<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
COMMISSION FILE NUMBER: 333-43339
KNOLOGY HOLDINGS, INC.
----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 58-2203141
- ---------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
KNOLOGY HOLDINGS, INC.
1241 O.G. SKINNER DRIVE
WEST POINT, GEORGIA 31833
- ---------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 645-8553
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X* No
--- ---
As of March 31, 1998, there were no shares of the registrants' Common
Stock outstanding and 49,985 shares of the registrants' Preferred Stock
outstanding.
* The Company does not have any class of equity securities registered
under the Securities Exchange Act of 1934 and files periodic reports
with the Securities and Exchange Commission pursuant to contractual
obligations with third parties.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,770,878 $ 6,144,581
Marketable securities 216,041,682 227,880,923
Accounts receivable, net 1,707,271 1,607,859
Advances to affiliates 3,284
Prepaid expenses 38,623 37,060
------------- -------------
Total current assets 222,561,738 235,670,423
PROPERTY AND EQUIPMENT, net 75,395,029 62,567,736
COST IN EXCESS OF NET ASSETS ACQUIRED, net 9,371,665 9,433,385
DEBT ISSUANCE COSTS, net 7,759,661 7,761,655
ORGANIZATIONAL COSTS, net 518,373 701,106
OTHER 138,865 63,795
------------- -------------
Total assets $ 315,745,331 $ 316,198,100
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 25,094 $ 25,094
Accounts payable 4,695,641 5,817,733
Accounts payable - affiliate -- 452,346
Accrued liabilities 2,352,462 1,638,042
Unearned revenue 961,377 907,048
------------- -------------
Total current liabilities 8,034,574 8,840,263
NONCURRENT LIABILITIES:
Long-term notes payable 118,148 120,804
Long-term accrued interest payable 7,439,215 3,201,688
Bonds payable, net of discount 253,069,504 249,910,431
------------- -------------
Total liabilities 268,661,441 262,073,186
WARRANTS 2,486,960 2,486,960
STOCKHOLDERS' EQUITY
Convertible preferred stock 500 500
Additional paid-in capital 65,060,712 65,060,712
Accumulated deficit (20,435,066) (13,402,495)
Unrealized loss on marketable securities (Note 3) (29,216) (20,763)
------------- -------------
Total stockholders' equity 44,596,930 51,637,954
------------- -------------
Total liabilities and stockholders' equity $ 315,745,331 $ 316,198,100
============= =============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
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KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
CONDENSEND CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING REVENUES:
Subscriber $ 3,565,352 $ 1,625,963
Miscellaneous 543,112 261,982
----------- -----------
Total 4,108,464 1,887,945
OPERATING EXPENSES:
General and administrative 2,131,626 467,279
Programming and other charges 1,773,053 875,443
Depreciation and amortization 1,696,820 584,200
Customer service 423,756 173,369
Field and technical 684,609 263,248
Sales and marketing 701,857 276,257
----------- -----------
Total 7,411,721 2,639,796
----------- -----------
OPERATING LOSS (3,303,257) (751,851)
OTHER INCOME AND EXPENSES:
Interest income 3,198,507 42,124
Interest expense (6,987,817) (291,645)
Other income (expense), net 60,000 (23,464)
----------- -----------
Total (3,729,310) (272,985)
----------- -----------
NET LOSS $(7,032,567) $(1,024,836)
=========== ===========
NET LOSS PER SHARE:
Basic and diluted $ (140.69) $ (50.96)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 49,985 20,111
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (7,032,567) $ (1,024,836)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,696,820 584,200
Loss on disposition of assets -- 23,464
Amortization of bond discount 3,159,073 --
Changes in current assets and liabilities:
Accounts receivable (99,412) (326,252)
Prepaid expenses and other (88,374) 194,396
Accounts payable (1,574,438) (215,413)
Accrued liabilities and interest 4,951,947 96,435
Unearned revenue 54,329 18,193
------------ ------------
Total adjustments 8,099,945 375,023
------------ ------------
Net cash provided by (used in) operating activities 1,067,378 (649,813)
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures, net of retirements (14,075,955) (6,030,799)
Organizational cost expenditures, net of write-offs (76,788) --
Proceeds from sales of investments, net 11,839,241 --
Proceeds from sale of property -- 69,152
------------ ------------
Net cash used in investing activities (2,313,502) (5,961,647)
CASH FLOW FROM FINANCING ACTIVITIES:
Advances to affiliates -- (2,802,000)
Principal payments on debt (2,656) (927,673)
Proceeds from issuance of preferred stock, net of related offering expenses -- 10,705,402
Expenditures related to issuance of debt (124,923) --
