(k) SCANA Lockup. SCANA hereby agrees that, without the prior
written consent of Morgan Stanley & Co. Incorporated ("Morgan Stanley"), it
will not, for a period of six months after the date hereof, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any Notes or Warrants or any securities convertible into or
exercisable or exchangeable for Notes or Warrants, or (ii) enter into any
swap or other arrangement that transfers to another, in whole or in part,
any of the economic consequences of ownership of such Notes or Warrants,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Notes or Warrants or such other securities, in cash
or otherwise, other than (a) the exchange of Registrable Securities for
Exchange Securities in the Exchange Offer, (b) transactions relating to
Notes or Warrants acquired in open market transactions after the completion
of the offering of the Notes and Warrants pursuant to the Placement
Agreement and (c) any transfers to any Affiliate of SCANA Corporation who
agrees to be bound by the terms of this Section 6(k).
-20-
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
KNOLOGY HOLDINGS, INC.
By /s/ William E. Morrow
---------------------
Name: William E. Morrow
Title: President & CEO
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
J.P. MORGAN SECURITIES INC.
FIRST UNION CAPITAL MARKETS CORP.
By: MORGAN STANLEY & CO. INCORPORATED
By: /s/ Robert Shepardson
----------------------
Name:Robert Shepardson
Title: Principal
SCANA COMMUNICATIONS, INC.
By: /s/ WB Timmerman
-----------------
Name: WB Timmerman
Title: Chairman & CEO
-21-
<PAGE> 1
EXHIBIT 10.1
UNIT PURCHASE AGREEMENT
This UNIT PURCHASE AGREEMENT (this "Purchase Agreement") is
entered into as of October 16, 1997, by and between KNOLOGY Holdings, Inc., a
Delaware corporation ("Seller"), and SCANA Communications, Inc., a South
Carolina corporation ("Buyer").
Seller proposes to issue and sell to Buyer 71,050 of its Units
(the "Units"). Each Unit consists of one 11.875% Senior Discount Note due 2007
(a "Note") to be issued pursuant to the provisions of an Indenture, dated as of
the Closing Date (as defined below) (the "Indenture"), between Seller and United
States Trust Company of New York (in such capacity, the "Trustee") and one
Warrant (a "Warrant") entitling the holder thereof to purchase .003734 shares
(collectively, the "Warrant Shares") of Preferred Stock, par value $.01 per
share, of Seller (collectively, the "Preferred Stock"), to be issued pursuant to
the provisions of a Warrant Agreement, dated as of the Closing Date (the
"Warrant Agreement") between Seller and United States Trust Company of New York
(in such capacity, the "Warrant Agent"). Concurrently with the sale of the Units
to Buyer, Seller proposes to sell 373,050 Units to Morgan Stanley & Co.
Incorporated and other placement agents (the "Placement Agents") pursuant to a
Placement Agreement (the "Placement Agreement") between Seller and the Placement
Agents (the "Placement Agent Offering").
The Units to be sold hereunder and in the Placement Agent
Offering will be offered without being registered under the Securities Act of
1933, as amended (the "Securities Act").
Buyer, the Placement Agents and their direct and indirect
transferees will be entitled to the benefits of (i) a registration rights
agreement relating to the Notes (the "Notes Registration Rights Agreement"),
dated as of the Closing Date, and (ii) a registration rights agreement relating
to the Warrants (the "Warrants Registration Rights Agreement"), dated as of the
Closing Date.
In connection with the sale of the Units hereunder and in the
Placement Agent Offering, Seller has prepared a preliminary private placement
memorandum (the "Preliminary Memorandum") and will prepare a final private
placement memorandum (the "Final Memorandum" and, with the Preliminary
Memorandum, each a "Memorandum") setting forth or including a description of the
terms of the Units, the Notes and the Warrants and the Preferred Stock, the
terms of the offering and a description of Seller and its business.
NOW, THEREFORE, in consideration of the undertakings in this
Purchase Agreement, Seller and Buyer agree as follows:
<PAGE> 2
1. PURCHASE AND DELIVERY OF UNITS
On the basis of the representations, warranties and agreements
contained herein, and subject to the terms and conditions hereof and to receipt
by Buyer on or before October 22, 1997 of approval of Buyer's Board of Directors
of consummation of the transactions contemplated hereby, Seller agrees to sell
to Buyer, and Buyer agrees to purchase from Seller, 71,050 Units at a purchase
price of $562.96 per Unit, for an aggregate purchase price of $39,998,308.
Payment for the Units shall be made against delivery of the
Units at a closing (the "Closing") to be held at the office of Shearman &
Sterling, 599 Lexington Avenue, New York, New York, at 9:00 A.M., local time, on
October 22, 1997, or at such other time on the same or such other date, not
later than November 5, 1997, as shall be designated in writing by the Placement
Agents. The time and date of such payment are herein referred to as the Closing
Date. Payments for the Units shall be made to Seller in federal funds or other
funds immediately available in New York City.
Certificates for the Notes and the Warrants shall be in
definitive form and registered in such names and in such denominations as Buyer
shall request in writing not less than one full business day prior to the
Closing Date. The certificates evidencing the Notes and the Warrants shall be
delivered to Buyer on the Closing Date, with any transfer taxes payable in
connection with the transfer of the Units, the Notes or the Warrants to Buyer
duly paid, against payment of this Purchase price therefor.
2. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to and agrees with Buyer, as of
the date hereof, as follows:
(a) Seller has full power and authority to enter into
this Purchase Agreement and to perform the transactions contemplated hereby.
This Purchase Agreement has been duly authorized, executed and delivered by
Seller and is a valid and binding agreement of Seller. The execution, delivery
and performance by Seller of this Purchase Agreement, the fulfillment of and
compliance with the terms and provisions hereof, and the consummation by Seller
of the transactions contemplated hereby do not require any consent or approval
other than that which has been obtained, conflict with or result in a breach by
Seller of any of the terms or provisions of, or constitute a default under, any
applicable law, rule, or regulation or any applicable decree, judgment or order
of any court, federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over Seller.
- 2 -
<PAGE> 3
(b) All of the representations, warranties and agreements
of Seller set forth in Section 1 of the Placement Agreement are incorporated
herein by reference to the same extent as if set forth fully herein; provided,
however, that any of such representations, warranties and agreements of Seller
that relate to the Placement Agents, the Units being sold to the Placement
Agents or the Placement Agreement shall be deemed modified to refer instead to
Buyer, the Units being sold to Buyer hereunder and this Purchase Agreement
(except in Section 1(r) of the Placement Agreement).
(c) All of the provisions of the documents relating to
the Units, Notes and Warrants, including without limitation the Indenture, the
Warrant Agreement, the Notes Registration Rights Agreement, the Warrants
Registration Rights Agreement, the Notes and the Warrants, treat the Units,
Notes and Warrants being sold to Buyer hereunder in all respects in a manner
identical to or at least as favorable as the Units, Notes and Warrants being
sold to the Placement Agents, under the Placement Agreement (except for the six
month restriction on transfer of the Units, Notes and Warrants being sold to
Buyer hereunder set forth in the Notes Registration Rights Agreement), and in
the event that the Units, Notes and Warrants being sold to Buyer hereunder are
not treated in a manner identical to or at least as favorable as the Units,
Notes and Warrants being sold to the Placement Agents, Seller shall enter into
such further documents with Buyer as may be necessary to ensure such treatment.
3. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to and agrees with to
Seller, as of the date hereof, as follows (subject to receipt by Buyer of
approval of Buyer's Board of Directors of consummation of the transactions
contemplated hereby):
(a) Buyer has full power and authority to enter into this
Purchase Agreement and to perform the transactions contemplated hereby. This
Purchase Agreement has been duly authorized, executed and delivered by Buyer and
is a valid and binding agreement on the part of Buyer. The execution, delivery
and performance by Buyer of this Purchase Agreement, the fulfillment of and
compliance with the terms and provisions hereof, and the consummation by Buyer
of the transactions contemplated hereby do not require any consent or approval
other than that which has been obtained, conflict with or violate any term or
provision of Buyer's organizational documents, or conflict with or result in any
breach of, or constitute a default under, any agreement to which Buyer is a
party or by which Buyer is bound, or result in a breach by Buyer of any of the
terms or provisions of, or constitute a default under, any applicable law, rule,
or regulation or any applicable decree, judgment or order of any court, federal
or state regulatory body, administrative agency or other governmental body
having jurisdiction over Buyer.
- 3 -
<PAGE> 4
(b) Buyer has received a copy of the Preliminary
Memorandum and such other information as Buyer deems necessary in order to make
Buyer's investment decision. Buyer has read and agrees to the matters stated
under the caption "Transfer Restrictions" in the Preliminary Memorandum and the
restrictions on duplication and circulation of the Preliminary Memorandum. Buyer
understands that any subsequent transfer of the Notes is subject to certain
restrictions and conditions set forth in the Indenture and that any subsequent
transfer of the Warrants or Warrant Shares is subject to certain restrictions
and conditions set forth under "Transfer Restrictions." Buyer also understands
that transfer of the Securities purchased by Buyer hereunder is subject to
certain restrictions and conditions set forth in the Notes Registration Rights
Agreement. Buyer agrees to be bound by, and not to resell, pledge or otherwise
transfer the Securities except in compliance with such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities Act").
(c) Buyer understands that the offer and sale of the
Units, the Notes, the Warrants and the Warrant Shares (collectively, the
"Securities") has not been registered under the Securities Act, and that the
Securities may not be offered or sold except as permitted in the following
sentence. Buyer agrees that if Buyer should sell any Securities within the time
period referred to in Rule 144(k) of the Securities Act, Buyer will do so only
(A) to Seller or any subsidiary thereof, (B) in accordance with Rule 144A under
the Securities Act to a "qualified institutional buyer" (as defined therein),
(C) to an institutional "accredited investor" (as defined below) that, prior to
such transfer, furnishes to the Trustee under the Indenture in the case of the
Notes, to the Warrant Agent in the case of the Warrants and to the Transfer
Agent and Registrar in the case of the Warrant Shares, a signed letter
containing certain representations and agreements relating to the restrictions
on transfer of the Notes (the form of which letter can be obtained from the
Trustee, Warrant Agent or Transfer Agent and Registrar as the case may be), and,
if such transfer is in respect of an aggregate accreted value of Notes at the
time of transfer of less than $100,000, or any transfer of Warrants or Warrant
Shares, an opinion of counsel acceptable to Seller that such transfer is in
compliance with the Securities Act, (D) outside the United States in accordance
with Rule 904 of Regulation S under the Securities Act (if available), or (E)
pursuant to an effective registration under the Securities Act, and Buyer
further agrees to provide to any person purchasing any of the Notes a notice
advising such purchaser that resales of the Securities are restricted as stated
herein.
(d) Buyer understands that, on any proposed resale of any
Securities, Buyer will be required to furnish to Seller and the Trustee, Warrant
Agent or Transfer Agent and Registrar (as applicable), such certification, legal
opinions and other information as Seller and the Trustee, Warrant Agent or
Transfer Agent and Registrar (as applicable) may reasonably require to confirm
- 4 -
<PAGE> 5
that the proposed sale complies with the foregoing restrictions. Buyer further
understands that the Securities will bear a legend to the foregoing effect.
(e) Buyer is an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) or Regulation D under the Securities
Act) and has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of Buyer's investment in the
Securities, and Buyer is able to bear the economic risk of Buyer's investment.
Buyer is acquiring the Securities purchased hereunder for Buyer's own account.
Buyer is not acquiring the Securities with a view to distribution thereof or
with any present intention of offering or selling any Securities, except as
permitted above.
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Purchase Agreement are subject to
the fulfillment, at or prior to the Closing Date, of each of the following
conditions, and failure to satisfy any such condition shall excuse and discharge
all obligations of Buyer to carry out the provisions of this Purchase Agreement,
unless such failure is agreed to in writing by Buyer:
(a) The representations and warranties made by Seller in
this Purchase Agreement shall be true and correct in all material respects when
made and on and as of the Closing Date as though such representations and
warranties were made on and as of such date.
(b) All conditions to closing of the Placement Agent
Offering (the "Placement Agreement Conditions") shall have been satisfied or
waived and the closing thereunder shall have occurred or be scheduled to occur
with the closing hereunder.
(c) All of the Placement Agreement Conditions set forth
in Section 4 of the Placement Agreement are incorporated herein by reference to
the same extent as if set forth fully herein (other than any conditions which
relate to Buyer, this Purchase Agreement or the closing hereunder); provided,
however, that in lieu of the certificates, opinions and comfort letters referred
to therein being delivered to Buyer, Buyer agrees to accept letters (in form
reasonably acceptable to Buyer) permitting Buyer to rely on the certificates,
opinions and comfort letters delivered to the Placement Agents in satisfaction
of the Placement Agreement Conditions.
6. COVENANTS
All of the covenants of the Company set forth in Section 5 of
the Placement Agreement are incorporated herein by reference to the same extent
as if set forth fully herein (other than covenants relating to resale of the
Units or Regulations S).
- 5 -
<PAGE> 6
7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations, warranties, covenants and agreements made
pursuant to this Purchase Agreement shall survive the Closing and any
investigation, audit or inspection at any time made by or on behalf of any party
hereto.
8. MISCELLANEOUS
(a) From and after the Closing hereunder, each of the
parties hereto hereby agrees to take or cause to be taken such further actions,
to execute, deliver and file or cause to be executed, delivered and filed such
further documents, and will obtain such consents, as may be necessary or as may
be reasonably requested in order fully to effectuate the purposes, terms and
conditions of this Purchase Agreement.
(b) Seller represents and warrants to Buyer that Seller
has not engaged any broker, finder or agent to which Buyer would incur any
liability for any brokerage fees, finders' fees or commissions with respect to
the transactions contemplated by this Purchase Agreement. Buyer represents and
warrants to Seller that Buyer has not engaged any broker, finder or agent to
which Seller would incur any liability for any brokerage fees, finders' fees or
commissions with respect to the transactions contemplated by this Purchase
Agreement.
(c) Seller shall pay all expenses (including all legal
and accounting fees and disbursements) incident to this Purchase Agreement and
the transactions contemplated hereunder, including without limitation all
reasonable expenses incurred by Buyer.
(d) No party shall assign its rights and obligations
under this Purchase Agreement, in whole or in part, whether by operation of law
or otherwise, without the prior written consent of the other parties hereto, and
any such assignment contrary to the terms hereof shall be null and void and of
no force and effect (except that Buyer may assign its rights under this Purchase
Agreement to SCANA Corporation or any subsidiary thereof). In no event shall the
assignment by any party of its respective rights or obligations under this
Purchase Agreement, whether before or after the Closing Date, release such party
from its respective liabilities and obligations hereunder.
- 6 -
<PAGE> 7
(e) This Purchase Agreement, including any attachments or
other documents referred to herein or furnished pursuant hereto, constitutes the
entire agreement among the parties hereto with respect to the transactions
contemplated herein, and it supersedes all prior oral or written agreements,
commitments or understandings with respect to the matters provided for herein.
No amendment, modification or discharge of this Purchase Agreement shall be
valid or binding unless set forth in writing and duly executed and delivered by
the party against whom enforcement of the amendment, modification, or discharge
is sought.
(f) No delay or failure on the part of any party hereto
in exercising any right, power or privilege under this Purchase Agreement or
under any other documents furnished in connection with or pursuant to this
Purchase Agreement shall impair any such right, power or privilege or be
construed as a waiver of any default or any acquiescence therein. No single or
partial exercise of any such right, power or privilege shall preclude the
further exercise of such right, power or privilege, or the exercise of any other
right, power or privilege. No waiver shall be valid against any party hereto
unless made in writing and signed by the party against whom enforcement of such
waiver is sought and then only to the extent expressly specified therein.
(g) If any part of any provision of this Purchase
Agreement or any other agreement or document given pursuant to or in connection
with this Purchase Agreement shall be invalid or unenforceable in any respect,
such part shall be ineffective to the extent of such invalidity or
unenforceability only, without in any way affecting the remaining parts of such
provision or the remaining provisions of this Purchase Agreement.
(h) This Purchase Agreement, the rights and obligations
of the parties hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the laws of State of New York
(excluding the choice of law rules thereof).
(i) All notices, demands, requests, or other
communications which may be or are required to be given, served, or sent by any
party to any other party pursuant to this Purchase Agreement shall be in writing
and sent by overnight courier and, at the same time, transmitted by telecopy,
addressed as follows:
(i) If to Buyer:
SCANA Corporation
1426 Main Street
Columbia, South Carolina 28218
Attention: Kevin Marsh
Telecopy No.: (803) 748-3336
- 7 -
<PAGE> 8
(ii) If to the Seller:
KNOLOGY Holdings, Inc.
P. O. Box 510
West Point, Georgia 31833
Attention: William Morrow, President
Telecopy No.: (706) 645-1446
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request, or communication which shall be hand delivered,
sent, mailed, telecopied or telexed in the manner described above, shall be
deemed sufficiently given, served, sent, received or delivered for all purposes
at such time as it is delivered to the addressee (with the return receipt, the
delivery receipt, or (with respect to a telecopy or telex) the answerback being
deemed conclusive, but not exclusive, evidence of such delivery) or at such time
as delivery is refused by the addressee upon presentation.
(j) To facilitate execution, this Purchase Agreement may
be executed in as many counterparts as may be required. It shall not be
necessary that the signatures of, or on behalf of, each party, or that the
signatures of all persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of, or on behalf of,
each party, or that the signatures of the persons required to bind any party,
appear on one or more of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in making proof of this
Purchase Agreement to produce or account for more than a number of counterparts
containing the respective signatures of, or on behalf of, all of the parties
hereto.
(k) The covenants, undertakings and agreements set forth
in this Purchase Agreement shall be solely for the benefit of, and shall be
enforceable only by, the parties hereto and their respective successors, heirs,
executors, administrators, legal representatives and permitted assigns.
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this
Purchase Agreement, or have caused this Purchase Agreement to be duly executed
on their behalf, as of the day and year first above written.
BUYER:
SCANA COMMUNICATIONS, INC.
By: /s/ Kevin B. Marsh
-------------------------------------
Name: Kevin B. Marsh
-------------------------------------
Title: Vice President & Chief Financial
-------------------------------------
Officer
-------------------------------------
SELLER:
KNOLOGY HOLDINGS, INC.
By: /s/ William E. Morrow
-------------------------------------
Name: William E. Morrow
-------------------------------------
Title: President & CEO
-------------------------------------
<PAGE> 1
EXHIBIT 10.2
EXECUTION COPY
- --------------------------------------------------------------------------------
WARRANT AGREEMENT
between
KNOLOGY HOLDINGS, INC.
and
UNITED STATES TRUST COMPANY OF NEW YORK
Dated as of October 22, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
<S> <C>
CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
ORIGINAL ISSUE OF WARRANTS
Section 2.1. Form of Warrant Certificates . . . . . . . . . . . . . . . . . 6
Section 2.2. Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.3. Execution and Delivery of Warrant Certificates . . . . . . . . 11
Section 2.4. Certificated Warrants . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE III
EXERCISE PRICE, EXERCISE AND REPURCHASE OF WARRANTS
Section 3.1. Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.2. Exercise; Restrictions on Exercise . . . . . . . . . . . . . . 12
Section 3.3. Method of Exercise; Payment of Exercise Price . . . . . . . . . 12
Section 3.4. Repurchase Offers . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV
ADJUSTMENTS
Section 4.1. Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.2. Notice of Adjustment . . . . . . . . . . . . . . . . . . . . . 25
Section 4.3. Statement on Warrants . . . . . . . . . . . . . . . . . . . . . 25
Section 4.4. Notice of Consolidation, Merger, Etc. . . . . . . . . . . . . . 25
Section 4.5. Fractional Interests . . . . . . . . . . . . . . . . . . . . . 26
Section 4.6. When Issuance or Payment May Be Deferred . . . . . . . . . . . 26
Section 4.7. Initial Public Offering . . . . . . . . . . . . . . . . . . . . 26
Section 4.8. Other Adjustments . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE V
DECREASE IN EXERCISE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
<PAGE> 3
ii
ARTICLE VI
<TABLE>
<S> <C>
LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VII
RESERVATION AND AUTHORIZATION
OF PREFERRED STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VIII
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER
Section 8.1. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . 28
Section 8.2. Book-Entry Provisions for the Global Warrants . . . . . . . . . 29
Section 8.3. Special Transfer Provisions . . . . . . . . . . . . . . . . . . 31
Section 8.4. Surrender of Warrant Certificates . . . . . . . . . . . . . . . 34
ARTICLE IX
WARRANT HOLDERS
Section 9.1. Warrant Holder Deemed Not a Shareholder . . . . . . . . . . . . 35
Section 9.2. Right of Action . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE X
REMEDIES
Section 10.1. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 10.2. Payment Obligations . . . . . . . . . . . . . . . . . . . . . 36
Section 10.3. Remedies; No Waiver . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XI
THE WARRANT AGENT
Section 11.1. Duties and Liabilities . . . . . . . . . . . . . . . . . . . . 36
Section 11.2. Right to Consult Counsel . . . . . . . . . . . . . . . . . . . 37
Section 11.3. Compensation; Indemnification . . . . . . . . . . . . . . . . 38
Section 11.4. No Restrictions on Actions . . . . . . . . . . . . . . . . . . 38
</TABLE>
<PAGE> 4
iii
<TABLE>
<S> <C>
Section 11.5. Discharge or Removal; Replacement Warrant Agent . . . . . . . 38
Section 11.6. Successor Warrant Agent . . . . . . . . . . . . . . . . . . . 39
ARTICLE XII
MISCELLANEOUS
Section 12.1. Monies Deposited with the Warrant Agent . . . . . . . . . . . 40
Section 12.2. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.3. No Merger, Consolidation or Sale of Assets of the Company . . 40
Section 12.4. Reports to Holders . . . . . . . . . . . . . . . . . . . . . . 41
Section 12.5. Notices; Payment . . . . . . . . . . . . . . . . . . . . . . . 41
Section 12.6. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 12.7. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 12.8. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 12.9. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 12.10. Preferred Stock Legend . . . . . . . . . . . . . . . . . . . 43
Section 12.11. Third Party Beneficiaries . . . . . . . . . . . . . . . . . . 44
Section 12.12. Termination . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 12.13. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 45
EXHIBIT A FORM OF WARRANT CERTIFICATE
EXHIBIT B FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS PURSUANT TO REGULATION S
EXHIBIT C-1 FORM OF CERTIFICATE TO BE DELIVERED BY TRANSFEROR
IN CONNECTION WITH TRANSFERS TO INSTITUTIONAL
ACCREDITED INVESTORS
EXHIBIT C-2 FORM OF CERTIFICATE TO BE DELIVERED BY TRANSFEREES
IN CONNECTION WITH TRANSFERS TO INSTITUTIONAL
ACCREDITED INVESTORS
EXHIBIT D FORM OF CERTIFICATE
APPENDIX A LIST OF FINANCIAL EXPERTS
</TABLE>
<PAGE> 5
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of October 22, 1997 (this
"Agreement"), between KNOLOGY Holdings, Inc., a Delaware corporation (the
"Company"), and United States Trust Company of New York (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, the Company has agreed to issue and sell a total of
444,100 units (the "Units") each of which consists of one 11-7/8% Senior
Discount Note due 2007 of the Company (each a "Note" and collectively, the
"Notes") to be issued pursuant to the provisions of an Indenture dated as of
October 22, 1997 (the "Indenture") between the Company, as issuer, and United
States Trust Company of New York, as trustee, and one warrant (each, a
"Warrant"), each Warrant initially entitling the holder thereof to purchase
.003734 shares of Preferred Stock (as defined below) of the Company at an
exercise price of $.01 per share, of which 373,050 Units are to be purchased by
the Placement Agents and 71,050 Units are to be purchased by SCANA
Communications, Inc. ("SCANA").
WHEREAS, pursuant to the terms of a Placement Agreement dated
October 16, 1997 (the "Placement Agreement"), among the Company and Morgan
Stanley & Co. Incorporated, J.P. Morgan Securities Inc. and First Union Capital
Markets Corp., as placement agents (the "Placement Agents"), the Company has
agreed to issue and sell to the Placement Agents an aggregate of 373,050
Warrants as part of 373,050 Units.
WHEREAS, the Note and the Warrant included in each Unit will
become separately transferable at the close of business upon the earliest to
occur of (i) the date that is six months following the Closing Date (as defined
below), (ii) the commencement of an exchange offer with respect to the Notes
undertaken pursuant to the Notes Registration Rights Agreement (as defined
below) and (iii) the effective date of a shelf registration statement with
respect to the Notes (the "Separation Date"); and
WHEREAS, the Company desires to engage the Warrant Agent to
act on the Company's behalf, and the Warrant Agent desires to act on behalf of
the Company, in connection with the issuance of the Warrant Certificates (as
defined below) and the other matters as provided herein, including, without
limitation, for the purpose of defining the terms and provisions of the
Warrants and the respective rights and obligations thereunder of the Company
and the record holders thereof (together with the holders of shares of
Preferred Stock (or other securities) received upon exercise thereof, the
"Holders").
NOW, THEREFORE, in consideration of the foregoing and of the
mutual agreements contained herein and in the Placement Agreement, the Company
and the Warrant Agent hereby agree as follows:
<PAGE> 6
2
ARTICLE I
CERTAIN DEFINITIONS
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent Members" has the meaning specified in Section 8.2
hereof.
"Auditors" means, at any time, the independent auditors of the
Company at such time.
"Board" means the board of directors of the Company from time
to time.
"Business Day" means a day except a Saturday, Sunday or other
day on which commercial banks in The City of New York, or in the city of the
corporate trust office of the Warrant Agent, are authorized by law to close.
"Cedel Bank" means Cedel Bank, societe anonyme.
"Certificated Warrants" has the meaning specified in Section
2.1 hereof.
"Certificate for Surrender" means the form on the reverse side
of the Warrant Certificate substantially in the form of Exhibit A hereto.
"Closing Date" means the date hereof.
"Commission" means the United States Securities and Exchange
Commission.
"Company" has the meaning specified in the preamble to this
Agreement.
"Current Market Value" has the meaning specified in Section
4.1(f) hereof.
"Default" has the meaning specified in Section 10.1 hereof.
"Depositary" means The Depository Trust Company, its nominees
and their respective successors.
<PAGE> 7
3
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear System.
"Exchange Act" means the United States Securities Exchange Act
of 1934, as amended.
"Exercise Price" has the meaning specified in Section 3.1
hereof.
"Expiration Date" means October 21, 2007.
"Final Surrender Time" has the meaning specified in Section
3.4 hereof.
"Financial Expert" means one of the Persons listed in Appendix
A hereto.
"Global Warrants" has the meaning specified in Section 2.1
hereof.
"Holders" has the meaning specified in the recitals to this
Agreement.
"IAI Certificated Warrants" has the meaning specified in
Section 2.1 hereof.
"Indenture" has the meaning specified in the recitals to
this Agreement.
"Independent Financial Expert" means a Financial Expert that
does not (and whose directors, executive officers and 5% stockholders do not)
have a direct or indirect financial interest in the Company or any of its
subsidiaries or Affiliates, which has not been for at least five years and, at
the time it is called upon to give independent financial advice to the Company
is not (and none of its directors, executive officers or 5% stockholders is) a
promoter, director, or officer of the Company or any of its subsidiaries or
Affiliates. The Independent Financial Expert may be compensated and
indemnified by the Company for opinions or services it provides as an
Independent Financial Expert.
"Institutional Accredited Investor" shall mean an institution
that is an "accredited investor" as that term is defined in Rule 501(a)(1),
(2), (3) or (7) of Regulation D under the Securities Act.
"Legended Regulation S Global Warrant" has the meaning
specified in Section 2.1 hereof.
"Non-U.S. Person" means a person who is not a U.S. person as
defined in Rule 902 of Regulation S.
"Notes" has the meaning specified in the recitals to this
Agreement.
<PAGE> 8
4
"Notes Registration Rights Agreement" means the Registration
Rights Agreement with respect to the Notes dated October 21, 1997 between the
Company, the Placement Agents and SCANA Communications, Inc.
"Notice Date" has the meaning specified in Section 3.4 hereof.
"Officer" means, with respect to the Company, (i) the Chairman
of the Board, the Chief Executive Officer, the Chief Financial Officer and any
Vice President of the Company or (ii) the Treasurer or any Assistant Treasurer,
the Company's Secretary or any Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by one
Officer listed in clause (i) of the definition thereof and one Officer listed
in clause (ii) of the definition thereof; provided, however, that any such
certificate may be signed by any two of the Officers listed in clause (i) of
the definition thereof in lieu of being signed by one Officer listed in clause
(i) of the definition thereof and one Officer listed in clause (ii) of the
definition thereof.
"Offshore Certificated Warrants" has the meaning specified in
Section 2.1 hereof.
"Opinion of Counsel" means a written opinion signed by legal
counsel who may be an employee of or counsel to the Company.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Placement Agreement" has the meaning specified in the
recitals to this Agreement.
"Preferred Stock" means the Preferred Stock, par value $0.01,
of the Company and any other capital stock of the Company into which such
Preferred Stock may be converted, or reclassified or that may be issued in
respect of, in exchange for or in substitution of, such Preferred Stock by
reason of any stock splits, stock dividends, distributions, mergers,
consolidations or other like events (including automatic conversion of the
Preferred Stock pursuant to its terms).
"Private Placement Legend" means the legend set forth on the
Warrant Certificates in the form set forth in Section 2.2(a) hereof.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
<PAGE> 9
5
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Warrant" has the meaning specified in
Section 2.1 hereof.
"Relevant Value" has the meaning specified in Section 3.4(d)
hereof.
"Repurchase Event" means and shall be deemed to occur on any
date when the Company (i) consolidates with or merges into or with another
Person (but only where the holders of Preferred Stock (or any capital stock
issuable upon conversion of the Preferred Stock) receive consideration in
exchange for all or part of such stock), if the Preferred Stock (or other
securities) thereafter issuable upon exercise of the Warrants is not registered
under the Exchange Act or (ii) sells all or substantially all of its assets to
another Person, if the Preferred Stock (or other securities) thereafter
issuable upon exercise of the Warrants is not registered under the Exchange
Act; provided that in each case a "Repurchase Event" shall not be deemed to
have occurred if the consideration for such transaction consists solely of
cash.
"Repurchase Notice" has the meaning specified in Section
3.4(a) hereof.
"Repurchase Obligation" has the meaning specified in Section
10.2 hereof.
"Repurchase Offer" means the Company's offer to repurchase the
Warrants in accordance with Section 3.4 hereof.
"Repurchase Price" has the meaning specified in Section 3.4(d)
hereof.
"Restricted Certificated Warrants" has the meaning specified
in Section 2.1 hereof.
"Restricted Global Warrant" has the meaning specified in
Section 2.1 hereof.
"Right" has the meaning specified in Section 4.1(c) hereof.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the United States Securities Act of
1933, as amended.
"Separation Date" has the meaning specified in the recitals to
this Agreement.
<PAGE> 10
6
"Spread" means, with respect to any Warrant, the Current
Market Value of the Preferred Stock (or other securities) issuable upon
exercise of such Warrant, less the Exercise Price of such Warrant, in each case
as adjusted as provided herein.
"Subscription Form" means the form on the reverse side of the
Warrant Certificate substantially in the form of Exhibit A hereto.
"Units" has the meaning specified in the recitals to this
Agreement.
"U.S. Certificated Warrants" has the meaning specified in
Section 2.1 hereof.
"Unlegended Regulation S Global Warrant" has the meaning
specified in Section 2.1 hereof.
"Valuation Date" means the date five Business Days prior to
the Notice Date.
"Value Certificate" has the meaning specified in Section 3.4
hereof.
"Value Report" has the meaning specified in Section 4.1(k)
hereof.
"Warrant" has the meaning specified in the recitals to this
Agreement.
"Warrant Agent" has the meaning specified in the preamble to
this Agreement.
"Warrant Certificates" has the meaning specified in Section
2.1 hereof.
"Warrant Registration Rights Agreement" means the Warrant
Registration Rights Agreement, dated October 21, 1997, between the Company and
the Warrant Agent.
"Warrant Registration Statement" has the meaning specified in
Section 3 of the Warrant Registration Rights Agreement.
ARTICLE II
ORIGINAL ISSUE OF WARRANTS
Section 2.1. Form of Warrant Certificates. Certificates
representing the Warrants (the "Warrant Certificates") shall be substantially
in the form attached hereto as Exhibit A, shall be dated the date on which such
Warrant Certificates are countersigned by the Warrant Agent and shall have such
insertions as are appropriate or required or permitted by this Agreement and
may have such letters, numbers or other marks of identification and
<PAGE> 11
7
such legends and endorsements stamped, printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with
the provisions of this Agreement, or as may be required to comply with any law
or with any rule or regulation pursuant thereto or with any rule or regulation
of any securities exchange on which the Warrants may be listed, or to conform
to usage.
Warrants offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more permanent global Warrant
Certificates in definitive, fully registered form, substantially in the form
set forth in Exhibit A (the "Restricted Global Warrant"), deposited with the
Warrant Agent, as custodian for, and registered in the name of the nominee for,
the Depositary, duly executed by the Company and countersigned by the Warrant
Agent as hereinafter provided. The aggregate number of Warrants represented by
the Restricted Global Warrant may from time to time be increased or decreased
by adjustments made on the records of the Warrant Agent, as custodian for the
Depositary, or its nominee, as provided in Section 2.4 and Section 8.3 hereof.
Warrants offered and sold in offshore transactions in reliance
on Regulation S shall be issued initially in the form of one or more permanent
global Warrant Certificates in definitive, fully registered form, substantially
in the form set forth in Exhibit A (the "Legended Regulation S Global
Warrant"), deposited with the Warrant Agent, as custodian for, and registered
in the name of, the Depositary or its nominee for the accounts of Euroclear and
Cedel Bank, duly executed by the Company and countersigned by the Warrant Agent
as hereinafter provided. Prior to the date one year after the Closing Date,
beneficial interests in the Legended Regulation S Global Warrant may be held
only through Euroclear and Cedel Bank. At any time on or after the date one
year after the Closing Date, upon receipt by the Warrant Agent and the Company
of a certificate substantially in the form of Exhibit D hereto, one or more
global Warrant Certificates in registered form substantially in the form set
forth in Exhibit A (the "Unlegended Regulation S Global Warrants" and together
with the Legended Regulation S Global Warrant, the "Regulation S Global
Warrant") shall be deposited with the Warrant Agent, as custodian for, and
registered in the name of the nominee for, the Depositary, duly executed by the
Company and countersigned by the Warrant Agent as hereinafter provided, and the
Warrant Agent shall reflect on its books and records the date and a decrease in
the Legended Regulation S Global Warrant in an amount equal to the number of
Warrants evidenced by the Legended Regulation S Global Warrant transferred.
The aggregate number of Warrants represented by the Regulation S Global
Warrants may from time to time be increased or decreased by adjustments made on
the records of the Warrant Agent, as custodian for the Depositary, or its
nominee, as provided in Section 2.4 and Section 8.3 hereof.
Warrants offered and sold to Institutional Accredited
Investors who are not QIBs shall be issued initially in registered form
substantially in the form set forth in Exhibit A ("IAI Certificated Warrants").
<PAGE> 12
8
Warrants issued pursuant to Section 2.4 and Section 8.2(b) in
exchange for interests in the Restricted Global Warrant shall be issued in the
form of permanent Warrant Certificates in registered form, substantially in the
form set forth in Exhibit A (the "Restricted Certificated Warrants" and,
together with IAI Certificated Warrants, the "U.S. Certificated Warrants").
Warrants issued pursuant to Section 2.4 and Section 8.2(b) in exchange for
interests in the Regulation S Global Warrant shall be issued in the form of
permanent Warrant Certificates in registered form, substantially in the form
set forth in Exhibit A (the "Offshore Certificated Warrants"). The Offshore
Certificated Warrants and the U.S. Certificated Warrants are sometimes herein
collectively referred to as the "Certificated Warrants". The Restricted Global
Warrant and the Regulation S Global Warrant are sometimes herein collectively
referred to as the "Global Warrants."
The definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Warrants may be listed, all as determined by the officers
executing such Warrant Certificates, as evidenced by their execution of such
Warrant Certificates.
Section 2.2. Restrictive Legends. (a) The Warrant
Certificates, other than the Unlegended Regulation S Global Warrants, shall
bear substantially the following legend on the face thereof:
THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER"
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON
AND IS ACQUIRING THESE WARRANTS IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT
IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k)
UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF
THIS SECURITY, RESELL OR OTHERWISE TRANSFER THESE WARRANTS EXCEPT (A)
TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED
INSTITUTIONAL BUYER IN
<PAGE> 13
9
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE
UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO THE WARRANT AGENT A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM THE WARRANT AGENT) AND AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THESE WARRANTS ARE TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH
ANY TRANSFER OF THESE WARRANTS WITHIN THE TIME PERIOD REFERRED TO
ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE
REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO THE WARRANT AGENT. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE WARRANT AGENT AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
THE WARRANT AGREEMENT CONTAINS A PROVISION REQUIRING THE WARRANT AGENT
TO REFUSE TO REGISTER ANY TRANSFER OF THESE WARRANTS IN VIOLATION OF
THE FOREGOING RESTRICTIONS.
<PAGE> 14
10
(b) Each Global Warrant shall also bear the following
legend on the face thereof:
UNLESS THIS WARRANT CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO KNOLOGY HOLDINGS,
INC. OR THE WARRANT AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON
IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR
TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF
PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN ARTICLE VIII OF THE
WARRANT AGREEMENT.
(c) Each Warrant Certificate issued prior to the
Separation Date shall bear the following legend on the face thereof:
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS
PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF ONE 11_%
SENIOR DISCOUNT NOTE DUE 2007 OF KNOLOGY HOLDINGS, INC. (THE "NOTES")
AND ONE WARRANT INITIALLY ENTITLING THE HOLDER THEREOF TO PURCHASE
.003734 SHARES OF PREFERRED STOCK, PAR VALUE $0.01, OF KNOLOGY
HOLDINGS, INC. PRIOR TO THE CLOSE OF BUSINESS UPON THE EARLIEST TO
OCCUR OF (i) April 22, 1998, (ii) THE COMMENCEMENT OF AN EXCHANGE
OFFER WITH RESPECT TO THE NOTES, AND (iii) THE EFFECTIVENESS OF A
SHELF REGISTRATION STATEMENT WITH RESPECT TO THE NOTES. THE WARRANTS
EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED
SEPARATELY FROM, BUT MAY BE
<PAGE> 15
11
TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE NOTES.
Section 2.3. Execution and Delivery of Warrant Certificates.
Warrant Certificates evidencing 444,100 Warrants, each Warrant to purchase
initially .003734 shares of Preferred Stock, may be executed, on or after the
date of this Agreement, by the Company and delivered to the Warrant Agent for
countersignature, and the Warrant Agent shall thereupon countersign and deliver
such Warrant Certificates upon the order and at the written direction of the
Company signed by its Chief Executive Officer or other duly authorized
executive officer to the purchasers thereof on the date of issuance. The
Warrant Agent is hereby authorized to countersign and deliver Warrant
Certificates as required by this Section 2.3 or by Section 3.3, Article VI or
Article VIII hereof.
The Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, Chief Executive Officer, Chief Financial
Officer, any Vice President or other duly authorized executive officer of the
Company either manually or by facsimile signature printed thereon. The Warrant
Certificates shall be countersigned by manual signature of the Warrant Agent
and shall not be valid for any purpose unless so countersigned. In case any
officer or director of the Company whose signature shall have been placed upon
any of the Warrant Certificates shall cease to be such officer or director of
the Company before countersignature by the Warrant Agent and the issuance and
delivery thereof, such Warrant Certificates may nevertheless be countersigned
by the Warrant Agent and issued and delivered with the same force and effect as
though such person had not ceased to be such officer or director of the
Company.
Section 2.4. Certificated Warrants. Beneficial owners of
interests in a Global Warrant may receive Certificated Warrants (which, except
as set forth in Section 8.3(d), shall bear the Private Placement Legend) in
accordance with the procedures of the Warrant Agent and the Depositary;
provided, however, that beneficial owners of interests in a Regulation S Global
Warrant may not receive Offshore Certificated Warrants in exchange for such
interests prior to the date one year after the Closing Date. In connection
with the execution and delivery of such Certificated Warrants, the Warrant
Agent shall reflect on its books and records the date and a decrease in the
number of Warrants represented by the relevant Global Warrant equal to the
number of such Certificated Warrants and the Company shall execute and the
Warrant Agent shall countersign and deliver to said beneficial owners one or
more Certificated Warrants in an equal aggregate number.
<PAGE> 16
12
ARTICLE III
EXERCISE PRICE, EXERCISE AND REPURCHASE OF WARRANTS
Section 3.1. Exercise Price. Each Warrant Certificate shall,
when countersigned by the Warrant Agent, initially entitle the Holder thereof,
subject to the provisions of this Agreement, to purchase the number of shares
of Preferred Stock indicated thereon at a purchase price (the "Exercise Price")
of $.01 per share, subject to adjustment as provided in Section 4.1 and Article
V hereof.
Section 3.2. Exercise; Restrictions on Exercise. At any time
beginning one year after the Closing Date and prior to 5:00 p.m., New York City
time, on the Expiration Date, any outstanding Warrants may be exercised on any
Business Day; provided that the Warrant Registration Statement is, at the time
of exercise, effective and available for the exercise of the Warrants or the
exercise of such Warrants is exempt from the registration requirements of the
Securities Act, and such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states of other
jurisdictions in which the various Holders reside. Any Warrants not exercised
by 5:00 p.m., New York City time, on the Expiration Date shall expire and all
rights of the Holders of such Warrants shall terminate. Additionally, pursuant
to Section 4.1(j)(ii) hereof, the Warrants shall expire and all rights of the
Holders of such Warrants shall terminate in the event the Company merges or
consolidates with or sells all or substantially all of its property and assets
to a Person (other than an Affiliate of the Company) if the consideration
payable to holders of Preferred Stock (or any capital stock issuable upon
conversion of the Preferred Stock) in exchange for their Preferred Stock (or
any capital stock issuable upon conversion of the Preferred Stock) in
connection with such merger, consolidation or sale consists solely of cash or
in the event of the dissolution, liquidation or winding up of the Company.
Section 3.3. Method of Exercise; Payment of Exercise Price.
In order to exercise all or any of the Warrants represented by a Warrant
Certificate, the Holder thereof must surrender for exercise the Warrant
Certificate to the Warrant Agent at its corporate trust office address set
forth in Section 12.5 hereof, with the Subscription Form set forth on the
reverse of the Warrant Certificate duly executed, together with payment in full
of the Exercise Price then in effect for each share of Preferred Stock (or
other securities) issuable upon exercise of the Warrants as to which a Warrant
is exercised; such payment may be made in cash or by certified or official bank
or bank cashier's check payable to the order of the Company and shall be made
to the Warrant Agent at its corporate trust office address set forth in Section
12.5 hereof prior to the close of business on the date the Warrant Certificate
is surrendered to the Warrant Agent for exercise. Notwithstanding the
foregoing, the Exercise Price may be paid by surrendering additional Warrants
to the Warrant Agent having an aggregate Spread equal to the aggregate Exercise
Price of the Warrants being exercised. All payments received upon exercise of
Warrants shall be delivered to the Company by the
<PAGE> 17
13
Warrant Agent as instructed in writing by the Company. If less than all the
Warrants represented by a Warrant Certificate are exercised or surrendered (in
connection with a cashless exercise), such Warrant Certificate shall be
surrendered and a new Warrant Certificate of the same tenor and for the number
of Warrants which were not exercised or so surrendered shall be executed by the
Company and delivered to the Warrant Agent and the Warrant Agent shall
countersign the new Warrant Certificate, registered in such name or names as
may be directed in writing by the Holder, and shall deliver the new Warrant
Certificate to the Person or Persons entitled to receive the same. Global
Warrants will be exercised in accordance with the procedures of the Warrant
Agent and the Depositary. Upon the exercise of any Warrants following the
surrender of a Warrant Certificate in conformity with the foregoing provisions,
the Warrant Agent shall instruct the Company to transfer promptly to the Holder
or, upon the written order of the Holder of such Warrant Certificate,
appropriate evidence of ownership of any Preferred Stock or other security or
property to which it is entitled as a result of such exercise, registered or
otherwise placed in such name or names as may be directed in writing by the
Holder, and to deliver such evidence of ownership to the Person or Persons
entitled to receive the same and fractional shares, if any, or following an
initial public offering of Preferred Stock (or any capital stock issuable upon
conversion of the Preferred Stock) an amount in cash, in lieu of any fractional
shares, as provided in Section 4.5 hereof; provided that the Holder of such
Warrant shall be responsible for the payment of any transfer taxes required as
the result of any change in ownership of such Warrants or the issuance of such
Preferred Stock other than to the Holder of such Warrants and any such transfer
shall comply with applicable law. Upon the exercise of a Warrant or Warrants,
the Warrant Agent is hereby authorized and directed to requisition from any
transfer agent of the Preferred Stock (and all such transfer agents are hereby
irrevocably authorized to comply with all such requests) certificates (bearing
the legend set forth in Section 12.10 hereof, if applicable, unless a
registration statement with the Commission relating to such Preferred Stock
shall then be in effect or the Company and the Holder exercising such Warrant
or Warrants otherwise agree) for the necessary number of shares of Preferred
Stock to which said Holder may be entitled. The Company shall enter, or shall
cause any transfer agent of the Preferred Stock to enter, the name of the
Person entitled to receive the Preferred Stock upon exercise of the Warrants
into the Company's register of shareholders within 14 days of such exercise. A
Warrant shall be deemed to have been exercised immediately prior to the close
of business on the date of the surrender for exercise, as provided above, of
the Warrant Certificate representing such Warrant and, for all purposes under
this Agreement, the Person entitled to receive any Preferred Stock deliverable
upon such exercise shall, as between such Person and the Company, be deemed to
be the Holder of record of such Preferred Stock as of the close of business on
such date and shall be entitled to receive, and the Warrant Agent shall deliver
to such Person, any Preferred Stock to which such Person would have been
entitled had such Person been the registered holder on such date.
<PAGE> 18
14
Section 3.4. Repurchase Offers. (a) Notice of Repurchase
Event. Within five Business Days following the occurrence of a Repurchase
Event, the Company shall give notice (a "Repurchase Notice") to the Holders of
the Warrants and the Warrant Agent that such event has occurred.
(b) Repurchase Offers Generally. Following the
occurrence of a Repurchase Event, the Company shall offer to repurchase for
cash all outstanding Warrants pursuant to the provisions of this Section 3.4 (a
"Repurchase Offer"). The Company shall give notice of a Repurchase Offer in
accordance with Section 3.4(f) hereof. Each date on which the Company gives
any such notice is referred to as the "Notice Date." The Repurchase Offer
shall commence on the Notice Date for such Repurchase Offer and shall expire at
5:00 p.m., New York City time, on a date determined by the Company (the "Final
Surrender Time") that is at least 30 but not more than 60 days after the Notice
Date. Once a Repurchase Event has occurred, there is no limit on the number of
Repurchase Offers that the Company may make.
(c) Repurchase Offers. (i) In any Repurchase Offer, the
Company shall offer to purchase for cash at the Repurchase Price all Warrants
outstanding on the Notice Date for such Repurchase Offer that are properly
tendered to the Warrant Agent on or prior to the Final Surrender Time for such
Repurchase Offer.
(ii) Each Holder may, but shall not be obligated to,
accept such Repurchase Offer by tendering to the Warrant Agent, on or prior to
the Final Surrender Time for such Repurchase Offer, the Warrant Certificates
evidencing the Warrants such Holder desires to have repurchased in such offer,
together with a completed Certificate for Surrender in substantially the form
attached to the Warrant Certificate. A Holder may withdraw all or a portion of
the Warrants tendered to the Warrant Agent at any time prior to the Final
Surrender Time for such Repurchase Offer. If less than all the Warrants
represented by a Warrant Certificate shall be tendered, such Warrant
Certificate shall be surrendered and a new Warrant Certificate of the same
tenor and for the number of Warrants which shall not be tendered shall be
executed by the Company and delivered to the Warrant Agent and the Warrant
Agent shall countersign the new Warrant Certificate, registered in such name or
names as may be directed in writing by the Holder, and shall deliver the new
Warrant Certificate to the Person or Persons entitled to receive the same;
provided that the Holder of such Warrants shall be responsible for the payment
of any transfer taxes required as the result of any change in ownership of such
Warrants.
(d) Repurchase Price. (i) The purchase price (the
"Repurchase Price") for each Warrant properly tendered to the Warrant Agent
pursuant to a Repurchase Offer shall be equal to the value (the "Relevant
Value") on the Valuation Date of the Preferred Stock issuable, and other
securities or property of the Company which would have been delivered, upon
exercise of Warrants had the Warrants been exercised (regardless of whether the
<PAGE> 19
15
Warrants are then exercisable), less the Exercise Price in effect on the Notice
Date for such Repurchase Offer.
(ii) The Relevant Value of the Preferred Stock and other
securities or property issuable upon exercise of all the Warrants, on any
Valuation Date, shall be:
(1) (A) if the Preferred Stock (or other securities
issuable upon exercise of the Warrants or conversion of the Preferred
Stock) is registered under the Exchange Act, deemed to be the average
of the daily market prices (on the stock exchange that is the primary
trading market for the Preferred Stock (or other securities)) of the
Preferred Stock (or other securities) for the 20 consecutive trading
days immediately preceding such Valuation Date or (B) if the Preferred
Stock (or other securities) have been registered under the Exchange
Act for less than 20 consecutive trading days before such date, then
the average of the daily market prices for all of the trading days
before such date for which daily market prices are available, in the
case of each of (A) and (B), as certified to the Warrant Agent by the
President, any Vice President or the Chief Financial Officer of the
Company (the "Value Certificate"). The market price for each such
trading day shall be: (A) in the case of a security listed or admitted
to trading on any national securities exchange, the closing sales
price on such day, or if no sale takes place on such day, the average
of the closing bid and asked prices on such day, (B) in the case of a
security not then listed or admitted to trading on any national
securities exchange, the last reported sale price on such day, or if
no sale takes place on such day, the average of the closing bid and
asked prices on such day, as reported by a reputable quotation source
designated by the Company, (C) in the case of a security not then
listed or admitted to trading on any national securities exchange and
as to which no such reported sale price or bid and asked prices are
available, the average of the reported high bid and low asked prices
on such day, as reported by a reputable quotation service, or a
newspaper of general circulation in the Borough of Manhattan, City and
State of New York customarily published on each Business Day,
designated by the Company, or, if there shall be no bid and asked
prices on such day, the average of the high bid and low asked prices,
as so reported, on the most recent day (not more than 30 days prior to
the date in question) for which prices have been so reported and (D)
if there are no bid and asked prices reported during the 30 days prior
to the date in question, the Relevant Value shall be determined as if
the Preferred Stock (or other securities) were not registered under
the Exchange Act; or
(2) if the Preferred Stock (or other securities issuable
upon exercise of the Warrants or conversion of the Preferred Stock) is
not registered under the Exchange Act or if the value cannot be
computed under clause (1) above, deemed to be equal to the value set
forth in the Value Report (as defined below) as determined by an
Independent Financial Expert, which shall be selected by the Board in
accordance
<PAGE> 20
16
with Section 3.4(e) hereof, and retained on customary terms and
conditions, using one or more valuation methods that the Independent
Financial Expert, in its best professional judgment, determines to be
most appropriate but without giving effect to any discount for lack of
liquidity, the fact that the Company has no class of equity securities
registered under the Exchange Act or the fact that the Preferred Stock
(or other securities) or property issuable upon exercise of the
Warrants represent a minority interest in the Company. The Company
shall use its best efforts (including by selecting another Independent
Financial Expert) to cause the Independent Financial Expert to deliver
to the Company, with a copy to the Warrant Agent, within 45 days of
the appointment of the Independent Financial Expert in accordance with
Section 3.4(e) hereof, a value report (the "Value Report") stating the
Relevant Value of the Preferred Stock (or other securities) being
valued as of the Valuation Date and containing a brief statement as to
the nature and scope of the methodologies upon which the determination
of Relevant Value was made. The Warrant Agent shall have no duty with
respect to the Value Report of any Independent Financial Expert,
except to keep it on file and available for inspection by the Holders.
The determination of the Independent Financial Expert as to Relevant
Value in accordance with the provisions of this Section 3.4(d) shall
be conclusive on all Persons. The Independent Financial Expert shall
consult with management of the Company in order to allow management to
comment on the proposed Relevant Value prior to delivery to the
Company of any Value Report of the Independent Financial Expert.
(e) Selection of Independent Financial Expert. If clause
(d)(ii)(2) is applicable, the Board of Directors of the Company shall select an
Independent Financial Expert not more than five Business Days following a
Repurchase Event. Within two days after such selection of the Independent
Financial Expert, the Company shall deliver to the Warrant Agent a notice
setting forth the name of such Independent Financial Expert.
(f) Notice of Repurchase Offer. Each notice of a
Repurchase Offer (an "Offer Notice") given by the Company pursuant to Section
3.4(b)(i) shall be given by the Company directly to all Holders of the
Warrants, with a copy to the Warrant Agent, shall be given simultaneously with
the Repurchase Notice (or, in the event that the Relevant Value of the
Preferred Stock (or other securities) or property issuable upon exercise of the
Warrants cannot be determined pursuant to Section 3.4(d)(ii)(1), then such
Offer Notice shall be given within five Business Days after the Company
receives the Value Report with respect to such offer) and shall specify (A) the
Final Surrender Time for such Repurchase Offer, (B) the manner in which
Warrants may be surrendered to the Warrant Agent for repurchase by the Company,
(C) the Repurchase Price at which the Warrants will be repurchased by the
Company, (D) if applicable, the name of the Independent Financial Expert whose
valuation of the Preferred Stock (or other securities) was utilized in
connection with determining such Repurchase Price and (E) that payment of the
Repurchase Price will be made by the Warrant Agent. Each such notice shall be
accompanied by a Certificate for Surrender for Repurchase
<PAGE> 21
17
Offer in substantially the form attached to the Warrant Certificate and a copy
of the Value Report, if any.
(g) Payment for Warrants. Upon surrender for repurchase
of any Warrants in conformity with the provisions of this Section 3.4, the
Warrant Agent shall thereupon promptly notify the Company of such surrender.
On or before the Final Surrender Time for any Repurchase Offer, the Company
shall deposit with the Warrant Agent funds sufficient to make payment for the
Warrants tendered to the Warrant Agent and not withdrawn. After receipt of
such deposit from the Company, the Warrant Agent shall make payment, by
delivering a check in such amount as is appropriate, to such Person or Persons
as it may be directed in writing by the Holder surrendering such Warrants, net
of any transfer taxes required to be paid in the event that the check is to be
delivered to a Person other than the Holder.
(h) Compliance with Laws. Notwithstanding anything
contained in this Section 3.4, if the Company is required to comply with laws
or regulations in connection with making any Repurchase Offer, such laws,
regulations shall govern the making of such Repurchase Offer.
ARTICLE IV
ADJUSTMENTS
Section 4.1. Adjustments. Subject to Section 4.1(l) hereof,
the Exercise Price and the number of shares of Preferred Stock issuable upon
exercise of each Warrant shall be subject to adjustment from time to time as
follows:
(a) Divisions; Consolidations; Reclassifications. In
case the Company shall, on or before the Expiration Date, (i) issue any
Preferred Stock in payment of a dividend or other distribution with respect to
its Preferred Stock, (ii) subdivide its issued and outstanding Preferred Stock,
(iii) consolidate its issued and outstanding Preferred Stock into a smaller
number of shares, or (iv) reclassify or convert the Preferred Stock (other than
a reclassification in connection with a merger, consolidation or other business
combination which will be governed by Section 4.1(j)), then the number of
shares of Preferred Stock issuable upon exercise of each Warrant immediately
prior to the record date for such issue or distribution or the effective date
of such subdivision, consolidation, reclassification or conversion shall be
adjusted so that the Holder of each Warrant shall thereafter be entitled to
receive the kind and number of shares of Preferred Stock which such Holder
would have been entitled to receive after the happening of any of the events
described above had such Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. An adjustment
made pursuant to this Section 4.1(a) shall become
<PAGE> 22
18
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.
(b) Rights; Options; Warrants. In case the Company shall
issue rights, options, warrants or convertible or exchangeable securities
(other than an issuance of convertible or exchangeable securities subject to
Section 4.1(a)) to all holders of its Preferred Stock, entitling them to
subscribe for or purchase Preferred Stock at a price per share which is lower
than the then Current Market Value per share of Preferred Stock, then the
Company shall ensure that at the time of such issuance, the same or a like
offer or invitation is made to the Holders of the Warrants as if their Warrants
had been exercised on the day immediately preceding the record date of such
offer or invitation on the terms (subject to any adjustment pursuant to Section
4.1(a) for a prior event) on which such Warrants could have been exercised on
such date; provided that if the Board so resolves, the Company shall not be
required to ensure that the same offer or invitation is made to the Holders of
the Warrants, but the number of shares of Preferred Stock thereafter issuable
upon the exercise of each Warrant shall instead be adjusted and shall be
determined by multiplying the number of shares of Preferred Stock theretofore
issuable upon exercise of each Warrant by a fraction, the numerator of which
shall be the sum of (i) the number of shares of Preferred Stock outstanding
immediately prior to the issuance of such rights, options, warrants or
convertible or exchangeable securities plus (ii) the number of additional
shares of Preferred Stock which may be purchased or subscribed for upon
exercise, exchange or conversion of such rights, options, warrants or
convertible or exchangeable securities and the denominator of which shall be
the sum of (x) the number of shares of Preferred Stock outstanding immediately
prior to the issuance of such rights, options, warrants or convertible or
exchangeable securities plus (y) the number of shares of Preferred Stock which
the total consideration received by the Company for such rights, options,
warrants or convertible or exchangeable securities so offered would purchase at
the then Current Market Value per share of Preferred Stock. Except as
otherwise provided above, such adjustment shall be made whenever such rights,
options, warrants or convertible or exchangeable securities are issued, and
shall become effective retroactively immediately after the record date for the
determination of shareholders entitled to receive such rights, options,
warrants or convertible or exchangeable securities.
(c) Issuance of Preferred Stock at Lower Values. In case
the Company shall sell and issue any shares of Preferred Stock or Right (as
defined below) (excluding (i) any Right issued in any of the transactions
described in Section 4.1(a) or (b) above, (ii) Preferred Stock issued pursuant
to (x) any Rights outstanding on the date of this Agreement or any Right issued
in any transaction described in Section 4.1(a) or (b) above or (y) a Right, if
on the date such Right was issued, the exercise, conversion or exchange price
per share of Preferred Stock (or any capital stock issuable upon conversion of
the Preferred Stock) with respect thereto was at least equal to the then
Current Market Value per share of Preferred Stock and (iii) any Preferred Stock
or Right issued as consideration when any
<PAGE> 23
19
corporation or business is acquired, merged into or becomes part of the Company
or a subsidiary of the Company in an arm's-length transaction between the
Company and a Person other than an Affiliate of the Company) at a price per
share of Preferred Stock (determined in the case of any such Right, by dividing
(x) the total consideration receivable by the Company in consideration of the
sale and issuance of such Right, plus the total consideration payable to the
Company upon exercise, conversion or exchange thereof, by (y) the total number
of shares of Preferred Stock covered by such Right) that is lower than the
Current Market Value per share of Preferred Stock in effect immediately prior
to such sale or issuance, then the number of shares of Preferred Stock
thereafter issuable upon the exercise of each Warrant shall be determined by
multiplying the number of shares of Preferred Stock theretofore issuable upon
exercise of such Warrant by a fraction, the numerator of which shall be the
number of shares of Preferred Stock outstanding immediately after such sale or
issuance and the denominator of which shall be the number of shares of
Preferred Stock outstanding immediately prior to such sale or issuance plus the
number of shares of Preferred Stock which the aggregate consideration received
(determined as provided below) for such sale or issuance would purchase at such
Current Market Value per share of Preferred Stock. For purposes of this
Section 4.1(c), the Preferred Stock which the holder of any such Right shall be
entitled to subscribe for or purchase shall be deemed to be issued and
outstanding as of the date of such sale and issuance and the consideration
received by the Company therefor shall be deemed to be the consideration
received by the Company for such Right, plus the consideration or premiums
stated in such Right to be paid for the Preferred Stock covered thereby. In
case the Company shall sell and issue any Right together with one or more other
securities as part of a unit at a price per unit, then in determining the
"price per share of Preferred Stock" and the "consideration received by the
Company" for purposes of the first sentence of this Section 4.1(c), the Board
shall determine, in good faith, the fair value of the Right then being sold as
part of such unit. For purposes of this paragraph, a "Right" shall mean any
right, option, warrant or convertible or exchangeable security containing the
Right to subscribe for or acquire one or more shares of Preferred Stock,
excluding the Warrants. This Section 4.1(c) shall not apply to: (i) the
exercise of Warrants, or the conversion or exchange of other securities
convertible or exchangeable for Preferred Stock; or (ii) Preferred Stock issued
upon the exercise of Rights or warrants issued to all holders of Preferred
Stock.
(d) Distributions of Debt, Assets, Subscription Rights or
Convertible Securities. In case the Company shall make a distribution to all
holders of its Preferred Stock of evidences of its indebtedness, or assets, or
other distributions (excluding any issuance of Preferred Stock referred to in
Section 4.1(a) above and excluding distributions in connection with the
dissolution, liquidation or winding-up of the Company which shall be governed
by Section 4.1(j) and distributions of securities referred to in Section
4.1(a), Section 4.1(b) or Section 4.1(c)), then, in each case, the number of
shares of Preferred Stock issuable after such record date upon the exercise of
each Warrant shall be determined by multiplying the number of shares of
Preferred Stock issuable upon the exercise of such
<PAGE> 24
20
Warrant immediately prior to such record date by a fraction, the numerator of
which shall be the Current Market Value per share of Preferred Stock
immediately prior to the record date for such distribution and the denominator
of which shall be the Current Market Value per share of Preferred Stock
immediately prior to the record date for such distribution less the then fair
value (as determined in good faith by the Board) of the evidences of its
indebtedness, or assets or other distributions so distributed attributable to
one share of Preferred Stock. Such adjustment shall be made whenever any such
distribution is made, and shall become effective on the date of distribution
retroactive to the record date for the determination of shareholders entitled
to receive such distribution.
(e) Expiration of Rights, Options and Conversion
Privileges. Upon the expiration of any rights, options, warrants or conversion
or exchange privileges (including, without limitation, any Rights) that have
previously resulted in an adjustment hereunder, if any thereof shall not have
been exercised, exchanged or converted, the Exercise Price and the number of
shares of Preferred Stock (or any capital stock issuable upon conversion of the
Preferred Stock) issuable upon the exercise of each Warrant shall, upon such
expiration, be readjusted and shall thereafter, upon any future exercise, be
such as they would have been had they been originally adjusted (or had the
original adjustment not been required, as the case may be) as if (i) the only
shares of Preferred Stock so issued were the shares of Preferred Stock (or any
capital stock issuable upon conversion of the Preferred Stock), if any,
actually issued or sold upon the exercise, exchange or conversion of such
rights, options, warrants or conversion or exchange rights (including, without
limitation, any Rights) and (ii) such Preferred Stock (or any capital stock
issuable upon conversion of the Preferred Stock), if any, were issued or sold
for the consideration actually received by the Company upon such exercise,
exchange or conversion plus the consideration, if any, actually received by the
Company for issuance, sale or grant of all such rights, options, warrants or
conversion or exchange rights (including, without limitation, any Rights)
whether or not exercised.
(f) Current Market Value. For the purposes of any
computation under this Article IV, the "Current Market Value" of any security
at any date herein specified shall be:
(i) if the security is not registered under the Exchange
Act, the value of the security (1) most recently determined as of a
date within the six months preceding such date by an Independent
Financial Expert selected by the Company in accordance with the
criteria for such valuation set out in Section 4.1(k), or (2) if no
such determination shall have been made within such six-month period
or if the Company so chooses, determined as of such a date by an
Independent Financial Expert selected by the Company in accordance
with the criteria for such valuation set out in Section 4.1(k), or
<PAGE> 25
21
(ii) if the security is registered under the Exchange Act,
the average of the daily market prices of the security for the 20
consecutive trading days immediately preceding such date or, if the
security has been registered under the Exchange Act for less than 20
consecutive trading days before such date, then the average of the
daily market prices for all of the trading days before such date for
which daily market prices are available. The market price for each
such trading day shall be: (A) in the case of a security listed or
admitted to trading on any national securities exchange, the closing
sales price, regular way, on such day, or if no sale takes place on
such day, the average of the closing bid and asked prices on such day
on the principal national securities exchange on which such security
is listed or admitted, as determined by the Board, in good faith, (B)
in the case of a security not then listed or admitted to trading on
any national securities exchange, the last reported sale price on such
day, or if no sale takes place on such day, the average of the closing
bid and asked prices on such day, as reported by a reputable quotation
source designated by the Company, (C) in the case of a security not
then listed or admitted to trading on any national securities exchange
and as to which no such reported sale price or bid and asked prices
are available, the average of the reported high bid and low asked
prices on such day, as reported by a reputable quotation service, or a
newspaper of general circulation in the Borough of Manhattan, City and
State of New York customarily published on each Business Day,
designated by the Company, or, if there shall be no bid and asked
prices on such day, the average of the high bid and low asked prices,
as so reported, on the most recent day (not more than 30 days prior to
the date in question) for which prices have been so reported and (D)
if there are no bid and asked prices reported during the 30 days prior
to the date in question, the Current Market Value of the security
shall be determined as if the security were not registered under the
Exchange Act.
(g) Consideration Received. For purposes of any
computation respecting consideration received pursuant to this Section 4.1, the
following shall apply:
(i) in the case of the issuance of Preferred Stock for
cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Company for any
underwriting of the issue or otherwise in connection therewith;
(ii) in the case of the issuance of Preferred Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board (irrespective of the accounting
treatment thereof), whose determination shall be conclusive and
described in reasonable detail in a board resolution which shall be
provided as soon as practicable thereafter to the Warrant Agent; and
<PAGE> 26
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(iii) in the case of the issuance of rights, options,
warrants or securities convertible into or exchangeable for Preferred
Stock (including, without limitation, any Rights), the aggregate
consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such rights,
options, warrants or securities convertible into or exchangeable for
Preferred Stock, plus the additional minimum consideration, if any, to
be received by the Company upon the exercise, conversion or exchange
thereof (the consideration in each case to be determined in the same
manner as provided in clauses (i) and (ii) of this Section 4.1(g)).
(h) De Minimis Adjustments. No adjustment in the number
of shares of Preferred Stock issuable hereunder shall be required unless such
adjustment would require an increase or decrease of at least one percent (1%)
in the number of shares of Preferred Stock issuable upon the exercise of each
Warrant; provided, however, that any adjustments which by reason of this
Section 4.1(h) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations shall be made to
the nearest ten-thousandth of a share.
(i) Adjustment of Exercise Price. Whenever the number of
shares of Preferred Stock issuable upon the exercise of each Warrant is
adjusted, as herein provided, the Exercise Price per share of Preferred Stock
payable upon exercise of such Warrant shall be adjusted (calculated to the
nearest $.01) so that it shall equal the price determined by multiplying such
Exercise Price immediately prior to such adjustment by a fraction the numerator
of which shall be the number of shares of Preferred Stock issuable upon the
exercise of each Warrant immediately prior to such adjustment and the
denominator of which shall be the number of shares of Preferred Stock so
issuable immediately thereafter. Following any adjustment to the Exercise
Price pursuant to this Article IV, the amount payable, when adjusted, shall
never be less than the par value per share of Preferred Stock at the time of
such adjustment.
If after an adjustment, a Holder of a Warrant upon exercise of
it may receive shares of two or more classes in the capital of the Company, the
Company shall determine the allocation of the adjusted Exercise Price between
such classes of shares in a manner that the Board deems fair and equitable to
the Holders. After such allocation, the exercise privilege and the Exercise
Price of each class of shares shall thereafter be subject to adjustment on
terms comparable to those applicable to the Preferred Stock in this Article IV.
Such adjustment shall be made successively whenever any event
listed above shall occur.
(j) Consolidation, Merger, Etc. (i) Subject to the
provisions of Subsection (ii) below of this Section 4.1(j), in case of the
consolidation of the Company
<PAGE> 27
23
with, or merger of the Company with or into, or of the sale of all or
substantially all of the properties and assets of the Company to, any Person,
and in connection therewith consideration is payable to holders of Preferred
Stock (or other securities or property issuable upon exercise of Warrants) in
exchange therefor, the Warrants shall remain subject to the terms and
conditions set forth in this Agreement and each Warrant shall, after such
consolidation, merger or sale, entitle the Holder to receive upon exercise the
number of shares in the capital stock or other securities or property
(including cash) of or from the Person resulting from such consolidation or
surviving such merger or to which such sale shall be made or of the parent
company of such Person, as the case may be, that would have been distributable
or payable on account of the Preferred Stock if such Holder's Warrants had been
exercised immediately prior to such merger, consolidation or sale (or, if
applicable, the record date therefor); and in any such case the provisions of
this Agreement with respect to the rights and interests thereafter of the
Holders of Warrants shall be appropriately adjusted by the Board in good faith
so as to be applicable, as nearly as may reasonably be, to any shares, other
securities or any property thereafter deliverable on the exercise of the
Warrants.
(ii) Notwithstanding the foregoing, (x) if the Company
merges or consolidates with, or sells all or substantially all of its property
and assets to, another Person (other than an Affiliate of the Company) and
consideration is payable to holders of Preferred Stock in exchange for their
Preferred Stock in connection with such merger, consolidation or sale which
consists solely of cash, or (y) in the event of the dissolution, liquidation or
winding up of the Company, then the Holders of Warrants shall be entitled to
receive distributions on the date of such event on an equal basis with holders
of Preferred Stock (or other securities issuable upon exercise of the Warrants)
as if the Warrants had been exercised immediately prior to such event, less the
Exercise Price. Upon receipt of such payment, if any, the rights of a Holder
shall terminate and cease and such Holder's Warrants shall expire. If the
Company has made a Repurchase Offer that has not expired at the time of such
transaction, the holders of the Warrants will be entitled to receive the higher
of (i) the amount payable to the holders of the Warrants described above and
(ii) the Repurchase Price payable to the holders of the Warrants pursuant to
such Repurchase Offer. In case of any such merger, consolidation or sale of
assets, the surviving or acquiring Person and, in the event of any dissolution,
liquidation or winding up of the Company, the Company shall deposit promptly
with the Warrant Agent the funds, if any, necessary to pay the Holders of the
Warrants. After receipt of such deposit from such Person or the Company and
after receipt of surrendered Warrant Certificates, the Warrant Agent shall make
payment by delivering a check in such amount as is appropriate (or, in the case
of consideration other than cash, such other consideration as is appropriate)
to such Person or Persons as it may be directed in writing by the Holder
surrendering such Warrants.
(k) If required pursuant to Section 4.1(f)(i), the
Current Market Value shall be deemed to be equal to the value set forth in the
Value Report as determined by an
<PAGE> 28
24
Independent Financial Expert, which shall be selected by the Board in its sole
discretion, and retained on customary terms and conditions, using one or more
valuation methods that the Independent Financial Expert, in its best
professional judgment, determines to be most appropriate. The Company shall
use its best efforts (including by selecting another Independent Financial
Expert) to cause the Independent Financial Expert to deliver to the Company,
with a copy to the Warrant Agent, within 45 days of the appointment of the
Independent Financial Expert, a Value Report stating the value of the Preferred
Stock and other securities or property of the Company, if any, being valued as
of the Valuation Date and containing a brief statement as to the nature and
scope of the methodologies upon which the determination of value was made. The
Warrant Agent shall have no duty with respect to the Value Report of any
Independent Financial Expert, except to keep it on file and available for
inspection by the Holders. The determination as to Current Market Value in
accordance with the provisions of this Section 4.1(k) shall be conclusive on
all Persons. The Independent Financial Expert shall consult with management of
the Company in order to allow management to comment on the proposed value prior
to delivery to the Company of any Value Report.
(l) When No Adjustment Required. No adjustment need be
made for:
(i) grants or exercises of Rights granted to employees of
the Company or any of its subsidiaries or Preferred Stock issued or
granted to such employees, whether or not upon the exercise, exchange
or conversion of any such Rights (to the extent that all such
securities do not have an aggregate value in excess of 15% of the
equity value of the Company on a fully diluted basis, as determined in
good faith by the Board);
(ii) options, warrants or other agreements or rights to
purchase capital stock of the Company entered into prior to the date
of the issuance of the Warrants;
(iii) rights to purchase Preferred Stock pursuant to a
Company plan for reinvestment of dividends or interest;
(iv) a change in the par value (including a change from
par value to no par value or vice versa) of the Preferred Stock;
(v) bona fide public offerings or private placements
pursuant to Section 4(2) of the Securities Act, Regulation D
thereunder or Regulation S, involving at least one investment bank of
national reputation, if (i) in the case of any security trading on any
national securities exchange or in the over the counter market, or of
a security directly or indirectly convertible or exchangeable for any
such security (the latter security being a "Reference Security"), such
security (or the Reference Security as applicable) is sold to
investors at a price at least equal to the closing sale, bid or ask
<PAGE> 29
25
price (whichever is customary) of such security (or the Reference
Security as applicable) on the date of the public offering or private
placement, or (ii) the security or Reference Security is issued as
part of a public offering or a private placement of debt securities;
and
(vi) up to an aggregate of 100 shares of Preferred Stock
in transactions, the primary purpose of which, in the good faith
opinion of the Board evidenced by Board resolution, is not to raise
capital for the Company (such as settlements of disputes, severance
payments for employees, and similar matters).
To the extent the Warrants become convertible into cash, no
adjustment need be made thereafter as to the cash. Interest will not accrue on
the cash.
Section 4.2. Notice of Adjustment. Whenever the number of
shares of Preferred Stock issuable upon the exercise of each Warrant or the
Exercise Price is adjusted, as herein provided, the Company shall cause the
Warrant Agent promptly to mail, at the expense of the Company, to each Holder
notice of such adjustment or adjustments and shall deliver to the Warrant Agent
a certificate of the Auditors setting forth the number of shares of Preferred
Stock issuable upon the exercise of each Warrant and the Exercise Price after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.
Such certificate shall be conclusive evidence of the correctness of such
adjustment except in the case of manifest error. The Warrant Agent shall be
entitled to rely on such certificate and shall be under no duty or
responsibility with respect to any such certificate, except to exhibit the
same, from time to time, to any Holder desiring an inspection thereof during
reasonable business hours upon reasonable notice. The Warrant Agent shall not
at any time be under any duty or responsibility to any Holders to determine
whether any facts exist which may require any adjustment of the Exercise Price
or the number of shares of Preferred Stock issuable on exercise of the Warrants
or any of the other adjustments set forth in Section 4.1, or with respect to
the nature or extent of any such adjustment when made, or with respect to the
method employed in making such adjustment, or the validity or value (or the
kind or amount) of any Preferred Stock which may be issuable on exercise of the
Warrants. The Warrant Agent shall not be responsible for any failure of the
Company to make any cash payment or to issue, transfer or deliver any Preferred
Stock or share certificates upon the exercise of any Warrant.
Section 4.3. Statement on Warrants. Irrespective of any
adjustment in the Exercise Price or the number or kind of shares issuable upon
the exercise of the Warrants, Warrants theretofore or thereafter issued may
continue to express the same price and number and kind of shares as are stated
in the Warrants initially issuable pursuant to this Agreement.
<PAGE> 30
26
Section 4.4. Notice of Consolidation, Merger, Etc. In case
at any time after the date hereof and prior to 5:00 p.m., New York City time,
on the Expiration Date, there shall be (i) any consolidation or merger
involving the Company or sale, transfer or other disposition of all or
substantially all of the Company's property, assets or business (except a
merger or other reorganization in which the Company shall be the surviving
corporation and holders of Preferred Stock (or any capital stock issuable upon
conversion of the Preferred Stock) receive no consideration in respect of their
shares) or (ii) any other transaction contemplated by Section 4.1(j)(ii) above,
then, in any one or more of such cases, the Company shall cause to be mailed to
the Warrant Agent and shall cause the Warrant Agent to mail, at the Company's
expense, to each Holder of a Warrant, at the earliest practicable time (and, in
any event, not less than 20 days before any date set for definitive action),
notice of the date on which such reorganization, sale, consolidation, merger,
dissolution, liquidation or winding up shall take place, as the case may be.
Such notice shall also set forth such facts as shall indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Exercise Price and the kind and amount of the Preferred Stock and other
securities, money and other property deliverable upon exercise of the Warrants.
Such notice shall also specify the date as of which the holders of record of
the Preferred Stock or other securities or property issuable upon exercise of
the Warrants or conversion of the Preferred Stock shall be entitled to exchange
their shares for securities, money or other property deliverable upon such
reorganization, sale, consolidation, merger, dissolution, liquidation or
winding up, as the case may be.
Section 4.5. Fractional Interests. Following an initial
public offering of the Preferred Stock (or any capital stock issuable upon
conversion of the Preferred Stock), the Company shall not be required to issue
fractional shares of Preferred Stock upon the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by
the same Holder, the number of full shares of Preferred Stock which shall be
issuable upon such exercise thereof shall be computed on the basis of the
aggregate number of shares of Preferred Stock issuable on exercise of the
Warrants so presented. If any fraction of a shares of Preferred Stock would,
except for the provisions of this Section 4.5, be issuable on the exercise of
any Warrant (or specified portion thereof), the Company may pay an amount in
cash calculated by it to be equal to the then Current Market Value per share of
Preferred Stock multiplied by such fraction computed to the nearest whole cent.
Section 4.6. When Issuance or Payment May Be Deferred. In
any case in which this Article IV shall require that an adjustment in the
Exercise Price be made effective as of a record date for a specified event, the
Company may elect to defer until the occurrence of such event (i) issuing to
the holder of any Warrant exercised after such record date the Preferred Stock
and other shares in the capital of the Company, if any, issuable upon such
exercise over and above the Preferred Stock and other shares in the capital of
the Company, if any, issuable upon such exercise and (ii) paying such holder
any amount in cash in lieu of a fractional share; provided, however, that the
Company shall deliver to such
<PAGE> 31
27
Holder a due bill or other appropriate instrument evidencing such Holder's
right to receive such additional Preferred Stock, other shares and cash upon
the occurrence of the event requiring such adjustment.
Section 4.7. Initial Public Offering. Notwithstanding
anything to the contrary herein contained, if the Company conducts an initial
public offering of equity securities (other than nonconvertible preferred
shares, Preferred Stock or any capital stock issuable upon conversion of the
Preferred Stock), the Company will give the Holders the opportunity to convert
Warrants into warrants to purchase such equity securities and to convert
Preferred Stock (or any capital stock issuable upon conversion of the Preferred
Stock) or such other securities that have been received by the Holders upon the
exercise of Warrants into such equity securities. Such conversion opportunity
will be on terms and conditions determined to be fair and reasonable by the
Company's Board of Directors.
Section 4.8. Other Adjustments. The number of shares of
capital stock issuable upon conversion of the Preferred Stock shall be subject
to adjustment from time to time in a manner and or terms as nearly equivalent
as practicable to the provisions with respect to the Preferred Stock contained
in this Article IV.
ARTICLE V
DECREASE IN EXERCISE PRICE
The Board, in its sole discretion, shall have the right at any
time, or from time to time, to decrease the Exercise Price of the Warrants
and/or increase the number of shares issuable upon the exercise of the
Warrants.
ARTICLE VI
LOSS OR MUTILATION
Upon receipt by the Company and the Warrant Agent of evidence
satisfactory to them of the ownership and the loss, theft, destruction or
mutilation of any Warrant Certificate and of indemnity or bond satisfactory to
them and (in the case of mutilation) upon surrender and cancellation thereof,
then, in the absence of notice to the Company or the Warrant Agent that the
Warrants represented thereby have been acquired by a bona fide purchaser, the
Company shall execute and the Warrant Agent shall countersign and deliver to
the registered Holder of the lost, stolen, destroyed or mutilated Warrant
Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of
the same tenor and for a like aggregate number of Warrants. Upon the issuance
of any new Warrant Certificate under this
<PAGE> 32
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Article VI, the Company may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto
and other expenses (including the fees and expenses of the Warrant Agent) in
connection therewith. Every new Warrant Certificate executed and delivered
pursuant to this Article VI in lieu of any lost, stolen or destroyed Warrant
Certificate shall constitute a contractual obligation of the Company whether or
not the allegedly lost, stolen or destroyed Warrant Certificates shall be at
any time enforceable by anyone and shall be entitled to the benefits of this
Agreement equally and proportionately with any and all other Warrant
Certificates duly executed and delivered hereunder. The provisions of this
Article VI are exclusive and shall preclude (to the extent lawful) all other
rights or remedies with respect to the replacement of mutilated, lost, stolen,
or destroyed Warrant Certificates.
ARTICLE VII
RESERVATION AND AUTHORIZATION
OF PREFERRED STOCK
The Company shall at all times reserve and keep available such
number of its authorized but unissued Preferred Stock deliverable upon exercise
of the Warrants as will be sufficient to permit the exercise in full of all
outstanding Warrants and will cause appropriate evidence of ownership of such
Preferred Stock to be delivered to the Warrant Agent upon its request for
delivery thereof upon the exercise of the Warrants. The Company covenants that
all shares of Preferred Stock of the Company that may be issued upon the
exercise of the Warrants will, upon issuance, be duly authorized, validly
issued, fully paid and not subject to any calls for funds and free from
preemptive rights and all taxes, liens, charges and security interests with
respect to the issue thereof.
ARTICLE VIII
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER
Section 8.1. Transfer and Exchange. The Warrant Certificates
shall be issued in registered form only. The Warrant Agent shall keep at its
office a register for the registration of Warrant Certificates and transfers or
exchanges of Warrant Certificates as herein provided and other appropriate data
as determined by the Warrant Agent. The Company shall, upon reasonable notice
to the Warrant Agent, have access to such register during the Warrant Agent's
regular business hours. All Warrant Certificates issued upon any registration
of transfer or exchange of Warrant Certificates shall be the valid obligations
of the Company, evidencing the same obligations, and entitled to the same
benefits under this
<PAGE> 33
29
Agreement, as the Warrant Certificates surrendered for such registration of
transfer or exchange.
The Warrants shall initially be issued as part of the issuance
of the Units. Prior to the Separation Date, the Warrants may not be
transferred or exchanged separately from, but may be transferred or exchanged
only together with, the Notes issued as part of such Units.
