<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER: 333-43339
KNOLOGY HOLDINGS, INC.
----------------------
(Exact name of registrant as specified in its charter)
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DELAWARE 58-2203141
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(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
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (706) 645-8553
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Not Applicable
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
---- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated herein by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
is not applicable as no public market exists for the voting stock of the
registrant.
As of March 1, 1998, there were no shares of the registrant's Common
Stock outstanding and 49,985 shares of the registrant's 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.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
<PAGE> 2
EXPLANATORY NOTE
This Amendment to Form 10-K is filed to amend Item 8 and Item 14 which are
restated herein in their entirety.
<PAGE> 3
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company, including the
Company's Consolidated Balance Sheets as of December 31, 1996 and 1997,
Consolidated Statements of Operations for the Four Months Ended April 30, 1995,
the Eight Months Ended December 31, 1995, and the Years Ended December 31, 1996
and 1997, the Consolidated Statements of Cash Flows for the Four Months Ended
April 30, 1995, the Eight Months Ended December 31, 1995, and the Years Ended
December 31, 1996 and 1997, the Consolidated Statements of Stockholders'
(Deficit) Equity for the Four Months Ended April 30, 1995, the Eight Months
Ended December 31, 1995, and the Years Ended December 31, 1996 and 1997, and
Notes to Consolidated Financial Statements, together with a report therein of
Arthur Andersen LLP, dated March 6, 1998, are attached hereto.
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) The following Consolidated Financial Statements of the
Company and independent auditor's report are included in Item 8 of this Form
10-K.
Report of Independent Public Accountants.
Company's Consolidated Balance Sheets as of December 31, 1996
and 1997.
Consolidated Statements of Operations for the Four Months
Ended April 30, 1995, the Eight Months Ended December 31, 1995
and the Years Ended December 31, 1996 and 1997.
Consolidated Statements of Cash Flows for the Four Months
Ended April 30, 1995, the Eight Months Ended December 31, 1995
and the Years Ended December 31, 1996 and 1997.
Consolidated Statements of Stockholders' (Deficit) Equity for
the Four Months Ended April 30, 1995, the Eight Months Ended
December 31, 1995 and the Years Ended December 31, 1996 and
1997.
Notes to Consolidated Financial Statements.
(a)(2) The following financial statement schedule is filed as part
of this report and is attached hereto as pages S-1 and S-2.
Independent Auditor's Report on the Financial Statement
Schedules.
Schedule II -- Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission either have been included
in the Consolidated Financial Statements of the Company or the notes thereto,
are not required under the related instructions or are inapplicable, and
therefore have been omitted.
(a)(3) The following exhibits are either provided with this Form
10-K or are incorporated herein by reference:
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EXHIBIT NUMBER EXHIBIT DESCRIPTION
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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 (Filed as Exhibit 2.1 to the Registration Statement on Form S-4, File
No. 333-43339 (the "Form S-4") and incorporated herein by reference).
3.1 Certificate of Incorporation of KNOLOGY Holdings, Inc. (Filed as Exhibit 3.1 to the Form S-4 and incorporated herein
by reference).
3.2 Amended and Restated Bylaws of KNOLOGY Holdings, Inc. (Filed as Exhibit 3.2 to the Form S-4 and incorporated herein
by reference).
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. (Filed as Exhibit 4.1
to the Form S-4 and incorporated herein by reference).
4.2 Registration Rights Agreement, dated October 22, 1997, between KNOLOGY Holdings, Inc., the Placement Agents and
SCANA Communications, Inc. (Filed as Exhibit 4.2 to the Form S-4 and incorporated herein by reference).
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).
10.1 Unit Purchase Agreement, dated as of October 16, 1997 between KNOLOGY Holdings, Inc. and SCANA Communications, Inc.
(Filed as Exhibit 10.1 to the Form S-4 and incorporated herein by reference).
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) (Filed as Exhibit 10.2 to the Form S-4 and incorporated herein by
reference).
10.3 Warrant Registration Rights Agreement, dated as of October 22, 1997, between KNOLOGY Holdings, Inc. and United
States Trust Company of New York (Filed as Exhibit 10.3 to the Form S-4 and incorporated herein by reference).
10.4 Sub-Lease Indenture dated November 1, 1995 by and between J. Smith Lanier & Co. Financial Services, Inc. and ITC
Holding Company, Inc. (Filed as Exhibit 10.4 to the Form S-4 and incorporated herein by reference).
10.5 Lease Agreement dated April 15, 1996 by and between D.L. Jordan and American Cable Company, Inc. (Filed as Exhibit
10.5 to the Form S-4 and incorporated herein by reference).
10.6 Lease Agreement dated April 19, 1996 by and between B.E. Satterwhite and American Cable Company, Inc. (Filed as
Exhibit 10.6 to the Form S-4 and incorporated herein by reference).
10.7 Pole Attachment Agreement dated January 1, 1998 by and between Gulf Power Company and Beach Cable, Inc. (Filed as
Exhibit 10.7 to the Form S-4 and incorporated herein by reference).
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10.8 Lease Agreement dated August 19, 1996 by and between Vaughn/Taylor, L.L.C. and Montgomery Cablevision and
Entertainment, Inc. (Filed as Exhibit 10.8 to the Form S-4 and incorporated herein by reference).
10.9 Lease Agreement dated August 20, 1996 by and between William H. McLemore and Montgomery Cablevision and
Entertainment, Inc. (Filed as Exhibit 10.9 to the Form S-4 and incorporated herein by reference).
10.10 Lease Agreement dated November 7, 1996 by and between Samuel B. Hewitt and American Cable Company, Inc. (Filed as
Exhibit 10.10 to the Form S-4 and incorporated herein by reference).
10.11 Site Agreement dated November 19, 1996 by and between John Walter Stowers and Montgomery Cablevision and
Entertainment, Inc. (Filed as Exhibit 10.11 to the Form S-4 and incorporated herein by reference).
10.12 Office Lease Agreement dated February 15, 1997 by and between Scott P. Pinckard and Cybernet Holdings, Inc. (Filed
as Exhibit 10.12 to the Form S-4 and incorporated herein by reference).
10.13* Lease Agreement dated April 2, 1997 by and between Interstate Telephone Company and Cybernet Holding, Inc. (Filed as
Exhibit 10.13 to the Form S-4 and incorporated herein by reference).
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. (Filed as Exhibit 10.14 to the Form S-4 and incorporated herein by
reference).
10.15 Lease Agreement dated August 23, 1997 by and between Interstate Fibernet, Inc. and KNOLOGY Holdings, Inc. (Filed as
Exhibit 10.15 to the Form S-4 and incorporated herein by reference).
10.16* Telecommunications Facility Lease and Capacity Agreement, dated September 10, 1996, by and between Troup EMC
Communications, Inc. and Cybernet Holding, Inc. (Filed as Exhibit 10.16 to the Form S-4 and incorporated herein by
reference).
10.17 Master Pole Attachment Agreement dated January 12, 1998 by and between South Carolina Electric and Gas and KNOLOGY
Holdings, Inc. d/b/a/ KNOLOGY of Charleston (Filed as Exhibit 10.17 to the Form S-4 and incorporated herein by
reference).
10.18 Pole Attachment Agreement dated May 21, 1990 by and between the Georgia Power Company and American Cable Company
(Filed as Exhibit 10.18 to the Form S-4 and incorporated herein by reference).
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. (Filed as Exhibit 10.19 to the Form S-4 and incorporated herein by
reference).
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.
(Filed as Exhibit 10.20 to the Form S-4 and incorporated herein by reference).
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10.21* License Agreement for Pole Attachments and/or Conduit Occupancy dated July 28, 1993 by and between BellSouth
Telecommunications, Inc. d/b/a Southern Bell Telephone and Telegraph Company and American Cable Company. (Filed as
Exhibit 10.21 to the Form S-4 and incorporated herein by reference).
10.22* License Agreement dated September 29, 1995 by and between Montgomery Cablevision and Entertainment, Inc. and
American Communications Services of Montgomery, Inc. (Filed as Exhibit 10.22 to the Form S-4 and incorporated herein
by reference).
10.23* License Agreement dated January 17, 1996 by and between American Cable, Inc. and American Communication Services of
Columbus, Inc. (Filed as Exhibit 10.23 to the Form S-4 and incorporated herein by reference).