------------ ------------
Net cash (used in) provided by financing activities (127,579) 6,975,729
------------ ------------
NET INCREASE (DECREASE) IN CASH (1,373,703) 364,269
CASH AT BEGINNING OF PERIOD 6,144,581 83,092
------------ ------------
CASH AT END OF PERIOD $ 4,770,878 $ 447,361
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 3,647 $ 293,675
Cash paid during the period for income taxes $ -- $ --
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
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KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. NATURE OF BUSINESS
KNOLOGY Holdings, Inc. ("KNOLOGY") and its subsidiaries (collectively,
the "Company") offers residential and business customers broadband
communications services ("Broadband Services"), including cable
television, local and long distance 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 currently
operates Interactive Broadband Networks in three cities, Montgomery,
Alabama, Columbus, Georgia and Panama City Beach, Florida. The Company
is expanding and upgrading the networks in these three cities and has
begun construction of Interactive Broadband Networks in Augusta,
Georgia and Charleston, South Carolina. The Company also 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.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of the Company have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
considered necessary for the fair presentation of the financial
statements have been included, and the financial statements present
fairly the financial position and results of operations for the interim
periods presented. Operating results for the three months ended March
31, 1998 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998. These financial
statements should be read in conjunction with the Company's 1997 Annual
Report on Form 10-K including the 1997 consolidated financial
statements with footnotes. Certain prior year amounts have been
reclassified to conform with the current presentation.
3. NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosure About
Segments of an Enterprise and Related Information" effective for fiscal
years beginning after December 15, 1997. Interim period reporting is
not required in the initial year of adoption. Management is currently
studying the impact that SFAS No. 131 will have on its financial
statement disclosures.
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The American Institute of Certified Public Accountants issued Statement
of Position ("SOP") No. 98-5 on "Reporting on the Costs of Start-up
Activities". SOP 98-5 requires that all nongovernmental entities
expense costs of start-up activities, including pre-operating,
pre-opening and organization activities, as the costs are incurred. SOP
98-5 must be adopted in fiscal years beginning after December 15, 1998.
The Company will adopt SOP 98-5 effective January 1, 1999 at which time
it will write off any unamortized costs recorded as start-up activity.
The impact of adopting SOP 98-5 may have a material effect on the
Company's financial statements.
4. COMPREHENSIVE INCOME
During 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income", which the Company adopted as of
January 1, 1997. SFAS No. 130 requires the Company to report in their
financial statements, in addition to its net income (loss),
comprehensive income (loss), which includes all changes in equity
during a period from non-owner sources including, as applicable,
foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. The Company's unrealized loss on marketable securities for
the three months ended March 31, 1998 and 1997 is reported in the
Stockholders' Equity section of the Company's Condensed Consolidated
Balance Sheets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains certain forward-looking statements that involve risks and
uncertainties. In addition, members of the Company's senior management may,
from time to time, make certain forward-looking statements concerning the
Company's operations, performance and other developments. The Company's actual
results could differ materially from those anticipated in such forward-looking
statements as a result of various factors, including those set forth under the
caption "Business-Risk Factors" in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, filed with the Commission on March 31,
1998 and which section is incorporated herein by reference.
Unless otherwise indicated, dollar amounts over $1 million have been rounded to
one decimal place and dollar amounts less than $1 million have been rounded to
the nearest thousand.
The following analysis and discussion should be read in conjunction with the
financial statements and the notes thereto appearing elsewhere in this report.