A Holder may transfer its Warrants only by written application
to the Warrant Agent stating the name of the proposed transferee and otherwise
complying with the terms of this Agreement. No such transfer shall be effected
until, and such transferee shall succeed to the rights of a Holder only upon,
final acceptance and registration of the transfer by the Warrant Agent in the
register. Prior to the registration of any transfer of Warrants by a Holder as
provided herein, the Company, the Warrant Agent, and any agent of the Company
may treat the person in whose name the Warrants are registered as the owner
thereof for all purposes and as the person entitled to exercise the rights
represented thereby, any notice to the contrary notwithstanding. Furthermore,
any holder of a Global Warrant shall, by acceptance of such Global Warrant,
agree that transfers of beneficial interests in such Global Warrant may be
effected only through a book-entry system maintained by the holder of such
Global Warrant (or its agent), and that ownership of a beneficial interest in
the Warrants represented thereby shall be required to be reflected in a
bookentry. When Warrant Certificates are presented to the Warrant Agent with a
request to register the transfer or to exchange them for an equal amount of
Warrants, the Warrant Agent shall register such transfer or make such exchange
as requested if its requirements for such transactions are met. To permit
registrations of transfers and exchanges, the Company shall execute Warrant
Certificates at the Warrant Agent's request. No service charge shall be made
for any registration of transfer or exchange of Warrants, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer of
Warrants.
Section 8.2. Book-Entry Provisions for the Global Warrants.
(a) The Global Warrants initially shall (i) be registered in the name of the
Depositary for such Global Warrant or the nominee of such Depositary, (ii) be
delivered to the Warrant Agent as custodian for such Depositary and (iii) bear
legends as set forth in Section 2.2 hereof.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Agreement with respect to the Global
Warrants held on their behalf by the Depositary or the Warrant Agent as its
custodian, and the Depositary may be treated by the Company, the Warrant Agent
and any agent of the Company or the Warrant Agent as the absolute owner of such
Global Warrant for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Warrant Agent or any agent of the
Company or the Warrant Agent, from giving effect to any written certification,
proxy or
<PAGE> 34
30
other authorization furnished by the Depositary or impair, as between the
Depositary and its Agent Members, the operation of customary practices
governing the exercise of the rights of a Holder of any Warrants.
(b) Transfers of a Global Warrant shall be limited to
transfers of such Global Warrant in whole, but not in part, to the Depositary,
its successors or their respective nominees. Interests of beneficial owners in
the Global Warrants may be transferred in accordance with the rules and
procedures of the Depositary and the provisions of Section 8.3 hereof. U.S.
Certificated Warrants and Offshore Certificated Warrants shall be transferred
to beneficial owners in exchange for their beneficial interests in the
Restricted Global Warrant or the Regulation S Global Warrant, as the case may
be, (i) if the Depositary notifies the Company that it is unwilling or unable
to continue as Depositary for any such Global Warrant and a successor
depositary is not appointed by the Company within 90 days of such notice, (ii)
if there is a Default or (iii) upon the request of the beneficial owner in
accordance with the rules and procedures of the Depositary and the provisions
of Section 8.3 hereof; provided that Offshore Certificated Warrants shall not
be transferred in exchange for the Legended Regulation S Global Warrant prior
to one year after the Closing Date.
(c) Any beneficial interest in one of the Global Warrants
that is transferred to a person who takes delivery in the form of an interest
in any other Global Warrant will, upon transfer, cease to be an interest in
such Global Warrant and become an interest in such other Global Warrant and,
accordingly, will thereafter be subject to all transfer restrictions, if any,
and other procedures applicable to beneficial interests in such other Global
Warrant for as long as it remains such an interest.
(d) In connection with the transfer of the entire
Restricted Global Warrant or Regulation S Global Warrant to beneficial owners
pursuant to paragraph (b) of this Section 8.2, the Restricted Global Warrant or
the Regulation S Global Warrant, as the case may be, shall be surrendered to
the Warrant Agent for cancellation, and the Company shall execute, and the
Warrant Agent shall countersign and deliver, to each beneficial owner
identified by the Depositary in exchange for its beneficial interest in the
Restricted Global Warrant or the Regulation S Global Warrant, as the case may
be, U.S. Certificated Warrants or Offshore Certificated Warrants, as the case
may be, representing, in the aggregate, the number of Warrants theretofore
represented by the Restricted Global Warrant or the Regulation S Global
Warrant, as the case may be.
(e) In connection with the transfer of a portion of the
beneficial interests in the Restricted Global Warrant or the Unlegended
Regulation S Global Warrant to beneficial owners pursuant to paragraph (b) of
this Section 8.2, the Warrant Agent shall reflect on its books and records the
date and a decrease in the amount of Warrants represented by the Restricted
Global Warrant or Unlegended Regulation S Global Warrant in an amount equal to
the amount of Warrants represented by the beneficial interest in the Restricted
Global
<PAGE> 35
31
Warrant or Unlegended Regulation S Global Warrant to be transferred, and the
Company shall execute, and the Warrant Agent shall countersign and deliver, to
each beneficial owner identified by the Depositary in exchange for its
beneficial interest in the Restricted Global Warrant or the Unlegended
Regulation S Global Warrant, as the case may be, U.S. Certificated Warrants or
Offshore Certificated Warrants, as the case may be, of like tenor and amount.
(f) Any Certificated Warrant delivered in exchange for an
interest in a Global Warrant pursuant to paragraph (b), (d) or (e) of this
Section shall, except as otherwise provided by paragraph (d) of Section 8.3
hereof, bear the legend regarding transfer restrictions set forth in Section
2.2 hereof.
(g) The registered holder of a Global Warrant may grant
proxies and otherwise authorize any person, including Agent Members and persons
that may hold interests through Agent Members, to take any action which a
Holder is entitled to take under this Agreement or the Warrants.
Section 8.3. Special Transfer Provisions. The following
provisions shall apply:
(a) Transfers to QIBs. The following provisions shall
apply with respect to the registration of any proposed transfer of Warrants to
a QIB (excluding non-U.S. Persons):
(i) If the Warrants to be transferred are represented by
Certificated Warrants or by an interest in the Legended Regulation S
Global Warrant, the Warrant Agent shall register the transfer if such
transfer is being made by a proposed transferor who has checked the
box provided for on the form of Warrant Certificate stating, or has
otherwise advised the Company and the Warrant Agent in writing, that
the sale has been made in compliance with the provisions of Rule 144A
to a transferee who has signed the certification provided for on the
form of Warrant Certificate stating, or has otherwise advised the
Company and the Warrant Agent in writing, that it is purchasing the
Warrants for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account
is a QIB within the meaning of Rule 144A, and is aware that the sale
to it is being made in reliance on Rule 144A and acknowledges that it
has received such information regarding the Company as it has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, and
the Warrants to be transferred are represented by Certificated
Warrants or an interest in the Legended
<PAGE> 36
32
Regulation S Global Warrant, upon receipt by the Warrant Agent of the
documents referred to in clause (i) above and instructions given in
accordance with the Depositary's and the Warrant Agent's procedures,
the Warrant Agent shall reflect on its books and records the date and
an increase in the amount of Warrants represented by the Restricted
Global Warrant in an amount equal to the amount of Warrants
represented by the Certificated Warrants or the interest in the
Legended Regulation S Global Warrant, as the case may be, to be
transferred, and the Warrant Agent shall cancel the Certificated
Warrants or decrease the amount of the Legended Regulation S Global
Warrant so transferred.
(b) Transfers to Non-U.S. Persons at Any Time. The
following provisions shall apply with respect to the registration of any
proposed transfer of Warrants (other than transfer of the Regulation S Global
Warrant) to a Non-U.S. Person:
(i) The Warrant Agent shall register any proposed
transfer of Warrants to a Non-U.S. Person only upon receipt of a
certificate substantially in the form of Exhibit B from the proposed
transferor.
(ii) If the proposed transferee is an Agent Member and the
Warrants to be transferred are represented by Certificated Warrants or
an interest in the Restricted Global Warrant, upon receipt by the
Warrant Agent of the documents referred to in clause (i) above and
instructions given in accordance with the Depositary's and the Warrant
Agent's procedures, the Warrant Agent shall reflect on its books and
records the date and an increase in the number of Warrants represented
by the Regulation S Global Warrant in an amount equal to the number of
Warrants represented by the Certificated Warrants or the Restricted
Global Warrant, as the case may be, to be transferred, and the Warrant
Agent shall cancel the Certificated Warrant or decrease the amount of
Warrants represented by the Restricted Global Warrant so transferred.
(c) Transfers to Any Other Person. The following
provisions shall apply with respect to the registration of any proposed
transfer of Warrants (other than transfers of the Regulation S Global Warrant)
to any Person not specified in paragraphs (a) and (b) above (including any
Institutional Accredited Investor which is not a QIB).
(i) The Warrant Agent shall register any proposed
transfer of Warrants to any such Person if (x) the transferor has
delivered to the Warrant Agent and the Company a certificate
substantially in the form of Exhibit C-1 hereto and, if required by
paragraph (d) thereof, an Opinion of Counsel to the effect set forth
therein and (y) the proposed transferee has delivered to the Warrant
Agent and the Company a certificate substantially in the form of
Exhibit C-2 hereto if such transferee is an Institutional Accredited
Investor that is not a QIB.
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33
(ii) If the proposed transferor is an Agent Member holding
a beneficial interest in the Restricted Global Warrant or the
Regulation S Global Warrant, upon receipt by the Warrant Agent and the
Company of the documents referred to in clause (i) above and
instructions given in accordance with the Depositary's and the Warrant
Agent's procedures, the Company shall execute and the Warrant Agent
shall countersign Certificated Warrants in an amount equal to the
number of Warrants represented by the Restricted Global Warrant or the
Regulation S Global Warrant, if any, as the case may be, to be
transferred and the Warrant Agent shall decrease the number of
Warrants represented by the Restricted Global Warrant or the
Regulation S Global Warrant so transferred.
(d) Private Placement Legend. Upon the transfer,
exchange or replacement of Warrant Certificates not bearing the Private
Placement Legend, the Warrant Agent shall deliver Warrant Certificates that do
not bear the Private Placement Legend. Upon the transfer, exchange or
replacement of Warrant Certificates bearing the Private Placement Legend, the
Warrant Agent shall deliver only Warrant Certificates that bear the Private
Placement Legend unless either (i) the circumstances contemplated by the third
sentence of the third paragraph of Section 2.1 exist or (ii) there is delivered
to the Warrant Agent an Opinion of Counsel reasonably satisfactory to the
Company and its counsel and the Warrant Agent to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(e) Transfers of Interests in the Legended Regulation S
Global Warrant. The following provisions shall apply with respect to
registration of any proposed transfer of interests in the Legended Regulation S
Global Warrant:
(i) The Registrar shall register the transfer of any
Warrant (x) if the proposed transferee is a Non-U.S. Person and the
proposed transferor has delivered to the Registrar a certificate
substantially in the form of Exhibit B hereto or (y) if the proposed
transferee is a QIB and the proposed transferor has checked the box
provided for on the form of Warrant stating, or has otherwise advised
the Company and the Warrant Agent in writing, that the sale has been
made in compliance with the provisions of Rule 144A to a transferee
who has signed the certification provided for on the form of Warrant
stating, or has otherwise advised the Company and the Warrant Agent in
writing, that it is purchasing the Warrant for its own account or an
account with respect to which it exercises sole investment discretion
and that it and any such account is a QIB within the meaning of Rule
144A, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information
regarding the Company as it has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that
the transferor is relying upon its foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
<PAGE> 38
34
(ii) If the proposed transferee is an Agent Member, upon
receipt by the Warrant Agent of the documents referred to in clause
(i)(y) above and instructions given in accordance with the
Depositary's and the Warrant Agent's procedures, the Warrant Agent
shall reflect on its books and records the date and an increase in the
number of Warrants represented by the Restricted Global Warrant, in an
amount equal to the number of Warrants represented by the Legended
Regulation S Global Warrant to be transferred, and the Warrant Agent
shall decrease the number of Warrants represented by the Legended
Regulation S Global Warrant.
(f) Transfers of Interests in the Unlegended Regulation S
Global Warrant or Unlegended Offshore Certificated Warrants. The Warrant Agent
shall register any transfer of interests in the Unlegended Regulation S Global
Warrant or unlegended Offshore Certificated Warrants without requiring any
additional certification.
(g) General. (i) By its acceptance of any Warrants
represented by a Warrant Certificate bearing the Private Placement Legend, each
Holder of such Warrants acknowledges the restrictions on transfer of such
Warrants set forth in this Agreement and in the Private Placement Legend and
agrees that it will transfer such Warrants only as provided in this Agreement.
The Warrant Agent shall not register a transfer of any Warrants unless such
transfer complies with the restrictions on transfer of such Warrants set forth
in this Agreement. In connection with any transfer of Warrants, each Holder
agrees by its acceptance of Warrants to furnish the Warrant Agent or the
Company such certifications, legal opinions or other information as either of
them may reasonably require to confirm that such transfer is being made
pursuant to an exemption from, or a transaction not subject to, the
registration requirements of the Securities Act; provided that the Warrant
Agent shall not be required to determine (but may rely on a determination made
by the Company with respect to) the sufficiency of any such certifications,
legal opinions or other information.
(ii) The Warrant Agent shall retain copies of all letters,
notices and other written communications received pursuant to Section
8.2 hereof or this Section 8.3. The Company shall have the right to
inspect and make copies of all such letters, notices or other written
communications at any reasonable time upon the giving of reasonable
written notice to the Warrant Agent.
Section 8.4. Surrender of Warrant Certificates. Any Warrant
Certificate surrendered for registration of transfer, exchange or exercise of
the Warrants represented thereby shall, if surrendered to the Company, be
delivered to the Warrant Agent, and all Warrant Certificates surrendered or so
delivered to the Warrant Agent shall be promptly cancelled by the Warrant Agent
and shall not be reissued by the Company and, except as provided in this
Article VIII in case of an exchange, Article III hereof in case of the exercise
of less than all the Warrants represented thereby or Article VI in case of a
mutilated Warrant Certificate, no Warrant Certificate shall be issued hereunder
in lieu thereof. The Warrant
<PAGE> 39
35
Agent shall deliver to the Company from time to time or otherwise dispose of
such cancelled Warrant Certificates as the Company may direct in writing.
ARTICLE IX
WARRANT HOLDERS
Section 9.1. Warrant Holder Deemed Not a Shareholder. The
Company and the Warrant Agent may deem and treat the registered Holder(s) of
the Warrant Certificates as the absolute owner(s) thereof (notwithstanding any
notation of ownership or other writing thereon made by anyone), for the purpose
of any exercise thereof and for all other purposes, and neither the Company nor
the Warrant Agent shall be affected by any notice to the contrary. Accordingly,
the Company and/or the Warrant Agent shall not, except as ordered by a court of
competent jurisdiction as required by law, be bound to recognize any equitable
or other claim to or interest in the Warrants on the part of any person other
than such registered Holder, whether or not it shall have express or other
notice thereof. Prior to the exercise of the Warrants, no Holder of a Warrant
Certificate, as such, shall be entitled to any rights of a shareholder of the
Company, including, without limitation, the right to vote or to consent to any
action of the shareholders, to receive dividends or other distributions, to
exercise any preemptive right or to receive any notice of meetings of
shareholders and, except as otherwise provided in this Agreement, shall not be
entitled to receive any notice of any proceedings of the Company.
Section 9.2. Right of Action. All rights of action with
respect to this Agreement are vested in the Holders of the Warrants, and any
Holder of any Warrant, without the consent of the Warrant Agent or the Holders
of any other Warrant, may, on such Holder's own behalf and for such Holder's
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company suitable to enforce, or otherwise in respect of,
such Holder's right to exercise such Warrants in the manner provided in the
Warrant Certificate representing such Warrants and in this Agreement.
ARTICLE X
REMEDIES
Section 10.1. Defaults. It shall be deemed to be a "Default"
with respect to the Company's (or its successor's) obligations under this
Agreement if:
(a) a Repurchase Event occurs and the Company (or its
successor) shall fail to make a Repurchase Offer pursuant to Section
3.4 hereof; or
<PAGE> 40
36
(b) the Company (or its successor) shall fail to purchase
the Warrants pursuant to the Repurchase Offer in accordance with the
provisions of Section 3.4 hereof.
Section 10.2. Payment Obligations. Upon the happening of a
Default under this Agreement, the Company shall be obligated to increase the
amount otherwise payable pursuant to Section 3.4(d) hereof in respect of the
Repurchase Offer to which such Default relates by an amount equal to interest
thereon at a rate per annum equal to 11_% from the date of the Default to the
date of payment, which interest shall compound quarterly (all such payment
obligations in respect of such Repurchase Offer, together with all such
increased amounts, being the "Repurchase Obligation").
Section 10.3. Remedies; No Waiver. Notwithstanding any other
provision of this Agreement, if a Default occurs and is continuing, the Holders
of the Warrants may pursue any available remedy to collect the Repurchase
Obligation or to enforce the performance of any provision of this Agreement. A
delay or omission by any Holder of a Warrant in exercising, or a failure to
exercise, any right or remedy arising out of a Default shall not impair the
right or remedy or constitute a waiver of or acquiescence in the Default. All
remedies are cumulative to the extent permitted by law.
ARTICLE XI
THE WARRANT AGENT
Section 11.1. Duties and Liabilities. The Warrant Agent
hereby accepts the agency established by this Agreement and agrees to perform
the same upon the terms and conditions herein set forth, by all of which the
Company and the Holders of Warrants, by their acceptance thereof, shall be
bound. The Warrant Agent shall not, by countersigning Warrant Certificates or
by any other act hereunder, be deemed to make any representations as to the
validity or authorization of the Warrants or the Warrant Certificates (except
as to its countersignature thereon) or of any Preferred Stock issued upon
exercise of any Warrant, or as to the accuracy of the computation of the
Exercise Price or the number or kind or amount of Preferred Stock deliverable
upon exercise of any Warrant or the correctness of the representations of the
Company made in the certificates that the Warrant Agent receives. The Warrant
Agent shall not be accountable for the use or application by the Company of the
proceeds of the exercise of any Warrant. The Warrant Agent shall not have any
duty to calculate or determine any adjustments with respect to either the
Exercise Price or the kind and amount of Preferred Stock receivable by Holders
upon the exercise of Warrants required from time to time and the Warrant Agent
shall have no duty or responsibility in determining the accuracy or correctness
of such calculation. The Warrant Agent shall not be (a) liable for any recital
or statement of fact contained herein or in the Warrant Certificates or for any
<PAGE> 41
37
action taken, suffered or omitted by it in good faith in the belief that any
Warrant Certificate or any other documents or any signatures are genuine or
properly authorized, (b) responsible for any failure on the part of the Company
to comply with any of its covenants and obligations contained in this Agreement
or in the Warrant Certificates or (c) liable for any act or omission in
connection with this Agreement except for its own negligence, bad faith or
willful misconduct. The Warrant Agent is hereby authorized to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, Chief Executive Officer, Chief Financial Officer any
Vice President or other executive officer of the Company and to apply to any
such officer for instructions (which instructions will be promptly given in
writing when requested) and the Warrant Agent shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with the
instructions of any such officer; provided, however, that, in its discretion,
the Warrant Agent may, in lieu thereof, accept other evidence of such or may
require such further or additional evidence as it may deem reasonable. The
Warrant Agent shall not be liable for any action taken with respect to any
matter in the event it requests instructions from the Company as to that matter
and does not receive such instructions within a reasonable period of time after
the request therefor.
The Warrant Agent may execute and exercise any of the rights
and powers hereby vested in it or perform any duty hereunder either itself or
by or through its attorneys, agents or employees, and the Warrant Agent shall
not be answerable or accountable for any act, default, neglect or misconduct of
any such attorneys, agents or employees; provided that reasonable care has been
exercised with respect to the retention of any such attorney, agent or
employee. The Warrant Agent shall not be under any obligation or duty to
institute, appear in or defend any action, suit or legal proceeding in respect
hereof, unless first indemnified to its reasonable satisfaction. The Warrant
Agent shall promptly notify the Company in writing of any claim made or action,
suit or proceeding instituted against it arising out of or in connection with
this Agreement.
The Company will perform, execute, acknowledge and deliver or
cause to be delivered all such further acts, instruments and assurances as are
consistent with this Agreement and as may reasonably be required by the Warrant
Agent in order to enable it to carry out or perform its duties under this
Agreement.
In acting under this Agreement and in connection with the
Warrant Certificates, the Warrant Agent is acting solely as agent of the
Company and does not assume any obligation or relationship or agency or trust
for or with any Holders of Warrant Certificates or beneficial owners of
Warrants. The Warrant Agent shall not be liable except for the failure to
perform such duties as are specifically set forth herein, and no implied
covenants or obligations shall be read into this Agreement against the Warrant
Agent, whose duties and obligations shall be determined solely by the express
provisions hereof.
<PAGE> 42
38
Section 11.2. Right to Consult Counsel. The Warrant Agent
may at any time consult with legal counsel (who may be legal counsel for the
Company), and the opinion or advice of such counsel shall be full and complete
authorization and protection to the Warrant Agent and the Warrant Agent shall
incur no liability or responsibility to the Company or to any Holder for any
action taken, suffered or omitted by it in good faith in accordance with the
opinion or advice of such counsel.
Section 11.3. Compensation; Indemnification. The Company
agrees promptly to pay the Warrant Agent from time to time and in any case
within 30 days of receipt of an invoice, compensation for its services
hereunder as the Company and the Warrant Agent may agree from time to time, and
to reimburse it upon its request for reasonable fees or expenses and reasonable
counsel fees and expenses incurred in connection with the execution and
administration of this Agreement, and further agrees to indemnify the Warrant
Agent and save it harmless against any losses, liabilities or expenses arising
out of or in connection with the acceptance and administration of this
Agreement, including, without limitation, the reasonable costs and expenses of
investigating or defending any claim of such liability, except that the Company
shall have no liability hereunder to the extent that any such loss, liability
or expense results from the Warrant Agent's own negligence, bad faith or
willful misconduct. The obligations of the Company under this Section 11.3
shall survive the exercise and the expiration of the Warrants, the termination
of this Agreement and the resignation or removal of the Warrant Agent in
respect of services or expenses incurred in connection with the Warrants or
this Agreement.
Section 11.4. No Restrictions on Actions. Nothing in this
Agreement shall be deemed to prevent the Warrant Agent and any shareholder,
director, officer or employee of the Warrant Agent from buying, selling or
dealing in any of the Warrants or other securities of the Company or becoming
pecuniarily interested in transactions in which the Company may be interested,
or contracting with or lending money to the Company or otherwise acting as
fully and freely as though it were not the Warrant Agent under this Agreement.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
Section 11.5. Discharge or Removal; Replacement Warrant
Agent. The Warrant Agent may resign from its position as such and be discharged
from all further duties and liabilities hereunder (except liability arising as
a result of the Warrant Agent's own gross negligence, bad faith or willful
misconduct), after giving one month's prior written notice to the Company. The
Company may at any time remove the Warrant Agent upon one month's written
notice specifying the date when such discharge shall take effect, and the
Warrant Agent shall thereupon in like manner be discharged from all further
duties and liabilities hereunder, except as aforesaid. The Warrant Agent shall
mail to each Holder of a Warrant, at the Company's expense, a copy of said
notice of resignation or notice of removal, as the case may be. Upon such
resignation or removal the Company shall appoint in writing a new
<PAGE> 43
39
warrant agent. If the Company shall fail to make such appointment within a
period of 30 days after it has been notified in writing of such resignation by
the resigning Warrant Agent or after such removal, then the resigning or
removed Warrant Agent or the Holder of any Warrant may apply to any court of
competent jurisdiction for the appointment of a new warrant agent. After 30
days from receipt of, or giving, notice, as the case may be, and pending
appointment of a successor to the original Warrant Agent, either by the Company
or by such a court, the duties of the Warrant Agent shall be carried out by the
Company. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company doing business under the laws of the
United States or any state thereof, in good standing and having a combined
capital and surplus of not less than $25,000,000. The combined capital and
surplus of any such new warrant agent shall be deemed to be the combined
capital and surplus as set forth in the most recent annual report of its
condition published by such warrant agent prior to its appointment, provided
that such reports are published at least annually pursuant to law or to the
requirements of a federal or state supervising or examining authority. After
acceptance in writing of such appointment by the new warrant agent, it shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; however, the original Warrant Agent shall
in all events deliver and transfer to the successor Warrant Agent all property
(including, without limitation, documents and recorded information), if any, at
the time held hereunder by the original Warrant Agent and if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning or
removed Warrant Agent. Not later than the effective date of any such
appointment, the Company shall file notice thereof with the resigning or
removed Warrant Agent and shall forthwith cause a copy of such notice to be
mailed by the successor Warrant Agent to each Holder of a Warrant. Failure to
give any notice provided for in this Section 11.5, however, or any defect
therein, shall not affect the legality or validity of the resignation of the
Warrant Agent or the appointment of a new warrant agent, as the case may be.
No Warrant Agent hereunder shall be liable for any acts or omissions of any
successor Warrant Agent.
Section 11.6. Successor Warrant Agent. Any corporation into
which the Warrant Agent or any new warrant agent may be merged or converted, or
any corporation resulting from any consolidation to which the Warrant Agent or
any new warrant agent shall be a party or any corporation succeeding to all or
substantially all the corporate agency business of the Warrant Agent, shall be
a successor Warrant Agent under this Agreement without any further act,
provided that such corporation would be eligible for appointment as successor
to the Warrant Agent under the provisions of Section 11.5 hereof. Any such
successor Warrant Agent shall promptly cause notice of its succession as
Warrant Agent to be mailed to each Holder of a Warrant.
<PAGE> 44
40
ARTICLE XII
MISCELLANEOUS
Section 12.1. Monies Deposited with the Warrant Agent. The
Warrant Agent shall not be required to pay interest on any monies deposited
pursuant to the provisions of this Agreement except such as it shall agree in
writing with the Company to pay thereon. Any monies, securities or other
property which at any time shall be deposited by the Company or on its behalf
with the Warrant Agent pursuant to this Agreement shall be and are hereby
assigned, transferred and set over to the Warrant Agent in trust for the
purpose for which such monies, securities or other property shall have been
deposited; but such monies, securities or other property need not be segregated
from other funds, securities or other property except to the extent required by
law. Any monies, securities or other property deposited with the Warrant Agent
for payment or distribution to the Holders that remains unclaimed for one year
after the date the monies, securities or other property was deposited with the
Warrant Agent shall be delivered to the Company upon its request therefor.
Section 12.2. Payment of Taxes. Subject to Article VI
hereof, all Preferred Stock issuable upon the exercise of Warrants shall be
validly issued, fully paid and not subject to any calls for funds, and the
Company shall pay any taxes and other governmental charges that may be imposed
under the laws of the United States of America or any political subdivision or
taxing authority thereof or therein in respect of the issue or delivery thereof
upon exercise of Warrants (other than income taxes imposed on the Holders).
The Company shall not be required, however, to pay any tax or other charge
imposed in connection with any transfer involved in the issue of any
certificate for Preferred Stock (including other securities or property
issuable upon the exercise of the Warrants) or payment of cash to any Person
other than the Holder of a Warrant Certificate surrendered upon the exercise of
a Warrant and in case of such transfer or payment, the Warrant Agent and the
Company shall not be required to issue any share certificate or pay any cash
until such tax or charge has been paid or it has been established to the
Warrant Agent's and the Company's satisfaction that no such tax or charge is
due.
Section 12.3. No Merger, Consolidation or Sale of Assets of
the Company. Except as otherwise provided herein, the Company will not merge
into or consolidate with any other Person, or sell or otherwise transfer its
property, assets and business substantially as an entirety to a successor of
the Company, unless the Person resulting from such merger or consolidation, or
such successor of the Company, shall expressly assume, by supplemental
agreement satisfactory in form to the Warrant Agent and executed and delivered
to the Warrant Agent, the due and punctual performance and observance of each
and every covenant and condition of this Agreement or contained in the Warrants
to be performed and observed by the Company.
<PAGE> 45
41
Section 12.4. Reports to Holders. At all times from and
after the earlier of (i) the Separation Date and (ii) the date that is six
months after the Closing Date, in either case, whether or not the Company is
then required to file reports with the Commission, the Company shall file with
the Commission all such reports and other information as it would be required
to file with the Commission by Section 13(a) or 15(d) under the Exchange Act if
it were subject thereto (unless the Commission will not accept such a filing,
in which case the Company shall provide such documents to the Warrant Agent).
The Company shall supply the Warrant Agent and each Holder or shall supply to
the Warrant Agent for forwarding to each such Holder, without cost to such
Holder, copies of such reports and other information; provided, however, that
copies of such reports may omit exhibits, which the Company will deliver at its
cost to any Holder upon request. In addition, at all times prior to the
earlier of the Separation Date and six months after the Closing Date, the
Company shall, at its cost, deliver to each Holder quarterly and annual reports
(commencing with the first quarter after the quarter in which the Closing Date
occurs) substantially equivalent to those which would be required by the
Exchange Act. In addition, at all times prior to the Registration, upon the
request of any Holder or any prospective purchaser of the Warrants designated
by a Holder, the Company shall supply to such Holder or such prospective
purchaser the information required under Rule 144A under the Securities Act;
provided, however, that copies of such reports and other information may omit
exhibits, which the Company will supply to any Holder or prospective purchaser
upon request.
Section 12.5. Notices; Payment. (a) Except as otherwise
provided in Section 12.5(b) hereof, any notice, demand or delivery authorized
by this Agreement shall be sufficiently given or made when mailed, if sent by
first class mail, postage prepaid, addressed to any Holder of a Warrant at such
Holder's last known address appearing on the register of the Company maintained
by the Warrant Agent and to the Company or the Warrant Agent as follows:
To the Company:
KNOLOGY Holdings, Inc.
312 West 8th Street
West Point, Georgia 31833
Attention: Chief Financial Officer
To the Warrant Agent:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
<PAGE> 46
42
or such other address as shall have been furnished to the party giving or
making such notice, demand or delivery. Any notice that is mailed in the
manner herein provided shall be conclusively presumed to have been duly given
when mailed, whether or not the Holder receives the notice.
(b) Payment of the Exercise Price shall be made in
accordance with the provisions of this Agreement at the office of the Warrant
Agent set forth above.
(c) Any notice required to be given by the Company to the
Holders shall be made by mailing by registered mail, return receipt requested,
to the Holders at their last known addresses appearing on the register
maintained by the Warrant Agent. The Company hereby irrevocably authorizes the
Warrant Agent, in the name and at the expense of the Company, to mail any such
notice upon receipt thereof from the Company. Any notice that is mailed in the
manner herein provided shall be conclusively presumed to have been duly given
when mailed, whether or not the Holder receives the notice.
Section 12.6. Binding Effect. This Agreement shall be
binding upon and inure to the benefit of the Company and the Warrant Agent and
their respective successors and assigns, and the Holders from time to time of
the Warrants. Nothing in this Agreement is intended or shall be construed to
confer upon any Person, other than the Company, the Warrant Agent and the
Holders of the Warrants, any right, remedy or claim under or by reason of this
Agreement or any part hereof.
Section 12.7. Counterparts. This Agreement may be executed
manually or by facsimile in any number of counterparts, each of which shall be
deemed an original, but all of which together constitute one and the same
instrument.
Section 12.8. Amendments. The Warrant Agent may, without the
consent or concurrence of the Holders of the Warrants, by supplemental
agreement or otherwise, join with the Company in making any changes or
corrections in this Agreement that (a) are required to cure any ambiguity or to
correct any defective or inconsistent provision or clerical omission or mistake
or manifest error herein contained or (b) add to the covenants and agreements
of the Company in this Agreement further covenants and agreements of the
Company thereafter to be observed, or surrender any rights or power reserved to
or conferred upon the Company in this Agreement; provided that in either case
such changes or corrections, in the good faith opinion of the Board as
evidenced by a Board resolution, do not and will not adversely affect, alter or
change the rights, privileges or immunities of the Holders of Warrants. Upon
the Warrant Agent's request, the Company shall promptly provide an Officer's
Certificate and Opinion of Counsel which provide all conditions precedent to
adoption of an amendment that have been satisfied.
<PAGE> 47
43
Section 12.9. Headings. The descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
Section 12.10. Preferred Stock Legend. Unless and until the
Preferred Stock issuable upon the exercise of the Warrants is registered under
the Securities Act, or unless otherwise agreed by the Company and the Holder
thereof, such shares of Preferred Stock will bear a legend substantially to the
following effect:
THE SHARES OF PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN
THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR"
(AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER
THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT
IS NOT A U.S. PERSON AND IS ACQUIRING THESE SHARES OF PREFERRED STOCK
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON
THE DATE OF THE TRANSFER OF THIS SECURITY, RESELL OR OTHERWISE
TRANSFER THIS THESE SHARES OF PREFERRED STOCK EXCEPT (A) TO THE
COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C)
INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRANSFER AGENT AND REGISTRAR
A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRANSFER AGENT AND REGISTRAR)
AND AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER
IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER
<PAGE> 48
44
THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THESE
SHARES OF PREFERRED STOCK IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THESE SHARES
OF PREFERRED STOCK WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE
HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE CERTIFICATE OF
TRANSFER (THE FORM OF WHICH CERTIFICATE CAN BE OBTAINED FROM THE
TRANSFER AGENT AND REGISTRAR) RELATING TO THE MANNER OF SUCH TRANSFER
AND SUBMIT THIS CERTIFICATE TO THE TRANSFER AGENT AND REGISTRAR. IF
THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRANSFER AGENT AND
REGISTRAR AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT. THE TRANSFER AGENT AND
REGISTRAR HAVE BEEN INSTRUCTED TO REFUSE TO REGISTER ANY TRANSFER OF
THESE SHARES OF PREFERRED STOCK IN VIOLATION OF THE FOREGOING
RESTRICTIONS.
Section 12.11. Third Party Beneficiaries. The Holders shall
be third party beneficiaries to the agreements made hereunder between the
Company, on the one hand, and the Warrant Agent, on the other hand, and each
Holder shall have the right to enforce such agreements directly to the extent
it deems such enforcement necessary or advisable to protect its rights or the
rights of Holders hereunder. By acquiring Warrants, each Holder agrees to be
bound by the obligations of Holders generally as set forth herein and as such
obligations may be applicable to such Holder.
Section 12.12. Termination. Except as otherwise specified
herein, this Agreement shall terminate at 5:00 p.m. (New York City time) on
the tenth anniversary of the Closing Date. Notwithstanding the foregoing, this
Agreement shall terminate on any earlier date as of which all Warrants have
been exercised.
<PAGE> 49
45
Section 12.13. Governing Law. The laws of the State of New
York shall govern this Agreement. The Warrant Agent, the Company and the
Holders agree to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to this Agreement.
<PAGE> 50
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed, as of the day and year first above written.
KNOLOGY HOLDINGS, INC.
By: /s/ William E. Morrow
------------------------------
Name: Bill Morrow
Title: CEO
UNITED STATES TRUST COMPANY OF NEW YORK
By: /s/ Louis P. Young
-------------------------------
Name: Louis P. Young
Title: Vice President
<PAGE> 51
EXHIBIT A
FORM OF WARRANT CERTIFICATE
KNOLOGY HOLDINGS, INC.
[CUSIP] [CINS] [ISIN] No. _____
No. _____
WARRANTS TO PURCHASE PREFERRED STOCK
This certifies that ______________, or its registered assigns,
is the owner of ___________ Warrants, each of which represents the right to
purchase, after April 22, 1998, from KNOLOGY HOLDINGS, INC., a Delaware
corporation (the "Company"), .003734 shares of the Preferred Stock, par value
$0.01, of the Company (the "Preferred Stock") at an exercise price (the
"Exercise Price") of $.01 per share (subject to adjustment as provided in the
Warrant Agreement hereinafter referred to below), upon surrender hereof at the
office of United States Trust Company of New York, or to its successor, as the
warrant agent under the Warrant Agreement (any such warrant agent being herein
called the "Warrant Agent"), with the Subscription Form on the reverse hereof
duly executed, with signature guaranteed as therein specified and simultaneous
payment in full in cash or by certified or official bank or bank cashier's
check payable to the order of the Company. Notwithstanding the foregoing, the
Exercise Price may be paid by surrendering additional Warrants to the Warrant
Agent having an aggregate Spread equal to the aggregate Exercise Price of the
Warrants being exercised. At any time after one year after the Closing Date
and on or before the Expiration Date, any outstanding Warrants may be exercised
on any Business Day; provided that the Warrant Registration Statement is, at
the time of exercise, effective and available for the exercise of Warrants or
the exercise of such Warrants is exempt from the registration requirements of
the Securities Act.
This Warrant Certificate is issued under and in accordance
with a Warrant Agreement dated as of October 22, 1997 (the "Warrant
Agreement"), between the Company and United States Trust Company of New York,
as Warrant Agent, and a Registration Rights Agreement dated as of October 22,
1997 (the "Warrant Registration Rights Agreement"), between the Company and
United States Trust Company of New York, as Warrant Agent, and is subject to
the Certificate of Incorporation and Bylaws of the Company and to the terms and
provisions contained therein, to all of which terms and provisions the holder
of this Warrant Certificate consents by acceptance hereof. The terms of the
Warrant Agreement and the Warrant Registration Rights Agreement are hereby
incorporated herein by reference and made a part hereof. Reference is hereby
made to the Warrant Agreement and the Warrant Registration Rights Agreement for
a full description of the rights, limitations of rights, obligations, duties
and immunities thereunder of the Company and the Holders of the Warrants. The
summary of the terms of the Warrant Agreement and the Warrant
<PAGE> 52
A-2
Registration Rights Agreement contained in this Warrant Certificate is
qualified in its entirety by express reference to the Warrant Agreement and the
Warrant Registration Rights Agreement. All terms used in this Warrant
Certificate that are defined in the Warrant Agreement and the Warrant
Registration Rights Agreement shall have the meanings assigned to them in such
agreements.
Copies of the Warrant Agreement and the Warrant Registration
Rights Agreement are on file at the office of the Warrant Agent and may be
obtained by writing to the Warrant Agent at the following address:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
A "Repurchase Event", as defined in the Warrant Agreement,
means and shall be deemed to occur on any date when the Company (i)
consolidates with or merges into or with another Person (but only where the
holders of Preferred Stock (or any capital stock issuable upon conversion of
the Preferred Stock) receive consideration in exchange for all or part of such
stock), if the Preferred Stock (or other securities) thereafter issuable upon
exercise of the Warrants is not registered under the Exchange Act or (ii) sells
all or substantially all of its assets to another Person, if the Preferred
Stock (or other securities) thereafter issuable upon exercise of the Warrants
is not registered under the Exchange Act; provided that in each case a
"Repurchase Event" shall not be deemed to have occurred if the consideration
for such transaction consists solely of cash.
Following a Repurchase Event, the Company must make an offer
to repurchase for cash all outstanding Warrants (a "Repurchase Offer"). If the
Company makes a Repurchase Offer, Holders may, until the expiration date of
such offer, surrender all or part of their Warrants for repurchase by the
Company.
Warrants received by the Warrant Agent in proper form during a
Repurchase Offer will, except as otherwise provided in the Warrant Agreement,
be repurchased by the Company at a price in cash (the "Repurchase Price") equal
to the value on the Valuation Date relating thereto of the Preferred Stock and
other securities or property of the Company which would have been delivered
upon exercise of the Warrants had the Warrants been exercised, less the
Exercise Price (whether or not the Warrants are then exercisable). The value
of such Preferred Stock and other securities will be, to the extent not
otherwise provided in the Agreement (i) if the Preferred Stock (or other
securities) are registered under the Exchange Act, determined based upon the
average of the daily market prices (as determined pursuant to Section
3.4(d)(ii)(1) of the Warrant Agreement) of the Preferred
<PAGE> 53
A-3
Stock (or other securities) for the 20 consecutive trading days immediately
preceding such Valuation Date or (ii) if the Preferred Stock (or other
securities) are not registered under the Exchange Act or if the value cannot be
computed under clause (i) above, determined by the Independent Financial Expert
(as defined in the Warrant Agreement), in each case as set forth in the Warrant
Agreement.
The "Valuation Date" as defined in the Warrant Agreement shall
be deemed to occur on the date five Business Days prior to the date notice of
the Repurchase Offer is first given.
If the Company fails to make or complete a Repurchase Offer (a
"Default") as required by the Warrant Agreement, it shall be obligated to
increase the amount otherwise payable pursuant to the Warrant Agreement in
respect of the Repurchase Offer by an amount equal to interest thereon at a
rate per annum of 11 7/8% from the date of the Default to the date of payment,
which interest shall compound quarterly.
If the Company merges or consolidates with or into, or sells
all or substantially all of its property and assets to, another Person and the
consideration received by holders of Preferred Stock (or any capital stock
issuable upon conversion of the Preferred Stock) consists solely of cash, the
Holders of Warrants shall be entitled to receive distributions on the date of
such event on an equal basis with holders of Preferred Stock (or any capital
stock issuable upon conversion of the Preferred Stock) as if the Warrants had
been exercised immediately prior to such event (less the Exercise Price). Upon
receipt of such payment, if any, the rights of a Holder shall terminate and
cease and such Holder's Warrants shall expire.
The number of shares of Preferred Stock issuable upon the
exercise of each Warrant and the price per share are subject to adjustment as
provided in the Warrant Agreement. Except as stated in the immediately
preceding paragraph and in the Warrant Agreement, in the event the Company
merges or consolidates with, or sells all or substantially all of its assets
to, another Person, each Warrant will, upon exercise, entitle the Holder
thereof to receive the number of shares of capital stock or other securities or
the amount of money and other property which the holder of Preferred Stock (or
other securities or property issuable upon exercise of a Warrant) is entitled
to receive upon completion of such merger, consolidation or sale.
As to any final fraction of a share which the same Holder of
one or more Warrant Certificates would otherwise be entitled to purchase upon
exercise thereof in the same transaction, following an initial public offering
of the Preferred Stock (or any capital stock issuable upon conversion of the
Preferred Stock) the Company may pay the cash value thereof determined as
provided in the Warrant Agreement.
<PAGE> 54
A-4
Subject to Article VI of the Warrant Agreement, all Preferred
Stock issuable by the Company upon the exercise of Warrants shall be validly
issued, fully paid and not subject to any calls for funds, and the Company
shall pay any taxes and other governmental charges that may be imposed under
the laws of the United States of America or any political subdivision or taxing
authority thereof or therein in respect of the issue or delivery thereof upon
exercise of Warrants (other than income taxes imposed on the Holders). The
Company shall not be required, however, to pay any tax or other charge imposed
in connection with any transfer involved in the issue of any certificate for
Preferred Stock (including other securities or property issuable upon the
exercise of the Warrants) or payment of cash to any Person other than the
Holder of a Warrant Certificate surrendered upon the exercise of a Warrant and
in case of such transfer or payment, the Warrant Agent and the Company shall
not be required to issue any share certificate or pay any cash until such tax
or charge has been paid or it has been established to the Warrant Agent's and
the Company's satisfaction that no such tax or charge is due.
Subject to the restrictions on and conditions to transfer set
forth in Articles II and VIII of the Warrant Agreement, this Warrant
Certificate and all rights hereunder are transferable by the registered Holder
hereof, in whole or in part, on the register of the Company maintained by the
Warrant Agent for such purpose at the Warrant Agent's office in New York, New
York, upon surrender of this Warrant Certificate duly endorsed, or accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Warrant Agent duly executed, with signatures guaranteed as specified in the
attached Form of Assignment, by the registered Holder hereof or his attorney
duly authorized in writing and by such other documentation required pursuant to
the Warrant Agreement and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. Upon any partial transfer, the
Company will sign and issue and the Warrant Agent will countersign and deliver
to such Holder a new Warrant Certificate or Certificates with respect to any
portion not so transferred. Each taker and Holder of this Warrant Certificate,
by taking and holding the same, consents and agrees that prior to the
registration of transfer as provided in the Warrant Agreement, the Company and
the Warrant Agent may treat the person in whose name the Warrants are
registered as the absolute owner hereof for any purpose and as the Person
entitled to exercise the rights represented hereby, any notice to the contrary
notwithstanding. Accordingly, the Company and/or the Warrant Agent shall not,
except as ordered by a court of competent jurisdiction as required by law, be
bound to recognize any equitable or other claim to or interest in the Warrants
on the part of any person other than such registered Holder, whether or not it
shall have express or other notice thereof.
This Warrant Certificate may be exchanged at the office of the
Warrant Agent maintained for such purpose in New York, New York, for Warrant
Certificates representing the same aggregate number of Warrants, each new
Warrant Certificate to represent such number of Warrants as the Holder hereof
shall designate at the time of such exchange.
<PAGE> 55
A-5
Prior to the exercise of the Warrants represented hereby, the
Holder of this Warrant Certificate, as such, shall not be entitled to any
rights of a shareholder of the Company, including, without limitation, the
right to vote or to consent to any action of the shareholders, to receive any
distributions, to exercise any pre-emptive right or to receive any notice of
meetings of shareholders, and shall not be entitled to receive any notice of
any proceedings of the Company except as provided in the Warrant Agreement.
This Warrant Certificate shall be void and all rights
evidenced hereby shall cease on October 22, 2007, unless sooner terminated by
the liquidation, dissolution or winding-up of the Company or as otherwise
provided in the Warrant Agreement upon the consolidation or merger of the
Company with, or sale of the Company to, another Person or unless such date is
extended as provided in the Warrant Agreement.
<PAGE> 56
This Warrant Certificate shall not be valid for any purpose
until it shall have been countersigned by the Warrant Agent.
KNOLOGY HOLDINGS, INC.
By:
--------------------------
Name:
Title:
Dated:
Countersigned:
UNITED STATES TRUST COMPANY OF NEW YORK,
as Warrant Agent
By:
----------------------------------------
Authorized Signatory
<PAGE> 57
FORM OF REVERSE OF WARRANT CERTIFICATE
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: United States Trust Company of New York,
as Warrant Agent
114 West 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
The undersigned irrevocably exercises ________ of the Warrants
represented by this Warrant Certificate and herewith makes payment of $ _______
(such payment being by wire transfer or by certified or official bank or bank
cashier's check payable to the order or at the direction of KNOLOGY Holdings,
Inc. or the exercise price may be paid by surrendering additional Warrants to
the Warrant Agent having an aggregate Spread equal to the aggregate exercise
price of the Warrants being exercised) all at the exercise price and on the
terms and conditions specified in this Warrant Certificate and in the Warrant
Agreement and the Warrant Registration Rights Agreement referred to herein and
surrenders this Warrant Certificate and all right, title and interest therein
to and directs that the Preferred Stock, par value $0.01, of KNOLOGY Holdings,
Inc. (the "Preferred Stock") deliverable upon the exercise of such Warrants be
registered or placed in the name and at the address specified below and
delivered thereto.
[THE FOLLOWING PROVISION TO BE INCLUDED ONLY
ON OFFSHORE CERTIFICATED WARRANTS]
The undersigned certifies that:
Check One
[ ] (a) (i) it is not a U.S. person (as defined in Rule 902
of Regulation S under the U.S. Securities Act of 1933, as
amended) and the Warrants are not being exercised on
behalf of a U.S. person.
or
[ ] (ii) it is furnishing to the Warrant Agent a written
opinion of counsel to the effect that the Warrants and
the Preferred Stock issuable upon exercise of the
Warrants have been registered under the U.S. Securities
Act of 1933, as amended, or are exempt from registration
thereunder.
<PAGE> 58
A-8
and (b) if an opinion is not being furnished, the undersigned is located
outside the United States at the time of the exercise hereof.
Dated:
-------------------------------
(Signature of Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
Signature Guaranteed By:
-------------------------------
Securities and/or check or other property to be issued or delivered to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
<PAGE> 59
A-9
FORM OF CERTIFICATE FOR REPURCHASE OFFER
(To be executed only upon repurchase
of Warrant by Knology Holdings, Inc.)
To:
The undersigned, having received prior notice of the
consideration for which KNOLOGY HOLDINGS, INC. will repurchase the Warrants
represented by the within Warrant Certificate, hereby surrenders this Warrant
Certificate for repurchase by KNOLOGY HOLDINGS, INC. of the number of Warrants
specified below for the consideration set forth in such notice.
Dated:
-------------------------
(Number of Warrants)
-------------------------
(Signature of Owner)
-------------------------
(Street Address)
-------------------------
(City) (State) (Zip Code)
Signature Guaranteed By:
---------------------------
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
<PAGE> 60
A-10
FORM OF ASSIGNMENT
In consideration of monies or other valuable consideration
received from the Assignee(s) named below, the undersigned registered Holder of
this Warrant Certificate hereby sells, assigns, and transfers unto the
Assignee(s) named below (including the undersigned with respect to any Warrants
constituting a part of the Warrants evidenced by this Warrant Certificate not
being assigned hereby) all of the right of the undersigned under this Warrant
Certificate, with respect to the number of Warrants set forth below:
Name(s) of Assignee(s):
-------------------------------------
Address:
----------------------------------------------------
No. of Warrants:
--------------------------------------------
Please insert social security or other identifying number of assignee(s):
and does hereby irrevocably constitute and appoint ________________________ the
undersigned's attorney to make such transfer on the books of __________________
maintained for the purposes, with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES EXCEPT UNLEGENDED
REGULATION S GLOBAL WARRANTS AND UNLEGENDED OFFSHORE CERTIFICATED WARRANTS]
In connection with any transfer of Warrants, the undersigned
confirms that without utilizing any general solicitation or general advertising
that:
Check One
[ ] (a) these Warrants are being transferred in compliance with
the exemption from registration under the U.S.
Securities Act of 1933, as amended, provided by Rule 144A
thereunder.
or
[ ] (b) these Warrants are being transferred other than in
accordance with (a) above and documents are being
furnished which comply with the conditions of transfer
set forth in this Warrant Certificate and the Warrant
Agreement.
or
[ ] (c) these Warrants are being transferred pursuant to an
effective registration statement under the U.S.
Securities Act of 1933, as amended.
<PAGE> 61
A-11
If none of the foregoing boxes is checked, the Warrant Agent shall not be
obligated to register the Warrants in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Article VIII of the Warrant Agreement
shall have been satisfied.
Dated:
-------------------------
(Signature of Owner)
-------------------------
(Street Address)
---------------------------
(City) (State) (Zip Code)
Signature Guaranteed By:
---------------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
the Warrant(s) for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the U.S.
Securities Act of 1933, as amended, and is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it has received such
information regarding KNOLOGY Holdings, Inc. as the undersigned has requested
pursuant to Rule 144A or has determined not to request such information and
that it is aware that the transferor is relying upon the undersigned's
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
Dated:
----------------
----------------------------------------
[NOTE: To be executed by an executive officer]
<PAGE> 62
EXHIBIT B
Form of Certificate to be Delivered
in Connection with
Transfers Pursuant to Regulation S
[Date]
KNOLOGY Holdings, Inc.
312 West 8th Street
West Point, Georgia 31833
Attention:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
Re: Warrants (the "Warrants") to Purchase
Preferred Stock of KNOLOGY Holdings, Inc. (the "Company")
Ladies and Gentlemen:
In connection with our proposed sale of _______________
Warrants, we hereby certify that such sale has been effected pursuant to and in
accordance with Regulation S under the U.S. Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Warrants was not made to a person in
the United States and not to a U.S. Person (as defined in
Regulation S under the Securities Act);
(2) at the time the buy order was originated, the
transferee was outside the United States or we and any person
acting on our behalf reasonably believed that the transferee
was outside the United States;
(3) no directed selling efforts (as such term is defined
in Rule 902(b) of Regulation S under the Securities Act) have
been made by us, any of our affiliates or any persons acting
on our behalf in the United States in contravention of the
requirements of Rule 903(b) or Rule 904(b) of Regulation S
under the Securities Act, as applicable; and
<PAGE> 63
B-2
(4) the transaction is not part of a plan or scheme to
evade the registration requirements of the Securities Act.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate
have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
-------------------------
Authorized Signature
<PAGE> 64
EXHIBIT C-1
Form of Certificate to be
Delivered by Transferor in Connection with
Transfers to Institutional Accredited Investors
[Date]
KNOLOGY Holdings, Inc.
312 West 8th Street
West Point, Georgia 31833
Attention:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
Re: Warrants (the "Warrants") to Purchase
Preferred Stock of Knology Holdings, Inc. (the "Company")
Ladies and Gentlemen:
We hereby certify that such transfer is being effected in
compliance with the transfer restrictions applicable to the Warrants or
interests therein transferred pursuant to and in accordance with the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and accordingly we
hereby further certify that (check one):
(a) [ ] such transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) [ ] such transfer is being effected to the Company or a
subsidiary thereof;
or
(c) [ ] such transfer is being effected pursuant to an
effective registration statement under the Securities Act;
or
<PAGE> 65
C1-2
(d) [ ] such transfer is being effected pursuant to an
exemption from the registration requirements of the Securities Act other than
Rule 144A, Rule 144 or Rule 904 thereunder, and we hereby further certify that
such transfer complies with the transfer restrictions applicable to the
Warrants or interests therein transferred to Institutional Accredited Investors
and in accordance with the requirements of the exemption claimed, which
certification is supported by an Opinion of Counsel provided by us or the
transferee (a copy of which we have attached to this certification), to the
effect that such transfer is in compliance with the Securities Act. Upon
consummation of the proposed transfer in accordance with the terms of the
Warrant Agreement, the transferred Warrants or interests therein will be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the IAI Certificated Warrant and in the Warrant Agreement and
the Securities Act.
Very truly yours,
[Name of Transferor]
By:
------------------------------
Authorized Signatory
<PAGE> 66
EXHIBIT C-2
Form of Certificate to be
Delivered By Transferees in Connection with
Transfers to Institutional Accredited Investors
[Date]
KNOLOGY Holdings, Inc.
312 West 8th Street
West Point, Georgia 31833
Attention:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
Re: Warrants (the "Warrants") to Purchase
Preferred Stock of KNOLOGY Holdings, Inc. (the "Company")
Dear Sirs:
In connection with our proposed purchase of ___________
aggregate number of Warrants, we confirm that:
1. We understand that any subsequent transfer of the
Warrants, any interest therein or the Preferred Stock (or other
securities) issuable upon exercise of any Warrant (the "Warrant
Shares") is subject to certain restrictions and conditions set forth
in the Warrant Agreement dated as of October 22, 1997 relating to the
Warrants (the "Warrant Agreement") and the Warrant Registration Rights
Agreement dated October 22, 1997 relating to the Warrants (the
"Warrant Registration Rights Agreement") and the undersigned agrees to
be bound by, and not to resell, pledge or otherwise transfer the
Warrants or Warrant Shares except in compliance with, such
restrictions and conditions and the U.S. Securities Act of 1933, as
amended (the "Securities Act").
2. We understand that the Warrants represented by this
Warrant Certificate and, as of the date this Warrant Certificate was
originally issued, the Warrant Shares have not been registered under
the Securities Act, and accordingly may not be offered, sold, pledged
or otherwise transferred within the United States or to, or for the
account or benefit of, U.S. Persons except as set forth in the
following sentence. We agree that we will not, within the time period
referred to under Rule 144(k) of the Securities
<PAGE> 67
C2-2
Act (taking into account the provisions of Rule 144(d) under the
Securities Act, if applicable) under the Securities Act as in effect
on the date of the transfer of this Warrant, resell or otherwise
transfer the Warrants represented by this Warrant Certificate except
(a) to KNOLOGY Holdings, Inc. or any subsidiary thereof, (b) to a
qualified institutional buyer in compliance with Rule 144A under the
Securities Act, (c) outside the United States in an offshore
transaction in compliance with Rule 904 under the Securities Act, (d)
pursuant to the exemption from registration provided by Rule 144 under
the Securities Act (if available), (e) to an institutional accredited
investor that, prior to such transfer, furnishes to you, to the
Company and, in the case of the Warrant Shares, to the transfer agent
and registrar therefor, a signed letter containing certain
representations and agreements relating to the restrictions on
transfer of the Warrants represented by this Warrant Certificate (the
form of which letter can be obtained from the Warrant Agent) and an
opinion of counsel acceptable to the Company and its counsel that such
transfer is in compliance with the Securities Act or (f) pursuant to
an effective registration statement under the Securities Act and, in
each case, in accordance with applicable state securities laws.
3. We understand that, on any proposed resale of any
Warrants, any interest therein or Warrant Shares, we will be required
to furnish to you and the Company such certifications, legal opinions
and other information as you and the Company may reasonably require to
confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Warrants purchased by us
will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the
Securities Act) and have such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and
risks of our investment in the Warrants, and we and any accounts for
which we are acting are each able to bear the economic risk of our or
its investment for an indefinite period of time.
5. We are acquiring the Warrants purchased by us for our
own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we exercise
sole investment discretion.
You, the Company and, if applicable, the transfer agent and
registrar for the Warrant Shares are entitled to rely upon this letter and are
irrevocably authorized to produce
<PAGE> 68
C2-3
this letter or a copy hereof to any interested party in any administrative or
legal proceedings or official inquiry with respect to the matters covered
hereby.
Very truly yours,
[Name of Transferee]
By:
------------------------------
Authorized Signature
<PAGE> 69
EXHIBIT D
Form of Certificate
[Date]
KNOLOGY Holdings, Inc.
312 West 8th Street
West Point, Georgia 31833
Attention:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
Re: Warrants (the "Warrants") to Purchase
Preferred Stock of KNOLOGY Holdings, Inc. (the Company")
Dear Sirs:
This letter relates to _______________ Warrants (the "Legended
Warrants") represented by a Warrant Certificate which bears a legend outlining
restrictions upon transfer of such Legended Warrants. Pursuant to Section 2.1
of the Warrant Agreement dated as of October 22, 1997 (the Warrant Agreement)
relating to the Warrants, we hereby certify that we are (or we will hold such
securities on behalf of) a person outside the United States to whom the
Warrants could be transferred in accordance with Rule 904 of Regulation S
promulgated under the U.S. Securities Act of 1933, as amended. Accordingly,
you are hereby requested to exchange the legended certificate for an unlegended
certificate representing an identical number of Warrants, all in the manner
provided for in the Warrant Agreement.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate
have the meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:
------------------------------
Authorized Signature
<PAGE> 70
APPENDIX A
LIST OF FINANCIAL EXPERTS
Alex. Brown & Sons
Bear, Stearns & Co., Inc.
Dillon, Read & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Goldman, Sachs & Co.
Lazard Freres & Co.
Lehman Brothers
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
PaineWebber Incorporated
Prudential Securities Inc.
Salomon Brothers Inc
Smith Barney Inc.
<PAGE> 1
EXHIBIT 10.3
- --------------------------------------------------------------------------------
WARRANT REGISTRATION RIGHTS AGREEMENT
between
KNOLOGY HOLDINGS, INC.
and
UNITED STATES TRUST COMPANY
OF NEW YORK,
as Warrant Agent
Dated as of October 22, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
WARRANT REGISTRATION RIGHTS AGREEMENT
WARRANT REGISTRATION RIGHTS AGREEMENT, dated as of
October 22, 1997 (this "Agreement"), between KNOLOGY HOLDINGS, INC., a Delaware
corporation (the "Company"), and United States Trust Company of New York, as
warrant agent (in such capacity, the "Warrant Agent").
The Company has agreed to issue and sell a total of
444,100 units (the "Units") each of which consists of one 11-7/8% Senior
Discount Note due 2007 of the Company (each a "Note" and collectively, the
"Notes") to be issued pursuant to the provisions of an Indenture dated as of
October 22, 1997 (the "Indenture") between the Company, as issuer, and United
States Trust Company of New York, as trustee, and one warrant (each, a
"Warrant"), each Warrant initially entitling the holder thereof to purchase
.003734 shares of Preferred Stock (as defined below) of the Company at an
exercise price of $.01 per share, of which 373,050 Units are to be purchased by
the Placement Agents and 71,050 Units are to be purchased by SCANA
Communications, Inc. ("SCANA"). Pursuant to the terms of a Placement
Agreement, dated October 16, 1997 (the "Placement Agreement"), among the
Company and Morgan Stanley & Co. Incorporated, J.P. Morgan Securities Inc. and
First Union Capital Markets Corp., as placement agents (the "Placement
Agents"), the Company has agreed to issue and sell to the Placement Agents an
aggregate of 373,050 Units. The Note and the Warrant included in each Unit
will become separately transferable at the close of business upon the earliest
to occur of (i)the date that is six months following the Closing Date (as
defined below), (ii)the commencement of an exchange offer with respect to the
Notes undertaken pursuant to the Notes Registration Rights Agreement (as
defined below) and (iii) the effectiveness of a shelf registration statement
with respect to resales of the Notes.
In consideration of the foregoing and of the mutual
agreements contained herein and in the Placement Agreement, the Company and the
Warrant Agent hereby agree as follows:
1. Definitions.
As used in this Agreement, the following capitalized
defined terms shall have the following meanings:
"Auditors" means, at any time, the independent auditors
of the Company at such time.
"Board" means the board of directors of the Company from
time to time.
"Closing Date" means the date hereof.
"Comfort Letter" has the meaning specified in Section 3
hereof.
<PAGE> 3
2
"Commission" means the United States Securities and
Exchange Commission.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
"Company" has the meaning specified in the preamble to
this Agreement.
"Company Shares" has the meaning specified in Section 2
hereof.
"Cutback Notice" has the meaning specified in Section 2
hereof.
"Expiration Date" means the second anniversary of the
Closing Date.
"Holders" means the record holders of the Warrants and
the holders of Warrant Shares.
"Includible Secondary Shares" has the meaning specified
in Section 2 hereof.
"Indenture" has the meaning specified in the recitals to
this Agreement.
"managing underwriter" has the meaning specified in
Section 2 hereof.
"Notes" has the meaning specified in the recitals to this
Agreement.
"Notes Registration Rights Agreement" means the
Registration Rights Agreement dated the Closing Date between the Company, the
Placement Agents and SCANA relating to the Notes.
"Opinion" has the meaning specified in Section 3 hereof.
"Other Shares" has the meaning specified in Section 2
hereof.
"Piggy-back Registration Rights" has the meaning
specified in Section 2 hereof.
"Placement Agents" has the meaning specified in the
recitals to this Agreement.
"Placement Agreement" has the meaning specified in the
recitals to this Agreement.
<PAGE> 4
3
"Preferred Stock" means the Preferred Stock, par value
$.01 per share, of the Company.
"Registration Statement" has the meaning specified in
Section 2 hereof.
"Resale Shelf" has the meaning specified in Section 3
hereof.
"Securities Act" means the United States Securities Act
of 1933, as amended.
"SCANA" has the meaning specified in the recitals to this
Agreement.
"Shelf Expiration Date" has the meaning specified in
Section 3 hereof.
"Underlying Securities" means the Preferred Stock
issuable upon exercise of the Warrants or such other securities as shall be
issuable upon the exercise of the Warrants, pursuant to the Warrant Agreement.
"Units" has the meaning specified in the recitals to this
Agreement.
"Warrant" has the meaning specified in the recitals to
this Agreement.
"Warrant Agent" has the meaning specified in the preamble
to this Agreement.
"Warrant Agreement" means the Warrant Agreement dated as
of the Closing Date between the Company and the Warrant Agent.
"Warrant Registration Statement" has the meaning
specified in Section 3 hereof.
"Warrant Shares" means the Preferred Stock (or other
securities issued or issuable upon exercise of the Warrants) and shall include
any capital stock issuable upon conversion of the Preferred Stock (or such
other securities).
2. Piggy-Back Registration Rights.
(a) If the Company proposes to file a
registration statement with the Commission with respect to an offering of any
shares of Preferred Stock (or other securities issuable upon exercise of the
Warrants) (or any capital stock issuable upon conversion of the Preferred Stock
(or such other securities)) for cash (other than an offering registered solely
on Form S-4 or S-8 or any successor form thereto and other than the initial
public offering of shares of Preferred Stock (or other securities issuable upon
exercise of the Warrants) (or any capital stock issuable upon conversion of the
Preferred Stock (or such other securities)) if no
<PAGE> 5
4
shareholder of the Company offers securities for sale pursuant to such
registration statement), the Company shall give prompt written notice to all
the Holders of Warrants and Warrant Shares, at least 30 days prior to the
initial filing of the registration statement relating to such offering (the
"Registration Statement"). Each such Holder shall have the right, within 20
days after delivery of such notice, to request in writing that the Company
include all or a portion of such Holder's Warrant Shares in each case to the
extent that such Preferred Stock (or other securities) would be (upon issuance)
or are, as the case may be, subject to restrictions on transfer, in such
Registration Statement ("Piggy-back Registration Rights"). The Company shall
include in the public offering all of the Warrant Shares that a Holder has
requested be included, unless the underwriter for the public offering or the
underwriter managing the public offering (in either case, the "managing
underwriter") delivers a notice (a "Cutback Notice") pursuant to Section 2(b)
or 2(c) hereof. The managing underwriter may deliver one or more Cutback
Notices at any time prior to the execution of the underwriting agreement for
the public offering.
(b) If a proposed public offering includes both
securities to be offered for the account of the Company ("Company Shares") and
shares to be sold by shareholders, the provisions of this Section 2(b) shall be
applicable if the managing underwriter delivers a Cutback Notice stating that,
in its opinion, the number of shares (other than Warrant Shares to be sold by
the Holders) that selling shareholders propose to sell therein, whether or not
such selling shareholders have the right to include shares therein (the "Other
Shares"), plus the number of Warrant Shares that the Holders have requested to
be sold therein, plus the Company Shares, exceeds the maximum number of shares
specified by the managing underwriter in such Cutback Notice that may be
distributed without adversely affecting the price, timing or distribution of
the Company Shares. Such maximum number of shares that may be so sold,
excluding the Company Shares, are referred to as the "Includible Shares."
If the managing underwriter delivers such Cutback Notice,
the Company shall be entitled to include all of the Company Shares in the
public offering and each requesting Holder shall be entitled to include in the
public offering up to its pro rata portion of the Includible Shares and in
priority to the inclusion of any Other Shares that are proposed to be sold in
such public offering. No shareholder that proposes to sell Other Shares in the
proposed initial public offering may sell any such shares therein unless all
Warrant Shares requested by the Holders to be sold therein are so included.
(c) If a proposed public offering is entirely a
secondary offering, the provisions of this Section 2(c) shall be applicable if
the managing underwriter delivers a Cutback Notice stating that, in its
opinion, the aggregate number of Warrant Shares and Other Shares proposed to be
sold therein exceeds the maximum number of shares (the "Includible Secondary
Shares") specified by the managing underwriter in such Cutback Notice that may
be distributed without adversely affecting the price, timing or distribution of
the shares being distributed. If the managing underwriter delivers such
Cutback Notice, each
<PAGE> 6
5
requesting Holder shall be entitled to include in the public offering up to its
pro rata portion of the Includible Secondary Shares and in priority to the
inclusion of any Other Shares that are proposed to be sold in such public
offering. No shareholder that proposes to sell Other Shares in such public
offering may sell any such shares therein unless all Warrant Shares requested
by the Holders to be sold therein are so included.
(d) The underwriting agreement for such public
offering shall provide that each requesting Holder shall have the right to sell
its Warrant Shares (other than Warrant Shares excluded from such public
offering pursuant to a Cutback Notice and the terms of Sections 2(b) and 2(c))
to the underwriters and that the underwriters shall purchase the Warrant Shares
at the price paid by the underwriters for the Preferred Stock (or other
securities) sold by the Company and/or other selling shareholders, as the case
may be, (less in the case of unexercised Warrants, the exercise price).
3. Shelf Registration.
(a) If only the Company sells stock in an
initial public offering or all of the Warrant Shares have not been sold in a
public offering, the Company shall use its best efforts to cause to be filed
pursuant to Rule 415 under the Securities Act a shelf registration statement on
the appropriate form (the "Warrant Registration Statement") covering the
issuance of the Warrant Shares upon exercise of the Warrants and shall use its
best efforts to cause the Warrant Registration Statement to become effective
under the Securities Act within 180 days after the closing date of the
Company's initial public offering (except as provided in Section 4 below);
provided, however, that if the Commission shall request that the Company
register the resale of the Warrant Shares instead of the issuance thereof, the
Warrant Registration Statement shall register such resale as opposed to such
issuance. The Company shall use reasonable efforts to keep the Warrant
Registration Statement continuously effective until such time as all Warrants
have been exercised, or in the event the Company registers the resale of the
Warrant Shares, such time as all Warrant Shares have been resold (the "Shelf
Expiration Date"). Prior to filing the Warrant Registration Statement or any
amendment thereto, the Company shall provide a copy thereof to the Placement
Agents and their counsel and afford them a reasonable time to comment thereon.
(b) If the Warrant Registration Statement shall
register the resale of the Warrant Shares (a "Resale Shelf") as provided in the
proviso to the first sentence of Section 3(a) above, the Company agrees to:
(i) make available for inspection by a representative of the
Holders, any underwriter participating in any disposition pursuant to such
Resale Shelf and attorneys and accountants designated by the Holders, at
reasonable times and in a reasonable manner, financial and other records,
documents and properties of the Company that are pertinent to the conduct of
due diligence customary for an
<PAGE> 7
6
underwritten offering, and cause the officers, directors and employees of the
Company to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with a Resale
Shelf; provided, however, that such persons shall first agree in writing with
the Company to use such information only in connection with the transaction for
which such information was obtained and that any information that is reasonably
and in good faith designated by the Company in writing as confidential at the
time of delivery of such information shall be kept confidential by such
persons, unless and to the extent that disclosure of such information is
required by law or such information becomes generally available to the public
other than as a result of a disclosure or failure to safeguard such information
by such person;
(ii) use its best efforts to cause all Warrant Shares sold
under a Resale Shelf to be listed on any securities exchange or any automated
quotation system on which similar securities issued by the Company are then
listed if requested by the Holders of Warrant Shares representing a majority of
the Warrants originally issued, to the extent such Warrant Shares satisfy
applicable listing requirements;
(iii) provide a reasonable number of copies of the prospectus
included in such Resale Shelf to Holders that are selling Warrant Shares
pursuant to such Resale Shelf;
(iv) cause to be provided to the Warrant Agent, on behalf of
the Holders and beneficial owners of Warrant Shares, upon the effectiveness of
such Resale Shelf, a customary "10b-5" opinion of independent counsel (an
"Opinion") and a customary "cold comfort" letter of independent auditors (a
"Comfort Letter");
(v) in connection with any underwritten offering, cause to be
provided to the Warrant Agent, on behalf of the Holders and beneficial owners
of Warrant Shares an Opinion and Comfort Letter with respect to each Form 10-K
and Form 10-Q, including any amendments thereto, that is incorporated by
reference in such Resale Shelf upon the initial filing with the Commission of
such documents; and
(vi) notify the Warrant Agent, for distribution to the
Holders, (A) when the Resale Shelf has become effective and when any
post-effective amendment thereto has been filed and becomes effective, (B) of
any request by the Commission or any state securities authority for amendments
and supplements to the Resale Shelf or of any material request by the
Commission or any state securities authority for additional information after
the Resale Shelf has become effective, (C) of the issuance by the Commission or
any state securities authority of any stop order suspending the effectiveness
of the Resale Shelf or the initiation of any proceedings for that purpose, (D)
if, between the effective date of the Resale Shelf and the closing of any sale
of
<PAGE> 8
7
Warrant Shares covered thereby, the representations and warranties of the
Company contained in any underwriting agreement, securities sales agreement or
other similar agreement, including this Agreement, relating to disclosure cease
to be true and correct in all material respects or if the Company receives any
notification with respect to the suspension of the qualification of the Warrant
Shares for sale in any jurisdiction or the initiation of any proceeding for
such purpose, (E) of the happening of any event during the period the Resale
Shelf is effective such that such Resale Shelf or the related prospectus
contains an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make statements therein not
misleading and (F) of any determination by the Company that a post-effective
amendment to a Registration Statement would be appropriate. The Holders hereby
agree to suspend use of the prospectus contained in a Resale Shelf upon receipt
of such notice under clause (C) (but only to the extent of the issuance of any
stop order), (E) or (F) above until, in the case of clause (C) above, such stop
order is removed or rescinded, or, in the case of clause (E) and (F) above, the
Company has amended or supplemented such prospectus to correct such
misstatement or omission.
4. Suspension.
Notwithstanding the foregoing, during any consecutive
365-day period, the Company shall have the privilege to suspend availability of
the Warrant Registration Statement (or its obligations to file the Warrant
Registration Statement or cause it to become effective, as applicable) and the
related prospectus for up to 60 days, except during the 60 days immediately
prior to the Expiration Date, if the Board determines in good faith that there
is a valid purpose for such suspension and provides notice of such
determination (but not the purpose) to the Holders at their addresses appearing
in the register of Warrants maintained by the Warrant Agent.
5. Blue Sky.
The Company shall use its reasonable best efforts to
register or qualify the Underlying Securities proposed to be sold or issued
pursuant to the Registration Statement or the Warrant Registration Statement
under all applicable securities or "blue sky" laws of all jurisdictions in the
United States in which any Holder of Warrants may or may be deemed to purchase
Underlying Securities upon the exercise of Warrants or resale of the Warrant
Shares, as the case may be, and shall use its reasonable best efforts to
maintain such registration or qualification through the earliest of (A) in the
case of the Registration Statement, the date upon which all of the Warrant
Shares have been sold or such other date as shall be required by applicable
law, (B) the date upon which all Warrants have been exercised or all Warrant
Shares have been resold, as the case may be, under the Warrant Shelf
Registration Statement and (C) the Expiration Date; provided, however, that the
Company shall not be required to (i) qualify as a foreign corporation or as a
broker or a
<PAGE> 9
8
dealer in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 5, (ii) file any general consent to
service of process or (iii) subject itself to taxation in any jurisdiction if
it is not otherwise so subject.
6. Accuracy of Disclosure.
The Company (and its successors) represents and warrants
to each Holder (and each beneficial owner of a Warrant or Warrant Share) and
agrees for the benefit of each Holder (and each beneficial owner of a Warrant
or Warrant Share) that, except during any period in which the availability of
the Warrant Registration Statement has been suspended, (i)the Warrant
Registration Statement and the documents incorporated by reference therein will
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading; and (ii) the
prospectus contained in the Warrant Registration Statement delivered to such
Holder upon its exercise of Warrants or pursuant to which such Holder sells its
Warrant Shares, as the case may be, and the documents incorporated by reference
therein will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that the
representations, warranties and agreements set forth in this Section 6 do not
apply to statements or omissions in the Warrant Registration Statement or any
such prospectus based upon information relating to any Holder furnished to the
Company in writing by such Holder expressly for use therein.
7. Indemnity.
The Company hereby agrees to indemnify each beneficial
owner of a Warrant and each person, if any, who controls any beneficial owner
of a Warrant within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934 (the "Exchange Act"), or is
under common control with, or is controlled by, any beneficial owner of a
Warrant (whether or not it is, at the time the indemnity provided for in this
Section 7 is sought, such a beneficial owner), from and against all losses,
damages or liabilities which such beneficial owner or any such controlling or
affiliated person suffers as a result of any breach, on the date of any
exercise of a Warrant by such beneficial owner or the resale of any Warrant
Share by such Holder, in either case pursuant to the Warrant Registration
Statement, of the representations, warranties or agreements contained in
Section 6. Each beneficial owner of a Warrant Share sold pursuant to a Resale
Shelf, by accepting its beneficial ownership of a Warrant, hereby (i) agrees to
provide the Company with information with respect to it that the Company
reasonably requests in connection with any Resale Shelf and (ii) agrees,
severally and not jointly, to indemnify the Company, its directors and officers
and each person, if any, who controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act against any
liability incurred by it or such controlling person as a result of any
misstatement of
<PAGE> 10
9
information provided by such beneficial owner to the Company in writing
expressly for inclusion in the Resale Shelf.
8. Expenses.
All expenses incident to the Company's performance of or
compliance with its obligations under this Agreement will be borne by the
Company, regardless of whether a Registration Statement or Warrant Registration
Statement becomes effective, including without limitation (i) all Commission or
National Association of Securities Dealers, Inc. registration and filing fees,
(ii) all reasonable fees and expenses incurred in connection with compliance
with state securities or "blue sky" laws, (iii) all reasonable expenses of any
persons incurred by or on behalf of the Company in preparing or assisting in
preparing, word processing, printing and distributing any registration
statement, any prospectus, any amendments or supplements thereto and other
documents relating to the performance of and compliance with this Agreement,
(iv) the reasonable fees (including legal fees and expenses) and disbursements
of the Warrant Agent, (v) the reasonable fees and disbursements of counsel for
the Company and (vi) the fees and disbursements, if any, of the Auditors but
excluding any fees, expenses and disbursements of the Holders (not included
above), including, without limitation, (x) fees and disbursements of counsel
retained by the participating Holders and (y) the Holders' share of
underwriting discounts and commissions.
9. Resale Shelf Registration Statement
In the event that, after an initial public offering of
Preferred Stock (or other securities), any of the Placement Agents, or any
successors thereto, in its reasonable opinion, becomes an Affiliate (as such
term is defined in Rule 144 under the Securities Act) of the Company, or any
successor thereto, the Company (or its successor) shall use its best efforts to
cause to be filed as soon as practicable after receiving notice thereof from
the Placement Agents (or its successor) a shelf registration statement (the
"Resales Registration Statement") under the Securities Act providing for the
resale by the Placement Agents (or its successor) of all Warrants and Preferred
Stock (or other securities) it acquires from time to time in connection with
market-making activities and to have such shelf registration statement declared
effective by the Commission. The provisions of this Agreement concerning the
Warrant Registration Statement shall apply to the Resales Registration
Statement as if such Resales Registration Statement were the Warrant
Registration Statement (except that the Company (or its successor) will use its
best efforts to keep the Resales Registration Statement effective until the
earlier of (i) the tenth anniversary of the Closing Date and (ii) such time as
the relevant Placement Agent shall, in its opinion, cease to be an Affiliate of
the Company, as evidenced by written notice sent promptly upon such event).
<PAGE> 11
10
10. Miscellaneous.
(a) No Inconsistent Agreements. Each of the
Company and the Warrant Agent represent to the other that it has not entered
into, and agrees that on or after the date of this Agreement it will not enter
into, any agreement which is inconsistent with the rights granted to the
Holders of Warrants or Warrant Shares in this Agreement or otherwise conflicts
with the provisions hereof. The Company represents that the rights granted to
the Holders hereunder do not in any way conflict with and are not inconsistent
with the rights granted to the holders of the Company's other issued and
outstanding securities under any agreements.
(b) Amendments and Waivers. The provisions of
this Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given unless the Company and the Warrant Agent
have obtained the written consent of Holders of at least a majority of the
outstanding Warrants affected by such amendment, modification, supplement,
waiver or consent; provided that any amendment, modification or supplement to
this Agreement which, in the good faith opinion of the Board of Directors of
the Company (and evidenced by a resolution of such board), does not adversely
affect any Holder, shall not be subject to such requirement for written
consent.
(c) Notices. All notices and other
communications provided for or permitted hereunder shall be made in writing by
hand-delivery, registered first-class mail, telex, telecopier, or any courier
guaranteeing overnight delivery (i) if to a Holder, at the most current address
given by such Holder to the Company by means of a notice given in accordance
with the provisions of this Section 10(c); (ii) if to the Company, initially at
the Company's address set forth in the Warrant Agreement and thereafter at such
other address, notice of which is given in accordance with the provisions of
this Section 10(c); and (iii) if to the Warrant Agent, initially at the Warrant
Agent address set forth in the Warrant Agreement and thereafter at such other
address, notice of which is given in accordance with the provisions of this
Section 10(c).
All such notices and communications shall be deemed to
have been duly given: at the time delivered by hand, if personally delivered;
five business days after being deposited in the mail, postage prepaid, if
mailed; when answered back, if telexed; when receipt is acknowledged, if
telecopied; and on the next business day if timely delivered to an air courier
guaranteeing overnight delivery.
(d) Successors and Assigns. This Agreement
shall inure to the benefit of and be binding upon the successors, assigns and
transferees of each of the parties, including, without limitation, subsequent
Holders; provided that nothing herein shall be deemed to permit any assignment,
transfer or other disposition of Warrants in violation of the terms of
<PAGE> 12
11
the Placement Agreement, the Warrant Agreement or applicable law. If any
transferee of any Holder shall acquire Warrants, in any manner, whether by
operation of law or otherwise, such Warrants shall be held subject to all of
the terms of this Agreement and the Warrant Agreement, and by taking and
holding such Warrants such person shall be conclusively deemed to have agreed
to be bound by and to perform all of the terms and provisions of this Agreement
or the Warrant Agreement and such person shall be entitled to receive the
benefits hereof.
(e) Purchases and Sales of Warrants. The
Company shall not, and shall use its best efforts to cause its affiliates (as
defined in Rule 405 under the Securities Act) not to, purchase and then resell
or otherwise transfer any Warrants other than Warrants acquired and cancelled.
(f) Third Party Beneficiary. The Holders shall
be third party beneficiaries to the agreements made hereunder between the
Company and the Warrant Agent, and each Holder shall have the right to enforce
such agreements directly to the extent it deems such enforcement necessary or
advisable to protect its rights or the rights of Holders hereunder.
Notwithstanding anything to the contrary contained herein, the Placement Agents
will be a third party beneficiary to the agreements between the Company and the
Warrant Agent contained in Section 9 hereof, such section shall not be amended,
modified or supplemented without the prior written consent of the Placement
Agents and the Company's obligations under Section 9 will survive the
termination of this Agreement and the performance of all other obligations
under this Agreement.
(g) Counterparts. This Agreement may be
executed in any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement
are for convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
(i) Governing Law. This Agreement shall be
governed by the laws of the State of New York.
(j) Severability. In the event that any one or
more of the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
<PAGE> 13
12
(k) Waiver of Immunity. To the extent that the
Company has or hereafter may acquire any immunity from jurisdiction of any
court or from any legal process (whether through service of notice, attachment
prior to judgement, attachment in aid of execution, execution or otherwise)
with respect to itself or its property, it hereby irrevocably waives such
immunity in respect of its obligations under this Agreement to the fullest
extent permitted by law.
<PAGE> 14
13
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
KNOLOGY HOLDINGS, INC.
By /s/ William E. Morrow
----------------------------------------
Name: Bill Morrow
Title CEO
UNITED STATES TRUST COMPANY
OF NEW YORK
By /s/ Louis P. Young
----------------------------------
Name: Louis P. Young
Title: Vice President
<PAGE> 1
EXHIBIT 10.30
INTERCONNECTION AGREEMENT
BETWEEN CYBERNET GROUP AND BELLSOUTH
TELECOMMUNICATIONS, INC.