10.24* Addendum to License Agreement dated April 21, 1997 by and between American Cable, Inc. and American Communication
Services of Columbus, Inc. (Filed as Exhibit 10.24 to the Form S-4 and incorporated herein by reference).
10.25 Lease Agreement, dated December 5, 1997 by and between The Hilton Company and KNOLOGY of Panama City, Inc. (Filed as
Exhibit 10.25 to the Form S-4 and incorporated herein by reference).
10.26* Billing and Collection Services Agreement dated April 2, 1997 by and between Interstate Telephone Company and
Cybernet Holding, Inc. (Filed as Exhibit 10.26 to the Form S-4 and incorporated herein by reference).
10.27* Operator and Related Services Agreement dated April 14, 1997 by and between Eastern Telecom Inc. d/b/a Inter Quest
and Cybernet Holding, Inc. (Filed as Exhibit 10.27 to the Form S-4 and incorporated herein by reference).
10.28* Agreement for Telecommunication Services dated May 1, 1997 by and between Cybernet Holding, Inc. and DeltaCom, Inc.
(Filed as Exhibit 10.28 to the Form S-4 and incorporated herein by reference).
10.29* First Addendum to Service Agreement dated July 7, 1997 by and between KNOLOGY Holdings, Inc. and DeltaCom, Inc.
(Filed as Exhibit 10.29 to the Form S-4 and incorporated herein by reference).
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 (Filed as Exhibit 10.30 to the Form S-4 and
incorporated herein by reference).
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. (Filed as Exhibit 10.31 to the
Form S-4 and incorporated herein by reference).
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 (Filed as Exhibit 10.32 to
the Form S-4 and incorporated herein by reference).
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10.33 Commitment Letter from First Union National Bank to KNOLOGY Holdings, Inc., dated October 15, 1997 (Filed as Exhibit
10.33 to the Form S-4 and incorporated herein by reference).
10.33.1 Commitment Extension Letter from First Union National Bank to KNOLOGY Holdings, Inc., dated December 12, 1997 (Filed
as Exhibit 10.33.1 to the Form S-4 and incorporated herein by reference).
10.34 Certificate of Membership with National Cable Television Cooperative, dated January 29, 1996, of Cybernet Holding,
Inc. (Filed as Exhibit 10.34 to the Form S-4 and incorporated herein by reference).
10.35 Stockholders' Agreement among KNOLOGY Holdings, Inc. and Certain Stockholders Thereof dated as of December 8, 1995
(Filed as Exhibit 10.35 to the Form S-4 and incorporated herein by reference).
10.36 Amendment No. 1 to Stockholders' Agreement dated as of January 25, 1996 (Filed as Exhibit 10.36 to the Form S-4 and
incorporated herein by reference).
10.37 Amendment No. 2 to Stockholders' Agreement dated as of April 18, 1996 (Filed as Exhibit 10.37 to the Form S-4 and
incorporated herein by reference).
10.38 Amended and Restated Agreement Among Shareholders Among KNOLOGY Holdings, Inc. and Certain Shareholders thereof
dated as of July 28, 1997 (Filed as Exhibit 10.38 to the Form S-4 and incorporated herein by reference).
10.39 Ordinance (Harris County, Georgia) dated April 6, 1982 (Filed as Exhibit 10.39 to the Form S-4 and incorporated
herein by reference).
10.40 Ordinance (Harris County, Georgia) to Amend Cable Franchise Ordinance of April 6, 1982, dated November 5, 1996
(Filed as Exhibit 10.40 to the Form S-4 and incorporated herein by reference).
10.41 Ordinance (Bibb City, Georgia) dated October 5, 1990 (Filed as Exhibit 10.41 to the Form S-4 and incorporated herein
by reference).
10.42 Ordinance No. 88-53 (Columbus, Georgia) dated May 17, 1988 (Filed as Exhibit 10.42 to the Form S-4 and incorporated
herein by reference).
10.43 Ordinance No. 89-3 (Columbus, Georgia) dated January 10, 1989 (Filed as Exhibit 10.43 to the Form S-4 and
incorporated herein by reference).
10.44 Ordinance No. 16-90 (Montgomery, Alabama) dated March 6, 1990 (Filed as Exhibit 10.44 to the Form S-4 and
incorporated herein by reference).
10.45 Ordinance No. 50-76 (Montgomery, Alabama) (Filed as Exhibit 10.45 to the Form S-4 and incorporated herein by
reference).
10.45.1 Ordinance No. 9-90 (Montgomery, Alabama) dated January 16, 1990 (Filed as Exhibit 10.45.1 to the Form S-4 and
incorporated herein by reference).
10.46 Resolution No. 58-95 (Montgomery, Alabama) dated April 6, 1995 (Filed as Exhibit 10.46 to the Form S-4 and
incorporated herein by reference).
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10.47 Resolution No. 92-7 (Panama City Beach, Florida) dated July 23, 1992 (Filed as Exhibit 10.47 to the Form S-4 and
incorporated herein by reference).
10.48 License (Bay County, Florida) dated January 5, 1993 (Filed as Exhibit 10.48 to the Form S-4 and incorporated herein
by reference).
10.49 Resolution No. 97-22 (Panama City Beach, Florida) dated December 3, 1997 (Filed as Exhibit 10.49 to the Form S-4 and
incorporated herein by reference).
10.50 Resolution No. 2075 (Bay County, Florida) dated November 18, 1997 (Filed as Exhibit 10.50 to the Form S-4 and
incorporated herein by reference).
10.51* Collocation Agreement between Interstate FiberNet and Cybernet Holding, Inc., dated July 1, 1997 (Filed as Exhibit
10.51 to the Form S-4 and incorporated herein by reference).
10.52* License Agreement for Pole Attachments and/or Conduit Occupancy in Florida dated September 15, 1993 between
BellSouth Telecommunications, Inc. d/b/a Southern Bell Telephone and Telegraph and Beach Cable, Inc. (Filed as
Exhibit 10.52 to the Form S-4 and incorporated herein by reference).
10.53+ Ordinance No. 5999 (Augusta, Georgia) dated January 20, 1998.
10.54+ Ordinance No. 1723 (Panama City, Florida) dated March 10, 1998.
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. (Filed as Exhibit 21.1 to the Quarterly Report on Form 10-Q, File No.
333-43339, filed with the Commission on May 15, 1998 and incorporated herein by reference).
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
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* Confidential treatment has been granted. The copy filed as an exhibit omits
the information subject to the confidential treatment request.
+ Previously filed as part of this Form 10-K.
(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.
(c) EXHIBITS
The Company hereby files as part of this Form 10-K the Exhibits listed
in the Index to Exhibits.
(d) FINANCIAL STATEMENT SCHEDULE
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<PAGE> 10
The following financial statement schedule is filed herewith:
Schedule II -- 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 Consolidated Financial Statements of the Company or notes thereto.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized as of the 26 day
of May, 1998.
KNOLOGY HOLDINGS, INC.
By: /s/ William E. Morrow
-----------------------------------
William E. Morrow
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated and on the dates indicated.
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Signature Title Date
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/s/ O. Gene Gabbard Chairman of the Board and Director May 26, 1998
- ------------------------------------
O. Gene Gabbard
/s/ William E. Morrow President, Chief Executive Officer May 26, 1998
- ------------------------------------ and Director (Principal executive officer)
William E. Morrow
/s/ James K. McCormick Chief Financial Officer and Secretary May 26, 1998
- ------------------------------------ (Principal financial officer and principal
James K. McCormick accounting officer)
/s/ Donald W. Burton Director May 26, 1998
- ------------------------------------
Donald W. Burton
/s/ William H. Scott, III Director May 26, 1998
- ------------------------------------
William H. Scott, III
/s/ Andrew M. Walker Director May 26, 1998
- ------------------------------------
Andrew M. Walker
/s/ Campbell B. Lanier, III Director May 24, 1998
- ------------------------------------
Campbell B. Lanier, III
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/s/ Richard Bodman Director May 24, 1998
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Richard Bodman
/s/ L. Charles Hilton, Jr. Director May 26, 1998
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L. Charles Hilton, Jr.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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KNOLOGY HOLDINGS, INC.