Substantially all of the Company's revenues through March 31, 1998 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. The Company intends to offer telephone
and Internet access services in Panama City Beach, Florida, Augusta, Georgia and
Charleston, South Carolina during the second and third quarters of 1998.
Subscriber revenues consist of fixed monthly fees for basic and premium cable
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. Revenues
from Internet access services consist primarily of fixed monthly fees. Revenues
from the Company's telephone services consist primarily of fixed monthly fees
for local service and enhanced services such as call waiting and voice mail, and
variable fees (billed monthly) for long distance service. Additional revenues
are derived from installation services and leases or sales of equipment such as
cable modems. Miscellaneous revenues result principally from converter rentals,
installation fees, franchise fees, and late payment charges.
The Company's principal operating expenses through March 31, 1998 consisted of
programming charges for cable television, general and administrative expenses,
depreciation and amortization expense, field and technical expenses, customer
service expenses and sales and marketing costs. Programming charges consist
primarily of monthly fees to the National Cable Television Cooperative and other
programming providers, and are generally based on the average number of
subscribers to each program. General and administrative expenses consist of
corporate and subsidiary general management and administrative costs.
Depreciation and amortization include depreciation of the Company's Interactive
Broadband Networks and equipment, and amortization of cost in excess of net
assets and other intangible assets related to acquisitions. Field and
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technical expenses include payroll and departmental costs incurred for network
design, maintenance, monitoring and operations, including pole rental fees.
Customer service expenses include payroll and departmental costs incurred for
customer service representatives and support. Sales and marketing costs include
the cost of sales and marketing personnel and advertising and promotional
expenses. Operating expenses related to the Company's Internet access and
telephone services include primarily costs of Internet access, telephone access
and transport charges payable to local and long distance carriers.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
REVENUES. Total revenues for the three months ended March 31, 1998 increased
118% to $4.1 million, compared to $1.9 million for the three months ended March
31, 1997. The Company generated subscriber revenues of $3.6 million for the
three months ended March 31, 1998, as compared to $1.6 million for the same
period in 1997. Miscellaneous revenues were $543,000 and $262,000, respectively,
for the three months ended March 31, 1998 and 1997. The increased subscriber and
miscellaneous revenues are primarily due to a higher number of cable subscribers
during the three months ended March 31, 1998 compared to the same period in
1997, and from telephone and Internet access revenues which were not offered by
the Company during the three months ended March 31, 1997. The additional
subscribers are a result of the Company extending its Interactive Broadband
Networks in the Montgomery and Columbus markets and the acquisition of Beach
Cable in Panama City Beach, Florida in December 1997.
EXPENSES. The Company's operating expenses for the three months ended March 31,
1998, excluding depreciation and amortization, increased to $5.7 million,
compared to $2.1 million for the three months ended March 31, 1997. Programming
charges were $1.8 million and $875,000 which represent 49.7% and 53.8% of
subscriber revenues, respectively. General and administrative expenses were $2.1
million and $467,000, field and technical expenses were $685,000 and $263,000,
customer service expenses were 424,000 and 173,000, and sales and marketing
costs were $702,000 and $276,000, respectively, for such periods. The increases
in the Company's programming charges are primarily a result of the Company's
increased number of cable subscribers. The increase in general and
administrative expenses, field and technical expenses, customer service expenses
and sales and marketing costs reflect the Company's build-up of personnel,
corporate infrastructure, customer service support and brand development in
connection with the planned growth of the business into Panama City, Charleston,
Augusta and additional new markets in the southeastern region of the United
States.
Depreciation and amortization for the three months ended March 31, 1998
increased to $1.7 million, compared to $584,000 for the same period in 1997. The
increase in depreciation expense reflects significant capital expenditures
during 1997 and the first quarter of 1998 to expand the Montgomery and Columbus
networks, to acquire Beach Cable in Panama City Beach and to purchase buildings
and computer and office equipment at the corporate and subsidiary locations.
Interest income for the three months ended March 31, 1998 was $3.2 million,
compared to $42,000 for same period in 1997 and reflects the interest income
from the investment of certain proceeds received from the issue of the Senior
Discount Notes in October 1997.