<PAGE> 2
INTERCONNECTION AGREEMENT
BETWEEN CYBERNET GROUP AND BELLSOUTH TELECOMMUNICATIONS
Pursuant to this Interconnection Agreement (Agreement), the
telecommunications entities set forth in Attachment A hereto (referred to as the
"Cybernet Group"), and BellSouth Telecommunications, Inc. ("BellSouth")
(collectively, "the Parties") agree to extend certain interconnection
arrangements to one another within each LATA in which they both operate. This
Agreement is an integrated package that reflects a balancing of interests
critical to the Parties and is not inconsistent with Sections 251, 252 and 271
of the Telecommunications Act of 1996. The Agreement represents a negotiated
compromise and is entered without prejudice to any positions which either party
has taken, or may take in the future, before any legislative, regulatory,
judicial or other governmental body.
I. RECITALS AND PRINCIPLES
WHEREAS, BellSouth is an incumbent local exchange telecommunications
company (ILEC) authorized to provide telecommunications services in the states
of Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina,
South Carolina and Tennessee; and
WHEREAS, Carrier is a competitive local exchange telecommunications
company (CLEC) which is authorized or plans to become authorized to provide
local telecommunications services in Alabama, Florida, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina and Tennessee; and
WHEREAS, the interconnection and interoperability of the Parties'
respective local networks is required to facilitate the introduction of local
exchange service competition and fulfill the objectives of the
Telecommunications Act of 1996 (Telecommunications Act); and
WHEREAS, universal connectivity and interoperability between competing
telecommunications carriers is necessary for the termination of traffic on each
carrier's network; and
WHEREAS, the Parties intend that BellSouth should unbundle certain
basic network elements and make them available for purchase by Carrier; and
WHEREAS, the Parties agree that this Agreement shall be filed with the
appropriate state commissions in compliance with Section 252 of the
Telecommunications Act;
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<PAGE> 3
NOW, THEREFORE, in consideration of the mutual provisions contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Carrier and BellSouth hereby covenant and agree
as follows:
II. SCOPE OF THE AGREEMENT
This Agreement will govern the interconnection arrangements between the
Parties to facilitate the interconnection of their facilities and the connection
of local and interexchange traffic initially in the states of Alabama, Florida,
Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina and
Tennessee. This agreement will further govern the unbundling of BellSouth
network elements in the same states.
III. DEFINITIONS
The definitions contained in Attachment B are intended to define and
govern how the technical terms included therein are used in this Agreement.
However, except as provided herein, the inclusion or exclusion of any particular
definition is not intended by either party to limit, or to define technical
interface, reliability, performance or throughput parameters for the network
elements that both Parties expect to interconnect and interoperate.
The minimum performance, reliability, throughput and operational
characteristic of elements identified herein, as well as physical and logical
interface standards utilized, unless otherwise specifically provided herein, are
according to generally accepted industry standards as defined by the ITU
(ISO/CCITT), ANSI, or the Network Management Forum, whichever is more specific.
Where standards are not yet fully defined, the Parties agree to take reasonable
steps to insure that interface designs are modularized and retrofittable to any
pending standard at the least cost to the interconnecting Parties.
IV. ACCESS TO UNBUNDLED NETWORK ELEMENTS
BellSouth shall unbundle Network Elements used in the provision of a
telecommunications service and offer them for resale to Carrier as provided
hereafter. Carrier shall be entitled to request, and BellSouth shall provide,
access to any such unbundled Network Element(s). BellSouth shall unbundle and
separately price and offer those elements such that Carrier will be able to
lease and interconnect to whichever of these unbundled Network Elements Carrier
requires, and combine the BellSouth-provided Network Elements with any
facilities and services that Carrier may itself provide or obtain from other
telecommunications carriers, in order
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<PAGE> 4
to offer telecommunications services to other telecommunications carriers and
end users. Such Network Elements shall be offered as provided hereafter.
A. GENERAL REQUIREMENTS
A.1 The Parties hereto mutually understand and agree that
the array of Network Elements is steadily evolving
and expanding. The initial set of Network Elements
and attendant services to be made available by
BellSouth hereunder is included as Attachment C
hereto. Network Elements will be provided subject to
the rules, terms and conditions expressed in this
Article and in Attachment C. It is understood,
however, that either Party may add Network elements
to the listing contained in Attachment C as the
BellSouth network changes or additional Network
Elements are identified. It is especially
acknowledged, without limitation, that the list of
Network Elements may be expanded by either Party to
include Network Elements identified in relevant FCC
or state commission regulations or orders, or made
available by BellSouth to other telecommunications
carriers pursuant to other interconnection
agreements. The addition or inclusion of additional
Network Elements shall be made in accordance with
subsection IV.I hereof.
A.2 Without limitation, BellSouth agrees to provide
Carrier access to all Network Elements identified in
Attachment C hereto. Wherever technically feasible,
interconnection shall be offered at both the line and
trunk side of each discrete Network Element. It is
agreed that interconnection will be made available by
BellSouth to Carrier at any technically feasible
point. BellSouth must implement physical and logical
interconnection points consistent with generally
accepted industry standards.
A.3 The initial pricing of the initial unbundled Network
Elements shall be as set forth in Attachment C,
except that initial pricing of unbundled loops,
switch ports and other network elements will be
established through state commission arbitration as
provided in Article XXV hereof and Attachment C
hereto. The initial pricing may be revised by mutual
agreement or at Carrier's election pursuant to
Article XXII hereof.
A.4 It is agreed that Carrier may combine network
elements purchased hereunder as required to provide
any local, toll or access service. If Carrier
recombines network elements to mirror existing retail
service, as defined by the applicable state
commission, the resale rate shall apply.
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<PAGE> 5
B. INTERCONNECTION WITH NETWORK ELEMENTS
B.1 Interconnection shall be achieved via collocation
arrangements Carrier shall maintain at a BellSouth
wire center or other BellSouth network point.
B.2 At Carrier's discretion, each unbundled loop or port
element shall be delivered to the Carrier collocation
arrangement over an individual 2-wire hand-off, in
multiples of 24 over a digital DS-l hand-off in any
combination or order Carrier may specify, in
multiples of 672 over a digital DS-3 handoff in any
combination or order Carrier may specify, or through
other technically feasible and economically
comparable hand-off arrangements requested by Carrier
(e.g., SONET STS-l hand-off). Economically comparable
as used in this section refers to an economically
comparable effect upon Carrier and is not meant to
ensure an equivalent revenue stream or contribution
level to BellSouth.
B.3 BellSouth will permit Carrier to collocate DLC
systems in conjunction with collocation arrangements
Carrier maintains at a BellSouth wire center, for the
purpose of interconnecting to unbundled loop
elements. Carrier will have the option of purchasing
BellSouth unbundled transport (at any transmission
level) between placed equipment and the Carrier
network.
B.4 Carrier shall access BellSouth's unbundled loops via
collocation at the BellSouth wire center where those
elements exist. Each loop or port shall be delivered
to Carrier's collocation by means of a cross
connection.
B.5 BellSouth shall provide Carrier access to its
unbundled loops at each of BellSouth's Wire Centers.
In addition, if Carrier requests one or more loops
serviced by Integrated Digital Loop Carrier or Remote
Switching technology deployed as a loop concentrator,
BellSouth shall, where available, move the requested
loop(s) to a spare, existing physical loop at no
charge to Carrier. If, however, no spare physical
loop is available, BellSouth shall within seventy-two
(72) hours of Carrier's request notify Carrier of the
lack of available facilities. Carrier may then, at
its discretion, make a network element request for
BellSouth to provide the unbundled loop through the
demultiplexing of the integrated digitized loop(s).
Special constructions may apply in this situation.
Carrier may also
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make a network element request for access to
unbundled loops at the loop concentration site point.
Attachment D hereto shall not apply to unbundled
loops provided pursuant to this subsection.
B.6 Where BellSouth utilizes digital loop carrier (DLC)
technology to provision the loop element of an
unbundled exchange service to an end user customer
who subsequently determines to assign the loop
element to Carrier and receive Exchange Service from
Carrier via such loop, BellSouth shall deliver such
loop to Carrier on an unintegrated basis, pursuant to
Carrier's chosen hand-off architecture, without a
degradation of end user service or feature
availability as supported by Carrier's chosen
hand-off architecture.
B.7 Except as otherwise specified herein, all dedicated
transport-based features, functions, service
attributes, grades-of-service, install, maintenance,
and repair intervals which apply to BellSouth's
bundled local exchange service shall apply to
unbundled loops.
B.8 Except as otherwise specified herein, all
switch-based features, functions, service attributes,
grades-of-service, and install, maintenance, and
repair intervals which apply to BellSouth's bundled
local exchange service shall apply to unbundled
ports.
B.9 BellSouth will permit any customer to convert its
bundled local service to an unbundled element or
service and assign such unbundled element or service
to Carrier with no penalties, rollover, termination
or conversion charges to Carrier or the customer,
except as specifically provided in Attachment C-2
hereto or pursuant to the terms of a specific
customer service agreement, if BellSouth waives like
charges and penalties for any other
telecommunications carrier (unless superseded by
government action).
B.10 BellSouth will permit Carrier to collocate remote
switching modules and associated equipment in
conjunction with collocation arrangements Carrier
maintains at a BellSouth wire center, for the purpose
of interconnecting to unbundled loop or link
elements.
B.11 When available to any other telecommunications
carrier or other customer, BellSouth shall provide
Carrier with an appropriate on-line electronic file
transfer arrangement by which Carrier may place,
verify, and receive confirmation on orders for
unbundled elements, and issue and track trouble-
ticket and repair requests associated with unbundled
elements. In the
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interim, batch file arrangements specified in
BellSouth's current Facilities Based Carrier
Operating Guide (FBOG) shall apply. EXACT electronic
interface is the preferred method by which to order
unbundled elements. BellSouth shall provide Carrier
with the ability to order any defined network element
using OBF or other mutually agreed upon
ordering/provisioning codes.
B.12 It is expressly agreed that interconnection will be
afforded equally regardless of the transmission
medium selected by the interconnector, i.e., digital
or analog loops, conditioned circuits, ISDN, SONET,
etc., so that networks and applications can evolve
unencumbered by the available degree of
interconnectivity when such elements are available.
B.13 Wherever technically possible, it is expressly agreed
and understood that BellSouth will provide
interconnection on both the line side and trunk side
of each unbundled Network Element. Where
interconnection is ordered to the line side of a
Network Element, interconnection shall be on a
hard-wired (not software driven) basis.
B.14 The Parties shall attempt in good faith to mutually
devise and implement a means to extend the unbundled
loop sufficient to enable Carrier to use a
collocation arrangement at one BellSouth location per
LATA (e.g., tandem switch) to obtain access to the
unbundled loop(s) at another such BellSouth location
over BellSouth facilities.
B.15. BellSouth shall develop a process to identify the
carrier for each unbundled loop and establish
automated intercompany referral and/or call hand-off
processes for an additional charge. In addition,
BellSouth will not in any way hinder Carrier from
deploying modern DLC equipment (TR303) throughout
Carrier's portion of the unbundled loop/transport
network.
C. ORDER PROCESSING
C.1 Carrier shall place orders for unbundled loops (and
other network elements) through completion and
submission of a service request specified in the
FBOG.
C.2 Order processing for unbundled loops will be fully
mechanized.
C.3 Particular combinations of elements, hereafter
referred to as combinations, identified and described
by Carrier can be ordered and provisioned as
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combinations, and not require the enumeration of each
element within that combination in each provisioning
order, consistent with OBF or other mutually agreed
upon procedures.
C.4 Appropriate ordering/provisioning codes will be
established for each identified combination,
consistent with OBF or other mutually agreed upon
procedures.
C.5 When combinations are ordered where the elements are
currently interconnected and functional, those
elements will remain interconnected and functional
(except for the integrated SLC).
C.6 When available, BellSouth will provide Carrier with
the ability to have the BellSouth end office AIN
triggers initiated via a service order from Carrier.
C.7 Carrier and BellSouth will negotiate in good faith to
create a mutually acceptable standard service
order/disconnect order format, consistent with OBF or
other mutually agreed upon procedures.
C.8 BellSouth shall exercise best efforts to provide
Carrier with the "real time" ability to schedule
installation appointments with the customer on-line
and access to BellSouth's schedule availability
beginning in the second calendar quarter of 1997. In
the interim, BellSouth will make best effort to
install unbundled loops and other network elements by
the Customer Desired Due Date (CDDD) where facilities
permit. Service requests with shorter intervals than
normal intervals or those that require out-of-hours
provisioning may be subject to additional charges.
C.9 When available to any other telecommunications
carrier or other customer, BellSouth shall provide
"real time" response for firm order confirmation, due
date availability/scheduling, dispatch required or
not, identify line option availability by Local
Service Office (LSO) (such as digital copper, copper
analog, ISDN), completion with all service order and
time and cost related fees, rejections/errors on
service order data element(s), jeopardies against the
due date, missed appointments, additional order
charges (construction charges), order status,
validate street address detail, and electronic
notification of the local line options that were
provisioned. This applies to all types of service
orders and all network elements.
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<PAGE> 9
C.10 BellSouth will provide to Carrier escalation
procedures for ordering and provisioning. If an
expedite is requested by Carrier on the customer's
behalf, normal expedite charges shall apply.
D. CONVERSION OF EXCHANGE SERVICE TO NETWORK ELEMENTS
D.1 Installation intervals for service established via
Unbundled loops will be handled in the same timeframe
as BellSouth provides services to its own customers,
as measured from date of customer order to date of
customer delivery. BellSouth will make best effort to
install unbundled loops and other network elements by
the Customer Desired Due Date (CDDD) where facilities
permit. Service requests with a shorter than standard
interval or those that require out-of-hours
provisioning may be subject to additional charges.
D.2 On each unbundled network element order in a wire
center, Carrier and BellSouth will agree on a cut-
over time at least 48 hours before that cutover time.
The cutover time will be defined as a 180 minute
window within which both the Carrier and BellSouth
personnel will make telephone contact to complete the
cutover.
D.3 Within the appointed 180 minute cutover time, the
Carrier contact will call the BellSouth contact
designated to perform cross-connection work and when
the BellSouth contact is reached in that interval,
such work will be promptly performed.
D.4 If the Carrier contact fails to call or is not ready
within the appointed interval and if Carrier has not
called to reschedule the work at least eight (8)
hours prior to the start of the interval, BellSouth
and Carrier will reschedule the work order.
D.5 If the BellSouth contact is not available or not
ready at any time during the 180 minute interval,
Carrier and BellSouth will reschedule.
D.6 The standard time expected from disconnection of a
live Exchange Service to the connection of the
unbundled element to the Carrier collocation
arrangement is 15 minutes.
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D.7 If unusual or unexpected circumstances prolong or
extend the time required to accomplish the
coordinated cut-over, the Party responsible for such
circumstances is responsible for the reasonable labor
charges of the other Party. Delays caused by the
customer are the responsibility of Carrier.
D.8 If Carrier has ordered Service Provider Number
Portability (SPNP) as part of an unbundled loop
installation, BellSouth will coordinate
implementation of SPNP with the loop installation.
D.9 If BellSouth provides in practice shorter scheduling
lead times and/or cutover windows than those
specified in this section for the same services for
other carrier, it will do the same for Carrier.
E. SERVICE QUALITY
E.1 At a minimum, the service quality of leased network
elements should match that of BellSouth's own
elements and conform to all Bellcore and ANSI
requirements applicable to the type of service being
provided. In addition, BellSouth will provide
maintenance services on network elements purchased by
Carrier which are timely, consistent and at parity
with that provided when such elements are used for
its own purposes.
E.2 Maintenance support shall be available 7 days a week,
24 hours a day. Provisioning support shall be
available at the same times at which BellSouth
installs its own bundled local exchange services.
E.3 Installation and service intervals shall be the same
as when BellSouth provisions such network elements
for use by itself, its affiliates or its own retail
customers.
E.4 In facility and power outage situations, BellSouth
agrees to provide network elements leased by Carrier
the same priority for maintenance and restoral as
similar elements used by BellSouth for itself or its
affiliates.
E.5 The Parties agree that all interconnection
arrangements and services will at a minimum be
subject to technical standards which are equal to
those that BellSouth affords to itself, any other LEC
or other telecommunications carrier. This must, at a
minimum, include parity in:
- Port features
- Treatment during overflow/congestion conditions
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- Equipment/interface protection
- Power redundancy
- Sufficient spare facilities to ensure
provisioning, repair, performance and
availability
- Mediation functions
- Standard interfaces
F. NETWORK INFORMATION EXCHANGE
F.1 BellSouth shall provide Carrier with information
sufficient to determine an end user's existing
service and feature configurations.
F.2 BellSouth shall provide information to Carrier on a
continuing basis required to keep Carrier apprised of
engineering changes associated with BellSouth's
network elements and its deployment of new
technologies.
F.3 BellSouth shall provide Carrier with a detailed
description of the criteria and procedures used for
handling facility and power outages.
F.4 Where permitted by law, BellSouth will provide
Carrier with electronic (magnetic tape and/or
diskette) and hard copies of its Master Street
Address Guide (MSAG), and any regular updates
thereof.
F.5 BellSouth will provide Carrier with access to a
listing and description of all services and features
available down to street address detail, including:
Type of Class 5 switch by CLLI, line features
availability by LSO, and service availability by LSO,
as well as the data elements required by BellSouth to
provision all such services and features.
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G. MAINTENANCE AND TROUBLE RESOLUTION
G.1 Where available to other telecommunication service
providers, Automated interfaces shall be provided
into a centralized operations support systems
database for real time network monitoring to
proactively identify potential service degradation.
Such systems must monitor and report on the integrity
of the BellSouth network, isolate troubles and
initiate repair operations, test individual unbundled
loops and generate maintenance and repair notices
that impact any end user's ability to complete calls.
Ongoing maintenance practices on unbundled loops
shall equal the practices employed by BellSouth for
facilities used to provide retail services. BellSouth
will use its best efforts to ensure that the mean
time to repair unbundled loops shall be equivalent to
the mean time to repair reported by BellSouth for its
retail customers.
G.2 Service centers shall be established by both Parties
to handle service issues, escalations, resolution of
billing issues and other administrative problems.
G.3 The Parties agree to establish a real time automated
industry standard electronic interface (EBI) to
perform the following functions:
- Trouble Entry
- Obtain Trouble Report Status
- Obtain Estimated Time To Repair (ETTR) and ILEC
Ticket Number
- Trouble Escalation
G.4 The Parties agree to adopt a process for the
efficient management of misdirected service calls.
G.5 BellSouth will provide Carrier with numbers for the
appropriate repair center until such time as a center
is established to act as Carrier's single point of
contact for all maintenance functions which will
operate on a 24 hour a day, 7 days a week basis.
G.6 BellSouth will be responsible for all reported
trouble and will perform required test and/or
maintenance until such trouble report is turned back
to Carrier.
G.7 BellSouth's established maintenance escalation policy
shall apply in resolving maintenance trouble.
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G.8 BellSouth shall perform Mechanized Loop Tests (Quick
Test) at the request of Carrier while Carrier is on
line.
G.9 BellSouth shall provide progress status reports
sufficient to enable Carrier to provide end user
customers with detailed information and an estimated
time to repair (ETTR).
G.10 BellSouth will close all trouble reports with
Carrier. Carrier will close all trouble reports with
the end user.
G.11 BellSouth will not undertake any work at an end
user's request for which Carrier would be charged
without obtaining the prior approval of Carrier. This
includes authorizations by Carrier if a dispatch is
required to the customer premises as well as
verification of actual work completed. Carrier will
coordinate dispatches to the customer premises. This
includes dispatches for customer not-at-home.
G.12 All Auto/Subscriber Line Tests (ALIT/SLIT) tests
performed on Carrier customers that result in a
failure will be reported to Carrier.
G.13 BellSouth will ensure that all applicable alarm
systems that support Carrier customers are
operational and the supporting databases are accurate
so that equipment that is in alarm will be properly
identified. BellSouth will respond to Carrier
customer alarms consistent with how and when they
respond to alarms for their own customers.
G.14 Nondiscriminatory emergency restoration and disaster
recovery plans will be developed consistent with TSR
essential line procedures. The plans should outline
methods for the restoration of each central office in
the local network provider territory as well as
contain site specific restoration alternatives which
can be implemented based on the magnitude of the
disaster. Each plan should incorporate at a minimum
the following elements:
a. A BellSouth single point of contact which
shall be:
- Responsible for notification of the
Carrier work center
- Responsible for the initiation of
BellSouth's restoration plan
- Responsible for status and problem
resolution during the entire
restoration process
b. A restoration equipment dispatch plan which
will establish a:
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- Documented procedure on how
equipment will be dispatched to the
restoration site
- Estimated maximum time for the
restoration equipment to arrive on
site
c. Prior notification of any scheduled
maintenance activity performed by the local
supplier that may be service affecting to
Carrier local customers (i.e., cable throws,
power tests, etc.).
H. BILLING FOR NETWORK ELEMENTS
H.l BellSouth will bill all unbundled elements and
associated services purchased by Carrier (either
directly or by previous assignment by a customer) on
no more than two (2) consolidated statements per
Point of Interconnection (POI) with sufficient
billing detail to enable Carrier to reasonably audit
such charges.
H.2 Invoices must be presented monthly in a Carrier
Access Billing Systems (CABS) and/or Customer Record
Information System (CRIS) format in order to
facilitate standard industry auditing practices.
Carrier and BellSouth will agree on the flow and
format of CARE records for correct provisioning and
billing to IXCs.
I. ADDITION OF NETWORK ELEMENTS
Carrier may request that BellSouth allow purchase and
interconnection of additional Network Elements at any time by
making a demand in writing including a proposed revised
Attachment C. BellSouth will respond in writing within thirty
(30) days of receipt of such a request, and either accept or
reject the service request. BellSouth may not refuse to make
the requested Network Element available if its availability is
required by FCC or state commission requirements, the Network
Element is provided to any other telecommunications carrier,
or interconnection is technically feasible and failure to
obtain access to such Network Element might impair the ability
of Carrier to provide telecommunications services. Pricing of
such additional elements shall be provided within forty-five
(45) days of receipt of the request for service, and shall be
in accordance with the requirements of 47 U.S.C. Section
252(d)(1). Actual interconnection and provision of service
shall be provided within ninety (90) days of receipt of the
service request.
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V. LOCAL TRAFFIC INTERCONNECTION ARRANGEMENTS
A. TYPES OF LOCAL TRAFFIC TO BE EXCHANGED
The Parties agree to provide the necessary facilities and
equipment to allow for the exchange of the following types of
traffic between BellSouth and Carrier:
A.1 Local Exchange: Local traffic to be terminated on
each party's local network so that customers of
either party have the ability to reach customers of
the other party without the use of access codes.
A.2 Exchange Access: The offering of access to telephone
exchange services or facilities-based origination and
termination of intraLATA or interLATA toll services.
A.3 IXC Transit: BellSouth shall provide intermediary
network access service between Carrier and any IXC
for the purpose of completing interLATA or intraLATA
toll traffic.
A.4 Other Transit Functions: BellSouth shall provide
intermediary tandem switching and transport services
for Carrier's connection of its end user to a local
end user of other CLECs, other ILECs, and wireless
telecommunications providers.
A.5 Intelligent Network and Network Surveillance:
BellSouth shall provide open logical interconnection
points to AIN/IN interface in their network based on
the agreements reached at the IILC Issue 026.
BellSouth must also provide access to monitoring,
surveillance and other fraud control functions in its
network.
A.6 Other Services: BellSouth shall provide connection
and call routing for 911, directory assistance, and
operator assistance services.
B. DESIGNATED POINTS OF INTERCONNECTION
The Parties shall designate Points of Interconnection (POIs)
on each other's networks. Carrier shall at a minimum designate
a POI at each BellSouth access tandem serving the local
calling area of the exchanges being served by Carrier. Carrier
may designate additional POIs within a BellSouth local calling
area and BellSouth will not unreasonably refuse to
interconnect at each such designated POI.
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<PAGE> 16
BellSouth may designate a POI at one or more of Carrier's
local switching centers within each LATA in which Carrier is
providing local service. If no Carrier local switching center
is located within such LATA, the Parties will arrange a POI at
a mutually agreed point within such LATA. Carrier will not
unreasonably refuse to interconnect at a POI designated by
BellSouth.
B.1 Interconnection will be available at any technically
feasible point that is used in the transmission of
voice, data or other types of traffic.
B.2 Reciprocal connectivity shall be established at each
and every BellSouth access tandem within the local
calling area Carrier desires to serve for
interconnection to those end offices that subtend the
access tandem. At its discretion, Carrier may elect
to interconnect directly at any BellSouth end offices
for interconnection to end users served by that end
office. Such interconnecting facilities shall
conform, at a minimum, to the telecommunications
industry standard of DS-1 pursuant to Bellcore
Standard No. TR-NWT-00499. Signal transfer point,
Signaling System 7 (SS7) connectivity is required at
each interconnection point where available. BellSouth
will provide out-of-band signaling using Common
Channel Signaling Access Capability where technically
and economically feasible, in accordance with the
technical specifications set forth in the BellSouth
Guidelines to Technical Publication, TR-TSV-000905.
The Parties agree that their facilities shall provide
the necessary on-hook, off-hook answer and disconnect
supervision, and shall hand off calling party number
ID where technically feasible.
B.3 In accordance with Section V.C hereafter, collocation
arrangements will be established which are suitable
for use in Carrier/BellSouth local interconnection
and Carrier access to unbundled BellSouth network
components. Allowable collocation equipment includes
transmission and concentrating equipment.
B.4 In accordance with Section V.D hereafter, the Parties
agree to establish trunk groups such that each Party
provides a reciprocal of each trunk group established
by the other Party. The Parties agree to install
efficient and sufficient facilities to carry traffic
(1) to route calls originating on its network and
terminating on the other carrier's network to its
POI, and (2) to route calls originating on the other
local exchange carrier's network, but terminating on
its network from that carrier's POI, and will work
cooperatively to ensure such. Notwithstanding the
foregoing, each Party
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may construct its network, including the
interconnecting facilities, to achieve optimum cost
effectiveness and network efficiency.
B.5 Each Party shall be responsible for routing calls to
the POI for termination via the other's facilities.
Each Party shall bear its own costs related to
installation at the POI. Carrier may establish POIs
on the BellSouth network via a negotiated expanded
interconnection arrangement or via leased transport
between the Carrier network and the BellSouth access
tandem. BellSouth may establish POIs on the Carrier
network via an expanded interconnection arrangement
at the Carrier local switching center or via leased
transport between an Carrier expanded interconnect
arrangement and an Carrier local switching center.
B.6 Either Party may use the POI for the interconnection
of other types of services, such as toll services,
subject to the applicable rates for such
interconnection.
B.7 BellSouth may not impose any restrictions on traffic
types delivered to or from the POI(s).
Notwithstanding the foregoing, the Parties hereto
agree that no interexchange access services traffic
will be exchanged as local traffic hereunder.
B.8 Once traffic is delivered to the POI, it is the
terminating carrier's responsibility to terminate the
traffic to its end users. Calls should be terminated
using the same network, ensuring the same quality of
service, as the carrier provides its own customers.
B.9 Except as specifically provided for in Attachment C-1
hereto neither Party will charge the other
reconfiguration charges for new installations at
existing POIs.
B.10 BellSouth will absorb any applicable nonrecurring
charges incurred by Carrier as a result of network
redesigns/reconfigurations initiated by BellSouth to
its own network.
C. FACILITIES FOR LOCAL INTERCONNECTION
C.1 The parties agree there are four appropriate methods
of interconnecting facilities: (1) virtual
collocation where physical collocation is not
practical for technical reasons, because of space
limitations or at the option of the Party requesting
interconnection; (2) physical collocation;
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(3) interconnection via purchase of facilities from
either party by the other party; and (4) mid fiber
meet. Rates and charges for collocation are set forth
in Attachment C-1 hereto and applicable provisions of
BellSouth's access service tariffs.
C.2 Each Party hereto at its election shall have the sole
right and discretion to specify any one of the
following methods for interconnection at the POI:
a. a mid-fiber meet in a manhole or other
appropriate junction point inside, near to, or
just outside the wire center designated as the
POI, in which case the Party requesting
interconnection shall additionally have the sole
right and discretion to effect such meet by
leasing from a third party, fiber facilities
into the POI mid-fiber meet junction point
(i.e., virtual collocation);
b. a collocation facility which it maintains at the
other Party's POI wire center (i.e., physical
collocation);
c. a collocation facility maintained at the POI
wire center by a third party with whom the
Party requesting interconnection has
contracted for such purpose; or
d. a digital transport facility(ies) leased from
the other Party hereto under the most favorable
contract or tariff terms offered, where such
facility(ies) extends to the POI from some
second point designated by the Party requesting
interconnection.
The Party requesting interconnection may, upon 60
days' advance written notice to the other Party,
change from one of the interconnection methods
specified above to another of the networks specified
above. A mutually acceptable third party contractor
can be employed by the Party making the change to
implement such changes, in which case no conversion
or rollover charges will be assessed by the other
party.
C.3 Existing Carrier special access collocation
arrangements with BellSouth shall be available for
use by Carrier in the provision of switched services
hereunder at no additional charge to Carrier.
C.4 Carrier may at its option replace current virtual
collocation arrangements at any location with
physical collocation arrangements. The Parties agree
that no termination penalties or liabilities will
apply to the termination of
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existing virtual collocation arrangements. A mutually
acceptable third party contractor can be employed by
the Party making the change to implement such a
replacement, in which case no conversion,
installation or nonrecurring charges will be assessed
by the other Party.
D. TRUNKING AND SIGNALING
D.1. a. The Party receiving traffic for termination can
elect to receive the traffic one of two ways:
(a) over separate trunks for local and
non-local; or (b) on combined trunks; provided
that separate trunk groups shall be utilized
where the delivering party is unable to furnish
an auditable percent local usage (PLU) factor
to the party receiving the traffic on a
quarterly basis.
b. If direct end office trunking with combined
trunks is used, the Parties will work
cooperatively to develop a procedure for
accurately determining the amount of interLATA
access traffic for proper application of
switched access charges.
D.2 Trunking shall be available to any switching center
designated by either carrier: including end offices,
access tandems, 911 routing switches, directory
assistance/operator services switches, or any other
feasible point in the network. The Parties shall have
the option for either one-way or two-way trunking.
Directionality in this case refers to the traffic
flowing between two networks, not to the logical or
physical configuration of the trunk. All trunks
should be configured two way for testing purposes.
D.3 Trunking can be established to tandems or end offices
or a combination as mutually agreed. Normally,
trunking will be at the DS-1 level. On a trunk group
specific basis, the Parties may agree to establish
trucking at higher (e.g., DS-3) levels. Initial
Trunking will be established between the Carrier
local switching centers and the BellSouth access
tandems. The Parties will utilize direct end office
trunking under the following conditions:
a. BellSouth tandem exhaust - If a BellSouth access
tandem to which Carrier is interconnected is
unable to, or is forecasted to be unable to,
support additional traffic loads for any period
of time, the Parties will mutually agree on an
end office trunking plan that will alleviate the
tandem capacity shortage and ensure completion
of traffic between Carrier and BellSouth
subscribers.
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b. Traffic volumes - The Parties shall install and
retain direct end office trunking sufficient to
handle actual or reasonably forecast traffic
volumes, whichever is greater, between an
Carrier local switching center and a BellSouth
and office where traffic between such points
exceeds or is forecast to exceed 125,000 minutes
of local traffic per month. The Parties will
install additional capacity between such points
when overflow traffic between the Carrier
switching center and BellSouth access tandem
exceeds or is forecast to exceed 125,000 minutes
of local traffic per month.
c. Mutual agreement - The Parties may install
direct end office trunking upon mutual agreement
in the absence of conditions (a) or (b) above
and agreement will not unreasonably be withheld.
D.4 The Parties will provide Common Channel Signaling
(CCS) information to one another, where and as
available, at no charge, in conjunction with all POI
trunk groups. The Parties will cooperate in the
exchange of Transaction Capabilities Application Part
(TCAP) messages to facilitate full inter-operability
of CCS-based features between their respective
networks, including all CLASS features and functions,
to the extent each carrier offers such features and
functions to its own end users. All CCS signaling
parameters will be provided including calling party
number (CPN), originating line information (OLI)
calling party category, charge number, etc. All
privacy indicators will be honored. Where available,
network signaling information such as Carrier
Identification Parameter (CCS platform), at the
standard tariff rates, and CIC/OZZ information
(non-CCS environment) will be provided wherever such
information is needed for call routing or billing.
The Parties will follow all Ordering and Billing
Forum (OBF) adopted standards pertaining to CIC/OZZ
codes. Where CCS is not available, in-band
multi-frequency (MF) wink start E&M channel
associated signaling will be provided. Such MF
arrangements will require a separate trunk group
between Carrier's switch and one specified BellSouth
switch.
D.5 Carrier shall establish CCS interconnection with
BellSouth signal transfer points (STPs) in each LATA,
either directly or via an intermediary STP provider.
Where the interconnection is via B-link connections,
charges for the SS7 interconnection elements are as
follows: 1) Port Charge- BellSouth will not bill an
STP port charge nor will BellSouth agree to pay a
port charge; 2) SS7 Network Usage- BellSouth will
bill SS7 Network Usage and will agree to pay usage
billed by Carrier (to the extent that a flat rate
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surrogate charge is billed by Carrier, it will not
exceed BellSouth's charge); 3) SS7 Link-BellSouth
will bill for only two links of each quad ordered.
Application of these charges in this manner reflects
the reciprocal use of the two parties signaling
networks.
Where the interconnection is via A-link
connections, charges for the SS7 interconnection
elements are as follows: 1) Port Charge- BellSouth
will bill an STP port charge and does not agree to
pay a termination charge at Carrier's end office; 2)
SS7 Network Usage- BellSouth will bill for usage on
its SS7 network and will not agree to pay for any
usage billed by Carrier; 3) Link- BellSouth will bill
full charges for each link in the A-link pair and
will not agree to pay Carrier for any portion of
those links.
D.6 Carrier may opt at any time to terminate to BellSouth
some or all local exchange traffic and intraLATA toll
traffic originating on its network, together with
switched access traffic, via Feature Group A, B, C or
D Switched Access services which Carrier may
otherwise purchase from BellSouth, subject to the
rates, terms and conditions specified in BellSouth's
applicable switched access tariffs. At no time shall
Carrier be required to route outbound traffic via
facilities for which a full retail or end user toll
charge would be assessed when parallel FG-A, FG-B,
FG-C, or FG-D routing, or routing via a different
carrier exists which is capable of carrying and
completing said traffic at more favorable rates.
D.7 The Parties will cooperate to jointly plan for the
deployment of intercompany 64 Kbps per second clear
channel capability.
D.8 Service arrangements hereunder shall be engineered to
an objective, consistent P.01 or better grade of
service at the peak busy hour.
D.9 The Parties shall periodically exchange technical
descriptions and trunk/traffic forecasts of their
interconnection and traffic requirements in
sufficient detail to assure traffic completion to and
from all customers within the appropriate calling
areas.
D.10 BellSouth shall deliver intraLATA traffic originating
from its subscribers and terminating to Carrier's
subscribers via a combined two-way trunk group using
facilities leased from Carrier on mutually agreeable
terms.
D.11 BellSouth will provide interconnection to and from
intelligent network, signaling, monitoring,
surveillance and fraud control points.
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D.12 BellSouth shall provide and implement all industry
standard SS7 parameters as well as procedures that
are defined in the ANSI standards, even if today's
services do not specifically require these features.
These functions shall include:
a. All functions of the ISUP, TCAP, SCCP, and MTP
as specified in relevant BellCore
specifications.
b. All functions of the OMAP, including MTP Routing
Verification Test (MRVT) and SCCP Routing
Verification Test (SRVT).
D.13 The Parties shall meet or exceed SS7 performance
objectives as described in Bellcore TR-905 section 7,
and MTP and SCCP performance as specified by ANSI.
D.14 Either Party shall have the option for
Multi-Frequency (MF) signaling, but only when either
party does not have the technical capability to
provide SS7 facilities.
D.15 Other Signaling Requirements:
a. CIP shall be provided (CIC within the SS7 call
set-up signaling protocol) at tariffed charges.
b. All mandatory SS7 signaling parameters must be
provided including Calling Party Number (CPN).
All privacy indicators must be honored.
E. NETWORK MANAGEMENT
E.1 The Parties agree to work cooperatively to install
and maintain reliable interconnected
telecommunications networks, including but not
limited to, the exchange of appropriate information
concerning network changes that affect services to
the other Party, maintenance contact numbers and
escalation procedures.
E.2 The interconnection of all networks will be based
upon accepted industry/national guidelines for
transmission standards and traffic blocking criteria.
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E.3 The Parties will work cooperatively to apply sound
network management principles by invoking appropriate
network management controls (e.g., call gapping) to
alleviate or prevent network congestion.
E.4 The Parties will cooperate to determine the
performance of their respective networks and will
implement joint management controls to further
overall service integrity.
E.5 The Parties will jointly develop and agree on a Joint
Interconnection Grooming Plan prescribing standards
to ensure that traffic exchanged over the POI trunk
groups experiences a consistent P.01 or better grade
of service peak busy hour, and other appropriate,
relevant industry-accepted quality, reliability and
availability standards. Such plan shall also include
mutually agreed upon standards for the configuration
of segregated POI trunk groups. In addition, the plan
shall also include standards and procedures for
notification of trunk disconnections and discoveries
of trunk disconnections. Neither Party shall be
expected to maintain active status for a trunk
disconnected by the other Party for an extended or
indefinite period of time. The Parties will use their
best collective good faith efforts to complete and
agree on a Joint Interconnection Grooming Plan within
90 days following execution of this agreement.
E.6 BellSouth will establish and adhere to competitive
intervals for the delivery of FOCs, DLRs and
facilities. Such intervals need to ensure that
facilities are provisioned in time frames and
according to standards that meet or exceed those that
BellSouth provides to itself for its own network and
end users. Intervals should not exceed the Customer
Designated Date (CDD).
E.7 Upon request, BellSouth will provide Carrier with
read and write access to the BellSouth maintenance
and trouble report systems including the following
systems and/or functionality:
- Trouble reporting/dispatch capability - access must
be real time
- Repair status/confirmation; maintenance/trouble
report systems
- Planned/Unplanned outage reports
E.8 Each Party has the duty to alert the other to any
network events that can result or has resulted in
service interruption, blocked calls, or changes in
network performance, on a real time basis.
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E.9 BellSouth will adopt any multi-ILEC trouble
management procedures and escalation processes
developed by the NOF.
E.10 The Parties will work cooperatively to plan and
implement coordinated repair procedures for the local
interconnection trunks and facilities to ensure
trouble reports are resolved in a timely and
appropriate manner.
E.11 The Parties will provide each other with a trouble
reporting number that is readily accessible and
available 24 hours a day, 7 days a week. In addition,
the Parties will provide each other test-line numbers
and access to test lines.
E.12 The quality of interconnection services should be no
less than that provided by BellSouth for its own
services.
E.13 Installation and restoration of interconnection
circuits by BellSouth for Carrier will be given equal
priority as is given by BellSouth to similar services
performed by BellSouth for any other
telecommunications carrier.
E.14 The time interval for installation of POIs by
BellSouth will be negotiated on an ICB basis, subject
to an agreement that installation of such POI's will
be completed within a target of sixty (60) calendar
days.
E.15 Completion confirmation shall be provided to ensure
that all necessary translation work is completed on
newly installed facilities.
E.16 The Parties shall periodically exchange technical
descriptions and forecasts of their interconnection
and traffic requirements in sufficient detail to
assure traffic completion to and from all customers
within the appropriate calling areas.
E.17 BellSouth will provide and update an electronic copy
of their Switch Network ID Database with a complete
list of features and functions by switch, NPA/NXXs,
business/residence counts and identification, rate
centers, etc.
F. LOCAL NUMBER ASSIGNMENT
Carrier will assign telephone numbers to its customers using
at least one NXX per BellSouth tariffed local exchange
metropolitan area; provided, that sufficient quantities of
numbering resources are made available to Carrier.
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G. CROSS-CONNECTION TO OTHER COLLOCATORS
Where one Party collocates in the wire center of the other
Party, the Party operating the wire center shall allow the
Party collocated at the wire center to directly interconnect
to any other entity which maintains a collocation facility at
that same wire center. The Party operating the wire center
shall enable such interconnection by effecting a
cross-connection between those collocation facilities, as
jointly directed by the Party collocated at the wire center
and the other collocated entity. For each such
cross-connection, the Party operating the wire center shall
charge one-half the otherwise applicable standard tariff or
contract special access cross-connect rate to the collocated
Party, and the identical rate to the other collocated entity.
No other charges shall apply for such cross-connection.
VI. LOCAL TRAFFIC EXCHANGE
A. EXCHANGE OF TRAFFIC
The Parties agree for the purpose of this Agreement only that
local interconnection is defined as the delivery of local
traffic to be terminated on each party's local network so that
customers of either party have the ability to reach customers
of the other party, without the use of any access code or
delay in the processing of the call. Local traffic for these
purposes shall include any telephone call that originates and
terminates in the same LATA and is billed by the originating
exchange outside of BellSouth's service area with respect to
which BellSouth has a local interconnection arrangement with
an independent LEC, with which Carrier is not directly
connected. The Parties further agree that the exchange of
traffic on BellSouth's Extended Area Service (EAS) shall be
considered local traffic and compensation for the termination
of such traffic shall be pursuant to the terms of this
section. EAS routes are those exchanges within an exchange's
Basic Local Calling Area, as defined in Section A3 of
BellSouth's General Subscriber Services Tariff.
B. COMPENSATION
With the exception of the local traffic specifically
identified in subsection (C) hereafter, each party agrees to
terminate local traffic originated and routed to it by the
other party. The Parties agree that BellSouth will track the
usage for both companies for the period of the Agreement.
BellSouth will provide copies of such usage reports to Carrier
on a monthly basis. For purposes of this Agreement, the
Parties agree that there will be no cash compensation
exchanged by the parties
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during the term of this Agreement unless the difference in
minutes of use for terminating local traffic exceeds 2 million
minutes per state on a monthly basis. In such an event, the
Parties will thereafter negotiate the specifics of a traffic
exchange agreement which will apply on a going-forward basis.
C. TRANSITTED TRAFFIC
If either party provides intermediary tandem switching and
transport services for the other party's connection of its end
user to a local end user of: (1) a CLEC other than Carrier;
(2) an ILEC other than BellSouth; or (3) another
telecommunications company such as a wireless
telecommunications service provider, the party performing the
intermediary function will bill a $0.002 per minute charge.
However, BellSouth agrees that Carrier may cross-connect
directly to such third Parties at the POI. In such an event,
tariffed cross-connection non-recurring charges will apply,
and no transitting charge will apply.
VII. MEET-POINT BILLING ARRANGEMENTS
Both Parties hereto provide interexchange access transport services to
IXCs and other access service customers. Pursuant to the terms of this
Agreement, and to the extent Carrier requires meet-point arrangements,
Carrier will interconnect at selected BellSouth switches of its
choosing for the purposes of providing certain Switched Access
Services. On such occasions, a portion of the access transport service
will be provided by each of the Parties hereto. This section
establishes arrangements intended to enable each of the Parties hereto
to serve and bill their mutual Switched Access Service customers, on an
accurate and timely basis. The arrangements discussed in this section
apply to the provision of both interLATA and intraLATA Switched Access
Services. It is understood and agreed that Carrier is not obligated to
provide any of its Switched Access Service(s) through any specific
access tandem switch or access tandem provider, and may at its sole
discretion, with due notice to those affected, modify its serving
arrangements on its own initiative.
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A. APPLICABILITY OF OBF GUIDELINES
Meet-point billing (MPB) arrangements shall be established
between the Parties to enable Carrier to provide, at its
option, Switched Access Services to third Parties via
specified LEC switches, in accordance with the Meet-Point
Billing guidelines adopted by and contained in the Ordering
and Billing Forum's MECAB and MECOD documents, except as
modified herein. These arrangements are intended to be used to
provide Switched Access Service that originates and/or
terminates on an Carrier-provided Exchange Service, where the
transport component of the Switched Access Service is routed
through specified BellSouth switches.
B. MEET-POINT INTERCONNECTION
B.1 The Parties shall establish MPB arrangements in each
LATA or locality where switched services are provided
by Carrier, between the correspondingly identified
Rating Point/Switch pairs. BellSouth shall provide
homing/subtending access tandem arrangements through
the same (or a closely proximate) switching entity
used for access services to BellSouth's end users.
This does not foreclose the possibility that other
mutually agreeable arrangements may be utilized by
mutual agreement of the Parties where appropriate.
B.2 At Carrier's discretion, interconnection for the MPB
arrangement shall be established at the POI as
described hereafter, at a collocation facility
maintained by Carrier or an affiliate of Carrier at
specified BellSouth switches, or at any point
mutually agreed to by the Parties, consistent with
the terms and conditions herein.
B.3 Two-way meet point trunks which are separate from the
local interconnection trunk groups will be
established to enable Carrier and BellSouth to
provide Exchange Access Services to IXCs via a
BellSouth Central Office. No Party shall charge the
other any amount for any meet point facilities unless
one Party is ordering trunks from the other.
B.4 Common Channel Signaling (CCS) shall be utilized in
conjunction with meet-point billing arrangements to
the extent such signaling is technically compatible
with and economically reasonable to provide through
the BellSouth switch, except that MF signaling shall
be used on a separate trunk group for originating FGD
access to Exchange Access Customers that uses the MF
FGD signaling protocol. The Parties may establish
CCIS interconnection either directly or through a
third party.
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B.5 Carrier may establish CCS interconnections either
directly or through a third-party. The Parties will
exchange TCAP messages to facilitate full
interoperability of CCIS-based features between their
respective networks, including all CLASS features and
functions to its own end users. The Parties will
provide all CCIS signaling, Billing Number,
originating line information (OLI) and any other such
similar service. For terminating FGD, BellSouth will
pass CPN if it receives CPN from FGD carriers. All
privacy indicators will be honored. Where available,
network signaling information, such as Transit
Network Selection (TNS) parameter (CCIS platform) and
OZZ/CIC information (non-CCIS environment) will be
provided whenever such information is needed for call
routing or billing. The Parties will follow all OBF
adopted standards pertaining to TNS and OZZ/CIC
codes.
B.6 All originating Toll Free Service calls for which
BellSouth performs the Service Switching Point (SSP)
function (e.g., performs the database query) shall be
delivered by Carrier using GR-394 format over a trunk
group designated for Toll Free Service. Carrier Code
"0110" and Circuit Code of "08" shall be used for all
such calls. In the event Carrier becomes a toll free
service provider, BellSouth shall deliver traffic
using the GR-394 format over a trunk group designated
for Toll Free Service.
B.7 All originating Toll Free Service calls for which
Carrier performs the SSP function, if delivered to
BellSouth, shall be delivered by Carrier using GR-394
format over the meet point trunk group for calls
destined to IXCs, or shall be delivered by Carrier
using GR-317 format over the Local Interconnection
Trunk Group for calls destined to end offices that
directly subtend BellSouth access tandems.
B.8 Originating Feature Group B calls shall be delivered
to BellSouth's tandem using the interLATA trunk
groups.
C. TARIFFS
Carrier and BellSouth will use their best reasonable efforts,
individually and collectively, to maintain provisions in their
respective federal and state access tariffs sufficient to
reflect this MPB arrangement, including appropriate MPB
percentages consistent with applicable industry standard
practice and in accordance with Section VII.F hereafter.
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D. BILLING AND DATA EXCHANGE
D.1 Each Party shall implement the "Multiple
Bill/Multiple Tariff" option in order to bill an IXC
for the portion of the jointly provided
telecommunications service provided by that Party.
For all traffic carried over the MPB arrangement,
each Party shall only bill the rate elements
identified for it in this Agreement. For transport
elements subject to billing percentages, each Party
shall utilize the billing percentages discussed in
Section III.C preceding and Section VII.F hereafter.
The actual rate values for each element shall be the
rates contained in that Party's own effective federal
and state access tariffs. The Parties shall utilize
complementary monthly billing periods for meet-point
billing.
D.2 BellSouth may charge the IXC for use of the entrance
facility, the tandem switching and the mutually
agreed portion of non-interconnection transport
charges. BellSouth will not include an element for
the Residual Interconnection Charge (RIC) and Carrier
will be entitled to bill and collect the appropriate
RIC and/or any other applicable rate elements.
D.3 Each party will provide to the other access records
sufficient to enable billing to the IXCs. Records
shall be provided in the Exchange Message Record
format, Bellcore Standard BR 010-200-010, as amended.
D.4 BellSouth shall provide to Carrier the billing name,
billing address, and CIC of the IXCs and copies of
relevant IXC Access Service Requests (ASRs), in order
to comply with the MPB notification process as
outlined in the MECAB document, on an electronic
medium basis using the EMR format.
D.5 BellSouth shall provide Carrier, on a daily basis,
switched access detail usage data (EMR Category
1101XX records) on magnetic tape or via electronic
file transfer using EMR format, for calls from IXCs
that have transitted BelISouth's tandems and
terminated to Carrier's switching center(s).
D.6 Carrier shall provide BellSouth, on a monthly basis,
switched access summary usage data (EMR Category
1150XX records) on magnetic tape or via electronic
file transfer using EMR format, for calls to IXCs
which originate at Carrier's switching center(s).
D.7 The Parties will exchange test files to support the
initial implementation of the meet point billing
processes provided for in this Agreement. Exchange of
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test data will commence one week after AMA
certification begins. These data shall be actual
recorded usage records.
D.8 Each Party shall coordinate and exchange the billing
account reference (BAR) and billing account cross
reference (BACR) numbers for the MPB Service. Each
Party shall notify the other if the level of billing
or other BAR/BACR elements change, resulting in a new
BAR/BACR number.
D.9 If access usage data is not processed and delivered
by either Party and sent to the other in a timely
manner and in turn such other Party is unable to bill
the IXC, the delivering Party will be held liable for
the amount of lost billing.
D.10 Errors may be discovered by Carrier, the IXC or
BellSouth. Both BellSouth and Carrier agree to
provide the other Party with notification of any
discovered errors within seven (7) business days of
the discovery. In the event of a loss of data, both
Parties shall cooperate to reconstruct the lost data
and if such reconstruction is not possible, shall
accept a reasonable estimate of the lost data based
upon three (3) to twelve (12) months of prior usage
data.
D.11 The Parties shall not charge one another for the
services rendered or information provided pursuant to
this Section VII of this Agreement.
E. TOLL FREE IXC TRAFFIC
MPB will apply for all traffic bearing the 800, 888, or any other
non-geographic NPA which may be likewise designated for such traffic in the
future, where the responsible party is an IXC. In those situations where the
responsible party for such traffic is a LEC, full switched access rates will
apply.
F. MPB BILLING PERCENTAGES
The MPB billing percentage for each Carrier Rating Point shall
be calculated according to the following formulas:
In any service jointly provided by BellSouth and Carrier for
which meet point billing arrangements are adopted, the meet
point billing percentages shall be based on the relative
distances (i.e., airline mileage) between the meet point and
the two rating points as follows:
a b
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Carrier percentage = (a+b) BellSouth percentage = (a+b)
where "a" is the airline mileage between the relevant Carrier
rating point (e.g., serving switch) and the meet point and "b"
is the airline mileage between the BellSouth rating point and
the meet point.
G. SPECIAL ARRANGEMENTS
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G.1 In a few instances, the involvement of yet a third
provider of switched access may be needed for
particular traffic. For purposes of customer billing,
when three or more LECs are involved in the
transmission of a particular message, the
intermediate carriers will have no rating point, and
the relevant mileage measurement is between the two
end points.
G.2 In the case of IXC traffic terminating to Carrier
ported numbers, the Parties will, unless IXC actual
minutes of use can be measured, account for access
revenue on a state-by-state basis by using verifiable
BellSouth/Carrier interstate and intrastate minutes
of use reported on the applicable ARMIS report at the
total IXC access rates applicable to BellSouth less
the BellSouth/Carrier meet point access minutes at
the meet point billing access rates applicable to
BellSouth, with no other subtractions.
G.3 If either Party provides intermediary functions for
network access service connection between an IXC and
another Party, each Party will provide their own
network access services to the IXC on a meet-point
basis. The meet-point billing arrangement will be
through the multiple bill. Each Party will bill its
own network access services rates to the IXC with the
exception of the residual interconnection charge.
Each Party shall bill 50% of is residual
interconnection charges in such case.
VIII. TOLL TRAFFIC INTERCONNECTION
A. The delivery of interexchange toll traffic by a Party to the
other Party shall be reciprocal and compensation will be
mutual. For terminating its toll traffic on the other Party's
network, each Party will pay the other Party's tariffed
terminating switched access rate, inclusive of the
interconnection charge and the carrier common line rate
elements of the switched access rate. The Parties agree that
their terminating switched rate shall be the rate in effect
when the traffic is terminated.
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B. For originating and terminating interexchange toll traffic,
each Party shall pay the other Party's tariffed switched
network access service rate elements on a per minute of use
basis. Said rate elements shall be as set out in the Parties'
respective access services tariffs as those tariffs are
amended from time to time during the term of this Agreement.
The appropriate charges will be determined by the routing of
the call. If Carrier is the BellSouth end user's presubscribed
interexchange carrier or if the BellSouth end user uses
Carrier as an interexchange carrier on a 10XXX basis,
BellSouth will charge Carrier the appropriate tariff charges
for originating network access services. If BellSouth is
serving as the Carrier end user's presubscribed interexchange
carrier or if the Carrier end user uses BellSouth as an
interexchange carrier on a 10XXX basis, Carrier will charge
BellSouth the appropriate BellSouth tariff charges for
originating network access services.
IX. NUMBER RESOURCE ARRANGEMENTS
A. Nothing in this Agreement shall be construed to in any manner
limit or otherwise adversely impact either Party's right to
request and be assigned any North American Numbering Plan
(NANP) number resources including, but not limited to, central
office (NXX) codes pursuant to the Central Office Code
Assignment Guidelines (last published by the Industry
Numbering Committee (INC) as INC 95-0407-008, Revision 4/7/95,
formerly ICCF 93-0729-010), or to independently, and in a
technically compatible manner, establish and publish in any
and all switched telecommunications industry routing and
rating databases, by tariff or otherwise, Rate Centers Rating
Points, destination switching entity/office and routing/tandem
information corresponding to such NXX codes.
B. During any period under this Agreement in which it serves as
the NANP administrator for its territory, BellSouth shall
ensure that Carrier has nondiscriminatory access to telephone
numbers for assignment to its telephone exchange service
customers, and will assist Carrier in applying for NXX codes
for its use in providing local exchange services. It is
mutually agreed that BellSouth shall provide numbering
resources pursuant to the Bellcore Guidelines Regarding Number
Assignment and compliance with those guidelines shall
constitute nondiscriminatory access to numbers. Carrier agrees
that it will complete the NXX code application in accordance
with Industry Carriers Compatibility Forum, Central Office
Code Assignment Guidelines, ICCF 93-0729-010.
C. If during the term of this Agreement BellSouth is no longer
the NANP administrator, the Parties agree to comply with the
guidelines, plan or rules adopted pursuant to 47 U.S.C.
Section 251(e).
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D. Each Party agrees to make available to the other, up-to-date
listings of its own assigned NPA-NXX Codes, along with
associated rating points and rate centers.
E. It shall be the responsibility of each Party to program and
update its switches and network systems pursuant to the local
exchange routing guide (LERG) and other switched
telecommunications industry guidelines to recognize and route
traffic to the other Party's assigned NXX codes using that
party's preferred routing at all times. Neither Party shall
impose any fees or charges whatsoever on the other Party for
such activities, except as expressly defined in this
Agreement.
F. Each Party shall be responsible for notifying its customers of
any changes in dialing arrangements due to NPA exhaustion.
Neither party shall be obligated to adopt the specific end
user dialing plan of the other.
G. Administration and assignment of numbers will be moved to a
neutral third party in the future. In the interim, while
BellSouth is still administering numbering, the following will
apply:
1. BellSouth will assign NXXs to Carrier on a
nondiscriminatory basis and on the same basis as to
itself.
2. No restriction is placed on the ability to assign
NXXs per rate center.
3. Testing and loading of Carrier's NXXs' should be the
same as BellSouth's own.
4. BellSouth cannot discriminate in the allocation of
number and types of NXXs assigned to Carrier.
5. BellSouth will assign NXXs to Carrier without the
imposition of charges that are not imposed upon
itself.
6. BellSouth will load NXXs according to industry
guidelines, including the terminating LATA in which
the NXXs/rate center is located.
7. Until such time that number administration is moved
to an independent third party, BellSouth will provide
routine reporting on NXX availability, fill rates,
and new assignments.
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8. In the event of NPA-NXX splits, it is agreed that
Carrier may continue use of the pre-existing NPA-NXX
for existing customers.
9. BellSouth will supply Carrier with copies of its
Local Calling Area Boundary Guide, including all
updates thereto.
10. All BellSouth services provided to Carrier pursuant
to this Article will be at no charge to Carrier.
X. ACCESS TO POLES, DUCTS, CONDUITS, AND RIGHTS OF WAY
A. BellSouth agrees to provide to Carrier, pursuant to
47 U.S.C. Section 224, as amended by the Act,
nondiscriminatory access to any pole, duct, conduit,
and right-of-way owned or controlled by BellSouth.
BellSouth agrees to provide access at rates, terms
and conditions which are no less favorable than those
provided to any other telecommunications service
provider or cable television provider (CATV),
including those provided to itself or its affiliates.
B. BellSouth must provide access to its unbundled
network interface device.
C. When BellSouth has equipment on, over or under public
or private property, it will permit the use of such
equipment by Carrier on an equal and
nondiscriminatory basis.
D. Any authorizations to attach to poles, overlashing
requirements, or modifications to the conduit system
or other pathways to allow access to and egress from
the system shall not be hindered, restricted or
unreasonably withheld or delayed. Such access and use
shall be on terms and conditions identical to those
that BellSouth provides to itself and its affiliates
for the provision of exchange, exchange access and
interexchange services.
E. BellSouth agrees to take no action to intervene
against, or attempt to delay, the granting of permits
to Carrier for use of public rights-of-way or access
with property owners.
F. Any costs for improvements to/expansions of poles,
etc., should be prorated on a nondiscriminatory and
neutral basis among and all users of the facility.
G. No application fees will apply.
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H. Fees will be fixed for term of contract.
I. BellSouth will provide routine notification of
changes to poles, conduits, and rights-of-way.
J. BellSouth will provide open access to current
pole-line prints, and conduit prints, make available
maps of conduit and manhole locations, and allow
manhole/conduit break-outs, and audits to confirm
usability.
K. BellSouth will provide regular reports on the
capacity status and planned increase in capacity of
each of these access channels to facilitate
construction planning.
L. BellSouth will provide information on the location
of, and the availability to access conduit, poles.
etc., when Carrier requests such information, within
ten (10) working days after the request.
M. The Parties agree to enter a Standard License
Agreement incorporating specific rates, terms and
conditions consistent with the foregoing.
XI. ANCILLARY SERVICES AND PLATFORM ARRANGEMENTS
A. 800 TRAFFIC
A.1 BellSouth agrees to compensate Carrier, pursuant to
Carrier's published originating switched access
charges, including the database query charge, for the
origination of 800 and 888 traffic (combined "800")
terminated to BellSouth.
A.2 Carrier will provide to BellSouth the appropriate
records necessary for BellSouth to bill BellSouth's
intraLATA 800 customers. The records provided by
Carrier will be in a standard EMR format for a fee,
paid by BellSouth to Carrier, of $0.015 per record.
A.3 If Carrier provides 800 services to its end users
during the term of this Agreement, it agrees to
compensate BellSouth, pursuant to BellSouth's
originating switched access charges, including the
database query charge, for the origination of 800
traffic terminated to Carrier. BellSouth agrees to
provide Carrier the appropriate records for Carrier
to bill its 800 customers. The records provided will
be in a standard EMR format for a fee, paid by
Carrier to BellSouth, of $0.015 per record.
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A.4 If during the term of this Agreement, BellSouth is
permitted to provide interLATA 800 services,
BellSouth will compensate Carrier for the origination
of such traffic in accordance with the above.
A.5 If Carrier utilizes BellSouth's 800 database for
query purposes only, the rates and charges shall be
as set forth in the applicable BellSouth Access
Services Tariff, as said tariff is amended from time
to time during the term of this Agreement.
A.6 Should Carrier require 800 access ten digit screening
service from BellSouth, it shall have signaling
transfer points connecting directly to BellSouth's
local or regional signaling transfer point for
service control point database query information.
Carrier shall utilize SS7 Signaling links, ports and
usage from BellSouth's interstate access services
tariff. 800 access ten digit screening service is an
originating service that is provided via 800 switched
access service trunk groups from BellSouth's SSP
equipped end office or access tandem providing an IXC
identification function and delivery of call to the
IXC based on the dialed ten digit number. The rates
and charges for said services shall be as set forth
in the applicable BellSouth access services tariff as
said tariff is amended from time to time during the
term of this Agreement.
B. 911/E-911
B.1 The Parties agree to interconnect with each other to
provide Basic 911 and E-911 emergency calling
services consistent with the terms of Attachment C-9
hereto.
B.2 For Basic 911 service, BellSouth will provide to
Carrier a list consisting of each municipality in
each state that subscribes to Basic 911 service. The
list will also provide, if known, the E-911
conversion date for each county and, for network
routing purposes, a ten-digit directory number
representing the appropriate emergency answering
position for each county subscribing to 911. Carrier
will arrange to accept 911 calls from its end users
in municipalities that subscribe to Basic 911 service
and translate the 911 call to the appropriate
10-digit directory number as stated on the list
provided by BellSouth. Carrier will route that call
to BellSouth at the appropriate tandem or end office.
When a county converts to E-911 service, Carrier
shall discontinue the Basic 911 procedures and begin
the E-911 procedures, set forth in subsection B.4
below.
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B.3 For E-911 service, Carrier shall install a minimum of
two dedicated trunks originating form Carrier's
serving wire center and terminating to the
appropriate E-911 tandem. The dedicated trunks shall
be, at minimum, DS0 level trunks configured either as
a 2 wire analog interface or as part of a digital
(1.544 Mb/s) interface. Either configuration shall
use CAMA type signaling with MF pulsing that will
deliver automatic number identification (ANI) with
the voice portion of the call. If the user interface
is digital, MF pulses, as well as other AC signals,
shall be encoded per the U-255 Law convention.
Carrier will provide BellSouth daily updates to the
E-911 database.
B.4 If a municipality has converted to E-911 service,
Carrier will forward 911 calls to the appropriate
E-911 tandem, along with ANI, based upon the current
E-911 end office to tandem homing arrangement as
provided by BellSouth. If the E-911 tandem trunks are
not available, Carrier will alternatively route the
call to a designated 7-digit local number residing in
the appropriate PSAP. This call will be transported
over BellSouth's interoffice network and will not
carry the ANI of the calling party.
B.5 BellSouth will provide Carrier with an electronic
interface from which Carrier may input and update
subscriber records in the E-911 database. BellSouth
shall also provide Carrier with an automated
interface to access its Automatic Location
Identification (ALI) database.
B.6 BellSouth and Carrier agree that the practices and
procedures contained in the E-911 Local Exchange
Carrier Guide For Facility-Based Providers (LEC
Carrier Guide) shall determine the appropriate
procedures and practices of the Parties as to the
provision of 911/E-911 Access. The LEC Carrier Guide
shall at a minimum include, or BellSouth shall
separately provide, 911 database update procedures
and 911 trunk restoration procedures.
B.7 If Carrier requires transport to the BellSouth 911
tandem, Carrier may, at Carrier's option, purchase
such transport from BellSouth at rates set forth in
either BellSouth's intrastate switched access
services tariff or intrastate special access services
tariff.
B.8 BellSouth and Carrier will cooperatively arrange
meetings to answer any technical questions that
municipal or county coordinators may have regarding
the 9-1-1/E-911 portions of this Agreement.
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B.9 Where BellSouth is responsible for maintenance of the E-911
database and can be compensated for maintaining Carrier's
information by the municipality, BellSouth shall seek such
compensation. BellSouth may seek compensation for its costs
from Carrier only if and to the extent BellSouth is unable to
obtain such compensation from the municipality.
B.10 Nothing herein shall be construed to prevent Carrier from
opting to route Basic 911 and E-911 calls to an alternative
emergency call service bureau, to provide such services
itself, or to route such calls directly to a Public Safety
Answering Point (PSAP).
C. PROVISION OF OPERATOR SERVICES
C.1 BellSouth will offer to Carrier Operator Call
Processing Access Service BLV/BLVI Service and
Directory Assistance Access Services. Rates, terms
and conditions are set forth in section VI.F for
BLV/BLVI Service, Attachment C-11 for Directory
Assistance Access Services, and Attachment C-10 for
Operator Call Processing Access Services. Each such
attachment is incorporated herein by this reference.
C.2 BellSouth also will offer to Carrier CMDS Hosting and
the Non Sent Paid Report System pursuant to the terms
and conditions set forth in Attachment C-12 and
Attachment C-13, incorporated herein by this
reference.
D. TRANSFER OF SERVICE ANNOUNCEMENTS
When an end user customer changes from BellSouth to Carrier,
or from Carrier to BellSouth, and does not retain its original
telephone number, the Party formerly providing service to the
end user will provide a transfer of service announcement on
the abandoned telephone number. Each Party will provide this
referral service at no charge to the other Party. This
announcement will provide details on the new number to be
dialed to reach this customer.
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E. COORDINATED REPAIR CALLS
Carrier and BellSouth will employ the following procedures for
handling misdirected repair calls:
E.1 Carrier and BellSouth will educate their respective
customers as to the correct telephone numbers to call
in order to access their respective repair bureaus.
E.2 To the extent the correct provider can be determined,
misdirected repair calls will be referred to the
proper provider of local exchange service in a
courteous manner, at no charge, and the end user will
be provided the correct contact telephone number. In
responding to repair calls, neither Party shall make
disparaging remarks about each other, nor shall they
use these repair calls as the basis for internal
referrals or to solicit customers to market services.
Either Party shall respond with accurate information
in answering customer questions.
E.3 Carrier and BellSouth shall provide their respective
repair contact numbers to one another on a reciprocal
basis.
F. BUSY LINE VERIFICATION AND INTERRUPT
F.1 Description
a. Each Party shall establish procedures whereby
its operator bureau will coordinate with the
operator bureau of the other Party in order to
provide Busy Line Verification (BLV) and Busy
Line Verification and Interrupt (BLVI) services
on calls between their respective end users.
b. Carrier will route BLV and BLVI traffic to the
BellSouth access tandem. BellSouth WLL route BLV
and BLVI traffic to the Carrier access tandem.
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F.2 Compensation
Each Party shall charge the other Party for BLV and
BLVI at the effective rates contained in BellSouth's
applicable Local Interconnection Services Tariff(s).
G. DIRECTORY ASSISTANCE (DA)
G.1 Description
At Carrier's request, BellSouth will:
a. Provide to Carrier, over TOPs trunks, unbranded
(or Carrier-branded, where available) directory
assistance service which is comparable in every
way to the directory assistance service
BellSouth makes available to interexchange
carriers.
b. In conjunction with subparagraph (a) above,
provide caller optional directory assistance
call completion service which is comparable in
every way to the directory assistance call
completion service BellSouth generally makes
available to its end users, to the extent
BellSouth generally offers such service to its
end users.
c. BellSouth will provide Carrier operators on-line
access to BellSouth's DA database.
G.2 Compensation
Initial rates, terms and conditions for DA Services
shall be as provided in Attachment C-11 hereto.
H. DIRECTORY LISTINGS AND DIRECTORY DISTRIBUTION
H.l Subject to the execution of an agreement between
BellSouth's affiliate, BellSouth Advertising and
Publishing Co. (BAPCO), and Carrier in a form
substantially similar to that attached as Attachment
C-8, (1) Carrier's customers' primary listings shall
be included in the appropriate white page (resident
and business) listings or alphabetical directories,
as well as the directory assistance database, (2)
Carrier's business subscribers' listings will be
included in all appropriate yellow pages or
classified directories,
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and (3) copies of directories shall be delivered to
Carrier's customers; all without charge.
H.2 BellSouth shall provide Carrier with a magnetic tape
or computer disk containing the proper format to
employ in submitting directory listings and daily
updates. Carrier shall provide BellSouth with its
directory listings and daily updates to those
listings (including new, changed and deleted
listings) in a mutually acceptable format. BellSouth
shall include Carrier's customers in the directory
assistance database associated with the areas in
which Carrier provides exchange services within the
same time frame as BellSouth includes its own
customers in such databases.
H.3 BellSouth and its Affiliates will afford Carrier's
directory listings information the same level of
confidentiality which BellSouth affords its own
directory listing information, and BellSouth shall
ensure that access to Carrier's customer proprietary
confidential directory information will be limited
solely to those employees who immediately supervise
or are directly involved in the processing and
publishing of listings and directory delivery.
BellSouth will not use Carrier's directory listings
for the marketing of BellSouth's telecommunications
services.
I. ACCESS TO SIGNALING AND SIGNALING DATABASES
I.1 BellSouth will offer to Carrier use of its SS7
signaling network and signaling databases on an
unbundled basis at the rates included in Attachment
C-5 hereto. Signaling functionality will be available
with both A-link and B-link connectivity.
I.2 BellSouth agrees to input NXX assigned to Carrier
into the Local Exchange Routing Guide (LERG).
I.3 BellSouth will enter Carrier line information into
its Line Information Database (LID) pursuant to the
terms and conditions contained in Attachment C-6
hereto, incorporated herein by this reference. Entry
of line information into LIDB will enable Carrier's
end users to participate or not participate in
alternate billing arrangements such as collect or
third number billed calls.
I.4 BellSouth will provide Carrier with access to LID for
call and card validation purposes pursuant to the
rates, terms and conditions contained in Attachment
C-7 hereto, as amended hereafter to include unbundled
local loops.
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I.5 If Carrier utilizes BellSouth's 800 database for
query purposes only applicable BellSouth tariffed
rates will apply.
XII. TELEPHONE NUMBER PORTABILITY ARRANGEMENTS
A. The Parties agree to provide interim Service Provider
Number Portability (SPNP) on a reciprocal basis
between their networks to enable their end user
customers to utilize telephone numbers associated
with an Exchange Service provided by one Party, in
conjunction with an Exchange Service provided by the
other Party, upon the coordinated or simultaneous
termination of the first Exchange Service and
activation of the second Exchange Service. The
Parties shall provide reciprocal SPNP immediately
upon execution of this Agreement via remote call
forwarding (RCF) or Direct Inward Dialing (DID). SPNP
shall operate as follows:
A.1 An end user customer of Party A elects to become an
end user customer of Party B. The end user customer
elects to utilize the original telephone number(s)
corresponding to the Exchange Service(s) it
previously received from Party A, in conjunction with
the Exchange Service(s) it will now receive from
Party B. Upon receipt of a service order assigning
the number to Party B. Party A will implement an
arrangement whereby all calls to the original
telephone number(s) will be forwarded to a new
telephone number(s) designated by Party B within the
same access where the original NXX code is used.
Party A will route the forwarded traffic to Party B
over the appropriate trunk groups, as if the call had
originated on Party A's network.
A.2 Party B will become the customer of record for the
original Party A telephone numbers subject to the
SPNP arrangements. Party A will provide Party B a
single consolidated master billing statement for all
collect, calling card, and third-number billed calls
associated with those numbers, with subaccount detail
by retained number. Such billing statement shall be
delivered via either electronic data transfer, daily
magnetic tape, or monthly magnetic tape (for which
option there shall be no charge). Party A shall
provide to Party B the EMR detail records associated
with the calls on the master billing statement.
A.3 Party A will cancel line-based calling cards and
will, as directed by Party B. update its Line
Information Database (LIDB) listings for retained
numbers, subject to RCF, and restrict or cancel
calling cards associated
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with those forwarded numbers, as directed by Party B,
subject to execution of an LIDB storage agreement in
substantially the form attached hereto.
A.4 Within two (2) business days of receiving
notification from the end user customer, Party B
shall notify Party A of the customer's termination of
service with Party B, and shall further notify Party
A as to that customer's instructions regarding its
telephone number(s). Party A will reinstate service
to that customer, cancel the SPNP arrangements for
that customer's telephone number(s), or redirect the
SPNP arrangement pursuant to the customer's
instructions at that time.
B. SPNP-RCF is a telecommunications service whereby a call dialed
to an SPNP-RCF equipped telephone number, is automatically
forwarded to an assigned seven or ten digit telephone number
within the local calling area as defined in Section A3 of the
BellSouth General Subscriber Service Tariff. The forwarded-to
number is specified by Carrier or BellSouth, as appropriate.
Where technologically feasible, the forwarding party will
provide identification of the originating telephone number,
via SS7 signaling, to the receiving party. Neither party
guarantees, however, identification of the originating
telephone number to the SPNP-RCF end user. SPNP-RCF provides a
single call path for the forwarding of no more than one
simultaneous call to the receiving party's specified
forwarded-to number. Additional call paths for the forwarding
of multiple simultaneous calls are available on a per path
basis and are in addition to the rate for SPNP-RCF service.
C. The Parties shall provide RCF arrangements to each other at
identical monthly rates. Recurring charges shall not exceed
the actual cost of providing the service. There shall be no
non-recurring charges. Until otherwise verified by reliable
cost studies, actual cost for recurring charges are as
follows:
1. Residential Services - $1.15 per line, including 6
call paths;
2. Business Service - $2.25 per line, including 10 call
paths; and
3. Each additional path - $0.50.
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D. SPNP-DID service provides trunk side access to end office
switches for direct inward dialing to the other Party's
premises equipment from the telecommunications network to
lines associated with the other Party's switching equipment
and must be provided on all trunks in a group arranged for
inward service. A SPNP-DID trunk termination, provided with
SS7 signaling only, applies for each trunk voice grade
equivalent. In addition, direct facilities are required from
the end office where a ported number resides to the end office
serving the ported end user customer. Transport mileage will
be calculated as the airline distance between the end office
where the number is ported and the POI using the V&H
coordinate method. SPNP-DID must be established with a minimum
configuration of two channels and one unassigned telephone
number per switch, per arrangement for control purposes.
Transport facilities arranged for SPNP-DID may not be mixed
with any other type of trunk group, with no outgoing calls
placed over said facilities. SPNP-DID will be provided only
where such facilities are available and where the switching
equipment of the ordering party is properly equipped. Where
SPNP-DID service is required from more than one wire center or
from separate trunk groups within the same wire center, such
service provided from each wire center or each trunk group
within the same wire center shall be considered a separate
service. Only customer dialed sent paid calls will be
completed to the first number of a SPNP-DID number group,
however, there are no restrictions on calls completed to other
numbers of a SPNP-DID number group.
E. The Parties hereby agree to negotiate in good faith to
establish the recurring and non-recurring charges, if any, for
SPNP through DID. For this purpose, BellSouth shall provide
Carrier with its relevant cost studies, subject to applicable
non-disclosure obligations. In the event that the Parties are
unable to agree upon the applicable charges, the issue shall
be resolved in accordance with the process set forth in
Article XXV. In the interim period, the rates contained in
Attachment E hereto will apply.
F. Each Party is responsible for obtaining authorization from the
end user for the handling of the disconnection of the end
user's service, the provision of new local service and the
provision of SPNP services. Each Party is responsible for
coordinating the provision of service with the other to assure
that its switch is capable of accepting SPNP ported traffic.
Each Party is responsible for providing equipment and
facilities that are compatible with the other's service
parameters, interfaces, equipment and facilities and is
required to provide sufficient terminating facilities and
services at the terminating end of an SPNP call to adequately
handle all traffic to that location and is solely responsible
to ensure that its facilities, equipment and services do not
interfere with or impair any facility, equipment, or service
of the other Party or any of its end users.
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G. Each Party is responsible for providing an appropriate
intercept announcement service for any telephone numbers
subscribed to SPNP services for which it is not presently
providing local exchange service or terminating to an end
user. Where either Party chooses to disconnect or terminate
any SPNP service, that Party is responsible for designating
the preferred standard type of announcement to be provided.
H. Each Party will be the other's Party's single point of contact
for all repair calls on behalf of each Party's end user. Each
Party reserves the right to contact the other Party's
customers, if deemed necessary, for maintenance purposes.
I. The Parties will migrate from RCF or DID to Permanent Number
Portability (PNP) as soon as practically possible, without
interruption of service (to the degree possible) to their
respective customers.
J. Under either an SPNP or PNP arrangement, Carrier and BellSouth
will implement a process to coordinate Telephone Numbers
Portability (TNP) cut-overs with Unbundled loop conversions
(as described in Section IV of this Agreement).
K. The quality of service of calls to ported numbers should be
identical to the quality of service of the calls to non-ported
numbers.
L. If the Federal Communications Commission issues regulations
pursuant to 47 U.S.C. Section 251 to require number
portability different than that provided pursuant to this
subsection, the Parties agree to fully comply with those
requirements.
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XIII. DISCONNECTION OF CUSTOMERS
A. BellSouth shall accept any requests from Carrier to disconnect
the service of an existing BellSouth end user, except for
BellSouth public and semipublic telephone service which
service is subject to effective contracts with location
providers. BellSouth will not require end user confirmation
prior to disconnecting the end user's service. BellSouth will
accept a request directly from an end user for conversion of
the end user's service from Carrier to BellSouth or will
accept a request from another CLEC for conversion of the SPNP
service associated with an end user's service charge from
Carrier to the CLEC. BellSouth will notify Carrier that such a
request has been processed. This Article shall be subject to
Section 258(a) and (b) of the Telecommunications Act which
prohibits illegal changes of carrier selections and assesses
liability for such changes, and any change of service
verification procedures which may be promulgated by the FCC.
Carrier and BellSouth shall each execute a blanket letter of
authorization for each state substantially in the form
attached as Attachment F hereto with respect to customer
disconnections. The Parties shall each be entitled to adopt
their own internal processes for verification of customer
authorization of disconnection of service; provided, however,
that such processes shall comply with applicable state and
federal law and until superseded shall be deemed adequate for
purposes of this Agreement if such processes comply with FCC
guidelines applicable to Presubscribed Interexchange Carriers
(PIC) changes.
B. If either Party determines that an unauthorized change in
local service provider has occurred, such Party shall
reestablish service with the appropriate local service
provider as requested by the end user and will assess the
other Party an Unauthorized Change Charge of $19.41 per line.
The appropriate nonrecurring charges to reestablish the
customer's service with the appropriate local service provider
will also be assessed to the other Party because of the
unauthorized change. These charges shall be adjusted if such
Party provides satisfactory proof of authorization.
C. If BellSouth accepts an order placed by itself or another CLEC
(or local reseller) to disconnect the SPNP to an Carrier end
user, BellSouth shall notify Carrier of the change within
three (3) days thereof.
XIV. RESALE OF BELLSOUTH LOCAL EXCHANGE SERVICES
BellSouth hereby agrees that Carrier may at any time during the term of
this Agreement elect to resell BellSouth's local exchange services
under the terms and conditions of any
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local services resale agreement reached between BellSouth and any other
telecommunications carrier. Carrier may select any such resale
agreement at any time prior to the expiration of this Agreement.
XV. RESPONSIBILITIES OF THE PARTIES
A. BellSouth and Carrier agree to treat each other fairly,
non-discriminatorily, and equally for all items included in
this Agreement or related to the support of items included in
this Agreement.
B. Carrier and BellSouth will work cooperatively to minimize
fraud associated with third-number billed calls, calling card
calls, or any other services related to this Agreement. The
Parties fraud minimization procedures are to be cost effective
and implemented so as not to unduly burden or harm one Party
as compared to the other.
C. Carrier and BellSouth agree to promptly exchange all necessary
records for the proper billing of all traffic.
D. Carrier and BellSouth will review engineering requirements on
a quarterly basis and establish forecasts for trunk
utilization, POI trunks, MPB arrangements, E-911, EISCC
facility requirements, quantities of DNCF, loops and other
services provided under this Agreement. New trunk groups will
be implemented as dictated by engineering requirements for
both BellSouth and Carrier. BellSouth and Carrier are required
to provide each other the proper call information (e.g.,
originated call party number and destination call party
number) to enable each company to bill in a complete and
timely manner.
E. The Parties will cooperate by exchanging technical information
in order to identify and explore potential solutions to enable
Carrier to establish unique rate centers, or to assign a
single NXX code across multiple rate centers.
F. Carrier and BellSouth will work jointly and cooperatively in
developing and implementing common manual and/or electronic
interfaces (including, for example, data elements, data
format, and data transmission) from which to place service
orders and trouble reports involving the provision of loops,
DNCF, directory assistance, directory listings, E-911, and
other services included in this Agreement. To the extent
reasonable, Carrier and BellSouth will utilize the standards
established by industry fora, such as OBF.
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G. BellSouth will Support Carrier requests related to central
office (NXX) code administration and assignments in an
effective and timely manner. Carrier and BellSouth will comply
with code administration requirements as prescribed by the
FCC, the state commissions, and accepted industry guidelines.
H. There will be no re-arrangement, reconfiguration, disconnect,
or other non-recurring fees associated with the initial
reconfiguration of each carrier's traffic exchange
arrangements upon execution of this agreement.
I. BellSouth shall not impose a cross-connect fee on Carrier
where Carrier accesses 911 or E-911, reciprocal traffic
exchange trunks, and network platform services, through a
collocation arrangement at the BellSouth Wire Center.
J. Notwithstanding any other provision of this Agreement, it is
mutually understood and agreed that both Parties hereto
reserve the right to establish each of the following,
consistent with generally accepted industry standards.
1. Rate centers (location and area within)
2. Points of interchange (including meet points)
3. Switching entity designation and supporting data
(including inbound route choice)
a. end office
b. homing/homed to tandem
4. Association of routing point(s) with end offices,
POIs, etc.
5. Published rate center and locality designations.
XVI. NETWORK DESIGN AND MANAGEMENT
A. The Parties agree to work cooperatively to install and
maintain reliable interconnected telecommunications networks,
including but not limited to, maintenance contact numbers and
escalation procedures. BellSouth agrees to provide public
notice of changes in the information necessary for the
transmission and routing of services using its local exchange
facilities or networks, as well as of any other changes that
would affect the interoperability of those facilities and
networks.
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B. The interconnection of all networks will be based upon
accepted industry/national guidelines for transmission
standards and traffic blocking criteria.
C. The Parties will work cooperatively to apply sound network
management principles by invoking appropriate network
management controls to alleviate or prevent network
congestion.
D. For network expansion, the Parties agree to review engineering
requirements on a quarterly basis and establish forecasts for
trunk utilization. New trunk groups will be added as
reasonably warranted.
E. Carrier and BellSouth will exchange appropriate information
(e.g., maintenance contact numbers, network information,
information required to comply with law enforcement and other
security agencies of the Government) to achieve desired
reliability. In addition, Carrier and BellSouth will
cooperatively plan and implement coordinated repair procedures
to ensure customer trouble reports are resolved in a timely
and appropriate manner.