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets---December 31, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the Four Months Ended April 30, 1995, the
Eight Months Ended December 31, 1995, and the Years Ended December 31, 1996 and 1997 . . . . . . . . F-4
Consolidated Statements of Cash Flows for the Four Months Ended April 30, 1995,
the Eight Months Ended December 31, 1995, and the Years Ended December 31, 1996 and 1997 . . . . . . F-5
Consolidated Statements of Stockholders' (Deficit) Equity for the Four Months Ended
April 30, 1995, the Eight Months Ended December 31, 1995, and the Years Ended
December 31, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
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F-1
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
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. (an Alabama corporation) (PREDECESSOR COMPANY) as of
December 31, 1996 and 1997 and the related consolidated statements of
operations, stockholders' (deficit) equity, and cash flows for the four months
ended April 30, 1995, the eight months ended December 31, 1995 and the years
ended December 31, 1996 and 1997. 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, 1996 and 1997 and the results of their operations
and their cash flows for the four months ended April 30, 1995, the eight months
ended December 31, 1995 and the years ended December 31, 1996 and 1997 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
March 6, 1998
F-2
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KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
ASSETS
1996 1997
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CURRENT ASSETS:
Cash and cash equivalents $ 83,092 $ 6,144,581
Marketable securities 0 227,880,923
Accounts receivable--trade, less allowance for
doubtful accounts of $23,342, and $108,529 885,463 1,607,859
in 1996, and 1997, respectively
Interest receivable--affiliate (Note 8) 1,345 0
Deferred tax assets (Note 6) 0 0
Prepaid expenses 280,920 37,060
------------ ------------
Total current assets 1,250,820 235,670,423
------------ ------------
PROPERTY AND EQUIPMENT:
Cable system and installation equipment 20,965,636 56,909,159
Test and office equipment 421,997 1,628,485
Automobiles and trucks 286,422 837,490
Production equipment 0 297,286
Buildings 0 1,936,035
Inventory, less allowance for shrinkage of
$30,000 in 1997 1,605,922 5,806,320
Leasehold improvements 170,272 324,270
------------ ------------
23,450,249 67,739,045
Less accumulated depreciation and amortization (1,973,040) (5,171,309)
------------ ------------
Property and equipment, net (Note 1) 21,477,209 62,567,736
COST IN EXCESS OF NET ASSETS ACQUIRED, NET OF ------------ ------------
ACCUMULATED AMORTIZATION OF $202,516, AND
$441,877 IN 1996, AND 1997, RESPECTIVELY (NOTE
2) 6,877,607 9,433,385
DEBT ISSUANCE COSTS, NET OF ACCUMULATED ------------ ------------
AMORTIZATION OF $0 and $121,652 IN 1996 AND 0 7,761,655
1997, RESPECTIVELY (NOTE 3) ------------ ------------
ORGANIZATIONAL COSTS, NET OF ACCUMULATED
AMORTIZATION OF $157,535, AND $253,942 IN 326,590 701,106
1996, AND 1997, RESPECTIVELY ------------ ------------
OTHER 9,519 63,795
------------ ------------
Total assets $29,941,745 $316,198,100
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Current portion of long-term debt (Note 3) $1,027,873 $ 25,094
Accounts payable 1,894,178 5,817,733
Accounts payable--affiliate (Note 8) 7,073 452,346
Accrued liabilities 907,247 1,638,042
Unearned revenue 615,651 907,048
----------- ------------
Total current liabilities 4,452,022 8,840,263
NONCURRENT LIABILITIES:
Long-term notes payable (Note 3) 11,291,296 120,804
Long-term accrued interest payable 0 3,201,688
Bonds payable, net of discount of
$194,189,569 in 1997 0 249,910,431
----------- ------------
Total liabilities 15,743,318 262,073,186
----------- ------------
DEFERRED TAX LIABILITIES, NET OF ALLOWANCE OF
$2,475,223, AND $4,165,308 IN 1996, AND 1997,
RESPECTIVELY (NOTE 6) 0 0
COMMITMENTS AND CONTINGENCIES (NOTES 4 AND 5) 0 0
----------- ------------
WARRANTS (NOTE 3) 0 2,486,960
----------- ------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par value
per share; 50,000 and 100,000 shares authorized,
17,092 and 49,985 shares issued and outstanding
in 1996 and 1997, respectively 171 500
Common stock, $.01 par value per share; 15,000
and 200,000 shares authorized, no shares issued
and outstanding 0 0
Additional paid-in capital 18,509,218 65,060,712
Accumulated deficit (4,310,962) (13,402,495)
Unrealized losses on marketable securities 0 (20,763)
(Note 2) ------------ ------------
Total stockholders' equity 14,198,427 51,637,954
------------ ------------
Total liabilities and stockholders'
equity $29,941,745 $316,198,100
============ ============
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The accompanying notes are an integral part of these consolidated statements.
F-3
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KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FOUR MONTHS ENDED APRIL 30, 1995, THE EIGHT MONTHS ENDED DECEMBER 31, 1995,
AND THE YEARS ENDED DECEMBER 31, 1996 AND 1997
PREDECESSOR
COMPANY SUCCESSOR COMPANY
------------ -------------------------------------------
Four Months Eight Months
Ended Ended Years Ended December 31,
April 30, December 31, --------------------------
1995 1995 1996 1997
------------ -------------------------------------------
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OPERATING REVENUES:
Subscriber $ 811,103 $ 2,016,082 $ 4,682,666 $ 9,041,549
Miscellaneous 46,058 180,916 651,517 1,313,519
--------------- ------------- -------------- -------------
Total 857,161 2,196,998 5,334,183 10,355,068
--------------- ------------- -------------- -------------
OPERATING EXPENSES:
General and administrative 175,724 1,027,001 2,346,201 4,383,830
Programming charges 409,325 1,029,959 2,513,693 4,758,730
Depreciation and amortization 259,336 745,004 1,640,025 3,715,184
Field and technical 98,293 417,273 877,870 1,564,654
Sales and marketing 16,590 58,414 659,667 1,444,056
--------------- ------------- -------------- -------------
Total 959,268 3,277,651 8,037,456 15,866,454
--------------- ------------- -------------- -------------
OPERATING LOSS (102,107) (1,080,653) (2,703,273) (5,511,386)
--------------- ------------- -------------- -------------
OTHER INCOME AND EXPENSES:
Affiliate interest income (Note 8) 0 12,098 273,799 0
Other interest income 0 6,646 46,221 2,774,909
Affiliate interest expense (Note 8) (2,017) (58,856) 0 0
Other interest expense (19,861) (509,057) (1,055,498) (6,226,023)
Other income (expense), net 0 0 (60,000) (129,033)
--------------- ------------- -------------- -------------
Total (21,878) (549,169) (795,478) (3,580,147)
--------------- ------------- -------------- -------------
LOSS BEFORE MINORITY INTEREST AND INCOME TAX BENEFIT $(123,985) $(1,629,822) $(3,498,751) (9,091,533)
MINORITY INTEREST (NOTE 2) 0 109,837 0 0
--------------- ------------- -------------- -------------
LOSS BEFORE INCOME TAX BENEFIT (123,985) (1,519,985) (3,498,751) (9,091,533)
INCOME TAX BENEFIT 0 334,451 373,323 0
--------------- ------------- -------------- -------------
NET LOSS (123,985) (1,185,534) (3,125,428) (9,091,533)
PREFERRED STOCK DIVIDENDS (230,407) 0 0 0
--------------- ------------- -------------- -------------
NET LOSS AFTER PREFERRED STOCK DIVIDENDS $(354,392) $(1,185,534) $(3,125,428) $(9,091,533)
=============== ============= ============== =============
PRIMARY NET LOSS PER SHARE (NOTE 2):
Weighted average shares outstanding--7,520, 13,626,
and 28,835 shares in 1995, 1996, and 1997,
respectively $0.00 $(157.65) $(229.37) $(315.30)
=============== ============= ============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 17
<TABLE>
<CAPTION>
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FOUR MONTHS ENDED APRIL 30, 1995, THE EIGHT MONTHS ENDED DECEMBER 31, 1995,
AND THE YEARS ENDED DECEMBER 31, 1996 AND 1997
PREDECESSOR
COMPANY SUCCESSOR COMPANY
-------------- -------------------------------------------
Eight Months
Four Months Ended Years Ended December 31,
Ended December 31, ----------------------------