Interest expense for the three months ended March 31, 1998 was $7.0 million,
compared to $292,000 for the same period in 1997 and reflects the accrual of
interest attributable to the Senior Discount Notes issued in October 1997.
NET LOSS. The Company incurred a net loss for the three months ended March 31,
1998 of $7.0 million compared to a net loss of $1.0 million for the three months
ended March 31, 1997 as a result of the increase
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in expenses noted above. The Company expects its net losses to continue as the
Company continues to expand its business.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had net working capital of $214.5 million,
compared to $226.8 million at December 31, 1997.
The Company has required significant capital for operating and investing
activities in the development of its business. For the three months ended March
31, 1998, the Company provided approximately $1.1 million in operating
activities and invested approximately $2.3 million in investing activities. The
Company's investing activities for the three months ended March 31, 1998
primarily consisted of $14.1 million of capital expenditures which were offset
by proceeds from the sale of marketable securities of $11.8 million.
On October 22, 1997, the Company received net proceeds of approximately $242.4
million from the offering of Senior Discount Notes (the "Offering"). The Senior
Discount Notes issued in the Offering were subsequently exchanged for $444.1
million aggregate principal amount at maturity of substantially identical
11-7/8% senior discount notes due October 15, 2007 that had been registered
under the Securities Act of 1933, as amended in an exchange offer that expired
on March 24, 1998. The Notes were sold 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. The Notes will fully accrete to face value on
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. The Indenture contains
certain covenants that affect, and in certain cases significantly limit or
prohibit, among other things, the ability of the Company to incur indebtedness,
pay dividends, prepay subordinated indebtedness, redeem capital stock, make
investments, engage in transactions with stockholders and affiliates, create
liens, sell assets and engage in mergers and consolidations. If the Company
fails to comply with these covenants, the Company's obligation to repay the
Notes may be accelerated. However, these limitations are subject to a number of
important qualifications and exceptions. In particular, while the Indenture
restricts the Company's ability to incur additional indebtedness by requiring
compliance with specified leverage ratios, it permits 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 additional secured indebtedness. Upon a
"Change of Control" of the Company (as defined in the Indenture), the Company
will be required to make an offer to purchase the Notes at a purchase price
equal to 101% of the Accreted Value thereof, plus accrued interest.
In connection with the Offering, the Company completed an equity private
placement to qualified investors including certain existing shareholders of the
Company, 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.
ITC Holding purchased all shares of the Company's Preferred Stock owned by
Century Telephone in January 1998.
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 $78.4 million during
1998 to expand and upgrade the Montgomery, Columbus and Panama City Beach
networks and to commence construction of networks in Augusta, Charleston and
Panama City. 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. 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. The Company expects to enter into purchase agreements through
1998 in the ordinary course of business for programming services and
construction related services to expand its service offerings and to expand and
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upgrade the networks. Although there can be no assurance, the Company believes
that present cash reserves, cash flow from operations and amounts expected to be
available under a $50 million credit facility currently under negotiation will
provide sufficient funds to expand the existing networks 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 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.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
As of April 16, 1998, a majority of the stockholders of the Company, voting by
written consent, approved (1) a 150-for-1 stock split of the Company's Common
Stock, par value $.01 per share, to be effected in the form of a stock dividend
of new shares of Common Stock, (2) amendments to the Certificate of
Incorporation and Certificate of Designation of the Corporation to increase in
the number of shares of authorized Common Stock to 16,000,000 and to change the
conversion ratio between the Common Stock and the Preferred Stock of the
Corporation from 1 to 1 to a ratio of 150 to 1 and (3) amendments to the
Corporation's 1995 Stock Option Plan to increase the aggregate number of shares
of Stock that may be issued pursuant to options granted under the Plan.