XVII. TERM
A. The term of this Agreement shall be two years, beginning April
15, 1997.
B. The Parties agree that by no later than April 15, 1998, they
shall commence negotiations with regard to the terms,
conditions and prices of local interconnection to be effective
beginning April 15, 1999.
C. If, within 90 days of commencing the negotiation referred to
in Section XVII.B above, the Parties are unable to
satisfactorily negotiate new local interconnection terms,
conditions and prices, either Party may petition the state
commission to establish appropriate local interconnection
arrangements pursuant to 47 U.S.C. 252. The Parties agree
that, in such event, they shall encourage the Commission to
issue its order regarding the appropriate local
interconnection arrangements no later than October 15, 1998.
The Parties further agree that in the event the Commission
does not issue its order prior to October 15, 1998 or if the
Parties continue beyond April 15, 1999 to negotiate the local
interconnection arrangements without Commission intervention,
the terms, conditions and prices ultimately ordered by the
Commission, or negotiated by the Parties, will be effective
retroactive to April 15, 1999. Until the revised local
interconnection arrangements become effective, the Parties
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shall continue to exchange traffic pursuant to the terms and
conditions of this Agreement.
D. The Parties agree that (1) if the FCC or a state commission or
other state or local body having jurisdiction over the subject
matter of this Agreement finds that the terms of this
Agreement are inconsistent in one or more material respects
with any of its or their respective decisions, rules or
regulations promulgated, or (2) if the FCC or a state
commission preempts the effect of this Agreement, then in the
event of the occurrence of (1) or (2), which occurrence is
final and no longer subject to administrative or judicial
review, the Parties shall immediately commence good faith
negotiations to conform this Agreement with any such decision,
rule, regulation or preemption. The revised agreement shall
have an effective date that coincides with the effective date
of the original FCC or state commission's action giving rise
to such negotiations. The Parties agree that the rates, terms
and conditions of any new agreement shall not be applied
retroactively to any period prior to such effective date.
E. In the event that BellSouth provides interconnection and/or
temporary number portability arrangements via tariff or has or
enters into an interconnection and/or temporary number
portability agreement with another entity, BellSouth will
permit Carrier an opportunity to inspect such tariff or
agreement and, upon Carrier's request, BellSouth will
immediately offer Carrier an agreement on the same material
terms with effect from the date BellSouth first made such
tariff effective or entered into such arrangement and for the
remainder of the term of this Agreement. The other items
covered by this Agreement and not covered by such tariff or
agreement shall remain unaffected and as to such items this
Agreement shall remain in effect.
F. In the event that BellSouth is required by an FCC or a state
commission decision or order to provide any one or more terms
of interconnection or other matters covered by this Agreement
that individually differ from any one or more corresponding
terms of this Agreement, Carrier may elect to amend this
Agreement to reflect all of such differing terms (but not less
than all) contained in such decision or order, with effect
from the date Carrier makes such election. The other items
covered by this Agreement and not covered by such decision or
order shall remain unaffected and as to such items this
Agreement shall remain in effect.
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XVIII. IMPLEMENTATION OF AGREEMENT
The Parties agree that within 30 days of the execution of this
Agreement they will adopt a schedule for the implementation of this
Agreement. The schedule shall state with specificity, ordering,
testing, and full operational time frames. The implementation shall be
attached to this Agreement as an addendum and specifically incorporated
herein by this reference. All rates within this Agreement will become
effective upon execution of the Agreement.
XIX UNIVERSAL SERVICE
The Parties acknowledge that BellSouth will guarantee the provision of
universal service as the carrier-of-last-resort throughout its
territory in Florida until January 1, 1998 without contribution from
Carrier.
XX. FORCE MAJEURE
Neither Party shall be responsible for delays or failures in
performance resulting from acts or occurrences beyond the reasonable
control of such Party, regardless of whether such delays or failures in
performance were foreseen or foreseeable as of the date of this
Agreement including, without limitation: fire, explosion, power
failure, acts of God, war, revolution, civil commotion, or acts of
public enemies; any law, order, regulation, ordinance or requirement of
any government or legal body; or labor unrest, including, without
limitation, strikes, slowdowns, picketing or boycotts; or delays caused
by the other Party or by other service or equipment vendors; or any
other circumstances beyond the Party's reasonable control. In such
event the Party affected shall, upon giving prompt notice to the other
Party, be excused from such performance on a day-today basis to the
extent of such interference (and the other Party shall likewise be
excused from performance of its obligations on a day-for-day basis to
the extent such Party's obligations relate to the performance so
interfered with). The affected Party shall use its best efforts to
avoid or remove the cause of nonperformance and both Parties shall
proceed to perform with dispatch once the causes are removed or cease.
XXI. LIABILITY AND INDEMNIFICATION
A. LIABILITY CAP.
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1. With respect to any claim or suit, whether based in
contract, tort or any other theory of legal
liability, by Carrier, any Carrier customer or by any
other person or entity, for damages associated with
any of the services provided by BellSouth pursuant to
or in connection with this Agreement, including but
not limited to the installation, provision,
preemption, termination, maintenance, repair or
restoration of service, and subject to the provisions
of the remainder of this Article, BellSouth's
liability shall be limited to an amount equal to the
proportionate charge for the service provided
pursuant to this Agreement for the period during
which the service was affected. Notwithstanding the
foregoing, claims for damages by Carrier, any Carrier
customer or any other person or entity resulting from
the gross negligence or willful misconduct of
BellSouth and claims for damages by Carrier resulting
from the failure of BellSouth to honor in one or more
material respects any one or more of the material
provisions of this Agreement shall not be subject to
such limitation of liability.
2. With respect to any claim or suit, whether based in
contract, tort or any other theory of legal
liability, by BellSouth, any BellSouth customer or by
any other person or entity, for damages associated
with any of the services provided by Carrier pursuant
to or in connection with this Agreement, including
but not limited to the installation, provision,
preemption, termination, maintenance, repair or
restoration of service, and subject to the provisions
of the remainder of this Article, Carrier's liability
shall be limited to an amount equal to the
proportionate charge for the service provided
pursuant to this Agreement for the period during
which the service was affected. Notwithstanding the
foregoing, claims for damages by BellSouth, any
BellSouth customer or any other person or entity
resulting from the gross negligence or willful
misconduct of Carrier and claims for damages by
BellSouth resulting from the failure of Carrier to
honor in one or more material respects any one or
more of the material provisions of this Agreement
shall not be subject to such limitation of liability.
B. Neither Party shall be liable for any act or omission of any
other telecommunications company to the extent such other
telecommunications company provides a portion of a service.
C. Neither Party shall be liable for damages to the other Party's
terminal location, POI or the other Party's customers'
premises resulting form the furnishing of a service, including
but not limited to the installation and removal of equipment
and associated wiring, except to the extent the damage is
caused by such Party's gross negligence or willful misconduct.
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D. Notwithstanding subsection A, the Party providing services
under this Agreement, its affiliates and its parent company
shall be indemnified, defended and held harmless by the Party
receiving such services against any claim, loss or damage
arising from the receiving Party's use of the services
provided under this Agreement, involving: (1) claims for
libel, slander, invasion of privacy or copyright infringement
arising from the content of the receiving Party's own
communications; (2) any claim, loss or damage claimed by the
receiving Party's customer(s) arising from such customer's use
of any service, including 911/E-911, that the customer has
obtained from the receiving Party and that the receiving Party
has obtained form the supplying Party under this Agreement; or
(3) all other claims arising out of an act or omission of the
receiving Party in the course of using services provided
pursuant to this Agreement. Notwithstanding the foregoing, to
the extent that a claim, loss or damage is caused by the gross
negligence or willful misconduct of a supplying Party, the
receiving Party shall have no obligation to indemnify, defined
and hold harmless the supplying Party hereunder.
E. Neither Party guarantees or makes any warranty with respect to
its services when used in an explosive atmosphere.
Notwithstanding subsection A, each Party shall be indemnified,
defended and held harmless by the other Party or the other
Party's customer from any and all claims by any person
relating to the other Party or the other Party's customer's
use of services so provided.
F. No license under patents (other than the limited license to
use in the course of using a service provided pursuant to this
Agreement) is granted by one Party to the other or shall be
implied or arise by estoppel, with respect to any service
offered pursuant to this Agreement. Notwithstanding subsection
A, the Party providing a service pursuant to this Agreement
will defend the Party receiving such service against claims of
patent infringement arising solely from the use by the
receiving Party of such service and will indemnify the
receiving Party for any damages awarded based solely on such
claims. Such indemnification shall not, however, extend to
claims for patent infringement to the extent the alleged
infringement results from:
1. Modification of the service by someone other than the
providing Party and/or its subcontractors, where
there would be no such infringement or violation in
the absence of such modification; or
2. The combination, operation or use of the service with
any product, data or apparatus not provided by the
providing Party and/or its subcontractors, where
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there would be no such infringement or violation in
the absence of such combination, operation or use.
G. Promptly after receipt of notice of any claim or the
commencement of any action for which a Party may seek
indemnification pursuant to this Article XXI, such Party (the
"Indemnified Party") shall promptly give written notice to the
other Party (the "Indemnifying Party" of such claim or action,
but the failure to so notify the Indemnifying Party shall not
relieve the Indemnifying Party of any liability it may have to
the Indemnified Party except to the extent the Indemnifying
Party has actually been prejudiced thereby. The Indemnifying
Party shall be obligated to assume the defense of such claim,
at its own expense. The Indemnified Party shall cooperate with
the Indemnifying Party's reasonable requests for assistance or
Information relating to such claim, at the Indemnifying
Party's expense. The Indemnified Party shall have the right to
participate in the investigation and defense of such claim or
action, with separate counsel chosen and paid for by the
Indemnified Party.
XXII. MOST FAVORABLE PROVISIONS
A. The parties agree that if --
1. the Federal Communications Commission ("FCC") or the
Commission finds that the terms of this Agreement are
inconsistent in one or more material respects with
any of its or their respective decisions, rules or
regulations, or
2. the FCC or the Commission preempts the effect of this
Agreement, then, in either case, upon such occurrence
becoming final and no longer subject to
administrative or judicial review, the parties shall
immediately commence good faith negotiations to
conform this Agreement to the requirements of any
such decision, rule, regulation or preemption. The
revised agreement shall have an effective date that
coincides with the effective date of the original FCC
or Commission action giving rise to such
negotiations. The parties agree that the rates,
terms, and conditions of any new agreement shall not
be applied retroactively to any period prior to such
effective date except to the extent that such
retroactive effect is expressly required by such FCC
or Commission decision, rule, regulation or
preemption.
B. In the event that BellSouth, either before or after the
effective date of this Agreement, enters into an agreement
with any other telecommunications carrier (an
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"Other Interconnection Agreement") which provides for the
provision within a particular state covered under this
Agreement of any of the arrangements covered by this Agreement
to be provided in a particular state upon rates, terms or
conditions that differ in any material respect from the rates,
terms and conditions for such arrangements set forth in this
Agreement ("Other Terms"), then except as provided in Section
XXII.F, BellSouth shall be deemed thereby to have offered such
arrangements to Carrier for that state upon such Other Terms,
which Carrier may accept as provided in Section XXII.E. In the
event that Carrier accepts such offer within sixty (60) days
after the Commission approves such Other Interconnection
Agreement pursuant to 47 U.S.C. Section 252, or within thirty
(30) days after Carrier acquires actual knowledge of an Other
Interconnection Agreement not requiring the approval of the
Commission pursuant to 47 U.S.C. Section 252, as the case may
be, such Other Terms for such arrangement for the particular
state shall be effective between BellSouth and Carrier as of
the effective date of such Other Interconnection Agreement. In
the event that Carrier accepts such offer more than sixty (60)
days after the Commission approves such Other Interconnection
Agreement pursuant to 47 U.S.C. Section 252, or more than
thirty (30) days after acquiring actual knowledge of an Other
Interconnection Agreement not requiring the approval of the
Commission pursuant to 47 U.S.C. Section 252, as the case may
be, such Other Terms shall be effective between BellSouth and
Carrier as of the date on which Carrier accepts such offer.
C. In the event that after the effective date of this Agreement
the FCC or the Commission enters an order (an "Interconnection
Order") requiring BellSouth to provide within a particular
state covered under this Agreement any of the arrangements
covered by this Agreement to be provided in a particular state
upon Other Terms, then upon such Interconnection Order
becoming final and not subject to further administrative or
judicial review, except as provided in Section XXII.F,
BellSouth shall be deemed to have offered such arrangements in
that state to Carrier upon such Other Terms, which Carrier may
accept as provided in Section XXII.E. In the event that
Carrier accepts such offer within sixty (60) days after the
date on which such Interconnection Order becomes final and not
subject to further administrative or judicial review, such
Other Terms for such arrangement for the particular state
shall be effective between BellSouth and Carrier as of the
effective date of such Interconnection Order. In the event
that Carrier accepts such offer more than sixty (60) days
after the date on which such Interconnection Order becomes
final and not subject to further administrative or judicial
review, such Other Terms shall be effective between BellSouth
and Carrier as of the date on which Carrier accepts such
offer.
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D. In the event that after the effective date of this Agreement
BellSouth files subsequently receives approval for one or more
intrastate or interstate tariffs (each, an "Interconnection
Tariff") offering to provide in a particular state covered
under this Agreement any of the arrangements covered by this
Agreement to be provided in a particular state upon Other
Terms, then upon such Interconnection Tariff becoming
effective, except as provided in Section XXII.F, BellSouth
shall be deemed thereby to have offered such arrangements in
that state to Carrier upon such Other Terms, which Carrier may
accept as provided in Section XXII.E. In the event that
Carrier accepts such offer within sixty (60) days after the
date on which such Interconnection Tariff becomes effective,
such Other Terms for such arrangements for the particular
state shall be effective between BellSouth and Carrier as of
the effective date of such Interconnection Tariff. In the
event that Carrier accepts such offer more than sixty (60)
days after the date on which such Interconnection Tariff
becomes effective, such Other Terms shall be effective between
BellSouth and DelaCom as of the date on which Carrier accepts
such offer.
E. In the event that BellSouth is deemed to have offered Carrier
the arrangements covered by this Agreement upon Other Terms,
Carrier in its sole discretion may accept such offer either -
1. by accepting such Other Terms in their entirety; or
2. by accepting the Other Terms that directly relate to
any of the following arrangements as a whole:
a. local interconnection,
b. interLATA and IntraLATA toll traffic
interconnection,
c. unbundled access to network elements, which
include: local loops, network interface devices,
switching capability, interoffice transmission
facilities, signaling networks and call-related
databases, operations support systems functions,
operator services and directory assistance, and
any elements that result from subsequent bone
fide requests,
d. access to poles, ducts, conduits and
rights-of-way,
e. access to 911/E911 emergency network,
f. collocation, or
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g. access to telephone numbers.
The terms of this Agreement, other than those affected by the
Other Terms accepted by Carrier, shall remain in full force
and effect.
F. CORRECTIVE PAYMENT. In the event that -
1. BellSouth and Carrier revise this Agreement pursuant
to Section XXII.A, or
2. Carrier accepts a deemed offer of Other Terms
pursuant to Section XXII.E, then BellSouth or
Carrier, as applicable, shall make a corrective
payment to the other party to correct for the
difference between the rates set forth herein and the
rates in such revised agreement or Other Terms for
substantially similar services for the period from
the effective date of such revised agreement or Other
Terms until the date that the parties execute such
revised agreement or Carrier accepts such Other
Terms, plus simple interest at a rate equal to the
thirty (30) day commercial paper rate for high-grade,
unsecured notes sold through dealers by major
corporations in multiples of $1,000.00 as regularly
published in The Wall Street Journal.
XXIII. DEFAULT
If either Party defaults in the payment of any amount due hereunder,
or if either Party violates any other provision of this Agreement,
and such default or violation shall continue for thirty (30) days
after written notice thereof, the other Party may terminate this
Agreement forthwith by written instrument. The failure of either
Party to enforce any of the provisions of this Agreement or the
waiver thereof in any instance shall not be construed as a general
waiver or relinquishment of its part of any such provision, but the
same shall, nevertheless, be and remain in full force and effect.
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XXIV. NONDISCLOSURE
A. All information, including but not limited to specifications,
microfilm, photocopies, magnetic disks, magnetic tapes,
drawings, sketches, models, samples, tools, technical
information, data, employee records, maps, financial reports,
and market data, (i) furnished by one Party to the other Party
dealing with customer specific, facility specific, or usage
specific information, other than customer information
communicated for the purpose of publication or directory
database inclusion, or (ii) in written, graphic,
electromagnetic, or other tangible form and marked at the time
of delivery as "Confidential" or "Proprietary," or (iii)
communicated orally and declared to the receiving Party at the
time of delivery, or by written notice given to the receiving
Party within ten (10) days after delivery, to be
"Confidential" or "Proprietary" (collectively referred to as
"Proprietary Information"), shall remain the property of the
disclosing Party.
B. Upon request by the disclosing Party, the receiving Party
shall return all tangible copies of Proprietary Information,
whether written, graphic or otherwise, except that the
receiving Party may retain one copy for archival purposes.
C. Each Party shall keep all of the other Party's Proprietary
Information confidential and shall use the other Party's
Proprietary Information only for performing the covenants
contained in the Agreement. Neither Party shall use the other
Party's Proprietary Information for any other purpose except
upon such terms and conditions as may be agreed upon between
the Parties in writing.
D. Unless otherwise agreed, the obligations of confidentiality
and non-use set forth in this Agreement do not apply to such
Proprietary Information as:
1. was at the time of receipt already known to the
receiving Party free of any obligation to keep it
confidential evidenced by written-records prepared
prior to delivery by the disclosing Party; or
2. is or becomes publicly known through no wrongful act
of the receiving Party; or
3. is rightfully received from a third person having no
direct or indirect secrecy or confidentiality
obligation to the disclosing Party with respect to
such information; or
4. is independently developed by an employee, agent, or
contractor of the receiving Party which individual is
not involved in any manner with the
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provision of services pursuant to the Agreement and
does not have any direct or indirect access to the
Proprietary Information; or
5. is disclosed to a third person by the disclosing
Party without similar restrictions on such third
person's rights; or
6. is approved for release by written authorization of
the disclosing Party; or
7. is required to be made public by the receiving Party
pursuant to applicable law or regulation provided
that the receiving Party shall give sufficient notice
of the requirement to the disclosing Party to enable
the disclosing Party to seek protective orders.
E. Effective Date. Notwithstanding any other provision of this
Agreement, the Proprietary Information provisions of this
Agreement shall apply to all information furnished by either
Party to the other in furtherance of the purpose of this
Agreement, even if furnished before the date of this
Agreement. The obligation to that information as confidential
shall survive the termination of this Agreement.
XXV. ARBITRATION
A. Any controversy or claim arising out of, or relating to, this
Contract or the breach thereof shall be settled by
arbitration, in accordance with the rules then obtaining, of
the American Arbitration Association, and judgment upon the
award rendered may by entered in any court having jurisdiction
of the controversy or claim. As an express condition precedent
to any legal or equitable action or proceeding in the event of
disputes or controversies as to the amount of loss or damage
arising out of this Contract, such disputes or controversies
shall first be submitted to the arbitration of two persons,
one chosen by each Party, who shall jointly select a third
person. Provided, however, that nothing contained herein shall
preclude either Party from filing any complaint or other
request for action or relief with the FCC or the appropriate
state commission, including any appeals thereof. The Party
which does not prevail shall pay all reasonable costs of the
arbitration or other formal complaint proceeding, including
reasonable attorney's fees and other legal expenses of the
prevailing Party.
B. Nothing herein shall preclude Carrier from seeking state
commission arbitration, pursuant to sections 251-53 of the
Telecommunications Act, of issues upon which the Parties
hereto were unable to reach agreement during the negotiations
hereof. The Parties acknowledge, for example, that they were
unable to reach agreement
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on the availability, rates and terms of local sub-loop
unbundling, local loop multiplexing, switch port charges,
access to databases, etc., and that such issues will be
submitted for resolution by the state commissions through
arbitration. BellSouth hereby waives any right to contest
Carrier's ability to seek state commission and/or FCC review
of such unresolved issues.
XXVI. WAIVERS
Any failure by either Party to insist upon the strict performance
by the other Party of any of the provisions of this Agreement
shall not be deemed a waiver of any of the provisions of this
Agreement, and each Party, notwithstanding such failure, shall
have the right thereafter to insist upon the specific performance
of any and all of the provisions of this Agreement.
XXVII. GOVERNING LAW
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Georgia.
XXVIII. ARM'S LENGTH NEGOTIATIONS
This Agreement was executed after arm's length negotiations
between the undersigned Parties and reflects the conclusion of the
undersigned that this Agreement is in the best interests of all
Parties.
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XXIX. NOTICES
Any notices required by or concerning this Agreement shall be
sent to the Parties at the addresses shown below:
Cybernet Group Account Manager
Attn: Felix Boccucci BellSouth Telecommunications, Inc.
P.O. Box 510 South E4E1
West Point, GA 31833 3535 Colonnade Parkway
Birmingham, Alabama 35243
Each Party shall inform the other of any changes in the above addresses.
XXX. ENTIRE AGREEMENT
This Agreement and its Attachments, incorporated herein by this
reference, sets forth the entire understanding and supersedes prior agreements
between the Parties relating to the subject matter contained herein and merges
all prior discussions between them, and neither Party shall be bound by any
definition, condition, provision, representation, warranty, covenant or promise
other than as expressly stated in this Agreement or as is contemporaneously or
subsequently set forth in writing and executed by a duly authorized officer or
representative of the Party to be bound thereby.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their respective duly authorized representatives.
/s/ Robert Nyswaner /s/ Jerry Hendrix
- ----------------------------------- --------------------------------------
CYBERNET GROUP BELLSOUTH
TELECOMMUNICATIONS, INC.
By: Robert Nyswaner By: Jerry Hendrix
Title: CFO Title: Director
Date: 5-1-97 Date:
Address: P.O. Box 510 Address: 675 W. Peachtree Street, N.E.
West Point, GA 31833 Atlanta, Georgia 30375
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ATTACHMENT A
CYBERNET GROUP ENTITIES COVERED BY AGREEMENT
CYBERNET HOLDING, INC., A DELAWARE CORPORATION
AMERICAN CABLE, INC., A DELAWARE CORPORATION
MONTGOMERY CABLEVISION & ENTERTAINMENT, INC., AN ALABAMA CORPORATION
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<PAGE> 64
ATTACHMENT B
DEFINITIONS
1. "ACCESS SERVICE REQUEST" or "ASR" means an industry standard form
used by the Parties to add, establish, change or disconnect trunks for the
purposes of interconnection.
2. "ADVANCED INTELLIGENT NETWORK" or "AIN" means a network switching
and architecture concept that centralizes intelligence in databases and
application processors internal to the network rather than in central office
switching systems. AIN enables the network to complete interactions (or actions)
regarding routing, signaling and information quickly and accurately. The AIN
concept permits intelligent database systems and application processors to be
either centralized or distributed throughout one network.
3. "ADVANCED INTELLIGENT NETWORK FEATURES" OR "AIN/IN FEATURES" refers
to the replacement or enhancement of electronic switching and electronic network
hardware and software functions via the use of distributed network based
processors and Common Channel Interoffice Signaling (CCIS/SS7). For example,
SCPs and STCs are part of the advanced intelligent network. AIN also features a
"service creation environment" which permits the end user or reseller to create,
and modify, in near real time, their own network routing instructions for calls
to their facilities, creating, in effect a user customizable virtual network.
4. "AFFILIATE" means a person that (directly or indirectly) owns or
controls, is owned or controlled by, or is under common ownership or control
with, another person. For purposes of this paragraph, the term "own" means to
own an equity interest (or equivalent thereof) or more than 10 percent.
5. "AMERICAN NATIONAL STANDARDS INSTITUTE" or "ANSI" is a private,
non-profit organization representing more than 1,300 corporations, 30 government
agencies, 20 institutions and 250 trade, labor, consumer, technical and
professional organizations which sets voluntary standards for the United States
(U.S.). ANSI has established an Information Infrastructure Standards Panel. ANSI
is appointed by the U.S. State Department as a representative of the U.S. to the
ITU's International Standards Organization.
6. "AUTOMATED REPORT MANAGEMENT INFORMATION SYSTEM" OR "ARMIS" means
the most current ARMIS 4308 report issued by the FCC.
7. "AUTOMATIC NUMBER IDENTIFICATION" or "ANI" is a telecommunications
carrier signaling parameter that identifies, through industry standard network
interfaces and formats (either
<PAGE> 65
SS7/CCIS (preferred), or in band signaling (predecessor technology), the billing
number of the calling party. This functionality is also known and referred to as
"Calling Party Number" or "CPN." This term is not to be limited by "Called Party
Identification" service, another product that is frequently required by call
centers.
8. "BELL COMMUNICATIONS RESEARCH" or "BELLCORE" means an organization
owned jointly by the RBOC that conducts research and development projects for
them.
9. "BUSY LINE VERIFICATION/BLVI TRAFFIC" or "BLV/BLVI CALL" refers to
an operator call in which the end user inquires as to the busy status of, or
requests an interruption of, a call on an Exchange Service.
10. "CALLING PARTY NUMBER" OR "CPN" means a common channel signaling
parameter which refers to the number transmitted through the network identifying
the calling party.
11. "CARRIER IDENTIFICATION CODE" OR "CIC" means a three or four digit
number assigned to an IXC that identifies that carrier's traffic.
12. "CENTRAL OFFICE SWITCH," "CENTRAL OFFICE" OR "CO" refers to either
a means a Switching entity or the physical location (site) which houses a
traditional central office switch and its peripherals within the public switched
telecommunications network, including but not limited to:
a. "END OFFICE SWITCHES" which are Class 5 switches from which End User
Telecommunications Services are directly connected and offered.
b. "TANDEM OFFICE SWITCHES" which are Class 4 switches which are used
to connect and switch trunk circuits between and among Central Office Switches.
c. "REMOTE SWITCHING MODULE" or "RSM" refers to a Central Office
architecture element that permits the Central Office switch the ability to
extend either line or trunk side interfaces, with all typical service features
and functions to a cabinet which is physically remote from the home CO site, and
where stand alone capability may or may not be implemented. RSMs are sometimes
also referred to as "switches" in the BellSouth infrastructure inventory
discussions and to that extent may be used as interchangeable terms.
d. "CENTRAL OFFICE SWITCHES" may be employed as combination End Office
and Tandem Office Switches (combination Class 5/Class 4).
13. "CENTRAL OFFICE EQUIPMENT" refers to the traditional Central Office
Switch itself and all of the peripheral electronics (network elements) that
supply network-based processing functions
ATTACHMENT B
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other than "transport." Network elements which provide "Transport" are generally
referred to as "Outside Plant" equipment or electronics.
14. "CENTRALIZED MESSAGE DISTRIBUTION SYSTEM" OR "CMDS" means the
billing record and cleaning house transport systems that incumbent LECs use to
exchange out-collects, in-collects and Carrier Access Billing System ("CABS")
records.
15. "CLASS FEATURES" refers to features and functions (products) which
become available on the "line side" of the Central Office through the use of
common channel signaling system seven (CCIS/SS7.) CLASS features include, but
are not necessarily limited to: Automatic Call Back, Call Trace, Caller ID and
Related Blocking Features, Distinctive Ringing/Call Waiting, Selective Call
Forward, and Selective Call Rejection. See also: "Software-based network
elements and services."
16. "COMMISSION" means the appropriate regulatory agency in each of
BellSouth's nine state regions, Alabama, Florida, Georgia, Kentucky, Louisiana,
Mississippi, North Carolina, South Carolina, and Tennessee.
17. "COMMON CHANNEL (INTEROFFICE) SIGNALING" or "CCIS" means a method
of digitally transmitting call set-up and network control data over separate
physical or virtual connections from those which normally carry the actual call
user connections. This technology supersedes "in-band" signaling. The current
industry standard for common carrier network signaling is called Signaling
System 7.
18. "CROSS CONNECT" refers to the equipment physical or logical "meet
point" between network elements.
a. For example, within a wire center, it is a connection between line
termination blocks on the two sides of a distribution frame or between
individual line terminations on the same side of the frame. Cross connections
are made to route traffic from one group of lines to another specific group of
lines on the distribution frame, or to route traffic from one individual line to
another specific line on the distribution frame.
b. A piece of manual, electromechanical or electronic apparatus
designed to make and rearrange the cross connections among the lines that
terminate on a distribution frame. Cross-connect devices are employed where
rearrangement of transmission circuits occur infrequently.
19. "CUSTOMER LOCAL AREA SIGNALING SERVICES" OR "CLASS" means features
available to end users based on availability of CCIS, including, without
limitation, Automatic Callback, Call Trace, Caller ID and related blocking,
Distinctive Ringing, Call Waiting, Selective Call Forward and Selective Call
Rejection.
ATTACHMENT B
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20. "DID" or "DIRECT INWARD DIALING" is a feature which allows callers
on the public switched network to directly dial a specific PBX or Centrex
extension telephone.
21. "DIRECTORY NUMBER CALL FORWARDING" or "DNCF" is one form of Interim
Number Portability ("ISPNP") which is provided through call routing and call
forwarding capabilities. DNCF will forward calls dialed to an original telephone
number to a new telephone number on a multi-path basis. DNCF is not limited to
listed directory numbers.
22. "DIGITAL LOOP CARRIER" or "DLC" is as defined in BellCore
TR-TSY-000008, "Digital Interface Between the SLC-96 Digital Loop Carrier System
and Local Digital Switch" and TR-TSY-00303, "Integrated Digital Loop Carrier
(IDLC) Requirements, Objectives and Interface."
23. "DIGITAL SERVICE - LEVEL 0" or "DS-0" means a signal rate of 64
kilobits per second.
24. "DIGITAL SERVICE - LEVEL 1" or "DS-1" is an industry standard
telecommunications transport channel which can support a digital signaling rate
of 1.544 Mbps (Mega Bits Per Second) at industry standard performance levels.
Unless identified and priced as "fractional," this channel is assumed to be
fully available.
25. "DIGITAL SERVICE - LEVEL 3" or "DS-3" is an industry standard
telecommunications transport channel which can support a digital signal rate of
44.736 Mbps (Mega Bits Per Second) at industry standard performance levels.
Unless identified and priced as "fractional," this channel is assumed to be
fully available.
26. "DSX" or "DIGITAL AND ACCESS CROSS-CONNECT SYSTEM ("DACS") is a
cross-connection product (including a mounting bay/panel) used for termination
of equipment and facilities operating at digital rates.
27. "ELECTRONIC DATA INTERCHANGE," "ELECTRONIC FILE TRANSFER" or "EFT"
is a process which utilizes an electronic format and protocol to send/receive
digital data business documents between different companies' computers over
phone lines. There are several generally accepted industry standards for EFT,
pending acceptance of a single common standard.
28. "EXCHANGE ACCESS" means the offering of access to telephone
exchange services or facilities for the purpose of the origination or
termination of telephone toll services.
29. "EXCHANGE MESSAGE RECORD" or "EMR" is a term used to refer to the
current standard used for exchange of telecommunications message information
among Local Exchange Carriers for billable, non-billable, sample, settlement and
study data. EMR format is currently contained
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in BR-010-200-010 CRIS Exchange Message Record, a Bellcore document which has
traditionally defined Bell standards for exchange message records.
30. "EXCHANGE SERVICE" is a traditional marketing term used to refer to
a service offered to end users which provides the end user with a telephonic
connection to, and a unique local telephone number address on, the public
switched telecommunications network, and which enables such end user to
generally place1 calls to, or receive calls from, other stations on the public
switch telecommunications network. Exchange Services include, but are not
limited to, basic residence and business line service, PBX trunk line service,
pay telephone stations, pay phone line service, Centrex and Centrex-like line
services, AIN, and ISDN line/trunk services. Exchange Service does not
traditionally include Private Line, Toll, Switched and Special Access (digital
channel) services, which have traditionally been separately billed and
regulated, although today these services are frequently formed from and bundled
within common transport and network elements.
31. "FEATURE GROUP A" or "FGA" means FGA interexchange access as
defined in BellSouth's FCC Tariff No. 1.
32. "FEATURE GROUP B" OR "FGB" means FGB interexchange access as
defined in BellSouth's FCC Tariff No. 1.
33. "FEATURE GROUP D" or "FGD" means FGD interexchange access as
defined in BellSouth's FCC Tariff No. 1.
34. "INTERCONNECTION" means the connection between network elements
that enable the formation of network systems. The objective of interconnection
is to provide transport and transparent interoperation among separate pieces of
equipment, transmission facilities, etc., within, between or among networks. The
architecture of interconnection may include several industry standard, or
regulatory structured methods including, but not limited to, collocation
arrangements ("physical" and "virtual" collocation) arrangements via industry
standard interface arrangements.
35. "INTERCONNECTION POINT," "POINT OF INTERCONNECTION" or "POI"
includes all points where Carrier is entitled to interconnect with BellSouth
under the terms of this Agreement, including, without limitation, points on the
line side and trunk side of each Network Element.
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36. "INTERFACE" refers to the physical and logical point or points on a
given network element where transmission, operations, administration,
maintenance, provisioning and management connections are made. Specifically, the
Interface includes (1) a common boundary between two or more items of equipment,
(2) a physical point of demarcation between two devices where all the signals
which pass are defined; the definition includes the type, quality and function
of the interconnection circuits, as well as the type and form of signals
interchanges by those circuits, and (3) the procedure, codes and protocols
enabling dissimilar devices to communicate. The original equipment manufacturer
of the network element generally incorporates one or more standard (or in some
cases, proprietary) interfaces to each network element that allows the element
to "plug into" and become part of the overall integrated telecommunications
system. The same interfaces are used by both the incumbent and the competitive
LECs. The technical specifications of the element's interface(s) are specified
by manufacturer prior to sale. Compliance to industry standards organizations
interface specifications, and the modular ability to retrofit subsequent
industry standard specifications is required by the buyer of any given network
element.
37. "INTEREXCHANGE CARRIER" or "IXC" traditionally means a provider of
stand-alone interexchange telecommunications services. Under the new Act, the
term IXC may be interpreted to embrace any competitive intermediary
telecommunications carrier providing switched (and/or private line) services
between switching entities operated by local exchange service providers
(BOC-LEC, Independent-LEC, Competitive-LEC, Wireless-LEC). IXC connectivity is
typically an access services arrangement. The use of this term does not preclude
the provider from also offering bundled telecommunications services.
38. "INTEGRATED SERVICES DIGITAL NETWORK" or "ISDN" refers to a
switched network service that provides end-to-end digital connectivity for the
simultaneous transmission of voice, data, video or multimedia services. Basic
Rate Interface-ISDN (BRI-ISDN) provides for digital transmission of two 64 Kbps
bearer channels and one 16 Kbps data channel (2B + D). Primary Rate
Interface-ISDN (PRI-ISDN) provides for digital transmission of twenty-three (23)
64 Kbps bearer channels and one (1) 16 Kbps data channel (23B + D). Unless
identified and priced as "fractional" both BRI and PRI ISDN circuits are assumed
to be fully available.
39. "INTERIM NUMBER PORTABILITY" or "INP" refers to the temporary means
by which BellSouth allows customers to retain their existing telephone numbers
when changing from one local exchange carrier to another. This service provides
transparent delivery of Telephone Number Portability ("TNP") capabilities, from
a customer standpoint in terms of call completion, and from a carrier standpoint
in terms of compensation, through the use of call routing, forwarding, and
addressing capabilities. The interim nature of these arrangements result from
the fact that their performance and cost cannot meet or sustain end-user
customer or co-carrier expectations. Standards for permanent number portability
will be set by regulatory stricture, and both Parties agree to implementation of
permanent number portability at the earliest possible point in time.
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40. "INTERLATA SERVICE" means telecommunications between a point
located in one LATA and a point located outside such area.
41. "INTERMEDIARY FUNCTION" means the delivery of local traffic from a
local exchange carrier other than BellSouth; an ALEC other than Carrier; another
telecommunications company such as a wireless telecommunications provider
through the network of BellSouth or Carrier to an end user of BellSouth or
Carrier.
42. "INTRALATA SERVICE" means telecommunications between a point
located in one LATA and a point located in the same LATA.
43. "INTERNATIONAL TELECOMMUNICATIONS UNION" or "ITU" IS a United
Nations organization which comprises the organization previously known as the
CCITT. Open Standards Interconnection (OSI) standards are established by the
ITU. Telecommunications Management Network (TMN) standards are a subset of the
OSI model. The American National Standards Institute (ANSI) is appointed by the
State Department as a U.S. representative to the ITU's ISO.
44. "LINE SIDE" refers to local loop interface ports of an end office
switch that are programmed to treat the circuit as a local line connected to an
ordinary telephone station set.
45. "LINK" OR "LOOP" are synonyms for a communications channel or
circuit on the line side or the trunk side of the common carrier switching
element. This term has been used as a marketing term to refer to an element of
"Exchange Service" whereby BellSouth provides transport between the Minimum
Point of Entry (MPOE) at an end user premise and the BellSouth wire center from
which the transport is extended. The communications channel, circuit or group of
channels or circuits which are segmented from a transmission medium that extends
from BellSouth's Central office or wire center's Main Distribution Frame,
DSX-panel, or functionally comparable piece of equipment, to a demarcation point
or connector block in/at a customer's premises. "Links" are communications
channels or circuits, which may be provided as 2-wire or 4-wire copper pairs, as
radio frequencies or as a channel on a high-capacity feeder/distribution
facility so long as all industry standard interface, performance, price,
privacy, reliability and other operational characteristics are functionally
transparent and are equal to or better than that of dedicated copper pairs.
Examples of communications channels or circuits that are "links" or "loops"
include, but are not limited to:
46. "BASIC VOICE GRADE LINE/LINK/CIRCUIT" is a basic voice grade line
which is a two wire circuit or equivalent voice frequency channel for the
transmission of analog signals with an approximate bandwidth of 300 to 3000 Hz
(3 Khz analog or 56 Kbps digital (POTS grade, capable of transmitting voice or
analog data transmissions up to 28.8 BPS with current generation modems). In
addition, Basic Links must meet all RELRA and USE requirements for "basic
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telephone service" imposed by State and Federal regulatory authorities. Digital
signaling, transmission performance and reliability characteristics for basic
"link" circuits are a matter of industry standard, having an expected measured
loss or gain of approximately +/-6dB, and a signal to noise ratio that does not
exceed (fill-in) capable of supporting fully functional connections for up to 2
miles from the nearest electronic network element. Within the 300 to 3000 Hz
range, "Basic Links" will support all standard signaling arrangements including
repeat loop start, loop reverse battery, or ground start seizure and disconnect
in one direction (toward the end office switch), and repeat ringing in the other
direction (toward the end user).
a. "ISDN LINK/LOOP/CIRCUIT" is an ISDN link which provides a 2-wire
ISDN digital circuit connection that will support digital transmission of two 64
Kbps clear channels and one 16 Kbps data channel (2B+D), suitable for provision
of BRI-ISDN service. ISDN links shall be provisioned by least cost planning
methodologies sufficient to insure industry standard interface, performance,
price, reliability and operational characteristics are functionally transparent
and are equal to or better than dedicated copper pairs. All things being equal,
"Broadband ISDN" is preferred to CO-based ISDN circuits. Unless specifically
identified and priced as "fractional" these circuits are assumed to be fully
available.
b. "4 WIRE DS-1 DIGITAL GRADE LINKS" will support full duplex
transmission of isochronous serial data at 1.544 Mbps, and provide the
equivalent of 24 voice grade channels. Unless specifically identified and priced
as "fractional" these circuits are assumed to be fully available.
47. "LOCAL EXCHANGE CARRIER" OR "LEC" means any carrier that provides
local common carrier telecommunications services to business and/or residential
subscribers within a given LATA and interconnects to other carriers for the
provision of alternative telecommunications products or services, including, but
not limited to toll, special access, and private line services. This includes
the Parties to this Agreement. The term "Incumbent-LEC" or "I-LEC" is sometimes
used to refer to the dominant LEC for a particular locality (such as BellSouth).
Such Incumbent-LECs include both Bell Operating Companies ("BOCs") and non-BOC
LECs, which are often referred to as "Independent-LECs." By contrast, new
entrants into the local exchange market are sometimes referred to as
"Competitive LECs" or "CLECs," or sometimes as "Alternative LECs" or "ALECs."
48. "LOCAL EXCHANGE ROUTING GUIDE" or "LERG" means a BellCore Reference
customarily used to identify NPA-NXX routing and homing information, as well as
network element and equipment designations.
49. "LOCAL TRAFFIC" means any telephone call that originates in one
exchange or LATA and terminates in either the same exchange or LATA, or a
corresponding Extended Area Service
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("EAS") exchange. The terms Exchange, and EAS exchanges are defined and
specified in Section A3. of BellSouth's General Subscriber Service Tariff.
50. "LOCAL INTERCONNECTION" means (1) the delivery of local traffic to
be terminated on each Party's local network so that end users of either Party
have the ability to reach end users of the other Party without the use of any
access code or substantial delay in the processing of the call; (2) the LEC
unbundled network features, functions, and capabilities set forth in this
Agreement; and 3) Service Provider Number Portability sometimes referred to as
temporary telephone number portability to be implemented pursuant to the terms
of this Agreement.
51. "LOCAL INTERCONNECTION TRUNKS/TRUNK GROUPS" means equipment and
facilities that provide for the termination of Local Traffic and intraLATA
traffic.
52. "LOCAL ACCESS AND TRANSPORT AREA" or "LATA" means one of 161
contiguous geographic areas established pursuant to the AT&T Content Decree to
define the permitted operating regions of the RBOCs prior to the enactment of
the Telecommunications Act of 1996.
53. "LONG RUN INCREMENTAL COST" or "LRIC" refers to the costs a company
would incur (or save) if it increases (or decreases) the level of production of
an existing service or group of services. These costs consist of the costs
associated with adjusting future production capacity and reflect forward-looking
technology and operations methods.
54. "MECAB" refers to the Multiple Exchange Carrier Access Billing
(MECAB) document prepared by the Billing Committee of the Ordering and Billing
Forum (OBF), which functions under the auspices of the Carrier Liaison Committee
of the Alliance for Telecommunications Industry Solutions (ATIS). The MECAB
document published by Bellcore as Special Report SR-BDS-000983, contains the
recommended guidelines for the billing of an access service provided by two or
more LECS (including a LEC and a C-LEC), or by one LEC in two or more states
within a single LATA.
55. "MECOD" refers to the Multiple Exchange Carriers Ordering and
Design (MECOD) Guidelines for Access Services -- Industry Support Interface, a
document developed by the Ordering/Provisioning Committee under the auspices of
the Ordering and Billing Forum (OBF), which functions under the auspices of the
Carrier Liaison Committee of the Alliance for Telecommunications Industry
Solutions (ATIS). The MECOD document, published by Bellcore as Special Report,
SR STS 002643, establishes methods for processing orders for access service
which is to be provided by two or more LECs.
56. "MEET-POINT BILLING" or "MPB" refers to a mutual compensation
arrangement whereby two LECs provide the transport element of a switched access
service to one of the LEC's end office switches, with each LEC receiving an
appropriate share of the transport element revenues
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as defined by law, regulatory requirements, this agreement or, where
permissible, effective access tariffs. MPB concepts are also incorporated in
some LEC-toll (intraLATA) mutual compensation arrangements.
57. "MULTIPLE BILL/MULTIPLE TARIFF METHOD" means the meet-point billing
method where each LEC (or C-LEC) prepares and renders its own meet point bill to
the IXC in accordance with its own tariff for that portion of the jointly
provided switched Access Service which the LEC (or C-LEC) provides. Bellcore's
MECAB document refers to this method as "Multiple Bill/Single Tariff. "
58. "MUTUAL TRAFFIC EXCHANGE" means that the sole compensation to a
Party for termination of specified categories of traffic shall be the reciprocal
services provided by the other Party. Each Party shall bill its own customers
for such categories of traffic and retain all revenues resulting therefrom.
59. "NORTH AMERICAN NUMBERING PLAN" OR "NANP" is the system of
telephone numbering employed in the United States, Canada, and certain Caribbean
countries.
60. "NETWORK ELEMENT" means any facility or equipment used by BellSouth
in the provision of Exchange Services, and all features, functions and
capabilities that are provided by means of such facility or equipment, including
numbering systems, databases, signaling systems, and information sufficient for
billing and collection or used in the transmission, routing or other provision
of a telecommunications service.
61. "NETWORK MANAGEMENT FORUM" is a consortium of 160 U.S. and
international carriers and global alliances, including SITA, Unisource and
others. Their objective is to determine specific interoperability needs, so that
manufacturers of network management equipment will have the detailed technical
specification needed to develop interoperable standards. For the purposes of
this Agreement, both Parties agree to accept the NMF standards and solutions for
OAM&P interconnections.
62. "NUMBERING PLAN AREA" or "NPA" is also sometimes referred to as an
area code. This is the three digit indicator which is defined by the "A," "B,"
and "C" digits of each "digit" telephone number within the North American
Numbering Plan ("NANP"). Each NPA contains 800 Possible NXX Codes. At present,
there are two general categories of NPA, "Geographic NPAs" and "Non-Geographic
NPAS." A "Geographic NPA" is associated with a defined geographic area, and all
telephone numbers bearing such NPA are associated with services provided within
that Geographic area. In some locations, and ultimately with number portability,
more than one area code will be associated with many geographic areas. A
"Non-Geographic NPA," also known as a "Service Access Code" (SAC Code) is
typically associated with a
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specialized telecommunications service which may be provided across multiple
geographic NPA areas; 500, 800, 900, 700, and 888 are examples of Non-Geographic
NPAS.
63. "NXX," "NXX CODE," "CENTRAL OFFICE CODE" or "CO CODE" is defined by
the "D," "E," and "F" digits of a 10-digit telephone number within the North
American Numbering Plan. Each NXX Code contains 10,000 station numbers.
Historically, entire NXX code blocks have been assigned to specific individual
local exchange end office switches, because, in general, this approach did not
conflict with geographic numbering except as the CO approached number
exhaustion. Where there are multiple COs in the same geographic area, this
assignment method must change. With the advent of end-user telephone number
portability, the usual one-on-one association on an NXX with an end office
switching entity will be severed.
64. "OAM&P" or "OPERATIONS, ADMINISTRATION, MAINTENANCE AND
PROVISIONING FUNCTIONS" are those automated and manual functions which insure
quality of service and least cost planning, management and operations for
telecommunications service providers. These functions, have traditionally been
addressed through the user of operations support, decision support and
administrative support systems, and are now generally in the process of being
integrated under client-server and mainframe network management platforms such
as HP's OpenView, IBM's NetView and SUN's various network management product
sets.
65. "OZZ CODES" define FGD call paths through a LEC's access Tandem
Office Switch.
66. "PERCENT OF INTERSTATE USAGE" or "PIU" means a factor to be applied
to terminating access services minutes of use to obtain those minutes that
should be rated as interstate access services minutes of use. The numerator
includes all interstate "nonintermediary" minutes of use, including interstate
minutes of use that are forwarded due to service provider number portability
less any interstate minutes of use for Terminating Party Pays services, such as
800 Services. The denominator includes all "nonintermediary", local, interstate,
intrastate, toll and access minutes of use adjusted for service provider number
portability less all minutes attributable to terminating party pays services.
67. "PERCENT LOCAL USAGE" or "PLU" means a factor to be applied to
intrastate terminating minutes of use. The numerator shall include all
"nonintermediary" local minutes of use adjusted for those minutes of use that
only apply local due to Service Provider Number Portability. The denominator is
the total intrastate minutes of use including local, intrastate toll, and
access, adjusted for Service Provider Number Portability less intrastate
terminating party pays minutes of use.
68. "PERMANENT NUMBER PORTABILITY" means the use of a database solution
to provide fully transparent TNP for all customers and all providers without
limitation.
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69. "PORT" AND "SLOT" are terms used to describe physical interfaces
and traffic carriage capacity of some network elements. One "port" is needed for
each connection capable of carrying one message into or out of the network
element to other network elements. One "slot" is needed within each network
element for each message to be handled simultaneously with other messages. Port
categories include, but are not limited to:
a. "2-WIRE ANALOG LINE PORT" is a line side switch connection employed
to provide basic residential and business type analog telephone services.
b. "2-WIRE ISDN DIGITAL LINE PORT" is a set of Basic Rate Interface
(BRI) line side switch connections which actually consists of multiple paths or
interfaces to the switching network (2B+D). It is employed to provide
residential and business type digital telephone services. The port connections
may or may not be the same Central Office switch (network element) that provides
analog services. When ISDN is provisioned as "broadband" ISDN through current
generation digital switches the cost causation is totally different than when
the digital service is provisioned as a set of CO port attachments.
c. "2-WIRE ANALOG DID TRUNK PORT" is a direct inward dialing (DID)
trunk side switch connection employed to provide incoming trunk-side services.
Each port provisioned permits one simultaneous connection to the customer
premises equipment.
d. "4-WIRE DS-1 DIGITAL DID TRUNK PORT" is a direct inward dialing
(DID) trunk side switch connection which is time division multiplexed to provide
the equivalent of 24 analog incoming trunk type DID trunk ports.
e. "4-WIRE DS-1 DIGITAL CBWT TRUNK PORT" is a trunk side switch
connection which is time division multiplexed to provide the equivalent of 24
analog incoming trunk ports which may be programmed as DID, CBWT, TIE, or
dedicated private trunk circuits.
f. "4-WIRE ISDN DIGITAL DS-1 TRUNK PORT" is a Primary Rate Interface
(PRI) trunk side switch connection which is time division multiplexed to provide
the equivalent of 23 digital one or two-way trunk ports and one signaling trunk
port (23B +D), where the B channels can be programmed as digital DID, CBWT, TIE,
Private Line or Special Access trunk circuits. The port connections may or may
not be the same Central Office switch (network element) that provides analog
services.
70. "RATE CENTER" currently refers to a specific geographic point,
designated by latitude and longitude, a corresponding V and H coordinate pair,
and an associated geographic area which has heretofore been defined by the
incumbent LEC industry to be associated with switched message telecommunications
services (MTS). Rate centers, sometimes also known as exchange areas, often
determine the regions within which particular classes, features, and pricing for
exchange
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services are uniformly administered. Each NPA-NXX code combination is associated
with a single rate center, although any one such code may only service a
fraction of the rate center area when the rate center areas circumscribes
multiple serving wire centers. Where retail MTS services contain a distance
sensitive rate element, the valuation of that element utilizes the calculated
distance between the V and H coordinate pairs of the originating and terminating
rate centers.
71. "RATING POINT" means the vertical and horizontal coordinates
associated with a particular telephone number for rating purposes.
72. "ROUTING POINT" traditionally refers to a location which a LEC or
CLEC has designated on its own network as the homing (routing) point for traffic
inbound to Telecommunications Services provided by the LEC or CLEC which bear a
certain NPA-NXX designation. The Routing Point is employed to calculate mileage
measurements for the distance-sensitive transport element charges of Switched
Access Services. At present, Bellcore Practice BR 795-100-100, places the
Routing Point at either an "End Office" location, or a "LEC Consortium Point of
Interconnection." According to that same Bellcore Practice, examples of the
latter shall be designated by a common language location identifier (CLLI) code
with (x)KD in positions 9, 10, 11, where (x) may be any alphanumeric A-Z or 0-9.
Nothing in this Agreement shall be construed to preclude either Party hereto
from establishing its own Routing Points.
73. "SERVICE CONTROL POINT" or "SCP" is network element of the common
channel signaling network to which informational requests for service handling,
such as routing, are directed and processed. The SCP is a real-time processor
with a database system that, based on a query from a Service Switching Point
("SP"), performs software-based common carrier, subscriber or
application-specific service logic, and then sends instructions back to the SSP
on how to continue call processing.
74. "SIGNAL TRANSFER POINT" or "STP" is a network element (presently a
packet switch) that routes signaling messages among Service Switching Points
(SSPs), Service Control Points (SCPs), Signaling Points (SPs) and other network
elements in order to set up calls and to query databases for digital
telecommunications services using CCIS/SS7 and software-based common carrier
telecommunications services.
75. "SOFTWARE-BASED NETWORK ELEMENTS AND SERVICES" refers to those
features, functions and services which are inherent capabilities of the current
Central Office Equipment (e.g., the #5ESS 5E8 or 5E9 software program, or an
end-office or CO-based peripheral processor), and can be activated with
relatively minor cost such as local programming or right to use fees. Examples
of such services include CENTREX, electronic station equipment functions.
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76. "SUBSCRIBER TRAFFIC" or "SUBSCRIBER CALL(S)" refers to calls
between two or more telecommunications service users, where both
telecommunications services users bear NPA-NXX designations associated with the
same LATA or other authorized area (e.g., Extended Area Service Zones in
adjacent LATAs). The traditional definition of Subscriber Traffic includes the
traffic types have included as "local calling," "extended area service (EAS),"
and "intraLATA toll."
77. "SWITCHED ACCESS DETAIL USAGE DATA" shall mean a category 1101XX
record as defined in the EMR Bellcore Practice BR 010-200-010.
78. "SWITCHED ACCESS SUMMARY USAGE DATA" shall mean a category 1150XX
record as defined in the EMR Bellcore Practice BR 010-200-010.
79. "SWITCHED ACCESS SERVICE" means the offering of facilities for the
purpose of the origination or termination of traffic to or from
telecommunications services offered in a given area. Switched Access Services
include: Feature Group A, Feature Group B, Feature Group D, 800 access, and 900
access.
80. "SYNCHRONOUS OPTICAL NETWORK" OR "SONET" is a set of optical
interface standards that allow optical transmission at rates from 51.4 Mbps to
13.22 Gbps. Synchronous optical network standard is an ultra-high-speed,
fiber-optic transmission standard developed by Bellcore for largescale,
fiber-based digital transmission networks that use equipment form many different
manufacturers. It is the first telecom industry agreement on standardized
interfaces between fiber optic transmission systems and is well on the way to
becoming an international standard. Because all SONET-compatible devices speak a
common language, network administrators will gain network-wide use of advanced
operation and maintenance systems, regardless of who made individual network
components. The SONET standard is built around a 51.84 Mbps basic communications
channel that is multiplexed upward. SONET line-rate standards now include
network bandwidths up to 2.488 Gbps, a rate equivalent to 48 basic SONET
communications channels. SONET network standards incorporate present-day 1.544
Mbps DS-1 service and 44.6 Mbps DS-3 service as subsets of the 51.84 Mbps SONET
basic channel. SONET will eventually become the primary avenue for transporting
broadband ISDN services. Major network equipment manufacturers are introducing
network products claiming conformity to the SONET standard.
81. "TELECOMMUNICATIONS" means the transmission, between or among
points specified by the user, of information of the user's choosing, without
change in the form or content of the information as sent or received.
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82. "TELECOMMUNICATIONS ACT OF 1996" or "ACT" means Public Law 104-104
of the United States Congress effective February 8, 1996. The Act amended the
Communications Act of 1934 (47, U.S.C. Section 1 et seq.).
83. "TELECOMMUNICATIONS CARRIER" means any provider of
telecommunications services.
84. "TELECOMMUNICATIONS SERVICE" means the offering of
telecommunications for a fee directly to the public, to such classes of users as
to be effectively available to the public, or to telecommunications carriers,
regardless of the facilities used.
85. "TELEPHONE NUMBER PORTABILITY" or "TNP" is the means by which
BellSouth allows customers to retain their existing telephone numbers when
changing from one local exchange carrier to another. This service provides
transparent delivery of telephone number capabilities, from a customer
standpoint in terms of call completion, and from a carrier standpoint in terms
of compensation, through the use of call routing, forwarding, and addressing
capabilities. Permanent number portability standards will be set by regulatory
action, and both Parties agree to implementation of permanent number portability
at the earliest possible point in time. The performance and cost of permanent
number portability meets end-user customer or co-carrier expectations on a
sustainable basis. (See also Interim Number Portability and Permanent Number
Portability.)
86. "TOTAL SERVICE LONG RUN INCREMENTAL COST" or "TSLRIC" is the total
additional cost incurred by a telecommunications services provider to produce
the entire quantity of a service, group of services, or basic network functions,
given that the telecommunications services provider already provides all its
other services. TSLRIC is based on the least cost, most efficient technology
that is capable of being implemented at the time the decision to provide the
service is made.
87. "TOLL FREE SERVICE" means service provided with any dialing
sequence that invokes toll-free (i.e., 800-like) service processing. Toll Free
Service includes calls to the Toll Free Service 800/888 NPA SAC codes.
88. "TRANSIT CALLS" OR "INTERMEDIARY FUNCTION" means intraLATA calls
(local and toll) sent between the Parties originating from or terminating to an
end user of a third-party LEC, CLEC, wireless provider, or other carrier or
calls sent between the Parties destined for or originating from an IXC.
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89. "TRUNK SIDE" refers to a central office connection that is capable
of, and has been programmed to treat the circuit as connecting to another
switching entity. Trunk side connections offer those transmission and signaling
features appropriate for the connection of switching elements, and cannot be
used for the direct connection of ordinary telephone station sets. Incoming
telecommunications services from the trunk to the line-side and for
trunk-side-to-trunk side connections within any switching element should
experience no less than a P.001 blocking probability in the average peak busy
hour of the year, and should meet or exceed this level at all other times. This
is a means to ensure that end-to-end blocking, which is cumulative, does not
exceed a consistent P.02 for all call types in a multi-carrier network.
90. "WIRE CENTER" denotes a building or space within a building which
serves as an aggregation point on a given carrier's network, where transmission
facilities and circuits are connected or switched. Wire Center can also denote a
building in which one or more central offices, used for the provision of
telecommunications services are located. The Parties hereby agree that
interconnection will be available at any wire center which meets any or all
legislative, judicial and regulatory eligibility standards for interconnection.
Interconnection services and access to these interconnections shall not
unreasonably by withheld by either Party on any grounds.
91. "UNDEFINED TERMS." The Parties acknowledge that terms may appear in
this Agreement which are not defined and agree that any such terms shall be
construed in accordance with their customary usage in the telecommunications
industry as of the effective date of this Agreement.
ATTACHMENT B
Page 16
<PAGE> 80
ATTACHMENT C-1
UNBUNDLED PRODUCTS AND SERVICES AND NEW SERVICES
Service: Virtual Collocation
Description: Virtual Expanded Interconnection Service (VEIS)
provides for location interconnection in
collocator-provided/BellSouth leased fiber optic
facilities to BellSouth's switched and special access
services, and local interconnection facilities.
State(s): All
Rates, Terms and
Conditions: In all states, the rates, terms and conditions will
be applied as set forth in Section 20 of BellSouth
Telecommunication's Inc.'s Interstate Access
Service Tariff, F.C.C. No. 1.
Service: Physical Collocation
Description: Per FCC -- (10/19/92 FCC Order, para 39)
Physical Collocation is whereby "the interconnection
party pays for LEC central office space in which to
locate the equipment necessary to terminate its
transmission links, and has physical access to the
LEC central office to install, maintain, and repair
this equipment."
State(s): All
Rates, Terms and
Conditions: To be negotiated.
<PAGE> 81
ATTACHMENT C-2
UNBUNDLED PRODUCTS AND SERVICES AND NEW SERVICES
Service: Unbundled Exchange Access Loop
Description: Provides the connection from the serving central
office to a subscriber's premises and is rated on a
distance sensitive basis. It is engineered to meet
the same parameters as a residence or business
exchange access line.
BellSouth shall allow Carrier to access the following
Loop types (in addition to those Loops available
under applicable tariffs) unbundled from local
switching and local transport in accordance with the
terms and conditions set forth herein:
"2-Wire Analog Voice Grade Loops" or "Analog 2W"
which support analog transmission of 300 2000 Hz,
repeat loop start, loop reverse battery, or ground
start seizure and disconnect in one direction (toward
the End Office Switch), and repeat ringing in the
other direction (toward the Customer). Analog 2W
include Loops sufficient for the provision of PBX
trunks, pay telephone lines and electronic key system
lines. Both "pure coppers and "Unintegrated Digital
Loop Carriers" (ULDC) systems shall be made
available.
"4-Wire Analog Voice Grade Loops" or "Analog 4W"
which support transmission of voice grade signals
using separate transmit and receive paths and
terminate in a 4-wire electrical interface. Both
"pure coppers" and "Unintegrated Digital Loop
Carrier" (ULDC) systems shall be made available.
"2-Wire ISDN Digital Grade Links" or "BRI ISDN" which
support digital transmission of two 64 kbps bearer
channels and one 16 kbps data channel. BRIIDSN is a
2B+D Basic Rate Interface-Integrated Services Digital
Network (BRI-ISDN) Loop which will meet national ISDN
standards.
"2-Wire ADSL-Compatible Loop" or "ADSL 2W" is a
transmission path which facilitates the transmission
of up to a 6 Mbps digital signal downstream (toward
the Customer) and up to a 640 kpbs digital signal
upstream (away form the Customer) while
simultaneously carrying an analog voice signal. An
ADSL-2W is Provided over a 2-Wire non-loaded
<PAGE> 82
ATTACHMENT C-2 (cont'd)
twisted copper pair provisioned using revised
resistance design guidelines and meeting ANSI
Standard T1.413-1995 007R2. An ADSL-2W terminates in
a 2-wire electrical interface at the Customer
premises and at the BellSouth Central Office frame.
"2-Wire HDSL-Compatible Loop" or "HDSL 2W" is a
transmission path which facilitates the transmission
of a 768 kbps digital signal over a 2-Wire non-loaded
twisted copper pair meeting the specifications in
ANSI TlE1 Committee Technical Report Number 28. HDSL
compatible Loops are available only where existing
copper facilities can meet TlE1 Technical Report
Number 28 specifications.
"4-Wire HDSL-compatible Loop" or "HDSL 4W" is a
transmission path which facilitates the transmission
of a 1.544 Mbps digital signal over two 2-Wire
non-loaded twisted copper pairs meeting the
specifications in ANSI TlE1 Committee Technical
Report Number 28. HDSL compatible Loops are available
only where existing copper facilities can meet the
specifications.
"Integrated Digital Loop Carrier" or "Integrated DLC"
is defined in BellCore TR-TSY-00303, "Integrated
Digital Loop Carrier (ILDC) Requirements, Objectives
and Interface."
Rate(s): The Parties hereby agree to submit the issue of rate
structure and rate levels to state commission
arbitration.
State(s): Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi,
North Carolina, South Carolina, Tennessee
<TABLE>
<CAPTION>
Rate Elements Monthly Nonrecurring
Charges
<S> <C> <C>
Unbundled Exchange
Access Loop $X.XX $X.XX
Unbundled Exchange
Access IOC
- Fixed $X.XX $X.XX
-1-8 Miles $X.XX N/A
- 9-25 Miles $X.XX N/A
- Over 25 Miles $X.XX N/A
</TABLE>
<PAGE> 83
ATTACHMENT C-3
UNBUNDLED PRODUCTS AND SERVICES AND NEW SERVICES
Service: Channelization System for Unbundled Exchange Access Loops
Description: This new rate element provides the multiplexing function for
Unbundled Exchange Access Loops. It can convert up to 96 voice
grade loops to DS1 level for connection with the Carrier's
point of interface. The multiplexing can be done on a
concentrated basis (delivers at 2 DS1 level to customer
premise) or on a nonconcentrated basis (delivers at 4 DSI
level to customer premise) at the option of the customer.
In addition to the following rates elements, 1.544 Mbps local
channel and/or interoffice channel facilities may be required
as set forth in E7 of BellSouth Telecommunication's Inc.'s
Intrastate Access Service Tariff for non-collocated Carriers.
Rates: THE PARTIES HEREBY AGREE TO SUBMIT THE ISSUE OF RATE STRUCTURE
AND RATE LEVELS TO STATE COMMISSION ARBITRATION.
State(s): Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi,
North Carolina, South Carolina, Tennessee
<TABLE>
<CAPTION>
Monthly Nonrecurring Charges
Rate Elements First Add'l
<S> <C> <C> <C>
Unbundled Loop
Channelization System
(DS1 to VG), Per System $X.XX $X.XX N/A
Central Office Channel
Interface (circuit specific
plug-in equipment), 1 per
circuit $X.XX $X.XX $X.XX
</TABLE>
<PAGE> 84
ATTACHMENT C-4
UNBUNDLED PRODUCTS AND SERVICES AND NEW SERVICES
SERVICE: UNBUNDLED EXCHANGE PORTS
DESCRIPTION: AN EXCHANGE PORT IS THE CAPABILITY DERIVED FROM THE CENTRAL
OFFICE SWITCH HARDWARE AND SOFTWARE REQUIRED TO PERMIT END
USERS TO TRANSMIT OR RECEIVE INFORMATION OVER BELLSOUTH'S
PUBLIC SWITCHED NETWORK. IT PROVIDES SERVICE ENABLING AND
NETWORK FEATURES AND FUNCTIONALITY SUCH AS TRANSLATIONS, A
TELEPHONE NUMBER, SWITCHING, ANNOUNCEMENTS, SUPERVISION AND
TOUCH-TONE CAPABILITY.
IN ADDITION, A BELLSOUTH PROVIDED PORT WITH OUTGOING NETWORK
ACCESS ALSO PROVIDES ACCESS TO OTHER SERVICES SUCH AS OPERATOR
SERVICES, LONG DISTANCE SERVICE, ETC. IT MAY ALSO BE COMBINED
WITH OTHER SERVICES AVAILABLE IN BELLSOUTH'S INTRASTATE ACCESS
SERVICE TARIFFS AS TECHNICALLY FEASIBLE.
WHEN AN UNBUNDLED PORT IS CONNECTED TO BELLSOUTH PROVIDED
COLLOCATED LOOPS, CROSS-CONNECTION RATE ELEMENTS ARE REQUIRED
AS SET FORTH IN SECTION 20 OF BELLSOUTH TELECOMMUNICATIONS,
INC.'S INTERSTATE ACCESS TARIFF, FCC NO.1.
<TABLE>
<CAPTION>
ALABAMA FLORIDA GEORGIA
- --------------------------------------------------- ------------------------- -------------------------
RATE ELEMENTS RATE PER RATE ELEMENTS RATE RATE ELEMENTS RATE
- ----------------------------- ------ ---------- --------------- ------- ---------------- ------
<S> <C> <C> <C> <C> <C> <C>
Monthly (1) Monthly Monthly
Residence Port $ 2.50 Residence Port $ 2.00 Residence Port $2.28
Business Port $ 7.00 Business Port $ 4.50 Business Port $4.60
PBX Trunk Port (2,3,4) $ 7.00 PBX Trunk Port $ 7.50 PBX Trunk Port $7.37
Rotary Service $ 2.00 Rotary Service $ 2.00 Rotary Service $2.77
Primary Rate ISDN NAS (5,6) $20.00
USAGE-MILEAGE BANDS USAGE-(STS) USAGE-(STS)
A (0 miles) $ 0.02 Init. min. - init. min. $0.0275 -setup per call $0.02
$ 0.01 Add'l min. - add'l min. $0.0125 - per minute or
B (1-10 miles) $ 0.04 Init. min. fraction $0.02
thereof
$ 0.02 Add'l min.
C (11-16 miles) $ 0.06 Init. min.
$ 0.04 Add'l min.
D (17-22 miles & Existing LCA
described in A3.6 greater
than 22 mi.) $ 0.10 Init. min.
$ 0.07 Add'l min.
E (23-30 miles) $ 0.10 Init. min.
$ 0.10 Add'l min.
F (31-40 miles) $ 0.10 Init. min.
$ 0.10 Add'l min.
G (Special Band) (7) $ 0.10 Init. min.
$ 0.10 Add'l min.
</TABLE>
NOTES:
(1) Nonrecurring Charges, as displayed in Table I on Page 3, and Usage
Charges, as displayed on this Page, apply in addition to monthly rates.
(2) Applies per outgoing, incoming or 2-way trunk port.
(3) DID requires rates and charges as indicated in Table II on Page 3 in
addition to the PBX Trunk Port rates. (4) IOD requires rates and
charges as indicated in Table III on Page 3 in addition to the PBX
Trunk Port rates.
(5) Applies per outgoing, incoming or 2-way voice grade equivalent.
(6) Primary rate ISDN requires a primary rate interface in addition to the
primary rate ISDN NASes. Additional charges also apply per Primary Rate
B-Channel, Call-by-Call Integrated Service Access Service Selection and
Incoming Call Identification. See Table IV on Page 3 for rates and
charges.
(7) In addition to the local calling described in A3 of BellSouth's General
Subscriber Service Tariff, if any wire center in an exchange is located
within 40 miles of any wire center in the originating exchange, local
calling will be provided from the entire originating exchange to the
entire terminating exchange. The usage charges for Band G are
applicable for distances greater than 40 miles.
-1-
<PAGE> 85
ATTACHMENT C-4
UNBUNDLED PRODUCTS AND SERVICES AND NEW SERVICES
SERVICE: UNBUNDLED EXCHANGE PORTS (CONT'D)
<TABLE>
<CAPTION>
KENTUCKY LOUISIANA
- ------------------------------------------------------------ ----------------------------------------------------------------
RATE ELEMENTS RATE PER RATE ELEMENTS RATE PER
- -------------------------------------- ------ ---------- ------------------------------------------ ------ ----------
<S> <C> <C> <C> <C> <C>
Monthly Monthly
Residence Port $ 3.50 Residence Port $2.50
Business Port $10.00 Business Port $7.00
PBX Trunk Port $10.00 PBX Trunk Port $7.00
Rotary Service $ 3.50 Rotary Service $3.50
Usage-Mileage Bands Usage-Mileage Bands
A (0 miles) $ 0.04 Init. min. 0 (0 miles) $0.02 Init. Min.
$ 0.02 Add'l min. $0.01 Add'l min.
B (1-10 miles) $ 0.04 Init. min. A (1-10 miles) $0.04 Init. Min.
$ 0.02 Add'l min. $0.02 Add'l min.
C (Greater than 10 miles Limited LCA) $ 0.06 Init. min. B (11-16 miles) $0.06 Init. Min.
$ 0.04 Add'l min. $0.04 Add'l min.
D (1-10 miles beyond Limited LCA) $ 0.04 Init. min. C (17-22 miles) $0.10 Init. Min.
$ 0.02 Add'l min. $0.07 Add'l min.
E (11-16 miles beyond Limited LCA)) $ 0.06 Init. min. D (23-30 miles Basic LCA and Intra $0.14 Init. Min.
$ 0.04 Add'l min. Parish Expanded LCA) $0.10 Add'l min.
F (17-22 miles beyond Limited LCA)) $ 0.09 Init. min. E (Greater than 30 miles Basic LCA and $0.14 Init. Min.
$ 0.07 Add'l min. Intra Parish Expanded LCA) $0.14 Add'l min.
G (23-30 miles beyond Limited LCA) $ 0.09 Init. min. F (23-30 miles Inter-Parish Expanded LCA) $0.14 Init. Min.
$ 0.07 Add'l min. $0.10 Add'l min.
H (31-40 miles beyond Limited LCA) $ 0.09 Init. min. G (31-40 miles Inter-Parish Expanded LCA) $0.14 Init. Min.
$ 0.07 Add'l min. $0.14 Add'l min.
I (Greater than 40 miles beyond $ 0.09 Init. min. H (Greater than 40 miles Inter-Parish) $0.14 Init. min.
Limited LCA) $ 0.07 Add'l min. $0.14 Add'l min.
</TABLE>
<TABLE>
<CAPTION>
MISSISSIPPI N. CAROLINA S. CAROLINA
- ------------------------------------------------------------- ----------------------- --------------------------
RATE ELEMENTS RATE PER RATE ELEMENT RATE RATE ELEMENTS RATE
- ------------------------------------- ------ ---------- ------------- ------ ---------------- ------
<S> <C> <C> <C> <C> <C> <C>
Monthly Monthly Monthly
Residence Port $3.75 Residence Port $2.00 Residence Port $4.00
Business Port $7.50 Business Port $6.00 Business Port $10.50
PBX Trunk Port $7.50 PBX Trunk Port $8.00 PBX Trunk Port $10.50
Rotary Service $3.75 Rotary Service $1.50 Rotary Service $3.00
Usage-Mileage Bands Usage-(STS) Usage-(STS)
A (0 miles) $0.02 Init. min. - init. min. $0.05 -Basic Svc. Area $0.02
$0.01 Add'l min. - add'l min. $0.02 - Expanded Svc. $0.12
Area
B (1-10 miles) $0.04 Init. min.
C (11-16 miles, existing LCA de- $0.02 Add'l min.
scribed in A3.6 greater than 16
miles, and calls to county seat
greater that 16 miles) $0.06 Init. min.
$0.04 Add'l min.
D (17-30 miles) $0.09 Init. min.
$0.07 Add'l min.
E (31-55 miles Biloxi LATA) $0.09 Init. min.
$0.07 Add'l min.
F (31-55 miles Jackson LATA) $0.12 Init. min.
$0.10 Add'l min.
G (56-85 miles Biloxi LATA) $0.18 Init. min.
$0.14 Add'l min.
</TABLE>
<TABLE>
<CAPTION>
TENNESSEE
- ----------------------------------------
RATE ELEMENTS RATE PER
- ----------------------- ------ -----
<S> <C> <C>
Monthly
Residence Port $ 4.00
Business Port $10.00
PBX Trunk Port $10.00
Rotary Service $ 8.50
Usage-Mileage Bands
A (0-16 miles) $ 0.02 mou
B (17-30 miles) $ 0.05 mou
C greater than 30 miles $ 0.10 mou
- ----------------------- ------ -----
</TABLE>
-2-
<PAGE> 86
ATTACHMENT C-4 (CONT'D)
Special Service Requirements:
1. Switching functionalities in the port element include
dialtone, screening, recognition of service request,
recognition of call-specific information, digit analysis,
routing , testing, recordings, signal generation, call
completion or handoff, SSP functionality and tables, PIC
tables, trunk tables, class of service tables, billing record
generation, and AIN tables.
2. Carrier's purchase of the port element for a specific switch
avails to it all the features and functionality on that
switch.
3. Carrier can interconnect loops from any source to the line
port(s) that it purchases on the same
terms/conditions/intervals as loops provided by BellSouth.
4. Carrier can use the port element to provide any local exchange
service, including switched access services.
5. Optional functionality to support CLASS/Customer Calling
features will be included with the port element. No additional
charges will apply.
6. Functionality to craft Centrex offerings (call transfer,
special dialing, etc.) will be available as part of the port
element.
-3-
<PAGE> 87
ATTACHMENT C-5
UNBUNDLED PRODUCTS AND SERVICES AND NEW SERVICES
Service: Signaling
Description: Provides for connection to and utilization of BellSouth's
Signaling System 7 network for both call setup and non-call
setup purposes.
State(s): All
RATE(S):
<TABLE>
<CAPTION>
MONTHLY RECURRING NON- APPLIED
RATE ELEMENTS RATE RATE RECURRING PER
- ------------------------------- ------- ---------- --------- ----------------
<S> <C> <C> <C> <C>
CCS7 Signaling Connection $155.00 -- $ 51 56 Kpbs facility
CCS7 Signaling Termination $355.00 -- 0.00 STP Port
CCS7 Signaling Usage* -- $0.000023 -- Call Set Up Msg.
-- $0.000050 -- T-Cap Msg.
CCS7 Signaling Usage Surrogate* $395.00 -- -- 56 Kpbs facility
</TABLE>
*Where signaling usage measurement capability exists, CCS7 Signaling Usage will
be billed on a per signaling message basis. Where measurement capability does
not exist, CCS7 Signaling Usage will be billed on a per 56 Kpbs facility basis.
<PAGE> 88
ATTACHMENT C-6
UNBUNDLED PRODUCTS AND SERVICES AND NEW SERVICES
Service: Line Information Database (LIDB)-Storage Agreement
Description: The LIDB Storage Agreement provides the terms and conditions
for inclusion in BellSouth's LIDB of billing number
information associated with BellSouth Exchange lines used for
Local Exchange Companies' resale of local exchange service or
Service Provider Number Portability arrangements requested
Local Exchange Companies' on behalf of the Local Exchange
company's end user or for Carrier NXX's stored in BellSouth's
LIDB. BellSouth will store in its database, the relevant
billing number information and will provide responses to
on-line, call-by-call queries to this information for purposes
of Billed Number Screening, Calling Card Validation and Fraud
Control.
Each time an Carrier's data is used BellSouth will compensate
Carrier at a rate of 40% of BellSouth's LIDB Validation rate
per query as displayed in Attachment C-13 following.
State(s): All
Rate(s): No Charge
<PAGE> 89
LINE INFORMATION DATA BASE (LIDB)
STORAGE AGREEMENT
FOR RESOLD LOCAL EXCHANGE LINES, UNBUNDLED LOOPS
AND SERVICE PROVIDER NUMBER PORTABILITY ARRANGEMENTS
This agreement, effective as of ____________, 1997, is entered into by
and between BellSouth Telecommunications, Inc. "BST", a Georgia corporation, and
______________ ("Local Exchange Company").
WHEREAS, in consideration of the mutual covenants, agreements and
obligations set forth below, the parties hereby agree as follows:
I. SCOPE
This Agreement sets forth the terms and conditions for inclusion in
BST's Line Information Data Base (LIDB) of billing number information associated
with Local Exchange Company's provision (or resale) of local exchange service or
Service Provider Number Portability (SPNP) arrangements requested by Local
Exchange Company on behalf of Local Exchange Company's end user. BST will store
in its data base the relevant billing number information, and BST will provide
responses to on-line, call-by-call queries to this information for purposes
specified below.
LIDB is accessed for:
- Billed Number Screening
- Calling Card Validation for Calling Cards issued by BellSouth
- Fraud Control
II. DEFINITIONS
2.01. Billing number - a number used by BST for the purpose of
identifying an account liable for charges. This number may be a line or a
special billing number.
2.02. Line number - a ten digit number assigned by BST that identifies
a telephone line associated with a resold local exchange service, or with a SPNP
management.
2.03. Special billing number - a ten digit number that identifies a
billing account established by BST in connection with a resold local exchange
service or with a SPNP arrangement.
2.04. Calling Card number - a billing number plus PIN number assigned
by BST.
2.05. PIN number - a four digit security code assigned by BST which is
added to a billing number to compose a fourteen digit calling card number.
<PAGE> 90
2.06. Toll billing exception indicator - associated with a billing
number to indicate that it is considered invalid for billing of collect calls or
third number calls or both, by the Local Exchange Company.
2.07. Billed Number Screening - refers to the activity of determining
whether a toll billing exception indicator is present for a particular billing
number.
2.08. Calling Card Validation - refers to the activity of determining
whether a particular calling card number exists as stated or otherwise provided
by a caller.
2.09. Billing number information - information about billing number or
Calling Card number as assigned by BST and toll billing exception indicator
provided to BST by the Local Exchange Company.
III. RESPONSIBILITIES OF PARTIES
3.01. BST include billing number information associated with resold
exchange lines or SPNP arrangements in its LIDB. The Local Exchange Company will
request any toll billing exceptions via the Local Service Request (LSR) form
used to order resold exchange lines, or the SPNP service request form used to
order SPNP arrangements.
3.02. Under normal operating conditions, BST shall include the billing
number information in its LIDB upon completion of the service order establishing
either the resold local exchange service or the SPNP arrangement, provided that
BST shall not be held responsible for any delay or failure in performance to the
extent such delay or failure is caused by circumstances or conditions beyond
BST's reasonable control. BST will store in its LIDB an unlimited volume of the
working telephone numbers associated with either the resold local exchange lines
or the SPNP arrangements. For resold local exchange lines or for SPNP
arrangements, BST will issue line-based calling cards only in the name of Local
Exchange Company. BST will not issue line-based calling cards in the name of
Local Exchange Company's individual end users. In the event that Local Exchange
Company wants to include calling card numbers assigned by the Local Exchange
Company in the BST LIDB, a separate agreement is required.
3.03. BST will provide responses to on-line, call-by-call queries to
the stored information for the specific purposes listed in the next paragraph.
3.04. BST is authorized to use the billing number information to
perform the following functions for authorized users on an on-line basis:
2
<PAGE> 91
(a) Validate a 14 digit Calling Card number where the first 10 digits
are a line number or special billing number assigned by BST, and where the last
four digits (PIN) are a security code assigned by BST.
(b) Determine whether the Local Exchange Company has identified the
billing number as one which should not be billed for collect or third number
calls, or both.
3.05. BST will provide seven days per week, 24 hours per day, fraud
control and detection services. These services include, but are not limited to,
such features as sorting Calling Card Fraud detection according to domestic or
international calls in order to assist the pinpointing of possible theft or
fraudulent use of Calling Card numbers; monitoring bill-to-third number and
collect calls made to numbers in BST's LIDB, provided such information is
included in the LIDB query, and establishing Account Specific Thresholds, at
BST's sole discretion, when necessary. Local Exchange Company understands and
agrees BST will administer all data stored in the LIDB, including the data
provided by Local Exchange Company pursuant to this Agreement, in the same
manner as BST's data for BST's end user customers. BST shall not be responsible
to Local Exchange Company for any lost revenue which may result from BST's
administration of the LIDB pursuant to its established practices and procedures
as they exist and as they may be changed by BST in its sole discretion from time
to time.
3.06. Local Exchange Company understands that BST currently has in
effect numerous billing and collection cents with various interexchange carriers
and billing clearing houses. Local Exchange Company further understands that
these billing and collection customers of BST query BST's LIDB to determine
whether to accept various billing options from end users. Additionally, Local
Exchange Company understands that presently BST has no method to differentiate
between BST's own billing and line data in the LIDB and such data which it
includes in the LIDB on Local Exchange Company's behalf pursuant to this
Agreement. Therefore, until such time as BST can and does implement in its LIDB
and its supporting systems the means to differentiate Local Exchange Company's
data from BST's data and the parties to this Agreement execute appropriate
amendments hereto, the following terms and conditions shall apply:
(a) The Local Exchange Company agrees that it will accept
responsibility for telecommunications services billed by BST for its billing and
collection customers for Local Exchange Customer's end user accounts which are
resident in LIDB pursuant to this Agreement Local Exchange Company authorizes
BST to place such charges on Local Exchange Company's bill from BST and agrees
that it shall pay all such charges. Charges for which Local Exchange Company
hereby takes responsibility include, but are not limited to, collect and third
number calls.
(b) Charges for such services shall appear on a separate BST
bill page identified with the name of the entity for which BST is billing the
charge.
3
<PAGE> 92
(c) Local Exchange Company shall have the responsibility to
render a billing statement to its end users for these charges, but Local
Exchange Company's obligation to pay BST for the charges billed shall be
independent of whether Local Exchange Company is able or not to collect from
Local Exchange Company's end users.