April 30, 1995 1995 1996 1997
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(123,985) $(1,185,534) $ (3,125,428) $ (9,091,533)
--------- ----------- ------------ --------------
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 259,336 745,004 1,640,025 3,715,184
Loss on disposition of assets 0 0 21,370 23,464
Deferred income tax benefit 0 (334,451) (373,323) 0
Minority interest 0 (109,837) 0 0
Changes in current assets and liabilities:
Accounts receivable (11,069) (205,159) (512,337) (721,396)
Prepaid expenses 7,955 (86,156) (180,950) 244,199
Accounts payable 79,608 (246,687) (39,648) 4,302,245
Accrued liabilities and interest 28,528 372,966 293,394 163,317
Unearned revenue (96,297) 336,894 278,757 243,007
Other 0 (29,968) 133 1,345
--------- ----------- ------------ --------------
Total adjustments 268,061 442,606 1,127,421 7,971,365
--------- ----------- ------------ --------------
Net cash provided by (used in) operating activities 144,076 (742,928) (1,998,007) (1,120,168)
--------- ----------- ------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of retirements $ (42,504) $(1,291,080) $(14,416,135) $ (39,625,408)
Organizational cost expenditures, net of write-offs 0 (453,736) (20,133) (470,923)
Purchase of investments 0 0 (5,000) (1,346,150,712)
Proceeds from sales of investments 0 0 0 1,118,194,411
Proceeds from sales of property 0 0 0 69,152
--------- ----------- ------------ --------------
Net cash used in investing activities (42,504) (1,744,816) (14,441,268) (267,983,480)
--------- ----------- ------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Advances to) repayments from affiliate 0 (4,255,836) 4,255,836 0
Proceeds from issuances of debt and short-term
borrowings, net of discount and issue costs on bonds 0 51,389 1,258,238 257,370,383
Principal payments on debt and short-term borrowings (104,889) (478,624) (160,900) (29,903,385)
Proceeds from initial capitalization of Successor Company 0 200,000 0 0
Proceeds from issuance of preferred stock, net of
related offering expenses 0 7,254,690 10,868,699 42,824,323
Accretion of discount on bonds 0 0 0 2,386,856
Proceeds from issuance of warrants 0 0 0 2,486,960
--------- ----------- ------------ --------------
Net cash (used in) provided by financing activities (104,889) 2,771,619 16,221,873 275,165,137
--------- ----------- ------------ --------------
NET (DECREASE) INCREASE IN CASH (3,317) 283,875 (217,402) 6,061,489
CASH AT BEGINNING OF PERIOD 19,936 16,619 300,494 83,092
--------- ----------- ------------ --------------
CASH AT END OF PERIOD $ 16,619 $ 300,494 $ 83,092 $ 6,144,581
--------- ----------- ------------ --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 22,027 $ 46,762 $ 1,016,039 $ 1,543,125
--------- ----------- ------------ --------------
Cash paid during the period for income taxes $ 0 $ 0 $ 0 $ 0
--------- ----------- ------------ --------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Preferred stock dividends $ 230,407 $ 0 $ 0 $ 0
========= =========== ============ ==============
Acquisition of Beach Cable:
Fair value of assets acquired, including goodwill 0 0 0 7,552,144
Preferred stock issued in connection with acquisitions 0 0 0 3,727,500
--------- ----------- ------------ --------------
Liabilities assumed 0 0 0 3,824,644
========= =========== ============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 18
<TABLE>
<CAPTION>
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE FOUR MONTHS ENDED APRIL 30, 1995, THE EIGHT MONTHS ENDED DECEMBER 31, 1995,
AND THE YEARS ENDED DECEMBER 31, 1996 AND 1997
COMMON STOCK ADDITIONAL PREFERRED STOCK
---------------- PAID-IN ----------------
SHARES AMOUNT CAPITAL SHARES AMOUNT
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
BALANCE AT APRIL 30, 1995 1,000 $10 $ 6,563,598 197 $197
SUCCESSOR COMPANY:
INITIAL CAPITAL CONTRIBUTION 0 0 200,000 0 0
Acquisition of Predecessor Company (1,000) (10) (6,563,598) (197) (197)
Conversion of capital to preferred stock 0 0 (2) 20 2
Issuance of preferred stock, net of related
offering expenses of $65,310 0 0 7,254,617 7,500 73
Net loss 0 0 0 0 0
------- ---------- ------------- --------- ---------
BALANCE AT DECEMBER 31, 1995 0 0 7,454,615 7,520 75
Issuance of preferred stock, net of related
offering expenses of $379,701 0 0 11,054,603 9,572 96
Net loss 0 0 0 0 0
------- ---------- ------------- --------- ---------
BALANCE AT DECEMBER 31, 1996 0 0 18,509,218 17,092 171
Issuance of preferred stock, net of related
offering expenses of $99,677 0 0 42,824,019 30,408 304
0
Purchase of Beach Cable (Note 1) 0 0 3,727,475 2,485 25
Net loss 0 0 0 0 0
Unrealized loss on marketable securities 0 0 0 0 0
------- ---------- ------------- --------- ---------
BALANCE AT DECEMBER 31, 1997 0 $ 0 $65,060,712 49,985 $500
======= ========== ============= ========= =========
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED TOTAL
TREASURY STOCK LOSS ON STOCKHOLDERS'
---------------- ACCUMULATED MARKETABLE (DEFICIT)
SHARES AMOUNT DEFICIT SECURITIES EQUITY
------ ------ ------- ---------- ------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
BALANCE AT APRIL 30, 1995 (5,104) $(255,200) $ (6,410,590) $ 0 $ (101,985)
SUCCESSOR COMPANY:
INITIAL CAPITAL CONTRIBUTION 0 0 0 0 200,000
Acquisition of Predecessor Company 5,104 255,200 6,410,590 0 101,985
Conversion of capital to preferred stock 0 0 0 0 0
Issuance of preferred stock, net of related
offering expenses of $65,310 0 0 0 0 7,254,690
Net loss 0 0 (1,185,534) 0 (1,185,534)
-------- ---------- --------------- -------------- -------------
BALANCE AT DECEMBER 31, 1995 0 0 (1,185,534) 0 6,269,156
Issuance of preferred stock, net of related
offering expenses of $379,701 0 0 0 0 11,054,699
Net loss 0 0 (3,125,428) 0 (3,125,428)
-------- ---------- --------------- -------------- -------------
BALANCE AT DECEMBER 31, 1996 0 0 (4,310,962) 0 14,198,427
Issuance of preferred stock, net of related
offering expenses of $99,677 0 0 0 0 42,824,323
Purchase of Beach Cable (Note 1) 0 0 0 0 3,727,500
Net loss 0 0 (9,091,533) 0 (9,091,533)
Unrealized loss on marketable securities 0 0 0 (20,763) (20,763)
-------- ---------- --------------- -------------- -------------
BALANCE AT DECEMBER 31, 1997 0 $ 0 $(13,402,495) $(20,763) $(51,637,954)
======== ========== =============== ============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 19
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996, AND 1997
1. ORGANIZATION AND NATURE OF BUSINESS
KNOLOGY Holdings, Inc. (formerly Cybernet Holding, Inc.) and its
subsidiaries (the "Company" or "Successor Company") provide residential and
business customers broadband communications services; including cable
television, telephone, and high-speed Internet access service, to various
areas in the southeastern United States. 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
F-7
<PAGE> 20
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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).
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, 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.
On December 5, 1997, the Company consummated the acquisition of Beach
Cable, Inc., a Florida corporation that owned and operated a cable
television system in Panama City Beach, Florida ("Beach Cable"). The
acquisition was effected pursuant to an Agreement and Plan of Merger dated
December 5, 1997 (the "Merger Agreement") by and among the Company, KNOLOGY
of Panama City, Inc., Beach Cable, and L. Charles Hilton, Jr., the sole
stockholder of Beach Cable, under which KNOLOGY of Panama City, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Company, merged
(the "Merger") with and into Beach Cable. Beach Cable, the surviving
corporation in the Merger, was renamed KNOLOGY of Panama City, Inc. as of
the effective time of the Merger (the "Effective Time") and became a
wholly-owned subsidiary of the Company. At the Effective Time, all of the
issued and outstanding shares of Common Stock, no par value, of KNOLOGY of
Panama City were converted into 2,485 shares of preferred stock, par value
$.01 per share, of the Company valued at approximately $3.7 million.