The Company filed the amendments to its Certificate of Incorporation and
Certificate of Designation to affect the Common Stock Split on May 1, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this Report pursuant to Item 601 of
Regulation S-K:
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
- -------------- ----------------------
<S> <C>
3.1 Certificate of Amendment of Certificate of Incorporation
3.2 Certificate of Amendment to Certificate of Designation of Preferred Stock
11.1 Computation of Earnings Per Share of Common Stock
21.1 Subsidiaries of KNOLOGY Holdings, Inc.
27.1 Financial Data Schedule for the Three Months Ended March 31, 1998
27.2 Financial Data Schedule for the Three Months Ended March 31, 1997
</TABLE>
(b) Reports on Form 8-K
On February 17, 1998, the Company filed a Current Report on Form 8-K to report
the acquisition on December 5, 1997 of Beach Cable, Inc. and to include the
relevant financial statements of KNOLOGY of Panama City, Inc., including the
relevant pro forma financial information for the Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
KNOLOGY Holdings, Inc.
By: /s/ James K. McCormick
------------------------------------
James K. McCormick
Chief Financial Officer and
Secretary
May 15, 1998
10
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EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE 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 Sections 141 and 242 of
the Delaware General Corporation Law, the Board of Directors of the
Corporation, at a meeting duly called and held, duly adopted resolutions: (1)
proposing and declaring advisable increasing the number of shares of authorized
Common Stock, par value $.01 per share, of the Corporation from 200,000 to
16,000,000, (2) proposing and declaring advisable the amendment of the
Certificate of Incorporation of the Corporation to reflect such increase, (3)
proposing and declaring advisable an amendment to the Certificate of
Designation of Preferred Stock of the Corporation (the "Amended Certificate of
Designation") to change the conversion ratio between the Common Stock and the
Preferred Stock from 1 to 1 to 150 to 1, (4) recommending that such increase
and amendments be submitted to the stockholders of the Corporation for their
consideration, action and approval, and (5) proposing and declaring advisable,
upon the filing and effectiveness of such amendments, an 150-for-1 stock split
of the Common Stock of the Corporation.
SECOND: That the amendment to the Certificate of Incorporation of the
Corporation is as follows:
Section 4.1 of the Certificate of Incorporation of the Corporation
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 sixteen million one
hundred thousand (16,100,000) shares. One hundred thousand (100,000) of
such shares shall be Preferred Stock, having par value $.01 per share
("Preferred Stock"). The remaining sixteen million (16,000,000) of such
shares shall be Common Stock, all of one class, having a par value of $0.01
per share ("Common Stock").
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In addition, immediately following the effectiveness of the aformentioned
increase in the number of authorized shares of the Corporation's capital stock,
it is hereby
RESOLVED, that conditioned upon the filing and effectiveness of this
Certificate of Amendment to Certificate of Incorporation and the Amended
Certificate of Designation (the date of such filing and effectiveness being
referred to as the "Effective Time"), there shall be effected an 150-for-1
stock split of the Corporation's Common Stock, par value $.01 per share,
outstanding at the Effective Time (the "Old Common Stock") in the form of a
stock dividend of 149 new shares of Common Stock, par value $.01 per share (the
"New Common Stock"), with respect to each share of Old Common Stock outstanding
at the Effective Time; and
RESOLVED FURTHER, that payment of such stock dividend is contingent upon
receipt of any necessary approvals, consents or waivers required under
applicable law and any agreement to which the Corporation or any subsidiary is
a party or is bound, as determined by any officer of the Corporation.
SECOND: That thereafter, pursuant to resolutions of the Board of
Directors, the stockholders of the Corporation, acting by written consent in
accordance with Sections 228(d) of the General Corporation Law of the State of
Delaware, duly approved the aforesaid amendment to the Certificate of
Incorporationof the Corporation. Written notice of such actions has 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, 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
16,000,000.
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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 15 day of April, 1998.
KNOLOGY HOLDINGS, INC.