(d) BST shall not become involved in any disputes between
Local Exchange Company and the entities for which BST performs billing and
collection. BellSouth will not issue adjustments for charges billed on behalf of
an entity to Local Exchange Company. It shall be the responsibility of the Local
Exchange Company and the other entity to negotiate and arrange for any
appropriate adjustments.
IV. COMPLIANCE
Unless expressly authorized in writing by the Local Exchange Company,
all billing number information provided pursuant to this Agreement shall be used
for no purposes other than those set forth in this Agreement.
V. TERMS
This Agreement will be effective as of _______________, 1997, and will
continue in effect for one year, and thereafter may be continued until
terminated by either Party upon thirty (30) days' written notice to the other
Party.
VI. FEES FOR SERVICE AND TAXES
6.01. The Local Exchange Company will not be charged a fee for storage
services provided by BST to the Local Exchange Company, as described in Section
I of this Agreement.
6.02. Sales, use and all other taxes (excluding taxes on BST's income)
determined by BST or any taxing authority to be due to any federal, state or
local taxing jurisdiction with respect to the provision of the service set forth
herein will be paid by the Local Exchange Company. The Local Exchange Company
shall have the right to have BST contest with the imposing jurisdiction, the
Local Exchange Company's expense, any such taxes that the Local Exchange Company
deems are improperly levied.
VII. INDEMNIFICATION
4
<PAGE> 93
To the extent not prohibited by law, each Party will indemnify the
other and hold the other harmless against any loss, cost, claim, injury, or
liability relating to or arising out of negligence or willful misconduct by the
indemnifying Party or its agents or contractors in connection with the
indemnifying Party's provision of services, provided, however, that any
indemnity for any loss, cost, claim, injury or liability arising out of or
relating to errors or omissions in the provision of services under this
Agreement shall be limited as otherwise specified in this Agreement. The
indemnifying Party under this Section agrees to defend any suit brought against
the other Party for any such loss, cost, claim, injury or liability. The
indemnified Party agrees to notify the other Party promptly, in writing, of any
written claims, lawsuits, or demands for which the other Party is responsible
under this Section and to cooperate in every reasonable way to facilitate
defense or settlement of claims. The indemnifying Party shall not be liable
under this Section for settlement by the indemnified Party of any claim,
lawsuits, or demand unless the defense of the claim, lawsuit, or demand has been
tendered to it in writing and the indemnifying Party has unreasonably failed to
assume such defense.
VIII. LIMITATION OF LIABILITY
Neither Party shall be liable to the other Party for any lost profits
or revenues or for any indirect, incidental or consequential damages incurred by
the other Party arising from this Agreement or the services formed or not
performed hereunder, regardless of the cause of such loss or damage.
IX. MISCELLANEOUS
9.01. It is understood and agreed to by the parties that BST may
provide similar services to other companies.
9.02. All terms, conditions and operations under this Agreement shall
be performed in accordance with, and subject to, all applicable local, state or
federal legal and regulatory tariffs, rulings, and other requirements of the
federal courts, the U.S. Department of Justice and state and federal regulatory
agencies. Nothing in this Agreement shall be construed to cause either Party to
violate any such legal or regulatory requirement and either Party's obligation
to perform shall be subject to all such requirements.
9.03. The Local Exchange Company agrees to submit to BST all
advertising, sales promotion, press releases, and other publicity matters
relating to this Agreement wherein BST's corporate or trade names, logos,
trademarks or service mark or those of BST's affiliated companies are mentioned
or language from which the connection of said names or trademarks therewith may
be inferred or implied; and the Local Exchange Company further agrees not to
publish or use advertising, sales promotions, press releases, or publicity
matters related to BST without BST's prior written approval.
5
<PAGE> 94
9.04. This Agreement constitutes the entire agreement between the Local
Exchange Company and BST which supersedes all prior agreements or contracts,
oral or written representations, statements, negotiations, understandings,
proposals and understandings with respect to the subject matter hereof.
9.05. Except as expressly provided in this Agreement, if any part of
this Agreement is held or construed to be invalid or unenforceable, the validity
of any other Section of this Agreement shall remain in full force and effect to
the extent permissible or appropriate in furtherance of the intent of this
Agreement.
9.06. Neither Party shall be held liable for any delay or failure in
performance of any part of this Agreement for any cause beyond its control and
without its fault or negligence, such as acts of God, acts of civil or military
authority, government regulations, embargoes, epidemics, war, terrorist acts,
riots, insurrections, fires, explosions, earthquakes, nuclear accidents, floods,
power blackouts, volcanic action, other major environmental disturbances,
unusually severe weather conditions, inability to secure products or services of
other persons or transportation facilities, or acts or omissions of
transportation common carriers.
9.07. This Agreement shall be deemed to be a contract made under the
laws of the State of Georgia, and the construction, interpretation and
performance of this Agreement and all transactions hereunder shall be governed
by the domestic law of such State.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their fully authorized officers.
BELLSOUTH TELECOMMUNICATIONS, INC.
By: _
Title: _
Date: _
Address: _
ITC HOLDING
By: _
Title: _
Date: _
Address: _
6
<PAGE> 95
ATTACHMENT C-7
UNBUNDLED PRODUCTS AND SERVICES AND NEW SERVICES
Service: Line Information Database Access Service
(LIDB) - Validation
Description: Provides a customer the ability to receive validation
of billing information through query of data stored
in BellSouth's LIDB data base. See below for
additional information.
State(s): All
<TABLE>
<CAPTION>
Rate Elements Description Monthly Non-Recurring
- -------------------------------------- -------------------------------------------------- -------- -------------
<S> <C> <C> <C>
LIDB Common Transport Provides for transport of the customer's query $0.00030 --
from the LIDB Location (RSTP) to the data
base (SCP). This charge will apply each
time the customer requests and receives
validation of a BellSouth calling card or
requests and receives the status of a
billed number associated with a LEC line
stored in the BellSouth LIDB.
- -------------------------------------- -------------------------------------------------- -------- -------------
LIDB Validation Provides for query of data resident in $0.03800 --
BellSouth's LIDB. This rate will apply
each time a customer requests and
receives validation of LEC calling card
or requests and receives the status of a
billed number associated with a LEC line
stored in BellSouth's LIDB.
- -------------------------------------- -------------------------------------------------- -------- -------------
Originating Point Code Provides for the establishment or change of a -- $91.00
Establishment or Change customer requested Originating Point Code. This
charge will apply each time the customer
establishes or changes a point code
destination identifying one of his
locations or a location of one of his end
users.
- -------------------------------------- -------------------------------------------------- -------- -------------
CCS7 Signaling Connections Rates, terms and conditions for CCS7
Signaling Connections are as set
forth in Section E6.8 of BellSouth
Telecommunication's Inc.'s Intrastate
Access Services Tariff.
- -------------------------------------- -------------------------------------------------- -------- -------------
</TABLE>
<PAGE> 96
ATTACHMENT C-8
UNBUNDLED PRODUCTS AND SERVICES AND NEW SERVICES
Service: Subscriber Listing Information
Description: Subscriber primary listing information provided at no
charge and in an acceptable format will be published
at no charge as standard directory listings in an
alphabetical directory published by or for BellSouth
at no charge to each Carrier end user customer.
States(s): All
Rate(s): (1) No charge for Carrier customer primary listings.
(2) Additional listings and optional listings may be
provided by BellSouth at rates set forth in
BellSouth's intrastate General Subscriber Services
Tariffs.
Special
Requirements: Carrier agrees to execute a directory listing
agreement with BAPCO in a form consistent in all
material respects with the sample listing agreement
attached hereto.
<PAGE> 97
ATTACHMENT C-9
UNBUNDLED PRODUCTS AND SERVICES AND NEW SERVICES
Service: Access to 911 Service
Description: Provides a universal, easy-to-remember number which
is recognized nationally as the appropriate number to
call in an emergency.
Additionally, Carrier must provide a minimum of two
dedicated trunk groups originating from Carrier's
serving wire center and terminating to the
appropriate 911 tandem. These facilities, consisting
of a Switched Local Channel from Carrier's point of
interface to its serving wire center and Switched
Dedicated Transport to the 911 tandem, may be
purchased from BellSouth at the Switched Dedicated
Transport rates set forth in Section E6 of BellSouth
Telecommunications Inc.'s Intrastate Access Service
Tariffs.
State(s): All
Rate(s): Will be billed to appropriate municipality.
Special Service Requirements:
1. BellSouth shall provide interconnection to a 911 selective
routing switch to route calls from Carrier network to correct
the Public Safety Answering Point (PSAP).
2. BellSouth shall identify any special default arrangements and
routing arrangements to complete overflow.
3. BellSouth shall specify any requirements for emergency backup
numbers in case of massive trunk failures.
4. BellSouth shall provide priority restoral of trunk or network
outages on the same terms/conditions it provides itself (and
without the imposition of TSP).
5. The Parties agree to develop a mutual aid agreement to assist
with disaster recovery.
6. BellSouth shall implement a process to identify and correct
errors to the ALI database to ensure that the accuracy of data
stored by new entrants is no less than its own data.
7. BellSouth shall provide reasonable advance notification of any
pending tandem moves, and scheduled maintenance outages which
could affect the provision of 911 service.
<PAGE> 98
8. BellSouth shall establish a process for the management of NPA
splits as well as NXX splits sufficient to ensure that the
provision of 911 services to Carrier is not adversely
affected.
<PAGE> 99
ATTACHMENT C-10
UNBUNDLED PRODUCTS AND SERVICES AND NEW SERVICES
Service: Operator Call Processing Access Service
Description: Provides Operator and Automated call handling. This
includes processing and verification of alternate
billing information for collect, calling card, and
billing to a third number. Operator Call Processing
Access Service also provides dialing instructions,
and other operator assistance the customer may
desire.
<TABLE>
<CAPTION>
MONTHLY
RATE ELEMENTS STATE(S) RECURRING APPLIED PER
- --------------------------------------------------------- ----------- --------- ----------------
Operator Provided Call Handling All Per Work Minute
- --------------------------------------------------------- ----------- --------- ----------------
<S> <C> <C> <C>
$0.06
Call Completion Access Termination Charge Alabama $0.06 Per Call Attempt
This charge will be applicable per call attempt Florida $0.06 Per Call Attempt
and is in addition to the Operator Provided Call Georgia $0.06 Per Call Attempt
Handling charge listed above. Kentucky $0.06 Per Call Attempt
Louisiana $0.06 Per Call Attempt
Mississippi $0.06 Per Call Attempt
N. Carolina $0.06 Per Call Attempt
S. Carolina $0.12 Per Call Attempt
Tennessee Per Call Attempt
- --------------------------------------------------------- ----------- --------- ----------------
Fully Automated Call Handling All $0.15 Per Attempt
- --------------------------------------------------------- ----------- --------- ----------------
</TABLE>
Operator Services Transport
Operator Services transport rates, terms and conditions are as set
forth in E6 of BellSouth Telecommunication's, Inc.'s Intrastate Access
Service Tariff.
<PAGE> 100
ATTACHMENT C-11
UNBUNDLED PRODUCTS AND SERVICES AND NEW SERVICES
Service: Directory Assistance Access Service (Number Services)
Description: In order to provide customers of the co-carriers
access to ubiquitous directory assistance services,
whereby they can gain information on all assigned
numbers regardless of the exchange service provider,
methods and procedures need to be developed to 1)
incorporate BellSouth and Carrier customer data into
each other's directory assistance databases; 2)
provide access to each other database(s) for their
customers; 3) to buy and sell companies of each
others directory assistance and use.
State(s): All.
Rate(s):
<TABLE>
<CAPTION>
MONTHLY
RATE ELEMENTS DESCRIPTION STATE(S) RATE
- ----------------------------- ------------------------------------------------------------ ----------- -------
<S> <C> <C> <C>
Directory Assistance Call Given a listed telephone number at the request of an Access All $0.25
Completion Access Service subscriber's end user, BellSouth will provide or attempt to
provide from the DA Operator System, call completion to the
number requested. This charge will be applied per completed
call.
- ----------------------------- ------------------------------------------------------------ ----------- -----
Call Completion Access This charge will be applicable per completed call and is in Alabama $0.06
Termination Charge addition to the DACC Access Service charge listed above. Florida $0.06
Georgia $0.06
Kentucky $0.06
Louisiana $0.06
Mississippi $0.06
N. Carolina $0.08
S. Carolina $0.08
Tennessee $0.12
- ----------------------------- ------------------------------------------------------------ ----------- -----
Number Services Intercept Number Services Intercept Access refers calls from All $0.30
Access Service disconnected numbers to the proper number or numbers. This
charge will be applied per intercept query.
- ----------------------------- ------------------------------------------------------------ ----------- -----
Directory Assistance Rates, terms and conditions will be applied as set forth in
Service Call E9.1.7 for Georgia and as set forth in E9.5.3 for AL, FL,
KY, LA, MS, NC, SC, TN of BellSouth Telecommunication's
Inc.'s Intrastate Access Service Tariff.
- ----------------------------- ------------------------------------------------------------ ----------- -----
Directory Transport Rates, terms and conditions will be applied as set forth
in E9.1.7 for Georgia and as set forth in E9.5.3 for AL,
FL, KY, LA, MS, NC, SC, TN of BellSouth Telecommunication's
Inc.'s Intrastate Access Service Tariff.
- ----------------------------- ------------------------------------------------------------ ----------- -----
Directory Assistance Rates, terms and conditions will be applied as set forth in
Interconnection E9.1.7 for Georgia and as set forth in E9.5.3 for AL, FL,
KY, LA, MS, NC, SC, TN of BellSouth
Telecommunication's Inc.'s Intrastate Access
Service Tariff.
- ----------------------------- ------------------------------------------------------------ ----------- -----
Directory Assistance Database Rates, terms and conditions will be applied as set forth in
Service A38.1 of BellSouth Telecommunication's Inc.'s General
Subscriber Service Tariff.
- ----------------------------- ------------------------------------------------------------ ----------- -----
Direct Access to DA Service Rates, terms and conditions will be applied as set forth in
Section 9.3 of BellSouth Telecommunication's Inc.'s
Interstate Access Service Tariff F.C.C. No. 1.
- ----------------------------- ------------------------------------------------------------ ----------- -----
</TABLE>
<PAGE> 101
ATTACHMENT C-11 (cont'd)
Special Service Requirements:
1. DA Service hereunder provides the ability to make Carrier's
data available to anyone calling BellSouth's DA, and
BellSouth's data available to anyone calling Carrier's DA.
2. BellSouth shall store proprietary customer information
provided by Carrier in its AA database; such information shall
be able to be identified by source provider in order to
provide the necessary protection of proprietary information.
3. DA Service includes the ability to complete intraLATA, 555 and
411 calls utilizing components of BellSouth's DA network.
4. Carrier may resell BellSouth DA either as part of a bundled
Carrier service or independently.
5. Carrier shall be able to buy the components or any combination
of components, that comprise the DA Service and package them
as required, including:
- Unbundled Directory Platform (includes operators,
switch and LAN)
- Unbundled Directory Assistance Database Access
Service ("DADAS")
- Unbundled Directory Assistance Database Service
("DADS")
DADAS and DADS will be offered pursuant to the terms of the
applicable BellSouth Local Interconnection Services Tariff.
6. There will be no charge for BellSouth storage of Carrier
customer information in the Directory Assistance Database.
7. The end-to-end interval for updating database must be the same
as provided to BellSouth's end users.
8. BellSouth will provide Carrier with an interface into
BellSouth's database for updating and inquiries.
9. Quality standards shall be equivalent to that provided by
BellSouth to its own customers.
10. Speed-to-answer times will be equivalent to that provided by
BellSouth to its own customers.
<PAGE> 102
ATTACHMENT C-11 (cont'd)
Special Service Requirements (cont'd):
11. Dialing parity will be provided, including no unreasonable
dialing delays.
12. BellSouth will incorporate Carrier customer data in its DA
database via the ordering process specified in its
Facilities-Based Ordering Guide ("FBOG").
13. BellSouth's DA database shall be updated and maintained with
Carrier data for customers who:
- Disconnect
- Change carrier
- Install
- "Change" orders
- Are Non-Published
- Are Non-Listed
- Are Non-Published/Non-Listed
14. Each carrier shall bill its own end-users.
15. BellSouth invoices to Carrier for DA Services shall be in a
CABS format.
16. The Parties agree to develop reasonable intercompany
procedures to correct errors which are identified in the DA
database.
<PAGE> 103
ATTACHMENT C-12
UNBUNDLED PRODUCTS AND SERVICES AND NEW SERVICES
Service: Centralized Message Distribution System-Hosting
(CMDS-Hosting)
Description: CMDS - Hosting is the Bellcore administered national
system used to exchange Message Record (EMR)
formatted message data among host companies.
All intraLATA and local messages originated and
billed in the BellSouth Region involving BellSouth
CMDS hosted companies will be processed through the
Non-Send Paid Report System (NSPRS) described in the
attached agreement and Attachment C-13 hereto.
BellSouth agrees to provide CMDS/RAO hosting and
NSPRS services for Carrier, subject to the terms of
this Attachment and Attachment C-14, and subject to
execution of a services agreement substantially in
the form attached hereto.
State(s): All
<TABLE>
<CAPTION>
==================== ============================================================ ========
RATE ELEMENTS DESCRIPTION MONTHLY
==================== ============================================================ ========
<S> <C> <C>
Message Distribution Message Distribution is routing determination and subsequent $0.004
delivery of message data from one company to another. Also
included is the interface function with CMDS, where
appropriate. This charge is applied on a per message basis.
==================== ============================================================ ========
Data Transmission This charge is applied on a per message basis. $0.001
==================== ============================================================ ========
</TABLE>
<PAGE> 104
CONTRACT PROVISIONS FOR RAO HOSTING AND NSPRS
SECTION 1. SCOPE OF AGREEMENT
1.01 This Agreement shall apply to the services of Revenue Accounting Office
(RAO) Hosting and the Non-Sent Paid Report System (NSPRS) as provided
by BellSouth to Carrier. The terms and conditions for the provisions of
these services are outlined in the Exhibits to this Agreement.
SECTION 2. DEFINITIONS
2.01 A. Centralized Message Distribution System is the BellCore
administered national system, based in Kansas City, Missouri,
used to exchange Message Record (EMR) formatted data among
host companies.
B. Compensation is the amount of money due from BellSouth to
Carrier or from Carrier to BellSouth for services and/or
facilities provided under this Agreement.
C. Exchange Message Record is the nationally administered
standard format for the exchange of data among Exchange
Carriers within the telecommunications industry.
D. Intercompany Settlements (ICS) is the revenue associated with
charges billed by a company other than the company in whose
service are such charges were incurred. ICS on a national
level includes third number and credit card calls. ICS within
the BellSouth region includes third number, credit card and
collect calls.
E. Message Distribution is routing determination and subsequent
delivery of message data from one company to another. Also
included is the interface function with CMDS, where
appropriate.
F. Non-Sent Paid Report System (NSPRS) is the system that
calculates ICS amounts due from one company to another in the
state of Florida.
G. Revenue Accounting Office (RAO) Status Company is a local
exchange company/alternate local exchange company that has
been assigned a unique RAO code. Message data exchanged among
RAO status companies is grouped (i.e., packed) according to
From/To/Bill RAO combinations.
SECTION 3. RESPONSIBILITIES OF THE PARTIES
3.01 RAO Hosting and NSPRS services provided to Carrier by BellSouth will be
in accordance with the methods and practices regularly adopted and
applied by BellSouth to its own operations during the term of this
Agreement, including such revisions as may be made from time to time by
BellSouth.
<PAGE> 105
3.02 Carrier shall furnish all relevant information required by BellSouth
for the provision of RAO Hosting and NSPRS.
SECTION 4. COMPENSATION ARRANGEMENTS
4.01 Applicable compensation amounts will be billed by BellSouth to Carrier
on a monthly basis in arrears. Amounts due from one Party to the other
(excluding adjustments) are payable within thirty (30) days of receipt
of the billing statement.
SECTION 5. ASSOCIATED EXHIBITS
5.01 Listed below are the exhibits associated with this Agreement.
Exhibit A Message Distribution Service (RAO Hosting)
Exhibit B Intercompany Settlements (NSPRS)
5.02 From time to time by written agreement of the parties, new Exhibits may
be substituted for the attached Exhibits, superseding and canceling the
Exhibits then in effect.
SECTION 6. TERM OF AGREEMENT
6.01 This agreement is effective and will continue in force until
terminated, with or without cause, by thirty (30) days' prior notice in
writing from either Party to the other. This Agreement may be amended
from time to time upon written agreement of the parties.
Executed this day of , 1997.
WITNESS: ITC HOLDING
(title)
WITNESS: BELLSOUTH TELECOMMUNICATIONS, INC.
(title)
<PAGE> 106
Exhibit A
SECTION 1. SCOPE OF EXHIBIT
1.01 This exhibit specifies the terms and conditions, including
compensation, under which BellSouth shall provide message distribution
service to Carrier. As described herein, message distribution service
includes the following:
1) Message Forwarding to Intraregion LEC/ALEC - function of
receiving an ALEC message and forwarding the message to
another LEC/ALEC in the BellSouth region.
2) Message Forwarding to CMDS - function of receiving an ALEC
message and forwarding that message on to CMDS.
3) Message Forwarding from CMDS - function of receiving a message
from CMDS and forwarding that message to Carrier.
SECTION 2. RESPONSIBILITIES OF THE PARTIES
2.01 An ALEC that is CMDS hosted by BellSouth must have its own unique RAO
code. Requests for establishment of RAO status where BellSouth is the
selected CMDS interfacing host, require written notification from
Carrier to BellSouth at least six (6) weeks prior to the proposed
effective date. The proposed effective date will be mutually agreed
upon between the parties with consideration given to time necessary for
the completion of required BellCore functions. BellSouth will request
the assignment of an RAO code from its connecting contractor, currently
BellCore, on behalf of Carrier and will coordinate all associated
conversion activities.
2.02 BellSouth will receive messages from Carrier that are to be processed
by BellSouth, another LEC/ALEC in the BellSouth region or a LEC outside
the BellSouth region.
2.03 BellSouth will perform invoice sequence checking, standard EMR format
editing, and balancing of message data with the EMR trailer record
counts on all data received from Carrier.
2.04 All data received from Carrier that is to be processed or billed by
another LEC/ALEC within the BellSouth region will be distributed to
that LEC/ALEC in accordance with the agreement(s) which may be in
effect between BellSouth and the involved LEC/ALEC.
<PAGE> 107
2.05 All data received from Carrier that is to be placed on the CMDS network
for distribution outside the BellSouth region will be handled in
accordance with the agreement(s) which may be in effect between
BellSouth and its connecting contractor (currently BellCore).
2.06 BellSouth will receive messages from the CMDS network that are destined
to be processed by Carrier and will forward them to Carrier on a daily
basis.
2.07 Transmission of message data between BellSouth and Carrier will be via
electronic data transmission.
2.08 All messages and related data exchanged between BellSouth and Carrier
will be formatted in accordance with accepted industry standards for
EMR formatted records and packed between appropriate EMR header and
trailer records, also in accordance with accepted industry standards.
2.09 Carrier will ensure that the recorded message detail necessary to
recreate files provided to BellSouth will be maintained for back-up
purposes for a period of three (3) calendar months beyond the related
message dates.
2.10 Should it become necessary for Carrier to send data to BellSouth more
than sixty (60) days past the message date(s), that ALEC will notify
BellSouth in advance of the transmission of the data. If there will be
impacts outside the BellSouth region, BellSouth will work with its
connecting contractor and Carrier to notify all affected parties.
2.11 In the event that data to be exchanged between the two parties should
become lost or destroyed, both parties will work together to determine
the source of the problem. Once the cause of the problem has been
jointly determined and the responsible Party (BellSouth or Carrier)
identified and agreed to, the company responsible for creating the data
(BellSouth or Carrier) will make every effort to have the affected data
restored and retransmitted. If the data cannot be retrieved, the
responsible Party will be liable to the other Party for any resulting
lost revenue. Lost revenue may be a combination of revenues that could
not be billed to the end users and associated access revenues. Both
parties will work together to estimate the revenue amount based upon
historical data through a method mutually agreed upon. The resulting
estimated revenue loss will be paid by the responsible Party to the
other Party within three (3) calendar months of the date of problem
resolution, or as mutually agreed upon by the parties.
-2-
<PAGE> 108
2.12 Should an error be detected by the EMR format edits performed by
BellSouth on data received from Carrier, the entire pack containing the
affected data will not be processed by BellSouth. BellSouth will notify
Carrier of the error condition. Carrier will correct the error(s) and
will resend the entire pack to BellSouth for processing. In the event
that an out-of-sequence condition occurs on subsequent packs, Carrier
will resend these packs to BellSouth after the pack containing the
error has been successfully reprocessed by BellSouth.
2.13 In association with message distribution service, BellSouth will
provide Carrier with associated intercompany settlements reports
(national and regional) as appropriate.
2.14 In no case shall either Party be liable to the other for any direct or
consequential damages incurred as a result of the obligations set out
in this agreement.
SECTION 3. COMPENSATION
3.01 For message distribution service provided by BellSouth for Carrier,
BellSouth shall receive the following as compensation:
Rate Per Message $0.004
3.02 For data transmission associated with message distribution service,
BellSouth shall receive the following as compensation:
Rate Per Message $0.001
3.03 Data circuits (private line or dial-up) will be required between
BellSouth and Carrier for the purpose of data transmission. Where a
dedicated line is required, Carrier will be responsible for ordering
the circuit, overseeing its installation and coordinating the
installation with BellSouth. Carrier will also be responsible for any
charges associated with this line. Equipment required on the BellSouth
end to attach the line to the mainframe computer and to transmit
successfully ongoing will be negotiated on a case by case basis. Where
a dial-up facility is required, dial circuits will be installed in the
BellSouth data center by BellSouth and the associated charges assessed
to Carrier. Additionally, all message toll charges associated with the
use of the dial circuit by Carrier will be the responsibility of
Carrier. Associated equipment on the BellSouth end, including a modem,
will be negotiated on a case by case basis between the parties.
3.04 All equipment, including modems and software, that is required on
Carrier end for the purpose of data transmission will be the
responsibility of Carrier.
-3-
<PAGE> 109
Exhibit B
SECTION 1. SCOPE OF EXHIBIT
1.01 This Exhibit specifies the terms and conditions, including
compensation, under which BellSouth and Carrier will compensate each
other for Intercompany Settlements (ICS) messages.
SECTION 2. RESPONSIBILITIES OF THE PARTIES
2.01 BellSouth will remit to Carrier the revenue, less a billing charge, for
IntraLATA ICS messages, Local ICS messages, and charges for other
services when related messages and/or services are provided by Carrier
and billed to:
1) a BellSouth customer,
2) another company within the BellSouth region (excluding
Florida) associated with the exchange of message data with
BellSouth (excluding CIID and 891 messages),
3) another company within the conterminous United States that
utilities CMDS directly or indirectly and settles with
BellSouth directly or indirectly through the Credit Card and
Third Number Settlement System (CATS) administered by
BellCore,
4) another company utilizing the non-conterminous RAO codes
associated with AT&T's Transport and Tracking Intercompany
System settlements with BellSouth.
2.02 These other services include, but are not limited to:
1) Maritime Mobile Radiotelephone Services radio link charges as
set forth in the FCC's Maritime Mobile Radiotelephone Services
tariff.
2) Aviation Radiotelephone Service radio link charges as set
forth in the FCC's Aviation Radiotelephone Service tariff.
-4-
<PAGE> 110
3) Public Land Mobile Radiotelephone Transient-Unit Non-Toll
Service [changes] as approved by the authorized state
regulatory commission (or municipal regulatory authority).
4) Non-Toll Service Charges billed to a calling card or to a
third number as filed with and approved by the authorized
state regulatory commission (or municipal regulatory
authority).
5) Directory Assistance Call Charges to a calling card or to a
third number as approved by the authorized regulatory
commission.
2.03 Carrier will bill, collect and remit to BellSouth the charges for
intraLATA and/or local ICS messages and other services as described
above where such messages and/or services are provided by:
1) BellSouth,
2) another company with the BellSouth region (excluding Florida)
associated with the exchange of message data with BellSouth
(excluding CIID and 891 messages),
3) another company within the conterminous United States that
utilizes CMDS directly or indirectly and settles with
BellSouth directly or indirectly through the Credit Card and
Third Number Settlement System (CATS).
2.04 For ICS revenues involving Carrier and other non-BellSouth LECs/ALECs
within the state, BellSouth will provide Carrier with monthly reports
summarizing the ICS revenues for messages that originated with Carrier
and were billed by each of the other Florida LECs/ALECs and those
messages that originated with each of the other Florida LECs/ALECs and
were billed by Carrier.
SECTION 3. COMPENSATION
3.01 The following compensation shall be retained by the billing company for
the billing of ICS messages and services:
<TABLE>
<CAPTION>
Rate Per Message
----------------
<S> <C>
1) Calls originated and billed in Florida or originated
and billed in North Carolina $0.0666
2) Calls originated in any of the states within BellSouth
</TABLE>
-5-
<PAGE> 111
<TABLE>
<S> <C>
region and billed in that same state $0.05
3) Calls originated in a state within BellSouth's region and
billed in another state or originated in another state and
billed in a state within BellSouth's region $0.05
4) Calls originated in a state within BellSouth's region and
billed outside the conterminous United States $0.16
</TABLE>
-6-
<PAGE> 112
ATTACHMENT C-13
UNBUNDLED PRODUCTS AND SERVICES AND NEW SERVICES
Service: Non-Sent Paid Report System (NSPRS)
Description: NSPRS includes: (1) a mechanized report system that
provides to the BellSouth CMDS hosted companies
within the BellSouth Region information regarding
Non-Sent Paid message and revenue occurring on calls
originated and billed within the Bellsouth region;
(2) distribution of Bellcore produced Credit Card and
Third Number System (CATS) reports and administration
of associated elements; (3) distribution of Bellcore
produced non-conterminous CATS reports and
administration of associated settlements. Subject to
the terms hereof and execution of a services
agreement substantially in the form attached to
Attachment C-12, BellSouth agrees to provide NSPRS
services for Carrier.
State(s): All
<TABLE>
<CAPTION>
- ----------------------------- --------------------------- -------
BILLING AND COLLECTIONS FEE APPLIED
RATE ELEMENTS RETAINED BY BILLING CO. PER
- ----------------------------- --------------------------- -------
<S> <C> <C>
NSPRS -- intrastate FL and NC $0.066 message
- ----------------------------- --------------------------- -------
NSPRS -- intrastate all other $ 0.05 message
BellSouth states
- ----------------------------- --------------------------- -------
NSPRS -- CATS $ 0.05 message
- ----------------------------- --------------------------- -------
NSPRS -- non-conterminous $ 0.16 message
- ----------------------------- --------------------------- -------
</TABLE>
-7-
<PAGE> 113
ATTACHMENT D
LIQUIDATED DAMAGES FOR SPECIFIED ACTIVITIES
A. Certain Definitions. When used in this Attachment, the following terms
shall have the meanings indicated:
1. "Specified Performance Breach" means the failure by BellSouth
to meet the Performance Criteria for any Specified Activity
for a period of three (3) consecutive calendar months.
2. "Specified Activity" means any of the following activities:
(i) the installation by BellSouth of unbundled Loops for
Carrier ("Unbundled Loop Installation");
(ii) BellSouth's provision of Interim Telecommunications
Number Portability; or
(iii) the repair of out of service problems for Carrier
("Out of Service Repairs").
3. "Performance Criteria" means, with respect to each calendar
month during the term of this Agreement, the performance by
BellSouth during such month of each Specified Activity shown
below within the time interval shown in at least eighty
percent (80%) of the covered instances:
<TABLE>
<CAPTION>
- --------------------------------- --------------------------------------------------------
SPECIFIED ACTIVITY PERFORMANCE INTERVAL DATE
(i) Unbundled Loop Installation
- --------------------------------- --------------------------------------------------------
<S> <C>
1-10 Loops per Service Order 5 days from BellSouth's Receipt of valid Service Order
- --------------------------------- --------------------------------------------------------
11-20 Loops per Service Order 10 days from BellSouth's Receipt of valid Service Order
- --------------------------------- --------------------------------------------------------
21 + Loops per Service Order to be Negotiated
- --------------------------------- --------------------------------------------------------
(ii) Interim Number Portability
- --------------------------------- --------------------------------------------------------
1-10 Loops per Service Order 5 days from BellSouth's Receipt of valid Service Order
- --------------------------------- --------------------------------------------------------
11-20 Loops per Service Order 10 days from BellSouth's Receipt of valid Service Order
- --------------------------------- --------------------------------------------------------
21 + Loops per Service Order to be Negotiated
- --------------------------------- --------------------------------------------------------
</TABLE>
-8-
<PAGE> 114
ATTACHMENT D (cont'd)
<TABLE>
<S> <C>
- --------------------------------- --------------------------------------------------------
(iii) Out-of-Service Repairs Less than 24 hours from BellSouth's Receipt of
Notification of Out-of-Service Condition
- --------------------------------- --------------------------------------------------------
</TABLE>
-9-
<PAGE> 115
ATTACHMENT D (cont'd)
B.1 Specified Performance Breach. In recognition of the (1) loss of
Customer opportunities, revenues and goodwill which Carrier might sustain in the
event of a Specified Performance Breach; (2) the uncertainty, in the event of
such a Specified Performance Breach, of Carrier having available to it customer
opportunities similar to those opportunities currently available to Carrier; and
(3) the difficulty of accurately ascertaining the amount of damages Carrier
would sustain in the event of such a Specified Performance Breach, BellSouth
agrees to pay Carrier, subject to Section B.3 below, damages as set forth in
Section B.2 below in the event of the occurrence of a Specified Performance
Breach.
B.2 Liquidated Damages. The damages payable by BellSouth to Carrier as
a result of a Specified Performance Breach shall be $75,000 for each Specified
Performance Breach (collectively, the "Liquidated Damages"). Carrier and
BellSouth agree and acknowledge that (a) the Liquidated Damages are not a
penalty and have been determined based upon the facts and circumstances of
Carrier and BellSouth at the time of the negotiation and entering into of this
Agreement, with due regard given to the performance expectations of each Party;
(b) the Liquidated Damages constitute a reasonable approximation of the damages
Carrier would sustain if its damages were readily ascertainable; and (c) Carrier
shall not be required to provide any proof of the Liquidated Damages.
B.3 Limitations. In no event shall BellSouth be liable to pay the
Liquidated Damages if BellSouth's failure to meet or exceed any of the
Performance Criteria is caused, directly or indirectly, by a Delaying Event. A
"Delaying Event" means (2) failure by Carrier to perform any of its obligations
set forth in this Agreement (including, without limitation, the Implementation
Schedule and the Joint Grooming Plan), (b) any delay, act or failure to act by a
Customer, agent or subcontractor of Carrier or (c) any Force Majeure Event. If a
Delaying Event (i) prevents BellSouth from performing a Specified Activity, then
such Specific Activity shall be excluded from the calculation of BellSouth's
compliance with the Performance Criteria, or (ii) only suspends BellSouth's
ability to timely perform the Specified Activity, the applicable time frame in
which BellSouth's compliance with the Performance Criteria is measured shall be
extended on an hour-for-hour or day-for-day basis, as applicable, equal to the
duration of the Delaying Event.
B.4 Sole Remedy. The Liquidated Damages shall be the sole and exclusive
remedy of Carrier under this Agreement for BellSouth's breach of the Performance
Criteria and a Specified Performance Breach as described in this Section 26.0.
B.5 Records. BellSouth shall maintain complete and accurate records, on
a monthly basis, of its performance under this Agreement of each Specified
Activity and its compliance with the Performance Criteria. BellSouth shall
provide to Carrier such records in a self-reporting format on a monthly basis.
Notwithstanding Section 28.6.1, the Parties agree that such records shall be
deemed "Proprietary Information" under Section 28.6.
-10-
<PAGE> 116
ATTACHMENT E
LOCAL INTERCONNECTION SERVICE
Service: Service Provider Number Portability-Direct Inward
Dailed (DID)*
Description: Service Provider Number Portability (SPNP) is an
interim service arrangement provided by BellSouth to
ALECs whereby an end user, who switches subscription
to local exchange service form BellSouth to an ALEC
is permitted to retain use of the existing BellSouth
assigned telephone number provided that the end user
remains at the same location.
SPNP-DID provides trunk side access to BellSouth end
office switched for direct inward dialing to ALEC
premises from the telecommunications network directly
to lines associated with ALEC switching equipment.
Interim Rates: The following rates are interim pending negotiation
or arbitration of final rates as stated in Section XI
of the Agreement.
<TABLE>
<CAPTION>
State(s): Alabama Florida
- ----------------------------------------------------------------------------------------------------------------------- -----------
Monthly Applied Non-Recurring Applied Monthly Applied Per Non-Recurring Applied For
Rate Elements Recurring For For Recurring
- --------------------------- ---------- --------- ------------- ----------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Number Ported-Business $ 0.01 each $ 1.00 each $ 0.01 each $ 1.00 each
Per Number Ported-Residence $ 0.01 each $ 1.00 each $ 0.01 each $ 1.00 each
Per Order -- -- $ 25.00 end user -- -- $ 25.00 end user
-- -- -- location -- -- -- location
SPNP-DID Trunk Termination $ 13.00 trunk $160.00 trunk-init $ 15.00 trunk $170.00 trunk-init.
$ 80.00 $ 86.00 trunk-sub.
trunk-sub
DS1 Local Channel** $133.81 LC $866.97 LC-First $133.81 LC $866.97 LC-First
-- -- $486.83 LC-Add'l -- -- $486.83 LC-Add'l
DS1 Dedicated Transport** $ 23.50 per mile -- -- $ 16.75 per mile -- --
$ 90.00 fac. $100.49 fac. $ 59.75 fac. $100.49 fac. term.
term. term. term.
- --------------------------- ---------- --------- ------------- ----------- ---------- ------------ ------------- -----------
</TABLE>
*Rates are displayed at the DS1-1.544 Mbps level. For rates and charges
applicable to other arrangement levels, refer to Section E6 of BellSouth
Telecommunications, Inc.'s Intrastate Access Tariff.
**May not be required if the ALEC is collocated at the ported number end office.
<PAGE> 117
ATTACHMENT E (cont'd)
<TABLE>
<CAPTION>
State(s): Georgia Kentucky
- ---------------------------------------------------------------------------------------------------------------------------------
Monthly Applied Non-Recurring Applied Monthly Applied Per Non-Recurring Applied For
Rate Elements Recurring For For Recurring
- --------------------------- --------- -------- ------------- ----------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Number Ported-Business $ 0.01 each $ 1.00 each $ 0.01 each $ 1.00 each
Per Number Ported-Residence $ 0.01 each $ 1.00 each $ 0.01 each $ 1.00 each
Per Order -- -- $ 25.00 end user -- -- $ 25.00 end user
-- -- -- location -- -- -- location
SNP-DID Trunk Termination $ 14.00 trunk $165.00 trunk-init $ 13.00 trunk $150.00 trunk-init.
$ 83.00 . $ 80.00 trunk-sub.
trunk-sub
.
DS1 Local Channel $133.81 LC $866.97 LC-First $133.81 LC $866.97 LC-First
-- -- $486.83 LC-Add'l -- -- $486.83 LC-Add'l
DS1 Dedicated Transport $ 23.50 per mile -- -- $ 23.50 per mile -- --
$ 90.00 fac. $100.49 fac. $ 90.00 fac. $100.49 fac. term.
term. term. term.
- --------------------------- --------- -------- ------------- ----------- ---------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
State(s): Louisiana Mississippi
- --------------------------------------------------------------------------------------------------------------------------------
Monthly Applied Non-Recurring Applied Monthly Applied Per Non-Recurring Applied For
Rate Elements Recurring For For Recurring
- --------------------------- --------- -------- ------------- ---------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Number Ported-Business $ 0.01 each $ 1.00 each $ 0.01 each $ 1.00 each
Per Number Ported-Residence $ 0.01 each $ 1.00 each $ 0.01 each $ 1.00 each
Per Order -- -- $ 25.00 end user -- -- $ 25.00 end user
-- -- -- location -- -- -- location
SPNP-DID Trunk Termination $ 13.00 trunk $170.00 trunk-init $ 15.00 trunk $150.00 trunk-init.
$ 86.00 . $ 80.00 trunk-sub.
trunk-sub
.
DS1 Local Channel $133.81 LC $866.97 LC-First $133.81 LC $866.97 LC-First
-- -- $486.83 LC-Add'l -- -- $486.83 LC-Add'l
DS1 Dedicated Transport $ 16.75 per mile -- -- $ 23.50 per mile -- --
$ 59.75 fac. $100.49 fac. $ 90.00 fac. $100.49 fac. term.
term. term. term.
- --------------------------- --------- -------- ------------- ---------- ---------- ----------- ------------- -----------
</TABLE>
-2-
<PAGE> 118
ATTACHMENT E (cont'd)
<TABLE>
<CAPTION>
State(s): North South
Carolina Carolina
- ------------------------------------------------------------------------------------------------------------------------------------
Monthly Applied Non-Recurring Applied Monthly Applied Per Non-Recurring Applied For
Rate Elements Recurring For For Recurring
- --------------------------- ---------- -------- ------------- ---------- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Number Ported-Business $ 0.01 each $ 1.00 each $ 0.01 each $ 1.00 each
Per Number Ported-Residence $ 0.01 each $ 1.00 each $ 0.01 each $ 1.00 each
Per Order -- -- $ 25.00 end user -- -- $ 25.00 end user
-- -- -- location -- -- -- location
SPNP-DID Trunk Termination $ 13.00 trunk $160.00 trunk-init $ 13.00 trunk $164.00 trunk-init.
$ 83.00 . $ 81.00 trunk-sub.
trunk-sub
DS1 Local Channel $133.81 LC $866.97 LC-First $133.81 LC $866.97 LC-First
-- -- $486.83 LC-Add'l -- -- $486.83 LC-Add'l
DS1 Dedicated Transport $ 23.50 per mile -- -- $ 23.50 per mile -- --
$ 90.00 fac. $100.49 fac. $ 90.00 fac. $100.49 fac. term.
term. term. term.
- --------------------------- ---------- -------- ------------- ---------- ---------- ----------- ------------- ------------
</TABLE>
<TABLE>
<CAPTION>
State(s): Tennessee
- ----------------------------------------------------------------------------------------
Monthly Applied Non-Recurring Applied
Rate Elements Recurring For For
- --------------------------------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Per Number Ported-Business $ 0.01 each $ 1.00 each
Per Number Ported-Residence $ 0.01 each $ 1.00 each
Per Order -- -- $ 25.00 end user
-- -- -- location
SPNP-DID Trunk Termination $ 13.00 trunk $164.00 trunk-init.
$ 83.00
trunk-sub.
DS1 Local Channel $133.81 LC $866.97 LC-First
-- -- $486.83 LC-Add'l
DS1 Dedicated Transport $ 23.50 per mile -- --
$ 90.00 fac. $100.49 fac. term.
term.
- --------------------------------- ----------- --------- ----------- -----------
</TABLE>
-3-
<PAGE> 119
ATTACHMENT F
BLANKET AGENCY AGREEMENT LETTER
I am an official of American Communications Services, Inc. ("Carrier")
and am authorized to commit my company to the conditions stated herein:
1. Carrier will not submit any requests or inquiries for Resale or
Facility Based local service provisioning under Blanket Agency Agreement
procedures to BellSouth for which it does not have proper authorization from the
End User upon whose behalf service is offered.
2. Carrier will instruct its End Users to deal directly with Carrier on
all inquiries concerning the Local Service. This may include, but is not limited
to, billing, repair, directory listings, and number portability.
3. Carrier is authorized to release all information regarding the End
User's local service to BellSouth.
4. In the event that an End User successfully challenges action taken
by BellSouth as a result of the above mentioned service request, Carrier will
indemnify and hold harmless BellSouth for any reasonable damages or losses,
resulting from Carrier's preparation and submission of service requests for
which it did not have proper End User authorization.
5. In the event that an End User successfully challenges billing which
resulted from local service requests submitted to BellSouth by Carrier under
this Blanket Agency Agreement, then Carrier will indemnify and hold harmless
BellSouth for any reasonable damages, losses, and costs, if any, arising from
BellSouth provisioning and maintenance of the End User's local service due to
errors in the ordering of said service by Carrier.
6. In the event that an End User disputes actions taken by Carrier as a
result of a submission by Carrier of a service request for disconnection or
termination of a previously submitted local service request for which it did not
have proper End User authorization, then Carrier will indemnify and hold
harmless BellSouth for any reasonable damages, losses, and costs, if any,
resulting from said dispute.
7. This Agreement shall continue in effect unless cancelled by prior
written notice by Carrier or BellSouth thirty (30) days' prior to the effective
date of cancellation. Cancellation shall not release or limit any matters
occurring prior to the cancellation of this Blanket Agency Agreement.
[Signed]
-4-
<PAGE> 1
EXHIBIT 10.31
AMENDMENT
TO
INTERCONNECTION AGREEMENT BETWEEN
CYBERNET GROUP AND
BELLSOUTH TELECOMMUNICATIONS, INC.
Pursuant to this Agreement (the "Amendment"), Cybernet Group and
BellSouth Telecommunications, Inc. ("BellSouth") hereinafter referred to
collectively as the "Parties" hereby agree to amend that certain Interconnection
Agreement between the Parties dated 4/15, 1997 ("Interconnection Agreement").
NOW THEREFORE, in consideration of the mutual provisions contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Cybernet Group and BellSouth hereby covenant and
agree as follows:
1. The Parties agree that BellSouth will, upon request, provide and
Cybernet Group will accept and pay for (1) loops, (2) loop cross-connections and
(3) loop channelization in accordance with the schedule of prices set forth in
Attachment C-2 to this Amendment which is incorporated herein by reference, in
and for the states reflected on Attachment C-2.
2. The Parties agree that the prices reflected herein shall be
"trued-up" (up or down) based on final prices either determined by further
agreement or by final order (including any appeals) of the relevant public
service commission or other body having jurisdiction over the subject matter of
this Amendment, which final order meets the criteria contained in paragraph 4
hereof. The "true-up" will consist of comparing the actual volumes and demand
for each item, together with the price associated with such item by this
Amendment, with the final prices determined for each item. Each party shall keep
its own records upon which a "true-up" can be based and any final payment from
one party to the other shall be in an amount agreed upon by the Parties based on
such records. In the event of any disagreement as between the records or the
Parties regarding the amount of such "true-up," the Parties agree that the body
having jurisdiction over the matter for the affected states shall be called upon
to resolve such differences or that they will submit the matter to commercial
arbitration in accordance with the terms contained in Section XXV of the
Interconnection Agreement.
3. The Parties agree that they may continue to negotiate as appropriate
in an effort to obtain final prices for each of these items, but in the event
that no such agreement is reached within six (6) months of this Amendment (which
time can be extended by mutual agreement of the Parties) either party may
petition the public service commission or other regulatory body to resolve such
disputes and to determine final rates for each of the items covered by this
Amendment. Alternatively, upon their mutual agreement, the parties may submit
the matter to commercial arbitration in accordance with the terms contained in
Article XIV of the Interconnection Agreement.
<PAGE> 2
4. Any final order that forms the basis of a "true-up" under this
Amendment shall meet the following criteria:
(a) It shall be in a proceeding to which Cybernet Group and
BellSouth are entitled to be full parties to the proceeding.
(b) It shall apply the provisions of the Telecommunications
Act of 1996, including, but not limited to, Section 252(d)(1) and all effective
implementing rules and regulations; provided that said Act and such regulations
are in effect at the time of the final order.
(c) It shall include as an issue the geographic deaveraging of
unbundled element rates, which deaveraged rates, if any are required by said
final order, shall form the basis of any "true-up."
5. The Parties further agree that the rates for number portability
identified in Attachment D to the Interconnection Agreement will be
retroactively "trued-up" to the effective date of the Interconnection Agreement
in the event that different rates for number portability are established by
mutual agreement of the parties, regulatory action, judicial order, or by
selection of a lower rate for number portability pursuant to the "most favorable
provisions" contained in Section XXII of the Interconnection Agreement.
6. The Parties agree that all of the other provisions of the
Interconnection Agreement, dated 4/15, 1997, shall remain in full force and
effect. Nothing in this Amendment shall in any way limit Cybernet Group's
ability to select substitute rates for local loops, loop cross connects, or loop
channelization pursuant to the terms of Section XXII of the Interconnection
Agreement relating to "most favorable" treatment.
7. The Parties further agree that either or both of the Parties is
authorized to submit this Amendment to the appropriate state public service
commission or other regulatory body having jurisdiction over the subject matter
of this Amendment, for approval subject to Section 252(e) of the federal
Telecommunications Act of 1996.
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be
executed by their respective duly authorized representatives on the date
indicated below.
/s/ Robert Nyswaner /s/ Jerry D. Hendrix
- --------------------------- ---------------------------
CYBERNET GROUP BELLSOUTH TELECOMMUNICATIONS,
INC.
-2-
<PAGE> 3
By: By: Jerry D. Hendrix
---------------------------- -----------------------------
Title: Title: Director
------------------------- --------------------------
DATE: DATE: 5/1/97
-------------------------- ---------------------------
-3-
<PAGE> 4
ATTACHMENT C-2
<TABLE>
<CAPTION>
States: Alabama Florida Georgia
- ---------------------------- ------------ -------------------- ------------ ------------------- ------------- -------------------
Rate Elements Monthly Nonrecurring* Monthly Nonrecurring* Monthly Nonrecurring*
- ---------------------------- ------------ -------------------- ------------ ------------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Unbundled Exchange
Access Loop**
2-Wire Analog $18.00 $55.20 $17.00 $44.80 $17.00 $25.80
4-Wire Analog $28.80 $55.20 $27.20 $44.80 $27.20 $25.80
2-Wire ADSL/HDSL $18.00 $55.20 $17.00 $44.80 $17.00 $25.80
4-Wire HDSL $28.80 $55.20 $27.20 $44.80 $27.20 $25.80
2-Wire ISDN Digital $28.80 $55.20 $27.20 $44.80 $27.20 $25.00
Cross-Connects
2-Wire Analog $0.30 $18.40 $0.30 $15.20 $0.30 $12.60
4-Wire Analog $0.50 $18.40 $0.50 $15.20 $0.50 $12.60
Loop Channelization
Equipment $400.00 $525.00 $400.00 $525.00 $400.00 $525.00
Per Line $1.15 $8.00 $1.15 $8.00 $1.15 $8.00
- ---------------------------- ------------ -------------------- ------------ ------------------- ------------- -------------------
</TABLE>
<TABLE>
<CAPTION>
States: Kentucky
- ---------------------------- ------------ -------------------
Rate Elements Monthly Nonrecurring*
- ---------------------------- ------------ -------------------
<S> <C> <C>
Unbundled Exchange
Access Loop**
2-Wire Analog $17.00 $58.40
4-Wire Analog $27.20 $58.40
2-Wire ADSL/HDSL $17.00 $58.40
4-Wire HDSL $27.20 $58.40
2-Wire ISDN Digital $27.20 $58.40
Cross-Connects
2-Wire Analog $0.30 $16.00
4-Wire Analog $0.50 $16.00
Loop Channelization
Equipment $400.00 $525.00
Per Line $1.15 $8.00
- ---------------------------- ------------ -------------------
</TABLE>
* These rates reflect 80% of the Business Service Connection Charge. If the
Business Service Connection Charge is modified, this rate will become 80%
of the revised rate.
** In the event that an unbundled loop ordered by DeltaCom is part of an
Integrated Digital Loop Carrier (IDLC) system, the loop will by unbundled
from the IDLC and provided to DeltaCom in accordance with the corresponding
rates specified above.
<PAGE> 5
ATTACHMENT C-2
<TABLE>
<CAPTION>
States: Louisiana Mississippi North Carolina
- --------------------------- ------------ -------------------- ------------ ------------------- ------------- -------------------
Rate Elements Monthly Nonrecurring* Monthly Nonrecurring* Monthly Nonrecurring*
- --------------------------- ------------ -------------------- ------------ ------------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Unbundled Exchange
Access Loop**
2-Wire Analog $17.00 $68.00 $22.00 $53.36 $17.00 $33.00
4-Wire Analog $27.20 $68.00 $35.20 $53.36 $27.20 $33.00
2-Wire ADSL/HDSL $17.00 $68.00 $22.00 $53.36 $17.00 $33.00
4-Wire HDSL $27.20 $68.00 $35.20 $53.36 $27.20 $33.00
2-Wire ISDN Digital $27.20 $68.00 $35.20 $53.36 $27.20 $33.00
Cross-Connects
2-Wire Analog $0.30 $20.80 $0.30 $13.00 $0.30 $11.60
4-Wire Analog $0.50 $20.80 $0.50 $13.00 $0.50 $11.60
Loop Channelization
Equipment $400.00 $525.00 $400.00 $525.00 $400.00 $525.00
Per Line $1.15 $8.00 $1.15 $8.00 $1.15 $8.00
- --------------------------- ------------ -------------------- ------------ ------------------- ------------- -------------------
</TABLE>
<TABLE>
<CAPTION>
States: South Carolina
- --------------------------- ------------ -------------------
Rate Elements Monthly Nonrecurring*
- --------------------------- ------------ -------------------
<S> <C> <C>
Unbundled Exchange
Access Loop**
2-Wire Analog $18.00 $51.20
4-Wire Analog $28.80 $51.20
2-Wire ADSL/HDSL $18.00 $51.20
4-Wire HDSL $28.80 $51.20
2-Wire ISDN Digital $28.80 $51.20
Cross-Connects
2-Wire Analog $0.30 $8.00
4-Wire Analog $0.50 $8.00
Loop Channelization
Equipment $400.00 $525.00
Per Line $1.15 $8.00
- --------------------------- ------------ -------------------
</TABLE>
* These rates reflect 80% of the Business Service Connection Charge. If the
Business Service Connection Charge is modified, this rate will become 80%
of the revised rate.
** In the event that an unbundled loop ordered by DeltaCom is part of an
Integrated Digital Loop Carrier (IDLC) system, the loop will by unbundled
from the IDLC and provided to DeltaCom in accordance with the corresponding
rates specified above.
<PAGE> 6
ATTACHMENT C-2
<TABLE>
<CAPTION>
States: Tennessee
- --------------------------------- ------------ --------------------
Rate Elements Monthly Nonrecurring*
- --------------------------------- ------------ --------------------
<S> <C> <C>
Unbundled Exchange
Access Loop**
2-Wire Analog $18.00 $46.80
4-Wire Analog $28.80 $46.80
2-Wire ADSL/HDSL $18.00 $46.80
4-Wire HDSL $28.80 $46.80
2-Wire ISDN Digital $28.80 $46.80
Cross-Connects
2-Wire Analog $0.30 $19.20
4-Wire Analog $0.50 $19.20
Loop Channelization
Equipment $400.00 $525.00
Per Line $1.15 $8.00
- --------------------------------- ------------ --------------------
</TABLE>
* These rates reflect 80% of the Business Service Connection Charge. If
the Business Service Connection Charge is modified, this rate will become
80% of the revised rate.
** In the event that an unbundled loop ordered by DeltaCom is part of an
Integrated Digital Loop Carrier (IDLC) system, the loop will by unbundled
from the IDLC and provided to DeltaCom in accordance with the corresponding
rates specified above.
<PAGE> 1
EXHIBIT 10.32
SECOND AMENDMENT TO THE INTERCONNECTION AGREEMENT BETWEEN
BELLSOUTH TELECOMMUNICATIONS, INC. AND CYBERNET GROUP REGARDING THE
RESALE OF BELLSOUTH SERVICES
PURSUANT TO THIS AMENDMENT ("the Amendment"), Cybernet Group
("Cybernet") and BellSouth Telecommunications, Inc. ("Company" or "BellSouth")
hereinafter referred to collectively as the Parties hereby agree to amend the
Interconnection Agreement between the Parties dated May 1, 1997.
WITNESSETH
WHEREAS, BellSouth is a local exchange telecommunications company
authorized to provide telecommunications services in the states of Alabama,
Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South
Carolina, and Tennessee; and
WHEREAS, Cybernet is or seeks to become an alternative local exchange
telecommunications company authorized to provide telecommunications services in
the states of Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi,
North Carolina, South Carolina, and Tennessee; and
WHEREAS, Cybernet desires to resell BellSouth's telecommunications
services; and
WHEREAS, BellSouth has agreed to provide such services to Cybernet for
resale purposes and pursuant to the terms and conditions set forth herein;
NOW, THEREFORE, for and in consideration of the mutual premises and
promises contained herein, BellSouth and Cybernet do hereby agree as follows:
I. TERM OF THE AGREEMENT
A. The term of this Amendment shall begin July 7, 1997 and extend
to April 14, 1999 and shall apply to all of BellSouth's serving
territory as of January 1, 1996 in the state(s) of Alabama, Florida,
Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South
Carolina, and Tennessee.
B. This Amendment shall be automatically renewed for two
additional one year periods unless either party indicates its intent
not to renew the Amendment. Notice of such intent must be provided,
in writing, to the other party no later than 60 days prior to the end
of the then-existing contract period. The terms of this Amendment
shall remain in effect after the term of the existing agreement has
expired and while a new agreement is being negotiated.
C. The rates pursuant by which Cybernet is to purchase services
from BellSouth for resale shall be at a discount rate off of the
retail rate for the telecommunications service. The discount rates
shall be as set forth in Exhibit A, attached hereto and incorporated
herein by this reference. Such discount shall reflect the costs
avoided by BellSouth when selling a service for wholesale purposes.
II. DEFINITION OF TERMS
A. CUSTOMER OF RECORD means the entity responsible for placing
application for service; requesting additions, rearrangements,
maintenance or discontinuance of service; payment in full of charges
incurred such as non-recurring, monthly recurring, toll, directory
assistance, etc.
B. DEPOSIT means assurance provided by a customer in the form of
cash, surety bond or bank letter of credit to be held by the Company.
Version: April 24, 1997 Page 1
<PAGE> 2
C. END USER means the ultimate user of the telecommunications
services.
D. END USER CUSTOMER LOCATION means the physical location of the
premises where an end user makes use of the telecommunications
services.
E. NEW SERVICES means functions, features or capabilities that
are not currently offered by BellSouth. This includes packaging of
existing services or combining a new function, feature or capability
with an existing service.
F. OTHER LOCAL EXCHANGE COMPANY (OLEC) means a telephone company
certificated by the public service commissions of the Company's
franchised area to provide local exchange service within the Company's
franchised area.
G. RESALE means an activity wherein a certificated OLEC, such as
Cybernet subscribes to the telecommunications services of the Company
and then reoffers those telecommunications services to the public
(with or without "adding value").
H. RESALE SERVICE AREA means the area, as defined in a public
service commission approved certificate of operation, within which an
OLEC, such as Cybernet, may offer resold local exchange
telecommunications service.
III. GENERAL PROVISIONS
A. Cybernet may resell the tariffed local exchange and toll
telecommunications services of BellSouth contained in the General
Subscriber Service Tariff and Private Line Service Tariff subject to
the terms, and conditions specifically set forth herein.
Notwithstanding the foregoing, the exclusions and limitations on
services available for resale will be as set forth in Exhibit B,
attached hereto and incorporated herein by this reference. In
addition, Cybernet may not purchase telecommunications services at the
wholesale rate for its own use.
BellSouth shall make available telecommunications services for resale
at the rates set forth in Exhibit A to this Amendment and subject to
the exclusions and limitations set forth in Exhibit B to this
agreement. It does not however waive its rights to appeal or
otherwise challenge any decision regarding resale that resulted in the
discount rates contained in Exhibit A or the exclusions and
limitations contained in Exhibit B. BellSouth reserves the right to
pursue any and all legal and/or equitable remedies, including appeals
of any decisions. If such appeals or challenges result in changes in
the discount rates or exclusions and limitations, the parties agree
that appropriate modifications to this Amendment will be made promptly
to make its terms consistent with the outcome of the appeal
B. The provision of services by the Company to Cybernet does not
constitute a joint undertaking for the furnishing of any service.
C. Cybernet will be the customer of record for all services
purchased from BellSouth. Except as specified herein, the Company
will take orders from, bill and expect payment from Cybernet for all
services.
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D. Cybernet will be the Company's single point of contact for all
services purchased pursuant to this Agreement. The Company shall have
no contact with the end user except to the extent provided for herein.
E. The Company will continue to bill the end user for any
services that the end user specifies it wishes to receive directly
from the Company.
F. The Company maintains the right to serve directly any end user
within the service area of Cybernet. The Company will continue to
directly market its own telecommunications products and services and
in doing so may establish independent relationships with end users of
Cybernet.
G. Neither Party shall interfere with the right of any person or
entity to obtain service directly from the other Party.
H. Current telephone numbers may nominally be retained by the end
user. However, telephone numbers are the property of the Company and
are assigned to the service furnished. Cybernet has no property right
to the telephone number or any other call number designation
associated with services furnished by the Company, and no right to the
continuance of service through any particular central office. The
Company reserves the right to change such numbers, or the central
office designation associated with such numbers, or both, whenever the
Company deems it necessary to do so in the conduct of its business.
I. The Company may provide any service or facility for which a
charge is not established herein, as long as it is offered on the same
terms to Cybernet.
J. Service is furnished subject to the condition that it will not
be used for any unlawful purpose.
K. Service will be discontinued if any law enforcement agency
advises that the service being used is in violation of the law.
L. The Company can refuse service when it has grounds to believe
that service will be used in violation of the law.
M. The Company accepts no responsibility to any person for any
unlawful act committed by Cybernet or its end users as part of
providing service to Cybernet for purposes of resale or otherwise.
N. The Company will cooperate fully with law enforcement agencies
with subpoenas and court orders for assistance with the Company's
customers. Law enforcement agency subpoenas and court orders
regarding end users of Cybernet will be directed to Cybernet. The
Company will bill Cybernet for implementing any requests by law
enforcement agencies regarding Cybernet end users.
O. The characteristics and methods of operation of any circuits,
facilities or equipment provided by any person or entity other than
the Company shall not:
1. Interfere with or impair service over any facilities of
the Company, its affiliates, or its connecting and concurring
carriers involved in its service;
2. Cause damage to their plant;
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3. Impair the privacy of any communications; or
4. Create hazards to any employees or the public.
P. Cybernet assumes the responsibility of notifying the Company
regarding less than standard operations with respect to services
provided by Cybernet.
Q. Facilities and/or equipment utilized by BellSouth to provide
service to Cybernet remain the property of BellSouth.
R. White page directory listings will be provided in accordance
with regulations set forth in Section A6 of the General Subscriber
Service Tariff and will be available for resale.
S. BellSouth will provide customer record information to the
Cybernet provided the Cybernet has the appropriate Letter(s) of
Authorization. BellSouth may provide customer record information via
one of the following methods: US mail, fax, or by electronic
interface. BellSouth will provide customer record information via US
mail or fax on an interim basis only.
Cybernet agrees to compensate BellSouth for all BellSouth incurred
expenditures associated with providing such information to Cybernet.
Cybernet will adopt and adhere to the BellSouth guidelines associated
with each method of providing customer record information.
T. BellSouth's messaging services may be made available for
resale subject to the execution of BellSouth's Messaging Agreement and
without the wholesale discount.
U. BellSouth's Inside Wire Maintenance Plans may be made
available for resale at rates, terms and conditions as set forth by
BellSouth and without the wholesale discount.
IV. BELLSOUTH'S PROVISION OF SERVICES TO CYBERNET
A. Cybernet agrees that its resale of BellSouth services shall be
as follows:
1. The resale of telecommunications services shall be limited
to users and uses conforming to the class of service
restrictions.
2. To the extent Cybernet is a telecommunications carrier
that serves greater than 5 percent of the Nation's
presubscribed access lines, Cybernet shall not jointly market
its interLATA services with the telecommunications services
purchased from BellSouth pursuant to this Amendment in any of
the states covered under this Agreement. For the purposes of
this subsection, to jointly market means any advertisement,
marketing effort or billing in which the telecommunications
services purchased from BellSouth for purposes of resale to
customers and interLATA services offered by Cybernet are
packaged, tied, bundled, discounted or offered together in any
way to the end user. Such efforts include, but are not
limited to, sales referrals, resale arrangements, sales
agencies or billing agreements. This subsection shall be void
and of no effect for a particular state covered under this
Amendment as of February 8, 1999 or on the date BellSouth is
authorized to offer interLATA services in that state,
whichever is earlier.
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3. Hotel and Hospital PBX service are the only
telecommunications services available for resale to
Hotel/Motel and Hospital end users, respectively. Similarly,
Access Line Service for Customer Provided Coin Telephones is
the only local service available for resale to Independent
Payphone Provider (IPP) customers. Shared Tenant Service
customers can only be sold those telecommunications services
available in the Company's A23 Shared Tenant Service Tariff.
4. Cybernet is prohibited from furnishing both flat and
measured rate service on the same business premises to the
same subscribers (end users) as stated in A2 of the Company's
Tariff except for backup service as indicated in the
applicable state tariff Section A3.
5. If telephone service is established and it is subsequently
determined that the class of service restriction has been
violated, Cybernet will be notified and billing for that
service will be immediately changed to the appropriate class
of service. Service charges for changes between class of
service, back billing, and interest as described in this
subsection shall apply at the Company's sole discretion.
Interest at a rate as set forth in Section A2 of the General
Subscriber Service Tariff and Section B2 of the Private Line
Service Tariff for the applicable state, compounded daily for
the number of days from the back billing date to and including
the date that Cybernet actually makes the payment to the
Company may be assessed.
6. The Company reserves the right to periodically audit
services purchased by Cybernet to establish authenticity of
use. Such audit shall not occur more than once in a calendar
year. Cybernet shall make any and all records and data
available to the Company or the Company's auditors on a
reasonable basis. The Company shall bear the cost of said
audit.
B. Resold services can only be used in the same manner as
specified in the Company's Tariff. Resold services are subject to the same
terms and conditions as are specified for such services when furnished to an
individual end user of the Company in the appropriate section of the Company's
Tariffs. Specific tariff features, e.g. a usage allowance per month, shall not
be aggregated across multiple resold services. Resold services cannot be used
to aggregate traffic from more than one end user customer except as specified
in Section A23. of the Company's Tariff referring to Shared Tenant Service.
C. Cybernet may resell services only within the specific resale
service area as defined in its certificate.
D. Telephone numbers transmitted via any resold service feature
are intended solely for the use of the end user of the feature. Resale of this
information is prohibited.
E. No patent, copyright, trademark or other proprietary right is
licensed, granted or otherwise transferred by this Agreement. Cybernet is
strictly prohibited from any use, including but not limited to sales, marketing
or advertising, of any BellSouth name or trademark.
V. MAINTENANCE OF SERVICES
A. Cybernet will adopt and adhere to the standards contained in
the applicable BellSouth Work Center Interface Agreement regarding
maintenance and installation of service.
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B. Services resold under the Company's Tariffs and facilities and
equipment provided by the Company shall be maintained by the Company.
C. Cybernet or its end users may not rearrange, move, disconnect,
remove or attempt to repair any facilities owned by the Company, other
than by connection or disconnection to any interface means used,
except with the written consent of the Company.
D. Cybernet accepts responsibility to notify the Company of
situations that arise that may result in a service problem.
E. Cybernet will be the Company's single point of contact for all
repair calls on behalf of Cybernet's end users. The parties agree to
provide one another with toll-free contact numbers for such purposes.
F. Cybernet will contact the appropriate repair centers in
accordance with procedures established by the Company.
G. For all repair requests, Cybernet accepts responsibility for
adhering to the Company's prescreening guidelines prior to referring
the trouble to the Company.
H. The Company will bill Cybernet for handling troubles that are
found not to be in the Company's network pursuant to its standard time
and material charges. The standard time and material charges will be
no more than what BellSouth charges to its retail customers for the
same services.
I. The Company reserves the right to contact Cybernet's
customers, if deemed necessary, for maintenance purposes.
VI. ESTABLISHMENT OF SERVICE
A. After receiving certification as a local exchange company from
the appropriate regulatory agency, Cybernet will provide the appropriate
Company service center the necessary documentation to enable the Company to
establish a master account for Cybernet. Such documentation shall include the
Application for Master Account, proof of authority to provide
telecommunications services, an Operating Company Number ("OCN") assigned by
the National Exchange Carriers Association ("NECA") and a tax exemption
certificate, if applicable. When necessary deposit requirements are met, the
Company will begin taking orders for the resale of service.
B. Service orders will be in a standard format designated by the
Company.
C. When notification is received from Cybernet that a current
customer of the Company will subscribe to Cybernet's service, standard service
order intervals for the appropriate class of service will apply.
D. The Company will not require end user confirmation prior to
establishing service for Cybernet's end user customer. Cybernet must, however,
be able to demonstrate end user authorization upon request.
E. Cybernet will be the single point of contact with the Company
for all subsequent ordering activity resulting in additions or changes to
resold services except that the Company will accept a request directly from the
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end user for conversion of the end user's service from Cybernet to the Company
or will accept a request from another OLEC for conversion of the end user's
service from the Cybernet to the other LEC. The Company will notify Cybernet
that such a request has been processed.
F. If the Company determines that an unauthorized change in local
service to Cybernet has occurred, the Company will reestablish service with the
appropriate local service provider and will assess Cybernet as the OLEC
initiating the unauthorized change, an unauthorized change charge similar to
that described in F.C.C. Tariff No. 1, Section 13.3.3. Appropriate
nonrecurring charges, as set forth in Section A4. of the General Subscriber
Service Tariff, will also be assessed to Cybernet.
These charges can be adjusted if Cybernet provides satisfactory proof of
authorization.
NONRECURRING CHARGE
(a) each Residence or Business line $19.41
G. The Company will, in order to safeguard its interest, require
Cybernet to make a deposit to be held by the Company as a guarantee of
the payment of rates and charges, unless satisfactory credit has
already been established. Any such deposit may be held during the
continuance of the service as security for the payment of any and all
amounts accruing for the service.
H. Such deposit may not exceed two months' estimated billing.
I. The fact that a deposit has been made in no way relieves
Cybernet from complying with the Company's regulations as to advance
payments and the prompt payment of bills on presentation nor does it
constitute a waiver or modification of the regular practices of the
Company providing for the discontinuance of service for nonpayment of
any sums due the Company.
J. The Company reserves the right to increase the deposit
requirements when, in its sole judgment, the conditions justify such
action.
K. In the event that Cybernet defaults on its account, service to
Cybernet will be terminated and any deposits held will be applied to
its account.
L. In the case of a cash deposit, interest at the rate of six
percent per annum shall be paid to Cybernet during the continuance of
the deposit. Interest on a deposit shall accrue annually and, if
requested, shall be annually credited to Cybernet by the accrual date.
VII. PAYMENT AND BILLING ARRANGEMENTS
A. When the initial service is ordered by Cybernet, the Company
will establish an accounts receivable master account for Cybernet.
B. The Company shall bill Cybernet on a current basis all
applicable charges and credits.
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C. Payment of all charges will be the responsibility of Cybernet.
Cybernet shall make payment to the Company for all services billed.
The Company is not responsible for payments not received by Cybernet
from Cybernet's customer. The Company will not become involved in
billing disputes that may arise between Cybernet and its customer.
Payments made to the Company as payment on account will be credited to
an accounts receivable master account and not to an end user's
account.
D. The Company will render bills each month on established bill
days for each of Cybernet's accounts.
E. The Company will bill Cybernet, in advance, charges for all
services to be provided during the ensuing billing period except
charges associated with service usage, which charges will be billed in
arrears. Charges will be calculated on an individual end user account
level, including, if applicable, any charges for usage or usage
allowances. BellSouth will also bill all charges, including but not
limited to 911 and E911 charges, telecommunications relay charges, and
franchise fees, to CYBERNET.
F. The payment will be due by the next bill date (i.e., same date
in the following month as the bill date) and is payable in immediately
available funds. Payment is considered to have been made when
received by the Company.
If the payment due date falls on a Sunday or on a Holiday which is
observed on a Monday, the payment due date shall be the first
non-Holiday day following such Sunday or Holiday. If the payment due
date falls on a Saturday or on a Holiday which is observed on Tuesday,
Wednesday, Thursday, or Friday, the payment due date shall be the last
non-Holiday day preceding such Saturday or Holiday. If payment is not
received by the payment due date, a late payment penalty, as set forth
in I. following, shall apply.
G. Upon proof of tax exempt certification from Cybernet, the
total amount billed to Cybernet will not include any taxes due from
the end user. Cybernet will be solely responsible for the
computation, tracking, reporting and payment of all federal, state
and/or local jurisdiction taxes associated with the services resold to
the end user.
H. As the customer of record, Cybernet will be responsible for,
and remit to the Company, all charges applicable to its resold
services for emergency services (E911 and 911) and Telecommunications
Relay Service (TRS) as well as any other charges of a similar nature.
I. If any portion of the payment is received by the Company after
the payment due date as set forth preceding, or if any portion of the
payment is received by the Company in funds that are not immediately
available to the Company, then a late payment penalty shall be due to
the Company. The late payment penalty shall be the portion of the
payment not received by the payment due date times a late factor. The
late factor shall be as set forth in Section A2 of the General
Subscriber Service Tariff and Section B2 of the Private Line Service
Tariff.
J. Any switched access charges associated with interexchange
carrier access to the resold local exchange lines will be billed by,
and due to, the Company. No additional charges are to be assessed to
Cybernet.
K. The Company will not perform billing and collection services
for Cybernet as a result of the execution of this Agreement. All
requests for billing services should be referred to the appropriate
entity or operational group within the Company.
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L. Pursuant to 47 CFR Section 51.617, the Company will bill
Cybernet end user common line charges identical to the end user common
line charges the Company bills its end users.
M. In general, the Company will not become involved in disputes
between Cybernet and Cybernet's end user customers over resold
services. If a dispute does arise that cannot be settled without the
involvement of the Company, Cybernet shall contact the designated
Service Center for resolution. The Company will make every effort to
assist in the resolution of the dispute and will work with Cybernet to
resolve the matter in as timely a manner as possible. Cybernet may be
required to submit documentation to substantiate the claim.
VIII. DISCONTINUANCE OF SERVICE
A. The procedures for discontinuing service to an end user are as
follows:
1. Where possible, the Company will deny service to
Cybernet's end user on behalf of, and at the request of,
Cybernet. Upon restoration of the end user's service,
restoral charges will apply and will be the responsibility of
Cybernet.
2. At the request of Cybernet, the Company Will disconnect a
Cybernet end user customer.
3. All requests by Cybernet for denial or disconnection of an
end user for nonpayment must be in writing.
4. Cybernet will be made solely responsible for notifying the
end user of the proposed disconnection of the service.
5. The Company will continue to process calls made to the
Annoyance Call Center and will advise Cybernet when it is
determined that annoyance calls are originated from one of
their end user's locations. The Company shall be indemnified,
defended and held harmless by Cybernet and/or the end user
against any claim, loss or damage arising from providing this
information to Cybernet. It is the responsibility of Cybernet
to take the corrective action necessary with its customers who
make annoying calls. Failure to do so will result in the
Company's disconnecting the end user's service.
B. The procedures for discontinuing service to Cybernet are as
follows:
1. The Company reserves the right to suspend or terminate
service for nonpayment or in the event of prohibited, unlawful
or improper use of the facilities or service, abuse of the
facilities, or any other violation or noncompliance by
Cybernet of the rules and regulations of the Company's
Tariffs.
2. If payment of account is not received by the bill day in
the month after the original bill day, the Company may provide
written notice to Cybernet, that additional applications for
service will be refused and that any pending orders for
service will not be completed if payment is not received by
the fifteenth day following the date of the notice. If the
Company does not refuse additional applications for service on
the date specified in the notice, and Cybernet's noncompliance
continues, nothing contained herein shall preclude the
Company's right to refuse additional applications for service
without further notice.
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3. If payment of account is not received, or arrangements
made, by the bill day in the second consecutive month, the
account will be considered in default and will be subject to
denial or disconnection, or both.
4. If Cybernet fails to comply with the provisions of this
Agreement, including any payments to be made by it on the
dates and times herein specified, the Company may, on thirty
days written notice to the person designated by Cybernet to
receive notices of noncompliance, discontinue the provision of
existing services to Cybernet at any time thereafter. In the
case of such discontinuance, all billed charges, as well as
applicable termination charges, shall become due. If the
Company does not discontinue the provision of the services
involved on the date specified in the thirty days notice, and
Cybernet's noncompliance continues, nothing contained herein
shall preclude the Company's right to discontinue the
provision of the services to Cybernet without further notice.
5. If payment is not received or arrangements made for
payment by the date given in the written notification,
Cybernet's services will be discontinued. Upon discontinuance
of service on a Cybernet's account, service to Cybernet's end
users will be denied. The Company will also reestablish
service at the request of the end user or Cybernet upon
payment of the appropriate connection fee and subject to the
Company's normal application procedures. Cybernet is solely
responsible for notifying the end user of the proposed
disconnection of the service.
6. If within fifteen days after an end user's service has
been denied no contact has been made in reference to restoring
service, the end user's service will be disconnected.
IX. LIABILITY
A. The liability of the Company for damages arising out of
mistakes, omissions, interruptions, preemptions, delays errors or
defects in transmission, or failures or defects in facilities
furnished by the Company, occurring in the course of furnishing
service or other facilities and not caused by the negligence of
Cybernet, or of the Company in failing to maintain proper standards of
maintenance and operation and to exercise reasonable supervision shall
in no event exceed an amount equivalent to the proportionate charge to
Cybernet for the period of service during which such mistake,
omission, interruption, preemption, delay, error or defect in
transmission or defect or failure in facilities occur. The Company
shall not be liable for damage arising out of mistakes, omission,
interruptions, preemptions, delays, errors or defects in transmission
or other injury, including but not limited to injuries to persons or
property from voltages or currents transmitted over the service of the
Company, (1) caused by customer-provided equipment (except where a
contributing cause is the malfunctioning of a Company-provided
connecting arrangement, in which event the liability of the Company
shall not exceed an amount equal to a proportional amount of the
Company billing for the period of service during which such mistake,
omission, interruption, preemption, delay, error, defect in
transmission or injury occurs), or (2) not prevented by
customer-provided equipment but which would have been prevented had
Company-provided equipment been used.
B. The Company shall be indemnified and saved harmless by
Cybernet against any and all claims, actions, causes of action,
damages, liabilities, or demands (including the costs, expenses and
reasonable attorneys' fees, on account thereof) of whatever kind or
nature that may be made by any third party as a result of the
Company's furnishing of service to Cybernet.
C. The Company shall be indemnified, defended and held harmless
by Cybernet and/or the end user against any claim, loss or damage
arising from the use of services offered for resale involving:
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1. Claims for libel, slander, invasion of privacy or
infringement of copyright arising from Cybernet's or end
user's own communications.
2. Claims for patent infringement arising from acts combining
or using Company services in connection with facilities or
equipment furnished by the end user or Cybernet.
3. All other claims arising out of an act or omission of
Cybernet or its end user in the course of using services.
D. Cybernet accepts responsibility for providing access for
maintenance purposes of any service resold under the provisions of
this Tariff. The Company shall not be responsible for any failure on
the part of Cybernet with respect to any end user of Cybernet.
X. TREATMENT OF PROPRIETARY AND CONFIDENTIAL INFORMATION
A. Both parties agree that it may be necessary to provide each
other during the term of this Amendment with certain confidential
information, including trade secret information, including but not
limited to, technical and business plans, technical information,
proposals, specifications, drawings, procedures, customer account data
and like information (hereinafter collectively referred to as
"Information"). Both parties agree that all Information shall either
be in writing or other tangible format and clearly marked with a
confidential, private or proprietary legend, or, when the Information
is communicated orally, it shall also be communicated that the
Information is confidential, private or proprietary. The Information
will be resumed to the owner within a reasonable time. Both parties
agree that the Information shall not be copied or reproduced in any
form. Both parties agree to receive such Information and not disclose
such Information. Both parties agree to protect the Information
received from distribution, disclosure or dissemination to anyone
except employees of the parties with a need to know such Information
and which employees agree to be bound by the terms of this Section.
Both parties will use the same standard of care to protect Information
received as they would use to protect their own confidential and
proprietary Information.
B. Notwithstanding the foregoing, both parties agree that there
will be no obligation to protect any portion of the Information that
is either: 1) made publicly available by the owner of the Information
or lawfully disclosed by a nonparty to this Agreement; 2) lawfully
obtained from any source other than the owner of the Information; or
3) previously known to the receiving party without an obligation to
keep it confidential.
XI. RESOLUTION OF DISPUTES
Except as otherwise stated in this Agreement, the parties agree that
if any dispute arises as to the interpretation of any provision of this
Amendment or as to the proper implementation of this Agreement, the parties
will petition the applicable state Public Service Commission for a resolution
of the dispute. However, each party reserves any rights it may have to seek
judicial review of any ruling made by that Public Service Commission concerning
this Agreement.
XII. LIMITATION OF USE
The parties agree that this Amendment shall not be proffered by either
party in another jurisdiction as evidence of any concession or as a waiver of
any position taken by the other party in that jurisdiction or for any other
purpose.
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XIII. WAIVERS
Any failure by either party to insist upon the strict performance by
the other party of any of the provisions of this Amendment shall not be deemed
a waiver of any of the provisions of this Agreement, and each party,
notwithstanding such failure, shall have the right thereafter to insist upon
the specific performance of any and all of the provisions of this Agreement.
XIV. GOVERNING LAW
This Amendment shall be governed by, and construed and enforced in
accordance with, the laws of the State of Georgia, without regard to its
conflict of laws principles.
XV. ARM'S LENGTH NEGOTIATIONS
This Amendment was executed after arm's length negotiations between
the undersigned parties and reflects the conclusion of the undersigned that
this Amendment is in the best interests of all parties.
XVI. MORE FAVORABLE PROVISIONS
A. The parties agree that if---
1. the Federal Communications Commission ("FCC") or the
Commission finds that the terms of this Amendment are
inconsistent in one or more material respects with any of its
or their respective decisions, rules or regulations, or
2. the FCC or the Commission preempts the effect of this
Agreement, then, in either case, upon such occurrence becoming
final and no longer subject to administrative or judicial
review, the parties shall immediately commence good faith
negotiations to conform this Amendment to the requirements of
any such decision, rule, regulation or preemption. The
revised agreement shall have an effective date that coincides
with the effective date of the original FCC or Commission
action giving rise to such negotiations. The parties agree
that the rates, terms and conditions of any new agreement
shall not be applied retroactively to any period prior to such
effective date except to the extent that such retroactive
effect is expressly required by such FCC or Commission
decision, rule, regulation or preemption.