Immediately following the Merger, the Company also contributed cash of
approximately $3.9 million to KNOLOGY of Panama City to repay an existing
note and related accrued interest to Hilton, Inc., a holding company owned
by
F-8
<PAGE> 21
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
L. Charles Hilton, Jr. The Merger has been accounted for under the purchase
method of accounting.
The following table summarizes the net assets purchased by the Company in
connection with its acquisitions of KNOLOGY of Montgomery, KNOLOGY of
Columbus and KNOLOGY of Panama City and the amount attributable to cost in
excess of net assets acquired (in thousands):
<TABLE>
<CAPTION>
KNOLOGY KNOLOGY KNOLOGY
OF OF OF PANAMA
MONTGOMERY COLUMBUS CITY TOTAL
---------- -------- ---- -----
<S> <C> <C> <C> <C>
Purchase price $6,000 $5,000 $3,728 $14,728
Assumption of note
payable (2,191) 0 0 (2,191)
Assumption of
preferred stock
dividends payable (1,107) 0 0 (1,107)
Net (assets) liabilities 1,002 (1,725) (933) (1,656)
------------ ------------ ------------- --------
Cost in excess of
net assets
acquired $3,704 $3,275 $2,795 $9,774
============ ============ ============= ========
</TABLE>
The acquisitions of these assets have been accounted for as noncash
transactions for purposes of the consolidated statements of cash flows.
The Company has experienced operating losses as a result of the expansion
of its broadband communications systems and services in new and existing
markets. The Company expects to continue to focus on increasing its
customer base and expand its broadband operations. Accordingly, the Company
expects that its operating expenses and capital expenditures will continue
to increase as it extends its broadband communications systems to customers
in these markets in accordance with its business plan. While management
expects its expansion plans to result in profitability, 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.
F-9
<PAGE> 22
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
PRESENTATION
As a result of the acquisition of KNOLOGY of Montgomery (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 for reporting periods subsequent to April 30, 1995 (the
"Successor Period") reflect the acquisition under the purchase method of
accounting. Therefore, financial data of 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, KNOLOGY of
Columbus, and KNOLOGY of Panama City (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. Accordingly, the depreciation of property and equipment
for the Successor Period is based on the newly established cost bases of
these assets. The 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. The equity share of KNOLOGY of
Montgomery previously not 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.
As a result of the acquisition of KNOLOGY of Panama City, approximately one
month's operations of KNOLOGY of Panama City are included in the
accompanying statement of operations for the year ended December 31, 1997.
F-10
<PAGE> 23
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
MARKETABLE SECURITIES
The Company's marketable securities are categorized as available-for-sale
securities, as defined by the Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Unrealized holding gains and losses are reflected as a net amount in a
separate component of stockholders' equity until realized. For the purpose
of computing realized gains and losses cost is identified on a specific
identification basis. Securities available for sale at December 31, 1997
are comprised of $173,581,473 in commercial paper and $54,299,450 in U.S.
Government Agency securities.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are calculated 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 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 or deducted from income. Depreciation and amortization are
provided over the estimated useful lives as follows:
F-11
<PAGE> 24
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<S> <C>
Buildings ...................................... 25 years
Cable system and installation equipment ........ 7-10 years
Production equipment ........................... 7 years
Test and office equipment ...................... 5-7 years
Automobiles and trucks ......................... 5 years
Leasehold improvements ......................... 5 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.
Interest is capitalized in connection with the construction of the
company's broadband network. The capitalized interest is recorded as part
of the asset to which it relates and is amortized over the asset's
estimated useful life. In 1997, $676,160 of interest cost was capitalized.
No interest was capitalized prior to 1997.
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 purchases of KNOLOGY of Montgomery,
KNOLOGY of Columbus, and KNOLOGY of Panama City discussed in Note 1. These
costs are being amortized using the straight-line method over 40 years.
ORGANIZATIONAL COSTS
Organizational costs represent the direct costs, primarily legal and
payroll costs, incurred in the start-up of new markets. All indirect costs,
such as travel and entertainment, and other general and administrative
costs have been expensed as incurred. The deferred costs are amortized
using the straight-line method over a five-year period.
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
F-12
<PAGE> 25
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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
In 1997, the Company adopted SFAS No. 128, "Earnings per Share." That
statement requires the disclosure of basic net income (loss) per share and
diluted net income (loss) per share. Basic net income (loss) per share is
computed by dividing net income (loss) available to common shareholders by
the weighted-average number of common shares outstanding during the period.
As the Company has no common stock outstanding, the convertible preferred
stock is assumed to be converted for purposes of this calculation. Diluted
net income (loss) per share gives effect to all potentially dilutive
securities. The Predecessor Company's net losses per share are not shown,
as they are not comparable with the Successor Company's.
<TABLE>
<CAPTION>
For the Years Ended December
--------------------------------------------------------------
1996 1997
--------------------------- -----------------------
Weighted Weighted
Net Average Net Loss Net Average Net Loss
Loss Shares Per Share Loss Shares Per Share
-------- -------- --------- -------- -------- ---------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C>
Basic
net loss $(3,125) 14 $(229.37) $(9,092) 29 $(315.30)
-------- -------- --------- -------- -------- ---------
Diluted
net loss $(3,125) 14 $(229.37) $(9,092) 29 $(315.30)
-------- -------- --------- -------- -------- ---------
</TABLE>
SOURCES OF SUPPLIES
The Company attempts to maintain multiple vendors for each required product.
However, the Company currently only has one supplier for cable and
converters and several for remotes, which represent important components of
its system. If the suppliers are unable to meet the Company's needs as it
builds out its network infrastructure, then delays and increased costs in
the expansion of the Company's network infrastructure could result, which
would adversely affect operating results.
F-13
<PAGE> 26
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 potential for
material credit loss is mitigated by the large number of customers with
relatively small receivable balances. The carrying amount of the Company's
receivables approximates their fair values.
3. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
1996 1997
--------------- ------------
<S> <C> <C>
Senior Discount Notes, with a face value of $444,100,000,
bearing interest at 11.875% beginning October 15, 2002, payable
semi-annually beginning April 15, 2003 with principal and any
unpaid interest due October 15, 2007 ................................ $ 0 $249,910,431
InterRedec, bearing interest at 9%, payable on March 31, 2000,
plus interest, unsecured (a) ........................................ 6,000,000 0
Francine, Inc., bearing interest at 9%, payable on September
29, 2000, plus interest, unsecured (b) .............................. 5,000,000 0
Sterling Bank, bearing interest at prime plus 1.5%, payable in
monthly installments of $1,425, plus interest, through May
1999, unsecured ..................................................... 36,316 0
Compass Bank, bearing interest at 8.75%, payable in monthly
installments of $1,632 through September 1998, secured .............. 31,659 0
SunTrust Bank, bearing interest at 8.25%, payable in monthly
installments of $828 through September 1997, secured ................ 6,828 0
</TABLE>
F-14
<PAGE> 27
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
December 31,
------------------------------------
1996 1997
--------------- ------------
<S> <C> <C>
First National Bank of West Point line of credit, bearing
interest at prime, maturing March 1997, unsecured ................... 900,000 0
Compass Bank, bearing interest at prime plus 1.0%, payable in monthly
installments of $5,426 through November 1999, secured ............... 170,000 0
First National Bank of West Point, note bearing interest at
8.5%, payable in monthly installments of $945 through March
1999, secured ....................................................... 23,200 0
Troup capitalized lease obligation, at a rate of 10%, payable
in quarterly installments of $6,304 through December 2006, secured .. 151,166 145,898
--------------- ------------
12,319,169 250,056,329
Less current maturities ............................................. 1,027,873 25,094
--------------- ------------
$11,291,296 $250,031,235
=============== ============
</TABLE>
(a) ITC Holding is a co-obligor under this note.
(b) ITC Holding is a guarantor of this note.
Following are maturities of long-term debt for each of the next five years
as of December 31, 1997:
<TABLE>
<S> <C>
1998 ............................. $ 25,094
1999 ............................. 12,174
2000 ............................. 13,438
2001 ............................. 14,833
2002 ............................. 16,374
Thereafter ....................... 444,163,985
------------
Total ................ $444,245,898
============
</TABLE>
The fair values of long-term debt exclusive of affiliated debt, including
current maturities, at December 31, 1996 and 1997 are estimated to be
approximately
F-15
<PAGE> 28
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
$9,397,000 and $253,781,000, respectively, based on a valuation technique
that considers cash flows discounted at current rates.