By: /s/ William E. Morrow
----------------------------
Name: William E. Morrow
Title: President
May 15, 1998
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EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO
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 Sections 141 and
242 of the General Corporation Law of the State of Delaware, the Board of
Directors of the Corporation, acting at a meeting of the Board of Directors of
the Corporation duly called and held, duly adopted resolutions: (1) proposing
and declaring advisable increasing the number of shares of authorized Common
Stock, par value $.01 per share, of the Corporation from 200,000 to 16,000,000,
(2) proposing and declaring advisable the amendment to the Certificate of
Designation of Preferred Stock of the Corporation (the "Amended Certificate of
Designation") to change the conversion ratio between the Common Stock and the
Preferred Stock from 1 to 1 to 150 to 1, and (3) recommending that such
increase and amendments 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:
The first sentence of Article "4." of the Certificate of Designation
of Preferred Stock is hereby amended as follows:
"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 150 shares of Common Stock for every one 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
1
<PAGE> 2
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")."
THIRD: 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 adjustment and the aforesaid
Certificate of Amendment to Certificate of Designation of Preferred Stock of the
Corporation to reflect such adjustment.
FOURTH: That the aforesaid Certificate of Amendment to Designation of
Preferred Stock of the Corporation was duly adopted in accordance with the
provisions of Sections 141, 242, 228 and 229 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Amendment to
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 15 day of April, 1998.
KNOLOGY HOLDINGS, INC.
By: /s/ William E. Morrow
--------------------------
Name: William E. Morrow
Title: President
May 15, 1998
2
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
For the Three Months Ended March 31
1998 1997
---------- ----------
<S> <C> <C>
Weighted Average Shares Outstanding (a) 49,985 20,111
Common Stock Equivalents:
Stock Options 0 0
Warrants 0 0
----------- -----------
Total Shares for Pro Forma Primary
Earnings Per Share 49,985 20,111
Net loss (7,032,567) (1,024,836)
----------- -----------
Basic and Diluted Loss per Share (140.69) (50.96)
=========== ===========
</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.
<PAGE> 1
EXHIBIT 21.1
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF INCORPORATION
------------------ ----------------------
<S> <C>
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
KNOLOGY of Alabama, Inc. Delaware
KNOLOGY of Georgia, Inc. Delaware
KNOLOGY of South Carolina, Inc. Delaware
KNOLOGY of Florida, Inc. Delaware
</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 MARCH 31, 1998 AND THE
RELATED COMBINED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
1998. THIS INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,770,878
<SECURITIES> 216,041,682
<RECEIVABLES> 1,787,239
<ALLOWANCES> 79,968
<INVENTORY> 7,132,849
<CURRENT-ASSETS> 222,561,738
<PP&E> 74,904,780
<DEPRECIATION> 6,642,600
<TOTAL-ASSETS> 315,745,331
<CURRENT-LIABILITIES> 8,034,574
<BONDS> 260,626,867
0
500
<COMMON> 0
<OTHER-SE> 44,596,430
<TOTAL-LIABILITY-AND-EQUITY> 315,745,331
<SALES> 4,108,464
<TOTAL-REVENUES> 4,108,464
<CGS> 1,773,053
<TOTAL-COSTS> 11,141,031
<OTHER-EXPENSES> 3,729,310
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,987,817
<INCOME-PRETAX> (7,032,567)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,032,567)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,032,567)
<EPS-PRIMARY> (140.69)
<EPS-DILUTED> (140.69)
</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 MARCH 31, 1997 AND THE
RELATED COMBINED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
1997. THIS INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 447,361
<SECURITIES> 0
<RECEIVABLES> 1,230,650
<ALLOWANCES> 18,935
<INVENTORY> 2,768,892
<CURRENT-ASSETS> 4,548,896
<PP&E> 26,631,194
<DEPRECIATION> 2,509,386
<TOTAL-ASSETS> 38,593,853
<CURRENT-LIABILITIES> 3,441,226
<BONDS> 11,273,634
0
261
<COMMON> 0
<OTHER-SE> 23,878,732
<TOTAL-LIABILITY-AND-EQUITY> 38,593,853
<SALES> 1,887,945
<TOTAL-REVENUES> 1,887,945
<CGS> 875,443
<TOTAL-COSTS> 2,912,781
<OTHER-EXPENSES> 272,985
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 291,645
<INCOME-PRETAX> (1,024,836)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,024,836)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,024,836)
<EPS-PRIMARY> (50.96)
<EPS-DILUTED> (50.96)
</TABLE>