B. In the event that BellSouth, either before or after the
effective date of this Agreement, enters into an agreement with any
other telecommunications carrier (an "Other Resale Agreement") which
provides for the provision within the state(s) of Alabama, Florida,
Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South
Carolina, and Tennessee of any of the arrangements covered by this
Amendment upon rates, terms or conditions that differ in any material
respect from the rates, terms and conditions for such arrangements set
forth in this Amendment("Other Terms"), BellSouth shall be deemed
thereby to have offered such other Resale Agreement to Cybernet in its
entirety. In the event that Cybernet accepts such offer, such Other
Terms shall be effective between BellSouth and Cybernet as of the date
on which Cybernet accepts such offer.
C. In the event that after the effective date of this Amendment
the FCC or the Commission enters an order (a "Resale Order") requiring
BellSouth to provide within the state(s) of Alabama, Florida, Georgia,
Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, and
Tennessee any of the arrangements covered by this
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agreement upon Other Terms, then upon such Resale Order becoming final
and not subject to further administrative or judicial review,
BellSouth shall be deemed to have offered such arrangements to
Cybernet upon such Other Terms, in their entirety, which Cybernet may
only accept in their entirety, as provided in Section XVI.E. In the
event that Cybernet accepts such offer, such Other Terms shall be
effective between BellSouth and Cybernet as of the date on which
Cybernet accepts such offer.
D. In the event that after the effective date of this Amendment
BellSouth files and subsequently receives approval for one or more
intrastate tariffs (each, a "Resale Tariff") offering to provide
within the state(s) of Alabama, Florida, Georgia, Kentucky, Louisiana,
Mississippi, North Carolina, South Carolina, and Tennessee any of the
arrangements covered by this Amendment upon Other Terms, then upon
such Resale Tariff becoming effective, BellSouth shall be deemed
thereby to have offered such arrangements to Cybernet upon such Other
Terms, which Cybernet may accept as provided in Section XVI.E. In the
event that Cybernet accepts such offer, such Other Terms shall be
effective between BellSouth and Cybernet as of the date on which
Cybernet accepts such offer.
E. The terms of this Agreement, other than those affected by the
Other Terms accepted by Cybernet, shall remain in full force and
effect.
F. CORRECTIVE PAYMENT. In the event that --
1. BellSouth and Cybernet revise this Amendment pursuant to Section
XVI.A, or
2. Cybernet accepts a deemed offer of an Other Resale Agreement or
Other Terms, then BellSouth or Cybernet, as applicable, shall make a corrective
payment to the other party to correct for the difference between the rates set
forth herein and the rates in such revised agreement or Other Terms for
substantially similar services for the period from the effective date of such
revised agreement or Other Terms until the date that the parties execute such
revised agreement or Cybernet accepts such Other Terms, plus simple interest at
a rate equal to the thirty (30) day commercial paper rate for high-grade,
unsecured notes sold through dealers by major corporations in multiples of
$1,000.00 as regularly published in The Wall Street Journal.
XVII. AMENDMENTS
This Amendment may be amended at any time upon written agreement of
both parties.
XVIII. ENTIRE AGREEMENT
This Amendment sets forth the entire understanding and supersedes
prior agreements between the parties relating to the subject matter contained
herein and merges all prior discussions between them, and neither party shall
be bound by any definition, condition, provision, representation, warranty,
covenant or promise other than as expressly stated in this Amendment or as is
contemporaneously or subsequently set forth in writing and executed by a duly
authorized officer or representative of the party to be bound thereby.
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BellSouth Telecommunications, Inc. Cybernet Group
BY: /s/ Jerry D. Hendrix BY: /s/ Robert Nyswaner
--------------------------- ---------------------------
SIGNATURE SIGNATURE
NAME: Jerry Hendrix NAME: Robert Nyswaner
--------------------------- ---------------------------
PRINTED NAME PRINTED NAME
TITLE: Director TITLE: CFO
--------------------------- ---------------------------
DATE: 07/09/97 DATE: 7/8/97
--------------------------- ---------------------------
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EXHIBIT "A"
APPLICABLE DISCOUNTS
The telecommunications services available for purchase by Cybernet for
the purposes of resale to Cybernet end users shall be available at the
following discount off of the retail rate.
<TABLE>
<CAPTION>
DISCOUNT
--------
STATE RESIDENCE BUSINESS
----- --------- --------
<S> <C> <C>
ALABAMA 17% 17%
FLORIDA 21.83% 16.81%
GEORGIA 20.3% 17.3%
KENTUCKY 16.79% 15.54%
LOUISIANA* 20.72% 20.72%
MISSISSIPPI 15.75% 15.75%
NORTH CAROLINA 21.5% 17.6%
SOUTH CAROLINA 14.8% 14.8%
TENNESSEE** 16% 16%
</TABLE>
* Effective as of the Commission's Order in Louisiana Docket No. U-22020 dated
November 12, 1996.
** The Wholesale Discount is set as a percentage off the tariffed rates. If
OLEC provides is own operator services and directory services, the discount
shall be 21.56%. These rates are effective as of the Tennessee Regulatory
Authority's Order in Tennessee Docket No. 90-01331 dated January 17, 1997.
Version: April 24, 1997 Page 15
<PAGE> 16
EXHIBIT B
<TABLE>
<CAPTION>
================================================================================================================================
AL FL GA KY LA
TYPE OF ------------------------------------------------------------------------------------------------
SERVICE Resale? Discount? Resale? Discount? Resale? Discount? Resale? Discount? Resale? Discount?
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Grandfathered Services, Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
- --------------------------------------------------------------------------------------------------------------------------------
1 Contract Service Yes Yes Yes Yes Yes No Yes No Yes No
Arrangements
- --------------------------------------------------------------------------------------------------------------------------------
3 3 Promotions - Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
greater than 90 Days
- --------------------------------------------------------------------------------------------------------------------------------
4 4 Promotions - Yes No Yes No Yes No No No Yes No
less than 90 Days
- --------------------------------------------------------------------------------------------------------------------------------
5 5 Lifeline/Link Up Yes Yes Yes Yes Yes Yes No No Yes Yes
Services
- --------------------------------------------------------------------------------------------------------------------------------
6 911/E911 Services Yes Yes Yes Yes Yes Yes Yes Yes No No
- --------------------------------------------------------------------------------------------------------------------------------
7 N11 Services Yes Yes Yes Yes Yes Yes No No No No
- --------------------------------------------------------------------------------------------------------------------------------
8 Non-Recurring Charges Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=============================================================================================================
MS NC SC TN
TYPE OF ------------------------------------------------------------------------------
SERVICE Resale? Discount? Resale? Discount? Resale? Discount? Resale? Discount?
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Grandfathered Services, Yes Yes Yes Yes Yes Yes Yes Yes
- -------------------------------------------------------------------------------------------------------------
1 Contract Service Yes No Yes Yes Yes No Yes Yes
Arrangements
- -------------------------------------------------------------------------------------------------------------
3 3 Promotions - Yes Yes Yes Yes Yes Yes Yes No
greater than 90 Days
- -------------------------------------------------------------------------------------------------------------
4 4 Promotions - Yes No No No Yes No No No
less than 90 Days
- -------------------------------------------------------------------------------------------------------------
5 5 Lifeline/Link Up Yes Yes Yes Yes Yes Yes No No
Services
- -------------------------------------------------------------------------------------------------------------
6 911/E911 Services Yes Yes Yes Yes Yes Yes Yes Yes
- -------------------------------------------------------------------------------------------------------------
7 N11 Services No No No No Yes Yes Yes Yes
- -------------------------------------------------------------------------------------------------------------
8 Non-Recurring Charges Yes Yes Yes Yes Yes Yes Yes No
=============================================================================================================
</TABLE>
ADDITIONAL COMMENTS
1 GRANDFATHERED SERVICES can be resold only to existing subscribers of
the grandfathered service.
2 Where available for resale, promotions will be made available only
to end users who would have qualified for the promotion had it been
provided by BellSouth directly.
3 LIFELINE/LINK UP services may be offered only to those subscribers
who meet the criteria that BellSouth currently applies to
subscribers of these services.
4 In Louisiana and Mississippi, all CONTRACT SERVICE ARRANGEMENTs
entered into by BellSouth or terminating after the effective date of
the Commission Order will be subject to resale without the wholesale
discount. All CSAs which are in place as of the effective date of
the Commission order will not be eligible for resale.
5 In North Carolina, only those CONTRACT SERVICE ARRANGEMENTS entered
into after April 15, 1997 will be available for resale.
Version: April 24, 1997 Page 16
<PAGE> 1
EXHIBIT 10.33
October 15, 1997
KNOLOGY Holdings, Inc.
312 West 8th Street
West Point, Georgia 31833
Attention: James K. McCormick, Chief Financial Officer
Re: Commitment for Arrangement of Facility and Financing
Dear Mr. McCormick:
This Commitment Letter, the attached Summary of Terms and Conditions
(the "Term Sheet") and the accompanying fee letter of even date (the "Fee
Letter" and collectively with the Commitment Letter and Term Sheet, the
"Commitment Documents") supersede and replace the commitment letter, term sheet
and fee letter from First Union National Bank ("First Union") to KNOLOGY
Holdings, Inc., dated as of September 29, 1997. Upon acceptance of this letter
in the manner set forth below, the Commitment Documents shall be deemed to have
an effective date as of September 29, 1997.
You have advised us that certain subsidiaries of KNOLOGY Holdings,
Inc. (such subsidiaries, collectively, the "Borrowers") seek financing for
ongoing working capital requirements and other general corporate purposes
including acquisitions. The Term Sheet attached hereto describes the general
terms and conditions for an aggregate $50 million credit facility (the
"Facility").
Based upon and subject to the terms and conditions set forth herein,
in the Term Sheet and in the Fee Letter, First Union is pleased to advise you
of its commitment to provide the Facility and act as Administrative Agent in
respect of thereof. As set forth more fully in the Term Sheet, the closing of
the Facility is subject to certain conditions precedent. Although First Union
is committing to provide the Facility on the terms set forth in the Term Sheet,
First Union expects to act as Administrative Agent for a syndicate of financial
institutions (collectively, the "Lenders") to provide all or a portion of the
Facility. Prior to the closing thereof, First Union may use the services of
its affiliate, First Union Capital Markets Corp. ("Capital Markets"), to act as
Arranger for the Facility.
The commitment of First Union and Capital Markets hereunder is based
upon the financial and other information regarding the Borrowers previously
provided to First Union and Capital Markets. Accordingly, the commitment
hereunder is subject to the condition, among others, that (i) there shall not
have occurred after the date of such financial and other
<PAGE> 2
KNOLOGY Holdings, Inc.
October 15, 1997
Page 2
information any material adverse change in the business, assets, liabilities
(actual or contingent), operations or condition (financial or otherwise) of the
Borrowers taken as a whole, (ii) the information concerning the Borrowers shall
not differ in any material respect from the information previously provided to
First Union and Capital Markets by the Borrowers, (iii) the determination of
First Union and Capital Markets that, prior to and during the primary
syndication of the Facility, there shall be no competing issuance of debt,
securities or commercial bank facilities of the Borrowers being offered, placed
or arranged (other than the Senior Discount Notes and the Private Placement,
each as defined in the Term Sheet) except with the prior written consent of
First Union and Capital Markets and (iv) First Union and Capital Markets shall
have completed, to their satisfaction, all legal, business and other due
diligence review of the business, assets, liabilities, operations and condition
of the Borrowers and its subsidiaries. Further, the commitment of First Union
and Capital Markets is subject to there not having occurred any material
disruption or adverse change in the financial, banking or capital markets that
could, in the reasonable judgment of First Union or Capital Markets, materially
impair the syndication of the Facility.
You agree to actively assist Capital Markets (including after the
closing of the Facility) in achieving a syndication of the Facility that is
satisfactory to Capital Markets and you. Such syndication may be accomplished
by a variety of means, including direct contact during the syndication between
senior management and advisors of the Borrowers and the proposed syndicate
members. To assist Capital Markets in the syndication efforts you hereby agree
(i) to provide and cause your advisors to provide Capital Markets and the other
syndicate members upon request with all information deemed reasonably necessary
by Capital Markets to complete the syndication, including but not limited to
information and evaluations prepared by you and any of your subsidiaries and
their advisors, or on their behalf, relating to the transactions contemplated
hereby, (ii) to assist Capital Markets upon its reasonable request in the
preparation of an Information Memorandum to be used in connection with the
syndication of the Facility and (iii) to otherwise assist Capital Markets in
its syndication efforts, including making officers and advisors of the
Borrowers available from time to time to attend and make presentations
regarding the business and prospects of the Borrowers, as appropriate, at a
meeting or meetings of Lenders or prospective Lenders. Further, the Borrowers
agree to use their best efforts to induce J.P. Morgan & Co., to become a Lender
under the Facility; provided that First Union shall negotiate with J.P. Morgan
& Co., in good faith, a mutually satisfactory allocation of the fees described
in the Commitment Documents; provided further that J.P. Morgan & Co. shall not
be entitled to any other fees in addition to those allocated to J.P. Morgan &
Co. by First Union.
It is understood and agreed that Capital Markets, after consultation
with you, will manage and control all aspects of the syndication, including
decisions as to the selection of proposed
<PAGE> 3
KNOLOGY Holdings, Inc.
October 15, 1997
Page 3
Lenders and any titles offered to proposed Lenders, when commitments will be
accepted and the final allocations of the commitments among the Lenders. It is
understood that no Lender participating in the Facility will receive
compensation from you outside the terms contained herein and in the Term Sheet
in order to obtain its commitment. It is also understood and agreed that the
amount and distribution of the fees among the Lenders will be at the sole
discretion of Capital Markets.
You agree to afford First Union and its affiliates an opportunity to
offer proposals to provide, arrange, underwrite or administer (i) any interest
rate caps, currency swaps or other hedging transactions to be entered into by
you or any of your subsidiaries and (ii) any cash management, funds transfer,
trade, corporate trust and securities services to be obtained by you or any of
your subsidiaries.
You hereby represent and covenant that to the best of your knowledge
(i) all information, other than Projections (as defined below), which has been
or is hereafter made available to First Union, Capital Markets or the Lenders
by you or any of your representatives in connection with the transactions
contemplated hereby ("Information") is and will be complete and correct in all
material respects and does not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained therein not materially misleading and (ii) all financial projections
concerning the Borrowers that have been or are hereafter made available to
First Union, Capital Markets or the Lenders by you (the "Projections") have
been or will be prepared in good faith based upon reasonable assumptions. You
will agree to supplement the Information and the Projections from time to time
until the closing date so that the representation and warranty in the preceding
sentence is correct on the closing date. In arranging and syndicating the
Facility, First Union and Capital markets will be using and relying on the
Information and the Projections.
By executing this letter agreement, you are to reimburse First Union
and Capital Markets from time to time on demand for all reasonable
out-of-pocket fees, syndication expenses and other expenses (including, but not
limited to, the reasonable fees, disbursements and other charges of Kennedy
Covington Lobdell & Hickman, L.L.P., as counsel to First Union and Capital
Markets, and professional fees of consultants, local counsel and other experts)
incurred in connection with the Facility, including the preparation of
definitive documentation for the Facility and the other transactions
contemplated hereby.
By executing this letter agreement, you further agree to indemnify and
hold harmless First Union, Capital Markets, each other Lender and each
director, officer, employee, attorney and affiliate of First Union, Capital
Markets and each other Lender (each such person or entity
<PAGE> 4
KNOLOGY Holdings, Inc.
October 15, 1997
Page 4
referred to hereafter in this paragraph as an "Indemnified Person") from any
losses, claims costs, damages, expenses or liabilities (or actions, suits or
proceedings, including any inquiry or investigation, with respect thereto) to
which any Indemnified Person may become subject, insofar as such losses,
claims, costs, damages, expenses or liabilities (or actions, suits or
proceedings, including any inquiry or investigation, with respect thereto)
arise out of, in any way relate to, or result from, this letter, the Facility
or the other transactions contemplated hereby and thereby and to reimburse upon
demand each Indemnified Person for any and all legal and other expenses
incurred in connection with investigating, preparing to defend or defending any
such loss, claim, cost, damage, expense or inquiry or investigation, with
respect thereto; provided, that you shall have no obligation under this
indemnity provision for liabilities resulting from gross negligence or willful
misconduct of any Indemnified Person. The foregoing provisions of this
paragraph shall be in addition to any right that an Indemnified Person shall
have a common law or otherwise. No Indemnified Person shall be responsible or
liable for consequential damages which may be alleged as a result of this
letter.
The provisions of the immediately preceding two paragraphs shall
remain in full force and effect regardless of whether definitive financing
documentation shall be executed and delivered and notwithstanding the
termination of this letter agreement or the commitment of First Union or
Capital Markets hereunder.
You acknowledge and agree that the services of Capital Markets as
Arranger will be on an exclusive basis during the term of this letter (as
determined pursuant to the final paragraph hereof) and that, during such term,
no other bank or other financial institution will be engaged by you regarding
any other proposed senior bank facility for the Borrowers.
Except as required by applicable law, this letter and the contents
hereof shall not be disclosed by you to any third party without the prior
consent of First Union and Capital Markets, other than to your attorneys,
financial advisors and accountants, or as part of disclosure material
pertaining to any offering of securities by KNOLOGY Holdings, Inc. or any
Borrower, in each case to the extent necessary in your reasonable judgment.
You acknowledge and agree that First Union and Capital Markets may share with
their respective affiliates any information relating to the Facility and the
Borrowers. You further acknowledge and agree to the disclosure by First Union
and Capital Markets of information relating to the Facility to Gold Sheets and
other similar bank trade publications, with such information to consist of deal
terms and other information customarily found in such publications.
This letter may be executed in counterparts which, taken together,
shall constitute an original. This letter, together with the Term Sheet and
the Fee Letter of even date herewith,
<PAGE> 5
KNOLOGY Holdings, Inc.
October 15, 1997
Page 5
embodies the entire agreement and understanding between First Union, Capital
Markets and the Borrowers with respect to the specific matters set forth above
and supersedes all prior agreements and understandings relating to the subject
matter hereof. No party has been authorized by First Union or Capital Markets
to make any oral or written statements inconsistent with this letter.
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF NORTH CAROLINA, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.
This letter may not be assigned by the Borrowers without the prior
written consent of First Union and Capital Markets.
[Signature Page Follows]
<PAGE> 6
KNOLOGY Holdings, Inc.
October 15, 1997
Page 6
If you are in agreement with the foregoing, please execute the
enclosed copy of this Commitment Letter and the Fee Letter and pay the
Acceptance Fee no later than the close of business on October 16, 1997. This
letter will become effective upon your delivery to us of executed counterparts
of this Commitment Letter and the Fee Letter and receipt by First Union of the
Acceptance Fee. This commitment shall terminate if not so accepted by you
prior to that time. Following acceptance by you, this commitment shall expire
at 5:00 p.m. on December 15, 1997 unless the Facility is closed by such time.
Very truly yours,
FIRST UNION NATIONAL BANK
By: /s/ Mark L. Cook
---------------------------------------
Name: Mark L. Cook
-------------------------------
Title: Senior Vice President
------------------------------
FIRST UNION CAPITAL MARKETS CORP.
By: /s/ Andrew J. Gamble
--------------------------------------
Name: Andrew J. Gamble
-------------------------------
Title: Managing Director
------------------------------
COMMITMENT ACCEPTED AND AGREED TO
THIS 16 DAY OF October , 1997
--------- --------------------- ----
KNOLOGY Holdings, Inc.
By: /s/ James K. McCormick
----------------------------------------
Name: James K. McCormick
--------------------------------
Title: CFO
-------------------------------
<PAGE> 7
CONFIDENTIAL
SUMMARY OF TERMS AND CONDITIONS
KNOLOGY HOLDINGS, INC.
EFFECTIVE AS OF SEPTEMBER 29, 1997
<TABLE>
<S> <C>
BORROWERS: KNOLOGY of Columbus, Inc., KNOLOGY of Montgomery, Inc., and all other
present and future subsidiaries of KNOLOGY Holdings, Inc.
(collectively, the "Borrowers" and collectively with KNOLOGY
Holdings, Inc., the "Company").
AMOUNT: $50,000,000.
FACILITY: $50,000,000 Five Year Senior Secured Revolver ("Revolver")
ARRANGER: First Union Capital Markets Corp.
ADMINISTRATIVE AGENT: First Union National Bank ("First Union").
LENDERS: First Union and a syndicate of other financial institutions
reasonably acceptable to the Borrowers.
FINAL MATURITY DATE: Five years from closing.
PURPOSE: To finance capital expenditures, for working capital and for other
general corporate purposes, including Permitted Acquisitions.
AMORTIZATION: None
GUARANTY: KNOLOGY Holdings, Inc. (the "Guarantor") will guaranty the Revolver.
The guaranty will be secured as set forth below.
SECURITY: The obligations of the Borrowers shall be secured by (i) a first
priority security interest in all tangible and intangible assets of
the Borrowers and their subsidiaries and (ii) such other collateral
of the Borrowers deemed appropriate by the Administrative Agent.
</TABLE>
-1-
<PAGE> 8
<TABLE>
<S> <C>
The obligations of the Guarantor shall be secured by (i) a first
priority security interest in all tangible and intangible assets of
the Guarantor; (ii) a pledge of stock of all subsidiaries of the
Guarantor; and (iii) such other collateral of the Guarantor deemed
appropriate by the Administrative Agent.
Notwithstanding the foregoing, if the Borrowers or the Guarantor
notify the Administrative Agent, in connection with each grant of a
security interest in any assets which requires the consent of a third
party, that the Borrowers or Guarantor, as applicable, cannot, as
reasonably determined by the Borrowers and Guarantor in consultation
with the Administrative Agent and Lenders, obtain such consent
following commercially reasonably efforts to obtain such consent, the
Administrative Agent and the Lenders may permit such assets to be
excluded from the liens described above unless the Administrative
Agent and the Lenders determine, in their reasonable judgment, that a
grant of such security interest is necessary to fully secure the
Revolver.
VOLUNTARY COMMITMENT REDUCTIONS: The Borrowers may voluntarily reduce the commitments in amounts of
$2,500,000 at any time with prior notice and without premium or
penalty; provided that each such commitment reduction shall be
accompanied by (i) a payment of principal sufficient to reduce the
aggregate outstanding loans to the commitment as so reduced and (ii)
a payment of any costs and expenses associated with the pre-payment
of any LIBOR loans prior to the end of the applicable interest
period. Any such commitment reductions will be permanent.
MANDATORY PREPAYMENTS/
COMMITMENT REDUCTIONS: Shall be an amount equal to (i) 100% of insurance proceeds not
applied toward the repair or replacement of damaged properties within
180 days in excess of $200,000 in the aggregate during any twelve
(12) month period or $1,000,000 in the aggregate during the term of
the Revolver, (ii) 100% of proceeds from asset sales not reinvested
within 180 days in excess of $1,000,000 in the aggregate during any
twelve (12) month period or $5,000,000 in the aggregate during the
term of the Revolver, other than
</TABLE>
-2-
<PAGE> 9
<TABLE>
<S> <C>
assets sold in the normal course of business and (iii) 50% of
proceeds of any equity offerings of the Company unless otherwise
agreed, excluding the proceeds of an initial public offering
consummated on terms and conditions reasonably acceptable to the
Administrative Agent (the "Initial Public Offering").
INTEREST RATE OPTIONS: At the Borrowers' option, the loans will bear interest at either (i)
the Alternate Base Rate ("ABR") plus the Applicable Margin or (ii)
the LIBOR rate plus the Applicable Margin.
ABR will be the higher of (i) the Administrative Agent's Prime Rate
or (ii) the overnight federal funds rate plus 0.50%. Interest on ABR
borrowings will be payable quarterly in arrears and calculated over a
365-day year. LIBOR will be available for one, three and six-month
borrowings. Interest on LIBOR borrowings will be calculated on the
basis of a 360-day year and adjusted for reserve requirements, if
any. Interest on LIBOR loans will be payable in arrears at the
earlier of maturity or every three months. The Credit Agreement
includes standard provisions for increased costs, capital adequacy
and withholding taxes.
APPLICABLE MARGIN: The Applicable Margin for the Revolver shall be determined on the
basis of the Total Leverage Ratio (as defined below) as set forth
below:
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------
Total
Leverage Base Rate + LIBOR +
Ratio
--------------------------------------------------------------
<S> <C> <C>
greater than
or equal to 7.00 1.250% 2.250%
greater than
or equal to 6.00 1.000% 2.000%
less than 7.00
greater than
or equal to 5.00 0.750% 1.750%
less than 6.00
greater than
or equal to 4.00 0.500% 1.500%
less than 5.00
less than 4.00 0.250% 1.250%
--------------------------------------------------------------
</TABLE>
-3-
<PAGE> 10
<TABLE>
<S> <C>
; provided that at all times that Consolidated Cash Flow is less than
or equal to $ zero ($0), the highest Applicable Margin shall apply.
DEFAULT INTEREST RATE: 2.00% in excess of the applicable interest rate at the time.
COMMITMENT FEE: The Borrowers shall pay a Commitment Fee of 0.375% per annum on the
unused commitment under the Revolver for the first twelve months
subsequent to closing. Thereafter the Borrowers shall pay a
Commitment Fee of 0.500% per annum on the unused commitment under the
Revolver at all times that the Total Leverage Ratio is less than zero
or is greater than or equal to 4.0 and 0.375% per annum on the unused
commitment under the Revolver at all times that the Total Leverage Ratio
less than 4.0, such Commitment Fee to be payable quarterly in arrears.
REPRESENTATIONS AND WARRANTIES
(APPLICABLE TO THE COMPANY): Those customarily found in the credit agreements for similar
financings, including, but not limited to representations and
warranties concerning corporate organization and power,
enforceability of the credit documents, governmental authorization,
absence of litigation, payment of taxes, full disclosure of
information, accuracy of financial information, ownership of
properties, compliance with ERISA, environmental matters, compliance
with laws, labor relations, insurance and material contracts.
CONDITIONS PRECEDENT TO CLOSING: The closing of the Revolver will be subject to the negotiation,
execution, and delivery of a definitive Credit Agreement and other
support documentation satisfactory to the Administrative Agent,
including but not limited to each of the following:
a) All documentation and legal opinions relating to the
transaction and the structure of the Company shall have been
completed to the satisfaction of the Administrative Agent
and its counsel;
</TABLE>
-4-
<PAGE> 11
<TABLE>
<S> <C>
b) All consents and approvals of the boards of directors,
shareholders, governmental and regulatory bodies and other
applicable third parties necessary or desirable in
connection with this transaction shall have been obtained
(except as provided in the third paragraph of the section
entitled "Security" above);
c) No material adverse change shall have occurred;
d) There shall be no material pending litigation, bankruptcy or
insolvency, injunction, order or claim with respect to the
Company;
e) The Guarantor shall have received net proceeds of at least
$30,000,000 from the issuance of equity on terms and
conditions reasonably acceptable to the Administrative Agent
(the "Private Placement"). The Administrative Agent hereby
approves the terms and conditions as are set forth in the
Confidential Private Placement Memorandum dated as of
October 3, 1997; and
f) The Guarantor shall have received net proceeds of at least
$150,000,000 from the issuance of the senior discount notes
issued on terms and conditions reasonably acceptable to the
Administrative Agent (the "Senior Discount Notes"), which
shall expressly permit the Revolver, including without
limitation the collateral therefor. The Administrative
Agent hereby approves such terms and conditions as are set
forth in the preliminary Offering Memorandum dated as of
September 29, 1997 (the "Offering Memorandum").
CONDITIONS PRECEDENT TO INITIAL FUNDING: a) The initial funding of the Revolver will be subject to
delivery of financial statements demonstrating pro forma
compliance with all Financial Covenants in effect at that
time;
b) KNOLOGY of Columbus, Inc., KNOLOGY of Montgomery, Inc. and
the present or future subsidiaries of KNOLOGY Holdings, Inc.
formed
</TABLE>
-5-
<PAGE> 12
<TABLE>
<S> <C>
to acquire cable franchises in Panama City, Florida,
Charleston, South Carolina and Augusta, Georgia (the
foregoing, collectively, the "Initial Borrowers") shall have
(i) received at least $100,000,000 of the net proceeds of
the Private Placement and/or the issuance of the Senior
Discount Notes in the form of an equity contribution and/or
intercompany loans (in each case on terms and conditions
reasonably satisfactory to the Administrative Agent) from
the Guarantor and (ii) used the proceeds of such equity
contribution and/or intercompany loans (A) to expand network
operations of the Initial Borrowers, (B) to consummate
acquisitions by the Initial Borrowers permitted pursuant to
the terms of the Revolver or (C) for working capital
purposes of the Initial Borrowers. The Company shall have
the right to designate a subsidiary formed for the purpose
of acquiring cable franchises in a city other than Augusta,
Georgia as an Initial Borrower in lieu of Augusta, Georgia
(such designated cable franchise, the "Substitute Market"),
upon delivery to the Administrative Agent and Required
Lenders of financial information, financial projections and
business plans, in form and substance satisfactory thereto,
and such other information reasonably requested thereby,
evidencing to the satisfaction of the Administrative Agent
and Required Lenders that the Substitute Market presents
business opportunities to the Company no less favorable than
the business opportunities presented to the Company by the
Augusta, Georgia market as of the date hereof.
AFFIRMATIVE COVENANTS
(APPLICABLE TO THE COMPANY): Those customarily found in credit agreements for similar financings,
including, but not limited to delivery of financial statements and
other business and financial information maintenance of properties,
compliance with laws, payment of obligations, maintenance of books
and records, maintenance of insurance and change in fiscal year.
</TABLE>
-6-
<PAGE> 13
<TABLE>
<S> <C>
NEGATIVE COVENANTS
(APPLICABLE TO THE COMPANY): Those customarily found in credit agreements for similar financings,
including, but not limited to limitations on mergers, other
indebtedness (on terms and conditions and in amounts acceptable to
the Administrative Agent and Required Lenders) and contingent
obligations, liens, asset sales, investments (including a limitation
on the amount of investments by the Guarantor in Borrowers other than
the Initial Borrowers to an amount equal to (a) the proceeds of loans
under the Revolver, (b) the net proceeds of debt and equity offerings
of the Company made after the closing date of the Revolver not
required to prepay the Revolver as set forth the section entitled
"Mandatory Prepayments" above and (c) the net proceeds of the
issuance of the Senior Discount Notes in excess of $165,000,000)
restricted payments, restriction on dividends (subject to the
limitations on such restrictions described in the Offering
Memorandum), transactions with affiliates and lines of business.
FINANCIAL COVENANTS: Financial covenants to include:
Consolidated Senior Funded Debt to Consolidated Adjusted Cash Flow
Ratio:
As of the end of any fiscal quarter through and including the fiscal
quarter ending March 31, 2001, the ratio of (a) Consolidated Senior
Funded Debt to (b) Consolidated Adjusted Cash Flow shall not be less
than zero or exceed the levels set forth in the table below.
Consolidated Senior Funded Debt to Consolidated Cash Flow Ratio:
As of the end of any fiscal quarter beginning with the fiscal quarter
ending June 30, 2001, the ratio of (a) Consolidated Senior Funded
Debt to (b) Consolidated Cash Flow shall not be less than zero or
exceed the levels set forth in the table below.
</TABLE>
-7-
<PAGE> 14
<TABLE>
<S> <C>
Consolidated Total Funded Debt to Consolidated Cash Flow Ratio (the
"Total Leverage Ratio"):
As of the end of any fiscal quarter beginning with the fiscal quarter
ending June 30, 2001, the ratio of (a) Consolidated Total Funded
Debt less cash and cash equivalents in excess of $1,000,000
immediately available to the Borrowers for the repayment of their
obligations under the Revolver to (b) Consolidated Cash Flow shall
not be less than zero or exceed the levels set forth in the table
below.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Consolidated Senior
Funded Debt to Consolidated Senior Consolidated Total
Consolidated Funded Debt to Funded Debt to
Fiscal Quarter Adjusted Consolidated Consolidated
Ending Cash Flow Ratio Cash Flow Ratio Cash Flow Ratio
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Closing to 12/31/98 5.00 to 1.00 n/a n/a
- ----------------------------------------------------------------------------------------------------
3/31/99 to 12/31/99 TBD n/a n/a
- ----------------------------------------------------------------------------------------------------
3/31/00 to 3/31/01 TBD n/a n/a
- ----------------------------------------------------------------------------------------------------
6/30/01 to 12/31/01 n/a TBD 7.00 to 1.00
- ----------------------------------------------------------------------------------------------------
Thereafter n/a TBD TBD
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
"Consolidated Adjusted Cash Flow" means, for any period of two (2)
consecutive fiscal quarters, the sum of the following multiplied by
two (2) determined on a consolidated basis, without duplication, for
the Designated Borrowers in accordance with generally accepted
accounting principles: (a) net income for such period plus (b) the
sum of the following to the extend deducted in determining net
income: (i) income and franchise taxes, (ii) interest, expense, (iii)
amortization, depreciation and other non-cash charges less (c)
interest income and any extraordinary gains.
"Consolidated Cash Flow" means, for any period of two (2) consecutive
fiscal quarters, the sum of the following multiplied by two (2)
determined on a consolidated basis, without duplication, for the
Company in accordance with generally accepted accounting principles:
(a) net income for such period plus (b) the sum of the following to
the extent deducted in determining net income: (i) income and
franchise taxes, (ii) interest expense, (iii) amortization,
</TABLE>
-8-
<PAGE> 15
<TABLE>
<S> <C>
depreciation and other non-cash charges less (c) interest income and
any extraordinary gains.
"Consolidated Senior Funded Debt" means the sum of (a) Consolidated
Total Funded Debt less (b) the outstanding aggregate amount of the
Senior Discount Notes.
"Consolidated Total Funded Debt" means, with respect to the Company
at any date, the sum of the following determined on a consolidated
basis, without duplication, in accordance with generally accepted
accounting principles: (a) all liabilities, obligations and
indebtedness for borrowed money, including, but not limited to,
obligations evidenced by bonds, debentures, notes or other similar
instruments of the Company; (b) all obligations to pay the deferred
purchase price of property or services of the Company, including, but
not limited to, all obligations under non-competition agreements,
except trade payables arising in the ordinary course of business not
more than ninety (90) days past due, (c) all obligations of the
Company as lessee under capital leases, (d) all Debt of any other
Person secured by a Lien on any asset of the Company, (e) all
guaranty obligations of the Company or any subsidiary thereof, (f)
all obligations, contingent or otherwise, of the Company thereof
relative to the face amount of letters of credit, whether or not
drawn and banker's acceptances issued for the account of the Company,
(g) all obligations to redeem, repurchase, exchange, defease or
otherwise make payments in respect of capital stock or other
securities of the Company and (h) all termination payments which
would be due and payable by the Company pursuant to any hedging
agreement.
"Designated Borrowers" means those Borrowers, subject to a minimum
operating threshold to be determined, designated in writing to the
Administrative Agent, for inclusion in this calculation prior to any
measuring date thereof; once so designated, each such Borrower shall
remain a Designated Borrower.
</TABLE>
-9-
<PAGE> 16
<TABLE>
<S> <C>
Consolidated Adjusted Cash Flow to Cash Interest Expense Ratio:
As of the end of each fiscal quarter through and including the fiscal
quarter ending March 31, 2001, the ratio of Consolidated Adjusted
Cash Flow to Cash Interest Expense shall not be less than the levels
set forth in the chart below.
Consolidated Cash Flow to Cash Interest Expense Ratio:
As of the end of each fiscal quarter beginning with the fiscal
quarter ending June 30, 2001, the ratio of Consolidated Cash Flow to
Cash Interest Expense shall not be less than the levels set forth in
the chart below.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Consolidated Adjusted Consolidated
Cash Flow to Cash Cash Flow to Cash
Fiscal Quarter Ending Interest Expense Ratio Interest Expense Ratio
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Closing to 12/31/98 1.50 to 1.0 n/a
- ----------------------------------------------------------------------------------------------------
3/31/99 to 12/31/99 TBD n/a
- ----------------------------------------------------------------------------------------------------
3/31/00 to 3/31/01 TBD n/a
- ----------------------------------------------------------------------------------------------------
6/30/01 to 12/31/01 n/a TBD
- ----------------------------------------------------------------------------------------------------
Thereafter n/a TBD
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
"Cash Interest Expense" means, for any period of two (2) consecutive
fiscal quarters, total interest expense paid in cash (including,
without limitation, interest expense attributable to capital leases)
determined on a consolidated basis, without duplication, for the
Company in accordance with generally accepted accounting principles,
multiplied by two (2).
Borrower Performance Tests:
To be determined based on the Company's forecast for the Initial
Borrowers.
Maximum Capital Expenditures:
To be determined based on Company's forecast capital expenditures,
subject to adjustment with the approval of the Lenders, such approval
not to be unreasonably withheld.
</TABLE>
-10-
<PAGE> 17
<TABLE>
<S> <C>
Unused amounts under the limit may be carried forward one year to
increase the next year's limit, but shall not be carried forward to
any subsequent years.
EVENTS OF DEFAULT: Those customary in the context of this transaction, including without
limitation change in control (such change) in control to be on terms
substantially similar to the change in control provisions contained
in the Senior Discount Notes).
ASSIGNMENTS: Lenders will have the right to sell assignments or participations
with the consent of the Administrative Agent and, so long as no
default or event of default has occurred and is continuing, the
consent of the Borrowers, such consents not be unreasonably withheld.
Minimum assignment amounts will be $5,000,000. A $3,000 fee will be
payable to the Administrative Agent for each assignment.
REQUIRED LENDERS: Lenders holding greater than 66 2/3% of the commitments.
GOVERNING LAW: North Carolina.
</TABLE>
-11-
<PAGE> 1
EXHIBIT 10.33.1
[FIRST UNION LOGO]
December 12, 1997
KNOLOGY Holdings, Inc.
312 West 8th Street
West Point, Georgia 31833
Attention: James K. McCormick, Chief Financial Officer
Re: Commitment Extension Letter for Arrangement of Facility and Financing
Dear Mr. McCormick:
This letter (the "Commitment Extension Letter") amends and supplements
the Commitment Letter, Term Sheet and Fee letter (collectively, the "Commitment
Documents") from First Union National Bank ("First Union") to KNOLOGY Holdings,
Inc., dated as of October 15, 1997. Except as expressly amended and supplemented
by this Commitment Extension Letter, all of the terms, conditions and provisions
of each Commitment Document shall remain in full force and effect. Capitalized
terms used herein without definition shall have the meanings given to them in
the Commitment Documents.
The term of the commitment of First Union more fully described in the
Commitment Documents is hereby extended until 5:00 p.m. on January 30, 1997. The
commitment of First Union under the Commitment Documents shall terminate at such
time if the Facility is not closed prior to such time.
Except as required by applicable law, this letter and the contents
hereof shall not be disclosed by you to any third party without the prior
consent of First Union and Capital Markets, other than to your attorneys,
financial advisors and accountants, or as part of disclosure material pertaining
to any offering of securities by KNOLOGY Holdings, Inc. or any Borrower, in each
case to the extent necessary in your reasonable judgment.
This letter may be executed in counterparts which, taken together, shall
constitute an original. No party has been authorized by First Union or Capital
Markets to make any oral or written statements inconsistent with this letter.
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NORTH CAROLINA, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW.
<PAGE> 2
If you are in agreement with the foregoing, please execute the enclosed
copy of this Commitment Extension Letter no later than the close of business on
December 15, 1997. This Commitment Extension Letter shall terminate if not so
accepted by you prior to that time.
Very truly yours,
FIRST UNION NATIONAL BANK
By: /s/ Mark M. Harden
------------------
Name: MARK M. HARDEN
Title: VICE PRESIDENT
FIRST UNION CAPITAL MARKETS CORP.
By: /s/ Robert E. Healy
-------------------
Name: ROBERT E. HEALY
Title: M.D.
COMMITMENT ACCEPTED AND AGREED TO
THIS 15 DAY OF December, 1997:
KNOLOGY Holdings, Inc.
By: /s/ James K. McCormick
----------------------
Name: JAMES K. MCCORMICK
Title: CFO/Secretary
<PAGE> 1
EXHIBIT 10.34
NATIONAL CABLE TELEVISION COOPERATIVE, INC.
BYLAWS
ARTICLE I: Name, Offices and Goals
SECTION 1.01 Name. The name of the Corporation shall be: NATIONAL
CABLE TELEVISION COOPERATIVE, INCORPORATED.
SECTION 1.02 Offices. The principal office of the Corporation shall be
located in the greater metropolitan area of Kansas City in the State of Kansas.
The Corporation may have such other offices, either within or without the State
of Kansas, as the Board of Directors may determine or as the affairs of the
Corporation may require from time to time.
SECTION 1.03 Goals. The principal goal of the Corporation is to reduce
the operating costs of its members. The strategy used will be to lawfully and
ethically combine the individual purchasing powers of Member companies to
achieve economies of scale commensurate to their aggregate size. The tactics
used to achieve this goal and strategy shall include the execution and operation
of master programming network affiliation agreements, bulk purchase contracts
and other group purchasing arrangements as may be required to meet the needs of
our Members.
ARTICLE II: Membership
SECTION 2.01 Classes of Membership. There shall be one class of
membership only.
(a) Any organization engaged in the business of providing television
reception or service for the public by means of a cable television system as
defined in 47 U.S.C. Sec. 602(6) may be eligible for membership. Organizations
which are otherwise eligible for membership as Members, but which are affiliates
as defined in this paragraph, shall be deemed to be a single Member
(b) An organization shall be deemed to be a affiliate of another
organization if the first organization controls, is controlled by or is under
common control with that other organization. For purposes of the previous
sentence, "'control" shall mean the possession, direct or indirect, of power to
direct or cause the direction or policies of an organization, whether through
the ownership of voting securities, by contract or otherwise.
SECTION 2.02 Admission. Any organization fulfilling the eligibility
requirements of Section 2.01 of this Article I may apply to the Board of
Directors for membership. Any organization demonstrating that it has the
financial responsibility, technical ability, adequate facilities, and intention
to serve the public in a manner which will reflect favorably upon this
Corporation and its Members in conformity with the objectives of the Corporation
as set forth in the Articles of Incorporation may be admitted to membership upon
approval by a majority of the Board of Directors.
SECTION 2.03 Membership Applications. Applications for membership in
the Corporation shall be made in writing addressed to the Secretary of the
Corporation in such form as the Board of Directors from time to time may
prescribe.
SECTION 2.04 Transfer of Memberships. Membership in the Corporation and
all rights appurtenant thereto (including, without limitation, any and all
rights to any deposits made by such Member) shall be transferable by such Member
in whole or (if such Member does not dispose of all of his cable television
system holdings) in part to any purchaser of an application for membership in
the Corporation to the Board of Directors, approval of such application by the
Board and the payment of all fees which may be payable to the Corporation.
SECTION 2.05 Termination of Membership. Subject to the provisions of
Section 2.06 of this Article II, each Member of the Corporation shall continue
as such until he no longer qualifies as a member, or until notice of voluntary
withdrawal is given to the Board of Directors.
SECTION 2.06 The Membership of any Member, and that Member's rights to
the benefits of membership in the Corporation, may be terminated upon the
conditions. and in the manners, described in this section:
(1) The membership of a Member who no longer fulfills the applicable
requirements of Section 2.01 of this Article II may be terminated by the board
of Directors upon ninety (90) days notice with an opportunity for a hearing if
the Member so requests.
(2) The membership of any Member that is past due on any payment
obligation to the Corporation, whether for programming, equipment, dues or other
obligations may be terminated by action of the officers of the corporation upon
not less than five (5) days notice to the defaulting Member.
(3) The Board of Directors may adopt more specific policies
implementing the provision of this Section 2.06 and imposing additional
obligations on defaulting members.
SECTION 2.07 Initial Membership Fee. The initial membership fee payable
by each Member to the Corporation shall be an amount determined by multiplying
one dollar and twenty-five cents ($l.25) times the number of subscribers owned
or controlled by such Member at the time of application: provided that, such fee
shall not be less than $600 nor greater than $12,500.
SECTION 2.08 Annual Dues. Each Member shall pay annual dues to the
Corporation in accordance with such schedule as may be adopted by the Board of
Directors. The initial and subsequent annual dues payable by each member of the
Corporation shall be determined by the Board of Directors.
<PAGE> 2
SECTION 2.09 Assessments. The Corporation may assess its Members in
such amounts and for such purposes as are consistent with its objectives.
Assessments may be proposed by the Board of Directors and shall be binding when
ratified by a two-thirds majority vote of the Members who are present in person
or by proxy at an annual or special meeting held for such purpose. A dissenting
Member may terminate its membership, without obligation for the assessment,
provided the Secretary is notified of its intention within thirty (30) days of
the announcement of the assessment.
SECTION 2.10 Liability. Unless specifically authorized by resolution
passed by the Board of Directors, the Corporation shall not have any liability
for any contracts or agreements negotiated on behalf of its Members, even if
such contracts or agreements provide that the Corporation shall serve as a
payment or collection agent on behalf of Members thereunder.
SECTION 2.11 Security Arrangements. The Board of Directors shall be
entitled to adopt from time to time such arrangements as the Board shall deem
appropriate in order to ensure payment by the Members on a timely basis of all
programmer fees, including, without limitation, arrangements providing for the
escrowing of stipulated amounts by Members to cover such fees.
SECTION 2.12 Eligibility for benefits. No member shall be entitled to
enjoy any of the benefits of any contract negotiated by the Corporation, with
any programmer unless such Member is current in the payment of all amounts owing
to the Corporation, whether for dues, assessments, programmer fees or other
amounts and is otherwise in full compliance with all other terms and provisions
of all agreements between such Member and Corporation whereby such benefits are
made available to such Member
ARTICLE III: Member Meetings
SECTION 3.01 Annual Meeting. The annual meeting of the Members of the
Corporation shall be held on such date, at such time and at such place within or
without the State of Kansas as may be designated by the Board of Directors, for
the purpose of electing Directors and for the transaction of such other business
as may be properly brought before the meeting.
SECTION 3.02 Special Meetings. Except as otherwise provided in the
Articles of Incorporation, a special meeting of the Members of the Corporation
may be called at any time by the Board of Directors or the President and shall
be called by the President or the Secretary at the request in writing of Members
holding together at least twenty percent of the votes entitled to be cast at
such meeting.
(a) Any special meeting of the Members shall be held on such date, at
such time and at such place within or without the State of Kansas as the Board
of Directors to the officer calling the meeting may designate. At a special
meeting of the Members, no business shall be transacted and no corporate action
shall be taken other than that stated in the notice of the meeting unless all of
the Members are present in person or by proxy, in which case any and all
business may be transacted at the meeting even though the meeting is held
without notice.
SECTION 3.03 Notice of Meetings. Except as otherwise provided in these
By-Laws or by law, a written notice of each meeting of the Members shall be
given not less than ten (10) nor more than (60) days before the date of the
meeting to each Member of the Corporation entitled to vote at such meeting at
his address as it appears on the records of the Corporation, either personally
or by mail. The notice shall state the place, date and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called.
SECTION 3.04 Quorum. At any meeting of the Members, the holders of a
majority of the votes entitled to be cast at such meeting, present in person or
represented by proxy, shall constitute a quorum of the Members for all purposes,
unless the representation of a larger number of votes shall be required by law,
by the Articles of Incorporation or by these By-Laws, in which case the
representation of the number of votes so required shall constitute a quorum.
SECTION 3.05 Adjourned Meetings. Whether or not a quorum shall be
present in person or represented at any meeting of the Members, the holders of a
majority of the votes entitled to be cast at such meeting present in meeting is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the Members may transact any
business which might have been transacted by them at the original meeting.
SECTION 3.06 Organization. The Chairman or, in his absence, the Vice
Chairman, shall call all meetings of the Members to order, and shall act as
Chairman of such meetings. In the absence of the Chairman and the Vice Chairman,
the holders of a majority of votes entitled to be cast at such meeting present
in person or represented by proxy shall elect a Chairman pro tem.
(a) The Secretary of the Corporation shall act as Secretary of all
meetings of the Members; but in the absence of the Secretary, the Chairman may
appoint any person to act as Secretary of the meeting. It shall be the duty of
the Secretary to prepare and make, at least 10 days before every meeting of
Members, a complete list of Members entitled to vote at such meeting, arranged
in alphabetical order and showing the address of each Member. Such list shall be
open, either at a place where the meeting is to be held, which place shall be
specified in the notice of the meeting or, if not so specified, at the place
where the meeting is to be held, for the ten days next preceding the meeting, to
the examination of any Member, for any purpose germane to the meeting, during
ordinary business hours, and shall be produced and kept at the time and place of
the meeting during the whole time thereof and subject to the inspection of any
Member who may be present.
SECTION 3.07 Voting. Except as otherwise provided in the Articles of
Incorporation or by law, each Member shall be entitled to exercise the number of
votes specified in the following table based upon the number of subscribers
served by such Member:
9
<PAGE> 3
<TABLE>
<CAPTION>
Number of Subscribers Number
of Votes
<S> <C>
0 - 2,500 1
2,501 - 5,000 2
5,001 - 7,500 3
7,501 - 10,000 4
10,001 - 20,000 5
20,001 - 30,000 6
30,001 - 40,000 7
40,001 - 50,000 8
50,001 - 60,000 9
60,001 and above 10
</TABLE>
Each Member may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after eleven (11) months
from its date, unless the proxy provides for a longer period. When directed by
the presiding officer or upon the demand of any Member, the vote upon any matter
before a meeting of Members shall be by ballot. Except as otherwise provided by
law or by the Articles of Incorporation, Directors shall be elected by a
plurality of the votes cast at a meeting of Members and, whenever any corporate
action, other than the election of Directors is to be taken, it shall be
authorized by a majority of the votes cast at a meeting of Members.
SECTION 3.08 Voting by Mail. Unless otherwise provided in the Articles
of Incorporation, any action required to be taken or which may be taken at any
annual or special meeting of the Members of the Corporation may be conducted by
mail, without a meeting and without prior notice, if a request for consent
thereto in writing, setting forth the action to be taken, shall be mailed to all
the Members and shall thereafter be signed and returned to the Secretary of the
Corporation by the holders of votes entitled to be cast having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all the holders of votes entitled to vote thereon were
present and voted. Prompt notice of the taking of any such action by the Members
shall be given to all Members.
ARTICLE IV: Board of Directors
SECTION 4.01 Number and Term of Office. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of at least
three and no more than fifteen Directors. The Board of Directors of the
Corporation shall initially consist of seven Directors.
(a) Directors need not be Members of the Corporation or officers,
directors, principals, partners or employees of Members. The Board of Directors
shall be divided into three classes, composed initially of one class of two
Directors, a second class of two Directors and a third class of three Directors.
Directors of the first class shall serve for an initial term of three years;
Directors of the second class shall serve for an initial term of two years and
Directors of the third class shall serve for an initial term of one year.
Thereafter, Directors of each class shall serve for a term of three years.
Directors of the appropriate class (i.e. whose three-year term has expired)
shall, except as hereinafter otherwise provided for filling vacancies, be
elected at the annual meeting of Members, and shall hold office until their
respective successors are elected and qualified or until their earlier
resignation or removal.
(b) The Board of Directors may, by resolution passed by a majority of
the Directors then in office, increase the number of Directors to a maximum of
fifteen; the number of Directors may be increased beyond fifteen only by
amendment of these By-Laws.
(c) Such persons as may from time to time be selected by a majority of
the whole Board may serve at the pleasure of the Board as ex officio members of
the Board of Directors. Such ex officio members shall be entitled to notice of
all meetings of the Board and to attend thereat, but shall not be entitled to
vote, and shall be known and designated as "Ex Officio Members of the Board".
SECTION 4.02 Removal, Vacancies and Additional Directors. The Members
may, at any special meeting the notice of which shall state that it is called
for that purpose, remove, with or without cause, any Director and fill the
vacancy. Vacancies caused by any such removal and not filled by the Members at
the meeting at which such removal shall have been made, or any vacancy caused by
the death or resignation of any Director or for any other reason, and any newly
created directorship resulting from any increase in the authorized number of
Directors, may be filled by the affirmative vote of a majority of the Directors
then in office, although less than a quorum, and any Director so elected to fill
any such vacancy or newly created directorship shall hold office until his
successor is elected and qualified or until his earlier resignation or removal.
(a) When one or more Directors shall resign effective at a future date,
a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office as herein provided in connection with
the filling of other vacancies.
SECTION 4.03 Place of Meeting. The Board of Directors may hold its
meetings within or without the State of Kansas as the Board from time to time
shall determine.
SECTION 4.04 Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No notice shall be required for any regular
meeting of the Board of Directors, but a copy of every resolution fixing or
changing the time or place or regular meetings shall be mailed to every Director
at least five days before the first meeting held in pursuance thereof.
SECTION 4.05 Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman, or by a
majority of the Directors then in office.
(a) Notice of the day, hour and place of holding of each special
meeting shall be given by mailing the same at least two days before the meeting
or by causing the same to be transmitted by telex or cable at least one day
before the meeting to each Director. Unless otherwise indicated in the notice
thereof, any and all business other than an amendment of these By-Laws may be
transacted at any special meeting, and an amendment of these By-Laws may be
acted upon if the notice of the meeting shall have stated that the amendment of
these By-Laws is one of the purposes of the meeting.
(b) At any meeting at which every Director shall be present, even
though without any notice, any business may be transacted, including the
10
<PAGE> 4
amendment of these By-Laws.
SECTION 4.06 Quorum. Subject to the provisions of Section 2 of this
Article III, a majority of the members of the Board of Directors in office (but
in no case less than one-third of the total number of Directors nor less than
two Directors) shall constitute a quorum for the transaction of business and the
vote of the majority of the Directors present at any meeting of the Board of
Directors at which a quorum is present shall be the act of the Board of
Directors. If at any meeting of the Board there is less than a quorum present, a
majority of those present may adjourn the meeting from time to time
SECTION 4.07 Organization. The Chairman shall preside at all meetings
of the Board of Directors. In the absence of the Chairman, a Vice Chairman shall
be elected from the Directors present. The Secretary of the Corporation shall
act as Secretary of all meetings of the Directors; but in the absence of the
Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 4.08 Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the Directors of the Corporation. Such
committees may also contain one or more Ex Officio Members of the Board. The
Board may designate one or more Directors as alternate members of any committee.
(a) In the absence or disqualification of a member of a committee, the
members thereof present at any meeting and not disqualified from voting, whether
or not they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(b) Any such committee, to the extent provided by resolution passed by
a majority of the whole board, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and the
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it: but no such committee shall have the
power or authority in reference to amending the Articles of Incorporation,
adopting an agreement of merger or consolidation, recommending to the Members
the sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommending to the Members a dissolution of the
Corporation or a revocation of a dissolution, or amending these By-Laws.
(c) The Board of Directors may also, by resolution passed by a majority
of the whole Board, designate one or more committees consisting entirely or in
part of Ex Officio Members of the Board and grant such Ex Officio Members the
right to vote as members of any such committee, provided that, all actions
approved by any such committee shall be subject to approval by a majority of the
whole Board.
SECTION 4.09 Conference Telephone Meetings. Unless otherwise restricted
by the Articles of Incorporation or by these By-Laws, the members of the Board
of Directors or any committee designated by the Board, may participate in a
meeting of the Board or such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and such participation
shall constitute presence in person at such meeting.
SECTION 4.10 Annual Report. At the Annual meeting of the Members, the
Board of Directors shall present a Report, verified by the Chairman and
Treasurer or by a majority of the Directors, or certified by an independent
public or certified public accountant or a firm of such accountants selected by
the Board, showing in appropriate detail the following:
(a) The assets and liabilities of the Corporation as of the end of a
12-month fiscal period terminating not more than six (6) months prior to the
meeting.
(b) The principal changes in assets and liabilities during the year
immediately preceding the date of the Report.
(c) The revenues of receipts of the Corporation, both unrestricted and
restricted to particular purposes, for the year immediately preceding the date
of the Report.
(d) The expenses or disbursements of the Corporation for both general
and restricted purposes, during the year immediately preceding the date of the
Report.
(e) The number of Members of the Corporation as of the date of the
Report, together with a statement of increase or decrease in such number during
the year immediately preceding the date of the Report, and a statement of the
place where the names and places of residence of the current Members may be
found.
(f) The Annual Report of Directors shall be filed with the records of
the Corporation and either a copy or an abstract thereof entered in the Minutes
of the proceedings of the Annual Meeting of Members. As soon as practicable
after the close of the fiscal year, an appropriate Annual Report shall also be
distributed to all Members.
SECTION 4.11 Consent of Directors or Committee in Lieu of Meeting.
Unless otherwise restricted by the Articles of Incorporation, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing and the
writing or writings are filed with the minutes of proceedings of the Board or
committee, as the case may.
ARTICLE V: Officers
SECTION 5.01 Elected Officers. The officers of the Corporation shall be
a Chairman, a Vice Chairman, a Secretary and a Treasurer, and such additional
officers, if any, as shall be elected by the Board of Directors pursuant to the
provisions of Section 5.06 of this Article V.
(a) The Chairman, the Vice Chairman, the Secretary and the Treasurer
shall be elected by the Board of Directors at its first meeting after each
annual meeting of the Members. The failure to hold such election shall not of
itself terminate the term of office of any officer. All officers shall hold
office at the pleasure of the Board of Directors, but the term of office for any
elected officer shall in no event exceed three years.
(b) Any officer may resign at any time upon written notice to the
Corporation. Officers may, but need, not, be Directors. Any number of offices
may be held by the same person, except the offices of President and Sec-
11
<PAGE> 5
retary may not be held by the same person.
(c) All officers, agents and employees shall be subject to removal,
with or without cause, at any time by the Board of Directors. The removal of an
officer without cause shall be without prejudice to his contract rights, if any.
The election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
(d) Any vacancy caused by the death of any officer, his resignation,
his removal, or otherwise, may be filled by the Board of Directors, and any
officer so elected shall hold office at the pleasure of the Board of Directors,
but in no event for more than three years.
(e) In addition to the powers and duties of the officers of the
Corporation as set forth in the By-Laws, the officers shall have such authority
and shall perform such duties as from time to time maybe determined by the Board
of Directors.
SECTION 5.02 Powers and Duties of the Chairman. The Chairman shall be
the chief executive officer of the Corporation and, subject to the control of
the Board of Directors, shall have general charge and control of all its
business and affairs and shall perform all duties incident to the office of the
Chairman.
(a) He shall preside at all meetings of the Members and at all meetings
of the Board of Directors and shall have such other powers and perform such
other duties as may from time to time be assigned to him by these ByLaws or by
the Board of Directors.
SECTION 5.03 Powers and Duties of the Vice Chairman. The Vice Chairman
shall perform all duties incident to the office of Vice Chairman and shall have
such other powers and perform such other duties as may from time to time be
assigned to him by these ByLaws or by the Board of Directors or the Chairman.
SECTION 5.04 Powers and Duties of the Secretary. The Secretary shall
keep the minutes of all meetings of the Board of Directors and the minutes of
all meetings of the Members in books provided for that purpose; he shall attend
to the giving or serving of all notices of the Corporation.
(a) He shall have custody of the corporate seal and shall affix the
same to such documents and other papers as the Board of Directors or the
Chairman shall authorize and direct.
(b) He shall have charge of such other books and papers as the Board of
Directors or the Chairman shall direct, all of which shall at all reasonable
times be open to the examination of any Director of Member, upon application, at
the office of the Corporation during business hours.
(c) He shall perform all duties incident to the office of Secretary and
shall also have such other powers and shall perform such other duties as may
from time to time be assigned to him by these By-Laws or the Board of Directors
or the Chairman.
SECTION 5.05 Powers and Duties of the Treasurer. The Treasurer shall
have custody of, and shall properly pay out, disburse or otherwise dispose of,
all funds of the Corporation which may have come into his hands.
(a) He may endorse on behalf of the Corporation for collection checks,
notes and other obligations and shall deposit the same to the credit of the
Corporation in such bank or banks or depositary or depositaries as the Board of
Directors may designate.
(b) He shall sign all receipts and vouchers for payments made to the
Corporation: he shall enter or cause to be entered regularly in the books of the
Corporation kept for the purpose full and accurate accounts of all moneys
received or paid or otherwise disposed of by him and whenever required by the
Board of Directors or the Chairman shall render statements of such accounts.
(c) He shall, at all reasonable times, exhibit his books and account to
any Director or Member of the Corporation upon application at the office of the
Corporation during business hours; and he shall perform all duties incident to
the office of Treasurer and shall also have such other powers and shall perform
such other duties as may from time to time be assigned to him by these ByLaws or
the Board of Directors or the Chairman.
SECTION 5.06 Giving of Bond by Officers. The Chairman, the President,
the Treasurer and each other person having authority to sign checks, drafts,
notes or other obligations or orders for the payment of money on behalf of the
Corporation or having custody or control over funds of the Corporation shall
furnish bonds to the Corporation for the faithful performance of their duties,
in such penalties and with such conditions and security as the Board shall
require.
(a) All other officers of the Corporation, if required to do so by the
Board of Directors, shall furnish such bonds to the Corporation, in such
penalties and with such conditions and security as the Board shall require.
SECTION 5.07 Appointed Officers. In addition to the elected officers
enumerated herein, both the President and any Vice Presidents of the
Corporation, as named by the Board of Directors, shall be deemed to be officers
of the Corporation. They shall hold office at the discretion of the Board and
consistent with any term agreement reached by the Board.
SECTION 5.08 Powers and Duties of the President. The Board of Directors
may employ or retain a President who shall hold office for a term, and upon such
compensation as specified by mutual agreement, subject to the provisions of Sec.
5.01(c). The President shall be the chief operating officer of the Corporation.
The President shall manage the affairs of the Corporation under the direction of
the Board of Directors.
(a) The President shall be deemed a non-voting member of the Board of
Directors and shall attend all meetings of the Board.
(b) At the discretion of the Treasurer, he shall collect, or have
collected, all monies due the Corporation and turn same over to the Treasurer or
his designee. He shall have charge of the entries into the books and accounts of
the Corporation and shall furnish the Board of Directors with such statements of
account as may be required.
(c) He shall conduct the general correspondence of the Corporation and
shall keep, or cause to be kept, full records of the Corporation's business. He
shall be responsible for the properties of the Corporation.
(d) He shall employ such personnel as may be necessary for the
effective accomplishment of the purposes of the Corporation.
12
<PAGE> 6
(e) He shall prepare and submit to each scheduled meeting of the Board
of Directors a comprehensive report of the progress and status of the affairs of
the Corporation.
(f) He shall perform such other duties as may be assigned to him by the
Board of Directors.
(g) He shall furnish, upon re-quest of the Board, a bond satisfactory
to the Board, the expense of which shall be borne by the Corporation.
SECTION 5.09 Powers and Duties of the Vice President(s). One or more
Vice Presidents may be employed by the Board of Directors to hold office for a
term and upon compensation as specified by mutual agreement, subject to the
provisions of Sec. 5.01(c). The duties of the Vice President(s) shall be those
enumerated by the President.
ARTICLE Vl: Miscellaneous
SECTION 6.01 Fiscal Year The fiscal year of the Corporation shall begin
on the first day of January and end on the last day of December in each year.
SECTION 6.02 Gifts The Board of Directors may accept on behalf of the
Corporation any contribution, gift, bequest or devise for the general purposes
or for any special purpose of the Corporation.
SECTION 6.03 Certificates of Membership. The Certificate of Membership
in the Corporation shall be in such form as shall be approved by the Board of
Directors. All Certificates shall bear the name of the Corporation, shall be
signed by the President or a Vice President and by the Secretary or an Assistant
Secretary and shall be nontransferable. The fact that the Corporation is a
Nonprofit Corporation and that the Certificate is non-transferable shall be
noted conspicuously on the face of each Certificate.
SECTION 6.04 Record Date. In order that the Corporation may determine
the Members entitled to notice of or to vote at any meeting of Members or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
(a) If no record date is fixed, the record date for determining Members
entitled to notice of or to vote at a meeting of Members shall be at the close
of business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held, and the record date for determining Members for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of Members of
record entitled to notice of or to vote at a meeting of Members shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
SECTION 6.05 Corporate Seal. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be used
by any officer of the Corporation designated by the Board or the Chairman.
SECTION 6.07 Checks, Notes, Etc. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as shall from time to time be
designated by the Board of Directors or pursuant to authority delegated by the
Board.
(a) Checks, drafts, bills of exchange, acceptances, notes, obligations
and orders for the payment of money made payable to the Corporation may be
endorsed for deposit to the credit of the Corporation with a duly authorized
depositary by the Treasurer and/or such other officers or persons as shall from
time to time be designated by the Treasurer.
SECTION 6.08 Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation.
(a) When authorized to do so, any officer or agent of the Corporation
may pledge, hypothecate or transfer, as security for the payment of any and all
loans, advances, indebtedness and liabilities of the Corporation, any and all
property at any time held by the Corporation, and to that end may endorse,
assign and deliver the same. Such authority may be general or confined to
specific instances.
SECTION 6.09 Waivers of Notice. Whenever any notice whatever is
required to be given by law, by the Articles of Incorporation or by these
By-Laws to any person or persons, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
SECTION 6.10 Indemnification of Directors, Officers and Employees. The
Corporation shall indemnify to the full extent authorized by law any person made
or threatened to be made a party to an action, suit or proceeding, whether
criminal (unless convicted), civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a Director, Officer,
employee or agent of the Corporation or is or was serving, at the request of the
Corporation, as a Director, Officer or employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
SECTION 6.11 Restriction on Corporate Activity. Notwithstanding any
other provision set forth herein, the Corporation shall not, in pursuit of any
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<PAGE> 7
of its lawful corporate purposes, play any role whatsoever: (i) in determining
the programming, services or goods which any Members uses, employs or acquires;
(ii) in determining the content of any programming of any Member; or (iii) in
determining the rates charged by any Member to its subscribers. In setting forth
the above limitations on the Corporation's activities, it is the express intent
of the Corporation to take no action whatsoever which will in any way abate full
and unfettered competition among the Members, whether with respect to the public
or among themselves.
SECTION 6.12 Amendments. These By-Laws and any amendment thereof may be
altered, amended or repealed, or new By-Laws may be adopted, by the Board of
Directors at any regular or special meeting by the affirmative vote of a
majority of all of the members of the Board, provided in the case of any special
meeting at which all of the members of the Board are not present, that the
notice of such meeting shall have stated that the amendment of these By-Laws was
one of the purposes of the meeting; but these By-Laws and any amendment thereof,
including the By-Laws adopted by the Board of Directors, may be altered, amended
or repealed and other By-Laws may be adopted by the holders of a majority of the
votes entitled to cast at any annual meeting or at any special meeting,
provided, in the case of any special meeting, that notice of such proposed
alteration, amendment, repeal or adoption is included in the notice of the
meeting.
SECTION 6.13 Compensation of Officers. The officers of the Corporation
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors.
14
<PAGE> 8
[CERTIFICATE OF NATIONAL CABLE TELEVISION COOPERATIVE, INCLUDING LOGO,
APPEARS HERE]
NATIONAL CABLE TELEVISION COOPERATIVE
MEMBER
This certifies that
------------------------
CYBERNET HOLDING, INC.
MEMBER #601
JOINED: JANUARY 16, 1996
------------------------
is a member in good standing of the
National Cable Television Cooperative, Inc.
DATED: JANUARY 29, 1996 PRESIDENT /s/ Michael L. Pandzik
-----------------------
<PAGE> 1
EXHIBIT 10.35
STOCKHOLDERS' AGREEMENT
AMONG
CYBERNET HOLDING, INC.
AND
CERTAIN STOCKHOLDERS THEREOF
Dated as of December 8, 1995
<PAGE> 2
TABLE OF CONTENTS
Page
1. TRANSFER OF EQUITY
SECURITIES ........................................................1
1.1. Rights of First Refusal ......................................1
1.1.1. Transfer Subject to Rights of Company ................1
1.1.2. Transfer .............................................1
1.1.3. Offer ................................................2
1.1.4. Acceptance............................................3
1.1.5. Specified Minimum Purchase............................3
1.1.6. Purchase Price........................................3
1.1.7. Release of Transferor from Restrictions...............3
1.2. Death of a Stockholder........................................4
1.2.1. Execution of Agreement................................4
1.2.2. Rights of Purchase....................................4
1.2.3. Determination of Purchase Price.......................4
1.3. Termination of Employment of a Stockholder....................5
1.3.1. Rights of Purchase....................................5
1.3.2. Determination of Purchase Price.......................5
2. COVENANTS OF THE COMPANY............................................6
2.1. Corporate Existence...........................................6
2.2. Books and Records.............................................6
2.3. Statements, Notices, and Reports..............................6
3. REPRESENTATIONS AND WARRANTIES......................................7
3.1. Representations and Warranties of Non-Individual
Stockholders..................................................7
3.1.1. Organization and Standing.............................7
3.1.2. Authorization.........................................7
3.1.3. Absence of Violation..................................7
3.1.4. Binding Obligation....................................8
3.2. Representations and Warranties of Individual Stockholders.....8
3.2.1. Power and Authority...................................8
3.2.2. Absence of Violation..................................8
3.2.3. Binding Obligation....................................8
3.3. Representations and Warranties of the Company.................9
3.3.1. Organization and Standing.............................9
3.3.2. Authorization.........................................9
3.3.3. Absence of Violation..................................9
3.3.4. Binding Obligation....................................9
4. DEFINITIONS..................................................9
5. TERMINATION.................................................10
6. MISCELLANEOUS...............................................11
6.1. Legend.................................................11
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<PAGE> 3
6.2. Additional Actions and Documents.............................11
6.3. Expenses.....................................................11
6.4. Assignment...................................................11
6.5. Entire Agreement; Amendment..................................12
6.6. Waiver.......................................................12
6.7. Limitation on Benefit........................................12
6.8. Binding Effect...............................................12
6.9. Governing Law................................................12
6.10. Notices.....................................................13
6.11. Headings....................................................13
6.12. Execution in Counterparts...................................13
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<PAGE> 4
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (this "Agreement") is entered into as of
December 8, 1995 by and among Cybernet Holding, Inc., a Delaware corporation
(the "Company"), and the stockholders of the Company named on Appendix 1
attached hereto (collectively, the "Stockholders" and individually, a
"Stockholder").
WHEREAS, each of the Stockholders holds such Equity Securities (as
defined in Section 4) in the Company as are set forth opposite such
Stockholder's name on Appendix 1 hereto;
WHEREAS, the Company and the Stockholders desire to enter into this
Agreement in order to provide, among other things, for certain mutual
restrictions relating to the transfer of the Equity Securities (as hereinafter
defined) and other rights and responsibilities as set forth herein; and
WHEREAS capitalized terms used in this Agreement shall have the
meaning ascribed to them in Section 4 hereof;
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual covenants and agreements hereinafter set forth, the parties hereto agree
as follows:
1. TRANSFER OF EQUITY SECURITIES
1.1. RIGHTS OF FIRST REFUSAL
1.1.1. TRANSFER SUBJECT TO RIGHTS OF COMPANY
None of the Stockholders shall (during his lifetime, in the case of
an individual), without consent of the Company transfer (as defined in Section
1.1.2 hereof) any Equity Securities now or hereafter held or acquired by such
Stockholder to any individual or entity except upon receipt of a bona fide third
party offer (a "Third Party Offer") and after the party desiring to make such
transfer (the "Transferor") shall have first made the offer required by this
Section, and such offer shall not have been accepted as provided in this
Section. Any purported transfer contrary to the terms of this Section shall be
null and void and of no force and effect.
1.1.2. TRANSFER
The term "transfer" as used in this Section shall include a sale,
gift, mortgage, pledge, exchange, assignment or other disposition, including a
disposition
<PAGE> 5
under judicial order, legal process, execution, attachment or enforcement of an
encumbrance, but shall not include the following: (i) a pledge, grant of
security interest or other encumbrance effected in a bona fide transaction with
an unrelated and unaffiliated pledgee, under a written pledge agreement that
assures that, before any foreclosure may be had thereon, the pledgee shall first
notify the Company of its intent to foreclose and shall first offer the shares
subject to such foreclosure to the Company pursuant to this Section, at the
price and on the other terms and conditions specified in a written offer from a
prospective purchaser (which may be the pledgee), in connection with such
foreclosure; (ii) a transfer (other than by an individual) to a person or entity
(or simultaneous transfers in partial or complete liquidation to or for the
benefit of the persons or entities, if no more than five in number) owning all
of the outstanding common stock of the Transferor or a transfer to a corporation
all of the outstanding common stock of which is directly or indirectly owned by
such Transferor or a transfer to a corporation all of the outstanding common
stock of which is owned by a corporation that owns all the outstanding common
stock of the Transferor; or (iii) a transfer to members of Transferor's
immediate family, or to trustees or custodians for their benefit. In the case of
any transfers described in clause (ii) or clause (iii) of this Section, the
transferees shall hold the Equity Securities subject to the terms of this
Agreement and, as a condition precedent to such transfers, shall be required to
execute and deliver this Agreement. Thereafter, such transferees shall be deemed
to be Stockholders for purposes of this Agreement, but, in the case of transfers
described in clauses (ii) and (iii), Equity Securities in the hands of the
transferees shall be subject to the provisions of this Agreement, including
Section 1.1 hereof, and shall also be subject to purchase by the Company under
Section 1.2 and Section 2.3. For purposes of this Agreement, "immediate family"
shall be deemed to include only the Transferor's spouse, children and
grandchildren.
1.1.3. OFFER
If the Transferor has received a Third Party Offer the Transferor
shall, prior to transferring any or all of its Equity Securities (except as
otherwise permitted in this Section) make to the Company an offer in writing to
sell the Equity Securities proposed to be transferred by the Transferor (the
"Offer"). Attached to the Offer, which shall be sent to the Company, shall be a
statement of intention to transfer, and all particulars, including, but not
limited to, (i) the name(s) and address(es) of the individual or entity making
the Third Party Offer, (ii) the number and class of Equity Securities involved
in the proposed transfer, (iii) a description of all of the terms of the Third
Party Offer (which must include a cash price unless the Third Party Offer
consists partly or wholly of consideration other than cash), and a copy of the
Third Party Offer, and (iv) the address of the Transferor to which notice or
acceptance of the Offer is to be sent.
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<PAGE> 6
1.1.4. ACCEPTANCE
Within 30 days after the receipt of the Offer (the "Offer Period"),
the Company shall notify the Transferor whether or not it desires to purchase
any of the Equity Securities offered and how many of the Equity Securities it
desires to purchase. If a purchase is intended, the notice shall fix a closing
date not more than 30 days after the expiration of the Offer Period.
1.1.5. SPECIFIED MINIMUM PURCHASE
Notwithstanding the foregoing, if the Transferor has received a Third
Party Offer which contains a condition that such prospective purchaser will not
purchase less than the total, or a specified minimum, number of Equity
Securities owned by the Transferor at the time of the bona fide written offer,
then in order to exercise the foregoing options the Company must purchase, in
the aggregate, either (i) all of the Equity Securities offered by the
Transferor, or (ii) no more than that number of Equity Securities which, when
deducted from the total number of Equity Securities being offered by the
Transferor, results in the minimum number of Equity Securities specified in the
bona fide written offer from such prospective purchaser. Otherwise, the Offer
shall be deemed to have been completely rejected by the Company.
1.1.6. PURCHASE PRICE
The purchase price for each share of the Equity Securities purchased
from the Transferor by the Company shall be the same as, and on the same terms
and conditions as, specified in the Third Party Offer. The purchase price shall
be payable in cash. In the event that the Third Party Offer specifies the
payment of consideration other than cash, the purchase price for purposes of
this Section shall be the cash equivalent of such consideration, determined on a
per share basis by the Board of Directors of the Company in good faith.
1.1.7. RELEASE OF TRANSFEROR FROM RESTRICTIONS
If the Company shall fail to purchase the Equity Securities offered
by the Transferor pursuant to the terms of this Section, the Transferor shall be
free for a period of 60 days to sell the offered but unsold Equity Securities to
the individual or entity making the Third Party Offer, for the price and on
terms no more favorable to such transferee(s) than were available to the Company
under the Offer. If the offered but unsold Equity Securities are not so sold by
the Transferor within the 60-day period, all rights with respect to transfer of
the Equity Securities without again complying with the restrictions contained in
this Section shall terminate.
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<PAGE> 7
1.2. DEATH OF A STOCKHOLDER
1.2.1. EXECUTION OF AGREEMENT
Upon the death of any individual Stockholder, the Company may
request (in writing) that this Agreement be executed and delivered by the estate
of the decedent (or the then holder(s) of such Equity Securities as a result of
the death of the decedent), or in the case of Equity Securities that were
transferred to immediate family members prior to the death of the decedent
pursuant to Section 1.1, the transferees of such Equity Securities
(collectively, the "Decedent's Transferees").
1.2.2. RIGHTS OF PURCHASE
If the Company has requested that the Decedent's Transferees execute
and deliver this Agreement and the Decedent's Transferees have not so executed
and delivered this Agreement within 60 days after such request, then the Company
may, but shall not be required to, purchase, and the Decedent's Transferees, at
the request of the Company, shall sell to the Company, the Equity Securities. To
the extent the Company does not so elect, then each other Stockholder who owns
five percent (5%) or more of the total outstanding capital stock of the Company
at such time shall have the right, but not the obligation, to purchase such
Equity Securities. Any purchase of such Equity Securities shall be at the price
determined in accordance with Section 2.2.3 and time periods for notification
and acceptance shall run from the date on which the Company receives notice of
the death of the Stockholder, but otherwise any such purchase shall be effected
in accordance with the terms and conditions of Section 1.1.4.
1.2.3. DETERMINATION OF PURCHASE PRICE
For purposes of this Section, the price per share of the Equity
Securities being purchased shall be the per-share fair market value as
determined by agreement of the Company and the Decedent's Transferees or, if
requested by such Decedent's Transferees, by the appraisal process described
below (which, if requested, shall cause the purchase date to be extended as
necessary to accommodate the completion of the appraisal process). If an
appraisal is requested, then within 30 days after receipt by the Company of
Decedent's Transferees' notice requesting such process, an appraiser shall be
appointed by unanimous action of the Directors of the Company then in office,
or, if requested by such Decedent's Transferees, appointed by the American
Arbitration Association upon application of either the Company or the Decedent's
Transferees. Once appointed, the appraiser shall determine the value of the
shares of the Equity Securities being purchased as of the most recent
practicable date. In connection therewith, the Company shall promptly furnish to
the appraiser such information concerning its financial condition, earnings,
capitalization, business prospects and sales of its
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<PAGE> 8
capital stock as may be reasonably requested. The appraiser shall promptly
notify the Company and the Decedent's Transferees who requested such appraisal
of the appraiser's final determination of value, and the determination shall be
binding upon the Company, the Decedent's Transferees and any other interested
person. The reasonable fees and expenses of the appraiser shall be borne by the
Company.
1.3. TERMINATION OF EMPLOYMENT OF A STOCKHOLDER
1.3.1. RIGHTS OF PURCHASE
Upon termination of the employment of a Stockholder with the
Company, other than by reason of the Stockholder's retirement in accordance with
the normal retirement policies of the Company or the death or permanent and
total disability of such Stockholder, the Company may, but shall not be required
to, purchase from the Stockholder, or in the case of Plan Shares (as defined
below) that were transferred pursuant to Section 2.1 to immediate family members
prior to such termination, the transferees of such Plan Shares (collectively,
the "Employees" and individually, the "Employee"), and the Employees shall sell
to the Company, at the Company's request, any Common Stock of the Company
received by the Employee pursuant to the Cybernet Holding, Inc. 1995 Stock
Option Plan (the "Plan Shares"). To the extent the Company does not so elect,
then each other Stockholder who owns five percent (5%) or more of the total
outstanding capital stock of the Company at such time shall have the right, but
not the obligation, to purchase such Equity Securities. Any purchase of such
Equity Securities shall be at the price determined in accordance with Section
2.3.2 and time periods for notification and acceptance shall run from the date
on which the Company receives notice of the death of the Stockholder, but
otherwise any such purchase shall be effected in accordance with the terms and
conditions of Section 1.1.4.
1.3.2. DETERMINATION OF PURCHASE PRICE
For purposes of this Section, the price per share of the Plan Shares
being purchased shall be the per-share fair market value as determined by
agreement of the Company and the Employee or, if requested by such Employee, by
the appraisal process described below (which, if requested, shall cause the
purchase date to be extended as necessary to accommodate the completion of the
appraisal process). If an appraisal is requested, then within 30 days after
receipt by the Company of Employee's notice requesting such process, an
appraiser shall be appointed by unanimous action of the Directors of the Company
then in office, or, if requested by such Employee, appointed by the American
Arbitration Association upon application of either the Company or the Employee.
Once appointed, the appraiser shall determine the value of the shares of the
Plan Shares being purchased as of the most recent practicable date. In
connection therewith, the Company shall promptly furnish to the appraiser such
information concerning its financial condition, earnings, capitalization,
business prospects and sales of its
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<PAGE> 9
capital stock as may be reasonably requested. The appraiser shall promptly
notify the Company and the Employee who requested such appraisal of the
appraiser's final determination of value, and the determination shall be binding
upon the Company, the Employee and any other interested person. The reasonable
fees and expenses of the appraiser shall be borne by the Company.
2. COVENANTS OF THE COMPANY
The Company hereby covenants as set forth in the following
subsections with each Stockholder as follows:
2.1. CORPORATE EXISTENCE
The Company shall preserve, maintain, and keep in full force and
effect the Company's corporate existence; preserve, maintain, and keep in full
force and effect all rights, franchises, and privileges necessary or desirable
in the normal conduct of the Company's business; and qualify and remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary in view of the Company's business and operations and
the ownership of its properties.
2.2. BOOKS AND RECORDS
The Company shall keep and maintain adequate and proper books and
records of account, in which complete entries are made in accordance with
generally accepted accounting principles consistently applied and in accordance
with all applicable laws, rules, and regulations, reflecting all financial and
other transactions of the Company normally or customarily included in books and
records of account of companies engaged in the same or similar businesses and
activities as the Company. All financial statements that the Company shall
prepare and deliver pursuant to this Agreement (i) shall be in accordance with
the books and records of the Company in all material respects, (iii) subject, in
the case of quarterly financial statements, to year-end adjustments, which shall
not, in the aggregate, be material, shall present fairly the financial position
of the Company as of the respective dates and the results of operations and
changes in financial positions of the Company for the respective periods
indicated, and (iv) shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis.
2.3. STATEMENTS, NOTICES, AND REPORTS
The Company shall furnish to each Stockholder:
(1) as soon as practicable after the end of each fiscal year of the
Company, a copy of the balance sheet of the Company as of the end of such fiscal
year and the related statements of income, stockholders' equity, and changes in
financial condition for such fiscal year, all prepared in reasonable detail;
-6-
<PAGE> 10
(2) promptly upon the occurrence of a material adverse change in the
business, operations, prospects, assets, properties, or condition (financial or
otherwise) of the Company, a statement of the chief financial officer of the
Company setting forth the details thereof and the action that the Company
proposes to take with respect thereto; and
(3) promptly upon receipt of a reasonable good faith request from
any Stockholder therefor, such other information respecting the business,
operations, prospects, assets, properties or condition (financial or otherwise)
of the Company as such Stockholder from time to time reasonably may request.