In the fourth quarter of 1997, the Company issued units consisting of
senior discount notes due 2007 and warrants to purchase Preferred Stock for
gross proceeds of approximately $250 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. Each warrant allows the holder to purchase
.003734 shares of the Company's preferred stock. The Company incurred
approximately $7.9 million in costs to issue the senior discount notes.
These costs are being amortized at an effective rate over the life of the
notes. The indenture relating to the Notes contains certain covenants that,
among other things, limit the ablity 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 offering of units 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.
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 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 million five-year senior
secured credit facility (the "Proposed New Credit Facility") from First
Union National Bank and First Union Capital Markets Corp., which will be
used for working capital and other purposes, including capital expenditures
and permitted aquisitions. At the Company's option, interest will accrue
based on either the Alternate Base Rate plus applicable margin or the LIBOR
rate plus applicable margin. Obligations under the Proposed New Credit
Facility will be secured by substantially all tangible and intangible
assets of the Company and its current and future subsidiaries. The Proposed
New Credit Facility will include a number of covenants including, among
others, convenants 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 Proposed New Credit
Facility also will include covenants requiring compliance with certain
financial ratios on a consolidated basis. The Company has not entered into
definitive agreements as contemplated by the commitment letter.
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.
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, 1997 are as follows:
<TABLE>
<S> <C>
1998 ............................................. $175,412
1999 ............................................. 126,397
2000 ............................................. 135,257
2001 ............................................. 129,486
2002 ............................................. 136,261
--------
Total minimum lease payments ......... $702,813
========
</TABLE>
Total rental expense for all operating leases was approximately $27,000,
$66,000, $70,000, and $75,000 for the four months ended April 30, 1995, the
eight months ended December 31, 1995, and the years ended December 31, 1996
and 1997, respectively.
5. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
The Company has entered into contracts with various entities to provide
programming to be aired by the Company. The Company pays a monthly fee
as compensation for the programming, 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 estimates that it will pay approximately $4.3 million in fees
during 1998.
F-16
<PAGE> 29
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. KNOLOGY of
Montgomery met this extended time frame on August 4, 1997. 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.
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, 1996 and 1997 are as follows (in thousands):
F-17
<PAGE> 30
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ...... $3,875 $7,221
Other ................................. 92 279
Valuation allowance ................... (2,475) (4,165)
-------- -------
Total deferred tax assets ...... 1,492 3,335
Deferred tax liabilities--depreciation
and amortization ...................... (1,492) (3,335)
-------- -------
Net deferred tax liabilities ............. 0 0
Portion included in current assets ....... 0 0
-------- -------
Net deferred taxes ....................... $ 0 $ 0
======== =======
</TABLE>
The Company has available, at December 31, 1996 and 1997, unused operating
loss carryforwards of approximately $3,875,000 and $7,221,000, respectively,
expiring in various years from 2005 to 2012, unless utilized. Management has
recorded a valuation allowance of approximately $2,475,000 and $4,165,000 in
1996 and 1997, 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 four months ended April 30, 1995, the
eight months ended December 31, 1995, and the years ended December 31, 1996
and 1997 is as follows:
F-18
<PAGE> 31
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY SUCCESSOR COMPANY
----------- ---------------------------
FOUR MONTHS EIGHT MONTHS
ENDED ENDED
APRIL 30, DECEMBER 31,
1995 1995 1996 1997
--------- ---------- -------- ------
<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) (4)
Tax benefits recorded by ITC
Holding ....................... 0 14 0 0
Prior year actualization ......... 0 0 (6) 3
Goodwill ......................... 0 0 (1) 1
Deferred tax valuation allowance . 36 0 32 34
--------- ---------- -------- ------
0% (22)% (11)% 0%
========= ========== ======== ======
</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 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.
F-19
<PAGE> 32
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. EQUITY INTERESTS
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. No such dividends
have been declared as of December 31, 1997, 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
years ended December 31, 1996 and 1997, these preferred stock accretion
and dividend amounts were eliminated in consolidation.
SUCCESSOR COMPANY CAPITAL TRANSACTIONS
The Successor Company has authorized 200,000 shares of $.01 par value
common stock and 100,000 shares of $.01 par value convertible preferred
stock at December 31, 1997. 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. 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
F-20
<PAGE> 33
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. In
February 1997, the Company offered and accepted 8,960 shares of preferred
stock for subscription at $1,200 per share. Additionally, in October 1997,
the Company offered and accepted 21,448 shares of preferred stock for
subscription at $1,500 per share. In December 1997, in conjunction with the
acquisition of KNOLOGY of Panama City (Note 1), the Company issued 2,485
shares of preferred stock valued at $1,500 per share. The amount of the
consideration paid in excess of the par value, net of expenses incurred in
connection with each 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, $1,200, or $1,500 per share (depending on when the stock was issued)
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 offered rights of
first refusal to purchase 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, 1,144 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. 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.
F-21
<PAGE> 34
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Options for 40% of the 110.11 shares of common stock granted to one
executive officer became exercisable on January 1, 1997 and an additional
20% are exercisable annually thereafter through January 1, 2000. Options
for 40% of the 72.7 shares granted to one other executive officer and
another employee become exercisable on January 1, 1998 and an additional
20% are exercisable annually thereafter through January 1, 2001. On October
29, 1996 options for 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.
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 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 and
1997:
F-22
<PAGE> 35
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Risk-free interest rate .... 6.31% 6.43%
Expected dividend yield .... 0% 0%
Expected lives ............. Seven years Seven years
Expected forfeiture rate ... 7% 7%
</TABLE>
The weighted average fair value of options granted was $1,200 and $1,266 for
1996 and 1997, respectively. The total value of options for the Company's
stock granted to employees of the Company during 1996 and 1997 was computed
as approximately $154,000 and $304,000, respectively, 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 31,1997
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)
Net loss for the year ended
December 31, 1997 .......... $(9,091,533) $(9,188,862)
Earnings per share for the year
ended December 31, 1996 .... $(229.37) $(231.61)
Earnings per share for the year
ended December 31, 1997 .... $(315.30) $(318.67)
</TABLE>
A summary of the status of the Company's stock option plan at December 31,
1997 is presented in the following table:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
PRICE PER
SHARES SHARE
---------- ---------
<S> <C> <C>
Outstanding at December 31, 1995 0 $ 0
Granted ............................ 502.95 1,200
Forfeited .......................... 150.97 1,200
----------
Outstanding at December 31, 1996 351.98 1,200
==========
Granted ............................ 842.56 1,266
Forfeited .......................... 106.26 1,200
----------
Outstanding at December 31, 1997 1,088.28 1,251
==========
</TABLE>
F-23
<PAGE> 36
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. 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.
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 years
ended December 31, 1996 and 1997, the Company recorded $1,000, $24,000, and
$31,000 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. Additionally, during 1997,
ITC Holding paid several invoices related to the construction of the
Company's building. At December 31, 1997, there is approximately $419,000
related to these payments included in Accounts Payable--Affiliate in the
Company's balance sheet.
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; ITC/\DeltaCom, Inc., which provides long-distance and related
services and which leases capacity on certain of its fiber routes, and
InterCall, Inc., which provides conference calling services. 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 access. In management's opinion, the Company's transactions with
these affiliated entities are representative of arm's-length transactions.
F-24
<PAGE> 37
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
For the period from inception (March 10, 1995) through December 31, 1995 and
the years ended December 31, 1996 and 1997, the Company received services
from these affiliated entities in the amounts of $14,000, $48,000, and
$247,000, respectively, which are reflected in selling, operations, and
administration expenses in the Company's statements of operations. In
addition, in 1996 and 1997, the Company received services from these
affiliated entities in the amount of $11,000 and $13,000, respectively,
which is reflected in field and technical expenses in the Company's
statement of operations. At December 31, 1996 and 1997, amounts payable for
these services of $7,000 and $33,000, respectively, are recorded in the
Company's balance sheets as accounts payable--affiliate.
In December 1996 and 1997, the Company invested $5,000 and $55,000,
respectively, in an airplane co-owned by ITC Holding and several of its
subsidiaries and other affiliated entities.
Advances to affiliate 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 $274,000 for
the year ended December 31, 1996, on these advances, of which approximately
$1,000 is reflected as interest receivable--affiliate in the accompanying
balance sheets as of December 31, 1996. The advances were repaid in December
1996.