3. REPRESENTATIONS AND WARRANTIES
3.1. REPRESENTATIONS AND WARRANTIES OF NON-INDIVIDUAL STOCKHOLDERS.
Each Stockholder that is a corporation or partnership hereby
represents and warrants to the Company and to each other Stockholder as follows:
3.1.1. ORGANIZATION AND STANDING
Such Stockholder is a corporation or partnership duly organized,
validly existing, and in good standing under the laws of the jurisdiction in
which it is incorporated. Such Stockholder has the corporate or partnership
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby.
3.1.2. AUTHORIZATION
Such Stockholder has taken all corporate or partnership action
necessary for it to enter into this Agreement and to consummate the transactions
contemplated hereby.
3.1.3. ABSENCE OF VIOLATION
Neither the execution and delivery of this Agreement, or of any
document or instrument to be executed and delivered by such Stockholder pursuant
hereto, nor the consummation of the transactions contemplated hereby and thereby
will constitute a violation of, or default under, or conflict with, or require
any consent under (other than a violation or default that has been waived or a
consent that has been obtained), any term or provision of the Certificate of
Incorporation or Bylaws or Partnership Agreement of such Stockholder or any
contract, commitment, indenture, lease, or other agreement to which such
Stockholder is a party or by which such Stockholder or any of its assets is
bound.
-7-
<PAGE> 11
3.1.4. BINDING OBLIGATION
This Agreement constitutes a valid and binding obligation of such
Stockholder, enforceable in accordance with its terms, except to the extent that
such enforceability may be limited by bankruptcy, insolvency, and similar laws
affecting the rights and remedies of creditors generally, and by general
principles of equity and public policy; and each document and instrument to be
executed by such Stockholder pursuant hereto, when executed and delivered in
accordance with the provisions hereof, shall be a valid and binding obligation
of such Stockholder, enforceable in accordance with its terms (with the
aforesaid exceptions).
3.2. REPRESENTATIONS AND WARRANTIES OF INDIVIDUAL STOCKHOLDERS
Each Stockholder who is an individual hereby represents and warrants
to the Company and each other Stockholder as follows:
3.2.1. POWER AND AUTHORITY
Such Stockholder has the legal capacity and all other necessary power
and authority necessary to enter into this Agreement and to consummate the
transactions contemplated hereby.
3.2.2. ABSENCE OF VIOLATION
Neither the execution and delivery of this Agreement, or of any
document or instrument to be executed and delivered by such Stockholder pursuant
hereto, nor the consummation of the transactions contemplated hereby and thereby
will constitute a violation of, or default under, or conflict with, or require
any consent under (other than a violation or default that has been waived or a
consent that has been obtained), any term or provision of any contract,
commitment, indenture, lease, or other agreement to which such Stockholder is a
party or by which such Stockholder or any of his assets is bound.
3.2.3. BINDING OBLIGATION
This Agreement constitutes a valid and binding obligation of such
Stockholder, enforceable in accordance with its terms, except to the extent that
such enforceability may be limited by bankruptcy, insolvency, and similar laws
affecting the rights and remedies of creditors generally, and by general
principles of equity and public policy; and each document and instrument to be
executed by such Stockholder pursuant hereto, when executed and delivered in
accordance with the provisions hereof, shall be a valid and binding obligation
of such Stockholder, enforceable in accordance with its terms (with the
aforesaid exceptions).
-8-
<PAGE> 12
3.3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Stockholder as
follows:
3.3.1. ORGANIZATION AND STANDING
The Company is a corporation duly organized, validly existing, and in
good standing under the laws of Delaware. The Company has the corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby.
3.3.2. AUTHORIZATION
The Company has taken all corporate action necessary for it to enter
into this Agreement and to consummate the transactions contemplated hereby.
3.3.3. ABSENCE OF VIOLATION
Neither the execution and delivery of this Agreement, or of any
document or instrument to be executed and delivered by the Company pursuant
hereto, nor the consummation of the transactions contemplated hereby and thereby
will constitute a violation of, or default under, or conflict with, or require
any consent under (other than a violation or default that has been waived or a
consent that has been obtained), any term or provision of the Certificate of
Incorporation or Bylaws of the Company or any contract, commitment, indenture,
lease, or other agreement to which the Company is a party or by which the
Company or any of its assets is bound.
3.3.4. BINDING OBLIGATION
This Agreement constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms, except to the extent that
such enforceability may be limited by bankruptcy, insolvency, and similar laws
affecting the rights and remedies of creditors generally, and by general
principles of equity and public policy; and each document and instrument to be
executed by the Company pursuant hereto, when executed and delivered in
accordance with the provisions hereof, shall be a valid and binding obligation
of the Company, enforceable in accordance with its terms (with the aforesaid
exceptions).
4. DEFINITIONS
Capitalized terms used in this Agreement shall have the meaning
ascribed to them as follows:
-9-
<PAGE> 13
"Act" shall mean the Securities Act of 1933, as amended.
This "Agreement" shall mean this Stockholders' Agreement.
The "Company" shall mean Cybernet Holding, Inc., a Delaware
corporation.
"Equity Securities" shall mean any share of any class or series of
capital stock of the Company or any right or option to acquire any share of
capital stock of the Company, and shall include the Plan Shares and the
Preferred Stock.
"Initial Public Offering" shall mean the first public sale of any
securities of the Company pursuant to the registration provisions of Section 6
of, or the provisions of Regulation A under, the Act, with an aggregate public
offering price of at least $5,000,000.
"Offer" shall have the meaning ascribed to that term in Section
1.1.3.
"Offer Period" shall have the meaning ascribed to that term in
Section 1.1.4.
"Plan Shares" shall mean any Common Stock of the Company received
by an employee or non-employee director of the Company or any of its
subsidiaries pursuant to the Cybernet Holding, Inc. 1995 Stock Option Plan.
"Preferred Stock" shall mean the Preferred Stock of the Company, with
the rights, privileges, and preferences set forth in the Certificate of
Incorporation of the Company.
5. TERMINATION
The rights and obligations of the parties under this Agreement shall
irrevocably terminate on the occurrence of any of the following events: (i) the
voluntary or involuntary dissolution of the Company; (ii) the consummation of an
Initial Public Offering (as defined in Section 4) by the Company; (iii) an
acquisition, consolidation, or merger of the Company into or with another
corporation that results in the Stockholders owning publicly traded securities;
or (iv) the expiration of five years from the date of this Agreement.
-10-
<PAGE> 14
6. MISCELLANEOUS
6.1. LEGEND
The certificates or other evidence representing the Equity Securities
shall bear a legend (the "Legend") in substantially the following form:
The shares represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act") or
state securities laws and cannot be offered, sold or otherwise
transferred in the absence of registration or the availability
of an exemption from registration under the Act and
regulations promulgated thereunder and applicable state
securities laws. The voting rights with respect to, and sale
or other disposition of the securities represented by this
certificate are restricted by and subject to the provisions of
a Stockholder Agreement dated as of December 8, 1995, a copy
of which is available for inspection at the offices of the
Company.
6.2. ADDITIONAL ACTIONS AND DOCUMENTS
Each of the parties hereto hereby agrees to use its good faith best
efforts to bring about the consummation of this Agreement, and to take or cause
to be taken such further actions, to execute, deliver and file or cause to be
executed, delivered and filed such further documents and instruments, and to
obtain such consents, as may be necessary or as may be reasonably requested in
order to fully effectuate the purposes, terms and conditions of this Agreement,
whether on or after the date of this Agreement.
6.3. EXPENSES
Each party shall pay his or its own expenses incident to the
preparation and negotiation of this Agreement and the transactions contemplated
hereunder, including all legal and accounting fees and disbursements.
6.4. ASSIGNMENT
Neither the Company nor any Stockholder shall assign this Agreement,
in whole or in part, whether by operation of law or otherwise, (a) unless such
person shall have obtained the prior written consent of all the other parties,
or (b) unless and to the extent that such assignment is in connection with a
transfer of Equity Securities described in clause (i), (ii), or (iii) of Section
1.1.2 hereof or a transfer of Equity Securities upon death of such Stockholder.
Any purported assignment of this Agreement contrary to the terms hereof shall be
null and void and of no force and effect.
-11-
<PAGE> 15
6.5. ENTIRE AGREEMENT; AMENDMENT
This Agreement, including the Appendices and Exhibits hereto and
other writings referred to herein or delivered pursuant hereto, constitutes the
entire agreement among the parties hereto with respect to the transactions
contemplated herein, and it supersedes all prior oral or written agreements,
commitments or understandings with respect to the matters provided for herein.
No amendment, modification or discharge of this Agreement shall be valid or
binding unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, or discharge is sought.
6.6. WAIVER
No delay or failure on the part of any party hereto in exercising any
right, power or privilege under this Agreement or under any other instruments
given in connection with or pursuant to this Agreement shall impair any such
right, power or privilege or be construed as a waiver of any default or any
acquiescence therein. No single or partial exercise of any such right, power or
privilege shall preclude the further exercise of such right, power or privilege,
or the exercise of any other right, power or privilege. No waiver shall be valid
against any party hereto unless made in writing and signed by the party against
whom enforcement of such waiver is sought and then only to the extent expressly
specified therein.
6.7. LIMITATION ON BENEFIT
It is the explicit intention of the parties hereto that no person or
entity other than the parties hereto is or shall be entitled to bring any action
to enforce any provision of this Agreement against any of the parties hereto,
and the covenants, undertakings and agreements set forth in this Agreement shall
be solely for the benefit of, and shall be enforceable only by, the parties
hereto or their respective successors, heirs, executors, administrators, legal
representatives and permitted assigns.
6.8. BINDING EFFECT
This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors, heirs, executors,
administrators, legal representatives and permitted assigns.
6.9. GOVERNING LAW
This Agreement, the rights and obligations of the parties hereto, and
any claims or disputes relating thereto, shall be governed by and construed in
accordance with the laws of Delaware (excluding the choice of law rules
thereof).
-12-
<PAGE> 16
6.10. NOTICES
All notices, demands, requests, or other communications which may be
or are required to be given, served, or sent by any party to any other party
pursuant to this Agreement shall be in writing and shall be hand delivered, sent
by overnight courier or mailed by first-class, registered or certified mail,
return receipt requested, postage prepaid, or transmitted by telegram, telecopy
or telex, addressed as set forth on Appendix 1.
Each party may designate by notice in writing a new address to which
any notice, demand, request or communication may thereafter be so given, served
or sent. Each notice, demand, request, or communication which shall be hand
delivered, sent, mailed, telecopied or telexed in the manner described above, or
which shall be delivered to a telegraph company, shall be deemed sufficiently
given, served, sent, received or delivered for all purposes at such time as it
is delivered to the addressee (with the return receipt, the delivery receipt, or
(with respect to a telecopy or telex) the answer back being deemed conclusive,
but not exclusive, evidence of such delivery) or at such time as delivery is
refused by the addressee upon presentation.
6.11. HEADINGS
Section headings contained in this Agreement are inserted for
convenience of reference only, shall not be deemed to be a part of this
Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
6.12. EXECUTION IN COUNTERPARTS
To facilitate execution, this Agreement may be executed in as many
counterparts as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each party, or that the
signatures of the persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto.
-13-
<PAGE> 17
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement, or have caused this Agreement to be duly executed on their behalf, as
of the day and year first hereinabove set forth.
[Corporate Seal] CYBERNET HOLDING, INC.
Attest:
/s/ Clarence J. Prestwood
-------------------------
By:
Name: Clarence J. Prestwood
Title: President
THE STOCKHOLDERS:
ITC HOLDING COMPANY, INC.
Attest:
/s/ J. Douglas Cox
------------------
By:
Name: J. Douglas Cox
Title: CFO
SOUTH ATLANTIC VENTURE FUND III,
LIMITED PARTNERSHIP
Attest:
/s/ Sandra Barber /s/ Donald W. Burton
- ----------------- --------------------
By:
Name:
Title:
{1 of 2 signature pages}
-14-
<PAGE> 18
MPX SYSTEMS, INC.
Attest:
/s/ Billie Kay Morris /s/ M.L. Blackwell
- --------------------- ------------------
By:
Name:
Title:
PLANT CELLULAR RSA 14, INC.
Attest:
/s/ Vernon Ingram /s/ Betty A. Gleaton
- ----------------- --------------------
By: Plant Cellular RSA 14, Inc.
Name: Betty A. Gleaton
Title: President
/s/ William B. Blount
---------------------
William B. Blount
/s/ O. Gene Gabbard
-------------------
O. Gene Gabbard
/s/ Clarence J. Prestwood
-------------------------
Clarence J. Prestwood
/s/ Felix L. Boccucci
---------------------
Felix A. Boccucci -- Raymond James
& Associates, Custodian
/s/ Rickey Luke
---------------
Marcus Richard Luke
{2 of 2 signature pages}
-15-
<PAGE> 19
APPENDIX 1
THE STOCKHOLDERS
Class of Number of
Stockholder Equity Securities Shares Owned
- ----------- ----------------- ------------
ITC HOLDING, INC. Preferred Stock 4,000
1239 O. G. Skinner Drive
West Point, Georgia 31833
c/o William H. Scott, III
SOUTH ATLANTIC VENTURE FUND III, Preferred Stock 3,000
LIMITED PARTNERSHIP
614 West Bay Street, Suite 200
Tampa, Florida 33606
c/o Donald W. Burton
MPX SYSTEMS, INC. Preferred Stock 200
440 Knox Abbott Drive, Suite 240
Cayce, South Carolina 29033
c/o Michael D. Blackwell
PLANT CELLULAR RSA 14, INC. Preferred Stock 200
1703 U.S. Highway 82 West
Tifton, Georgia 31794-5158
c/o Betty Gleaton
WILLIAM B. BLOUNT Preferred Stock 200
Blount, Parrish & Roton
P.O. Box 5210
10 Court Square
Montgomery, Alabama 36104
O. GENE GABBARD Preferred Stock 100
102 Marseille Place
Cary, North Carolina 27511
CLARENCE J. PRESTWOOD Preferred Stock 10
1239 O. G. Skinner Drive
West Point, Georgia 31833
-i-
<PAGE> 20
FELIX L BOCCUCCI -- RAYMOND Preferred Stock 10
JAMES & ASSOCIATES, CUSTODIAN
1239 O. G. Skinner Drive
West Point, Georgia 31833
MARCUS RICHARD LUKE Preferred Stock 10
1239 O. G. Skinner Drive
West Point, Georgia 31833
-ii-
<PAGE> 21
[ADDITIONAL SIGNATURE PAGES, AS PROVIDED FOR PURSUANT TO AMENDMENT NO. 2 TO
THIS STOCKHOLDERS AGREEMENT, HAVE BEEN OMITTED]
<PAGE> 1
EXHIBIT 10.36
AMENDMENT NO. 1 TO STOCKHOLDERS' AGREEMENT
THIS AMENDMENT NO. 1 TO STOCKHOLDERS' AGREEMENT ("Amendment
No. 1") is entered into as of January 25, 1996 by and among Cybernet Holding,
Inc., a Delaware corporation (the "Company"), the stockholders of the Company
(collectively, the "Original Stockholders") named on Appendix 1 attached to the
Stockholders' Agreement dated as of December 8, 1995 (the "Stockholders'
Agreement") and Anthony S. Harrington.
WHEREAS, the Company and the Original Stockholders desire to
amend the Stockholders' Agreement to add Anthony S. Harrington as a party
thereto.
NOW, THEREFORE, in consideration of the mutual premises and
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Appendix 1 attached to the Stockholders' Agreement is
hereby deleted and replaced in its entirety by Appendix 1 attached hereto.
2. All references to "Stockholder" and "Stockholders" in
the Stockholders' Agreement shall be deemed to include the Original
Stockholders and Anthony S. Harrington.
3. Except as otherwise provided herein, all terms,
provisions, covenants, representations, warranties, agreements and conditions
of the Stockholders' Agreement shall remain unchanged and in full force and
effect.
4. This Amendment No. 1, the rights and obligations of
the parties hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the laws of the State of Delaware
(excluding the choice of law rules thereof).
5. From and after the execution of this Amendment No. 1
by the parties hereto, any reference to the Stockholders' Agreement shall be
deemed to be a reference to the Stockholders' Agreement as amended hereby.
6. Capitalized terms not otherwise defined herein shall
have the meaning set forth in the Stockholders' Agreement.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment No. 1, or have caused this Amendment No. 1 to be duly executed on
their behalf, as of the day and year first above written.
[Corporate Seal] CYBERNET HOLDING, INC.
Attest:
/s/ Felix L. Boccucci /s/ Clarence J. Prestwood
- -------------------------------- ----------------------------------
By: Clarence J. Prestwood
Name:
Title: President
ITC HOLDING COMPANY, INC.
Attest:
/s/ J. Douglas Cox
- -------------------------------- -------------------------
By: J. Douglas Cox
Name:
Title: CFO
SOUTH ATLANTIC VENTURE FUND III,
LIMITED PARTNERSHIP
SOUTH ATLANTIC VENTURE PARTNERS III,
LIMITED PARTNERSHIP, GENERAL PARTNER
Attest:
/s/ Donald W. Burton
- -------------------------------- -------------------------
By: Donald W. Burton
Name:
Title: Managing General Partner
MPX SYSTEMS, INC.
Attest:
/s/ Billie Kay Morris /s/ M. J. Blackwell
- -------------------------------- -------------------------
By:
Name: M. J. Blackwell
Title: Exec. Vice Pres.
{1 of 2 signature pages}
<PAGE> 3
PLANT CELLULAR RSA 14, INC.
Attest:
/s/ Vernon Ingram /s/ Betty A. Gleaton
- --------------------------------- -------------------------------
By:
Name: Betty A. Gleaton
Title: President
/s/ William B. Blount
-------------------------------
William B. Blount
/s/ O. Gene Gabbard
-------------------------------
O. Gene Gabbard
/s/ Clarence J. Prestwood
-------------------------------
Clarence J. Prestwood
/s/ Felix L. Boccucci, Jr.
-------------------------------
Felix A. Boccucci -- Raymond James &
Associates, Custodian
/s/ Marcus Richard Luke
-------------------------------
Marcus Richard Luke
/s/ Anthony S. Harrington
-------------------------------
Anthony S. Harrington
{2 of 2 signature pages}
<PAGE> 4
Appendix 1
The Stockholders
<TABLE>
<CAPTION>
Class of Number of
-------- ---------
Stockholder Equity Securities Shares Owned
----------- ----------------- ------------
<S> <C> <C>
ITC HOLDING, INC. Preferred Stock 4,000
1239 O. G. Skinner Drive
West Point, Georgia 31833
c/o William H. Scott, III
SOUTH ATLANTIC VENTURE FUND Preferred Stock 3,000
III, LIMITED PARTNERSHIP
614 West Bay Street, Suite 200
Tampa, Florida 33606
c/o Donald W. Burton
MPX SYSTEMS, INC. Preferred Stock 200
440 Knox Abbott Drive, Suite 240
Cayce, South Carolina 29033
c/o Michael D. Blackwell
PLANT CELLULAR RSA 14, INC. Preferred Stock 200
1703 U.S. Highway 82 West
Tifton, Georgia 31794-5158
c/o Betty Gleaton
WILLIAM B. BLOUNT Preferred Stock 200
Blount, Parrish & Roton
P.O. Box 5210
10 Court Square
Montgomery, Alabama 36104
O. GENE GABBARD Preferred Stock 100
102 Marseille Place
Cary, North Carolina 27511
CLARENCE J. PRESTWOOD Preferred Stock 10
1239 O. G. Skinner Drive
West Point, Georgia 31833
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C>
FELIX L. BOCCUCCI - RAYMOND Preferred Stock 10
JAMES & ASSOCIATES, CUSTODIAN
1239 O. G. Skinner Drive
West Point, Georgia 31833
MARCUS RICHARD LUKE Preferred Stock 10
1239 O. G. Skinner Drive
West Point, Georgia 31833
ANTHONY S. HARRINGTON Preferred Stock 50
6820 Oxford Road
Easton, MD 21601
</TABLE>
<PAGE> 1
EXHIBIT 10.37
AMENDMENT NO. 2 TO STOCKHOLDERS' AGREEMENT
THIS AMENDMENT NO. 2 TO STOCKHOLDERS' AGREEMENT ("Amendment No.
2") is entered into as of April 18, 1996 by and among Cybernet Holding, Inc., a
Delaware corporation (the "Company"), and the original stockholders of the
Company named on Appendix 1 attached hereto (collectively, the "Original
Stockholders").
WHEREAS, the Company and the Original Stockholders are parties
to that certain Stockholders' Agreement dated as of December 8, 1995, as
amended by Amendment No. 1 to Stockholders' Agreement dated as of January 25,
1996 (collectively, the "Stockholders' Agreement");
WHEREAS, the Company and the Original Stockholders desire to
amend the Stockholders' Agreement in certain respects, as more fully set forth
below.
NOW, THEREFORE, in consideration of the mutual premises and
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. The Stockholders' Agreement is hereby amended to add
thereto Section 6.13, which shall be and read as follows:
6.13 ADDITIONAL PARTIES TO STOCKHOLDERS' AGREEMENT.
The Stockholders shall not be required to enter into an
Amendment to Stockholders' Agreement in order to add
additional parties hereto. Any person or entity acquiring
Equity Securities shall become a party to this Agreement,
and shall be bound by all of the provisions of this
Agreement, upon executing a copy of Appendix 2 hereto and
delivering such originally executed schedule to the
Company.
2. The Stockholders' Agreement is hereby amended to add an
Appendix 2 to the end of the Stockholders' Agreement, which shall be and read
as set forth at the end of this Amendment.
3. All references to "Stockholder" and "Stockholders" in the
Stockholders' Agreement shall be deemed to include the Original Stockholders
together with all other stockholders of the Company who become parties to the
Stockholders' Agreement.
4. The parties hereto hereby authorize the Company to amend
Appendix 1 attached to the Stockholders' Agreement from time to time to reflect
the addition of stockholders of the Company who become parties to the
Stockholders' Agreement.
<PAGE> 2
5. As used in the Stockholders' Agreement, any reference to
"parties" to the Stockholders' Agreement shall include additional stockholders
of the Company who become parties to the Stockholders' Agreement.
6. Except as otherwise provided herein, all terms,
provisions, covenants, representations, warranties, agreements and conditions
of the Stockholders' Agreement shall remain unchanged and in full force and
effect.
7. This Amendment No. 2, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the State of Delaware
(excluding the choice of law rules thereof).
8. From and after the execution of this Amendment No. 2 by
the parties hereto, any reference to the Stockholders' Agreement shall be
deemed to be a reference to the Stockholders' Agreement as amended hereby.
9. Capitalized terms not otherwise defined herein shall have
the meaning set forth in the Stockholders' Agreement.
10. To facilitate execution, this Amendment No. 2 may be
executed in as many counterparts as may be required; and it shall not be
necessary that the signatures of, or on behalf of, each party, or that the
signatures of all persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of, or on behalf of,
each party, or that the signatures of the persons required to bind any party,
appear on one or more of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in making proof of
this Amendment No. 2 to produce or account for more than a number of
counterparts containing the respective signatures of, or on behalf of, all of
the parties hereto.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment No. 2, or have caused this Amendment No. 2 to be duly executed on
their behalf, as of the day and year first above written.
[Corporate Seal] CYBERNET HOLDING, INC.
Attest:
/s/ Dixie B. Noles /s/ Clarence J. Prestwood
- --------------------------- --------------------------------
By:
Name: Clarence J. Prestwood
Title: President
ITC HOLDING COMPANY, INC.
Attest:
/s/ William H. Scott, III
- --------------------------- --------------------------------
By: William H. Scott, III
Name:
Title: President
SOUTH ATLANTIC VENTURE FUND III,
LIMITED PARTNERSHIP
By: South Atlantic Venture Partners III,
Attest: Limited Partnership, Its General Partner
/s/ Donald W. Burton
- --------------------------- ------------------------------------------
By: Donald W. Burton
Name:
Title: Managing General Partner
MPX SYSTEMS, INC.
Attest:
/s/ Michael D. Blackwell
- --------------------------- ----------------------------------
By:
Name: Michael D. Blackwell
Title: Exec. Vice Pres.
{1 of 2 signature pages}
- 3 -
<PAGE> 4
PLANT CELLULAR RSA 14, INC.
Attest:
/s/ Robert McDaniel /s/ Betty A. Gleaton
- ---------------------------- -------------------------------
By: Betty A. Gleaton
Name:
Title: President
/s/ William B. Blount
-------------------------------
William B. Blount
/s/ O. Gene Gabbard
-------------------------------
O. Gene Gabbard
/s/ Clarence J. Prestwood
-------------------------------
Clarence J. Prestwood
/s/ Felix L. Boccucci, Jr.
-------------------------------
Felix L. Boccucci, Jr.--Raymond James &
Associates, Custodian
/s/ Marcus R. Luke
-------------------------------
Marcus Richard Luke
/s/ Anthony S. Harrington
-------------------------------
Anthony S. Harrington
{2 of 2 signature pages}
- 4 -
<PAGE> 5
APPENDIX 1
THE STOCKHOLDERS
<TABLE>
<CAPTION>
Class of Number of
-------- ---------
Stockholder Equity Securities Shares Owned
----------- ----------------- ------------
<S> <C> <C>
ITC HOLDING, INC. Preferred Stock 4,000
1239 O. G. Skinner Drive
West Point, Georgia 31833
c/o William H. Scott, III
SOUTH ATLANTIC VENTURE FUND III, LIMITED Preferred Stock 3,000
PARTNERSHIP
614 West Bay Street, Suite 200
Tampa, Florida 33606
c/o Donald W. Burton
MPX SYSTEMS, INC. Preferred Stock 200
440 Knox Abbott Drive, Suite 240
Cayce, South Carolina 29033
c/o Michael D. Blackwell
PLANT CELLULAR RSA 14, INC. Preferred Stock 200
1703 U.S. Highway 82 West
Tifton, Georgia 31794-5158
c/o Betty Gleaton
WILLIAM B. BLOUNT Preferred Stock 200
Blount, Parrish & Roton
P.O. Box 5210
10 Court Square
Montgomery, Alabama 36104
O. GENE GABBARD Preferred Stock 100
102 Marseille Place
Cary, North Carolina 27511
CLARENCE J. PRESTWOOD Preferred Stock 10
1239 O. G. Skinner Drive
West Point, Georgia 31833
FELIX L. BOCCUCCI -- RAYMOND JAMES Preferred Stock 10
& ASSOCIATES, CUSTODIAN
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
1239 O. G. Skinner Drive
West Point, Georgia 31833
MARCUS RICHARD LUKE Preferred Stock 10
1239 O. G. Skinner Drive
West Point, Georgia 31833
ANTHONY S. HARRINGTON Preferred Stock 50
6820 Oxford Road
Easton, Maryland 21601
</TABLE>
- 2 -
<PAGE> 7
APPENDIX 2
SUPPLEMENTAL SIGNATURE PAGE TO STOCKHOLDERS' AGREEMENT
The following hereby agrees to become a party to the
Stockholders' Agreement by and among Cybernet Holding, Inc., a Delaware
corporation, and certain stockholders thereof, dated as of December 8, 1995, as
amended, and to be bound by all of the terms and conditions thereof.
- -----------------------------
(Name)
By:
--------------------------
(Authorized Representative)
Name:
--------------------
Title:
-------------------
- 3 -
<PAGE> 1
EXHIBIT 10.38
AMENDED AND RESTATED
AGREEMENT AMONG SHAREHOLDERS
AMONG
KNOLOGY HOLDINGS, INC.
AND
CERTAIN SHAREHOLDERS THEREOF
DATED AS OF JULY 28, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DIRECTORS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1. Century Telephone Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2. AT&T Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
4. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
4.1. Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
4.2. Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
5. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
5.1. Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
5.2. Additional Actions and Documents . . . . . . . . . . . . . . . . . . . . . . . . . .4
5.3. Additional Parties to Stockholder Agreement . . . . . . . . . . . . . . . . . . . .4
5.4. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.5. Transfer of Equity Securities; Assignment . . . . . . . . . . . . . . . . . . . . .5
5.6. Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.7. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.8. Limitation on Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.9. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.11. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.12. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5.13. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
</TABLE>
<PAGE> 3
AMENDED AND RESTATED AGREEMENT AMONG SHAREHOLDERS
THIS AMENDED AND RESTATED AGREEMENT AMONG SHAREHOLDERS (the
"Agreement") is entered into as of July 28, 1997 by and among KNOLOGY Holdings,
Inc., a Delaware corporation, formerly known as CyberNet Holding, Inc. (the
"Company"), and the undersigned shareholders of the Company (the "Original
Shareholders"), together with the shareholders of the Company who execute and
deliver to the Company a copy of Appendix 1 pursuant to SECTION 5.3
(collectively, the "Shareholders" and individually, a "Shareholder").
WHEREAS, the Company and the Original Shareholders are parties
to that certain Agreement Among Shareholders (the "Agreement") dated as of May
15, 1996; and
WHEREAS, the Company and the Original Shareholders desire to
amend and restate the Agreement as set forth herein.
NOW THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements hereinafter set forth, the parties hereto
hereby amend and restate the Agreement as follows:
1. DIRECTORS OF THE COMPANY
1.1 CENTURY TELEPHONE DIRECTOR
The Company and each Shareholder (for so long as such
Shareholder owns any capital stock of the Company) shall take or cause to be
taken all such action within their respective power and authority as may be
required, for so long as Century Telephone Enterprises, Inc. ("CENTURY
TELEPHONE") and its Affiliates, together, shall own Equity Securities with a
combined voting power in excess of 5% of the aggregate voting power of all
outstanding Equity Securities:
(1) to cause to be elected to the Board of Directors of
the Company one (1) director designated by Century Telephone (the "CENTURY
TELEPHONE DIRECTOR"); provided, however, that for so long as Century Telephone
and its Affiliates, together, own Equity Securities with a combined voting
power of 5% or less of the aggregate voting power of all outstanding Equity
Securities, Century Telephone shall not have the right under this SECTION 1.1
to have one person designated by such Shareholder to be elected as a director
of the Company; and
<PAGE> 4
(2) to remove forthwith any Century Telephone Director
when (and only when) such removal is requested for any reason, with or without
cause, by Century Telephone, and in the case of death, resignation, or other
removal as herein provided of such a director, to elect another director
designated by Century Telephone (if, at the time such vacancy occurs, Century
Telephone shall have the right to have a person designated by Century Telephone
elected as a director of the Company pursuant to SECTION 1.1. hereof).
1.2. AT&T DIRECTOR
The Company and each Shareholder (for so long as such
Shareholder owns any capital stock of the Company) shall take or cause to be
taken all such action within their respective power and authority as may be
required, for so long as Venture Fund I, L.P., formerly known as AT&T Ventures
Company, L.P. ("AT&T"), and its Affiliates, together, shall own Equity
Securities with a combined voting power in excess of 5% of the aggregate voting
power of all outstanding Equity Securities:
(1) to cause to be elected to the Board of Directors of
the Company one (1) director designated by AT&T (the "AT&T DIRECTOR");
provided, however, that for so long as AT&T and its Affiliates, together, own
Equity Securities with a combined voting power of 5% or less of the aggregate
voting power of all outstanding Equity Securities, AT&T shall not have the
right under this SECTION 1.2 to have one person designated by such Shareholder
to be elected as a director of the Company; and
(2) to remove forthwith any AT&T Director when (and only
when) such removal is requested for any reason, with or without cause, by AT&T,
and in the case of death, resignation, or other removal as herein provided of
such a director, to elect another director designated by AT&T (if, at the time
such vacancy occurs, AT&T shall have the right to have a person designated by
AT&T elected as a director of the Company pursuant to SECTION 1.2 hereof).
2. DEFINITIONS
Capitalized terms used in this Agreement shall have the
meaning ascribed to them as follows:
"Act" shall mean the Securities Act of 1933, as amended.
An "Affiliate" of an entity shall mean any person or entity
that directly or, through one or more intermediaries, indirectly controls, or
is controlled by, or is under common control with, such entity.
- 2 -
<PAGE> 5
This "Agreement" shall mean this Shareholders' Agreement.
"Control" (including the terms "controlling," "controlled by"
and "under common control with") shall mean possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a person or entity, whether through the ownership of voting securities, by
contract or otherwise.
The "Company" shall mean KNOLOGY Holdings, Inc., a Delaware
corporation, formerly known as CyberNet Holding, Inc.
"Equity Securities" shall mean any share of any class or
series of capital stock of the Company or any right or option to acquire any
share of capital stock of the Company, and shall include the Preferred Stock.
"Initial Public Offering" shall mean the first public sale of
any securities of the Company pursuant to the registration provisions of
Section 5 of, or the provisions of Regulation A under, the Act, with an
aggregate public offering price of at least $5,000,000.
"Preferred Stock" shall mean the Preferred Stock of the
Company, with the rights, privileges, and preferences set forth in the
Certificate of Incorporation of the Company.
3. TERMINATION
The rights and obligations of the parties under this Agreement
shall irrevocably terminate on the occurrence of any of the following events:
(i) the voluntary or involuntary dissolution of the Company; (ii) the
consummation of an Initial Public Offering by the Company; (iii) an
acquisition, consolidation, or merger of the Company into or with another
corporation that results in the Shareholders owning publicly traded securities;
(iv) such date on which neither Century Telephone and its Affiliates nor AT&T
and its Affiliates own Equity Securities with a combined voting power in excess
of 5% of the aggregate voting power of all outstanding Equity Securities; or
(v) May 15, 2001.
4. REPRESENTATIONS AND WARRANTIES
4.1. CORPORATE AUTHORITY
Each of the parties hereto represents and warrants that it has
the requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder as contemplated by this Agreement, that the
execution, delivery and performance of this Agreement by it have been duly
- 3 -
<PAGE> 6
authorized by all necessary corporate or partnership action, and that this
Agreement has been duly executed and delivered by it and constitutes a valid
and binding obligation enforceable against it in accordance with its terms.
4.2. OWNERSHIP
The Company represents and warrants that, as of the date
hereof, the parties to this Agreement collectively own in excess of 75% of the
voting power of all issued and outstanding Equity Securities.
5. MISCELLANEOUS
5.1. LEGEND
The certificates or other evidence representing the Equity
Securities now or hereinafter owned by the parties hereto shall bear a legend
(the "Legend") in substantially the following form:
The shares represented by this certificate have not
been registered under the Securities Act of 1933 (the
"Act") or state securities laws and cannot be
offered, sold or otherwise transferred in the absence
of registration or the availability of an exemption
from registration under the Act and regulations
promulgated thereunder and applicable state
securities laws. The voting rights with respect to,
and sale or other disposition of the securities
represented by this certificate are restricted by and
subject to the provisions of an Amended and Restated
Agreement Among Shareholders dated as of July 28,
1996, a copy of which is available for inspection at
the offices of the Company.
5.2. ADDITIONAL ACTIONS AND DOCUMENTS
Each of the parties hereto hereby agrees to use its good faith
best efforts to bring about the consummation of this Agreement, and to take or
cause to be taken such further actions, to execute, deliver and file or cause
to be executed, delivered and filed such further documents and instruments, and
to obtain such consents, as may be necessary or as may be reasonably requested
in order to fully effectuate the purposes, terms and conditions of this
Agreement, whether on or after the date of this Agreement.
5.3. ADDITIONAL PARTIES TO STOCKHOLDER AGREEMENT
The Shareholders shall not be required to enter into an
amendment to this Agreement in order to add additional parties hereto. Any
person or entity
- 4 -
<PAGE> 7
acquiring Equity Securities as provided by this Agreement, or as otherwise
required or approved by the Company, shall become a party to this Agreement,
and shall be bound by all of the provisions of this Agreement, upon executing a
copy of Appendix 1 hereto and delivering such originally executed appendix to
the Company.
5.4. EXPENSES
Each party shall pay his or its own expenses incident to the
preparation and negotiation of this Agreement and the transactions contemplated
hereunder, including all legal and accounting fees and disbursements.
5.5. TRANSFER OF EQUITY SECURITIES; ASSIGNMENT
None of the Shareholders shall transfer (as defined below) any
Equity Securities now or hereinafter held or acquired by such Shareholder to
any individual or entity except after the party desiring to make such transfer
shall have first caused the transferee to execute and deliver this Agreement to
the Company. All such transferees shall hold such Equity Securities subject to
the terms of this Agreement and, as a condition precedent to such transfers,
shall be required to execute and deliver this Agreement. Thereafter, such
transferees shall be deemed to be Shareholders for purposes of this Agreement,
and Equity Securities in the hands of the transferees shall be subject to the
provisions of this Agreement. For purposes of this SECTION 5.5, "transfer"
shall include a sale, gift, exchange, assignment or other disposition,
including a disposition under judicial order, legal process, execution,
attachment or enforcement of an encumbrance, but shall not include a pledge
prior to enforcement of the encumbrance created by such pledge.
Neither the Company nor any Shareholder shall assign this
Agreement, in whole or in part, whether by operation of law or otherwise,
unless such assignment is in connection with a transfer of Equity Securities
described in this SECTION 5.5. Any purported assignment of this Agreement
contrary to the terms hereof shall be null and void and of no force and effect.
5.6. ENTIRE AGREEMENT; AMENDMENT
This Agreement, including the Appendix hereto, constitutes the
entire agreement among the parties hereto with respect to the transactions
contemplated herein, and it supersedes all prior oral or written agreements,
commitments or understandings with respect to the matters provided for herein.
No amendment, modification or discharge of this Agreement shall be valid or
binding unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, or discharge is sought.
5.7. WAIVER
No delay or failure on the part of any party hereto in
exercising any right, power or privilege under this Agreement or under any
other instruments
- 5 -
<PAGE> 8
given in connection with or pursuant to this Agreement shall impair any such
right, power or privilege or be construed as a waiver of any default or any
acquiescence therein. No single or partial exercise of any such right, power
or privilege shall preclude the further exercise of such right, power or
privilege, or the exercise of any other right, power or privilege. No waiver
shall be valid against any party hereto unless made in writing and signed by
the party against whom enforcement of such waiver is sought and then only to
the extent expressly specified therein.
5.8. LIMITATION ON BENEFIT
It is the explicit intention of the parties hereto that no
person or entity other than the parties hereto is or shall be entitled to bring
any action to enforce any provision of this Agreement against any of the
parties hereto, and the covenants, undertakings and agreements set forth in
this Agreement shall be solely for the benefit of, and shall be enforceable
only by, the parties hereto or their respective successors, heirs, executors,
administrators, legal representatives and permitted assigns.
5.9. BINDING EFFECT
This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors, heirs,
executors, administrators, legal representatives and permitted assigns.
5.10. GOVERNING LAW
This Agreement, the rights and obligations of the parties
hereto, and any claims or disputes relating thereto, shall be governed by and
construed in accordance with the laws of Delaware (excluding the choice of law
rules thereof).
5.11. NOTICES
All notices, demands, requests, or other communications which
may be or are required to be given, served, or sent by any party to any other
party pursuant to this Agreement shall be in writing and shall be hand
delivered, sent by overnight courier or mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
telegram, telecopy or telex, addressed as set forth on the signature pages
hereof or on Appendix 1, as appropriate.
Each party may designate by notice in writing a new address
to which any notice, demand, request or communication may thereafter be so
given, served or sent. Each notice, demand, request, or communication which
shall be hand delivered, sent, mailed, telecopied or telexed in the manner
described above, or which shall be delivered to a telegraph company, shall be
deemed sufficiently given, served, sent, received or delivered for all purposes
at such time as it is delivered to the addressee (with the return receipt, the
delivery receipt, or (with respect to a telecopy or telex) the answer back being
deemed conclusive, but not exclusive,
- 6 -
<PAGE> 9
evidence of such delivery) or at such time as delivery is refused by the
addressee upon presentation.
5.12. HEADINGS
Section headings contained in this Agreement are inserted for
convenience of reference only, shall not be deemed to be a part of this
Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
5.13. EXECUTION IN COUNTERPARTS
To facilitate execution, this Agreement may be executed in as
many counterparts as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each party, or that the
signatures of the persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto.
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement, or have caused this Agreement to be duly executed on their behalf,
as of the day and year first hereinabove set forth.
KNOLOGY HOLDINGS, INC.
/s/ William E. Morrow
--------------------------
By: William E. Morrow
Name:
Title: CEO: President
Address:
1239 O.G. Skinner Drive
West Point, GA 31833
Attention: William E. Morrow
{page one of three signature pages}
- 7 -
<PAGE> 10
THE ORIGINAL SHAREHOLDERS:
ITC HOLDING COMPANY, INC.
/s/ William H. Scott, III
------------------------------------------
By:
Name: William H. Scott, III
Title: President
1239 O.G. Skinner Drive
West Point, Georgia 31833
Attention: William H. Scott, III
SOUTH ATLANTIC VENTURE FUND III,
LIMITED PARTNERSHIP
/s/ Donald W. Burton
------------------------------------------
By: South Atlantic Venture Fund
III, L.P.
Name: By South Atlantic Venture
Partners III, L.P.
Title: By Its General Partner
Donald W. Burton, General
Partner
614 West Bay Street, Suite 200
Tampa, Florida 33606
Attention: Donald W. Burton
- 8 -
<PAGE> 11
CENTURY TELEPHONE ENTERPRISES,
INC.
/s/ Glen F. Post, III
---------------------------------------------------
By:
Name: Glen F. Post, III
Title: President and CEO
100 Century Park Drive
Monroe, Louisiana 71203
Attention: Clarence Marshall
VENTURE FUND I, L.P.,
formerly known as
AT&T Ventures Company, L.P.
By: /s/ Richard S. Bodman
--------------------------------------------
By:
-------------------------------------
Name: Richard S. Bodman
Title: Managing Partner
2 Wisconsin Avenue, Suite 610
Chevy Chase, MD 20815
Attention: Richard S. Bodman
AT&T VENTURE FUND II, L.P.
By: /s/ Richard S. Bodman
--------------------------------------------
By:
-------------------------------------
Name: Richard S. Bodman
Title: Managing Partner
2 Wisconsin Avenue, Suite 610
Chevy Chase, MD 20815
Attention: Richard S. Bodman
- 9 -
<PAGE> 12
APPENDIX 1
SUPPLEMENTAL SIGNATURE PAGE
The following hereby agrees to become a party to the Amended and
Restated Agreement Among Shareholders by and among KNOLOGY Holdings, Inc., a
Delaware corporation, and certain stockholders thereof, dated as of July 28,
1997, as amended, and to be bound by all of the terms and conditions thereof.
- ------------------------------------------------
(Name)
By:
---------------------------------------------
(Authorized Representative)
Name:
-------------------------------------
Title:
------------------------------------
Address:
-------------------------------------
-------------------------------------
-------------------------------------
Attention:
---------------------------
<PAGE> 1
EXHIBIT 10.39
AN ORDINANCE GRANTING TO TELESAT RECEIVING SYSTEMS, INC., ITS SUCCESSORS AND
ASSIGNS, AUTHORITY TO BUILD, CONSTRUCT, OPERATE AND MAINTAIN A BROADBAND
COMMUNICATIONS SYSTEM IN THE COUNTY OF HARRIS, AND SETTING FORTH CONDITIONS
ACCOMPANYING THE GRANT OF AUTHORITY.
-1-
There is hereby granted by the county to Grantee, for an initial period
of ten (10) years from grant date, the right and privilege to construct, erect,
operate and maintain in, upon, along, across, above, over or under the streets,
alleys, public utility easements, public ways and public places now laid out or
dedicated and all extensions thereof and additions thereto in the county, all
poles, wires, cables, underground conduits, manholes and other conductors and
fixtures necessary for the maintenance and operation in the county of a
broadband communications system for transmission of television signals and other
signals, either separately or upon or in conjunction with any public utility
maintaining the same in the county, with all of the necessary and desirable
appliances and appurtenances pertaining thereto. Without limiting the generality
of the foregoing, this grant shall and does hereby include the right in, over,
under and upon the streets, sidewalks, alleys, public utility easements and
public grounds and places in the county, to install, erect, operate or in any
way acquire the use of, as by leasing or licensing, all lines and equipment
necessary to its service and the right to make connections to customers and the
right to repair, replace, enlarge and extend said lines, equipment and
connections.
-2-
All structures, lines and equipment erected by Grantee within the
county shall be so located as to cause minimum interference with the proper use
of streets, alleys, public utility easements and other public ways and places
and to cause minimum interference with the rights or reasonable, proper and
lawful ordinances of the county now or hereafter in force. Existing poles,
posts, conduits, and other such structures of any electric power system,
telephone company, or other public utility located in the county shall be made
available to Grantee for leasing or licensing upon reasonable terms and rates
and shall be used to the extent practicable in order to minimize interference
with travel and avoid unnecessary duplication of facilities.
<PAGE> 2
-3-
The rights herein granted for the purposes herein set forth shall not
be exclusive, and the county reserves the right to grant similar use of said
streets, alleys, easements, public ways and places to any person at any time
during the period of this franchise; provided, however, that nothing contained
herein shall be deemed to require the granting of additional like franchise, or
denying additional like franchise, if the opinion of the County Commissioners,
it is in the public interest to so franchise one or more, or deny franchise to
anyone for the same or similar services.
-4-
Grantee shall save the county harmless from all loss sustained by the
county on account or any suit, judgment, execution, claims, or demand whatsoever
against the county resulting from negligence or the part of Grantee in the
construction, operation or maintenance of its system in the county; and for this
purpose Grantee shall carry property damage and personal injury insurance with
some responsible insurance company or companies qualified to do business in the
State of Georgia. The amounts of such insurance to be carried for liability due
to property damage shall be $100,000.00 as to any one occurrence; and against
liability due to injury to or death of person, $100,000.00 as to any one person
and $300,000.00 as to any one occurrence. The county shall notify Grantee, in
writing, within ten (10) days after the presentation of any claim or demand,
either by suit or otherwise, made against the county on account of any
negligence as aforesaid, on the part of this Grantee. Where any such claim or
demand against the county is made by suit or other legal action, written notice
thereof shall be given by the county to Grantee not less than five (5) days
prior to the date upon which an answer to such legal action is due or within Ten
(10) days after the claims or demand is made upon the county, whichever notice
period yields Grantee the larger amount of time within which to prepare an
answer. Failure by the county to notify Grantee properly in accordance with the
foregoing of any such claim, suit or demand against the county shall release
Grantee from its obligation to indemnify the county as provided herein.
<PAGE> 3
-5-
In case of any disturbance by Grantee of pavement, sidewalk, driveway
or other surfacing, Grantee shall at its own cost and expense and in a manner
approved by the county, replace and restore all paving, sidewalk, driveway, or
surface so disturbed in as good condition as before said work was commenced.
-6-
In the event that at any time during the period of this franchise the
county shall lawfully elect to alter or change any street, alley, public utility
easements, or other public way requiring the relocation of Grantee's facilities,
then in such event Grantee upon reasonable notice by the county, shall remove,
relay and relocate the same at its own expense; provided, however, that where
public funds are available for such relocation pursuant to law, Grantee shall
not be required to pay the cost.
-7-
Grantee shall on the request of any person holding a building moving
permit issued by the county, temporarily raise or lower its lines to permit the
moving of the building. The expense of such temporary removal shall be paid by
the person requesting the same, and Grantee shall have the authority to require
such payment in advance.
-8-
Grantee shall have the authority to trim trees upon and overhanging all
streets, alleys, public utility easements, sidewalks and public places of the
county so as to prevent the branches of such trees from coming in contact with
Grantee's facilities.
-9-
Grantee shall have the unlimited option to renew this authorization for
an additional period not to exceed ten (10) years. Should Grantee desire to
exercise this option, it shall so notify the county in writing, not less than
three (3) months prior to expiration of this authorization.
-10-
All of the rights, and privileges and all of the obligations, duties,
and liabilities created by this authorization shall pass to and be binding upon
the successors of the county and the successors and assigns of Grantee, and the
same shall not be assigned or transferred without
<PAGE> 4
the written approval of the County Commissioners, which approval shall not be
unreasonably withheld; provided, however, that this provision shall not prevent
the assignment or hypothecation of the authorization by Grantee as security for
debt without such approval; and provided further that transfers or assignments
of this authorization between any parent and subsidiary corporation or between
entities of which at least fifty percent (50%) of the beneficial ownership is
held by the same person, persons, or entities shall be permitted without the
prior approval of the County Commissioners.
-11-
It shall be unlawful for any person to make any unauthorized
connection, whether physically, electrically, accoustically, inductively, or
otherwise, with any part of Grantee's facilities for the purpose of enabling
himself or others to receive any television signals, radio signals, pictures,
programs, sounds, or any other information or intelligency transmitted over
Grantee's facilities without payment to Grantee or its lessee. It shall be
unlawful for any person, without the consent of the owner, to willfully tamper
with, remove, or injure any cable, wires, or other equipment used for the
distribution of television signals, radio signals, pictures, programs, sounds,
or any other information or intelligence transmitted over Grantee's facilities.
-12-
The grantee shall pay the county an annual fee of two (2) percent of
its gross revenues derived from the supplying of its subscriber services, in all
unincorporated areas of said county. Such annual sum shall be payable in 2
installments; one-half thereof at the end of each semi-annual period. The
semi-annual anniversary shall be the last day of June and the last day of
December of each year, and each semi-annual payment shall be paid within sixty
(60) days thereafter. All other licenses, fees or taxes levied upon Grantee by
the county, shall be credited against the payment required herein.
-13-
If any paragraph, sentence, clause, phrase or portion of this ordinance
is for any reason held invalid or unconstitutional by any Federal or state
court, or administrative or governmental agency of competent jurisdiction, such
portion shall be deemed a separate, distinct and independent provision and such
holding shall not affect the validity of the remaining portions herein.
<PAGE> 5
-14-
This Ordinance shall become effective when accepted by Grantee and
shall then be and become a valid and binding contract between the County and
Grantee; provided, however, that this Ordinance shall be void unless Grantee
shall, within ninety days after the final passage of this Ordinance, file with
the Clerk of the Board of Commissioners of Harris County, Georgia, a written
acceptance of this Ordinance, and the franchise herein granted, agreeing that it
will comply with all of the provisions and conditions hereof, and that it will
refrain from doing all of the things prohibited by this Ordinance.
-15-
This Ordinance shall become effective upon acceptance by Grantee the
effective date shall be the date upon which the written acceptance provided for
in Section 14 is received by the Clerk of the Commissioners of Harris County.
This the 6th day of April, 1982.
BOARD OF COMMISSIONERS OF HARRIS
COUNTY
/s/ [ILLEGIBLE SIGNATURE]
--------------------------------
Chairman
/s/ [ILLEGIBLE SIGNATURE]
--------------------------------
/s/ [ILLEGIBLE SIGNATURE]
--------------------------------
/s/ [ILLEGIBLE SIGNATURE]
--------------------------------
The undersigned duly constituted officers of Telesat Receiving Systems,
Inc., on behalf of said corporation hereby accept the above and foregoing
Ordinance and hereby agree that said corporation will comply with each and every
provision and condition therein and that it shall refrain from doing all things
prohibited thereby.
Dated: April 7, 1982 TELESAT RECEIVING SYSTEMS, INC.
by: /s/ [ILLEGIBLE SIGNATURE] President
Attest: /s/ Mary L. Leary
<PAGE> 1
EXHIBIT 10.40
ORDINANCE TO AMEND CABLE FRANCHISE
ORDINANCE OF APRIL 6, 1982
An Ordinance to amend the Ordinance of April 6, 1982, as amended,
granted to Telesat Receiving Systems, Inc., its successors and assigns,
authority to build, construct, operate, and maintain a broadband communications
system in Harris county, and setting forth conditions accompanying the grant of
authority; to allow American Cable, Inc., hereafter referred to as Grantee, its
successors and assigns, to use and occupy the streets, avenues, roads, public
highways, lanes, ways, parks and other public places of Harris County, for
constructing, maintaining, renewing, repairing, and operating a cable television
system for the Interception, sale, and distribution of television signals and
other necessary means of transmitting, distributing, and sale of television
signals within and through Harris County, Georgia.
Whereas, the Harris County, Georgia, has in effect an ordinance dated
April 6, 1982, granting a right to Telesat Receiving Systems to build,
construct, operate, and maintain a broadband communications system in the County
of Harris, and
Whereas, Harris County has in effect Amendments to the Ordinance dated
April 8, 1982, granting additional franchises to companies to build, construct,
operate, and maintain a broadband communications systems in said County, and
Whereas, there are certain areas of Harris County that are not being
served with cable service, and
Whereas, it is the desire of the Harris County Board of Commissioners
that all citizens of Harris County have the opportunity to have this type of
service,
Now, therefore, be it ordained by the Harris County Board of
Commissioners that the said Ordinance of April 6, 1982, be amended to include
the following paragraph, so containing additional terms and conditions:
16.
(a) The County at all times during the franchise retains the right to
revoke the franchise for adequate legal cause;
(b) The County retains the right to regulate rates for services
provided by Grantee to subscribers of the Grantee to the extent permitted by and
consistent with applicable federal law as presently enacted and as amended
during the pendency of this franchise;
(c) The County retains the right to enact and enforce consumer
protection and customer service standards to the extent permitted by federal law
as presently enacted and as amended during the pendency of this franchise;
(d) The County may impose a franchise fee in excess of two percent (2%)
of gross revenues of the Grantee to the extent an increase of the franchise fee
is allowed by applicable federal law during the pendency of this franchise;
(e) The County retains the right to enact and enforce regulations
concerning technical cable operation and ordinances concerning consumer
protection to the extent permitted by federal law as presently enacted or as
subsequently enacted or
<PAGE> 2
amended;
(f) The Grantee will provide cable television service to Harris County
in accordance with all the terms and conditions of said Ordinance and amendments
thereof.
To the extent the terms and conditions enumerated herein and identified
as subparagraphs (a) through (f) are duplicative with the terms and conditions
of the Ordinance, same shall be read in concert therewith and to the extent
there is a conflict with said terms and conditions this agreement shall prevail.
Now, therefore, be it ordained by the Harris County Board of
Commissioners that the said Ordinance of April 6, 1982, be further amended to
allow the inclusion of the additional terms and conditions so outlined above and
to further allow the said American Cable, Inc., to build, maintain, and operate
a cable television system in said County, subject to all rules and regulations
of the Ordinance of April 6, 1982, aforesaid.
Any franchisee granted a franchise hereunder who has ceased doing
business or has not provided services within twelve months from the date of this
Amendment, as adopted, will be considered to have forfeited the franchise
granted by this Ordinance.
This Ordinance passed this the 5th day of November, 1996.
HARRIS COUNTY BOARD OF COMMISSIONERS
/s/ Daniel B. Bridges
----------------------------------
Daniel B. Bridges, Chairman
/s/ Roland G. Durga
----------------------------------
Roland G. Durga, Vice-Chairman
/s/ Ronald E. Caldwell
----------------------------------
Ronald E. Caldwell, Commissioner
/s/ George R. Copeland
----------------------------------
George R. Copeland, Commissioner
/s/ Carl C. Hobbs, III
----------------------------------
Carl C. Hobbs, III, Commissioner
Attest:
/s/ Carol A. Silva
- ----------------------------
Carol A. Silva, County Clerk
<PAGE> 1
EXHIBIT 10.41
AN ORDINANCE
NO.
An Ordinance granting to American Cable Company Partnership, a Muscogee
County, Georgia company, the right to operate a community antenna system within
the limits of The Town of Bibb City, Georgia, and for such purpose, to erect,
construct, operate and maintain television transmission and distribution
facilities, including coaxial cables, in, under, over and along, across and upon
the streets, avenues, sidewalks, alleys, bridges and other public places in The
Town of Bibb City, Georgia, and subsequent additions thereto, for the purpose of
transmission and distribution by cable of television impulses and television
energy of 10 years commencing Oct 5, 1990, and regulating the same; and for
other purposes.
THE COUNCIL OF THE TOWN OF BIBB CITY, GEORGIA HEREBY ORDAINS:
SECTION 1.
In consideration of the faithful performance and observance of the
conditions and reservations hereinafter specified, a nonexclusive right is
hereby granted to American Cable Company Partnership, a Muscogee County, Georgia
company, its successors, designees or assigns, provided such successors,
designees or assigns are approved by this Council upon thirty (30) days advance
written notice, hereinafter referred to as "Company", the right to operate a
community antenna system within the limits of The Town of Bibb City, Georgia,
and for such purpose, to erect, construct, operate and maintain television
transmission and distribution facilities, including coaxial cables in, under,
over and along, across and upon the streets, avenues, sidewalks, alleys,
bridges, and other public places in The Town of Bibb City, Georgia, and
subsequent additions thereto, for the purpose of transmission and distribution
by cable of television impulses and television energy for sale to the
inhabitants of The Town of Bibb City, Georgia, for a period of 10 years
commencing Oct 5, 1990, under the terms and conditions hereinafter provided.
SECTION 2.
Wherever used in this ordinance, the word "television" shall mean a
system for transmission of audio signals and visual images by means of
electrical impulses.
SECTION 3.
The poles used for the Company's distribution system shall be those
erected and maintained by the Southern Bell Telephone and Telegraph Company or
the Georgia Power Company, when and where practicable, provided mutually
satisfactory rental agreements can be entered into with said companies. Where
the use of poles owned by the Southern Bell Telephone and Telegraph Company or
the Georgia Power Company is not practicable or mutually satisfactory rental
agreements cannot be entered into with said companies, the Company shall have
the right to erect and maintain its own poles, as may be necessary for the
proper construction and maintenance of the television distribution system, with
the approval of locating poles by the City Manager, City Engineer, or Mayor of
The Town of Bibb City, Georgia.
<PAGE> 2
SECTION 4.
The Company's transmission and distribution system poles, wires, and
appurtenances shall be located, erected and maintained so as not to endanger or
interfere with the lives of persons, or to interfere with new improvements The
Town of Bibb City, Georgia may deem proper to make, or to unnecessarily hinder
or obstruct the free use of the streets, alleys, bridges, or other public
property; removal of poles to avoid such interference will be at Company's
expense.
Construction and maintenance of the transmission distribution system,
including house connections, shall be in accordance with the provisions of the
National Electrical Code, prepared by the National Fire Protection Association,
and such applicable ordinances and regulations of The Town of Bibb City, Georgia
affecting electrical installations, which may be presently in effect, or changed
by future ordinances.
Installation and housedrop hardware shall be uniform throughout The
Town of Bibb City, Georgia, except that the Company shall be free to change its
hardware and installation procedure as the art progresses.
SECTION 5.
In the maintenance and operation of its television transmission and
distribution system in the streets, alleys, and other publice places, and in the
course of any new construction or addition to its facilities, the Company shall
proceed so as to cause the least possible inconvenience to the general public;
any opening or obstruction in the streets or other public places made by the
Company in the course of its operations shall be guarded and protected at all
times by the placement of adequate barriers, fences, or boardings, the bounds of
which, during periods of dusk and darkness, shall be clearly designated by red
warning lights.
SECTION 6.
Installations shall be maintained so as not to interfere with
television reception already in existence.
SECTION 7.
The Company shall be required to furnish, in return for the service
rate or charge referred to in Section 8 of this franchise ordinance, a minimum
of eleven (11) viewing channels, including all local television channels. This
service shall constitute the basic service of the Company, and no charges shall
be made on the basis of single channels or single programs for such basic
service. The Company may offer additional channels providing alternative
programming and additional programs originated for cable systems to which the
restrictions of this section and of Section 8 concerning service rates or
charges shall not apply, including pay channels such as HBO, Cinemax, Showtime,
The Movie Channel, the Disney Channel, and certain other channels recognized in
the industry as a "premium or pay channel". Such channels shall be available
solely at the option of the cable subscriber, and the Company shall not require
a cable subscriber to accept such services as a prerequisite to obtaining or
continuing basic cable service. A nondiscriminatory charge may be made by the
Company for the furnishing of such additional services. Gross revenues derived
by the Company from the furnishing of such services shall be subject to the
franchise fee
<PAGE> 3
due The Town of Bibb City, Georgia, under Section 20 of this ordinance. The
Company, its officers or its manager shall be responsible for the content of the
alternative programming service as the obscenity laws of the United States and
the State of Georgia may provide, and a final conviction for violation of such
laws because of program content of the alternative programming service shall
subject the Company to a forfeiture of the ten thousand dollars ($10,000.00)
bond filed with the City pursuant to Section 13 of this franchise agreement.
SECTION 8.
All rates and charges of the Company shall be fair, reasonable, just
and uniform for all Company subscribers, and shall be subject to applicable
state or federal law and to the rules and regulations of any state or federal
agency which may now or subsequently, by due process of law, acquire
jurisdiction over this type of industry or enterprise. Increases in rates for
such basic cable service as described in Section 7 of this franchise ordinance
by the Company shall not exceed five (5%) percent per year. No rate increase or
new charge shall be initiated without first having given the Council of The Town
of Bibb City, Georgia, thirty (30) days written notice of such new rate or
charge, by filing the same via certified mail with the Clerk of Council.
SECTION 9.
Installation and maintenance of equipment shall be such that standard
color signals shall be transmitted to any subscriber receiver who has or owns a
color television receiver.
SECTION 10.
The distribution system of the Company to be hereafter installed shall
not be abandoned either in whole or in part without the consent of The Town of
Bibb City Council. In the event of the failure of the Company to let a contract
for the installation and construction of such system within ninety days after
the enactment of this ordinance, or in the event of the failure of the Company
to render community television service to The Town of Bibb City, Georgia and the
inhabitants thereof, as contemplated and provided for by this franchise
ordinance, and particularly by Section 14 contained herein, The Town of Bibb
City Council shall have the right, on reasonable notice to the Company, to
declare this ordinance and the rights and franchise granted hereunder forfeited,
provided, however, failure to comply with these terms by reason of circumstances
beyond the reasonable control of the Company which could not be anticipated at
the time of the acceptance of such terms by the Company, shall not be sufficient
grounds to declare a forfeiture.
SECTION 11.
The Company shall indemnify, protect, save, and hold harmless The Town
of Bibb City, Georgia, from and against losses and physical damages to property,
and bodily injury or death to persons, including payments made under any
Workmen's Compensation law, which may arise out of or be caused by the erection,
maintenance, presence, use or removal of said attachments on poles within The
Town of Bibb City, Georgia, or by any act of the Company, its agents or
employees. The Company shall carry insurance to protect the parties hereto from
and against all claims,
<PAGE> 4
demands, actions, judgments, costs, expenses, and liabilities which may arise or
result, directly or indirectly from or by reason of such loss, injury or damage.
The amounts of such insurance against liability due to bodily injury or to death
of persons shall not be less than five hundred thousand ($500,000.00) dollars as
to any one person and not less than one million ($1,000,000.00) dollars as to
any one accident or occurrence; and against liability due to physical damage to
property not less than five hundred thousand ($500,000.00) dollars as to any one
accident or occurrence and not less than one million ($1,000,000.00) dollars
aggregate in any single policy year. The Company shall also carry such insurance
as it deems necessary to protect it from all claims under any Workmen's
Compensation laws in effect which may be applicable to the Company. All
insurance required by this agreement shall be and remain in full force and
effect for the entire life of this agreement. Said policy or policies of
insurance or a certified copy or copies thereof shall be approved by the
attorney of The Town of Bibb City, Georgia, and then deposited with and kept on
file by the Clark of Council of The Town of Bibb City, Georgia.
SECTION 12.
The Company shall grant to The Town of Bibb City, Georgia, free of
expense, joint use of any and all poles owned by it for any proper municipal
purpose, insofar as it may be done without interfering with the free use and
enjoyment of the Company's own wires and fixtures, and The Town of Bibb City,
Georgia, shall hold the Company harmless from any and all actions, causes of
action, or damage caused by the placing of its wires or appurtenances upon the
poles of the Company. Proper regard shall be given to all existing safety rules
governing construction and maintenance in effect at the time of construction.
SECTION 13.
At the time this Franchise becomes effective the Company shall furnish
a bond to The Town of Bibb City, Georgia, in the amount of ten thousand
($10,000.00) dollars, in such form and with such sureties as shall be acceptable
to The Town of Bibb City, Georgia, guaranteeing the payment of all sums, which
may at any time become due from the Company to The Town of Bibb City, Georgia,
under the terms of this Franchise (except such sums as are covered by the
insurance provided for in Section 11), and further guaranteeing the faithful
performance of all of the obligations of the Company under the terms of this
Franchise.
SECTION 14.
The Company agrees to install signal distribution facilities subject to
satisfactory pole clearance and pole rental arrangements, to all residents who
are subscribers of the system of The Town of Bibb City, Georgia. The Company
shall not deny access to cable service to any group of potential residential
cable subscribers because of the income of the residents of the local area in
which such group resides.
SECTION 15.
The Company is hereby encouraged to effect interconnection with other
state, county, city, regional or national communications systems where practical
and beneficial, to the extent permitted by applicable state or federal law.
<PAGE> 5
SECTION 16.
The Company will appoint a single point of contact to communicate with
The Town of Bibb City Council or a committee designated by the Council to review
service complaints or the chairman thereof. In the event the television signal
service or the community antenna system should be interrupted or fail by reason
of accident or circumstances otherwise beyond the control of the Company, the
Company shall restore the service within a reasonable time and such interrupted
service shall not constitute a breach of this Franchise. Any service
interruption in excess of forty-eight (48) hours shall result in a prorated
adjustment of a subscriber's bill for such service, except that such a prorated
adjustment shall not be required of the Company where such interruption is the
result of an accident or circumstances otherwise beyond the control of the
Company.
SECTION 17.
The Company agrees to provide the Council of The Town of Bibb City,
Georgia, or a committee designated by the Council the following:
A. Quarterly statistics including a breakdown as to subscribers of
basic service, pay channels; and any pay per view (PPV) programming.
B. Right of inspection, within 24 hours upon receipt by the Company of
a written request from the Council or committee designated by the
Council, of any part of the Company's facilities and equipment
wherever the same may be located in The Town of Bibb City, Georgia.
SECTION 18.
The Company shall provide free connection and monthly lifeline service
to all occupied government buildings (one outlet), provided said buildings are
located within an area served by the Company's distribution system as described
in Section 14.
SECTION 19.
The Company agrees to attend an annual meeting, or meetings requested
by the Council or a committee designated by the Council, to discuss the state of
the system and provision of cable services. Topics will include, but not be
limited to: (a) technical performance -- past, present, and future; (b) service
- -- past, present, and future.
SECTION 20.
In further consideration of the granting of this Franchise to the
Company, the Company will pay annually to The Town of Bibb City, Georgia, a
franchise fee of five (5%) percent of the gross revenues of the Company,
exclusive of installation charges. Should the Company default in the payment of
said sums for a period of thirty (30) days or more, then the rights and
Franchise granted hereunder shall be subject to forfeiture as provided in
Section 10 of this Franchise Ordinance.
SECTION 21.
The Company shall not be authorized to engage in the sale or servicing
of television sets or appliances.
<PAGE> 6
SECTION 22.
In addition to the minimum requirements contained in Section 7 above,
the Company agrees to provide channel capacity for public, educational, or
governmental use (PEG), to be made available immediately upon any system growth
past 20 channels (channels 21 and above, inclusive). Any such unused PEG channel
capacity shall be available for Company use.
SECTION 23.
This ordinance shall be published, within ten (10) days after its final
passage in the Columbus Ledger-Enquirer, a newspaper of general circulation
published in The Town of Bibb City, Georgia, and shall become effective as
provided by law.
SECTION 24.
It is the stated intention of The Town of Bibb City, Georgia, that all
other holders of public franchises shall cooperate with the Company to allow the
Company's joint usage of their poles and pole line facilities wherever possible
or wherever such usage does not interfere with the normal operation of said
poles and pole lines, so that the number of additional poles constructed by the
Company may be minimized.
SECTION 25.
The foregoing provisions, requirements, and conditions are agreed to by
the Company in return for the granting of the Franchise by The Town of Bibb
City, Georgia. No change in the operating procedures required by the Franchise
herein granted shall become effective without the Company's having given thirty
(30) days advance written notice to the Council of such proposed changes. Should
any section, clause, or provision of this ordinance be declared invalid by a
court of record, the same shall not affect the validity of the ordinance as a
whole or any part thereof, other than the part so declared invalid.
Introduced at a regular meeting of the Council of The Town of Bibb
City, Georgia, held on the 6th day of Sept, 1990, introduced a second time at a
regular meeting of said Council held on the 4th day of Oct, 1990, and adopted at
said meeting by the affirmative vote of 5 members of said Council.
Councilor / /s/ Katie Brown voting Yes .
---------------------------------- ---------
Councilor / /s/ [ILLEGIBLE SIGNATURE] voting Yes .
---------------------------------- ---------
Councilor / /s/ [ILLEGIBLE SIGNATURE] voting Yes .
---------------------------------- ---------
Councilor / /s/ [ILLEGIBLE SIGNATURE] voting Yes .
---------------------------------- ---------
Councilor / /s/ Ray Gavins voting Yes .
---------------------------------- ---------
/s/ [ILLEGIBLE SIGNATURE]
/s/ M.G. Hethcox, Jr.
- -----------------------------
M.G. HETHCOX, JR.
MAYOR
<PAGE> 1
EXHIBIT 10.42
AN ORDINANCE
No. 88-53
An Ordinance granting to American Cable Company, a Muscogee County,
Georgia company, the right to operate a community antenna system within the
limits of Columbus, Georgia, and for such purpose, to erect, construct, operate
and maintain television transmission and distribution facilities, including
coaxial cables, in, under, over and along, across and upon the streets, avenues,
sidewalks, alleys, bridges and other public places in Columbus, Georgia, and
subsequent additions thereto, for the purpose of transmission and distribution
by cable of television impulses and television energy for sale to the
inhabitants of said Columbus, Georgia, for a period of 10 years commencing June
1, 1988, and regulating the same, and for other purposes.
---------------------
THE COUNCIL OF COLUMBUS, GEORGIA HEREBY ORDAINS:
SECTION 1.
In consideration of the faithful performance and observance of the
conditions and reservations hereinafter specified, a nonexclusive right is
hereby granted to American Cable Company, a Muscogee County, Georgia company,
its successors, designees or assigns, provided such successors, designees or
assigns are approved by this Council upon thirty (30) days advance written
notice, hereinafter referred to as "Company", the right to operate a community
antenna system within the limits of Columbus, Georgia, and for such purpose, to
erect, construct, operate and maintain television transmission and distribution
facilities, including coaxial cables in, under, over and along, across and upon
the streets, avenues, sidewalks, alleys, bridges and other public places in
Columbus, Georgia, and subsequent additions thereto, for the purpose of
transmission and distribution by cable of television impulses and television
energy for sale to the inhabitants of Columbus, Georgia, for a period of 10
years commencing June 1, 1988, under the terms and conditions hereinafter
provided.
SECTION 2.
Wherever used in this ordinance, the word "television" shall mean a system
for transmission of audio signals and visual images by means of electrical
impulses.
SECTION 3.
The poles used for the Company's distribution system shall be those
erected and maintained by the Southern Bell Telephone and Telegraph Company or
the Georgia Power Company, when and where practicable, provided mutually
satisfactory rental agreements can be entered into with said companies. Where
the use of poles owned by the Southern Bell Telephone and Telegraph Company or
the Georgia Power Company is not practicable or mutually satisfactory rental
agreements cannot be entered into with said companies, the Company shall have
the right to erect and maintain its own poles, as may be necessary for the
proper construction and maintenance of the television distribution system, with
the approval of locating poles by the City Manager and City Engineer of
Columbus, Georgia.
<PAGE> 2
SECTION 4.
The Company's transmission and distribution system poles, wires, and
appurtenances shall be located, erected and maintained so as not to endanger or
interfere with the lives of persons, or to interfere with new improvements
Columbus, Georgia may deem proper to make, or to unnecessarily hinder or
obstruct the free use of the streets, alleys, bridges, or other public property;
removal of poles to avoid such interference will be at Company's expense.
Construction and maintenance of the transmission distribution system,
including house connections, shall be in accordance with the provisions of the
National Electrical Code, prepared by the National Fire Protection Association,
and such applicable ordinances and regulations of Columbus, Georgia affecting
electrical installations, which may be presently in effect, or changed by future
ordinances.
Installation and housedrop hardware shall be uniform throughout Columbus,
Georgia, except that the Company shall be free to change its hardware and
installation procedure as the art progresses.
SECTION 5.
In the maintenance and operation of its television transmission and
distribution system in the streets, alleys, and other public places, and in the
course of any new construction or addition to its facilities, the Company shall
proceed so as to cause the least possible inconvenience to the general public;
any opening or obstruction in the streets or other public places made by the
Company in the course of its operations shall be guarded and protected at all
times by the placement of adequate barriers, fences, or boardings, the bounds of
which, during periods of dusk and darkness, shall be clearly designated by red
warning lights.
SECTION 6.
Installations shall be maintained so as not to interfere with television
reception already in existence.
SECTION 7.
The Company shall be required to furnish, in return for the service rate
or charge referred to in Section 8 of this franchise ordinance, a minimum of
eleven (11) viewing channels, including all local television channels. This
service shall constitute the basic service of the Company, and no charges shall
be made on the basis of single channels or single programs for such basic
service. The Company may offer additional channels providing alternative
programming and additional programs originated for cable systems to which the
restrictions of this section and of Section 8 concerning service rates or
charges shall not apply, including pay channels such as HBO, Cinemax, Showtime,
The Movie Channel, the Disney Channel, and certain other channels recognized in
the industry as a "premium or pay channel". Such channels shall be available
solely at the option of the cable subscriber, and the Company shall not require
a cable subscriber to accept such services as a prerequisite to obtaining or
continuing basic cable service. A nondiscriminatory charge may be made by the
Company for the furnishing of such additional services. Gross revenues derived
by the Company from the furnishing of such services shall be subject to the
franchise fee due Columbus, Georgia, under Section 20 of this ordinance. The
Company, its officers or its manager shall be responsible for the content of the
alternative programming service as the obscenity laws of the United States and
the State of Georgia may provide, and a final conviction for violation of such
laws because of program content of the alternative programming service shall
subject the Company to a forfeiture of the ten thousand dollars ($10,000.00)
bond filed with the City pursuant to Section 13 of this franchise agreement.
<PAGE> 3
SECTION 8.
All rates and charges of the Company shall be fair, reasonable, just and
uniform for all Company subscribers, and shall be subject to applicable state or
federal law and to the rules and regulations of any state or federal agency
which may now or subsequently, by due process of law, acquire jurisdiction over
this type of industry or enterprise. Increases in rates for such basic cable
service as described in Section 7 of this franchise ordinance by the Company
shall not exceed five (5%) percent per year. No rate increase or new charge
shall be initiated without first having given the Council Of Columbus, Georgia,
thirty (30) days written notice of such new rate or charge, by filing the same
via certified mail with the Clerk Of Council.
SECTION 9.
Installation and maintenance of equipment shall be such that standard
color' signals shall be transmitted to any subscriber receiver who has or owns a
color television receiver.
SECTION 10.
The distribution system of the Company to be hereafter installed shall not
be abandoned either in whole or in part without the consent of the Columbus
Council. In the event of the failure of the Company to let a contract for the
installation and construction of such system within ninety days after the
enactment of this ordinance, or in the event of the failure of the Company to
render community television service to Columbus, Georgia and the inhabitants
thereof, as contemplated and provided for by this franchise ordinance, and
particularly by Section 14 contained herein, the Columbus Council shall have the
right, on reasonable notice to the Company, to declare this ordinance and the
rights and franchise granted hereunder forfeited; provided, however, failure to
comply with these terms by reason of circumstances beyond the reasonable control
of the Company which could not be anticipated at the time of the acceptance of
such terms by the Company, shall not be sufficient grounds to declare a
forfeiture.
SECTION 11.
The Company shall indemnify, protect, save, and hold harmless Columbus,
Georgia, from and against losses and physical damages to property, and bodily
injury or death to persons, including payments made under any Workmen's
Compensation law, which may arise out of or be caused by the erection,
maintenance, presence, use or removal of said attachments on poles within
Columbus, Georgia, or by any act of the Company, its agents or employees. The
Company shall carry insurance to protect the parties hereto from and against all
claims, demands, actions, judgments, costs, expenses, and liabilities which may
arise or result, directly or indirectly from or by reason of such loss, injury
or damage. The amounts of such insurance against liability due to bodily injury
or to death of persons shall not be less than five hundred thousand
($500,000.00) dollars as to any one person and not less than one million
($1,000,000.00) dollars as to any one accident or occurrence; and against
liability due to physical damage to property not less than five hundred thousand
($500,000.00} dollars as to any one accident or occurrence and not less than one
million ($1,000,000.00) dollars aggregate in any single policy year. The Company
shall also carry such insurance as it deems necessary to protect from all claims
under any Workmen's Compensation laws in effect which may be applicable to the
Company. All insurance required by this agreement shall be and remain in full
force and effect for the entire life of this agreement. Said policy or policies
of insurance or a certified copy or copies thereof shall be approved by the
attorney for Columbus, Georgia, and then deposited with and kept on file by the
Clerk of Council of Columbus, Georgia.
<PAGE> 4
SECTION 12.
The Company shall grant to Columbus, Georgia, free of expense, joint use
of any and all poles owned by it for any proper municipal purpose, insofar as it
may be done without interfering with the free use and enjoyment of the Company's
own wires and fixtures, and Columbus, Georgia, shall hold the Company harmless
from any and all actions, causes of action, or damage caused by the placing of
its wires or appurtenances upon the poles of the Company. Proper regard shall be
given to all existing safety rules governing construction and maintenance in
effect at the time of construction.
SECTION 13.
At the time this Franchise becomes effective the Company shall furnish a
bond to Columbus, Georgia, in the amount of ten thousand ($10,000.00) dollars,
in such form and with such sureties as shall be acceptable to Columbus, Georgia,
guaranteeing the payment of all sums, which may at any time become due from the
Company to Columbus, Georgia, under the terms of this Franchise (except such
sums as are covered by the insurance provided for in Section 11), and further
guaranteeing the faithful performance of all of the obligations of the Company
under the terms of this Franchise.
SECTION 14.
The Company agrees to install signal distribution facilities subject to
satisfactory pole clearance and pole rental arrangements, to all residents who
are subscribers of the system of Columbus, Georgia, with a population density of
thirty-five (35) homes per mile of system or more in an area within one-half
(-1/2) mile of facilities head-end as of January 1, 1989. The Company will
provide service within one and one-half (1-1/2) miles of head-end beginning
January 1, 1990, upon receipt of written request from potential subscribers,
provided such potential subscribers pay the equitable share of the cost of line
construction where density is less than thirty-five (35) occupied dwelling units
per mile. Such facilities shall be upgraded to 22 channels by December 31, 1995,
with authorization of proportionate increases in the basic service rate during
the upgrade, subject to the provisions contained in Section 8 above governing
increases in such rate. The Company shall not deny access to cable service to
any group of potential residential cable subscribers because of the income of
the residents of the local area in which such group resides.
SECTION 15.
The Company is hereby encouraged to effect interconnection with other
state, county, city, regional or national communications systems where practical
and beneficial, to the extent permitted by applicable state or federal law.
SECTION 16.
The Company will appoint a single point of contact to communicate with the
Columbus Council or a committee designated by the Council to review service
complaints or the chairman thereof. In the event the television signal service
or the community antenna system should be interrupted or fail by reason of
accident or circumstances otherwise beyond the control of the Company, the
Company shall restore the service within a reasonable time and such interrupted
service shall not constitute a beach of this Franchise. Any service interruption
in excess of forty-eight (48) hours shall result in a prorated adjustment of a
subscriber's bill for such service, except that such a prorated adjustment shall
not be required of the Company where such interruption is the result of an
accident or circumstances otherwise beyond the control of the Company.
<PAGE> 5
SECTION 17.
The Company agrees to provide the Council of Columbus, Georgia, or a
committee designated by the Council the following:
A. Quarterly statistics including a breakdown as to subscribers of
basic service; pay channels; and any pay per view (PPV)
programming.
B. Right of inspection, within 24 hours upon receipt by the Company of
a written request from the Council or committee designated by the
Council, of any part of the Company's facilities and equipment
wherever the same may be located in Columbus, Georgia.
SECTION 18.
The Company shall provide free connection and monthly basic service to all
occupied government buildings (one outlet), including the central office of the
Muscogee County School District, provided said buildings are located within an
area served by the Company's distribution system as described in Section 14.
SECTION 19.
The Company agrees to attend an annual meeting, or meetings requested by
the Council or a committee designated by the Council, to discuss the state of
the system and provision of cable services. Topics will include, but not be
limited to: (a) technical performance -- past, present, and future; (b) service
- -- past, present, and future.
SECTION 20.
In further consideration of the granting of this Franchise to the Company,
the Company will pay annually to Columbus, Georgia, a franchise fee of five (5%)
percent of the gross revenues of the Company, exclusive of installation charges.
Should the Company default in the payment of said sums for a period of thirty
(30) days or more, then the rights and Franchise granted hereunder shall be
subject to forfeiture as provided in Section 10 of this franchise ordinance.
SECTION 21.
The Company shall not be authorized to engage in the sale or servicing
of television sets or appliances.
SECTION 22.
In addition to the minimum requirements contained in Section 7 above, the
Company agrees to provide channel capacity for public, educational, or
governmental use (PEG), to be made available immediately upon any system growth
past 20 channels (channels 21 and above, inclusive). Any such unused PEG channel
capacity shall be available for Company use.
SECTION 23.
This ordinance shall be published, within ten (10) days after its final
passage in the Columbus Ledger-Enquirer, a newspaper of general circulation
published in Columbus, Georgia, and shall become effective as provided by law.
<PAGE> 6
SECTION 24.
It is the stated intention of Columbus, Georgia, that all other holders of
public franchisee shall cooperate with the Company to allow the Company's joint
usage of their poles and pole line facilities wherever possible or wherever such
usage does not interfere with the normal operation of said poles and pole lines,
so that the number of additional poles constructed by the Company may be
minimized.
SECTION 25.
The foregoing provisions, requirements, and conditions are agreed to by
the Company in return for the granting of the Franchise by Columbus, Georgia. No
change in the operating procedures required by the Franchise herein granted
shall become effective without the Company's having given thirty (30) days
advance written notice to the Council of such proposed changes. Should any
section, clause or provision of this ordinance be declared invalid by a court of
record, the same shall not affect the validity of the ordinance as a whole or
any part thereof, other than the part so declared invalid.
Introduced at a regular meeting of the Council of Columbus, Georgia held
on the 10th day of May, 1988; introduced a second time at a regular meeting of
said Council held on the 17th day of May, 1988, and adopted at said meeting by
the affirmative vote of seven members of said Council.
Councilor Batastini voting Yes .
Councilor Chester voting Yes .
Councilor Hyles voting Absent .
Councilor Kendrick voting Yes .
Councilor Land voting Yes .
Councilor McClung voting Yes .
Councilor McDaniel voting Yes .
Councilor Peters voting Absent .
Councilor Rodgers voting Yes .
Councilor Strong voting Absent .
/s/ Lemuel H. Miller, Jr. /s/ James E. Jernigan
- ----------------------------- --------------------------------
LEMUEL H. MILLER, JR. JAMES E. JERNIGAN
CLERK MAYOR
This ordinance submitted to the Mayor for
his signature, this the 17th day of May,
1988.
Sec: 3-202(1)
/s/ Lemuel H. Miller, Jr.
--------------------------------
Clerk of Council
This ordinance received, signed by
the Mayor, at 3:03 P.M. on the 17th
day of May, 1988, and became law at
said time received and became
effective at 12:00 noon the
following day
Sec: 3-202(2)
/s/ Lemuel H. Miller, Jr.
---------------------------------
Clerk of Council
<PAGE> 1
EXHIBIT 10.43
AN ORDINANCE
No. 89 - 3
An Ordinance amending Section 20 of the American Cable Company franchise
agreement to provide for quarterly payments of the franchise fee imposed by said
section instead of annual payments of the same.
---------------
THE COUNCIL OF COLUMBUS, GEORGIA HEREBY ORDAINS:
That Section 20 of the American Cable Company franchise agreement is
amended by deleting the word "annually" in the first sentence of said section
and substituting in lieu thereof the word "quarterly."
-----------------
Introduced at a regular meeting of the Council of Columbus, Georgia held
on the 3rd day of Jan. 1989, introduced a second time at a regular meeting of
said Council held on the 10th day of Jan. 1989, and adopted at said meeting by
the affirmative vote of nine members of said Council.
Councilor Batastini voting Yes .
Councilor Chester voting Yes .
Councilor Hyles voting Yes .
Councilor Kendrick voting Yes .
Councilor Land voting Yes .
Councilor McClung voting Yes .
Councilor McDaniel voting Yes .
Councilor Peters voting Yes .
Councilor Rodgers voting ABSENT FOR THIS VOTE.
Councilor Turner voting Yes .
/s/ Lemuel H. Miller, Jr. /s/ James E. Jernigan
- ----------------------------- -----------------------------
LEMUEL H. MILLER, JR. JAMES E. JERNIGAN
CLERK MAYOR
This ordinance submitted to the Mayor This ordinance received, signed by
for his signature, this the 11th day the Mayor, at 1:30 p.m. on the
of Jan, 1989. 11th day of Jan, 1989, and
Sec. 3-202(1) became law at said time
received and became effective
/s/ Lemuel H. Miller, Jr. at 12:00 noon the following
------------------------------ day.
Clerk of Council
Sec: 3-202(2)/s/ Lemuel H. Miller, Jr.
-------------------------
Clerk of Council
<PAGE> 1
EXHIBIT 10.44
ORDINANCE NUMBER 16-90
AN ORDINANCE OF THE CITY OF MONTGOMERY, ALABAMA, GRANTING A FRANCHISE FOR THE
CONSTRUCTION, ACQUISITION, OPERATION, AND MAINTENANCE OF A CABLE TELEVISION
SYSTEM WITHIN THE CITY LIMITS OF THE CITY OF MONTGOMERY, ALABAMA TO MONTGOMERY
CABLEVISION & ENTERTAINMENT, INC. BE IT ORDAINED BY THE COUNCIL OF THE CITY OF
MONTGOMERY, ALABAMA, THAT:
WHEREAS, the Council of the City of Montgomery, Alabama has determined
that MONTGOMERY CABLEVISION & ENTERTAINMENT, INC. is possessed of the requisite
legal, character, financial, technical, and other qualifications to construct,
own, and operate a cable television system to serve the City of Montgomery; and
that is construction and financing are adequate and feasible;
NOW, THEREFORE,
Section 1. Grant of Fifteen Year Authority.
There is hereby granted by the City of Montgomery to Montgomery
Cablevision & Entertainment, Inc., its heirs, successors and assigns for a term
of fifteen (15) years, the right, authority, and power to establish, construct,
acquire, maintain, and operate a cable television system within the city limits
of Montgomery, Alabama, to render, furnish, and sell cable services therefrom;
and to use and occupy the public streets, rights-of-way, easements [including
all easements dedicated for utility purposes (See application tab #5
incorporated by reference)] for such purposes, subject to the terms and
conditions of the Montgomery Cable Television Ordinance adopted on the 22nd day
of June, 1976, and amended on the 16th day of January, 1990, and the Rules of
the Federal Communications Commission, which are hereby incorporated by
reference and made a part of the franchise contract. The fifteen (15) year
authority commences on March 6, 1990 and expires on March 6, 2005, after the
passage and acceptance of this ordinance."
<PAGE> 2
Section 2. This franchise is non-exclusive (and is limited to those
areas of the City of Montgomery hereinafter described and designated on the map
located at tab #3 of the application and incorporated by reference). (The
Franchise Area consists of the entire City of Montgomery as now constituted and
as hereafter modified and amended.)
Section 3. The franchise is in lieu of any and all rights, privileges,
immunities, and authorities which may be held by the Grantee or the successors
to any interest of the Grantee, pertaining to the construction, acquisition,
operation or maintenance of any cable television system in the City of
Montgomery, and the acceptance of this franchise by the Grantee shall operate as
an abandonment of any and all such rights, privileges, immunities, and
authorities within the City of Montgomery, any and all construction, operation,
and maintenance by any grantee of any cable television system in the City of
Montgomery shall be in all instances and respects under and pursuant to this
franchise and not under or pursuant to any other right, privilege, immunity or
authority whatsoever.
Section 4. Time is of the essence in this franchise, and the Grantee
shall not be relieved of its obligation to comply promptly with any of the
provisions of this Ordinance by any failure of the City of Montgomery to enforce
prompt compliance.
Section 5. (1) This franchise merely authorizes the construction,
acquisition, operation and maintenance of a cable television system as provided
by the Montgomery Cable Television Ordinance on the 22nd day of June, 1976, and
amended on the 16th day of January, 1990.
Section 6. (1) This franchise shall take effect immediately and remain
in force for a term of fifteen (15) years upon the filing of an unconditional
acceptance by the Grantee. Such acceptance must:
(a) be in the form of a writing, duly executed and sworn to;
<PAGE> 3
(b) contain a promise that the Grantee shall comply with and
abide all terms, provisions, and conditions of the franchise; and
(c) be filed with the agency within thirty (30) days from
the date of passage of this Ordinance. Grantee shall exercise none of
the rights granted by this Ordinance until evidence of compliance with
the bonding and insurance requirements of Section 6(3) and (4) of the
Cable Television Ordinance has been filed with the agency.
(2) Should the Grantee fail to comply with paragraph (1) above it shall
acquire no rights, privileges, or authority under this franchise whatsoever.
Section 7. The rates and charges set out in application at tab #4 are
hereby authorized for service under this franchise.
Section 8. This franchise is granted in reliance upon the
representation made by Grantee in its application filed with the City on January
16, 1990, and the Grantee, by the acceptance of this franchise, agrees to
perform all of the representations so made, and agrees that said application is
a party of this franchise.
Section 9. Franchise Payments.
(1) Any person awarded a franchise under this Ordinance shall pay to
the City, each year during the life of the franchise, a franchise fee in the
amount of five per cent (5%) of its annual gross subscriber revenues and five
per cent (5%) of its annual net auxiliary services revenue derived from the
operation of the franchised cable television system within the franchised area
limits. The amount of any application fee should be credited against the
franchised cable television system within the franchised area limits. The amount
of any application fee should be credited against the franchise fees thereafter
becoming due.
(2) A grantee shall file with the City, within 90 days after the
expiration of any calendar year or portion thereof
<PAGE> 4
during which its franchise is in force, a financial statement certified by a
responsible officer of the Grantee, showing in detail the gross subscriber
revenues, as defined herein, of the Grantee during the preceding calendar year
or portion thereof. It shall be the duty of the Grantee to pay the City within
fifteen (15) days after the time for filing such statement, the sum prescribed
above or any unpaid balance thereof for the calendar year covered by such
statements.
(3) The City shall have the right to inspect the Grantee's records
showing the gross subscriber revenues from which its franchise payments are
computed and shall also have the right of audit and recomputation of any and all
amounts paid under the ordinance. No acceptance of payment shall be construed as
a release or as an accord and satisfaction of any claim the City may have for
further or additional sums payable under this ordinance or for the performance
of any other obligation hereunder; however, an accounting rendered to the City
and to which no exception is made within three (3) years after the receipt by
the City shall be deemed to be accurate and shall not thereafter be subject to
question or made the basis of any claim by the City against Grantee.
Section 10. Rates charged to Subscribers.
(1) Any franchise issued shall set forth the initial rates which
Grantee may charge its subscribers upon commencing service.
(2) Any rate established shall be reasonable, just, and fair to the
public and shall provide the Grantee a return upon its investment reasonably
sufficient to:
(a) assure confidence in Grantee's soundness;
(b) support its credit and attract necessary capital under
efficient and economical management;
(c) provide a return to equity owners commensurate with
current returns on investment
<PAGE> 5
and other enterprises having corresponding rights
(3) No rate established shall afford any undue preference or advantage
among subscribers, but separate rates may be established for separate classes of
subscribers and rates may reflect the increased cost of providing service to
isolated or sparcely populated areas.
(4) The City Council shall have only the power, authority, and right to
regulate the rates and charges made by the Grantee pursuant to this franchise
agreement in accordance with the terms and provisions of Public Law 98-549 cited
in the Cable Communications Policy Act of 1984 approved and enacted by the
United States Congress on October 30, 1984. Public Law 98-549 is incorporated
into this agreement by reference as though set out fully herein.
Section 11. Noncompliance with ordinance or Failure to Perform.
The following terms and conditions will apply and are hereby
incorporated and made a part of this ordinance:
(1) Montgomery Cablevision & Entertainment, Inc. will complete two
hundred (200) miles of service per time period for five time periods.
(2) Upon failure by Montgomery Cablevision & Entertainment, Inc.
to do so, a $250,000.00 penalty will be assessed for each time period
in which Montgomery Cablevision and Entertainment, Inc. fails to
complete two hundred (200) miles of service.
(3) Montgomery Cablevision & Entertainment, Inc. hereby is granted
eighteen (18) months to complete the first two hundred (200) miles of
service plus an additional three (3) months in which to cure any
defects or deficiencies.
(4) For each twelve (12) month time period after the conclusion of
the first eighteen (18) months of the franchise, Montgomery Cablevision
& Entertainment, Inc. is hereby granted three (3) months to cure any
defects or deficiencies for each of
<PAGE> 6
the four (4) remaining time periods consisting of two hundred (200)
miles of service. The next time period will begin at the expiration of
the preceding time period and not at the end of the three (3) month
grace period.
(5) If, at the end of any time period of the franchise, said
conditions have not been met, the franchise granted to Montgomery
Cablevision and Entertainment, Inc. can be declared null and void.
(6) Montgomery Cablevision and Entertainment, Inc. will construct
its system in the following manner:
The proposed installation schedule for each of the five (5)
time periods granted by this franchise is attached as Attachment "A"
and made a part hereto.
Section 12. By the adoption of this Ordinance, the City Council of the
City of Montgomery hereby expressly authorizes the Mayor of the City of
Montgomery to proceed with the implementation of this franchise and to enforce
the provisions contained herein.
ADOPTED AND APPROVED this the 6th day of March, 1990.
APPROVED: /s/ Emory Folmar
-------------------------------
ATTEST: /s/ John L. Baker
-------------------------------
<PAGE> 7
STATE OF ALABAMA )
COUNTY OF MONTGOMERY )
CITY OF MONTGOMERY )
I, John L. Baker, City Clerk of the city of Montgomery, Alabama, DO
HEREBY CERTIFY that the attached is a true and correct copy of Ordinance No.
16-90 which was duly adopted by the Council of the City of Montgomery at its
regular meeting held the Sixth Day of March, 1990.
GIVEN under my hand and the official SEAL of the City of Montgomery,
Alabama, this the Fourteenth Day of June, 1990.
/s/ John L. Baker
----------------------------------------
JOHN L. BAKER, CITY CLERK
<PAGE> 1
EXHIBIT 10.46
RESOLUTION No. 58-95
WHEREAS, the City Council of Montgomery, Alabama (the "City"), entered
into a cable television franchise agreement with Montgomery Cablevision and
Entertainment, Inc. (the "Company"), on March 6, 1990 (the "Franchise"), and
WHEREAS, InterRedec, Inc., a stockholder of the Company, desires to
transfer its ownership interest in the Company to ITC Broadband Services,
L.L.C., a wholly owned subsidiary of ITC Holding Company, Inc. (the "Transfer"),
pursuant to Section 5(4)(a) of the Montgomery Cable Television Ordinance,
ordinance number 50-76, as amended (the "Cable Ordinance"), and
WHEREAS, Section 5(4)(a) of the Cable Ordinance requires the Company to
secure the consent of the City prior to the Transfer and the Company has
requested such consent; and
WHEREAS, the City waives the provisions in Section 11(2) of the Franchise
as those provisions apply to the Company, its successors and assigns, until 120
days from the date of passage of this resolution; and
WHEREAS, the City waives the time periods in Section 11(4) of the
Franchise as of the date of passage of this resolution until 120 days from the
date of passage of this resolution; and
WHEREAS, the City waives the provisions of Section 11(5) of the Franchise
as those provisions apply to the Company, its successors and assigns, until 120
days from the date of passage of this resolution; and
WHEREAS, the Company seeks to extend the time periods as allowed in
Section 11(2) of the Cable Ordinance and to begin the second time period as set
forth in Section (11)(4) of the Franchise effective 120 days from the date of
passage of this resolution (the "Extension"); and
WHEREAS, the City believes the Transfer and the Extension would be in the
public interest;
NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF MONTGOMERY,
ALABAMA, that the Transfer and Extension be, and hereby are, consented to.
STATE OF ALABAMA )
COUNTY OF MONTGOMERY )
CITY OF MONTGOMERY )
I, John L. Baker, City Clerk of the City of Montgomery, Alabama, DO HEREBY
CERTIFY that the foregoing is a true and correct copy of the resolution which
was duly adopted by the Council of the City of Montgomery, Alabama, at a regular
meeting on April 4, 1995.
GIVEN under my hand and the official SEAL of the City of Montgomery,
Alabama, this the 5th day of April, 1995.
/s/ John L. Baker
----------------------------------
John L. Baker, City Clerk
APPROVED: April 6, 1995
/s/ Emory Folmar
- --------------------------------
Emory Folmar, Mayor
<PAGE> 1
EXHIBIT 10.47
RESOLUTION NO. 92-7
A RESOLUTION GRANTING A NON-EXCLUSIVE PERMIT TO BEACH CABLE, INC.,
TO LOCATE, CONSTRUCT, MAINTAIN AND OPERATE A TELEVISION CABLE
DISTRIBUTION SYSTEM IN THE CITY OF PANAMA CITY BEACH, FLORIDA;
AUTHORIZING THE USE, RIGHT, PRIVILEGE, POWER AND AUTHORITY TO
CONSTRUCT, MAINTAIN AND OPERATE IN, OVER, ACROSS UNDER AND UPON THE
PUBLIC STREETS, AVENUES, PARKWAYS, ALLEYS, SIDEWALKS AND PUBLIC
GROUND THE NECESSARY EQUIPMENT FOR THE OPERATION OF A TELEVISION
CABLE DISTRIBUTION SYSTEM IN THE CITY OF PANAMA CITY BEACH, FLORIDA,
LEVYING A TAX OF THREE PERCENT (3%) OF THE GROSS RECEIPTS OF THE
BUSINESS TO BE CONDUCTED PURSUANT TO THIS PERMIT; PROVIDING THAT THE
PROVISIONS OF THIS ORDINANCE ARE SEVERABLE; AND RECITING THE
EFFECTIVE DATE.
BE IT RESOLVED BY THE PEOPLE OF THE CITY OF PANAMA CITY BEACH, FLORIDA:
Section One: That a non-exclusive permit is hereby granted to Beach Cable,
Inc., a Florida Corporation, whose mailing address is Post Office Box 2462
Panama City, FL 32402, and its assigns as hereinafter limited, (the
"Permittee"), to locate, construct, maintain and operate a television cable
distribution system ("Cable System") in the City of Panama City Beach, Florida
(the "City"). This permit shall include, without limitation, the authority,
right, privilege and power to construct, maintain and operate, in, over, under,
across and upon the public streets, avenues, parkways, alleys, sidewalks and
public grounds (the "Public Ways") the necessary equipment for the operation of
a Cable System in the City.
<PAGE> 2
Section Two: This permit shall be effective for a period of fifteen (15)
years following the effective date of this Resolution. Further, this permit
shall be revocable at the pleasure of the City Commission for cause.
Section Three: The Permittee shall not commence construction of any part
of the Cable System, or any material alteration, extension or replacement
thereof, until Permittee has submitted to the City (i) three (3) complete copies
of Permittee's final detailed construction plans and specifications for the
installation of that portion of the Cable System to be located in the Public
Ways (including without limitation pavement cuts and bores) and for the repair
and restoration of such Public Ways, and (ii) three (3) copies of a narrative
generally but completely describing the type of delivery system and the
components thereof, and such plans and specifications and narrative have been
approved by the City. (Such plans and specifications and narrative, as approved
by the City, together with such subsequent changes and modifications thereto as
are specifically approved by the City, shall sometimes be hereinafter referred
to as the "Plans and Specs.") Such approval shall not be unreasonably withheld.
The failure of the City to object to the Plans and Specs within fifteen (15)
days after the same are submitted to the City shall constitute approval thereof.
Section Four: The Cable System constructed by Permittee pursuant to
this permit shall be operational throughout the entire City and Permittee
shall make equal and uniform cable television service available to the entire
permit area. Construction of the
2
<PAGE> 3
entire Cable System shall be completed within eighteen (18) months from the date
of commencement of construction; provided however that if at the end of that
period Permittee shall demonstrate that the area being served by Permittee (i)
is receiving equal and uniform service and (ii) contains a fair representation
of overall city population density, then Permittee shall be entitled upon
request to a six (6) month extension of said eighteen (18) month period.
Permittee warrants that all work performed in connection with the construction
of the cable system will be of good quality and in conformance with the Plans
and Specs. Upon completion of construction of the Cable System, or any portion,
replacement, alteration, or extension thereof, permittee shall promptly file
three (3) copies of complete and accurate "as-built" plans identifying and
locating those portions of the Cable System placed in the Public Ways. Permittee
acknowledges that the City may require compliance with all terms and provisions
hereof as if such alteration or addition were part of the original construction
of the Cable System.
Section Five: A final certificate of completion ("Final Certification
of Completion") shall be issued by the City, as hereinafter provided, when:
(a) The Cable System has been constructed in a good, workmanlike and
durable manner, and all public ways and utilities have been returned to as
orderly and well-maintained condition as before this permit was granted.
(b) Cable television service has been made available to
3
<PAGE> 4
all property within the City on a non-discriminatory basis for immediate
use by the owners or legal representative of the owners of such property;
and
(c) Complete and accurate "as-built" plans identifying and locating
those portions of the Cable System placed in the Public Ways, have been
filed by the Permittee with the City; and
(d) Permittee asserts completion by filing with the City Manager a
written notice of completion ("Notice of Completion") certifying under
oath completion as defined in subpart (a) of this Section, above. Neither
the Notice of Completion nor the statements, assertions or certifications
contained therein shall be deemed to be binding upon the City.
The City shall issue the Final Certificate of Completion or deny same with
reasons therefor in writing within sixty (60) days after receipt of (i) the
Notice of Completion, or (ii) the "as-built" plans, whichever is later.
Section Six: Before commencing physical construction of the Cable System,
Permittee shall file with the City, and maintain in full force and effect at all
times thereafter, an acceptable corporate surety bond in the amount of One
Hundred Thousand and No/100 Dollars ($100,000) issued by a surety licensed
therefor in the State of Florida, or other security satisfactory to the City
(such as a certificate of deposit or a letter of credit from a bank satisfactory
to City), and conditioned upon Permittee's compliance with all the provisions of
this permit, regardless of whether the
4
<PAGE> 5
permit is terminated, and payment of all damages, liquidated damages, delinquent
permit fees, compensation, and costs of repairing or completing the Cable
System, and compensation, and, at the alternative option of the City, the cost
of removal or abandonment of the System and repair of streets and other public
or private improvements; said condition being a continuing obligation of the
surety until the issuance by the City of the Final Certificate of Completion, at
which time such bond or other security shall be released. The form of the bond
or security and the surety shall be subject to the reasonable approval of the
City.
Neither the provisions of this Section, any bond accepted pursuant hereto,
or any damages recovered thereunder, shall be construed to excuse the faithful
performance and observance by Permittee of all the terms and conditions herein,
or to limit the liability of the Permittee under this Permit.
Section Seven: Upon acceptance of this Permit, Permittee shall furnish an
unconditional guaranty executed by L. Charles Hilton, in form and substance
satisfactory to the City, in its sole discretion, guaranteeing the timely and
full performance of Permittee's obligation hereunder to complete construction of
the entire Cable System in compliance with all terms, provisions and covenants
of this permit, including an unconditional guarantee by the said L. Charles
Hilton of the payment of all costs of construction of the Cable System and
restoration of public ways and utilities.
5
<PAGE> 6
Section Eight: The Permittee shall defend the City against all lawful
suits, claims or demands for injury to any person or property alleged to be
caused in whole or in part by the Permittee, its agents, servants, employees or
independent contractors, in the construction, repair, maintenance, extension or
operation of the Cable System or other of Permittee's property of any kind or
character used in connection with this Permit; and in the event of a
determination of liability of the Permittee, its agents, servants, employees or
independent contractors, Permittee shall fully indemnify and hold the City
harmless therefrom.
Section Nine: The Permittee shall at all times make and keep complete
detailed and current plats, maps and records showing the exact location of all
Cable System equipment located and used by Permittee in the City.
Section Ten: All of such installation of equipment when complete shall be
of a durable nature, workmanlike, good and of sufficient height not to interfere
in any manner with the rights of the public or individual property owners and
shall not interfere with the travel and use of public places by the public.
Construction, repair and removal shall not unreasonably obstruct nor impede
traffic. The City reserves the right of reasonable regulation of the erection
and construction of any work by the Permittee and to reasonably designate where
such works and construction shall be placed. The Permittee agrees when requested
by the City to make minor changes in its equipment to conform to the reasonably
necessary requirements of small localized areas,
6
<PAGE> 7
such changes to be effected when so requested within a reasonable time.
Section Eleven: The Permittee, in the location, construction,
maintenance and operation of the aerial portion of said Cable System shall do so
by means of the existing poles of the Gulf Power Company and Southern Bell
Telephone and Telegraph Company, or other existing poles upon the public ways of
the City, and Permittee shall not install any additional pole or poles unless
such installation be first approved in writing by the City in its sole
discretion. Permittee covenants and agrees to coordinate its activities with
Gulf Power Company, Southern Bell Telephone & Telegraph Company, other utilities
and the City in installing its cable and any other equipment or facilities, and
will, prior to beginning work, advise the City of time of work and the exact
location thereof. Permittee, in the installation of the underground portion of
said Cable System shall notify the City not less than twenty four (24) nor more
than seventy two (72) hours in advance of any payment cut and shall restore such
pavement to its original condition. The City reserves the right to (i) refuse to
allow Permittee to cut or break the pavement of new streets which, as a
practical matter, cannot be restored to their original condition if cut, and
(ii) require that especially congested streets be cut or broken, and immediately
repaired, during an uncongested period.
Section Twelve: If the City or other person for any reason cuts,
breaks or in any way interrupts Permittee's facilities or equipment or the
signal furnished to its subscribers, Permittee
7
<PAGE> 8
will promptly repair the break or other interruption and promptly restore
service, exercising utmost diligence in accomplishing such restoration, and the
City shall incur no liability on account thereof whether such break or other
interruption is caused by act or omission of the City or not.
Section Thirteen: The Permittee shall have the right to operate a Cable
System during the existence of this permit and shall have the right to extend
its Cable System upon the streets, alleys, and public grounds of any addition or
additions hereafter made to the City's corporate territory and to use the
streets, alleys, and public grounds to continue to points beyond the corporate
limits of said City.
Section Fourteen: Prior to the issuance of the Final Certificate of
Completion, Permittee shall have no right to assign this permit, and such
attempted assignment shall ipso facto constitute a revocation of the permit for
cause by the City. After issuance of the Final Certificate of Completion, the
Permittee shall have the right to assign this permit, but only subject to, and
after obtaining, the approval of the City.
Section Fifteen: In the exercise of this permit, the Permittee may, with
the consent of the owner, use the poles and other equipment of public utilities
holding franchises in the City.
Section Sixteen: The Permittee shall pay to the City, not later than
the 10th of each and every month a sum equal to three percent (3%) of its
gross receipts for the preceding month. No acceptance of any payment shall
be construed as an accord that the
8
<PAGE> 9
amount paid is, in fact, the correct amount nor shall such acceptance of payment
be construed as a release of any claim which the City may have for further or
additional sums payable under this permit. Permittee acknowledges that implicit
in this section is the right of the City at reasonable times upon reasonable
notice to review and audit any and all books and records of Permittee relating
to gross receipts of any nature whatsoever, and accordingly Permittee expressly
agrees to retain or cause to be retained such books and records for a period of
five (5) years from the date created.
Section Seventeen: The provisions of this Resolution shall be construed to
be severable and the holding of any provisions hereof invalid or
unconstitutional shall in no wise effect the remaining portions of this
Resolution.
Section Eighteen: The Permittee shall, at its expense, promptly repair any
and all streets, sidewalks and other public or private property damaged or
destroyed in whole or in part by Permittee, its agents, servants or employees in
exercising the privileges herein granted.
Section Nineteen: During the period this permit is outstanding and
unrevoked, the Permittee agrees to make available a channel for programs
originated a Panama City Beach.
Section Twenty: No failure by the City to insist on strict compliance with
any condition or covenant of this permit shall constitute a waiver of such
condition or covenant or preclude the City from thereafter declaring the failure
of Permittee to comply
9
<PAGE> 10
with such condition or covenant to be a default hereunder.
Section Twenty-One: This Resolution shall become effective upon
acceptance in writing by Permittee (including the unconditional guarantee of L.
Charles Hilton described herein), and if not so accepted within thirty (30) days
after passage, shall expire.
PASSED, APPROVED, AND ADOPTED, THIS 23rd DAY OF July, 1992.
ATTEST: CITY OF PANAMA CITY BEACH
/s/ Mark B. Schnitker BY:/s/ Philip Griffitts
- ----------------------------- ---------------------------------
CITY CLERK MAYOR
10
<PAGE> 1
EXHIBIT 10.48
L I C E N S E
STATE OF FLORIDA
COUNTY OF BAY
WHEREAS, the Board of County Commissioners of Bay County, Florida, (the
"Board" and the "County") on this 5th day of January, 1993, in regular meeting,
conducted a public hearing pursuant to the request from Beach Cable, Inc. (the
"Licensee") whose address is 4116 North Highway 231, Panama City, Florida 32404,
for a County license to use County highways or other public roads or highways,
or rights-of-way, acquired by the County and outside the corporate limits of any
municipality, for the construction, maintenance, repair, operation and removal
of cable, other communication lines and such other equipment as may be necessary
for the transmission of television and radio signals (the "License"), and
WHEREAS, said License shall be issued only upon certain terms and
conditions as hereinafter set forth,
NOW THEREFORE, in consideration of the foregoing, the Board does hereby
grant a non-exclusive license to Beach Cable, Inc. as follows:
Section 1. That a License is hereby granted to Licensee to locate,
construct, maintain and operate a television cable distribution system,
including poles, wires and fixtures where necessary upon, along, through, over
and under the streets, alleys, bridges and public places of Bay County, Florida,
under the terms
<PAGE> 2
and conditions herein provided in the unincorporated areas of Bay County between
Hathaway Bridge as the Eastern boundary, the Phillips Inlet Bridge as the
Western boundary, the Gulf of Mexico as the Southern boundary, and St. Andrews
Bay, North Bay and the Intercostal Waterway as the Northern boundary. The
Licensee shall use the existing poles of the Gulf Power Company and the Southern
Bell Telephone for the said system whenever possible, and the Licensee shall not
install any additional pole or poles unless such installation be first approved
by the Bay County Engineer. Licensee further agrees to move television lines and
other communication lines and equipment subject to this license at no cost to
the County in the event of widening or repair or reconstruction of any road.
Section 2. All cables, wires, fixtures and other installations erected
under the provision hereof shall comply with and meet the minimum standards
provided by the ordinances of Bay County, Florida, from time to time adopted,
and shall comply with all applicable County codes.
Section 3. This License shall be effective for a period of fifteen (15)
years following the effective date of this License, except as hereinafter
provided. This License shall not be construed to be a "franchise" within the
meaning of the term as provided by the laws of the State of Florida and shall be
nonexclusive. Further, this License shall be revocable at the pleasure of the
County for cause. This license shall also be
2
<PAGE> 3
subject to and governed by future federal or state legislation regulating
cable television.
Section 4. The Licensee agrees to indemnify and save the County harmless
from any and all liability of any nature whatsoever resulting from or arising
out of this agreement, said promise to indemnify shall include costs incurred by
the County, including attorneys' fees, in defending claims. In furtherance of
the obligation to indemnify and hold harmless the County from such claims
including attorneys' fees, the Licensee shall carry during the term of this
License general liability insurance in singular limits of at least Five Hundred
Thousand and 00/100 Dollars ($500,000.00) for bodily injury or death, One
Million and 00/100 Dollars ($1,000,000.00) for property damage per occurrence.
Compliance with the insurance provision shall be evidenced by a prepaid
certificate of insurance referencing the existence of the coverage, which
certificate, in its terms, shall prohibit any material change in coverage or
cancellation of insurance absent thirty (30) days notice to the County. On or
before the expiration date of the coverage, the Licensee shall submit to the
County like evidence of continuing or replacement coverage.
More particularly, the Licensee herein, its successors and assigns, does
hereby agree to indemnify and hold harmless the County from any and all
liability, claim, demand or judgment growing out of injury to any person or
property as a result of the violation or failure on the part of the Licensee,
its successors and assigns, to observe their proper duty or because of
negligence
3
<PAGE> 4
in whole or in part arising out of construction, repair, extension, maintenance
or operation of its equipment of any kind or character used in connection with
this License.
Section 5. The Licensee shall at all times make and keep full and
complete plats, maps and records showing the exact location of all cable
distribution system equipment located and used by the Licensee in the County.
Section 6. All of such installations and equipment shall be of a
permanent nature, durable and of sufficient height or depths, not to
unreasonably interfere in any manner with the rights of the public or individual
property owners, and shall not unreasonably interfere with the travel and use of
public places by the public during its construction, repair and removal. The
County reserves the right of reasonable regulation of the erection and
construction of any work by the Licensee and to reasonably designate where such
works and construction shall be placed.
Section 7. The Licensee shall have the right to operate a cable
distribution system during the existence of this License.
Section 8. The Licensee shall have the right to assign or otherwise
transfer this License only after two (2) years from the date of this License.
Any assignment is subject to the approval of the County, and approval will not
be unreasonably denied. This restriction shall not affect the rights of
Licensee's creditors. Any assignee must meet the requirements as established by
Florida Statutes for the granting of new license.
4
<PAGE> 5
Section 9. Failure or refusal to observe the terms and provisions of this
License by the Licensee, its successors and assigns, shall entitle the County to
forfeit and terminate this License and all rights thereunder. Prior to a
termination of this License, the County shall give ninety (90) days written
notice to the Licensee of its failure or observe the terms hereof and should the
Licensee fail to correct any default or to comply with the terms and provisions
of this License within the ninety (90) day period, the County shall have the
right to terminate the franchise of the Licensee.
Section 10. In the exercise of this License, the Licensee may, with the
consent of the owner, or if otherwise permitted by law, use the poles, conduits
and other equipment of public utilities holding franchises in the County.
Section 11. The provisions of this License shall be construed to be
severable and the holding of any provisions hereof invalid or unconstitutional
shall in no way affect the remaining portions of this License.
Section 12. The Licensee shall, at its expense, promptly repair any and
all streets, sidewalks or other public and/or private property damaged or
destroyed by the Licensee, his agents, servants or employees, in exercising the
privilege herein granted.
Section 13. Licensee shall operate and maintain its cable system so as
not to interfere with those residents and inhabitants of the County who may not
be subscribers.
5
<PAGE> 6
Section 14. Licensee shall not as a condition of serving any subscriber,
request or require that any subscriber remove any television antenna from the
subscriber's premises.
Section 15. Not later than thirty (30) days prior to commencement of
construction of the CATV system, the Licensee shall deposit with the County an
irrevocable surety bond, letter of credit or cash from a financial institution
(or a bond with one good and sufficient surety) in the amount of twenty-five
thousand dollars ($25,000) subject to the approval by the County. Upon
completion of construction, said performance bond shall be reduced from
twenty-five thousand dollars ($25,000) to ten thousand dollars ($10,000), which
shall be maintained for the duration of this License. Said reduction in the
performance bond shall be subsequent to the determination of the County Engineer
that the construction has been completed. At any time after construction is
complete, Licensee may request the County to eliminate the performance bond
requirement or reduce it to an amount less than ten thousand dollars ($10,000);
however, the County may within its sole discretion refuse to honor Licensee's
request. The surety bond, letter of credit, or cash (performance bond) shall be
used to insure the faithful performance by the Licensee of all provisions of the
License, and compliance with all orders, permits and direction of any agency,
commission, board, department, division or office of the County having
jurisdiction over its acts or defaults under the franchise, and the payment by
the Licensee of any claims, liens and taxes which arise by reason of the
construction,
6
<PAGE> 7
operation or maintenance of the system. Failure to provide the surety bond,
letter of credit, or cash as provided herein shall result in the revocation of
this License.
BOARD OF COUNTY COMMISSIONERS
OF BAY COUNTY, FLORIDA
By:/s/ Danny Sparks
-----------------
Danny Sparks, Chairman
ATTEST:
By: /s/ Harold Bazzel
------------------
Harold Bazzel
Clerk of Circuit Court
Approved as to correctness of form:
Accepted
By: /s/ L. Charles Hilton /s/ [ILLEGIBLE SIGNATURE]
--------------------- ---------------------
L. Charles Hilton Burke & Blue, P.A.
Chairman Attorneys for Bay County
Beach Cable, Inc.
7
<PAGE> 1
EXHIBIT 10.49
RESOLUTION NO. 97-22
A RESOLUTION GRANTING BEACH CABLE, INC. THE RIGHT TO ASSIGN ITS
NON-EXCLUSIVE PERMIT TO LOCATE, CONSTRUCT, MAINTAIN, AND OPERATE A
TELEVISION CABLE DISTRIBUTION SYSTEM IN THE CITY OF PANAMA CITY
BEACH, FLORIDA TO KNOLOGY OF PANAMA CITY, INC.
WHEREAS, the City Council of Panama City Beach, Florida (the "City"), has,
by Resolution 92-7 (the "Permit"), granted a non-exclusive permit authorizing
Beach Cable, Inc. (the "Permittee"), to locate, construct, maintain, and operate
a television cable distribution system ("Cable System") in the City of Panama
City Beach, Florida; and
WHEREAS, L. Charles Hilton, Jr., the sole stockholder of the Permittee,
wishes to convert his ownership interest in the Permittee to an ownership
interest in Knology Holdings, Inc., a Delaware Corporation ("Knology"), through
a transaction in which Knology of Panama City, Inc., a Delaware corporation and
wholly owned subsidiary of Knology, and the Permittee will be merged; and
WHEREAS, the Permittee and Knology are in the process of negotiating a
merger agreement to effectuate the merger transactions; and
WHEREAS, Section Fourteen of the Permit states that after completion of
the Cable System, the Permittee shall have a right to assign the Permit, but
only subject to, and after obtaining, the approval of the City; and
WHEREAS, the said proposed merger might be considered an assignment of
said Permit to Knology of Panama City, Inc., the corporation which will result
from the proposed merger; and
WHEREAS, the City believes that such merger will be in the public
interest;
NOW, THEREFORE, BE IT RESOLVED by the City of Panama City Beach, Florida,
that the proposed assignment of said Permit to Knology of Panama City, Inc. is
hereby approved subject to consummation of a merger agreement between Permittee
and Knology, provided that Knology shall notify the City in writing promptly
after the consummation of the merger transaction, and
BE IT FURTHER RESOLVED that the approval granted by this Resolution shall
expire at midnight, January 31, 1998, if the merger transactions between
Permittee and Knology have
<PAGE> 2
not been consummated by that time.
PASSED, APPROVED, AND ADOPTED THIS 3RD DAY OF DECEMBER, 1997.
CITY OF PANAMA CITY BEACH
By: /s/ Philip W. Griffitts
-----------------------
Philip W. Griffitts,
Mayor
ATTEST:
/s/ Mark Schnitker
- ------------------
Mark Schnitker, City Clerk
A CERTIFIED, TRUE COPY OF RESOLUTION 97-22, DULY AND PROPERLY ADOPTED BY THE
PANAMA CITY BEACH CITY COUNCIL, IN SPECIAL SESSION, THIS 3RD DAY OF DECEMBER,
1997.
/s/ Mark Schnitker
- ------------------
MARK B. SCHNITKER, CITY CLERK
<PAGE> 1
EXHIBIT 10.50
RESOLUTION NO. 2075
A RESOLUTION GRANTING BEACH CABLE, INC. THE RIGHT TO ASSIGN ITS
NON-EXCLUSIVE PERMIT (TO LOCATE, CONSTRUCT, MAINTAIN AND OPERATE A
TELEVISION CABLE DISTRIBUTION SYSTEM IN THE UNINCORPORATED AREAS OF BAY
COUNTY BETWEEN HATHAWAY BRIDGE AS THE EASTERN BOUNDARY, THE PHILLIPS INLET
BRIDGE AS THE WESTERN BOUNDARY, GULF OF MEXICO AS THE SOUTHERN BOUNDARY
AND ST. ANDREWS BAY, NORTH BAY AND THE INTERCOASTAL WATERWAY NORTHERN
BOUNDARY) TO KNOLOGY OF PANAMA CITY, INC.
WHEREAS, the Board of County Commissioners of Bay County, Florida (the
"Board"), has heretofore in January, 1993, granted to Beach Cable, Inc., (the
"Licensee") a non-exclusive license to locate, construct, maintain and operate a
television cable distribution system along, through, over and under the streets,
alleys, bridges and public places of Bay County, Florida, in the unincorporated
areas of Bay County between Hathaway Bridge as the Eastern boundary, the
Phillips Inlet Bridge as the Western boundary, the Gulf of Mexico as the
Southern boundary and St. Andrews Bay, North Bay and the Intercostal Waterway as
the Northern boundary; and
WHEREAS, L. Charles Hilton, Jr., the sole stockholder of the Licensee,
wishes to convert his ownership interest in the Licensee to an ownership
interest in Knology Holdings, Inc., a Delaware Corporation ("Knology"), through
a transaction in which Knology of Panama City, Inc., a Delaware corporation and
wholly owned subsidiary of Knology and the Licensee will be merged; and
WHEREAS, the Permittee and Knology are in the process of negotiating a
merger agreement to effectuate the merger transactions; and
WHEREAS, Section 8 of the License states that after completion of the
Cable
<PAGE> 2
System, the Licensee shall have a right to assign the License, subject to
approval of the Board; and
WHEREAS, the said proposed merger might be considered an assignment of
said license to Knology of Panama City, Inc., the corporation which will result
from the proposed merger; and
WHEREAS, the Board believes that such merger will be in the public
interest.
NOW, THEREFORE, be it resolved by the Board of County Commissioners of Bay
County, Florida, that the proposed assignment of said license to Knology of
Panama City, Inc., is hereby approved, subject to consummation of a merger
agreement between Permitte and Knology; and
FURTHER RESOLVED, that Knology shall notify the City within ten (10) days
of the consummation of the merger transactions.
PASSED, APPROVED AND ADOPTED this 18th day OF NOVEMBER, 1997
BOARD OF COUNTY COMMISSIONERS
OF BAY COUNTY, FLORIDA
(SEAL)
By: /s/ Danny Sparks
----------------
Chairman
ATTEST:
By:/s/ Harold Bazzel Approved as to correctness
-----------------
Clerk of form:
/s/ [ILLEGIBLE SIGNATURE]
-------------------------
Burke & Blue, P.A.
Attorneys for Bay County
<PAGE> 1
Exhibit 11.1
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
FOR THE EIGHT MONTHS FOR THE YEAR FOR THE NINE MONTHS FOR THE NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997
--------------------- -------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Weighted Average Shares Outstanding (a) 7,520 13,626 12,458 24,116
Common Stock Equivalents:
Stock Options 0 0 0 0
Warrants 0 0 0 0
--------------------- -------------- ------------------- --------------------
Total Shares for Pro Forma Primary
Earnings Per Share 7,520 13,626 12,458 24,116
Net Loss 1,185,534 3,125,428 1,832,864 3,836,775
--------------------- -------------- ------------------- --------------------
Primary Loss per Share $157.65 $229.37 $147.12 $159.10
===================== ============== =================== ====================
</TABLE>
(a) Net loss per share is computed using the weighted average number of shares
of common stock and dilutive common stock equivalent shares from convertible
preferred stock (using the if converted method). As the Company has no common
stock outstanding, the Preferred Stock is assumed to be converted for purposes
of this calculation. The Predecessor Company net losses per share are not shown,
as they are not comparable with the Successor Company's.
<PAGE> 1
Exhibit 12.1
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Four Months Eight Months
Year Ended Ended Ended Year Ended
December 31, 1994 April 30, 1995 December 31, 1995 December 31,1996
----------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C>
FIXED CHARGES:
Interest expense and amortization
of debt issuance costs 230,575 21,878 567,913 1,055,498
Interest element of rent expense 25,667 9,000 22,000 23,333
------------------ -------------- ----------------- ----------------
256,242 30,878 589,913 1,078,831
================== ============== ================= =================
EARNINGS:
Consolidated Net Loss (874,235) (123,985) (1,185,534) (3,125,428)
Minority Interest - - 109,837 -
Income Tax Benefit - - 334,451 373,323
Fixed charges 256,242 30,878 589,913 1,078,831
------------------ -------------- ----------------- ----------------
(617,993) (93,107) (1,039,909) (2,419,920)
================== ============== ================= =================
RATIO OF EARNINGS TO FIXED CHARGES (2.41) (3.02) (1.76) (2.24)
================== ============== ================= =================
COVERAGE DEFICIENCY 874,235 123,985 1,629,822 3,498,751
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1996 1997
---- ----
<S> <C> <C>
FIXED CHARGES:
Interest expense and amortization
of debt issuance costs 795,066 1,099,465
Interest element of rent expense 23,280 26,897
------------- --------------
818,346 1,126,362
============= ==============
EARNINGS:
Consolidated Net Loss (1,832,864) (3,836,775)
Minority Interest - -
Income Tax Benefit 373,323 -
Fixed charges 818,346 1,126,362
------------- --------------
(1,387,841) (2,710,413)
============= ==============
RATIO OF EARNINGS TO FIXED CHARGES (1.70) (2.41)
============= ==============
COVERAGE DEFICIENCY 2,206,187 3,836,775
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF KNOLOGY HOLDINGS, INC.
NAME OF SUBSIDIARY STATE OF INCORPORATION
KNOLOGY of Montgomery, Inc. Alabama
KNOLOGY of Columbus, Inc. Delaware
KNOLOGY of Panama City, Inc. Florida
KNOLOGY of Augusta, Inc. Delaware
KNOLOGY of Charleston, Inc. Delaware
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
December 19, 1997
<PAGE> 1
EXHIBIT 25.1
FORM T-1
==============================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) _______
------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
------------------
KNOLOGY Holdings, Inc.
(Exact name of obligor as specified in its charter)
Delaware 58-2203141
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
312 West 8th Street
West Point, GA 31833
(Address of principal executive offices) (Zip Code)
------------------
11-7/8% Senior Discount Notes Due 2007
(Title of the indenture securities)
==============================================
<PAGE> 2
- 2-
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
KNOLOGY Holdings, Inc. currently is not in default under any of its
outstanding securities for which United States Trust Company of New York is
Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12,
13, 14 and 15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by
the State of New York Banking Department to transact
business as a Trust Company, is incorporated by
reference to Exhibit T-1.1 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE> 3
- 3 -
16. LIST OF EXHIBITS
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New
York, as amended, is incorporated by reference to
Exhibit T-1.4 to Form T-1 filed on September 15, 1995
with the Commission pursuant to the Trust Indenture
Act of 1939, as amended by the Trust Indenture Reform
Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section
321(b) of the Trust Indenture Act of 1939, as amended
by the Trust Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the
trustee pursuant to law or the requirements of its
supervising or examining authority.
NOTE
As of December 2, 1997, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States Trust
Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 3rd day
of December, 1997.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Louis P. Young
-----------------------------------
Louis P. Young
Vice President
<PAGE> 4
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission 450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
----------------------
By: S/Gerard F. Ganey
Senior Vice President
<PAGE> 5
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
SEPTEMBER 30, 1997
($ IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash and Due from Banks $ 116,582
Short-Term Investments 183,652
Securities, Available for Sale 691,965
Loans 1,669,611
Less: Allowance for Credit Losses 16,067
----------
Net Loans 1,653,544
Premises and Equipment 61,796
Other Assets 125,121
----------
TOTAL ASSETS $2,832,660
==========
LIABILITIES
Deposits:
Non-Interest Bearing $ 541,619
Interest Bearing 1,617,028
----------
Total Deposits 2,158,647
Short-Term Credit Facilities 365,235
Accounts Payable and Accrued Liabilities 141,793
----------
TOTAL LIABILITIES $2,665,675
==========
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 49,542
Retained Earnings 99,601
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes 2,847
----------
TOTAL STOCKHOLDER'S EQUITY 166,985
TOTAL LIABILITIES AND ----------
STOCKHOLDER'S EQUITY $2,832,660
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
November 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains summary financial information extracted
from the balance sheet of KNOLOGY Holdings, Inc. as of December 31, 1996
(see registration statement page F-3) and the related combined statements of
operations for the year ended December 31, 1996 (see registration statement
page F-4). This information is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 83,092
<SECURITIES> 0
<RECEIVABLES> 908,805
<ALLOWANCES> 23,342
<INVENTORY> 1,605,922
<CURRENT-ASSETS> 1,250,820
<PP&E> 21,844,327
<DEPRECIATION> 1,973,040
<TOTAL-ASSETS> 29,941,745
<CURRENT-LIABILITIES> 4,452,022
<BONDS> 12,319,169
0
171
<COMMON> 0
<OTHER-SE> 14,148,256
<TOTAL-LIABILITY-AND-EQUITY> 29,941,745
<SALES> 5,334,183
<TOTAL-REVENUES> 5,334,183
<CGS> 2,513,693
<TOTAL-COSTS> 8,832,934
<OTHER-EXPENSES> 795,478
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,055,498
<INCOME-PRETAX> (3,498,751)
<INCOME-TAX> 373,323
<INCOME-CONTINUING> (3,125,428)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,125,589)
<EPS-PRIMARY> (229.37)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains summary financial information extracted
from the balance sheet of KNOLOGY Holdings, Inc. as of December 31, 1996
(see registration statement page F-3) and the related combined statements of
operations for the year ended December 31, 1996 (see registration statement
page F-4). This information is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,484,684
<ALLOWANCES> 34,696
<INVENTORY> 4,504,702
<CURRENT-ASSETS> 1,533,277
<PP&E> 40,924,728
<DEPRECIATION> 3,936,021
<TOTAL-ASSETS> 50,073,981
<CURRENT-LIABILITIES> 17,737,896
<BONDS> 23,956,785
0
261
<COMMON> 0
<OTHER-SE> 21,066,793
<TOTAL-LIABILITY-AND-EQUITY> 50,073,981
<SALES> 7,044,686
<TOTAL-REVENUES> 7,044,686
<CGS> 3,263,652
<TOTAL-COSTS> 10,881,461
<OTHER-EXPENSES> 1,049,583
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,099,465
<INCOME-PRETAX> (3,836,775)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,836,775)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,836,775)
<EPS-PRIMARY> (159.10)
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998,
UNLESS EXTENDED (THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
KNOLOGY HOLDINGS, INC.
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE ITS 11- 7/8% SENIOR DISCOUNT NOTES DUE OCTOBER 15, 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
11- 7/8% SENIOR DISCOUNT NOTES DUE OCTOBER 15, 2007
PURSUANT TO THE PROSPECTUS DATED , 1998
The Exchange Agent for the Exchange Offer is:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C>
BY FACSIMILE: BY MAIL:
(212) 780-0592 United States Trust Company of New York
Attention Customer Service P O. Box 843, Cooper Station
Confirm by Telephone to (800) 548-6565 New York, New York 10276
Attention Corporate Trust Services
BY HAND BEFORE 4:30 P.M.: BY OVERNIGHT COURIER AND BY HAND AFTER 4:30 P.M.:
United States Trust Company of New York United States Trust Company of New York
111 Broadway 770 Broadway, 13th Floor
New York, New York 10006 New York, New York 10003
Attention Lower Level
Corporate Trust Window
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE
INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
<PAGE> 2
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Senior Discount
Notes (as defined below) either if Senior Discount Notes are to be forwarded
herewith or if tenders of Senior Discount Notes are to be made by book-entry
transfer to an account maintained by United States Trust Company of New York
(the "Exchange Agent") at The Depository Trust Company ("DTC") pursuant to the
procedures set forth in "The Exchange Offer -- Procedures for Tendering Senior
Discount Notes" in the Prospectus.
Holders of Senior Discount Notes whose certificates (the "Certificates")
for such Senior Discount Notes are not immediately available or who cannot
deliver their Certificates, this Letter of Transmittal and all other required
documents to the Exchange Agent on or prior to the Expiration Date or who cannot
complete the procedures for book-entry transfer on a timely basis, may tender
their Senior Discount Notes according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Procedures for Tendering Senior Discount Notes"
in the Prospectus.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
List below the Senior Discount Notes of which you are a holder. If the
space provided below is inadequate, list the certificate numbers and principal
amount on a separate signed schedule and attach that schedule to this Letter of
Transmittal. See Instruction 3.
ALL TENDERING HOLDERS COMPLETE THIS BOX:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
DESCRIPTION OF SENIOR DISCOUNT NOTES TENDERED
- ------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER
(FILL IN, IF BLANK) SENIOR DISCOUNT NOTES TENDERED
- ------------------------------------------------------------------------------------------------------------------
CERTIFICATE
NUMBER(S)* PRINCIPAL AMOUNT PRINCIPAL AMOUNT
(ATTACH ADDITIONAL (ATTACH ADDITIONAL TENDERED (IF LESS
LIST IF NECESSARY) LIST IF NECESSARY) THAN ALL)**
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
TOTAL SHARES TENDERED:
------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders. Such holders should check the appropriate box below and provide the
requested information.
** Need not be completed if tendering for exchange all Senior Discount Notes held. Senior Discount Notes may be
tendered in whole or in part in integral multiples of $1,000 principal amount at maturity. All Senior Discount
Notes held shall be deemed tendered unless a lesser number is specified in this column. See Instruction 4.
</TABLE>
- --------------------------------------------------------------------------------
2
<PAGE> 3
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY. SEE INSTRUCTION 1)
[ ] CHECK HERE IF TENDERED SENIOR DISCOUNT NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT AT
DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
DTC Account Number:
Transaction Code Number:
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED SENIOR DISCOUNT NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s):
Window Ticket Number (if any):
Date of Notice of Guaranteed Delivery:
Institution Which Guaranteed Delivery:
If Guaranteed Delivery is to be made by book-entry transfer:
Name of Tendering Institution:
DTC Account Number:
Transaction Code Number:
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED SENIOR DISCOUNT NOTES FOR
YOUR OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
Address:
Telephone Number and Contact Person:
3
<PAGE> 4
LADIES AND GENTLEMEN:
The undersigned hereby tenders to KNOLOGY Holdings, Inc., a Delaware
corporation (the "Company"), the above described principal amount of the
Company's 11 7/8% Senior Discount Notes due October 15, 2007 (the "Senior
Discount Notes") in exchange for a like principal amount of the Company's
11 7/8% Senior Discount Notes due October 15, 2007 (the "Exchange Notes") which
have been registered under the Securities Act of 1933 (the "Securities Act"),
upon the terms and subject to the conditions set forth in the Prospectus dated
, 1998 (as the same may be amended or supplemented from time to
time, the "Prospectus"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which, together with the Prospectus, constitute the
"Exchange Offer").
Subject to and effective upon the acceptance for exchange of the Senior
Discount Notes tendered herewith, the undersigned hereby sells, assigns and
transfers to or upon the order of the Company all right, title and interest in
and to such Senior Discount Notes as are being tendered herewith. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent as
its agent and attorney-in-fact (with full knowledge that the Exchange Agent is
also acting as agent of the Company in connection with the Exchange Offer and as
Trustee under the Indenture for the Senior Discount Notes and the Exchange
Notes) with respect to the tendered Senior Discount Notes, with full power of
substitution (such power of attorney being an irrevocable power coupled with an
interest), subject only to the right of withdrawal described in the Prospectus,
to: (i) deliver such Senior Discount Notes to the Company together with all
accompanying evidences of transfer and authenticity to, or upon the order of,
the Company upon receipt by the Exchange Agent, as the undersigned's agent, of
the Exchange Notes to be issued in exchange for such Senior Discount Notes; (ii)
present Certificates for such Senior Discount Notes for transfer, and to
transfer such Senior Discount Notes on the account books maintained by DTC; and
(iii) receive for the account of the Company all benefits and otherwise exercise
all rights of beneficial ownership of such Senior Discount Notes, all in
accordance with the terms and conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
SENIOR DISCOUNT NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR
EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE
THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES,
AND THAT THE SENIOR DISCOUNT NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY
ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND
DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO
BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, SALE, ASSIGNMENT AND
TRANSFER OF THE SENIOR DISCOUNT NOTES TENDERED HEREBY. THE UNDERSIGNED HAS READ
AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Senior
Discount Notes tendered hereby should be printed above, if they are not already
set forth above, as they appear on the Certificates representing such Senior
Discount Notes. The Certificate number(s) and the Senior Discount Notes that the
undersigned wishes to tender should be indicated in the appropriate boxes above.
If any tendered Senior Discount Notes are not exchanged pursuant to the
Exchange Offer for any reason, or if Certificates are submitted for more Senior
Discount Notes than are tendered or accepted for exchange, Certificates for such
nonexchanged or nontendered Senior Discount Notes will be returned (or, in the
case of Senior Discount Notes tendered by book-entry transfer, such Senior
Discount Notes will be credited to an account maintained at DTC), without
expense to the tendering holder promptly following the expiration or termination
of the Exchange Offer.
The undersigned understands that tenders of Senior Discount Notes pursuant
to any one of the procedures described in "The Exchange Offer -- Procedures for
Tendering Senior Discount Notes" in the Prospectus and in the instructions
herein will, upon the Company's acceptance for exchange of such tendered
4
<PAGE> 5
Senior Discount Notes, constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer. The undersigned recognizes that, under certain circumstances set forth in
the Prospectus, the Company may not be required to accept for exchange any of
the Senior Discount Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Senior Discount Notes, that such Exchange Notes be credited to the
account indicated above maintained at DTC. If applicable, substitute
Certificates representing Senior Discount Notes not exchanged or not accepted
for exchange will be issued to the undersigned or, in the case of a book-entry
transfer of Senior Discount Notes, will be credited to the account indicated
above maintained at DTC. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please deliver Exchange Notes to the undersigned at the
address shown below the undersigned's signature.
BY TENDERING SENIOR DISCOUNT NOTES AND EXECUTING THIS LETTER OF
TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT: (i) THE
UNDERSIGNED IS NOT AN "AFFILIATE" OF THE COMPANY (WITHIN THE MEANING OF RULE 405
UNDER THE SECURITIES ACT), OR IF THE UNDERSIGNED IS AN AFFILIATE, THE
UNDERSIGNED WILL COMPLY WITH THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE SECURITIES ACT TO THE EXTENT APPLICABLE; (ii) ANY EXCHANGE
NOTES TO BE RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY
COURSE OF ITS BUSINESS; AND (iii) THE UNDERSIGNED HAS NO ARRANGEMENT OR
UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE
MEANING OF THE SECURITIES ACT) OF EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE
OFFER. IF THE UNDERSIGNED IS NOT A BROKER-DEALER, BY TENDERING SENIOR DISCOUNT
NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED REPRESENTS AND
AGREES THAT IT IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A
DISTRIBUTION OF EXCHANGE NOTES. IF THE UNDERSIGNED IS A BROKER-DEALER, BY
TENDERING SENIOR DISCOUNT NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED REPRESENTS AND AGREES THAT SUCH SENIOR DISCOUNT NOTES WERE ACQUIRED
BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING
ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER A PROSPECTUS MEETING
THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF EXCHANGE
NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH
BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT). THE COMPANY HAS AGREED THAT, FOR A PERIOD NOT TO
EXCEED 180 DAYS AFTER THE EXPIRATION DATE, IT WILL FURNISH ADDITIONAL COPIES OF
THE PROSPECTUS, AS AMENDED OR SUPPLEMENTED, TO ANY PARTICIPATING BROKER-DEALER
THAT REASONABLY REQUESTS SUCH DOCUMENTS IN CONNECTION WITH ANY SUCH RESALE.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus and in the Instructions contained in this Letter of
Transmittal, this tender is irrevocable.
5
<PAGE> 6
<TABLE>
<S> <C>
PLEASE SIGN HERE PLEASE SIGN HERE
- -------------------------------------------- --------------------------------------------
Authorized Signature Authorized Signature
Name: Name:
- -------------------------------------------- --------------------------------------------
Title: Title:
- -------------------------------------------- --------------------------------------------
Address: Address:
- ------------------------------------------- -------------------------------------------
- -------------------------------------------- --------------------------------------------
Telephone Number: Telephone Number:
------------------------------- -------------------------------
Dated: Dated:
- -------------------------------------------- --------------------------------------------
- -------------------------------------------- --------------------------------------------
Taxpayer Identification or Social Security Taxpayer Identification or Social Security
Number Number
</TABLE>
(NOTE: Signature(s) must be guaranteed if required by Instructions 2 and 5.
This Letter of Transmittal must be signed by the registered holder(s) exactly as
the name(s) appear(s) on Certificate(s) for the Senior Discount Notes hereby
tendered or on a security position listing, or by any person(s) authorized to
become the registered holder(s) by endorsements and documents transmitted
herewith, including such opinions of counsel, certifications and other
information as may be required by the Company or the Trustee for the Senior
Discount Notes to comply with the restrictions on transfer applicable to the
Senior Discount Notes. If signature is by an attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or another acting in
a fiduciary capacity or representative capacity, please set forth the signer's
full title. See Instructions 2 and 5. Please complete substitute Form W-9
below.)
6
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 2 AND 5)
Signature(s) Guaranteed by an
Eligible Institution: Date:
AUTHORIZED SIGNATURE
Name of Eligible Institution
Guaranteeing Signature: Address:
Capacity (full title):
Telephone Number:
- ------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 2, 5 AND 6)
To be completed ONLY if the Exchange Notes or any Senior Discount Notes that
are not tendered are to be issued in the name of someone other than the
registered holder(s) of the Senior Discount Notes whose name(s) appear(s)
above.
Issue:
[ ] Senior Discount Notes not tendered, to:
[ ] Exchange Notes, to:
Name(s)
Address
-----------------------------------------------------
Telephone Number:
-----------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
======================================================
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 2, 5 AND 6)
To be completed ONLY if the Exchange Notes or any Senior Discount Notes that
are not tendered are to be sent to someone other than the registered holder(s)
of the Senior Discount Notes whose name(s) appear(s) above, or to such
registered holder at an address other than that shown above.
Mail:
[ ] Senior Discount Notes not tendered, to:
[ ] Exchange Notes, to:
Name(s)
Address
-----------------------------------------------------
Telephone Number:
-----------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
- -
- ------------------------------------------------------ -
7
<PAGE> 8
INSTRUCTIONS
(FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER)
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer -- Procedures for Tendering Senior Discount Notes" in the Prospectus.
Certificates, or timely confirmation of a book-entry transfer of such Senior
Discount Notes into the Exchange Agent's account at DTC, as well as this Letter
of Transmittal (or facsimile thereof), properly completed and duly executed,
with any required signature guarantees and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at its address set
forth herein on or prior to the Expiration Date. The term "book-entry
confirmation" means a timely confirmation of book-entry transfer of Senior
Discount Notes into the Exchange Agent's account at DTC. Senior Discount Notes
may be tendered in whole or in part in integral multiples of $1,000 principal
amount at maturity.
Holders who wish to tender their Senior Discount Notes and: (i) whose
Certificates for such Senior Discount Notes are not immediately available; (ii)
who cannot deliver their Certificates, this Letter of Transmittal and all other
required documents to the Exchange Agent prior to the Expiration Date; or (iii)
who cannot complete the procedures for delivery by book-entry transfer on a
timely basis, may tender their Senior Discount Notes by properly completing and
duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed
delivery procedures set forth in "The Exchange Offer -- Procedures for Tendering
Senior Discount Notes" in the Prospectus. Pursuant to such procedures: (i) such
tender must be made by or through an Eligible Institution (as defined below);
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying this Letter of Transmittal, must be
received by the Exchange Agent prior to the Expiration Date; and (iii) the
Certificates (or a book-entry confirmation) representing all tendered Senior
Discount Notes, in proper form for transfer, together with a Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent within three New
York Stock Exchange trading days after the date of execution of such Notice of
Guaranteed Delivery, all as provided in "The Exchange Offer -- Procedures for
Tendering Senior Discount Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in the Notice of Guaranteed Delivery.
For Senior Discount Notes to be properly tendered pursuant to the guaranteed
delivery procedure, the Exchange Agent must receive a Notice of Guaranteed
Delivery prior to the Expiration Date. As used herein and in the Prospectus,
"Eligible Institution" means a firm or other entity identified in Rule 17Ad-15
under the Exchange Act as "an eligible guarantor institution," including (as
such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association.
THE METHOD OF DELIVERY OF SENIOR DISCOUNT NOTES, THIS LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER. AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY AND PROPER INSURANCE SHOULD BE OBTAINED. NO
LETTER OF TRANSMITTAL OR SENIOR DISCOUNT NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
8
<PAGE> 9
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if: (i) this Letter of Transmittal is signed by the
registered holder (which shall include any participant in DTC whose name appears
on a security position listing as the owner of the Senior Discount Notes) of
Senior Discount Notes tendered herewith, unless such holder has completed either
the box entitled "Special Issuance Instructions" or the box entitled "Special
Delivery Instructions" above; or (ii) such Senior Discount Notes are tendered
for the account of a firm that is an Eligible Institution. In all other cases,
an Eligible Institution must guarantee the signature(s) on this Letter of
Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Senior Discount Notes Tendered" is inadequate, the Certificate
number(s) and/or the principal amount of Senior Discount Notes and any other
required information should be listed on a separate signed schedule and attached
to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Senior Discount Notes
will be accepted only in integral multiples of $1,000 principal amount at
maturity. If less than all the Senior Discount Notes evidenced by any
Certificate submitted are to be tendered, fill in the principal amount of Senior
Discount Notes which are to be tendered in the box entitled "Principal Amount
Tendered (if less than all)." In such case, new Certificate(s) for the remainder
of the Senior Discount Notes that were evidenced by the old Certificate(s) will
be sent to the tendering holder, unless the appropriate boxes on this Letter of
Transmittal are completed, promptly after the Expiration Date. All Senior
Discount Notes represented by Certificates delivered to the Exchange Agent will
be deemed to have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Senior Discount Notes may
be withdrawn at any time prior to the Expiration Date. In order for a withdrawal
to be effective, a written, telegraphic or facsimile transmission of such notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth above prior to the Expiration Date. Any such notice of withdrawal must
specify the name of the person who tendered the Senior Discount Notes to be
withdrawn, the aggregate principal amount of Senior Discount Notes to be
withdrawn, and (if Certificates for such Senior Discount Notes have been
tendered) the name of the registered holder of the Senior Discount Notes as set
forth on the Certificate(s), if different from that of the person who tendered
such Senior Discount Notes. If Certificates for Senior Discount Notes have been
delivered or otherwise identified to the Exchange Agent, the notice of
withdrawal must specify the serial numbers on the particular Certificates for
the Senior Discount Notes to be withdrawn and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution, except in the case of
Senior Discount Notes tendered for the account of an Eligible Institution. If
Senior Discount Notes have been tendered pursuant to the procedures for
book-entry transfer set forth in "The Exchange Offer -- Procedures for Tendering
Senior Discount Notes," the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawal of Senior
Discount Notes and must otherwise comply with the procedures of DTC. Withdrawals
of tenders of Senior Discount Notes may not be rescinded. Senior Discount Notes
properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be retendered at any subsequent time prior to the
Expiration Date by following any of the procedures described in the Prospectus
under "The Exchange Offer -- Procedures for Tendering Senior Discount Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, which determination shall be final and binding on all parties.
Neither the Company, any affiliates of the Company, the Exchange Agent or any
other person shall be under any duty to give any notification of any detects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. Any Senior Discount Notes which have been tendered
but which are withdrawn will be returned to the holder thereof promptly after
withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Senior
Discount Notes tendered hereby, the signature(s) must
9
<PAGE> 10
correspond exactly with the name(s) as written on the face of the Certificate(s)
or on a security position listing, without alteration. enlargement or any change
whatsoever.
If any of the Senior Discount Notes tendered hereby are owned of record by
two or more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Senior Discount Notes are registered in different names on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are names in
which Certificates are registered.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and must submit proper evidence
satisfactory to the Company, in its sole discretion, of such persons' authority
to so act.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Senior Discount Notes listed and transmitted hereby,
the Certificate(s) must be endorsed or accompanied by appropriate bond power(s),
signed exactly as the name(s) of the registered owner appear(s) on the
Certificate(s), and also must be accompanied by such opinions of counsel,
certifications and other information as the Company or the Trustee for the
Senior Discount Notes may require in accordance with the restrictions on
transfer applicable to the Senior Discount Notes. Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes or
Certificates for Senior Discount Notes not exchanged are to be issued in the
name of a person other than the signer of this Letter of Transmittal, or are to
be sent to someone other than the signer of this Letter of Transmittal or to an
address other than that shown above, the appropriate boxes on this Letter of
Transmittal should be completed. In the case of issuance in a different name,
the taxpayer identification number of the person named must also be indicated.
Holders tendering Senior Discount Notes by book-entry transfer may request that
Senior Discount Notes not exchanged be credited to such account maintained at
DTC as such holder may designate. If no such instructions are given, Senior
Discount Notes not exchanged will be returned by mail or, if tendered by
book-entry transfer, by crediting the account indicated above maintained at DTC.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Senior Discount Notes,
which determination shall be final and binding on all parties. The Company
reserves the absolute right, in its sole and absolute discretion, to reject any
and all tenders determined by it not to be in proper form or the acceptance for
exchange of which may, in the view of counsel to the Company, be unlawful. The
Company also reserves the absolute right, subject to applicable law, to waive
any of the conditions of the Exchange Offer set forth in the Prospectus under
"The Exchange Offer -- Conditions to the Exchange Offer" or any defect or
irregularity in any tender of Senior Discount Notes of any particular holder
whether or not similar defects or irregularities are waived in the case of other
holders. The Company's interpretation of the terms and conditions of the
Exchange Offer (including this Letter of Transmittal and the instructions
hereto) will be final and binding. No tender of Senior Discount Notes will be
deemed to have been validly made until all defects or irregularities with
respect to such tender have been cured or waived. Neither the Company, any
affiliates of the Company, the Exchange Agent, or any other person shall be
under any duty to give any notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth above. Additional copies of the Prospectus, the
Notice of Guaranteed Delivery and the Letter of Transmittal may be obtained from
the Exchange Agent or from your broker, dealer, commercial bank, trust company
or other nominee.
9. BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income tax
law, a holder whose tendered Senior Discount Notes are accepted for exchange is
required to provide the Exchange Agent with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the
10
<PAGE> 11
Exchange Agent is not provided with the correct TIN, the Internal Revenue
Service (the "IRS") may subject the holder or other payee to a $50 penalty. In
addition, payments to such holders or other payees with respect to Senior
Discount Notes exchanged pursuant to the Exchange Offer may be subject to 31%
backup withholding.
The box in Part 3 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 3 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the holder and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60 day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Senior Discount Notes or of the last transferee appearing on the transfers
attached to, or endorsed on, the Senior Discount Notes. If the Senior Discount
Notes are registered in more than one name or are not in the name of the actual
owner, consult the Instructions to Form W-9 (Request for Identification Number
and Certification) for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the Instructions to Form W-9 (Request for Identification Number
and Certification) for additional guidance on which holders are exempt from
backup withholding.
Backup withholding is not an additional U.S. federal income tax. Rather,
the U.S. federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. MUTILATED, LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate
representing Senior Discount Notes has been mutilated, lost, destroyed or
stolen, the holder should promptly notify the Exchange Agent. The holder will
then be instructed as to the steps that must be taken in order to replace the
Certificate. This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing mutilated, lost, destroyed or
stolen Certificates have been followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Senior Discount Notes
for exchange will not be obligated to pay any transfer taxes in connection
therewith, except that if Exchange Notes are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of the Senior
Discount Notes tendered, or if a transfer tax is imposed for any reason other
than the exchange of Senior Discount Notes in connection with the Exchange
Offer, then the amount of any such transfer tax (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such transfer tax or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer tax
will be billed directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF), TOGETHER
WITH CERTIFICATES REPRESENTING TENDERED SENIOR DISCOUNT NOTES OR A BOOK ENTRY
CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE EXCHANGE
AGENT PRIOR TO THE EXPIRATION DATE.
11
<PAGE> 12
TO BE COMPLETED BY ALL TENDERING SECURITY HOLDERS:
(SEE INSTRUCTION 9)
PAYER'S NAME: UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
PART 1 -- PLEASE PROVIDE YOUR TIN ON THE LINE AT RIGHT SOCIAL SECURITY NUMBER OR
SUBSTITUTE AND CERTIFY BY SIGNING AND DATING BELOW. EMPLOYER IDENTIFICATION NUMBER
------------------------------
---------------------------------------------------------------------------------------------
PART 2 -- Certification -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number (or I am
waiting for a number to be issued to me);
(2) I am not subject to backup withholding either because: (a) I am exempt from backup
FORM W-9 withholding; (b) I have not been notified by the Internal Revenue Service ("IRS") that
DEPARTMENT OF THE TREASURY I am subject to backup withholding as a result of a failure to report all interest or
INTERNAL REVENUE SERVICE dividends; or (c) the IRS has notified me that I am no longer subject to backup
withholding; and
PAYER'S REQUEST FOR (3) Any other information provided on this form is true and correct.
TAXPAYER'S IDENTIFICATION
NUMBER (TIN) CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified
by the IRS that you are subject to backup withholding because of underreporting interest or
dividends on your tax return and you have not been notified by the IRS that you are no
longer subject to backup withholding.
---------------------------------------------------------------------------------------------
SIGNATURE PART 3 --
Awaiting TIN [ ]
DATE
---------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
---------------------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been
issued to me, and either (1) I have mailed or delivered an application to receive a
taxpayer identification number to the appropriate Internal Revenue Service Center or Social
Security Administration Office or (2) I intend to mail or deliver an application in the
near future. I understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all payments made to me on account of the Exchange Notes shall be
retained until I provide a taxpayer identification number to the Exchange Agent and that,
if I do not provide my taxpayer identification number within 60 days, such retained amounts
shall be remitted to the Internal Revenue Service as backup withholding and 31% of all
reportable payments made to me thereafter will be withheld and remitted to the Internal
Revenue Service until I provide a taxpayer identification number.
SIGNATURE: DATE:
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
11 7/8% SENIOR DISCOUNT NOTES DUE OCTOBER 15, 2007
(THE "SENIOR DISCOUNT NOTES")
OF
KNOLOGY HOLDINGS, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to tender Senior Discount Notes pursuant to the Exchange
Offer described in the Prospectus dated , 1998 (as the same may be
amended or supplemented from time to time, the "Prospectus") of KNOLOGY
Holdings, Inc., a Delaware corporation (the "Company"), if certificates for the
Senior Discount Notes are not immediately available, or time will not permit the
Senior Discount Notes, the Letter of Transmittal and all other required
documents to be delivered to United States Trust Company of New York (the
"Exchange Agent") prior to 5:00 p.m., New York City time, on ,
1998 or such later date and time to which the Exchange Offer may be extended
(the "Expiration Date"), or the procedures for delivery by book-entry transfer
cannot be completed on a timely basis. This Notice of Guaranteed Delivery, or
one substantially equivalent to this form, must be delivered by hand or sent by
facsimile transmission or mail to the Exchange Agent, and must be received by
the Exchange Agent prior to the Expiration Date. See "The Exchange
Offer -- Procedures for Tendering Senior Discount Notes" in the Prospectus.
Capitalized terms used but not defined herein shall have the same meaning given
them in the Prospectus.
The Exchange Agent for the Exchange Offer is:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
BY FACSIMILE: BY MAIL: BY HAND BEFORE 4:30 P.M.:
(212) 780-0592 United States Trust Company United States Trust Company
Attention: Customer Service of New York of New York
Confirm by Telephone to: P.O. Box 843, Cooper Station 111 Broadway
(800) 548-6565 New York, NY 10276 New York, NY 10006
Attention: Corporate Trust Attention: Lower Level Corporate
Services Trust Window
BY OVERNIGHT COURIER AND BY HAND
AFTER 4:30 P.M.:
United States Trust Company of
New York
770 Broadway, 13th Floor
New York, New York 10003
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE> 2
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, the Senior Discount Notes indicated below pursuant to the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer -- Procedures for Tendering Senior Discount Notes."
Name(s) of Registered Holder(s):
- ---------------------------------------------------------------------------
(Please Print or Type)
Signature(s):
- --------------------------------------------------------------------------------
Address(es):
================================================================================
Area Code(s) and Telephone Number(s):
- -------------------------------------------------------------------
Account Number:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Certificate No(s). Principal Amount of
(if available) Senior Discount Notes Tendered*
============================================ ============================================
============================================ ============================================
============================================ ============================================
- -------------------------------------------- --------------------------------------------
</TABLE>
* Must be in integral multiples of $1,000 principal amount at maturity.
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or a correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, hereby guarantees that the
undersigned will deliver to the Exchange Agent the certificates representing the
Senior Discount Notes being tendered hereby in proper form for transfer (or a
confirmation of book-entry transfer of such Senior Discount Notes, into the
Exchange Agent's account at the book-entry transfer facility of The Depository
Trust Company ("DTC")) with delivery of a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, all within three New York Stock
Exchange trading days after the date of execution of the Notice of Guaranteed
Delivery.
<TABLE>
<S> <C>
Name of Firm --------------------------------------------
------------------------------------- Authorized Signature
Address Name
- -------------------------------------------- --------------------------------------------
Please Print or Type
- -------------------------------------------- Title
Zip Code --------------------------------------------
Telephone No. Dated:
------------------------------------ --------------------------------------------
</TABLE>
The institution that completes this form must communicate the guarantee to
the Exchange Agent and must deliver the certificates representing any Senior
Discount Notes (or a confirmation of book-entry transfer of such Senior Discount
Notes into the Exchange Agent's account at DTC) and the Letter of Transmittal to
the Exchange Agent within the time period shown herein. Failure to do so could
result in a financial loss to such institution.
2
<PAGE> 1
KNOLOGY HOLDINGS, INC.
OFFER TO EXCHANGE ITS
11 7/8% SENIOR DISCOUNT NOTES DUE OCTOBER 15, 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
11 7/8% SENIOR DISCOUNT NOTES DUE OCTOBER 15, 2007
PURSUANT TO THE PROSPECTUS DATED , 1998
TO: BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
KNOLOGY Holdings, Inc. (the "Company") is offering to exchange (the
"Exchange Offer"), upon and subject to the terms and conditions set forth in the
enclosed Prospectus, dated , 1998 (the "Prospectus"), and the
enclosed Letter of Transmittal (the "Letter of Transmittal"), its 11 7/8% Senior
Discount Notes Due October 15, 2007 which have been registered under the
Securities Act of 1933 (the "Exchange Notes") for any and all of its outstanding
11 7/8% Senior Discount Notes Due October 15, 2007 (the "Senior Discount
Notes"). The Exchange Offer is being made in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
October 22, 1997, among the Company, Morgan Stanley & Co. Incorporated, J.P.
Morgan Securities Inc., First Union Capital Markets Corp. and SCANA
Communications, Inc.
In connection with the Exchange Offer, we are requesting that you contact
your clients for whom you hold Senior Discount Notes registered in your name or
in the name of your nominee, or who hold Senior Discount Notes registered in
their own names. The Company will not pay any fees or commissions to any broker,
dealer or other person in connection with the solicitation of tenders pursuant
to the Exchange Offer. However, you will, upon request, be reimbursed for
reasonable out-of-pocket expenses incurred in connection with soliciting
acceptances of the Exchange Offer. The Company will pay or cause to be paid all
transfer taxes applicable to the exchange of Senior Discount Notes pursuant to
the Exchange Offer, except as set forth in the Prospectus and the Letter of
Transmittal.
For your information and for forwarding to your clients, we are enclosing
the following documents:
1. Prospectus dated , 1998;
2. A Letter of Transmittal for your use and for the information of
your clients;
3. A form of Notice of Guaranteed Delivery; and
4. A form of letter which may be sent to your clients for whose
account you hold Senior Discount Notes registered in your name or the name
of your nominee, with space provided for obtaining such clients'
instructions with regard to the Exchange Offer.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON , 1998 (THE "EXPIRATION DATE"),
UNLESS EXTENDED BY THE COMPANY (IN WHICH CASE THE TERM "EXPIRATION DATE" SHALL
MEAN THE LATEST DATE AND TIME TO WHICH THE EXCHANGE OFFER IS EXTENDED). THE
SENIOR DISCOUNT NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN,
SUBJECT TO THE PROCEDURES DESCRIBED IN THE PROSPECTUS AND THE LETTER OF
TRANSMITTAL, AT ANY TIME PRIOR TO THE EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Senior Discount Notes should be
delivered to the Exchange Agent, all in accordance with the instructions set
forth in the Prospectus and the Letter of Transmittal.
<PAGE> 2
If holders of Senior Discount Notes wish to tender, but it is impracticable
for them to forward their certificates for Senior Discount Notes prior to the
expiration of the Exchange Offer or to comply with the book-entry transfer
procedures on a timely basis, a tender may be effected by following the
guaranteed delivery procedures described in the Prospectus and the Letter of
Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to the
Exchange Agent for the Senior Discount Notes, at its address and telephone
number set forth on the front of the Letter of Transmittal.
Very truly yours,
KNOLOGY Holdings, Inc.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
OTHER PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU
OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF
EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS
EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
2
<PAGE> 1
KNOLOGY HOLDINGS, INC.
OFFER TO EXCHANGE ITS
11 7/8% SENIOR DISCOUNT NOTES DUE OCTOBER 15, 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
11 7/8% SENIOR DISCOUNT NOTES DUE OCTOBER 15, 2007
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated ,
1998 (the "Prospectus"), and a form of Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of KNOLOGY Holdings,
Inc. (the "Company") to exchange its 11 7/8% Senior Discount Notes due October
15, 2007 which have been registered under the Securities Act of 1933 (the
"Exchange Notes") for any and all of its outstanding 11- 7/8% Senior Discount
Notes due October 15, 2007 (the "Senior Discount Notes"), upon the terms and
subject to the conditions described in the Prospectus and the Letter of
Transmittal. The Exchange Offer is being made in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
as of October 22, 1997, among the Company, Morgan Stanley & Co. Incorporated,
J.P. Morgan Securities Inc., First Union Capital Markets Corp. and SCANA
Communications, Inc.
This material is being forwarded to you as the beneficial owner of the
Senior Discount Notes carried by us in your account but not registered in your
name. A TENDER OF SUCH SENIOR DISCOUNT NOTES MAY ONLY BE MADE BY US AS THE
HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Senior Discount Notes held by us for your account, pursuant to
the terms and conditions set forth in the enclosed Prospectus and Letter of
Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Senior Discount Notes on your behalf in
accordance with the provisions of the Exchange Offer. The Exchange Offer will
expire at 5:00 p.m., New York City time, on , 1998, unless extended by
the Company (the "Expiration Date"). Any Senior Discount Notes tendered pursuant
to the Exchange Offer may be withdrawn, subject to the procedures described in
the Prospectus and the Letter of Transmittal, at any time prior to the
Expiration Date.
If you wish to have us tender your Senior Discount Notes, please so
instruct us by completing, executing and returning to us the instruction form
included with this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR
INFORMATION ONLY AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER SENIOR DISCOUNT
NOTES.
<PAGE> 2
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein, including the Prospectus and the accompanying form
of Letter of Transmittal, relating to the Exchange Offer made by KNOLOGY
Holdings, Inc. with respect to its Senior Discount Notes.
This will instruct you as to the action to be taken by you relating to the
Exchange Offer with respect to the Senior Discount Notes held by you for the
account of the undersigned, upon and subject to the terms and conditions set
forth in the Prospectus and the Letter of Transmittal.
The aggregate principal amount at maturity of the Senior Discount Notes
held by you for the account of the undersigned is (fill in amount):
$ ________________________________
of the 11 7/8% Senior Discount Notes
due October 15, 2007
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[ ] To TENDER the following Senior Discount Notes held by you for the account
of the undersigned (insert aggregate principal amount at maturity of Senior
Discount Notes to be tendered, in integral multiples of $1,000):
$ ________________________________
of the 11 7/8% Senior Discount Notes
due October 15, 2007
[ ] NOT to tender any Senior Discount Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Senior Discount Notes held
by you for the account of the undersigned, it is understood that you are
authorized to make, on behalf of the undersigned (and the undersigned, by its
signature below, hereby makes to you), the representations, warranties and
agreements contained in the Letter of Transmittal that are to be made with
respect to the undersigned as beneficial owner.
SIGN HERE
Name of beneficial owner(s):
Signature(s):
Name(s) (please print):
Address:
Telephone Number:
Taxpayer Identification or Social Security Number(s):
Date:
None of the Senior Discount Notes held by us for your account will be
tendered unless we receive written instructions from you to do so. Unless a
specific contrary instruction is given in the space provided, your signature(s)
hereon shall constitute an instruction to us to tender all the Senior Discount
Notes held by us for your account.
2