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 $36,000 and $134,000 for the years
ended December 31, 1996 and 1997, 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 from July 15, 1996 to
February 20, 1997 as president and chief executive officer 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
F-25
<PAGE> 38
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Company for the year ended December 31, 1996. The value of his services
provided through February 20, 1997 is estimated to total approximately
$20,000.
9. ACQUISITIONS
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 year ended
December 31, 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>
1995
----------
<S> <C>
Operating revenues $4,192,781
Income before extraordinary items (2,343,846)
Net income (2,343,846)
Earnings per share (a) (311.68)
(a) Earnings per share is computed
using 7,520 as number of shares
outstanding.
</TABLE>
As discussed in Note 1, in 1997, the Company acquired Beach Cable, Inc. in a
transaction accounted for as a purchase (the "Acquisition")
The merged company, now KNOLOGY of Panama City has been included in the
consolidated financial statements since December 5, 1997. The following
unaudited pro forma results of operations for the years ended December 31,
1996 and 1997 assumes the Acquisition occurred on January 1, 1996. 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.
F-26
<PAGE> 39
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Operating revenues $6,837,586 $11,990,403
Income before extraordinary items (4,690,518) (10,183,585)
Net income (4,690,518) (10,183,585)
Earnings per share (a) (291.14) (326.99)
(a) Earnings per share is computed using 16,111 and 31,143 as
number of shares outstanding in 1996 and 1997,
respectively.
</TABLE>
10. SUBSEQUENT EVENTS
The Company's cable franchises in Augusta, Georgia and Panama City, Florida
were awarded in January 1998 and March 1998, respectively. The Company's
application for cable franchise in Columbia County, Georgia was approved
in March 1998.
F-27
<PAGE> 40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing
standards, the financial statements of KNOLOGY Holdings, Inc. included in this
Annual Report on Form 10-K and have issued our report thereon dated March 6,
1998. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule II--Valuation
and Qualifying Accounts ("Schedule II") is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not a part of the basic financial
statements. The Schedule II has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 6, 1998
S-1
<PAGE> 41
SCHEDULE II
KNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
(SUCCESSOR COMPANY)
AND KNOLOGY OF MONTGOMERY, INC.
(PREDECESSOR COMPANY)
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FOUR MONTHS ENDED APRIL 30, 1995,
THE EIGHT MONTHS ENDED DECEMBER 31, 1995,
AND THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
COMPANY COMPANY
------- --------------------------------------------------------
FOUR MONTHS EIGHT MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
APRIL 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Allowance for doubtful accounts,
balance at beginning of year $ 4,147 $ 931 $ 17,113 $ 23,342
Addition charged to cost and 367,527
expense 16,754 36,848 81,082
Deductions (19,970) (20,666) (74,853) (282,341)
---------- --------- --------- ----------
Allowance for doubtful accounts,
balance at end of year $ 931 $ 17,113 $ 23,342 $ 108,528
========== ========= ========= ==========
</TABLE>
S-2
<PAGE> 42
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- -------------- -------------------
<S> <C>
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 (Filed as Exhibit 2.1 to the Registration Statement on Form S-4, File
No. 333-43339 (the "Form S-4") and incorporated herein by reference).
3.1 Certificate of Incorporation of KNOLOGY Holdings, Inc. (Filed as Exhibit 3.1 to the Form S-4 and incorporated herein
by reference).
3.2 Amended and Restated Bylaws of KNOLOGY Holdings, Inc. (Filed as Exhibit 3.2 to the Form S-4 and incorporated herein by
reference).
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. (Filed as Exhibit 4.1 to the
Form S-4 and incorporated herein by reference).
4.2 Registration Rights Agreement, dated October 22, 1997, between KNOLOGY Holdings, Inc., the Placement Agents and SCANA
Communications, Inc. (Filed as Exhibit 4.2 to the Form S-4 and incorporated herein by reference).
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).
10.1 Unit Purchase Agreement, dated as of October 16, 1997 between KNOLOGY Holdings, Inc. and SCANA Communications, Inc.
(Filed as Exhibit 10.1 to the Form S-4 and incorporated herein by reference).
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) (Filed as Exhibit 10.2 to the Form S-4 and incorporated herein by
reference).
10.3 Warrant Registration Rights Agreement, dated as of October 22, 1997, between KNOLOGY Holdings, Inc. and United States
Trust Company of New York (Filed as Exhibit 10.3 to the Form S-4 and incorporated herein by reference).
10.4 Sub-Lease Indenture dated November 1, 1995 by and between J. Smith Lanier & Co. Financial Services, Inc. and ITC
Holding Company, Inc. (Filed as Exhibit 10.4 to the Form S-4 and incorporated herein by reference).
10.5 Lease Agreement dated April 15, 1996 by and between D.L. Jordan and American Cable Company, Inc. (Filed as Exhibit
10.5 to the Form S-4 and incorporated herein by reference).
10.6 Lease Agreement dated April 19, 1996 by and between B.E. Satterwhite and American Cable Company, Inc. (Filed as
Exhibit 10.6 to the Form S-4 and incorporated herein by reference).
</TABLE>
<PAGE> 43
<TABLE>
<S> <C>
10.7 Pole Attachment Agreement dated January 1, 1998 by and between Gulf Power Company and Beach Cable, Inc. (Filed as
Exhibit 10.7 to the Form S-4 and incorporated herein by reference).
10.8 Lease Agreement dated August 19, 1996 by and between Vaughn/Taylor, L.L.C. and Montgomery Cablevision and
Entertainment, Inc. (Filed as Exhibit 10.8 to the Form S-4 and incorporated herein by reference).
10.9 Lease Agreement dated August 20, 1996 by and between William H. McLemore and Montgomery Cablevision and Entertainment,
Inc. (Filed as Exhibit 10.9 to the Form S-4 and incorporated herein by reference).
10.10 Lease Agreement dated November 7, 1996 by and between Samuel B. Hewitt and American Cable Company, Inc. (Filed as
Exhibit 10.10 to the Form S-4 and incorporated herein by reference).
10.11 Site Agreement dated November 19, 1996 by and between John Walter Stowers and Montgomery Cablevision and
Entertainment, Inc. (Filed as Exhibit 10.11 to the Form S-4 and incorporated herein by reference).
10.12 Office Lease Agreement dated February 15, 1997 by and between Scott P. Pinckard and Cybernet Holdings, Inc. (Filed as
Exhibit 10.12 to the Form S-4 and incorporated herein by reference).
10.13* Lease Agreement dated April 2, 1997 by and between Interstate Telephone Company and Cybernet Holding, Inc. (Filed as
Exhibit 10.13 to the Form S-4 and incorporated herein by reference).
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. (Filed as Exhibit 10.14 to the Form S-4 and incorporated herein by reference).
10.15 Lease Agreement dated August 23, 1997 by and between Interstate Fibernet, Inc. and KNOLOGY Holdings, Inc. (Filed as
Exhibit 10.15 to the Form S-4 and incorporated herein by reference).
10.16* Telecommunications Facility Lease and Capacity Agreement, dated September 10, 1996, by and between Troup EMC
Communications, Inc. and Cybernet Holding, Inc. (Filed as Exhibit 10.16 to the Form S-4 and incorporated herein by
reference).
10.17 Master Pole Attachment Agreement dated January 12, 1998 by and between South Carolina Electric and Gas and KNOLOGY
Holdings, Inc. d/b/a/ KNOLOGY of Charleston (Filed as Exhibit 10.17 to the Form S-4 and incorporated herein by
reference).
10.18 Pole Attachment Agreement dated May 21, 1990 by and between the Georgia Power Company and American Cable Company
(Filed as Exhibit 10.18 to the Form S-4 and incorporated herein by reference).
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. (Filed as Exhibit 10.19 to the Form S-4 and incorporated herein by
reference).
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
</TABLE>
<PAGE> 44
<TABLE>
<S> <C>
Company and Montgomery Cablevision and Entertainment, Inc. (Filed as Exhibit 10.20 to the Form S-4 and incorporated
herein by reference).
10.21* License Agreement for Pole Attachments and/or Conduit Occupancy dated July 28, 1993 by and between BellSouth
Telecommunications, Inc. d/b/a Southern Bell Telephone and Telegraph Company and American Cable Company. (Filed as
Exhibit 10.21 to the Form S-4 and incorporated herein by reference).
10.22* License Agreement dated September 29, 1995 by and between Montgomery Cablevision and Entertainment, Inc. and American
Communications Services of Montgomery, Inc. (Filed as Exhibit 10.22 to the Form S-4 and incorporated herein by
reference).
10.23* License Agreement dated January 17, 1996 by and between American Cable, Inc. and American Communication Services of
Columbus, Inc. (Filed as Exhibit 10.23 to the Form S-4 and incorporated herein by reference).
10.24* Addendum to License Agreement dated April 21, 1997 by and between American Cable, Inc. and American Communication
Services of Columbus, Inc. (Filed as Exhibit 10.24 to the Form S-4 and incorporated herein by reference).
10.25 Lease Agreement, dated December 5, 1997 by and between The Hilton Company and KNOLOGY of Panama City, Inc. (Filed as
Exhibit 10.25 to the Form S-4 and incorporated herein by reference).
10.26* Billing and Collection Services Agreement dated April 2, 1997 by and between Interstate Telephone Company and Cybernet
Holding, Inc. (Filed as Exhibit 10.26 to the Form S-4 and incorporated herein by reference).
10.27* Operator and Related Services Agreement dated April 14, 1997 by and between Eastern Telecom Inc. d/b/a Inter Quest and
Cybernet Holding, Inc. (Filed as Exhibit 10.27 to the Form S-4 and incorporated herein by reference).
10.28* Agreement for Telecommunication Services dated May 1, 1997 by and between Cybernet Holding, Inc. and DeltaCom, Inc.
(Filed as Exhibit 10.28 to the Form S-4 and incorporated herein by reference).
10.29* First Addendum to Service Agreement dated July 7, 1997 by and between KNOLOGY Holdings, Inc. and DeltaCom, Inc. (Filed
as Exhibit 10.29 to the Form S-4 and incorporated herein by reference).
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 (Filed as Exhibit 10.30 to the Form S-4 and
incorporated herein by reference).
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. (Filed as Exhibit 10.31 to the
Form S-4 and incorporated herein by reference).
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 (Filed as Exhibit 10.32 to the
Form S-4 and incorporated herein by reference).
</TABLE>
<PAGE> 45
<TABLE>
<S> <C>
10.33 Commitment Letter from First Union National Bank to KNOLOGY Holdings, Inc., dated October 15, 1997 (Filed as Exhibit
10.33 to the Form S-4 and incorporated herein by reference).
10.33.1 Commitment Extension Letter from First Union National Bank to KNOLOGY Holdings, Inc., dated December 12, 1997 (Filed
as Exhibit 10.33.1 to the Form S-4 and incorporated herein by reference).
10.34 Certificate of Membership with National Cable Television Cooperative, dated January 29, 1996, of Cybernet Holding,
Inc. (Filed as Exhibit 10.34 to the Form S-4 and incorporated herein by reference).
10.35 Stockholders' Agreement among KNOLOGY Holdings, Inc. and Certain Stockholders Thereof dated as of December 8, 1995
(Filed as Exhibit 10.35 to the Form S-4 and incorporated herein by reference).
10.36 Amendment No. 1 to Stockholders' Agreement dated as of January 25, 1996 (Filed as Exhibit 10.36 to the Form S-4 and
incorporated herein by reference).
10.37 Amendment No. 2 to Stockholders' Agreement dated as of April 18, 1996 (Filed as Exhibit 10.37 to the Form S-4 and
incorporated herein by reference).
10.38 Amended and Restated Agreement Among Shareholders Among KNOLOGY Holdings, Inc. and Certain Shareholders thereof dated
as of July 28, 1997 (Filed as Exhibit 10.38 to the Form S-4 and incorporated herein by reference).
10.39 Ordinance (Harris County, Georgia) dated April 6, 1982 (Filed as Exhibit 10.39 to the Form S-4 and incorporated herein
by reference).
10.40 Ordinance (Harris County, Georgia) to Amend Cable Franchise Ordinance of April 6, 1982, dated November 5, 1996 (Filed
as Exhibit 10.40 to the Form S-4 and incorporated herein by reference).
10.41 Ordinance (Bibb City, Georgia) dated October 5, 1990 (Filed as Exhibit 10.41 to the Form S-4 and incorporated herein
by reference).
10.42 Ordinance No. 88-53 (Columbus, Georgia) dated May 17, 1988 (Filed as Exhibit 10.42 to the Form S-4 and incorporated
herein by reference).
10.43 Ordinance No. 89-3 (Columbus, Georgia) dated January 10, 1989 (Filed as Exhibit 10.43 to the Form S-4 and incorporated
herein by reference).
10.44 Ordinance No. 16-90 (Montgomery, Alabama) dated March 6, 1990 (Filed as Exhibit 10.44 to the Form S-4 and incorporated
herein by reference).
10.45 Ordinance No. 50-76 (Montgomery, Alabama) (Filed as Exhibit 10.45 to the Form S-4 and incorporated herein by
reference).
10.45.1 Ordinance No. 9-90 (Montgomery, Alabama) dated January 16, 1990 (Filed as Exhibit 10.45.1 to the Form S-4 and
incorporated herein by reference).
10.46 Resolution No. 58-95 (Montgomery, Alabama) dated April 6, 1995 (Filed as Exhibit 10.46 to the Form S-4 and
incorporated herein by reference).
</TABLE>
<PAGE> 46
<TABLE>
<S> <C>
10.47 Resolution No. 92-7 (Panama City Beach, Florida) dated July 23, 1992 (Filed as Exhibit 10.47 to the Form S-4 and
incorporated herein by reference).
10.48 License (Bay County, Florida) dated January 5, 1993 (Filed as Exhibit 10.48 to the Form S-4 and incorporated herein by
reference).
10.49 Resolution No. 97-22 (Panama City Beach, Florida) dated December 3, 1997 (Filed as Exhibit 10.49 to the Form S-4 and
incorporated herein by reference).
10.50 Resolution No. 2075 (Bay County, Florida) dated November 18, 1997 (Filed as Exhibit 10.50 to the Form S-4 and
incorporated herein by reference).
10.51* Collocation Agreement between Interstate FiberNet and Cybernet Holding, Inc., dated July 1, 1997 (Filed as Exhibit
10.51 to the Form S-4 and incorporated herein by reference).
10.52* License Agreement for Pole Attachments and/or Conduit Occupancy in Florida dated September 15, 1993 between BellSouth
Telecommunications, Inc. d/b/a Southern Bell Telephone and Telegraph and Beach Cable, Inc. (Filed as Exhibit 10.52 to
the Form S-4 and incorporated herein by reference).
10.53+ Ordinance No. 5999 (Augusta, Georgia) dated January 20, 1998.
10.54+ Ordinance No. 1723 (Panama City, Florida) dated March 10, 1998.
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. (Filed as Exhibit 21.1 to the Quarterly Report on Form 10-Q, File No.
333-43339, filed with the Commission on May 15, 1998 and incorporated herein by reference).
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
</TABLE>
- ---------
* Confidential treatment has been granted. The copy filed as an exhibit
omits the information subject to the confidential treatment request.
+ Previously filed as part of this Form 10-K.
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 6, 1998 included in this Form 10-K/A. It should be noted that
we have not audited any financial statements of the company subsequent to
December 31, 1997 or performed any audit procedures subsequent to the date of
the report.
ARTHUR ANDERSEN LLP
June 4, 1998
<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, 1997 and the
related combined statements of operations for the year ended December 31, 1997.
This information is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,144,581
<SECURITIES> 227,880,923
<RECEIVABLES> 1,716,388
<ALLOWANCES> 108,529
<INVENTORY> 5,806,320
<CURRENT-ASSETS> 235,670,423
<PP&E> 61,932,725
<DEPRECIATION> 5,171,309
<TOTAL-ASSETS> 316,198,100
<CURRENT-LIABILITIES> 8,840,263
<BONDS> 253,232,923
0
500
<COMMON> 0
<OTHER-SE> 51,637,454
<TOTAL-LIABILITY-AND-EQUITY> 51,637,954
<SALES> 10,355,068
<TOTAL-REVENUES> 10,355,068
<CGS> 4,758,730
<TOTAL-COSTS> 19,446,601
<OTHER-EXPENSES> 3,580,147
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,226,023
<INCOME-PRETAX> (9,091,533)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,091,533)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,091,533)
<EPS-PRIMARY> (315.30)
<EPS-DILUTED> 0
</TABLE>
